|
<PAGE> SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Date of Report: December 3, 1997 (Date of earliest event reported) Commercial Mortgage Acceptance Corp. ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 333-13725 43-1681393 - ------------------------------------------------------------------------------- (State or Other (Commission (I.R.S. Employer Jurisdiction of File Number) Identification No.) Incorporation 210 West 10th Street, Kansas City, Missouri 64105 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (816) 435-5000 <PAGE> ITEM 5. OTHER EVENTS. Attached as exhibits to this Current Report are certain property appraisals (the "Property Appraisals") furnished to the Registrant in respect of the Registrant's proposed offering of the Commercial Mortgage Pass-Through Certificates, Series 1997-ML1. The Certificates will be offered pursuant to a Prospectus and related Prospectus Supplement (together, the "Prospectus"), which will be filed with the Commission pursuant to Rule 424 under the Securities Act of 1933, as amended (the "Act"). The offer and sale contemplated by the Prospectus of the Certificates will be registered pursuant to the Act under the Registrant's Registration Statement on Form S-3 (No. 333-13725) (the "Registration Statement"). The Registrant hereby incorporates the Property Appraisals by reference in the Prospectus and the Registration Statement. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (c) Exhibits <TABLE> <CAPTION> Item 601(a) of Regulation S-K Exhibit No. Description ------------------------- ----------- <S> <C> 99.1 Appraisal of Boronda Manor Apartments. 99.2 Appraisal of The Capri. 99.3 Appraisal of Dain Bosworth - Gaviidae Common I & II. 99.4 Appraisal of Nobhill Apartments. 99.5 Appraisal of Marina Playa Apartments. 99.6 Appraisal of Laurel Tree Apartments. 99.7 Appraisal of Copley Place. 99.8 Appraisal of Circles Phase I, II & III. 99.9 Appraisal of Westlake Apartments. 99.10 Appraisal of The Elms. 2 <PAGE> 99.11 Appraisal of Pine Grove Apartments. 99.12 Appraisal of Birch Creek Apartments. 99.13 Appraisal of One Orlando Center. 99.14 Appraisal of Heather Plaza Apartments. 99.15 Appraisal of Ritz-Carlton Hotel St. Louis. 99.16 Appraisal of Four Seasons Austin Hotel. 99.17 Appraisal of Tower 45. 99.18 Appraisal of Four Seasons Biltmore Hotel. 99.19 Appraisal of Liberty Plaza. 99.20 Appraisal of West Point Apartments. 99.21 Appraisal of Franklin Mills Mall. 99.22 Appraisal of Shilo Inn of Idaho Falls, Idaho. 99.23 Appraisal of Shilo Inn of Nampa Boulevard, Idaho. 99.24 Appraisal of Shilo Inn of Warrenton, Oregon. 99.25 Appraisal of Shilo Inn of Boise, Idaho. 99.26 Appraisal of Shilo Inn of Casper, Wyoming. 99.27 Appraisal of Shilo Inn of Yuma, Arizona. 99.28 Appraisal of Shilo Inn of Oakhurst, California. 99.29 Appraisal of Shilo Inn of Delano, California. 99.30 Appraisal of Shilo Inn of Pomona, California. 99.31 Appraisal of Shilo Inn of Richland, Washington. 99.32 Appraisal of Shilo Inn of Spokane, Washington. 99.33 Appraisal of Shilo Inn of Dalles, Oregon. 99.34 Appraisal of Shilo Inn of Grant's Pass, Oregon. 99.35 Appraisal of Shilo Inn of Portland, Oregon. 99.36 Appraisal of Shilo Inn of Newport, Oregon. 99.37 Appraisal of Shilo Inn of Washington Square, Oregon. 99.38 Appraisal of Shilo Inn of Lincoln, Nebraska. 99.39 Appraisal of Bi-Lo Center. 99.40 Appraisal of One Main Place. 99.41 Appraisal of Chicot Crossing. 99.42 Appraisal of River Square. 99.43 Appraisal of Clanton Marketplace. 99.44 Appraisal of Nine Mile Plaza. 99.45 Appraisal of Hollywood Video (Franklin, TN). 99.46 Appraisal of North Plaza Apartments. 99.47 Appraisal of Harding Park Apartments. 99.48 Appraisal of 29 North. 99.49 Appraisal of 59 West. 99.50 Appraisal of Betts Crossing. 99.51 Appraisal of Greenbrier Station. 99.52 Appraisal of Mandeville Marketplace. 99.53 Appraisal of Opp Marketplace. 99.54 Appraisal of Parker Center. 99.55 Appraisal of Russell Crossing. 99.56 Appraisal of The "Y". 99.57 Appraisal of Franklin Center. 99.58 Appraisal of Brownsville Place. 99.59 Appraisal of Delchamps Plaza. 99.60 Appraisal of Hollywood Video (Paducah, KY). </TABLE> 3 <PAGE> Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on behalf of the Registrant by the undersigned thereunto duly authorized. COMMERCIAL MORTGAGE ACCEPTANCE CORP. By: /s/ Leon E. Bergman ------------------------------ Name: Leon E. Bergman Title: Executive Vice President Date: December 3, 1997 4 <PAGE> EXHIBIT INDEX <TABLE> <CAPTION> Item 601(a) of Regulation S-K Exhibit No. Description ------------------------- ----------- <S> <C> 99.1 Appraisal of Boronda Manor Apartments. 99.2 Appraisal of The Capri. 99.3 Appraisal of Dain Bosworth - Gaviidae Common I & II. 99.4 Appraisal of Nobhill Apartments. 99.5 Appraisal of Marina Playa Apartments. 99.6 Appraisal of Laurel Tree Apartments. 99.7 Appraisal of Copley Place. 99.8 Appraisal of Circles Phase I, II & III. 99.9 Appraisal of Westlake Apartments. 99.10 Appraisal of The Elms. 99.11 Appraisal of Pine Grove Apartments. 99.12 Appraisal of Birch Creek Apartments. 99.13 Appraisal of One Orlando Center. 99.14 Appraisal of Heather Plaza Apartments. 99.15 Appraisal of Ritz-Carlton Hotel St. Louis. 99.16 Appraisal of Four Seasons Austin Hotel. 99.17 Appraisal of Tower 45. 99.18 Appraisal of Four Seasons Biltmore Hotel. 99.19 Appraisal of Liberty Plaza. 99.20 Appraisal of West Point Apartments. 99.21 Appraisal of Franklin Mills Mall. 99.22 Appraisal of Shilo Inn of Idaho Falls, Idaho. 99.23 Appraisal of Shilo Inn of Nampa Boulevard, Idaho. 99.24 Appraisal of Shilo Inn of Warrenton, Oregon. 99.25 Appraisal of Shilo Inn of Boise, Idaho. 99.26 Appraisal of Shilo Inn of Casper, Wyoming. 99.27 Appraisal of Shilo Inn of Yuma, Arizona. 99.28 Appraisal of Shilo Inn of Oakhurst, California. 99.29 Appraisal of Shilo Inn of Delano, California. 99.30 Appraisal of Shilo Inn of Pomona, California. 99.31 Appraisal of Shilo Inn of Richland, Washington. 99.32 Appraisal of Shilo Inn of Spokane, Washington. 99.33 Appraisal of Shilo Inn of Dalles, Oregon. 99.34 Appraisal of Shilo Inn of Grant's Pass, Oregon. 99.35 Appraisal of Shilo Inn of Portland, Oregon. 99.36 Appraisal of Shilo Inn of Newport, Oregon. 99.37 Appraisal of Shilo Inn of Washington Square, Oregon. 99.38 Appraisal of Shilo Inn of Lincoln, Nebraska. 99.39 Appraisal of Bi-Lo Center. 99.40 Appraisal of One Main Place. 99.41 Appraisal of Chicot Crossing. 99.42 Appraisal of River Square. 99.43 Appraisal of Clanton Marketplace. 99.44 Appraisal of Nine Mile Plaza. 99.45 Appraisal of Hollywood Video (Franklin, TN). 99.46 Appraisal of North Plaza Apartments. 99.47 Appraisal of Harding Park Apartments. 99.48 Appraisal of 29 North. 99.49 Appraisal of 59 West. 99.50 Appraisal of Betts Crossing. 99.51 Appraisal of Greenbrier Station. 99.52 Appraisal of Mandeville Marketplace. 99.53 Appraisal of Opp Marketplace. 99.54 Appraisal of Parker Center. 99.55 Appraisal of Russell Crossing. 99.56 Appraisal of The "Y". 99.57 Appraisal of Franklin Center. 99.58 Appraisal of Brownsville Place. 99.59 Appraisal of Delchamps Plaza. 99.60 Appraisal of Hollywood Video (Paducah, KY). 5 </TABLE> DISCLAIMER The appraisal report appearing below is addressed to NationsBank of Texas, N.A. ("NationsBank"). NationsBank does not represent that the presumptions or conclusions in the appraisals are relevant or accurate and does not endorse the conclusions set forth in the appraisal. Any value, presumption, or conclusion regarding the property or properties appraised in the report must be verified independently of NationsBank. This appraisal has not been approved by NationsBank and is being transmitted without representation and warranty of NationsBank. <PAGE> ARTHUR ANDERSEN LLP VALUATION SERVICES GROUP Appraisal of Boronda Manor Apartments 2073 Santa Rita Street Salinas, California As of November 19, 1997 For Merrill Lynch By Arthur Andersen LLP San Francisco, California <PAGE> [LETTERHEAD OF ARTHUR ANDERSEN] November 26, 1997 Mr. Anthony N. Rokovich Merrill Lynch Corporate and Institutional Client Group World Financial Center New York, NY 10281-1326 RE: Appraisal Report Boronda Manor Apartments 2073 Santa Rita Street Salinas, California Dear Mr. Rokovich: As you requested, we have inspected and appraised the above referenced property. A description of the property appraised, together with explanations of the appraisal procedures used, are presented in the body of this report. The purpose of this appraisal is to estimate the market value of the fee simple interest in the real estate, subject to the definition of market value, the general assumptions and limiting conditions, and the certification as set forth in this appraisal report. The intended use of the appraisal is for securitization purposes for Merrill Lynch. We have not been engaged to make specific purchase or sale recommendations. Our work is designed solely to provide information that will allow you to make an informed decision. This appraisal has been prepared in accordance with the Code of Professional Ethics and Standards of Professional Practice set forth by the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP) adopted by the Appraisal Foundation and FIRREA standards. This report may not be included or referred to in any Securities and Exchange Commission filing or other public document. Based upon the data and conclusions presented in the attached report, it is our opinion that the fee simple market value of the subject, as of November 19, 1997, is: EIGHT MILLION SEVEN HUNDRED THOUSAND DOLLARS $8,700,000 The following report contains a study and analysis of data and other material upon which our value conclusions have been predicated. Respectfully submitted, /s/ Arthur Andersen LLP <PAGE> TABLE OF CONTENTS - -------------------------------------------------------------------------------- LETTER OF TRANSMITTAL........................................................i SUMMARY OF SALIENT FACTS AND CONCLUSIONS....................................iv CERTIFICATION................................................................v GENERAL ASSUMPTIONS AND LIMITING CONDITIONS.................................vi INTRODUCTION.................................................................1 Property Identification..................................................1 Purpose and Date of Appraisal............................................1 Intended Use of the Appraisal............................................1 Extent of Data Collection................................................1 Scope of the Assignment..................................................2 Competency Provision.....................................................2 Property Rights Appraised/Definition of Fee Simple Estate................2 Definition of Market Value...............................................3 Ownership History........................................................3 AREA AND SUBJECT DESCRIPTION.................................................4 Area Description.........................................................4 Area Map.................................................................4 Apartment Market Overview of Monterey County/Salinas California...................................................................8 Neighborhood Description................................................11 Neighborhood Map........................................................13 Site Description........................................................14 Tax Map.................................................................16 Zoning..................................................................17 Zoning Map..............................................................18 Legal Description.......................................................19 Summary of Site.........................................................19 Building Improvement Description........................................19 Real Estate Taxes and Assessments.......................................22 HIGHEST AND BEST USE........................................................23 As Vacant...............................................................23 As Improved.............................................................23 VALUATION...................................................................25 SALES COMPARISON APPROACH...................................................27 Adjustments.............................................................27 Comparable Sales Adjustment Grid........................................29 Comparable Sales Map....................................................33 Summary of Sales Comparison Approach....................................34 INCOME CAPITALIZATION APPROACH..............................................35 Direct Capitalization...................................................35 Property Income Analysis................................................36 Comparable Rentals Analysis Chart.......................................39 - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group ii <PAGE> TABLE OF CONTENTS - -------------------------------------------------------------------------------- Comparable Rentals Map..................................................40 Property Expense Analysis...............................................44 Subject's Historical Expenses...........................................45 Overall Capitalization Rates............................................46 Income Capitalization Approach Conclusion...............................47 The Direct Capitalization Model.........................................48 RECONCILIATION AND FINAL VALUE ESTIMATE.....................................49 ADDENDA.....................................................................50 - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group iii <PAGE> SUMMARY OF SALIENT FACTS AND CONCLUSIONS - -------------------------------------------------------------------------------- SUMMARY OF SALIENT FACTS AND CONCLUSIONS Name: Boronda Manor Apartments Location: 2073 Santa Rita Street Salinas, California 93906 Owner of Record: CMP-1 LLC Site Data Land Area: 7.54 acres (approximately 328,442 square feet on three legal, contiguous parcels) Property Tax Identification: 253-111-018, -019, -020 Zoning: (R-H-2.3) High Density Residential District Improvement Data Building Type: The subject consists of 207 apartment units, housed in 22 two-story, garden apartment buildings. The property is gated and contains laundry facilities and covered parking, but no other common amenities. Building Area: The twenty-two buildings contain a total net rentable area of approximately 125,787 square feet, or about 608 square feet per unit. Year Completed: The subject property was constructed during 1978/79 and has undergone periodic renovations since that time. Highest and Best Use: As vacant, for development of a garden apartment complex. As improved, continued use as a garden apartment complex. Existing Leases: The subject property is currently subject to short-term leases for each rental unit. Purpose of Appraisal: To estimate the market value of the fee simple interest for the subject property. Value Estimates Cost Approach: N/A Sales Comparison Approach: $9,100,000 Income Capitalization Approach: $8,600,000 Value Conclusion: $8,700,000 Date of Value: November 19, 1997 - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group iv <PAGE> CERTIFICATION AND LIMITING CONDITIONS <PAGE> CERTIFICATION AND LIMITING CONDITIONS CERTIFICATION - -------------------------------------------------------------------------------- CERTIFICATION 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 is our personal 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 we have no personal interest or bias with respect to the parties involved. 4. Our compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. Further, this appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. 5. Devlin W. Gardella made a personal inspection of the property that is the subject of this report on November 19, 1997. James Gavin did not inspect this property. The value date is November 19, 1997, coinciding with our inspection date. 6. No one provided significant professional assistance to the person(s) signing this report. 7. We certify that to the best of our knowledge and belief, the reported analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice (USPAP) adopted by the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute and FIRREA standards. 8. We certify that the use of this report is subject to the requirements of the Appraisal Institute relating to the review by its duly authorized representatives. 9. As of the date of this report, James Gavin, MAI has completed the requirements of the continuing education program of the Appraisal Institute. /s/ James Gavin /s/ Devlin W. Gardella - ------------------------------ ------------------------------ James Gavin, MAI Devlin W. Gardella T-6 Principal, Valuation Services Manager, Valuation Services State of California State of California Certified General Appraiser Certified General Appraiser License No. AG005296 License No. AG025486 - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group v <PAGE> LIMITING CONDITIONS - -------------------------------------------------------------------------------- GENERAL ASSUMPTIONS AND LIMITING CONDITIONS This appraisal study report is subject to the following general assumptions and limiting conditions: 1. No investigation has been made of, and no responsibility is assumed for, the legal description of the property being valued or legal matters, including title or encumbrances. Title to the property is assumed to be good and marketable unless otherwise stated. The property is assumed to be free and clear of any liens, easements or encumbrances unless otherwise stated. 2. Information furnished by others, upon which all or portions of this appraisal is based, is believed to be reliable, but has not been verified in all cases. No warranty is given as to the accuracy of such information. 3. It is assumed that all required licenses, certificates of occupancy, consents or other legislative or administrative authority from any local state, or national government or private entity or organization have been or can readily be obtained or renewed for any use on which the value estimate contained in this report is based. 4. Full compliance with all applicable federal, state and local zoning, use, occupancy, environmental and similar laws and regulations is assumed, unless otherwise stated. 5. No responsibility is taken for changes in market conditions and no obligation is assumed to revise this report to reflect events or conditions which occur subsequent to the appraisal date thereof. 6. The opinion of value is predicated on the financial structure prevailing as of the date of this appraisal. 7. Responsible ownership and competent property management are assumed. 8. Areas and dimensions of the property were obtained from sources believed to be reliable. Maps or sketches included in this report are only to assist the reader in visualizing the property and no responsibility is assumed for their accuracy. No independent surveys were conducted. 9. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for arranging engineering studies that may be required to discover them. Please refer to the following special assumptions. 10. No soil analysis or geological studies were ordered or made in conjunction with this report, nor was an investigation made of any water, oil, gas, coal, or other subsurface mineral and use rights or conditions. 11. Neither Arthur Andersen nor any individual signing or associated with this report shall be required by reason of this report to give further consultation, provide testimony, or appear in court or other legal proceedings unless specific arrangements therefore have been made. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group vi <PAGE> LIMITING CONDITIONS - -------------------------------------------------------------------------------- 12. This report has been made only for the purpose stated and shall not be used for any other purpose. Neither this report nor any portions thereof (including, without limitation, any conclusions, the identity of Arthur Andersen or any individuals signing or associated with this report, or the professional associations or organizations with which they are affiliated) shall be disseminated to third parties by any means without the prior written consent and approval of Arthur Andersen. 13. The date of value to which the opinion expressed in this report applies is set forth in the opinion letter at the front of this report. Our value opinion is based on the purchasing power of the United States dollar as of that date. 14. Unless otherwise stated in this report, no hazardous material, which may or may not be present on or near the property, was observed. We have no knowledge of the existence of such materials on, or in, the property; however, we are not qualified to detect such substances. The presence of potentially hazardous substances such as asbestos, urea-formaldehyde foam insulation, or industrial wastes may affect the value of the property. The value estimate herein is predicated on the assumption that there is no such material on, in, or near the property that would cause a loss in value. No responsibility is assumed for any such conditions or for any expertise or engineering knowledge required to discover them. The client should retain an expert in this field if further information is desired. 15. This appraisal has been made in conformance with the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation. 16. The allocation in this report of the total valuation among components of the property applies only to the program of utilization stated in this report. The separate values for any components may not be applicable for any other purpose and must not be used in conjunction with any other appraisal. 17. This report may not be included or referred to in any Securities and Exchange Commission filing or other public document. 18. Since earthquakes are not uncommon in the subjects' areas, no responsibility is assumed due to their possible effect on individual properties unless detailed geologic reports are made available. No current report has been provided to the appraisers. 19. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible non-compliance with the requirements of ADA in estimating the value of the property. 20. The client shall indemnify and hold harmless Arthur Andersen LLP and its personnel from and against any claims, liabilities, costs and expenses (including, without - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group vii <PAGE> LIMITING CONDITIONS - -------------------------------------------------------------------------------- limitation, attorney's fees and the time of Arthur Andersen LLP personnel involved) brought against, paid or recurred by Arthur Andersen LLP at any time and in any way arising out of or relating to Arthur Andersen LLP services under this letter, except to the extent finally determined to have resulted from the gross negligence or willful misconduct of Arthur Andersen LLP personnel. This provision shall survive the termination of this agreement for any reason. 21. Arthur Andersen LLP maximum liability relating to services rendered under this letter (regardless of form of action, whether in contract, negligence or otherwise) shall be limited to the charges paid to Arthur Andersen LLP for the portion of its services or work products giving rise to liability. In no event shall Arthur Andersen LLP be liable for consequential, special incidental or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.) even if it has been advised of their possible existence. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group viii <PAGE> INTRODUCTION <PAGE> INTRODUCTION - -------------------------------------------------------------------------------- Property Identification The subject property, located at 2073 Santa Rita Street, Salinas, California, is situated at the terminus of Santa Rita and Swaner Streets, just east of North Main Street and north of Boronda Road. The property, comprised of 7.54 acres, is improved with a 207-unit garden apartment complex. Purpose and Date of Appraisal The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. This report has been prepared for Merrill Lynch for internal purposes and may not be disseminated to a third party without the prior written consent of Arthur Andersen LLP. We have not been engaged to make specific purchase or sale recommendations. Our work is designed solely to provide information that will allow you to make an informed decision. Intended Use of the Appraisal It is understood that the function of this report is for use by Merrill Lynch for securitization purposes. Extent of Data Collection As part of this assignment, the appraisers made a number of independent investigations and analyses. In conducting our investigation, various governmental planning agencies were contacted for demographic data, land policies, trends and growth estimates. Neighborhood data was supplemented by physical inspection of the defined area. All phases of the competitive market were analyzed for past trends and current data. A diligent search for comparable data was conducted, and sale and rental information was obtained from public and private sources. The comparable information was within the property's market area and was analyzed and adjusted, where necessary, for deriving value indications by the Sales Comparison Approach and Income Approach. The approaches to value considered applicable in this report are discussed in detail within each individual section. The valuation is based upon the findings contained in this report and is subject to all the assumptions and limiting conditions contained herein. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 1 <PAGE> INTRODUCTION - -------------------------------------------------------------------------------- Scope of the Assignment This report is a complete, self-contained appraisal which has been prepared in accordance with the Code of Professional Ethics and Standards of Professional Practice set forth by the Appraisal Institute, and the Uniform Standards of Professional Appraisal Practice (USPAP) as adopted by the Appraisal Foundation and FIRREA standards. In order to arrive at a value indication for the subject, we have investigated the general economy of Monterey County, and the Salinas Metropolitan Area. The subject was physically inspected, resulting in the site and building improvement descriptions presented within this report. The legal and physical factors of the property enabled us to determine the highest and best use of the subject as vacant and improved. Based upon the highest and best use of the subject, we have prepared a valuation considering the Sales Comparison Approach and the Income Capitalization Approach. Under these approaches, we have investigated numerous rental comparables and improved sales within Monterey County and the surrounding area. The appraisal assignment was not based on a requested minimum valuation, a specific valuation or the approval of a loan. Competency Provision We have the knowledge and experience to complete this appraisal assignment and have appraised this property type before. Property Rights Appraised/Definition of Fee Simple Estate The property rights being appraised are the fee simple interest. A Fee Simple Estate is defined by The Dictionary of Real Estate Appraisal (1993), published by the Appraisal Institute, as follows: "An absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power and escheat." - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 2 <PAGE> INTRODUCTION - -------------------------------------------------------------------------------- Definition of Market Value The following definition of market value as adopted by the Appraisal Foundation in the Uniform Standards of Professional Appraisal Practice is as follows: "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 U.S. 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." Source: Uniform Standards of Professional Appraisal Practice (USPAP) 1994. Ownership History According to public records, the subject is owned by CMP-1 LLC. The current owner is a partnership of American Apartment Communities and JH Realty Investments, who purchased the subject property on October 30, 1996 as part of a bulk sale transaction that included eighteen apartment complexes, three commercial properties, four private homes and a trailer park. Of the total transaction price, $7,861,000 were allocated to the subject, which equates to approximately $38,000 per unit. Since acquisition, nearly $65,000 were invested on a wide variety of small projects. No other market transactions have been recorded over the last three years. Reportedly, there are no pending purchases of the property. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 3 <PAGE> AREA AND SUBJECT DESCRIPTION <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- Area Description Introduction The subject property is located about half a mile inside the northern city limits of Salinas (very near the Boronda Road/Highway 101 interchange). The city of Salinas is located 8 miles inland from Monterey Bay, 18 miles northeast of the Monterey Peninsula, 101 miles south of San Francisco and 325 miles north of Los Angeles and occupies the northern third of the Salinas Valley, which is situated between the Gabilan mountain range on the east and the Santa Lucia range on the west. The Salinas Valley ranges from 10 to 20 miles wide and about 150 miles long. Aside from the city of Salinas, and a number of smaller and rapidly growing towns spread along the Highway 101 corridor (101 runs the length of the Valley), Salinas Valley contains roughly 640,000 acres of farmland. Given the vast amount of farmland surrounding Salinas, it should come as no surprise that agriculture is the area's principal industry. However, because Salinas is the county seat, the services and government sector present the largest industry within the city limits, claiming more than half the local workforce. Population Salinas is the largest city in Monterey County with a 1996 population of 122,390 or about a third of the County's 1996 population of 370,996. The Association of Monterey Bay Area Governments (AMBAG) projects that the populations of Salinas and Monterey County for the year 2000 will be 138,271 and 394,171 respectively. These projections represent about a 3% annual increase for Salinas and about a 1.5 % annual increase for Monterey County. According to the June 1997 "Community Profile," offered by the city of Salinas, 51% of the population are Hispanic and 39% are Caucasian. Only about 10% of the population are Asian (7%), African American (2%) and Native American (1%); thus, Salinas is not very diverse, ethnically. As of the 1990 federal census, the median age in Salinas was just under 28 years and haft the population was female. Employment As noted earlier, agriculture and agricultural-related businesses comprise the bulk of Monterey County's employment base. Salinas serves as the County's center for agricultural, industrial, financial and governmental activities. In fact, the retail and services industry are providing more jobs across the county. The Employment Development Department projects non-agricultural employment to total 117,398 in 1998 (a change of 8,004, or about a 7% increase), led by 3,800 added - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 4 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- jobs in service businesses, 2,100 more jobs in retail trade and health services and 400 new construction jobs. Although total non- agricultural jobs are expected to increase, the Salinas unemployment rate raised from 8.1% in June 1996 to 18.4% in January 1997, largely due to the seasonal, migratory labor force associated with the agricultural based. Note that the seasonality associated with the unemployment rate is typical. Below is a table of the major employers in Salinas Major Employers in Salinas - Source: Salinas Chamber of Commerce ================================================================================ Agricultural Dole Fresh Vegetable Company 35,000 Tanimura & Antle 1,900 Fresh International 1,600 D'Arrigo Brothers 1,200 Fresh Western Marketing 850 Mann Packing Company 745 Fresh Choice 370 Sea Mist Farms 180 Merrill Farms 157 The Nunes-Company 135 Manufacturing Integrated Device Technology, Inc. 520 McCormick & Company (Schilling) 400 Radionics 220 J. M. Smucker Company 200 Stone Container Corp. 180 National Refractories 176 Weyerhaeuser 155 The Californian 150 Royal Packing Company 150 The Lantis Corporation 135 Non-Manufacturing County of Monterey 3,342 Household of Monterey 2,000 Salinas Valley Memorial Hospital 1,500 Salinas Union High School District 1,400 Salinas City Elementary School District 800 Natividad Medical Center 790 City of Salinas 584 Alisal School District 550 Pacific Bell 373 Social Security Teleservice Center 315 Hartnell College 235 Pacific Gas & Electric 205 ================================================================================ - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 5 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- Agriculture The earth-rich Salinas Valley, coupled with the year-round mild climate, has allowed Monterey County to be the largest producer of fresh vegetables as compared to any other county in the United States. In fact, Monterey County produces about 80 percent of the nation's artichokes and lettuce, 73 percent of its broccoli, slightly more than half of its cauliflower and almost haft of the nation's spinach. Additionally, the Salinas Valley recently produced more than 82 thousand tons of wine grapes, ranking it 13th in California. In 1995, Monterey County exported more than 680.5 million tons of produce (primarily to Southeast Asia, Canada and Mexico), representing a substantial increase over 1994 and 1993 totals (about 570.5 and 592.4 million tons, respectively). Effective Buying Income As of the 1990 census, the mean household incomes for Salinas and Monterey County were $36,278 and $43,185 respectively. This means that Salinas effective buying income was nearly 20 percent below the county's average. Salinas' June 1997 "Community Profile" reports the median family income (four person household) to be $45,600, which translates to an approximate 3.3 percent annual increase since 1990. A comparable statistic for Monterey County was not available. Conclusion Salinas' economy is fueled primarily by the agriculture industry, secondarily by the public sector as it is the county seat. Due to the prevalence and nature of the agriculture industry, unemployment tends to be seasonal and wages less than the average. The Chamber of Commerce anticipates that most of the growth will occur to the northeast of the city (adjacent to the subject's neighborhood), as they hope to position Salinas as the "crossroads" for the Valley. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 6 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] [AREA MAP OMITTED] - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 7 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- Apartment Market Overview of Monterey County/Salinas California For our market overview, we have relied on a survey conducted by RealFacts as of September 1997. Although the survey is not exhaustive, it includes 23 complexes totaling more than 3,200 units for Monterey County and 9 complexes totaling more than 2,000 units for Salinas. The survey focuses on complexes containing at least 40 units and deemed to be institutional investment-grade properties. In this survey, Monterey County includes the cities of Monterey, Pacific Grove and Salinas, representing about 27%, 10% and 63% of the total, respectively. The following table summarizes the survey's inventory characteristics as compared to the subject property. Multi-Family Housing Survey - Source: RealFacts & JH Management Company ================================================================================ Characteristic Monterey Co. Salinas Subject - -------------- ------------ ------- ------- Number of Complexes 23 9 n/a Total Unit Inventory 3,241 2,033 n/a Average Number of Units per Complex 141 226 207 Average Occupancy Rate 95.8% 94.4% 94.2% Earliest Year Built 1961 1974 n/a Latest Year Built 1990 1988 n/a Average Year Built 1975 1983 1978/79 ================================================================================ The collective unit mix for Monterey County consisted predominantly of one- and two-bedroom units (only about 3% were studios and about 2% were three-bedroom units). As for Salinas, the collective unit mix contained no studio units and less than 3% were three-bedroom units. The survey reported the following average unit sizes and average rents per square foot (we include the subject information for comparison purposes): Monterey County - 864 square feet $1.00 per square foot Salinas - 962 square feet $0.92 per square foot Subject - 608 square feet $1.01 per square foot The charts on the following page compare average rents (for all units surveyed) with average occupancies for Monterey County and Salinas over the two-year period (by quarter) prior to the survey. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 8 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- Monterey County Average Rents vs. Average Occupancies from 4th Qtr 1995 to 3rd Qtr 1997 [LINE GRAPH OMITTED] Source: Real Facts - Compiled by Arthur Andersen As rents have gradually increased across Monterey County, occupancies have stabilized between 95 and 96 percent. The trend for rents continues to increase despite stabilizing occupancies, which continue to remain at a fairly high level. Salinas Average Rents vs. Average Occupancies from 4th Qtr 1995 to 3rd Qtr 1997 [LINE GRAPH OMITTED] Source: Real Facts - Compiled by Arthur Andersen In Salinas, rents were substantially increased from the first quarter of 1996 to the second quarter of 1996. Within a three-month period, the market reacted by a corresponding drop in occupancy levels, albeit from a high mark. Rents tapered slightly before continuing their upward trend, while local occupancies hovered between 94 and 95 percent. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 9 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- New Construction Currently, multi-family apartment units and condominiums account for about 34 percent of Salinas's housing stock, which totals 35,502 units. By the year 2000, several new housing developments will bring thousands more to Salinas: 1. The Harden Ranch subdivision in north Salinas includes 1,683 single-family homes, 719 multi-family units and designated areas for churches, schools and a park. 2. The Creekbridge project comprises 1,000 single- and 1,030 multi-family units. 3. The Williams Ranch subdivision in east Salinas is slated for 1,551 homes and 519 condominiums and/or apartment units. The only growth restrictions present are certain agricultural lands bordering the city limits. Salinas's master plan prohibits city officials from considering new projects (commercial or residential) to the south or west of the city's borders. The subject is located at the city's northern limits, an area primed for future expansion. Although there are no current plans for new commercial construction in the subject's area, single-family lots/homes are being offered in the Harden Ranch subdivision. Conclusion The local apartment market seems fairly tight, as rents continue to increase while occupancies remain mostly stable near 95 percent. As new units are added to the supply over the next few years, area rents should soften slightly with occupancies feeling some pressure as well. However, there are many older complexes included in the local supply that could capture higher rents now if they were better positioned via capital investments (painting) or operational expenditures (added security). - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 10 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- Neighborhood Description The Boronda Manor Apartments are located at the terminus of Santa Rita and Swaner Streets, just east of North Main Street and north of Boronda Road, in the northern limits of Salinas, California. (Refer to the neighborhood map at the end of this section.) Boronda Road is accessed via an interchange with Highway 101, one of the county's principal transportation arteries. North Main Street, a major thoroughfare for Salinas, intersects Boronda Road just east of Highway 101 and runs parallel to 101 near the subject property. Although the subject site abuts Boronda Road's northern side just east of the intersection of Boronda Road and North Main Street, which is a heavily traveled intersection, visibility is currently limited and access to the subject may only be achieved indirectly from one of the side streets (East Lamar Street for example) from Main. There is no direct access from Boronda, though some of the subject's buildings are visible. The property manager noted that she is currently working with Salinas to obtain approval for a larger sign accompanied with colorful shrubbery and/or flowers to be placed at the northeast corner of Boronda Road and North Main Street. Kitty-corner from the subject, at the southwest corner of Boronda Road and North Main Street, sits the Northridge Mall. The Northridge Mall, anchored by JCPenney, Macy's, Mervyn's and Sears, contains more than 130 stores and restaurants, including many other regional and national retailers such as The Disney Store, Men's Wearhouse, Payless Drug Store and Toys R Us. In fact, retail/commercial use nearby the mall is, as expected, prevalent. Thus, retail/commercial use dominates the neighborhood south of the subject, which is also the direction to downtown Salinas. Single-family residences primarily surround the subject's north and east boundaries, extending to the city limits which is less than a mile in both directions. Ancillary residential uses are included in this area, such as Santa Rita Elementary School, Gabilan View Middle School, Santa Rita North Park, and the Lamplighter Mobile Homes Park. Some of the homes have barred windows, the only indication of a higher-than-average crime rate. The subject's property manager noted that the neighborhood has improved over the last few years, as new retail development has been completed and, more importantly, the tenant-screening process has become more thorough. Farmland lay outside the city limits with sparse homesteads. Just outside the current city limits, adjacent to the retail/commercial development along Boronda Road and very near the subject site, there is farmland. It appears that this land will eventually provide for additional - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 11 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- retail/commercial development as more single-family homes are developed to the north and east along San Juan Grade and Rogge Roads. Given the current development of the neighborhood, the "boundaries" appear to be Highway 101, Russell Road, San Juan Grade Road and Boronda Road. This area comprises the most northern tip of Salinas. As additional retail and commercial development occurs, the tip should broaden in an easterly direction. The subject's main competition appears to be other apartment complexes located in the northern tip of Salinas. More attention will be turned towards these complexes when we discuss market rents under the income capitalization approach. In general, the area is primarily residential and agricultural in nature with most of the retail and commercial use radiating from the Boronda Road/Highway 101 interchange. Not only are major retailers located here, but a host of fast food restaurants, convenience stores, banks and gas stations. The subject's proximity to this interchange makes access fairly easy; plus, the fact that it is nestled in a residential district seems to give the residents a better sense of community (for example, children are able to walk to school without crossing busy thoroughfares). Additionally, the neighborhood is simply becoming a better place to live. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 12 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] [NEIGHBORHOOD MAP OMITTED] - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 13 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- Site Description The description of the site can be summarized as follows: Location: The subject is located at the south end of Santa Rita Street and the west end of Swaner Street (these two streets dead- end into one another) within the municipal limits of the City of Salinas, County of Monterey, State of California. Ingress and egress to the subject site is available through one, gated entrance, either from Santa Rita Street or Swaner Street. Land Area: The subject site comprises three legal, contiguous parcels and is identified by the Monterey County Assessor (for tax purposes) as 253-111-018 (1.75 acres), 253-111-019 (3.28 acres) and 253-111-020 (2.51 acres). Collectively, the site contains 7.54 acres, or+/- 328,442 square feet. Refer to the tax map at the end of this section. The site is irregularly shaped, in part and in whole. Altogether, it has frontage along the south side of East Lamar Street, the west side of Santa Rita Street and the north side of Boronda Road. Topography & Drainage: The subject site is lightly sloping and at grade with the street frontages. Inspection of the asphalt the parking area and other outdoor common areas indicated them to be average condition with no signs of significant erosion. Flood Zone Description: According to flood plain map prepared by the Federal Emergency Management Agency the subject site is located flood zone B, defined as: "Areas between limits of the 100-year flood and 500-year flood; or certain areas subject to 100-year flooding with average depths less than one (1) foot or where the contributing drainage area is less than one square mile; or areas protected by levees from the base flood." The map number is 0602020001D dated November 4, 1981. A copy of the map is the addenda. Easements: The subject has typical water, sanitary sewer and storm dram easements which do not appear to negatively affect the site. Public Services/Utilities: Water, Sewer - City of Salinas Trash - City of Salinas Electric - PG&E Gas - PG&E Telephone- Pacific Bell - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 14 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- Parking Spaces: The subject site contains 322 parking spaces, many of which are covered. Each unit is designated at least one space. Covenants, Conditions & Restrictions: None noted. Soils Reports: It is assumed in this appraisal report that no adverse soil or subsoil conditions exist that would impair the use of property, its value and marketability. Hazardous Waste: No evidence of the presence of hazardous wastes in the land or improvements at the subject was noted by the appraisers. It should be noted that the appraisers are not qualified to detect hazardous wastes and/or toxic materials. Any comment by the appraisers that might suggest that the existence or absence of such substances should not be taken as confirmation or denial of the presence of hazardous wastes and/or toxic materials.Such determination would require an investigation by a qualified expert in the field of environmental assessment. Due to the age of the improvements (pre-1980), it is possible asbestos could have been used in a variety of different ways within building materials. The presence of substances such as asbestos or ureaformaldehyde foam insulation or other potentially hazardous material may affect the value of the property. Our value estimate is predicated on the assumption that there is no such material on or in the subject that would cause a loss in value. No responsibility is assumed for any environmental conditions, or for any expertise or engineering knowledge required to discover them. The descriptions and comments are the result of the routine observations made during the appraisal process. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 15 <PAGE> AREA AND SUBJECT DESCRIPTION - ------------------------------------------------------------------------------ [GRAPHIC OMITTED] [TAX RATE AREA MAP OMITTED] - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 16 <PAGE> AREA AND SUBJECT DESCRIPTION - ------------------------------------------------------------------------------ Zoning The site is currently zoned R-H-2.3, High Density Residential District, by the Salinas Planning Department. This zone is intended to provide the orderly development of high density residential areas and further to maintain and enhance those living environment characteristics consistent with established community values. More specifically, R-H-2.3 is to provide for high density multifamily dwelling units where the maximum density, including density bonus, is 24 units per acre. The subject possesses about 27.5 units per acre, thus, it represents a legally nonconforming use. Subject to the provisions of this zone, the following buildings, structures and uses, either singly or in combination, are permitted: small family day care homes, home occupations, manufactured housing, residential care facilities, single-family dwellings, minor utilities as accessory structures and uses, and some temporary uses. Additionally, the High Density Residential District includes the following property development regulations: o minimum lot size - 7,200 square feet, o minimum lot dimensions - 75 feet wide, 100 feet deep and 35 feet of frontage, o minimum lot area per unit (with density bonus) - 1,800 square feet, o yards - 20 feet for the front and comer, 10 feet/story for the sides and rear, o distance between structures - 10 feet, o maximum height equals 30 feet. A copy of the zoning ordinance pertaining to the R-H-2.3 classification is included in the Addenda. A zoning map is located on the following page. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 17 <PAGE> AREA AND SUBJECT DESCRIPTION - ------------------------------------------------------------------------------ [GRAPHIC OMITTED] [ZONING MAP OMITTED] - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 18 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- Legal Description A copy of the legal description of the subject site can be found in the addendum to this report. Refer to page 2 of Schedule A of the title insurance policy by Chicago Title Insurance Company (#1704853-MM) in the amount of $5,961,443.00 dated December 31, 1996. Summary of Site The site is situated on the corner of Santa Rita and Swaner Streets, providing convenient access to local and area amenities and the regional highway. The site's location and neighborhood amenities provide it with average functional utility for a garden apartment complex. Building Improvement Description The following description of the subject improvements is based upon our physical inspection of the subject on November 19, 1997. The building area and number of rental units was confirmed and provided by the property's management company, JH Management Company. The buildings' layout and design were examined and verified during our site inspection. Photographs of the improvements are located in the Addenda. The subject property consists of 207 apartment units, housed in 22 two-story garden apartment buildings. The site consists of approximately 7.54 acres with concrete walkways that connect the buildings to common areas and designated parking areas. The property has five laundry facilities, minimal landscaped area and no common areas designated for recreation purposes. Construction details of the improvements are based upon our inspection of the property and information provided by the managing and leasing agent for the subject property. The following is a brief description of the subject improvements: Age: The subject property was constructed during 1978/79 and is currently in average condition. Building Area: The 22 rental buildings contain a total net rentable area of 125,787 square feet (about 608 square feet per unit). Structural Components: The buildings have wood frame with construction, with exterior walls comprised of wood shakes, stucco and wood trim. Roof: The pitched roofs are framed with wood rafters and plywood decking and covered with wood shakes. The property manager reports that the roofs are original and that there have been no reported nor detected leaks. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 19 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- Interior Finish: Typical finishes include textured and painted gypsum board. Some units have prefinished wood paneling. Floor coverings are vinyl tiles in the kitchen and bathroom and carpet in the remaining rooms. Bathrooms have standard grade fixtures and fully ceramic tiled bathrooms. The typical kitchen is equipped with an electric stove, dishwasher, garbage disposal and refrigerator. HVAC: Each unit has individual electric forced air furnaces with no air conditioning. Plumbing: Typical central plumbing with porcelain, stainless steel, and fiberglass fixtures. Fire Protection: Hard-wired smoke detectors are in each apartment for local alarm only, fire extinguishers are strategically positioned on the exterior wall of each apartment building. Amenities: Balcony or patio for each unit, plus some units have back yards. There are five laundry facilities which are reported to be adequate for demand. Although there are no common amenities for recreation purposes, the subject is within walking distance to the Santa Rita Park as well as extensive shopping at the Northridge Mall. Note that the subject does have a pool, but it has been closed for some time due to repairs necessitating partial closure of Boronda Road. Summary of Unit Types ================================================================================ Unit Description Number of Average Unit Total Square Units Size (SF) Feet - -------------------------------------------------------------------------------- Studio 22 408 8,976 - -------------------------------------------------------------------------------- 1 Bedroom, 1 Bath 58 571 33,118 - -------------------------------------------------------------------------------- 2 Bedroom, 1 Bath 127 659 83,693 - -------------------------------------------------------------------------------- Total 207 608 125,787 ================================================================================ Source: October 25, 1997 Rent Roll Condition/Date Completed The subject property appears to be in average condition for its age. The improvements were constructed during 1978/79, according to the property manager. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 20 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- Deferred Maintenance The subject property shows some deferred maintenance in the parking areas, on some of the balconies/railing and on some of the exterior walls. Currently, crews are in the process of repairing the balconies' railing. The project has a fenced pool area that has been closed for sometime prior to the new ownership in late 1996. According to the on-site property manager, the problem stems from "something" underneath the pool; to repair the problem, earth-movers would have to access the pool area from Boronda Road after the subject's perimeter wall were removed. The manager further noted that this scenario is unlikely given the extensive use of Boronda Road and the subsequent issue with the city to close a portion of the busy thoroughfare coupled with the small rental premium collectible from limited units if the pool were reopened. There are no immediate plans to repair the pool and no cost estimates were provided. According to the current owner, the subject was slated to receive capital expenditures to cure deferred maintenance two to three years after acquisition. Through the first nine months of 1997, nearly $65,000 were invested on a wide variety of small projects. Approximately $190,000 dollars is scheduled to be allocated to the subject during 1998, again, on a variety of small projects (much of which refers to recurring expenses associated with turnovers). A detail of the $190,000 was not available, but we have estimated cost-to-cure at $200,000 for valuation purposes. Summary of Improvements The improvements appear to be in average condition, reflecting design standards of the late 1970s. There were no items noted which exhibited material deferred maintenance except as noted. Overall, the functional utility of the subject improvements appear to be adequate for its present use as a garden apartment complex, aside from the lack of common recreational amenities. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 21 <PAGE> AREA AND SUBJECT DESCRIPTION - -------------------------------------------------------------------------------- Real Estate Taxes and Assessments The subject site comprises three tax parcels. The following chart details the 1997/98 assessments and taxes for each parcel: <TABLE> <CAPTION> ======================================================================================= Assessor's Parcel Number Assessed Values, Real Estate Taxes, ------------------------------------------------- Special District Debt and Assesments 253-111-018 253-111-019 253-111-020 Total ======================================================================================= <S> <C> <C> <C> <C> Assessed Values - --------------- Land $463,700 $836,725 $786,000 $2,086,425 Improvements 1,363,558 2,461,167 2,314,992 6,139,717 Personal Property 27,600 49,000 44,280 120.880 - ----------------- ---------- ---------- ---------- ---------- Total Assessed Values $1,854,858 $3,346,892 $3,145,272 $8,347,022 ======================================================================================= Real Estate Taxes - ----------------- Monterey County-Wide $18,548.58 $33,468.92 $31,452.72 $83,470.22 Santa Rita UN Bond A 550.88 994.02 934.14 2,479.04 - -------------------- ---------- ---------- ---------- ---------- Subtotal $19,099.46 $34,462.94 $32,386.86 $85,949.26 - --------------------------------------------------------------------------------------- Special District Debt - --------------------- MCWRA Zone 2A $82.94 $149.72 $140.78 $373.44 - ------------- ---------- ---------- ---------- ---------- Subtotal $82.94 $149.72 $140.78 $373.44 - --------------------------------------------------------------------------------------- Assessments - ----------- MCWRA Zone 2A $14.20 $26.62 $20.78 $61.20 MCWRA Zone 2 1.92 3.60 2.76 8.28 MCWRA Seawtr Intrusn 33.88 63.52 48.60 146.00 MCWRA Sal Val Reclam 102.70 192.50 147.30 442.50 MCWRA Zone 9 55.86 104.68 80.10 240.64 NSV Mosq Abate Dist 3.70 3.70 3.70 11.10 CSA74 AMB SVC County 368.90 368.90 368.90 1,106.70 CSA74 AMS SV Salinas 155.00 155.00 155.0 465.00 - -------------------- ---------- ---------- ---------- ---------- Subtotal $736.16 $918.52 $826.74 $2,481.42 - --------------------------------------------------------------------------------------- Total Taxes, Special Debt & Assessments $19,918.56 $35,531.18 $33,354.38 $88,804.12 ======================================================================================= </TABLE> Source: Monterey County Tax Collector Tax Rate: The 1997/98 tax rate is 1.029700 percent of assessed value. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 22 <PAGE> HIGHEST AND BEST USE - -------------------------------------------------------------------------------- HIGHEST AND BEST USE As defined by the Appraisal Institute in The Dictionary of Real Estate Appraisal (1993), "highest and best use" is: The reasonably probable and legal use of vacant 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 - Maximum Profitability The above definition of highest and best applies to use of a site as though vacant, as well as to the property as improved. When a site contains improvements, the highest and best use may be determined to be different from the existing use. The existing use will continue unless and until the land value in its highest and best use exceeds the sum of the value of the entire property in its existing use plus the cost to remove the improvements. As Vacant Legal Use: The site is currently zoned R-H-2.3, High Density Residential District, by the Salinas Planning Department. This zone is intended to provide the orderly development of high density residential areas and further to maintain and enhance those living environment characteristics consistent with established community values. Physical Use: The second constraint imposed on the possible use of property is dictated by physical aspects of the site itself. In general, the larger the site, the greater the flexibility in development of the site. The size and shape of the 7.54 acres (approximately 328,442 square feet) allows for adequate flexibility in development. All utilities are available to the property. The subject site is suitable for the legally permitted uses. Financially Feasible Use: Given the costs of development for garden apartments, and comparing these costs to the potential sales values and rental rates in the area, the maximally Financially Feasible use, which is considered to provide the greatest return on the capital invested, is for development of a garden apartment complex to the maximum density allowed under the current zoning regulations (R-H-2.3). - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 23 <PAGE> HIGHEST AND BEST USE - -------------------------------------------------------------------------------- Maximally Productive: To be maximally productive, a use must provide the greatest return on the capital invested, meaning it must be the most profitable use. In light of legal restrictions, physical characteristics, and overall financially feasibility, we have concluded that the maximally productive use is for present/future development as a garden style apartment complex. As Improved The highest and best use of the subject site as improved considers the use of property as it currently exists. The use that maximizes the property's net income is considered to be its highest and best use. The subject site is presently improved with a garden apartment complex consisting of 207 units, housed in twenty-two, two-story buildings. Overall, the subject as improved is functionally adequate for its intended purpose as multi-family rental housing. There is no indication that an alternate use of the subject site would provide a greater return than the present use. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 24 <PAGE> VALUATION <PAGE> VALUATION - -------------------------------------------------------------------------------- VALUATION The appraisal process represents a logical analysis of the factors that bear upon the present value of real estate. In this process, three basic approaches are typically used by the appraiser: (1) Cost Approach; (2) Sales Comparison Approach; and (3) the Income Capitalization Approach. The Cost Approach considers the cost to replace the existing improvements, less accrued depreciation, plus the market value of the land and recognizes that a prudent investor would not ordinarily pay more for the improvements than the cost to replace them. However, this approach was considered but not utilized as a meaningful valuation method. This is primarily due to the imprecise nature and difficulty in estimating the various forms of depreciation. In addition, there are limited comparable land sales in the subject's immediate competitive area. Lastly, investors are primarily concerned with the monetary returns inherent in real estate investing. The Sales Comparison Approach is based upon the proposition that an informed purchaser would pay no more for property than the cost of acquiring a similar property with the same utility. In this approach, similar properties that have recently sold are compared to the subject. Notable differences in the utilized building sales are adjusted to the subject in the process. Comparisons made are typically based upon age, location, time, size/number of units, financing, physical characteristics and terms of sale. The value range indicated by the adjusted building sales is reconciled into a final value estimate via this approach. The Income Capitalization Approach produces an estimate of value based upon the subject's net income potential. Two methods of estimating value under the Income Capitalization Approach are typically used. One method is the direct capitalization method, which estimates value by capitalizing net income using an overall rate and is primarily used when cash flow is stable. The second method is a discounted cash flow analysis. This method involves an analysis of income and expenses for the subject during a typical holding period and is used primarily when there are wide swings in the annual cash flows. Net cash flows from this holding period are discounted to a present value in order to estimate value. Based on the factors discussed above, we have utilized the Sales Comparison Approach and the Income Approach (direct capitalization method) in our analysis. The final step in the appraisal process is to reconcile the approaches considered in the analysis to a value conclusion. In our reconciliation, weight will be placed on the Sales Comparison and Income Approaches to value since these methods provide the most reliable indications of value. The Income Approach was - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 25 <PAGE> VALUATION - -------------------------------------------------------------------------------- given the most weight since prudent investors typically buy properties such as the subject based on the property's future income potential. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 26 <PAGE> VALUATION - -------------------------------------------------------------------------------- SALES COMPARISON APPROACH The Sales Comparison Approach is an appraisal method by which an indication of value for the property being appraised is estimated based on prices usually paid for properties of similar use and utility. This method is based on the principle of substitution, which states that no one is justified in paying more for a property than one would have to pay for an equally desirable substitute property, assuming no unusual delay. The methodology for processing market information into an indication of market value for the subject entails an orderly procedure of analysis of the actions of typical buyers and sellers of similar properties. The properties used in the comparison process must contain all the prerequisites of a fair sale: (1) the buyer and seller each have acted prudently; (2) knowledgeably; and (3) assuming the price was not affected by undue stimulus. Our investigation of the market for similar property sales resulted in only three comparable transactions which occurred over the past two years. All of the sale comparables are garden apartment complexes situated within the surrounding area. In addition to Monterey County, we researched the following areas for comparable sales: Santa Cruz County, San Benito County and southern Santa Clara County (including the areas of Gilroy and Morgan Hill). The sale transactions were each inspected and utilized in determining a value range on a per rental unit basis. The following pages contain detailed information regarding each transaction. The adjustment gird, which adjusts the comparable sales to the subject property is followed by individual sale descriptions. Adjustments The data derived from the sales indicate that it is appropriate to analyze the subject based on a price per apartment unit basis. Adjustments are made for the following categories: Property Rights Conveyed: This category is used to adjust for differences in real property rights-fee simple, leased fee, or any combination thereof. Financing Terms: This adjustment considers debt financing favorable to either the buyer or seller. If the seller provided financing in favor of the buyer, it is necessary to adjust the unit of comparison downward to reflect a cash equivalent price. Condition of Sale: This item requires adjustment to reflect atypical motivations of the buyer and seller. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 27 <PAGE> VALUATION - -------------------------------------------------------------------------------- Market Conditions: This factor is used to adjust historical property sales to the current date of appraisal. No paired sales were discovered which would indicate the price trends in the market. All of the sales occurred since December 1995, within less than two years of our value date. Based on discussions with area brokers and appraisers, there has been continued demand for multi-family housing properties in the surrounding area, indicating a 4 percent growth rate per annum. Location: This category is utilized to reflect either more favorable or less desirable locations of sales when compared to the subject. Size: Properties that have less rentable square feet or fewer rental units typically sell for more per square foot or per unit than do larger properties due to a greater number of eligible buyers. Age/Condition: This category is used to adjust for older or newer properties which have a shorter or longer remaining economic life than the subject. The remaining economic life of each comparable is calculated as of the date of sale. Quality of Construction: This adjustment accounts for differences in materials and design among the comparable properties. Access/Frontage: This category provides an adjustment for superior or inferior access, both vehicular and pedestrian, frontage, and visibility for the building sales as compared to the subject. Amenities: This adjustment accounts for differences in the amenities offered by the comparable sale properties in comparison to the subject property. The inclusion of items such as swimming pools, fitness centers, tennis courts, and unit washer/dryers increases the attractiveness of a rental complex to potential tenants. Occupancy at the time of sale: Differences in occupancy at the time of acquisition is a motivating factor behind the acquisition of a an apartment complex such as the subject. A low occupancy can adversely affect the purchase price, therefore adjustments are made accordingly. Capital Expenditures: Immediate repairs needed to the subject property are estimated at $200,000. A potential buyer would look for an adjustment to purchase price for these expenditures. We will therefore make an adjustment to value for these costs. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 28 <PAGE> VALUATION - -------------------------------------------------------------------------------- Comparable Sales Adjustment Grid <TABLE> <CAPTION> ----------------------------------------------------------------------------------------- DESCRIPTION Subject Improved Sale Improved Sale Improved Sale - ----------- Comparable #1 Comparable #2 Comparable #3 ----------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> PROPERTY: Boronda Manor Apts. The Orchard Ocean Terrace North Bay LOCATION: 2073 Santa Rita 985 Montebello Drive 1630 Merrill Avenue 41 Grandview Street Street Salinas, CA Gilroy, CA Santa Cruz, California Santa Cruz, California YEAR COMPLETE: 1978/79 1979 1970 1989 RENTABLE UNITS: 207 80 100 115 OCCUPANCY: 94.2% 96.0% 98.0% 99.0% DATE OF SALE: N/A November-1996 June-1996 December-1995 CAPITALIZATION RATE: N/A 9.31% 8.50% 10.00% SALE PRICE: N/A $4,400,000 $6,135,000 $9,000,000 UNIT SALE PRICE: N/A $55,000 $61,350 $78,261 ----------------------------------------------------------------------------------------- ADJUSTMENTS - ----------- UNIT SALE PRICE: $55.00 $61.350 $78.261 PROPERTY RIGHTS CONVEYED: 0.00% 0.00% 0.00% ADJUSTED UNIT SALE PRICE: $55.00 $61.350 $78.261 FINANCING TERMS: 0.00% 0.00% 0.00% ADJUSTED UNIT SALE PRICE: $55.00 $61.350 $78.261 CONDITIONS OF SALE: 0.00% 0.00% 0.00% ADJUSTED UNIT SALE PRICE: $55.00 $61.350 $78.261 MARKET CONDITIONS: 0.00% 4.00% 8.00% ---------------------------------------------------------------------- TIME ADJUSTED UNIT SALE PRICE: $57,200 $63.804 $84.522 ---------------------------------------------------------------------- LOCATION AND PHYSICAL ADJUSTMENTS: - ---------------------------------- LOCATION: 5.0% -20.0% -20.0% SIZE: -10.0% -7.5% -5.0% AGE/CONDITION: 0.0% 5.0% -5.0% QUALITY OF CONSTRUCTION: 0.0% 0.0% -7.5% ACCESS/FRONTAGE: 0.0% 0.0% 0.0% AMENITIES: -5.0% -5.0% -7.5% OCCUPANCY: -2.5% -2.5% -5.0% ---------------------------------------------------------------------- TOTAL LOCATION AND PHYSICAL ADJUSTMENTS: -12.5% -30.0% -50.0% ---------------------------------------------------------------------- ---------------------------------------------------------------------- ADJUSTED UNIT PRICE: $50,050 $44,663 $42,261 ---------------------------------------------------------------------- </TABLE> MIN. ADJ. SALES PRICE $42,261 MAX. ADJ. SALES PRICE $50,050 MEAN. ADJ. SALES PRICE $45,658 - --------------------------------------------------------------------- Concluded Price Per Unit: $45,000 Total Value: $9,315,000 Less Capital Expenditures: ($200,000) ---------- Total Value Rounded: $9,100,000 - --------------------------------------------------------------------- PREPARED BY: ARTHUR ANDERSEN LLP - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 29 <PAGE> VALUATION - -------------------------------------------------------------------------------- COMPARABLE IMPROVED SALE NO. 1 [PHOTO OMITTED] APARTMENT NAME: The Orchard LOCATION: 985 Montebello Drive Gilroy, CA 95020 YEAR BUILT: 1979 NUMBER OF UNITS: 80 TOTAL SQUARE FOOTAGE: 60,718 GRANTOR: Bayside Orchard Association c/o Nick Shubin GRANTEE: Senovio Garza SALE PRICE: $4,400,000 DATE OF SALE: November 19, 1996 PRICE PER UNIT: $55,000 OVERALL CAPITALIZATION RATE 9.31% GROSS INCOME MULTIPLIER: 6.27 - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 30 <PAGE> VALUATION - -------------------------------------------------------------------------------- COMPARABLE IMPROVED SALE NO. 2 [PHOTO OMITTED] APARTMENT NAME: Ocean Terrace LOCATION: 1630 Merrill Avenue Santa Cruz, CA 95062 YEAR BUILT: 1970 NUMBER OF UNITS: 100 TOTAL SQUARE FOOTAGE: 80,756 GRANTOR: n/a GRANTEE: Dmitri Piterman SALE PRICE: $6,135,000 DATE OF SALE: June 1, 1996 PRICE PER UNIT: $61,350 OVERALL CAPITALIZATION RATE 8.50% GROSS INCOME MULTIPLIER: 6.30 - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 31 <PAGE> VALUATION - -------------------------------------------------------------------------------- COMPARABLE IMPROVED SALE NO. 3 [PHOTO OMITTED] APARTMENT NAME: North Bay LOCATION: 41 Grandview Street Santa Cruz, CA 95060 YEAR BUILT: 1989 NUMBER OF UNITS: 115 TOTAL SQUARE FOOTAGE: 111,849 GRANTOR: n/a GRANTEE: Sequoia Equities c/o Mark Carter SALE PRICE: $9,000,000 DATE OF SALE: December 1, 1995 PRICE PER UNIT: $78,261 OVERALL CAPITALIZATION RATE 10.00% GROSS INCOME MULTIPLIER: 5.90 - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 32 <PAGE> VALUATION - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] [COMPARABLE SALES MAP OMITTED] - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 33 <PAGE> VALUATION - -------------------------------------------------------------------------------- Summary of Sales Comparison Approach The improved sales used in our analysis indicate an unadjusted range of cash equivalent sale prices from $55,000 to $78,261 per unit. Note that each of the sales had larger units on average, ranging from 151 to 365 square feet larger than those of the subject (only 608 square feet on average). After applying the various adjustment factors to the comparable sales, the adjusted range was from $42,261 to $50,050 per unit with a mean of $45,658 per unit. The calculation of the value of the subject under the Sales Comparison Approach, as of November 19, 1997 was: 207 rental units X $45,000 per rental unit = $9,315,000 Less Capital Expenditures $ 200,000 ---------- Rounded Value Conclusion $9,100,000 As additional support for the Sales Comparison Approach we studied the gross income multipliers provided in the actual sales that took place in the competitive area. The sales indicate that the gross income multipliers range from 5.90 to 6.30 with an average of 6.16 When calculating the effective gross income projected for fiscal 1998 (as indicated in the income approach) and applying it to the indicated value above, we estimate the gross income multiplier to be 5.92 ($9,300,000 / $1,570,139). This is within the competitive range and therefore considered reasonable. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 34 <PAGE> VALUATION - -------------------------------------------------------------------------------- INCOME CAPITALIZATION APPROACH The Income Capitalization Approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. The direct capitalization methodology uses a single year's stabilized net operating income as a basis for a value indication. It converts estimated "stabilized" annual net operating income to a value indication by dividing the income by a capitalization rate. The discounted cash flow (DCF) analysis focuses on the operating cash flows expected from the property and the anticipated proceeds of a hypothetical sale at the end of an assumed holding period. These amounts are then discounted to their present value. The discounted present values of the income stream and the reversion are added to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method puts more weight on income projected in the early years than income and sale proceeds to be received later. The direct capitalization method is normally appropriate for properties with relatively stable operating histories and expectations, or properties that can be expected to reach stabilization within a short period of time. Apartments, except for new construction, are typically analyzed by the direct capitalization approach, assuming that they are at a stabilized occupancy level. We consider the subject to be reaching a stabilized occupancy level and have applied only the direct capitalization method. This approach requires an estimation of the subject's income and expenses in order to forecast net operating income, which is then converted to a value indication by use of the direct capitalization analysis. Direct Capitalization The direct capitalization approach is based upon an estimate of the property's income in a year of stabilized occupancy. We first estimated effective income from apartment rents and other sources, and then estimated the operating expenses associated with the property. These were combined to develop an operating statement for the property in a representative year. The following items were estimated in our Direct Capitalization analysis. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 35 <PAGE> VALUATION - -------------------------------------------------------------------------------- Property Income Analysis Potential Gross Rental Income: The first step in the direct capitalization approach and the discounted cash flow approach is to estimate the gross potential income of the property. Accordingly, we surveyed the competitive rentals in the market to determine an appropriate market rent. We also considered the current leases, the recent and historical per unit average rental rates, and quoted asking rental rates for the subject. The gross stabilized potential income figure in our analysis equates to the average of all existing monthly rents collected based on the rent roll provided by the client (as of October 25, 1997) and was trended up by four percent, and then multiplied by the total number of rentable units in the complex. The gross potential income was trended upwards to reflect the increase in market rents over the past year and the subjects below average market rents which will increase upon lease turnover/renewal. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 36 <PAGE> VALUATION - -------------------------------------------------------------------------------- Based on a rent roll (as of October 25, 1997) provided by JH Management Company, there were a total of 207 units of which 12 were vacant, amounting to a 94.2% overall occupancy excluding the one non-revenue unit reserved for the on-site property manager. According to the leasing agent, the 5.8% vacancy rate is in line with normal turnover vacancies, with generally 10 to 15 units available. According to the rent roll provided, the gross potential average monthly rent for the occupied units amounts to $610.74 per unit (approximately $1.01 per square foot), which is below the comparable rentals and below the scheduled monthly rent per unit for the subject ($627.90 per unit/$1.03 per square foot). This indicates potential upside in terms of future rental rate increases. We annualized the gross potential average monthly rent for the occupied units and applied a 4% increase to each rentable unit, yielding $635.17 ($610.74 inflated by 4 percent). For the purpose of this analysis, we then multiplied our projected average market rent of $635.17 by the 206 rentable units (which excludes the unit reserved for the property manager) and concluded a stabilized gross potential annual rental income totaling $1,570,139. A comparable rental survey and descriptions of the competitive properties can be found on the following pages. Rental Concessions: Due to the steadily increasing rents and the fairly strong occupancy rates in the Monterey County/Salinas apartment markets, no significant rental concessions are offered in the subject's apartment rental market at this time. The subject property currently does not offer any rent concessions, and market conditions clearly do not warrant any. Vacancy and Collection Loss: The vacancy and collection loss has been estimated based upon supply and demand for this type of property. The range of vacancies in the competitive subject market for garden style apartment rentals is reportedly 3 to 8 percent, with an average of 5 percent. The stabilized occupancy used in the Income Capitalization Approach is intended to reflect the performance of the property over a typical holding period within the subject market. Thus, we have applied a vacancy loss of 5 percent and an additional credit loss of 1 percent for the stabilized year. Market parameters were reviewed and clearly support these conclusions. Other Income: Apartment projects typically generate income from miscellaneous sources such as month-to-month rental fees and laundry income. Other items that could potentially be considered under other income include utility cost recovery fees, forfeited deposits, storage fees, pet fee income, late fees, tenant damages, collection and application fees. Our estimate of other income typically considers these and other reoccurring sources of other income. We analyzed the historical - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 37 <PAGE> VALUATION - -------------------------------------------------------------------------------- income over the last several years, as provided by the ownership. Based on the subjects history, and from discussions with the property manager, we estimated other income for a stabilized year at $75,000. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 38 <PAGE> VALUATION - -------------------------------------------------------------------------------- COMPARABLE RENTALS ANALYSIS CHART <TABLE> <CAPTION> ------------------------------ ----------------------------------- SUBJECT - BORONDA MANOR COMP # 1 - VILLA SAN JUAN ------------------------------ ----------------------------------- ----------------------- ----------------------- MONTHLY RENT AVG. MONTHLY RENT AVG. - ------------------- ------------------------------ ----------------------------------- UNIT TYPE UNITS EFFECTIVE SF. UNITS EFFECTIVE SF. - ------------------- ------------------------------ ----------------------------------- <S> <C> <C> <C> <C> <C> <C> STUDIO 22 $460 408 24 $475 402 - ------------------- ------------------------------ ----------------------------------- STUDIO - ------------------- ------------------------------ ----------------------------------- 1 BR/1BA 58 $570 571 8 $555 540 - ------------------- ------------------------------ ----------------------------------- 1 BR/1BA 20 $565 550 - ------------------- ------------------------------ ----------------------------------- 1 BR/1BA - ------------------- ------------------------------ ----------------------------------- 1 BR/1BA - ------------------- ------------------------------ ----------------------------------- 2 BR/1BA 127 $680 659 8 $660 720 - ------------------- ------------------------------ ----------------------------------- 2 BR/2BA - ------------------- ------------------------------ ----------------------------------- 2 BR/2BA - ------------------- ------------------------------ ----------------------------------- 2 BR/2BA - ------------------- ------------------------------ ----------------------------------- 3 BR/2BA - ------------------- ------------------------------ ----------------------------------- - ------------------- ------------------------------ ----------------------------------- TOTAL/AVERAGE 207 $626 608 60 $540 512 - ------------------- ------------------------------ ----------------------------------- OCCUPANCY 94% YEAR BUILT 1978/79 100% YEAR BUILT 1977 - ------------------- ------------------------------ ----------------------------------- AVERAGE RENT - UNIT Per Unit $626 Per Unit $540 - ------------------- --------------------- -------------------------- AVERAGE RENT - SF Per SF $1.03 Per SF $1.06 - ------------------- --------------------- -------------------------- ------------------------------ ----------------------------------- COMP # 2 - THE POINTE AT COMP # 3 - THE POINTE AT NORTHRIDGE HARDEN RANCH ------------------------------ ----------------------------------- ----------------------- ----------------------- MONTHLY RENT AVG. MONTHLY RENT AVG. UNIT TYPE UNITS EFFECTIVE SF. UNITS EFFECTIVE SF. - ------------------- ------------------------------ ----------------------------------- STUDIO - ------------------- ------------------------------ ----------------------------------- STUDIO - ------------------- ------------------------------ ----------------------------------- 1 BR/1BA 80 $633 672 42 $725 660 - ------------------- ------------------------------ ----------------------------------- 1 BR/1BA 43 $675 715 - ------------------- ------------------------------ ----------------------------------- 1 BR/1BA 42 $725 755 - ------------------- ------------------------------ ----------------------------------- 1 BR/1BA 43 $750 777 - ------------------- ------------------------------ ----------------------------------- 2 BR/2BA 108 $743 875 - ------------------- ------------------------------ ----------------------------------- 2 BR/2BA 73 $875 915 - ------------------- ------------------------------ ----------------------------------- 2 BR/2BA 73 $875 983 - ------------------- ------------------------------ ----------------------------------- 2 BR/2BA 74 $895 1,008 - ------------------- ------------------------------ ----------------------------------- 3 BR/2BA 58 $1,050 1,310 - ------------------- ------------------------------ ----------------------------------- - ------------------- ------------------------------ ----------------------------------- TOTAL/AVERAGE 118 $696 789 448 $842 921 - ------------------- ------------------------------ ----------------------------------- OCCUPANCY 92% YEAR BUILT 1979 96% YEAR BUILT 1979 - ------------------- ------------------------------ ----------------------------------- - ------------------- --------------------- -------------------------- AVERAGE RENT - UNIT Per Unit $696 Per Unit $842 - ------------------- --------------------- -------------------------- AVERAGE RENT - SF Per SF $0.88 Per SF $0.91 - ------------------- --------------------- -------------------------- </TABLE> PREPARED BY: ARTHUR ANDERSEN LLP - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 39 <PAGE> VALUATION - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] [COMPARABLE RENTALS MAP OMITTED] - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 40 <PAGE> VALUATION - -------------------------------------------------------------------------------- COMPARABLE APARTMENT RENTAL ONE [GRAPHIC OMITTED] Location: Villa San Juan 115 San Juan Grade Road Salinas, California Occupancy: 100% Year Built: 1977 Total Units: 60 Monthly Rent (Studio -402 SF) $475 Monthly Rent (1 x 1 - 540 SF) $555 Monthly Rent (1 x 1 w/loft - 550 SF) $565 Monthly Rent (2 x 1 - 720 SF) $660 Average Monthly Net Rent: $540 Heat/ A/C: Tenant Electric/ Gas: Tenant Hot Water: Tenant Building Amenities: Pool, carports, laundry facilities and security gates - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 41 <PAGE> VALUATION - -------------------------------------------------------------------------------- COMPARABLE APARTMENT RENTAL TWO [GRAPHIC OMITTED] Location: The Pointe at Northridge Occupancy: 92% Year Built: 1979 Total Units: 188 Monthly Rent (1 x 1 - 672 SF) $615 to $650 Monthly Rent (2 x 1 - 875 SF) $735 to $750 Average Monthly Rent $696 Heating/ A/C Tenant Electric / Gas Tenant Hot Water Tenant Building Amenities: Two pools, laundry facilities, security gates and security patrol - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 42 <PAGE> VALUATION - -------------------------------------------------------------------------------- COMPARABLE APARTMENT RENTAL THREE [GRAPHIC OMITTED] Location: The Pointe at Harden Ranch 2290 North Main Street Salinas, California Occupancy: 96% Year Built: 1979 Total Units: 448 Monthly Rent (1 x 1 - 660 - 777 SF) $725 to $750 Monthly Rent (2 x 2 - 915 - 1,008 SF) $875 to $895 Monthly Rent (3 x 2 - 1,310 SF) $1,050 Average Monthly Rent $842 Heating/ A/C Tenant Electric Tenant Hot Water Tenant Building Amenities: Two pools with saunas, racquetball, lighted tennis courts and gated security - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 43 <PAGE> VALUATION - -------------------------------------------------------------------------------- PROPERTY EXPENSE ANALYSIS PROPERTY OPERATING EXPENSES: We estimated expenses after analyzing historical data for the subject since 1994, in addition to published national surveys. The ownership changed in late 1996; therefore, we focused on 1997 figures. We also compared our stabilized expense projections on a per unit basis with the 1996 Institute of Real Estate Management (IREM) analysis of garden type, multi-family apartment buildings in the subject's region (California, Arizona and Nevada). IREM surveys property managers throughout the nation to determine income and expense averages for different municipalities. We used the region statistics because Monterey County, nor Salinas, were specifically identified. We thought the closest markets, which centered around the Bay Area, would skew our conclusions. Direct comparison of each category with a trade source such as IREM can be difficult since different property managers classify expenses differently. Based on conversations with local brokers in the area, the projected operating expenses are reasonable and in line with similar properties. Additionally, according to IREM, the average expense ratio (total expenses / potential gross income, before capital expenditures) is 38.5 percent for the subject's region. Our conclusion of the subject's pro forma, or stabilized operations, indicates an expense ratio of 43.4 percent before capital expenditures (reserves), which seems reasonable considering the region includes Arizona, Nevada and all of California. CAPITAL RESERVES: We have also incorporated a stabilized capital reserve expense to account for the occasional replacement of capital items such as appliances, HVAC units, windows and the roof. Based on accepted industry standards, we have applied a reserve allowance equivalent to $250 per unit in our analysis. MANAGEMENT FEES: The Korpacz Investor Survey quotes management fees between 3 to 5 percent of EGI (according to responses from pension advisors). The subject is likely to require similar fees as other investment grade properties, such as those considered in the Korpacz Investor Survey. We have thus applied a market derived management fee to the subject property of 4 percent of the EGI. CAPITAL EXPENDITURES: We have projected $200,000 in one time capital expenditures to the subject property based on our discussion earlier under "Deferred Maintenance" (see page 29). - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 44 <PAGE> VALUATION - -------------------------------------------------------------------------------- SUBJECT'S HISTORICAL EXPENSES <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------- Actual Actual Actual Actual for 1997 AA Estimate Pro Forma 1996 1994 1995 1996 (1) Total (2) per Unit Total (3) per Unit IREM (4) ----------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> OPERATING EXPENSES - ------------------ Real Estate Taxes $79,267 $40,916 $53,238 $121,801 $588 $111,542 $539 $373 - --------------------------------------------------------------------------------------------------------------- Advertising 6,200 12,389 8,557 15,844 77 10,350 50 51 - --------------------------------------------------------------------------------------------------------------- Insurance 66,086 9,079 3,198 21,173 102 21,735 105 115 - --------------------------------------------------------------------------------------------------------------- Salaries and Personnel 77,382 102,594 89,452 144,144 696 134,550 650 308 - --------------------------------------------------------------------------------------------------------------- Contract Services 20,118 27,374 51,022 10,849 52 15,525 75 148 - --------------------------------------------------------------------------------------------------------------- Administrative 3,665 53,772 50,778 30,398 147 36,225 175 188 - --------------------------------------------------------------------------------------------------------------- Utilities 149,645 149,635 158,596 199,274 963 196,650 950 665 - --------------------------------------------------------------------------------------------------------------- Repair & Maintenance 66,737 243,193 123,703 83,723 404 93,150 450 530 - --------------------------------------------------------------------------------------------------------------- Reserves for Replacement N/A N/A N/A N/A N/A 51,750 250 0 - --------------------------------------------------------------------------------------------------------------- Management Fee 21,456 26,475 25,501 46,122 223 62,100 300 309 - ----------------------------=================================================================================== TOTAL OPERATING EXPENSES $490,556 $665,427 $564,045 $673,328 $3,253 $733,577 $3,544 $2,687 - --------------------------------------------------------------------------------------------------------------- Total Units 207 </TABLE> (1) 1996 reflects the year ownership changed. We used actual information from Jan-Aug (from the prior owner) and converted these figures to 10 months, then we added these figures for Nov-Dec figures from the current owner to arrive at a reasonable indication for 1996 annual figures. (2) 1997 figures are annualized based on actual operations through October. (3) Real Estate Taxes are based on our value conclusion via the Income Approach multiplied by the current property tax rate. Management fee equals 4% of effective gross income. (4) IREM (Institute of Real Estate Management) figures are from the regional report, which includes California. Nevada and Arizona; thus figures should tend to be a little lower given the inclusion of Arizona and Nevada. PREPARED BY: ARTHUR ANDERSEN LLP - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 45 <PAGE> VALUATION - -------------------------------------------------------------------------------- OVERALL CAPITALIZATION RATES Overall capitalization rates vary according to investor requirements, investor motivations, property characteristics and market conditions. They are frequently responsive to long-term interest rates and inflation or deflation expectations. For this reason, we reviewed various interest rates for other investments as follows: ================================================================================ Type of Security Rate ================================================================================ Treasury-Bills - 3 moths 5.12% - -------------------------------------------------------------------------------- Treasury-Bonds - 30 years 6.03% - -------------------------------------------------------------------------------- Corporate Bonds - High Quality - 10+ year 6.74% - -------------------------------------------------------------------------------- Corporate Bonds - Medium (Quality - 10+ year) 7.03% - -------------------------------------------------------------------------------- Prime Rate 8.50% - -------------------------------------------------------------------------------- Source: Wall Street Journal, November 19, 1997 Overall Capitalization Rate - The overall (free & clear equity) capitalization rate is estimated by dividing the subject's forecasted stabilized net operating income by indicated value estimate. Several national organizations periodically survey real estate investors for overall capitalization rates. According to the Korpacz investor survey conducted in the Third Quarter of 1997, overall capitalization rates ranged from 7.50 to 10.00 percent with the average at 8.91 percent for the national apartment market. The CB Commercial investor survey also conducts a survey which interviews real estate professionals about their capitalization rate expectations. Within its First Quarter 1997 report, CB quotes capitalization rate ranges for several classes of apartment projects as the following table illustrates. ================================================================================ SUMMARY OF OVERALL CAPITALIZATION RATES ================================================================================ Publication Publication Date Low High Average - -------------------------------------------------------------------------------- Korpacz Investor Survey 3 Q 1997 7.50% 10.00% 8.91% - ----------------------- CB Commercial Investor Survey 1 Q 1997 - ----------------------------- Class A: 8.90% 9.50% 9.10% Class B: 9.30% 10.0% 9.80% Class C: 11.0% 11.0% 11.0% ================================================================================ - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 46 <PAGE> VALUATION - -------------------------------------------------------------------------------- In addition we have extracted overall rates from actual transactions used in our Sales Comparison Approach to value. They are as follows: Sale Date of Sale Sale Price Overall Rate ---- ------------ ---------- ------------ 1 Nov-96 $4,400,000 9.31% 2 Jun-96 $6,135,000 8.50% 3 Dec-95 $9,000,000 10.0% As can be seen from the chart above, overall rates for multi-family apartment building sales have ranged from 8.50 percent to 10.0 percent with an average of 9.27 percent. Given the above sales data, and considering national, published sources, we have chosen 9.25 percent. This falls well within the range of market rates and therefore considered to be a reasonable indicator of value for the subject property through the direct capitalization approach. INCOME CAPITALIZATION APPROACH CONCLUSION Based on the preceding direct capitalization analysis, the indicated value of the subject property as of November 19, 1997 after Capital Expenditures is $8,600,000, or $41,500 per unit. - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 47 <PAGE> VALUATION - -------------------------------------------------------------------------------- THE DIRECT CAPITALIZATION MODEL - -------------------------------------------------------------------------------- INCOME - ------ Gross Potential Rental Income $1,570,139 - --------------------------------------------- Vacancy Loss @ 5.0% ($78,507) - --------------------------------------------- Credit Loss @ 1.0% ($14,916) - --------------------------------------------- Other Income $75,000 - --------------------------------------------- ---------- Effective Gross Income $1,551,716 - --------------------------------------------- EXPENSES - -------- Real Estate Taxes 1.2970% $111,542 - ---------------------------------------------------------- Advertising $10,350 - ---------------------------------------------------------- Insurance $21,735 - ---------------------------------------------------------- Salaries & Personnel $134,550 - ---------------------------------------------------------- Contract Services $15,525 - ---------------------------------------------------------- Administrative $36,225 - ---------------------------------------------------------- Utilities $196,650 - ---------------------------------------------------------- Repairs & Maintenance $93,150 - ---------------------------------------------------------- Reserves @ (per unit) $250 $51,750 - ---------------------------------------------------------- Management Fee @ 4.00% $62,100 - -----------------------------------------------=========== Total Expenses $733,577 NET OPERATING INCOME $818,139 Capitalization Rate 9.25% INDICATED VALUE VIA THE INCOME APPROACH $8,844,746 Less Capital Expenditures ($200,000) Value after Capital Expenditures $8,644,746 Rounded $8,600,000 Per Unit $41,500 - -------------------------------------------------------------------------------- PREPARED BY: ARTHUR ANDERSEN LLP - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 48 <PAGE> VALUATION - -------------------------------------------------------------------------------- RECONCILIATION AND FINAL VALUE ESTIMATE Reconciliation involves the correlation of the conclusions reached from the different methodologies employed in the appraisal. This process depends on the recognition of the appropriateness and reliability of each approach and on the quality of the data obtained. The results of the three approaches we have used are as follows: COST APPROACH: N/A SALES COMPARISON APPROACH: $9,100,000 INCOME CAPITALIZATION APPROACH: $8,600,000 The Cost Approach provides a value indication by depreciating the cost of the improvements and adding the land value and is particularly reliable when the improvements are of new or recent construction. However, given the lack of recent comparable land sales in the competitive area, the difficulty in accurately estimating depreciation and entrepreneurial profits, and the fact that a prudent investor is primarily interested in the monetary returns of real estate; the cost approach is deemed ineffective as a value barometer and therefore inapplicable in our valuation. The Sales Comparison Approach involves direct comparison of the property being appraised to similar properties that have sold in the same or similar market. Improved sales from the subject's area were analyzed to a common unit of comparison (rental unit). Based on the characteristics of the sales in relation to the subject we were able to arrive at an estimate of value. However, aside from the recent bulk transaction where by the current owner acquired the subject property, there were few sales over the last two years. As a result, the Sales Comparison Approach is given secondary consideration, behind the Income Approach. The Income Capitalization Approach is the most applicable method since it addresses the most significant attraction of ownership, the income potential of the property. Primary reliance is placed on the Income Capitalization Approach because market rents were readily attainable, operating expenses were well documented and supported and meaningful capitalization rates were extracted from the market. Therefore, we placed most weight on this approach. It is our opinion that the market value of the fee simple interest in the property, as of November 19, 1997, is: EIGHT MILLION SEVEN HUNDRED THOUSAND DOLLARS $8,700,000 - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 49 <PAGE> ADDENDA <PAGE> ADDENDA - -------------------------------------------------------------------------------- ADDENDA Subject Photographs Legal Description Zoning Ordinance Flood Map Professional Qualifications - -------------------------------------------------------------------------------- Arthur Andersen LLP -- Valuation Services Group 50 <PAGE> ADDENDA - -------------------------------------------------------------------------------- PHOTOGRAPHS OF SUBJECT [PHOTO OMITTED] FRONT VIEW FROM SANTA RITA STREET [PHOTO OMITTED] VIEW OF GATED ENTRANCE (SANTA RITA STREET) <PAGE> ADDENDA - -------------------------------------------------------------------------------- PHOTOGRAPHS OF SUBJECT [PHOTO OMITTED] VIEW OF GATED ENTRANCE (EAST LAMAR STREET) [PHOTO OMITTED] TYPICAL EXTERIOR VIEW OF BUILDING <PAGE> ADDENDA - -------------------------------------------------------------------------------- PHOTOGRAPHS OF SUBJECT [PHOTO OMITTED] TYPICAL VIEW OF LANDSCAPING [PHOTO OMITTED] TYPICAL LIVING ROOM & BALCONY <PAGE> ADDENDA - -------------------------------------------------------------------------------- PHOTOGRAPHS OF SUBJECT [PHOTO OMITTED] TYPICAL KITCHEN [PHOTO OMITTED] TYPICAL BATHROOM <PAGE> ADDENDA - -------------------------------------------------------------------------------- PHOTOGRAPHS OF SUBJECT [PHOTO OMITTED] TYPICAL PARKING [PHOTO OMITTED] PARTIAL VIEW OF DEFERRED MAINTENANCE <PAGE> ADDENDA - -------------------------------------------------------------------------------- LEGAL DESCRIPTION (Schedule A, page 2) <PAGE> ================================================================================ AMERICAN LAND TITLE ASSOCIATION LOAN POLICY (10-17-92) CHICAGO TITLE INSURANCE COMPANY SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED IN SCHEDULE B AND THE CONDITIONS AND STIPULATIONS. CHICAGO TITLE INSURANCE COMPANY, a Missouri corporation, herein called the Company, insures, as of Date of Policy show n in Schedule A, against loss or damage, not exceeding the Amount of Insurance stated in Schedule A, sustained or incurred by the insured by reason of: 1. Title to the estate or interest described in Schedule A being vested other than as stated therein: 2. Any defect in or lien or encumbrance on the title; 3. Unmarketability of the title; 4. Lack of a right of access to and from the land; 5. The invalidity or unenforceability of the lien of the insured mortgage upon the title; 6. The priority of any lien or encumbrance over the lien of the insured mortgage; 7. Lack of priority of the lien of the insured mortgage over any statutory lien for services, labor or material: (a) arising from an improvement or work related to the land which is contracted for or commenced prior to Date of Policy; or (b) arising from an improvement or work related to the land which is contracted for or commenced subsequent to Date of Policy and which is financed in whole or in part by proceeds of the indebtedness secured by the insured mortgage which at Date of Policy the insured has advanced or is obligated to advance; 8. Any assessments for street improvements under construction or completed at Date of Policy which now have gained or hereafter may gain priority over the lien of the insured mortgage: 9. The invalidity or unenforceability of any assignment of the insured mortgage, provided the assignment is shown in Schedule A, or the failure of the assignment shown in Schedule A to vest title to the insured mortgage in the named insured assignee free and clear of all liens. The Company will also pay the costs, attorneys' fees and expenses incurred in defense of the title or the lien of the insured mortgage, as insured, but only to the extent provided in the Conditions and Stipulations. Issued by: CHICAGO TITLE COMPANY CHICAGO TITLE INSURANCE COMPANY 50 Winham Street Salinas, CA 93901 (408) 424-8011 By: /s/ Richard L. Polla President By: /s/ Thomas J. Adams Secretary [SEAL] CHICAGO TITLE INSURANCE COMPANY CORPORATE SEAL ================================================================================ ALTA Loan Policy (10-17-92) with ALTA Endorsement-Form 1 Coverage <PAGE> EXCLUSIONS FROM COVERAGE The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of: 1. (a) Any law, ordinance or governmental regulation (including but not limited to building and zoning laws, ordinances, or regulations) restricting, regulating, prohibiting or relating to (i) the occupancy, use, or enjoyment of the land; (ii) the character, dimensions or location of any improvement now or hereafter erected on the land; (iii) a separation in ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part; or (iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. (b) Any governmental police power not excluded by (a) above, except to the extent that a notice of the exercise thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. 2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding from coverage any taking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge. 3. Defects, liens, encumbrances, adverse claims or other matters: (a) created, suffered, assumed or agreed to by the insured claimant; (b) not known to the Company, not recorded in the public records at Date of Policy, but known to the insured claimant and not disclosed in writing to the Company by the insured claimant prior to the date the insured claimant became an insured under this policy; (c) resulting in no loss or damage to the insured claimant; (d) attaching or created subsequent to Date of Policy (except to the extent that this policy insures the priority of the lien of the insured mortgage over any statutory lien for services, labor or material); or (e) resulting in loss or damage which would not have been sustained if the insured claimant had paid value for the insured mortgage. 4. Unenforceability of the lien of the insured mortgage because of the inability or failure of the insured at Date of Policy, or the inability or failure of any subsequent owner of the indebtedness, to comply with applicable doing business laws of the state in which the land is situated. 5. Invalidity or unenforceability of the lien of the insured mortgage, or claim thereof, which arises out of the transaction evidenced by the insured mortgage and is based upon usury or any consumer credit protection or truth in lending law. 6. Any statutory lien for services, labor or materials (or the claim of priority of any statutory lien for services, labor or materials over the lien of the insured mortgage) arising from an improvement or work related to the land which is contracted for and commenced subsequent to Date of Policy and is not financed in whole or in part by proceeds of the indebtedness secured by the insured mortgage which at Date of Policy the insured has advanced or is obligated to advance. 7. Any claim, which arises out of the transaction creating the interest of the mortgagee insured by this policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws, that is based on: (i) the transaction creating the interest of the insured mortgagee being deemed a fraudulent conveyance or fraudulent transfer; or (ii) the subordination of the interest of the insured mortgagee as a result of the application of the doctrine equitable subordination; or (iii) the transaction creating the interest of the insured mortgagee being deemed a preferential transfer except where the preferential transfer results from the failure: (a) to timely record the instrument of transfer; or (b) of such recordation to impart notice to a purchaser for value or a judgment or lien creditor. CONDITIONS AND STIPULATIONS 1. DEFINITION OF TERMS The following terms when used in this policy mean: (a) "insured" the insured named in Schedule A. The term "insured" also includes (i) the owner of the indebtedness secured by the insured mortgage and each successor in ownership of the indebtedness except a successor who is an obligor under the provisions of Section 12(c) of these Conditions and Stipulations (reserving, however, all rights and defenses as to any successor that the Company would have had against any predecessor insured, unless the successor acquired the indebtedness as a purchaser for value without knowledge of the asserted defect, lien, encumbrance, adverse claim or other matter insured against by this policy as affecting title to the estate or interest in the land); (ii) any governmental agency or governmental instrumentality which is an insurer or guarantor under an insurance contract or guaranty insuring or guaranteeing the indebtedness secured by the insured mortgage, or any part thereof, whether named as an insured herein or not; (iii) the parties designated in Section 2(a) of these Conditions and Stipulations (b) "insured claimant" an insured claiming loss or damage. (c) "knowledge" or "known" actual knowledge, not constructive knowledge or notice which may be imputed to an insured by reason of the public records as defined in this policy or any other records which impart constructive notice of matters affecting the land. (d) "land": the land described or referred to in Schedule A, and improvements affixed thereto which by law constitute real property. The term "land" does not include any property beyond the lines of the area described or referred to in Schedule A, nor any right, title, interest, estate or easement in abutting streets, roads, avenues, alleys, lanes, ways or waterways, but nothing herein shall modify or limit the extent to which a right of access to and from the land is insured by this policy. (e) "mortgage" mortgage, deed of trust, trust deed, or other security instrument. (f) "public records": records established under state statutes at Date of Policy for the purpose of imparting constructive notice of matters relating to real property to purchasers for value and without knowledge. With respect to Section 1(a)(iv) of the Exclusions From Coverage, "public records" shall also include environmental protection liens filed in the records of the clerk of the United States district court for the district in which the land is located. (g) "unmarketability of the title": an alleged or apparent matter affecting the title to the land, not excluded or excepted from coverage, which would entitle a purchaser of the estate or interest described in Schedule A or the insured mortgage to be released from the obligation to purchase by virtue of a contractual condition requiring the delivery of marketable title. 2. CONTINUATION OF INSURANCE (a) After Acquisition of Title. The coverage of this policy shall continue in force as of Date of Policy in favor of (i) an insured who acquires all or any part of the estate or interest in the land by foreclosure, trustee's sale, conveyance in lieu of foreclosure, or other legal manner which discharges the lien of the insured mortgage; (ii) a transferee of the estate or interest so acquired from an insured corporation, provided the transferee is the parent or wholly-owned subsidiary of the insured corporation, and their corporate successors by operation of law and not by purchase, subject to any rights or defenses the Company may have against any predecessor insureds; and (iii) any governmental agency or governmental instrumentality which acquires all or any part of the estate or interest pursuant to a contract of insurance or guaranty insuring or guaranteeing the indebtedness secured by the insured mortgage. (b) After Conveyance of Title. The coverage of this policy shall continue in force as of Date of Policy in favor of an insured only so long as the insured retains an estate or interest in the land, or holds an indebtedness secured by a purchase money mortgage given by a purchaser from the insured, or only so long as the insured shall have liability by reason of covenants of warranty made by the insured in any transfer or conveyance of the estate or interest. This policy shall not continue in force in favor of any purchaser from the insured of either (i) an estate or interest in the land, or (ii) an indebtedness secured by a purchase money mortgage given to the insured. <PAGE> (c) Amount of Insurance. The amount of insurance after the acquisition or after the conveyance shall in neither event exceed the least of (i) the Amount of Insurance stated in Schedule A. (ii) the amount of the principal of the indebtedness secured by the insured mortgage as of Date of Policy, interest thereon, expenses of foreclosure, amounts advanced pursuant to the insured mortgage to assure compliance with laws or to protect the lien of the insured mortgage prior to the time of acquisition of the estate or interest in the land and secured thereby and reasonable amounts expended to prevent deterioration of improvements, but reduced by the amount of all payments made, or (iii) the amount paid by any governmental agency or governmental instrumentality if the agency or instrumentality is the insured claimant, in the acquisition of the estate or interest in satisfaction of its insurance contract or guaranty 3. NOTICE OF CLAIM TO BE GIVEN BY INSURED CLAIMANT The insured shall notify the Company promptly in writing (i) in case of any litigation as set forth in Section 4(a) below, (ii) in case knowledge shall come to an insured hereunder of any claim of title or interest which is adverse to the title to the estate or interest or the lien of the insured mortgage, as insured, and which might cause loss or damage for which the Company may be liable by virtue of this policy, or (iii) if title to the estate or interest or the lien of the insured mortgage, as insured, is rejected as unmarketable. If prompt notice shall not be given to the Company, then as to the insured all liability of the Company shall terminate with regard to the matter or matters for which prompt notice is required, provided, however, that failure to notify the Company shall in no case prejudice the rights of any insured under this policy unless the Company shall be prejudiced by the failure and then only to the extent of the prejudice 4. DEFENSE AND PROSECUTION OF ACTIONS; DUTY OF INSURED CLAIMANT TO COOPERATE (a) Upon written request by the insured and subject to the options contained in Section 6 of these Conditions and Stipulations, the Company, at its own cost and without unreasonable delay, shall provide for the defense of an insured in litigation in which any third party asserts a claim adverse to the title or interest as insured but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against by this policy. The Company shall have the right to select counsel of its choice (subject to the right of the insured to object for reasonable cause) to represent the insured as to those stated causes of action and shall not be liable for and will not pay the fees of any other counsel. The Company will not pay any fees costs or expenses incurred by the insured in the defense of those causes of action which allege matters not insured against by this policy (b) The Company shall have the right, at its own cost, to institute and prosecute any action or proceeding or to do any other act which in its opinion may be necessary or desirable to establish the title to the estate or interest or the lien of the insured mortgage, as insured, or to prevent or reduce loss or damage to the insured. The Company may take any appropriate action under the terms of this policy, whether or not it shall be liable hereunder, and shall not thereby concede liability or waive any provision of this policy. If the Company shall exercise its rights under this paragraph, it shall do so diligently. (c) Whenever the Company shall have brought an action or interposed a defense as required or permitted by the provisions of this policy, the Company may pursue any litigation to final determination by a court of competent jurisdiction and expressly reserves the right, in its sole discretion, to appeal from any adverse judgment or order (d) In all cases where this policy permits or requires the Company to prosecute or provide for the defense of any action or proceeding, the insured shall secure to the Company the right to so prosecute or provide defense in the action or proceeding, and all appeals therein, and permit the Company to use, at its option, the name of the insured for this purpose. Whenever requested by the Company, the insured, at the Company's expense, shall give the Company all reasonable and (i) in any action or proceeding, securing evidence, obtaining witnesses, prosecuting or defending the action or proceeding, or effecting settlement, and (ii) in any other lawful act which in the opinion of the Company may be necessary or desirable to establish the title to the estate or interest or the lien of the insured mortgage, as insured. If the Company is prejudiced by the failure of the insured to furnish the required cooperation, the Company's obligations to the insured under the policy shall terminate, including any liability or obligation to defend, prosecute or continue any litigation, with regard to the matter or matters requiring such cooperation 5. PROOF OF LOSS OR DAMAGE In addition to and after the notices required under Section 3 of these Conditions and Stipulations have been provided the Company, a proof of loss or damage signed and sworn to by the insured claimant shall be furnished to the Company within 90 days after the insured claimant shall ascertain the facts giving rise to the loss or damage. The proof of loss or damage shall describe the defect in or lien or encumbrance on the title, or other matter insured against by this policy which constitutes the basis of loss or damage and shall state to the extent possible the basis of calculating the amount of the loss or damage. If the Company is prejudiced by the failure of the insured claimant to provide the required proof of loss or damage the Company's obligations to the insured under the policy shall terminate, including any liability or obligation to defend, prosecute or continue any litigation with regard to the matter or matters requiring such proof of loss or damage In addition, the insured claimant may reasonably be required to submit to examination under oath by any authorized representative of the Company and shall produce for examination, inspection and copying at such reasonable times and places as may be designated by any authorized representative of the Company, all records, books, ledgers, checks, correspondence and memoranda, whether bearing a date before or after Date of Policy which reasonably pertain to the loss or damage. Further, if requested by any authorized representative of the Company the insured claimant shall grant its permission, in writing, for any authorized representative of the Company to examine, inspect and copy all records, books, ledgers, checks, correspondence and memoranda in the custody or control of a third party which reasonably pertain to the loss or damage. All information designated as confidential by the insured claimant provided to the Company pursuant to this Section shall not be disclosed to others unless, in the reasonable judgment of the Company, it is necessary in the administration of the claim. Failure of the insured claimant to submit for examination under oath, produce other reasonably requested information or grant permission to secure reasonably necessary information from third parties as required in this paragraph, unless prohibited by law or governmental regulation, shall terminate any liability of the Company under this policy as to that claim. 6. OPTIONS TO PAY OTHERWISE SETTLE CLAIMS: TERMINATION OF LIABILITY In case of a claim under this policy, the Company shall have the following additional options (a) TO PAY OR TENDER PAYMENT OF THE AMOUNT OF INSURANCE OR TO PURCHASE THE INDEBTEDNESS. (i) to pay or tender payment of the amount of insurance under this policy together with any costs, attorneys' fees and expenses incurred by the insured claimant, which were authorized by the Company up to the time of payment or tender of payment and which the Company is obligated to pay, or (ii) to purchase the indebtedness secured by the insured mortgage for the amount owing thereon together with any costs, attorneys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of purchase and which the Company is obligated to pay If the Company offers to purchase the indebtedness as herein provided the owner of the indebtedness shall transfer, assign, and convey the indebtedness and the insured mortgage, together with any collateral security to the Company upon payment therefor Upon the exercise by the Company of either of the options provided for in paragraphs a(i) or (ii), all liability and obligations to the insured under this policy, other than to make the payment required in those paragraphs shall terminate, including any liability or obligation to defend, prosecute or continue any litigation, and the policy shall be surrendered to the Company for cancellation (b) TO PAY OR OTHERWISE SETTLE WITH PARTIES OTHER THAN THE INSURED OR WITH THE INSURED CLAIMANT. (i) to pay or otherwise settle with other parties for or in the name of an insured claimant any claim insured against under this policy, together with any costs, attorneys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of payment and which the Company is obligated to pay; or (ii) to pay or otherwise settle with the insured claimant the loss or damage provided for under this policy, together with any costs, attorneys' fees and expenses incurred by the insured claimant which were authorized by the Company up to the time of payment and which the Company is obligated to pay. Upon the exercise by the Company of either of the options provided for in paragraphs (b)(i) or (ii), the Company's obligations to the insured under this policy for the claimed loss or damage, other than the payments required to be made, shall terminate, including any liability or obligation to defend, prosecute or continue any litigation. 7. DETERMINATION AND EXTENT OF LIABILITY This policy is a contract of indemnity against actual monetary loss or damage sustained or incurred by the insured claimant who has suffered loss or damage by reason of matters insured against by this policy and only to the extent herein described. (a) The liability of the Company under this policy shall not exceed the least of (i) the Amount of Insurance stated in Schedule A or if applicable the amount of insurance as defined in Section 2(c) of these Conditions and Stipulations. (ii) the amount of the unpaid principal indebtedness secured by the insured mortgage as limited or provided under Section 8 of these Conditions and Stipulations or as reduced under Section 9 of these Conditions and Stipulations, at the time the loss or damage insured against by this policy occurs together with interest thereon, or <PAGE> insured and the value of the insured estate or interest subject to the defect lien or encumbrance insured against by this policy (b) to the event the insured has acquired the estate or interest of the manner described in Section 2(a) of these Conditions and Stipulations or has conveyed the title then the liability of the Company shall continue as set forth in Section 7(a) of these Conditions and Stipulations (c) The Company will pay only those costs attorneys fees and expenses incurred in accordance with Section 4 of these Conditions and Stipulations 8. LIMITATION OF LIABILITY (a) If the Company establishes the title or removes the alleged defect lien or encumbrance or cures the lack of a right of access to or from the land, or cures the claim of unmarketability of title or otherwise establishes the lien of the insured mortgage all as insured in a reasonably diligent manner by any method including litigation and the completion of any appeals therefrom it shall have fully performed its obligations with respect to that matter and shall not be liable for any loss or damage caused thereby (b) In the event of any litigation including litigation by the Company or with the Company's consent, the Company shall have no liability for loss or damage until there has been a final determination by a court of competent jurisdiction and disposition of all appeals therefrom, adverse to the title or to the lien of the insured mortgage, as insured (c) The Company shall not be liable for loss or damage to any insured for liability voluntarily assumed by the insured in settling any claim or suit without the prior written consent of the Company. (d) The Company shall not be liable for: (i) any indebtedness created subsequent to Date of Policy except for advances made to protect the lien of the insured mortgage and secured thereby and reasonable amounts expended to prevent deterioration of improvements, or (ii) construction loan advances made subsequent to Date of Policy, except construction loan advances made subsequent to Date of Policy for the purpose of financing in whole or in part the construction of an improvement to the land which at Date of Policy were secured by the insured mortgage and which the insured was and continued to be obligated to advance at and after Date of Policy. 9. REDUCTION OF INSURANCE: REDUCTION OR TERMINATION OF LIABILITY (a) All payments under this policy, except payments made for costs, attorneys' fees and expenses, shall reduce the amount of the insurance pro tanto. However, any payments made prior to the acquisition of title to the estate or interest as provided in Section 2(a) of these Conditions and Stipulations shall not reduce pro tanto the amount of the insurance afforded under this policy except to the extent that the payments reduce the amount of the indebtedness secured by the insured mortgage (b) Payment in part by any person of the principal of the indebtedness, or any other obligation secured by the insured mortgage, or any voluntary partial satisfaction or release of the insured mortgage, to the extent of the payment, satisfaction or release, shall reduce the amount of insurance pro tanto. The amount of insurance may thereafter be increased by accruing interest and advances made to protect the lien of the insured mortgage and secured thereby, with interest thereon, provided in no event shall the amount of insurance be greater than the Amount of Insurance stated in Schedule A. (c) Payment in full by any person or the voluntary satisfaction or release of the insured mortgage shall terminate all liability of the Company except as provided in Section 2(a) of these Conditions and Stipulations. 10. LIABILITY NONCUMULATIVE If the insured acquires title to the estate or interest in satisfaction of the indebtedness secured by the insured mortgage, or any part thereof, it is expressly understood that the amount of insurance under this policy shall be reduced by any amount the Company may pay under any policy insuring a mortgage to which exception is taken in Schedule B or to which the insured has agreed, assumed, or taken subject, or which is hereafter executed by an insured and which is a charge or lien on the estate or interest described or referred to in Schedule A, and the amount so paid shall be deemed a payment under this policy. 11. PAYMENT OF LOSS (a) No payment shall be made without producing this policy for endorsement of the payment unless the policy has been lost or destroyed, in which case proof of loss or destruction shall be furnished to the satisfaction of the Company (b) When liability and the extent of loss or damage has been definitely fixed in accordance with these Conditions and Stipulation, the loss or damage shall be payable within 30 days thereafter. 12. SUBROGATION UPON PAYMENT OR SETTLEMENT (a) THE COMPANY'S RIGHT OF SUBROGATION. Whenever the Company shall have settled and paid a claim under this policy, all right of subrogation shall vest in the Company unaffected by any act of the insured claimant. The Company shall be subrogated to and be entitled to all rights and remedies which the insured claimant would have had against any person or property in respect to the claim had this policy not been issued. If requested by the Company, the insured claimant shall transfer to the Company all rights ?? of subrogation. The insured claimant shall permit the Company to sue compromise or settle in the name of the insured claimant and 'caused the name of the insured claimant in any transaction obligation involving these rights or remedies If a payment on account of a claim does not fully cover the loss of the insured claimant, the Company shall be subrogated to all rights and remedies of the insured claimant after the insured claimant shall have recovered its principal, interest, and costs of collection (b) THE INSURED'S RIGHTS AND LIMITATIONS. Notwithstanding the foregoing, the owner of the indebtedness secured by the insured mortgage, provided the priority of the lien of the insured mortgage or its enforceability is not affected, may release or substitute the personal liability of any debtor or guarantor, or extend or otherwise modify the terms of payment, or release a portion of the estate or interest from the lien of the insured mortgage, or release any collateral security for the indebtedness When the permitted acts of the insured claimant occur and the insured has knowledge of any claim of title or interest adverse to the title to the estate or interest or the priority or enforceability of the lien of the insured mortgage as insured, the Company shall be required to pay only that part of any losses insured against by this policy which shall exceed the amount, if any lost to the Company by reason of the impairment by the insured claimant of the Company's right of subrogation. (c) THE COMPANY'S RIGHTS AGAINST NON-INSURED OBLIGORS. The Company's right of subrogation against non-insured obligors shall exist and shall include, without limitation, the rights of the insured to indemnities, guaranties, other policies of insurance or bonds, notwithstanding any terms or conditions contained in those instruments which provide for subrogation rights by reason of this policy The Company's right of subrogation shall not be avoided by acquisition of the insured mortgage by an obligor (except an obligor described in Section 1(a)(ii) of these Conditions and Stipulations) who acquires the insured mortgage as a result of an indemnity, guarantee, other policy of insurance, or bond and the obligor will not be an insured under this policy, notwithstanding Section 1(a)(i) of these Conditions and Stipulations 13. ARBITRATION Unless prohibited by applicable law, either the Company or the insured may demand arbitration pursuant to the Title Insurance Arbitration Rules of the American Arbitration Association. Arbitrable matters may include, but are not limited to, any controversy or claim between the Company and the insured arising out of or relating to this policy, any service of the Company in connection with its issuance or the breach of a policy provision or other obligation. All arbitrable matters when the Amount of Insurance is $1,000,000 or less shall be arbitrated at the option of either the Company or the insured. All arbitrable matters when the Amount of Insurance is in excess of $1,000,000 shall be arbitrated only when agreed to by both the Company and the insured. Arbitration pursuant to this policy and under the Rules in effect on the date the demand for arbitration is made or, at the option of the insured, the Rules in effect at Date of Policy shall be binding upon the parties. The award may include attorneys' fees only if the laws of the state in which the land is located permit a court to award attorneys' fees to a prevailing party. Judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. The law of the situs of the land shall apply to an arbitration under the Title Insurance Arbitration Rules. A copy of the Rules may be obtained from the Company upon request. 14. LIABILITY LIMITED TO THIS POLICY; POLICY ENTIRE CONTRACT (a) This policy together with all endorsement, if any, attached hereto by the Company is the entire policy and contract between the insured and the Company. In interpreting provision of this policy, this policy shall be construed as a whole. (b) Any claim of loss or damage, whether or not based on negligence, and which arises out of the status of the lien of the insured mortgage or of the title to the estate or interest covered hereby or by any action asserting such claim, shall be restricted to this policy. (c) No amendment of or endorsement to this policy can be made except by a writing endorsed hereon or attached hereto signed by either the President, a Vice President, the Secretary, an Assistant Secretary, or validating officer or authorized signatory of the Company. 15. SEVERABILITY In the event any provision of this policy is held invalid or unenforceable under applicable law, the policy shall be deemed not to include that provision and all other provisions shall remain in full force and effect. 16. NOTICES, WHERE SENT All notices required to be given the Company and any statement in writing required to be furnished the Company shall include the number of this policy and shall be addressed to the Company at the issuing office or to CHICAGO TITLE INSURANCE COMPANY CLAIMS DEPARTMENT 171 NORTH CLARK STREET CHICAGO, ILLINOIS 60601-3294 Reorder form No 8264 (Rev 10-17-92) <PAGE> SCHEDULE A ================================================================================ Policy No : 1704853 - MM Premium: $300.00 Amount of Insurance: $5,961,443.00 Date of Policy: December 31, 1996 at 1:00 PM 1. Name of Insured: MIDLAND LOAN SERVICES, L. P. ("MIDLAND"), ITS SUCCESSORS AND ASSIGNS, AS DEFINED IN PARAGRAPH 1(A) OF THE CONDITIONS AND STIPULATIONS OF THIS POLICY 2. The estate or interest in the land described in this schedule and which is encumbered by the insured mortgage is: A FEE 3. Title to the estate or interest in the land is vested in: CMP-1, LLC, a Delaware limited liability company 4. The insured mortgage and assignments thereof, if any, are described as follows: See Attached Exhibit - Insured Mortgage ================================================================================ <PAGE> Policy No: 1704853 - MM Page 2 SCHEDULE A (CONTINUED) ================================================================================ 5. The land referred to in this policy is situated in the State of California, County of Monterey and is described as follows: PARCEL I: Parcel 1, as shown and designated on Map filed June 14th, 1978 in Volume 12 of "Parcel Maps" at Page 114, Monterey County Records. PARCEL II: An easement for ingress and egress lying within Parcel 2, and lying adjacent to the Southerly boundary of Parcel 1 as said "Easement for ingress and egress" and Parcels 1 and 2 are shown and designated on map filed June 14, 1978 in Volume 12 of "Parcel Maps" at Page 114, Monterey County Records. PARCEL III: An easement for ingress and egress 24 feet in width as said 24' wide easement for ingress and egress is shown and designated on map filed June 14, 1978 in Volume 12 of "Parcel Maps" at Page 114, Monterey County Records. PARCEL IV: Parcel 2, as shown and designated on Map filed June 14, 1978 in Volume 12 of "Parcel Maps" at Page 114, Monterey County Records. PARCEL V: Parcel 3, as shown and designated on Map filed June 14, 1978 in Volume 12 of "Parcel Maps" at Page 114, Monterey County Records. PARCEL VI: An easement for ingress and egress 31 feet in width lying within the limits of Parcel 1, as shown and designated on Map filed June 14, 1978 in Volume 12 of "Parcel Maps" at Page 114, Monterey County Records. ================================================================================ <PAGE> Policy No. 1704853 - MM Page 1 EXHIBIT (INSURED MORTGAGE) A Deed of Trust in an original amount of: Dated: December 31, 1996 Amount: $45,000,000.00 Trustor: CMP-1, LLC, a Delaware limited liability company Trustee: Chicago Title Insurance Company Beneficiary: Midland Loan Services, L.P., a Missouri limited partnership 210 West 10th Street Kansas City, Missouri 64105 Recorded: December 31, 1996, Series No. 77704, in Reel 3463, Page 510, Official Records Said matter affects this and other property The Beneficial interest under said Deed of Trust was assigned To Merrill Lynch Mortgage Capital, Inc., a New York corporation By Assignment Dated: December __, 1996 Recorded: December 31, 1996 in Reel 3463, Page 659, Official Records <PAGE> Policy No: 1704853 - MM SCHEDULE B ================================================================================ EXCEPTIONS FROM COVERAGE This policy does not insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: PART I 1. General and Special Taxes and Assessments, if any, for the fiscal year 1996-97 Assessment No.: 253-111-018 Code No.: 005-022 First Installment: $12,849.48, Paid Second Installment: $12,849.48, A lien not yet due or payable Assessed Valuation Of Personal Property: NONE Homeowners Exemption: $NONE General and Special Taxes and Assessments, if any, for the fiscal year 1996-97 Assessment No.: 253-111-019 Code No.: 005-022 First Installment: $14,453.02, Paid Second Installment: $14,453.02, A lien not yet due or payable Assessed Valuation Of Personal Property: NONE Homeowners Exemption: $NONE General and Special Taxes and Assessments, if any, for the fiscal year 1996-97 Assessment No.: 253-111-020 Code No.: 005-022 First Installment: $13,946.10, Paid Second Installment: $13,946.10, A lien not yet due or payable Assessed Valuation Of Personal Property: NONE Homeowners Exemption: $NONE 2. The Lien of Supplemental Taxes, for which a bill has been mailed after the date of the policy, pursuant to the provisions of Chapter 3.5, ================================================================================ <PAGE> Policy No: 1704853 - MM Page 2 SCHEDULE B-PART I (CONTINUED) ================================================================================ Revenue and Taxation Code, Sections 75 et seq. 3. Waiver of any claims for damages due to the construction, maintenance and location of a State Highway, as set forth in the deed From: M. G. Souza, et ux To: State of California Recorded: February 14, 1931 in Book 279, Page 235, Official Records Affects: Those portions of Parcels 2 and 3 abutting Boronda Road 4. An easement for the purpose shown below and rights incidental thereto as shown or as offered for dedication on the recorded map shown below. Map of: Volume 12, Parcel Maps, Page 114 Recorded: June 14, 1978 Easement Purpose: Ingress and egress 24 feet and 31 feet in width Affects: Parcels III and VI And as reserved in the deed recorded in Reel 1251, Page 38, Official Records. 5. The fact that the ownership of said land does not include rights of access to or from the street or highway abutting said land, such rights having been relinquished by the map of said Tract. Affects: Those portions of Parcels 2 and 3 abutting Boronda Road 6. An easement for the purpose shown below and rights incidental thereto as set forth in a document Granted to: The Pacific Telephone and Telegraph Company (No Representation is made as to the present ownership of said easement) Purpose: Utilities, 5' wide Recorded: August 3, 1978 in Reel 1264, Page 994, Official Records Affects: As set forth in the deed 7. An easement for the purpose shown below and rights incidental thereto as set forth in a document ================================================================================ <PAGE> Policy No: 1704853 - MM Page 3 SCHEDULE B - PART I (CONTINUED) Granted to: The Pacific Gas and Electric Company, a California corporation (No Representation is made as to the present ownership of said easement) Purpose: Utilities, 10 feet in width Recorded: December 7, 1978 in Reel 1295, Page 390, Official Records The exact location and extent of said easement is not disclosed of record. 8. An easement for the purpose shown below and rights incidental thereto as set forth in a document Granted to: The Pacific Gas and Electric Company, a California corporation (No Representation is made as to the present ownership of said easement) Purpose: Utilities, 10 feet in width Recorded: December 7, 1978 in Reel 1295, Page 392, Official Records The exact location and extent of said easement is not disclosed of record. 9. An easement for the purpose shown below and rights incidental thereto as set forth in a document Granted to: Pacific Gas and Electric Company a California corporation Purpose: Public Utilities Recorded: February 1, 1979 in Reel 1306, Page 1127, Official Records Affects: That portion of said land as therein provided 10. An easement for the purpose shown below and rights incidental thereto as set forth in a document Granted to: Pacific Telephone and Telegraph Company Purpose: Public Utilities Recorded: February 23, 1979 in Reel 1311, Page 400, Official Records Affects: As set forth in the deed 11. An easement for the purpose shown below and rights incidental thereto as ================================================================================ <PAGE> Policy No: 1704853 - MM Page 4 SCHEDULE B-PART I (continued) ================================================================================ set forth in a document Granted to: Pacific Gas and Electric Company, a California corporation Purpose: Underground pipe. with suitable service pipes and connections for the conveyance of gas Recorded: April 30, 1979 in Reel 1326, Page 600, Official Records Affects: As set forth in the deed 12. An easement for the purpose shown below and rights incidental thereto as set forth in a document Granted to: Pacific Gas and Electric Company, a California corporation PURPOSE: Public utilities Recorded: April 30, 1979 in Reel 1326, Page 602, Official Records Affects: As set forth in the deed 13. An easement for the purpose shown below and rights incidental thereto as set forth in a document Granted to: Pacific Gas and Electric Company, a California corporation Purpose: Public utilities Recorded: April 30, 1979 in Reel 1326, Page 605, Official Records Affects: As set forth in the deed 14. An easement for the purpose shown below and rights incidental thereto as set forth in a document Granted to: Water West Corporation, a corporation Purpose: Pipelines, ingress and egress Recorded: August 2, 1979 in Reel 1349, Page 810, Official Records Affects: Those portions of said land as therein provided 15. An easement for the purpose shown below and rights incidental thereto as set forth in a document Granted to: Pacific Gas and Electric Company, a California corporation Purpose: Public utilities ================================================================================ <PAGE> Policy No: 1704853 - MM Page 5 SCHEDULE B - PART I (continued) ================================================================================ Recorded: August 6, 1979 in Reel 1352, Page 903, Official Records Affects: As set forth in the deed 16. An easement for the purpose shown below and rights incidental thereto as set forth in a document Granted to: Pacific Gas and Electric Company, a California corporation Purpose: Underground pipes with suitable service pipes and connections for the conveyance of gas Recorded: August 16, 1979 in Reel 1352, Page 907, Official Records Affects: As set forth in the deed 17. Terms and provisions as set forth in the Costs, Maintenance, Use and Assessments Regarding Private Roads Executed by: Boronda Manor, a general partnership and by Homer M. Hayward and Nancy Eccels Hayward Recorded: September 21, 1979 in Reel 1360, Page 561, Official Records Reference is made to said document for full particulars. 18. Any rights, interest, or claims which may exist or arise by reason of the following facts shown on a survey plat entitled ALTA/ACSM Land Title Survey of Parcels 1, 2 and 3 in Volume 12, Parcel Maps, Page 114, dated May 15, 1996 December 11, 1996 prepared by Tronoff Associates: A) The fact that a 6' and 8' concrete wall encroaches in the Southerly boundary. B) The fact that high voltage boxes encroaches on the Westerly boundary. C) The fact that a 6' chain link fence is located along the Northerly boundary partially on said land and partially on said adjoining land. D) The fact that a 6' wood fence is located along the Westerly boundary partially on said land and partially on said adjoining land. E) The fact that a high voltage box, telephone box on concrete and a water meter encroach along the Northerly boundary. F) The fact that planter with ivy and trees encroach over the Northerly boundary. ================================================================================ <PAGE> Policy No: 1704853 - MM Page 6 SCHEDULE B-PART I (continued) G) The fact that planters with ivy and trees encroach over the Easterly boundary. H) The fact that 6' wood fence is located along the Easterly boundary partially on said land and partially on said adjoining land. I) The fact that 7' wood fence is located along the Southerly boundary partially on said land and partially on said adjoining land. 19. An unrecorded lease with certain terms, covenants, conditions and provisions set forth therein Lessees: (A) Signagi Space (B) Web Disclosed by: Information furnished to this Company ================================================================================ <PAGE> Policy No: 1704853 - MM Page 1 SCHEDULE B ================================================================================ PART II In addition to the matters set forth in Part I of this Schedule, the title to the estate or interest in the land described or referred to in Schedule A is subject to the following matters, if any be shown, but the Company insures that these matters are subordinate to the lien or charge of the insured mortgage upon the estate or interest: 1. An Assignment of Rents, as additional security for the payment of the indebtedness secured by the Deed of Trust insured herein, which assignment was Executed By: CMP-1, LLP, a Delaware limited liability company To: Midland Loan Services, L.P., a Missouri limited partnership Recorded: December 31, 1996 in Reel 3463, Page 612, Official Records 2. Terms and provisions as set forth in the Manager's Consent and Subordination of Management Agreement Executed by: JH Management Company, LLC, a California limited liability company, Midland Loan Services, L.P., a Missouri limited partnership. CMP-1, LLC, a Delaware limited liability company Recorded: December 31, 1996 in Reel 3463, Page 636, Official Records 3. A financing statement filed in the office of the County Recorder, showing Debtor: CMP-1, LLC Secured Party: Midland Loan Services, L.P. Property Covered: As therein described Recorded: December 31, 1996 in Reel 3463. Page 662, Official Records Said matter affects this and other property END OF SCHEDULE B PB ================================================================================ <PAGE> Attached to and forming a part of Policy No: 1704853 MM Issued by CHICAGO TITLE INSURANCE COMPANY The Company insures the owner of the indebtedness secured by the insured mortgage against loss or damage sustained by reason of: 1. Any incorrectness in the assurance that, at Date of Policy: (a) There are no covenants, conditions or restrictions under which the lien of the mortgage referred to in Schedule A can be divested, subordinated or extinguished, or its validity, priority or enforceability impaired. (b) Unless expressly excepted in Schedule B: (1) There are no present violations on the land of any enforceable covenants, conditions or restrictions, nor do any existing improvements on the land violate any building setback lines shown on a plat of subdivision recorded or filed in the public records. (2) Any instrument referred to in Schedule B as containing covenants, conditions or restrictions on the land does not, in addition, (i) establish an easement on the land; (ii) provide a lien for liquidated damages; (iii) provide for a private charge or assessment; (iv) provide for any option to purchase, a right of first refusal or the prior approval of a future purchaser or occupant. (3) There is no encroachment of existing improvements located on the land onto adjoining land, nor any encroachment onto the land of existing improvements located on adjoining land. (4) There is no encroachment of existing improvements located on the land onto that portion of the land subject to any easement excepted in schedule B. 2. Any future violation on the land of any existing covenants, conditions or restrictions occurring prior to the acquisition of title to the estate or interest in the land by the insured, provided the violation results in: (a) impairment or loss of the lien of the insured mortgage; or (b) loss of title to the estate or interest in the land if the insured shall acquire title in satisfaction of the indebtedness secured by the insured mortgage. 3. Damage to existing improvements, including lawns, shrubbery or trees: (a) which are located on or encroach upon that portion of the land subject to any easement excepted in Schedule B, which damage results from the exercise of the right to maintain the easement for the purpose for which it was granted or reserved; (b) resulting from the future exercise of any right to use the surface of the land for the extraction or development of minerals excepted from the description of the land or excepted in Schedule B. 4. Any final court order or judgment requiring the removal from any land adjoining the land of any encroachment excepted in Schedule B. 5. Any final court order or judgment denying the right to maintain any existing improvements on the land because of any violation of covenants, conditions or restrictions or building setback lines shown on a plat or subdivision recorded or filed in the public records. Wherever in this endorsement the words "covenants, conditions or restrictions" appear, they shall not be deemed to refer to or include the terms, covenants, conditions or limitations contained in an instrument creating a lease. No coverage is provided under this endorsement as to any covenant, condition, restriction, or other provision relating to environmental protection. This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof. CHICAGO TITLE INSURANCE COMPANY By: /s/ [ILLEGIBLE] -------------------------------- Authorized Signatory CLTA Form 100.2 <PAGE> ENDORSEMENT Attached to and forming a part of Policy No. 1704853 MM Issued by CHICAGO TITLE INSURANCE COMPANY The Company hereby assures the insured that the land abuts upon a physically open street(s) known as BORONDA ROAD The company hereby insures the insured against loss which the insured shall sustain in the event the assurance herein shall prove to be incorrect. This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof. Dated: DECEMBER 31, 1996 CHICAGO TITLE INSURANCE COMPANY By: /s/ [ILLEGIBLE] -------------------------------- Authorized Signatory CLTA Form 103.7 (Rev.9-10-93) <PAGE> ENDORSEMENT Attached to and forming a part of Policy No. 1704853 MM Issued by CHICAGO TITLE INSURANCE COMPANY The company assures Merrill Lynch Mortgage capital, Inc. "the Assured": (a) That by a valid assignment or assignments the beneficial interest under the mortgage referred to in paragraph 4 of Schedule A has been transferred to the Assured; (b) That no reconveyance, either full or partial, of the insured mortgage, or any modification or subordination thereof, appears in the public records. The Company hereby insures the Assured against loss which the Assured shall sustain in the event that the assurances herein shall prove to be incorrect. This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof. Dated: DECEMBER 31, 1996 CHICAGO TITLE INSURANCE COMPANY By: /s/ [ILLEGIBLE] -------------------------------- Authorized Signatory CLTA Form 104.1 (Rev. 9-10-93) <PAGE> ENDORSEMENT Attached to and forming a part of Policy No. 1704853 MM Issued by CHICAGO TITLE INSURANCE COMPANY The Policy is hereby amended by deleting paragraph(s) 7 of the Exclusion. from Coverage This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof. Dated: December 31, 1996 CHICAGO TITLE INSURANCE COMPANY CHICAGO TITLE INSURANCE COMPANY By: /s/ [ILLEGIBLE] -------------------------------- Authorized Signatory CLTA Form 110.1 (Rev.9-10-93) ALTA or CLTA - Owner or Lender <PAGE> ENDORSEMENT Attached to and forming a part of Policy No. 1704853 MM Issued by CHICAGO TITLE INSURANCE COMPANY The company assures the insured that at Date of Policy there is located on the land MULTI-FAMILY RESIDENCE known as 2073 SANTA RITA STREET SALINAS, California and that the map attached to this policy show the correct location and dimensions of the land according to the public records. The Company hereby insures the insured against loss which the insured shall sustain in the event that the assurance herein shall prove to be incorrect. This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsement thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof. Dated: DECEMBER 31, 1996 CHICAGO TITLE INSURANCE COMPANY CHICAGO TITLE INSURANCE COMPANY By: /s/ [ILLEGIBLE] -------------------------------- Authorized Signatory CLTA Form 116(Rev.9-10-93) <PAGE> CLTA FORM 116.1 ENDORSEMENT Attached to and forming a part of Policy No. 1704853 Issued by CHICAGO TITLE INSURANCE COMPANY The Company assures the Insured that the land is the same as that delineated on the plat of a survey made by Tronoff Associates - Land Surveyors On May 15, 1996 (revised December 11, 1996) Designated Job No. 1-4047-1, which is attached hereto and made a part hereof. The Company hereby insures the Insured against loss which said Insured shall sustain in the event that the assurance herein shall prove to be incorrect. This endorsement is made a part of said policy and is subject to all of the terms and provisions thereof of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the amount thereof. CHICAGO TITLE INSURANCE COMPANY By: /s/ [ILLEGIBLE] -------------------------------- Assistant Secretary <PAGE> ENDORSEMENT Attached to and forming a part of Policy No.1704853 Issued by CHICAGO TITLE INSURANCE COMPANY The Company assures the insured that the Parcels described in Schedule A are contiguous to each other. The Company hereby insures the insured against loss which the insured shall sustain in the event that the assurance herein shall prove to be incorrect. This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof. Dated: DECEMBER 31, 1996 CHICAGO TITLE INSURANCE COMPANY By: /s/ [ILLEGIBLE] -------------------------------- Authorized Signatory CLTA Form 116.4 (Rev. 9-10.93) <PAGE> ENDORSEMENT I Attached to and forming a part of Policy No. 1704853 MM Issued by CHICAGO TITLE INSURANCE COMPANY 1. The Company insures the Insured against loss or damage sustained by reason of any incorrectness in the assurance that, at Date of Policy: (a) According to applicable zoning ordinances and amendments thereto, the land is classified Zone R-H-2.3 (b) The following use or uses are allowed under that classification subject to compliance with any conditions, restrictions, or requirements contained in the zoning ordinances and amendments thereto, including but not limited to the securing of necessary consents or authorizations as a prerequisite to the use or uses: HIGH DENSITY RESIDENTIAL 2. The Company further insures against loss or damage arising from a final decree of a court of competent jurisdiction (a) prohibiting the use Of the land, with any structure presently located thereon, as specified in paragraph 1(b); or (b) requiring the removal or alteration of the structure on the basis that, at Date of Policy, the ordinances and amendments thereto have been violated with respect to any following matters: (i) Area, width or depth of the land as a building site for the structure; (ii) Floor space area of the structure; (iii) Setback of the structure from the property lines of the land; or (iv) Height of the structure. There shall be no liability under this endorsement based on the invalidity of the ordinances and amendments thereto until after a final decree of a court of competent jurisdiction adjudicating the invalidity, the effect of which is to prohibit the use or uses. Loss or damage as to the matters insured against by this endorsement shall not include loss or damage sustained or incurred by reason of the refusal of any person to purchase, lease or lend money on the estate or interest covered by this policy. This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof. CHICAGO TITLE INSURANCE COMPANY Dated: December 31, 1996 By: /s/ [ILLEGIBLE] -------------------------------- Authorized Signatory CLTA Form 1232 (Rev. 3-13-87) <PAGE> 3305 (Usury) E N D O R S E M E N T Attached to and forming a part of Policy No. 1704853 CHICAGO TITLE INSURANCE COMPANY Dated as of the date of the policy to which this endorsement is attached. The Company hereby insures the insured against loss or damage which the insured shall sustain by reason of the entry of a final court order or judgment determining and adjudging. That the lien of the mortgage referred to in Schedule A is invalid or unenforceable as to the principal and interest due on the note secured thereby, said interest being computed in accordance with the provisions of said mortgage and note, on the ground that the loan evidenced by the note secured thereby is usurious in whole or in part under the laws of the State of California. This endorsement is made a part of the policy and is subject to all of the terms and provisions thereof and of any prior endorsement. thereto. Except to the extent expressly stated. it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date of the policy and any prior endorsements, nor does it increase the face amount thereof. CHICAGO TITLE INSURANCE COMPANY By: /s/ [ILLEGIBLE] -------------------------------- Authorized Signatory <PAGE> AGGREGATE TIE-IN E N D O R S E M E N T Attached to and forming a part of Policy Nos. (See Exhibit "A") Issued by CHICAGO TITLE INSURANCE COMPANY The Company acknowledges that the land described in Schedule A of this binder/policy is part of the aggregate purchase of $45,000,000 purchased along with other property set forth in Schedule A of the binders/policies shown below, by the Vestee on December 31, 1996. The binder/policy liability is aggregated with binders/policies issued concurrently herewith shown by the following binder/policy references: SEE EXHIBIT "A" ATTACHED Anything to the contrary notwithstanding in Paragraph 6(a) (ii) of the Conditions and Stipulations of the Binder/Policy, the coverage afforded in this Binder/Policy is aggregated with the coverage in all of the other binders/policies identified in this endorsement so the effective insurance coverage is $45,000,000. The total liability of the Company under this and all binders/policies identified in this endorsement shall not exceed such amount, but its liability in this Binder/Policy for the land described in Schedule A remains limited by the provisions of Paragraph 6 (a) (i), 6 (a) (iii), of the Conditions and Stipulations of this Binder/Policy. Any payment by the Company on this or any of the binders/policies listed in this Endorsement shall reduce the aggregate liability of the Company under all binders/policies, by the amount so paid. This endorsement is made a part of the binder/policy and is subject to all of the terms and provisions thereof and of any prior endorsements thereto. Except to the extent expressly stated, it neither modifies any of the terms and provisions of the policy and any prior endorsements, nor does it extend the effective date 0, the policy and any prior endorsements, nor does it increase the amount thereof. <PAGE> Nothing Contained herein shall be construed as extending or changing the effective date of the aforesaid binder/policy unless otherwise expressly stated. IN WITNESS WHEREOF, the Company has caused its corporate name to be hereunto affixed by its duly authorized officer(s). CHICAGO TITLE INSURANCE COMPANY By: /s/ [ILLEGIBLE] -------------------------------- Authorized Signatory <PAGE> EXHIBIT "A" Policy Number: Country: State: 1704860 MONTEREY CALIFORNIA 1704855 MONTEREY CALIFORNIA 1704856 MONTEREY CALIFORNIA 1704858 MONTEREY CALIFORNIA 1704854 MONTEREY CALIFORNIA 1704861 MONTEREY CALIFORNIA 1704859 MONTEREY CALIFORNIA 1704857 MONTEREY CALIFORNIA 1704853 MONTEREY CALIFORNIA 1704862 MONTEREY CALIFORNIA <PAGE> CONTINGENT LOSS FIRST LOSS ENDORSEMENT Attached to and forming a part of Policy No. 1704853 Issued by CHICAGO TITLE INSURANCE COMPANY In the event a defect, lien, encumbrance or other matter insured against by this Policy creates a loss or a series of lossess which exceed in the aggregate ten percent (10%) of the amount of insurance shown in Schedule A of this Policy, the amount which the Company shall be liable to pay shall be determined without requiring maturity of the entire indebtedness by acceleration or otherwise, and without requiring the insured to pursue its remedies against any properties which secure the indebtedness other than foreclosure upon the premises described in Schedule A. The liability of the Company under this endorsement shall in no case exceed the diminution in the value of the affected property caused by the defect, lien or encumbrance or other matter less the liability of the Company for insurance on the affected parcel of any lien or of any mortgage in Schedule B of this policy. provided, however, that nothing in this endorsement shall affect or impair the Company's right of subrogation with respect to the insured premises. Subrogation rights of the Company shall include entitlement to reimbursement for all amounts paid under this endorsement should the indebtedness secured by the insured mortgage be repaid or recovered through other securities, such possible repayment or recovery being intended to render loss described herein as contingent. The Company reserves the right before paying any amount under this endorsement to obtain reasonable security for its rights of reimbursement. Further, it is a condition of this endorsement that the Company may, at its option, require that any payment to the insured be applied to reduce the indebtedness secured by the insured mortgage. Dated: December 31, 1996 CHICAGO TITLE INSURANCE COMPANY By: /s/ [ILLEGIBLE] -------------------------------- Assistant Secretary <PAGE> ADDENDA - -------------------------------------------------------------------------------- ZONING ORDINANCE (R-H-2.3) <PAGE> ARTICLE II - BASE DISTRICT REGULATIONS DIVISION 6 - R-H (HIGH DENSITY RESIDENTIAL DISTRICT REGULATIONS) - -------------------------------------------------------------------------------- CONTENTS Sec. 37-44 Specific purposes................................................6-1 Sec. 37-45 Use classifications..............................................6-2 Sec. 37-46 Property development regulations.................................6-5 Sec. 37-47 Zoning Certificate...............................................6-9 Sec. 37-48 High density residential design guidelines.......................6-9 Sec. 37-49 Reserved........................................................6-23 Sec. 37-50 Reserved........................................................6-23 SEC. 37-44. SPECIFIC PURPOSES. In addition to the general purposes listed in Division 37-1: General Provisions, the specific purposes of the High Density Residential District regulations are to: A. Provide appropriately located areas for high density multiple family dwelling units consistent with the General Plan and with standards of public health and safety established by the Salinas Municipal Code; B. Provide adequate light, air, privacy, and open space for each dwelling unit and protect residents from the harmful effects of excessive noise, population density, traffic congestion and other adverse environmental impacts; C. Promote development of affordable housing by providing a density bonus for projects in which a portion of the dwellings are affordable to qualifying households; D. Achieve design compatibility through the use of site development standards; E. Protect adjoining low density residential districts from excessive noise or loss of sun, light, quiet, and privacy resulting from proximity to multifamily dwellings; F. Provide sites for public and semipublic land uses needed to complement residential development or requiring a residential environment; and Page 6 - 1 <PAGE> ARTICLE II - BASE DISTRICT REGULATIONS DIVISION 6 - R-H (HIGH DENSITY RESIDENTIAL DISTRICT REGULATIONS) G. Ensure the provision of public services and facilities needed to accommodate planned population densities. The additional purposes of each R-H District are as follows: R-H-3.6. To provide for high density multifamily dwelling units where the maximum density including density bonus is 15 dwelling units per net acre. R-H-2.3. To provide for high density multifamily dwelling units where the maximum density including density bonus is 24 dwelling units per net acre. R-H-1.9. To provide for high density multifamily dwelling units in the Central City where the maximum density including density bonus is 28 dwelling units per net acre. (Ord. No.2200 (NCS)) SEC. 37-45. USE CLASSIFICATIONS. In the following schedule, the letter "P" designate use classifications permitted in the R-H District, the letters "CUP" designate use classifications allowed on approval of a Conditional Use Permit and the letters "SPR" designate use classifications allowed on approval of a Site Plan Review. - -------------------------------------------------------------------------------- R-H (HIGH DENSITY RESIDENTIAL) P Permitted USE CLASSIFICATIONS SPR Site Plan Review CUP Conditional Use Permit PUD Planned Unit Development Permit - -------------------------------------------------------------------------------- Additional Use ZONING DISTRICT Regulations ------------------------------- (See footnotes USE R-H-3.6 R-H-1.9 below) - -------------------------------------------------------------------------------- RESIDENTIAL USES: - ----------------- Family day care homes: Large SPR SPR SPR (3) Small P P P (6) Home occupations P P P (2) Interim housing CUP CUP CUP (2) - -------------------------------------------------------------------------------- Page 6 - 2 <PAGE> ARTICLE II - BASE DISTRICT REGULATIONS DIVISION 6 - R-H (HIGH DENSITY RESIDENTIAL DISTRICT REGULATIONS) - -------------------------------------------------------------------------------- R-H (HIGH DENSITY RESIDENTIAL) P Permitted USE CLASSIFICATIONS SPR Site Plan Review CUP Conditional Use Permit PUD Planned Unit Development Permit - -------------------------------------------------------------------------------- Additional Use ZONING DISTRICT Regulations ------------------------------- (See footnotes USE R-H-3.6 R-H-1.9 below) - -------------------------------------------------------------------------------- Manufactured housing P P P Mobile home parks CUP CUP CUP (4) Multifamily dwellings SPR SPR SPR Planned unit PUD PUD PUD (5) developments Residential care facilities P P P Residential service CUP CUP CUP facilities Second dwellings CUP CUP CUP (9) Single family dwellings P P P PUBLIC & SEMIPUBLIC: - -------------------- Convalescent hospitals CUP CUP CUP Cultural institutions CUP CUP CUP Day care center CUP CUP CUP Park and recreation CUP CUP CUP facilities Public safety facilities CUP CUP CUP Religious assembly CUP CUP CUP Schools, public/private CUP CUP CUP Telecommunications NP NP NP facilities, major Utilities, major CUP CUP CUP - -------------------------------------------------------------------------------- Page 6 - 3 <PAGE> ARTICLE II - BASE DISTRICT REGULATIONS DIVISION 6 - R-H (HIGH DENSITY RESIDENTIAL DISTRICT REGULATIONS) - -------------------------------------------------------------------------------- R-H (HIGH DENSITY RESIDENTIAL) P Permitted USE CLASSIFICATIONS SPR Site Plan Review CUP Conditional Use Permit PUD Planned Unit Development Permit - -------------------------------------------------------------------------------- Additional Use ZONING DISTRICT Regulations ------------------------------- (See footnotes USE R-H-3.6 R-H-1.9 below) - -------------------------------------------------------------------------------- ACCESSORY STRUCTURE SPR SPR SPR (7),(10) - ------------------- & USES - ------ Animals, domestic (1) Telecommunications CUP CUP CUP (11) Facilities, minor Utilities, minor P P P TEMPORARY USES P P P (8) NONCONFORMING USES & See Division 37-20: Nonconforming Uses & - -------------------- Structures. STRUCTURES - ---------- - -------------------------------------------------------------------------------- FOOTNOTES: (1) Not more than 4 domestic animals may be kept on a lot except that newborn and baby animals up to the age of 3 months shall not be counted. (2) See Section 37-147: Home occupations in R Districts. (3) See Section 37-150: Large family day care homes. (4) See Section 37-151: Mobile home parks. (5) See Division 26: Planned Unit Development Permits. (6) Small residential care facilities, small family day care facilities and interim housing serving 6 or fewer people are permitted. Such facilities shall be designed to accommodate a group living environment or be appropriate for small family day care. (7) See Section 37-137: Accessory structures & uses. Accessory structures and uses will require a Site Plan Review or a conditional Use Permit if required by the principal use. (8) See Section 37-164: Temporary uses and Division 37-24: Temporary Use of Land Permits. (9) See Section 37-161: Second Dwelling units. Page 6 - 4 <PAGE> ARTICLE II - BASE DISTRICT REGULATIONS DIVISION 6 - R-H (HIGH DENSITY RESIDENTIAL DISTRICT REGULATIONS) (10) Any enclosed accessory structure with plumbing and/or gas utility connections is required to obtain a conditional use permit in accordance with Division 37-22: Variances and Conditional Use Permits, except for hot tubs, gazebos used to cover hot tubs, spas or pools, or other uses determined as similar by the Community Development Director. Plumbing for: laundry facilities, water heaters, and HVAC units in attached garages are exempt. (11) See Section 37-163.1: Telecommunications facilities. (Ord. No. 2200 (NCS); Ord. No. 2245 (NCS); Ord. No. 2280 (NCS); Ord. No. 2301 (NCS) SEC. 37-36. PROPERTY DEVELOPMENT REGULATIONS. The following schedule prescribes development regulations for the High Density Residential District: - -------------------------------------------------------------------------------- R-H (HIGH DENSITY RESIDENTIAL) PROPERTY DEVELOPMENT REGULATIONS - -------------------------------------------------------------------------------- Additional ZONING DISTRICT Regulations ------------------------------- (See footnotes USE R-H-3.6 R-H-1.9 below) - -------------------------------------------------------------------------------- Lot size (sq. ft.) 7,200 7,200 7,200 (A)(B)(C) Lot area per unit (sq. ft.): Less than 6,000 6,000 6,000 6,000 (A) 6,000 and over With density bonus 2,900 1,800 1,500 (D) (E) Lot width (ft.) 75 75 75 Corner lots 80 80 80 Lot depth (ft.) 100 100 100 Lot frontage (ft.) 35 35 35 Yards: Front (ft.) 20 20 20 (F)(G) Side (ft. per story) 10 10 10 (F) Corner side (ft.) 20 20 20 (F)(J) Rear (ft. per story) 10 10 10 (F) Page 6 - 5 <PAGE> ARTICLE II - BASE DISTRICT REGULATIONS DIVISION 6 - R-H (HIGH DENSITY RESIDENTIAL DISTRICT REGULATIONS) - -------------------------------------------------------------------------------- R-H (HIGH DENSITY RESIDENTIAL) PROPERTY DEVELOPMENT REGULATIONS - -------------------------------------------------------------------------------- Additional ZONING DISTRICT Regulations ------------------------------- (See footnotes USE R-H-3.6 R-H-1.9 below) - -------------------------------------------------------------------------------- Bedrooms per unit (% of total units): 3 or more bedrooms 20 20 20 4 or more bedrooms 10 10 10 Distance between 10 10 10 (H) structures (ft.) Driveway length (ft. from 23 23 23 (L) side walk) Maximum height (ft.) 30 30 30 (K) Maximum nonresidential FAR 0.3 0.3 0.3 (P) Usable open space per 500 500 500 (M) dwelling (sq. ft.) Single family dwellings (O) Landscaping See Section 37-148: Landscaping and irrigation. Fences and walls (N) Off-street parking and See Division 37-18: Off-Street loading Parking & Loading Regulations. Driveway and corner See Section 37-181: Driveway visibility and corner visibility. Signs See Division 37-19: Signs. Outdoor facilities See Section 37-153: Outdoor facilities. Accessory structures & See Section 37-137: Accessory uses structures & uses. Screening of mechanical See Section 37-160: Screening equipment of mechanical equipment. Page 6 - 6 <PAGE> ARTICLE II - BASE DISTRICT REGULATIONS DIVISION 6 - R-H (HIGH DENSITY RESIDENTIAL DISTRICT REGULATIONS) R-H (HIGH DENSITY RESIDENTIAL) PROPERTY DEVELOPMENT REGULATIONS - -------------------------------------------------------------------------------- R-H (HIGH DENSITY RESIDENTIAL) PROPERTY DEVELOPMENT REGULATIONS - -------------------------------------------------------------------------------- Additional ZONING DISTRICT Regulations ------------------------------- (See footnotes USE R-H-3.6 R-H-1.9 below) - -------------------------------------------------------------------------------- Swimming pools, spas and See Section 37-163: Swimming pools, spas and hot tubs hot stubs. Recycling and solid waste See Section 37-157: Recycling and solid waste disposal disposal regulations. Underground utilities See Section 37-165: Underground utilities. Performance standards See Section 37-154: Performance standards. Planned unit developments See Division 37-26: Planned Unit Development Permits. Nonconforming uses & See Division 37-20: Nonconforming Uses & structures Structures. Recreational vehicles, See Section 37-156: Recreational vehicles, prohibited vehicles, and prohibited vehicles and equipment parking and equipment storage in R Districts. Condominium conversions See Section 37-142: Condominium conversions. Vehicle trip reduction See Section 37-165.1: Vehicle trip reduction. FOOTNOTES: - ---------- (A) See Section 37-144: Development on existing lots of record. (B) See Section 37-143: Development on lots divided by district boundaries. (C) Minimum lot sizes may be reduced when the exclusive use of such lots is intended for utility substations, pumping stations, and other similar facilities. (D) See Section 37-139: Affordable housing density bonus. The maximum allowable density permitted in Conditional Growth Areas identified in the Salinas General Plan shall be 22 units per net acre with the use of both the density bonus plus the additional incentive of a site specific density increase, in accordance with Section 37-139: Affordable housing density bonus. Page 6 - 7 <PAGE> ADDENDA - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] FLOOD ZONE (ZONE B) <PAGE> ADDENDA - -------------------------------------------------------------------------------- PROFESSIONAL QUALIFICATIONS <PAGE> - -------------------------------------------------------------------------------- ARTHUR ANDERSEN JAMES A. GAVIN, MAI PROFESSIONAL QUALIFICATIONS -------------------------------------------------- PRESENT POSITION EXPERIENCE Mr. James A. Gavin is a Principal in the Real Estate Services Group of Arthur Andersen in the Firm's Northern California region. He specializes in the analysis and valuation of real estate. EXPERIENCE Mr. Gavin has been actively engaged in the real estate industry since 1980. He has conducted and supervised appraisals for purposes of purchase price allocation, estate planing, construction and refinance lending, and foreclosure proceedings. He has also had significant involvement on due diligence assignments relative to bank and savings and loan acquisitions. Mr. Gavin has also had significant appraisal management experience. From 1983 to 1986, he opened and managed the San Jose regional appraisal office for Lloyd's Bank of California (now Sanwa Bank). He completed and oversaw valuation work on commercial and multi-family construction projects. He also was responsible for approving construction draw requests from project general contractors. In early 1986, Mr. Gavin left Lloyd's Bank to become Vice President and Assistant Chief Appraiser for Wells Fargo Bank's San Jose regional office as part of their Real Estate Industries Group. There he managed and reviewed the work of a staff of five appraisal personnel and one cost engineer, along with completing special assignments for other lending arms of the Bank. Mr. Gavin joined Arthur Andersen in August 1990 and heads the Real Estate Valuation Practice for the Northern California Valuation Services Group. Since coming to Arthur Andersen, he became the Firm's Engagement Manager on a worldwide branch valuation assignment for Bank of America as part of its merger with Security Pacific Bank. - -------------------------------------------------------------------------------- <PAGE> - -------------------------------------------------------------------------------- Mr. Gavin has also expanded the group's client base by providing valuation services to such diverse non-tax and non-audit clients as Wells Fargo Bank, Bank of America, McKesson Corporation, Sun Microsystems, and Forest City Enterprises. This client base is in addition to work completed for such existing Firm clients as American Real Estate Group, Sanwa Bank and Marriott Corporation. Mr. Gavin has also been involved on RTC related engagements as a project manager on work related to Gibralter Savings and Home Savings in San Diego. Mr. Gavin's master planned community experience includes the valuation of Aviara, a 2,000 acre community in Carlsbad, California. This project included an 18 hole championship golf course designed by Arnold Palmer, a Four Seasons Hotel, and a mixture of custom lot, single family and multi-family residential programs. A shopping center and elementary school, built to support the proposed housing element, was also part of the master plan. Another major master planned community appraised by Mr. Gavin's group is Lake Las Vegas in Hendersen, Nevada. Lake Las Vegas is a 2,200 acre community built around a man-made lake. The project, at full build-out, will include approximately 1,000 custom lot, single family and multi-family units. The custom lot and single family portions are centered by a private golf course designed by Jack Nicklaus. These additional courses will be constructed around a proposed 6,000 room resort hotel/casino component and the multi-family component. There will also be an office/retail component to support the residential build-out. Education Mr. Gavin received his Bachelor of Business Administration degree from the University of Wisconsin with an emphasis in real estate and urban economics in 1980. He has also taken advanced level courses in statistics and accounting in the Masters Business Program at Santa Clara University. He is involved in an ongoing educational program given by the Appraisal Institute necessary to maintain the MAI designation. - -------------------------------------------------------------------------------- <PAGE> - -------------------------------------------------------------------------------- To receive the MAI designation, Mr. Gavin completed the required seven courses covering a variety of theoretical, mathematical and ethical issues. Mr. Gavin is a certified general real estate appraiser for the state of California, License # AG005296. Mr. Gavin is also a state certified appraiser in Nevada, Michigan, Utah and Washington. Professional Affiliations Mr. Gavin is a member of the Appraisal Institute where he is a past Chairman of the Northern California Experience Committee. He is also a member of the Institute's Ethics and Counseling Committee. He received his MAI designation in 1988. Testimony Experience Assessment Appeals Board in San Francisco County on behalf of Marriott Corporation. Case was successfully completed during the first quarter of 1994. Deposed related to valuation matters on a Master Planned Community in San Diego County. Case was settled before the Superior Court in San Diego in 1994. IRS Federal Tax Court testimony in San Francisco related to leasehold interest valuations for a national clothing chain in connection with its regional mall locations. Case was successfully resolved in January 1995. Deposed related to lost profits matter on behalf of a Hawaii real estate developer. Deposed related to valuation matters on two real estate portfolios in order to assist in net worth calculations. Case was before the Superior Court of Contra Costa County and settled in 1996. - -------------------------------------------------------------------------------- <PAGE> - -------------------------------------------------------------------------------- ARTHUR ANDERSEN ARTHUR ANDERSEN & CO. SC DEVLIN W. GARDELLA PROFESSIONAL QUALIFICATIONS -------------------------------------------------- PRESENT POSITION: Mr. Gardella is a Manager in the Valuation Services Group (VSG) at Arthur Andersen, San Francisco. He joined VSG in 1992. EXPERIENCE: Mr. Gardella specializes in real estate valuation and consulting services. On the consulting side, he recently conducted a collaborative project with six high-technology, publicly-held companies to benchmark financial data and real estate delivery processes and to identify performance gaps and best practices. Mr. Gardella has also assisted with business locations analyses for a multi-billion dollar company by developing detailed capital/expense budgets, augmenting existing financial models, and designing reorganization strategies. Additionally, Mr. Gardella has provided valuation services, transaction support/negotiation, and feasibility analyses for commercial, industrial, residential and agricultural properties in many states across the country. Prior to Arthur Andersen, Mr. Gardella served as a real estate advisor to the Executor of a family estate and as a real estate analyst with Liquidity Fund Investment Corporation and its National Real Estate Index. (Liquidity Fund created the secondary market for real estate limited partnerships in the late 198Os.) EDUCATION Mr. Gardella earned his Bachelor of Science degree in Business Administration, with emphases in Real Estate and Finance, from the University of California, Berkeley. He has also successfully completed several courses held by the Appraisal Institute and the Commercial Investment Real Estate Institute, including: Financial & Decision Analysis for Commercial Real Estate; Advanced Income Capitalization; Advanced Appraisal Applications; Advanced sales Comparison & Cost Approaches; and Highest & Best Use and Market Analysis PROFESSIONAL AFFILIATIONS Candidate for the MAI designation of the Appraisal Institute and for the CCIM designation of the Commercial Investment Real Estate Institute. September 1997 - -------------------------------------------------------------------------------- DISCLAIMER The appraisal report appearing below is addressed to NationsBank of Texas, N.A. ("NationsBank"). NationsBank does not represent that the presumptions or conclusions in the appraisals are relevant or accurate and does not endorse the conclusions set forth in the appraisal. Any value, presumption, or conclusion regarding the property or properties appraised in the report must be verified independently of NationsBank. This appraisal has not been approved by NationsBank and is being transmitted without representation and warranty of NationsBank. <PAGE> - -------------------------------------------------------------------------------- APPRAISAL REPORT The Capri Apartments 349 Iris Drive Salinas, California 93906 Effective Date of Appraisal: September 28, 1996 APPRAISED FOR: NationsBank of Texas,N.A. Real Estate Risk Assessment 901 Main Street, 51st Floor Dallas, Texas 75202-3714 APPRAISED BY: ROBERT SAIA & ASSOCIATES 313 Avalon Avenue Santa Cruz, California 95060 - -------------------------------------------------------------------------------- <PAGE> ROBERT SAIA, MAI & ASSOCIATES Property Appraisers & Consultants - -------------------------------------------------------------------------------- September 28, 1996 Mr. Gary D. Long Real Estate Risk Assessment NationsBank of Texas, N.A. 901 Main Street, 51st Floor Dallas, Texas 75202-3714 Dear Mr. Long: As requested, Robert Saia & Associates has completed a market value "as is" appraisal of the 114-unit apartment complex known as "The Capri Apartments," located at 349 Iris Drive in Salinas, California. The Capri Apartments were first constructed in 1965 and included 64 units; an addition was completed in 1973 that included 50 units. The property rights appraised are those of the leased fee interest. Many of the units are on short-term leases (less than one year), thus there is no leasehold or leased fee bonus values to consider. In other words, the fee simple and leased fee values are the same. The function of this appraisal is to aid in proper underwriting, loan classification and/or disposition of the subject property in conjunction with a pending multi-property portfolio purchase that includes the subject property. The effective date of the appraisal is September 28, 1996, the first inspection date of the property. This report was prepared as a Complete Appraisal, Summary Report" following generally accepted and established appraisal practices that comply with the Uniform Standards of Professional Appraisal Practice (USPAP) and also in accordance with the NationsBank Appraisal/Evaluation Guidelines for Appraisers. As instructed, the cost approach has been omitted. Although the cost approach has very little relevancy in the appraisal of apartment complexes in this area, its omission may be considered by some to invoke the Departure Provision. The Limiting Conditions and Assumptions contained at the conclusion of this report are a vital part of the appraisal. There are no extraordinary assumptions that affects the appraisal. The market value estimate is based on an exposure time of four months. Based on our analysis and investigation, as discussed in the attached summary appraisal report, the Market Value "As Is" of the Capri Apartments, as of September 28, 1996, is as follows: - -------------------------------------------------------------------------------- FOUR MILLION DOLLARS $4,000,000 - -------------------------------------------------------------------------------- <PAGE> Mr. Gary Long page ii The above is the value of the real estate only. Personal property value is nominal, and plays no significant role in the operation of the apartments. If you should have any questions, please contact our office. Respectfully Submitted, /s/Robert Saia Robert Saia, MAI OREA Cert. #AG003191 (exp. 12/7/96) <PAGE> Capri Apartments, Salinas, CA TABLE OF CONTENTS Summary of Salient Facts ......................................................1 Purpose of the Appraisal ......................................................3 Function of the Report ........................................................3 Valuation Date ................................................................3 Property Right Appraised ......................................................4 Location and Property Identification ..........................................4 Property History & Ownership ..................................................4 Project Overview ..............................................................4 The Extent of the Appraisal Process ...........................................5 Competency Statement ..........................................................6 Regional Description ..........................................................7 City of Salinas ..............................................................18 Salinas Apartment Market .....................................................21 Neighborhood Description .....................................................22 Site Analysis ................................................................23 Current Taxes & Assessments ..................................................25 Improvement Description ......................................................27 Highest and Best Use Analysis ................................................28 The Appraisal Process ........................................................31 Income Capitalization Approach ...............................................32 Sales Comparison Approach ....................................................52 Reconciliation of the Value Estimates ........................................62 Marketing Period Estimate ....................................................63 Exposure Period Estimate .....................................................63 Allocation of F,F&E ..........................................................64 Assumptions and Limiting Conditions ..........................................66 Certification of Appraisal ...................................................69 ADDENDA Photographs of the Subject Property Maps Floor Plans Apartment Building Sales Sheets Rent Roll and Operating Statements Qualifications Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 <PAGE> Capri Apartments, Salinas, CA SUMMARY OF SALIENT FACTS ================================================================================ CLIENT: NationsBank PROJECT NAME: The Capri Apartments NO. OF UNITS: 114 ADDRESS: 349 Iris Drive, Salinas, CA LOCATION: North Salinas A.P.N.: 003-801-007,008 THOMAS BROS. MAP: T.B. 225 A-1 (Monterey County) CENSUS TRACT NO.: 105.00 ZONING: R-H-2.3 (High Density Residential District) RENT CONTROL: None (No pending) HIGHEST & BEST USE: -As improved... existing apartments -As vacant... high density residential development PROPERTY RIGHTS APPRAISED: Leased Fee Interest SALE HISTORY OVER PAST 5 YEARS: None CURRENT OWNERSHIP: Paul M. Thysen and Betty 0. Thysen Trust UTILITIES: Municipal services (water, electricity and sewer) are available and connected. SITE SIZE: 5.078 acres SITE DENSITY: 22.4 units per acre FLOOD ZONE: Zone B per Panel #060202- 0002 D (11/4/81) TOTAL # RENTABLE UNITS 114 YEAR BUILT: 1965 & 1973 NET RENTABLE BUILDING AREA (sf): 72,720 COMMON AREA AMENITIES: 1 swimming pool, 2 saunas, lawn areas, walks, asphalt driveways, 2 laundry rooms. OCCUPANCY CHARACTERISTICS: No. of Vacant Units @ Inspection: 4 (all have been preleased) No. of Pending Evictions: 0 ACTUAL NUMBER OCCUPIED UNITS: on 9/28/96 and OCCUPANCY RATE: 112(98.2%) PROJECTED AVERAGE OCCUPANCY for the YEAR ENDING 1996: 96-97.0% Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 1 <PAGE> Capri Apartments, Salinas, CA GROSS ACTUAL REVENUE as reported for 1995: $678,033 (includes "other" income) ACTUAL MONTHLY RENTAL INCOME as reported as of 9/28-96: $59,810 STABILIZED NET INCOME EST. as of APPRAISAL DATE : $329,018 EST. EXPOSURE and MARKETING TIME: 2-6 months marketing/ 4 month exposure CONDITIONS TO APPRAISAL: No unusual conditions. Reference is made to Assumptions & Limiting Conditions in Addenda ================================================================================ - -------------------------------------------------------------------------------- MARKET VALUE "as is": $4,000,000 September 28, 1996 (4 month exposure period) - -------------------------------------------------------------------------------- ================================================================================ Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 2 <PAGE> Capri Apartments, Salinas, CA PURPOSE OF THE APPRAISAL ================================================================================ The purpose of this appraisal is to estimate the market value "as is" of the fee interest for the real estate only. "Market Value," as used in this appraisal, is defined as "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: o Buyer and seller are typically motivated; o Both parties are well informed or well advised, each acting in what he considers his own best interests; o A reasonable time is allowed for exposure in the open market; o Payment is made in terms of cash in U.S. dollars, or in terms of financial arrangement comparable thereto; and, o The price represents the normal consideration for the property sold unaffected by special or creative financing or sale concessions granted by anyone associated with the sale." (*Source: Office of the Comptroller under 12 CFR, Part 34, Subpart Appraisals, 34.42 Definitions [f]) "Market value 'as is' " means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date of inspection." FUNCTION OF THE APPRAISAL ================================================================================ The function of this appraisal is for the exclusive use of NationsBank, its subsidiaries, and/or affiliates, for loan underwriting purposes in conjunction with a portfolio purchase that includes this property. It may be used in connection with the acquisition, disposition and financing of the sale of the property. VALUATION DATE ================================================================================ The date of valuation is September 28, 1996. This is the date of the last property inspection. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 3 <PAGE> Capri Apartments, Salinas, CA PROPERTY RIGHTS APPRAISED and DEFINED ================================================================================ The fee simple estate of the property has been valued. This ownership interest is defined as: "Absolute Ownership Unencumbered by any other interest or estate; subject only to the limitations of eminent domain, escheat, police power, and taxation". Leases of seven to twelve months are considered short in duration and do not create any favorable leaseholds by the tenants. Technically speaking, the leased fee interest is being valued, although a percentage of the rental units are on a month-to-month basis. Because of the nature of a short term lease, as well as a strong correlation between contract and market rent, the value estimated for the subject property is essentially reflective of the fee simple interest. IDENTIFICATION and LOCATION OF SUBJECT PROPERTY ================================================================================ The subject property in this appraisal consists of The Capri Apartments located in the North central section of the City of Salinas. The Capri Apartments are located west of Heather Circle on the south side of Iris Drive and east of Tyler Street. The mailing address is 349 Iris Drive, Salinas, California, 93906. The Monterey County Assessor Parcel Numbers are 003-801-007 and 003-801-008. A legal description is included in the preliminary title report which is made a part of this appraisal. PROPERTY HISTORY and OWNERSHIP ================================================================================ Title to the property is vested in: Paul M. Thysen & Betty 0. Thysen Trust The property has not transferred over the required reporting period. It is currently in escrow as part of a multi-property portfolio sale. THE CAPRI APARTMENTS-OVERVIEW ================================================================================ The Capri Apartments is a 114-unit apartment complex located on a 5.087 acre site consisting of two (2) separate and legal parcels configured in twelve (12) 2-story buildings. Not included is the onsite manager's office that fronts to Iris Drive. The Capri Apartments complex is located on the south side of Iris Drive and west of Heather Circle, bordering the 218 unit Heather Plaza Apartments on the north. The Capri Apartments were built in two phases, the first 64 units in 1965 (containing studio and 1BR/1BA units), the second phase in 1973 (containing lBR/1BA and 2BR/1BA units). The studio and lBR/lBA units are accessed through common interior hallways; the newer buildings constructed in 1973 are accessed from outside walkways. Two separate asphalt-paved entrances provide adequate access to The Capri Apartments. The smaller of the two parcels that comprise the complex, a .6 acre site bordering Heather Circle on the east, has landscaping only and does not contain any building improvements. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 4 <PAGE> Capri Apartments, Salinas, CA Amenities offered by The Capri Apartments include lawn-greenbelt areas, one swimming pool, two (2) laundry rooms and two saunas. Utilities provided by the landlord include water, trash removal, sewer, and basic cable television for all of the units. However, for the older 64 apartments gas usage (for hot water and wall heat) is also paid by the landlord. The reader is directed to the Improvement Description of this report for further comments regarding the individual units and their respective interior improvements. THE EXTENT of THE APPRAISAL PROCESS ================================================================================ The extent of the appraisal process encompasses the necessary research and analysis to prepare a report in accordance with the intended use, the Uniform Standards of Professional Appraisal Practice as set forth by the Appraisal Foundation, and the Standards of Professional Practice of the Appraisal Institute. With regard to the valuation of the subject property, the following steps were involved: 1. The property was last inspected and photographed on September 28, 1996. This date is considered the "effective date" of this appraisal. 2. The overall exterior site and buildings of the The Capri Apartments (subject property) was personally inspected by the appraiser. The on-site office manager provided interior access to each of the various unit types within the developments. The appraiser was able to physically measure a representative unit of a studio, one bedroom and two bedroom floorplan.. The subject is valued assuming that the net rentable areas of the typical unit sizes are representative of the complex as indicated by Lincoln Residential Services. 3. Regional, county, city, and neighborhood data were based on information taken from a variety of sources, including, but not limited to, City of Salinas Planning Department, Monterey County Tax Assessor's Office, City of Salinas Public Works Department, City of Salinas Building Department, the Association of Monterey Bay Area Governments, Salinas Chamber of Commerce, independent private studies, newspaper articles and my own files. 4. Research and investigation of current market conditions for apartment properties in the city of Salinas. 5. Interviews with brokers, appraisers, property owners and/or managers and lenders, as well as the relevant public agencies as described above. 6. The highest and best use was formed by information gathered in the previous steps. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 5 <PAGE> Capri Apartments, Salinas, CA 7. After assembling and analyzing information defined in this extent of the appraisal process, final estimates of market value by each applicable valuation method were made. 8. And, finally, a single value estimate from within the concluded value by each approach was made. Greatest weight was given to those approaches felt to have the most influence on the purchasing decision. Unless otherwise stated in the report, the existence of hazardous materials, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser is not qualified, however, to detect such substances. The presence of toxic or caustic substances or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there are not such materials on or in the property that would cause a loss in value. Any such findings which would indicate otherwise could result in a decrease in value. COMPETENCY STATEMENT ================================================================================ In accordance with the competency provision in the USPAP, the appraiser certifies that his education, experience and knowledge is sufficient to appraise the type of property being valued (apartment complex) and that no appraiser has provided significant professional assistance to the person inspecting the subject property in the completion of the analysis other than those mentioned in the Certification of Appraisal (see Addenda). Robert Saia, MAI has appraised this property type in the past and has the knowledge and experience necessary to complete this appraisal assignment. See Appraiser's Qualifications in the Addenda for additional information. The appraiser's analyses, opinions and conclusions were developed and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) Standards 1 - 3, and NationsBank appraisal policy. This appraisal assignment was not based on a requested minimum valuation, a specific valuation or the approval of a loan. The Departure Provision in the USPAP was not utilized in the preparation of this report. The appraiser's compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimated, the attainment of a stipulated result or the occurrence of a subsequent event. ================================================================================ Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 6 <PAGE> Capri Apartments, Salinas, CA REGIONAL ANALYSIS ================================================================================ Market value is affected by a number of externalities; e.g., geographic, economic and environmental, governmental forces, utility, supply & demand and effective purchasing power. Real estate is affected by externalities more than any other economic good, service, or commodity. It is imperative that an appraiser observe and analyze external influences in order to identify patterns and trends, and how they relate to the subject property. Trends such as population shifts, declining apartment occupancy rates, or increased housing sales in an area are relevant in order to understand the real estate marketplace. Thus the Regional Description & Analysis is important in this appraisal because it establishes the basis for determining the highest & best use of a property as well as information used in applying the three approaches to value. The scope of this regional analysis relates to the type of property being appraised, its complexity and the approaches used to estimate value. Monterey County is located in a portion of California that is often referred to as the "Central Coast," which encompasses the area known as the "Monterey Peninsula." The county is oriented northwest to southwest, and runs parallel to the Pacific Ocean. The county has a relatively long and narrow shape, with an average of only 30 miles; elevations range from sea level to 5,844 feet atop Junipero Sierra Peak, located 12 miles inland in the Santa Lucia Range. Monterey County is bounded by the Pacific Ocean on the west, Santa Cruz County to the north, San Luis Obispo county to the south, and San Benito, Kings and Fresno counties to the east. The area is located approximately 125 miles south of San Francisco and 350 miles north of Los Angeles. Approximately 105 miles of California's 840 miles of coastline lie along the westerly boundary of Monterey County. On the whole, Monterey County has a rural orientation, with substantial tracts of land devoted to agriculture and open space uses. The county encompasses 3,784 square miles, or approximately 2,127,400 acres of land area. An interesting statistic is that nearly 27 percent of this total county area is government-owned. Twenty-five percent is owned by the federal government with major holdings such as Fort Hunter Liggett, Fort Ord, Los Padres National Forest and Camp Roberts. The remaining two percent is controlled by the state and county. Geographical location and features exhibit strong influences on the county's climate. The Pacific Ocean is responsible for the county's Mediterranean climate, characterized by year round moderate temperatures, cool, dry summers, and short, rainy seasons. Pacific winter storms are blocked by the Santa Lucia Range, allowing considerably less rain to fall on the Salinas Valley. Temperature and rainfall have important implications for the county's two major economic staples, agriculture and tourism. Mild temperatures allow for exceptionally long growing seasons for farming. Rainfall patterns, while following predictably dry weather, require reservoir and ground water storage to meet year round irrigation needs. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 7 <PAGE> Capri Apartments, Salinas, CA Population Approximately one half of the county's population lives within the seven incorporated cities and adjoining unincorporated areas of the Monterey Peninsula. The eight principal cities are Monterey, Marina, Seaside, Sand City, Del Rey Oaks, Pacific Grove, Carmel-by-the Sea and Salinas. The incorporated areas consist of 31.5 square miles, or about one percent of the county's total land area. The major factor for the high population density of the Monterey Peninsula vis-a-vis the rest of the county, is the unsurpassed natural beauty of the area -- especially the coastline and beaches. Based on the most recent U.S. Census (January 1, 1990), the population of Monterey County grew by approximately 24 percent during the last decade. This growth has helped push the county's total population up to approximately 382,547 in 1994. For reference, the county's growth rate over the preceding decade was just under the state's overall gain of 26 percent. In the previous census period (1970-1980) the county's total population grew 17 percent, from 247,450 to 290,444. While county's growth has been strong, the level varies from area to area. As shown below, the population of Salinas, the largest city and the county seat, increased by 35.2 percent between 1980 - '90. The growth in Salinas constitutes approximately 43 percent of the county's total population increase during that period. In contrast, the population of the city of Monterey increased by a more modest 16 percent over that census period. As shown, not all communities in the county experienced tremendous population growth. Population growth was much steadier in the cities of Seaside, Pacific Grove and Del Rey. In large part, growth in these communities is limited due to a lack of developable land. MONTEREY COUNTY: Population Growth 1980 -'90 (1990 U.S. Census) - -------------------------------------------------------------------------------- City/Area 1980 1990 Total No. % Change - --------- ---- ---- --------- -------- Salinas 80,479 108,777 28,248 +35.2% Seaside 36,567 38,901 2,334 +6.4% Monterey 27,558 31,954 4,396 +16.0% Marina 20,647 26,436 5,789 +28.0% Pacific Grove 15,755 16,117 362 +2.3% King City 5,495 7,634 2,139 +38.9% Greenfield 4,181 7,464 3,283 +78.5% Soledad 5,928 7,146 1,218 +20.5% Gonzales 2,891 4,660 1,769 +61.2% Carmel-by-the-Sea 4,707 4,239 (468) -9.9% Del Rey Oaks 1,557 1,661 104 +6.7% Unincorporated Areas 84,679 105,252 20,573 +24.3% - -------------------------------------------------------------------------------- The most recent population estimates show that the population of Monterey County, based on the January 1, 1995 estimates for California cities and counties prepared by the State of California Department of Finance, was 382,547. Recent trends show most of the increase occurring in the Salinas Valley cities rather than on the Monterey Peninsula. For example, in 1993, the fastest growing city in the county was Soledad (+6.1%), with nearby Greenfield (+5.3%) and Sand City tying for second place. Population growth in Soledad is largely attributable to an expansion of the Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 8 <PAGE> Capri Apartments, Salinas, CA state Correctional Facility and the development of two large residential subdivisions. Greenfield's city manager reported that population growth has been spurred by reasonable prices for single family detached housing but that future growth is limited due to a lack of land. Based on projections by the State Finance Department, released in April 1993, Monterey County is projected to post a 15.6 percent gain in population by the year 2000 -- representing an increase to approximately 414,000 people. In contrast, San Benito's population is projected to increase by 37 percent by the year 2000; Santa Clara County's by 13.4%; 14.4% for Santa Cruz County; and, 21.6% statewide. Below are the Finance Department's projections by county through the year 2030. PROJECTED POPULATION GROWTH (Calif. Dept. of Finance) - -------------------------------------------------------------------------------- County 1990 2000 2010 2020 2030 - ------ ---- ---- ---- ---- ---- Monterey 356,000 414,000 485,300 574,100 670,900 San Benito 37,000 50,700 66,500 83,200 100,900 Santa Clara 1,502,200 1,703,900 1,839,700 1,958,600 2,064,100 Santa Cruz 230,800 264,000 291,800 322,300 354,100 Statewide 29,976,000 36,444,000 42,408,000 48,977,000 56,100,000 - -------------------------------------------------------------------------------- Transportation The major passenger transportation system in the county is via private automobile. The freeway system consists of Highways 101, 1 and 183; and, State Routes 156 and 68. Highway 101 runs north and south from San Francisco, along the West Bay, and through San Jose toward Los Angeles. Highway 1, the Coast Highway, runs north and south from the coastal region of San Francisco and through Santa Cruz toward San Luis Obispo County. Highway 68, the Salinas-Monterey Highway, intersects with Highway 1 and connects the Monterey Peninsula with the Salinas Valley to the south and Highway 101 to the north. There are 1,300 miles of county roads and approximately 500 miles of city streets for a total of 2,000 road miles in the county. In Monterey County, AMTRAK provides rail passenger service, and the Southern Pacific Transportation Company provides rail freight service. Salinas is the only city in the county that now has rail passenger service. SPRR is the main line between Los Angeles and San Francisco. The Monterey Peninsula Airport provides air freight and passenger service in and out of the county. Over the past 20 years, the airport has shown a moderate growth pattern. In 1970, the number of passengers totaled 411,497. In comparison, the number of passengers had grown to 523,040 by 1989 (+1.4% per annum). Today, passenger service is provided by United, Wings West, Pacific Coast Air and West Air. The cities of Salinas and King City both have municipal airports. And with the closure of Fort Ord, Marina has discussed plans to convert Fritzsche Army Airfield into its own municipal airport. There are harbors at Monterey and Moss Landing (4 miles from the subject) which have boating facilities with a reported 2,000 small crafts launching from its ramps every month. Approximately Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 9 <PAGE> Capri Apartments, Salinas, CA 1,800 transient crafts visit the harbors annually. Monterey Bay and Monterey harbor areas attract a significant portion of the tourism industry that provides jobs and an economic base for the Monterey Peninsula area and the county as a whole. Fort Ord and the Military Influence With its various military installations located throughout the Monterey Peninsula area, including control of approximately 27 percent of all of the land in the county, the influence of the military on Monterey County has been significant. This influence has had a considerable financial impact, including military and civilian payrolls, local purchase and contracts, construction in the area, as well as the increase in government aid to local schools due to the military population in the area. The local housing market has also been significantly effected by the presence of the military. This impact, however, has been primarily on the apartment rental market in the communities of Marina and Seaside. In addition, it has had some minor negative impact on mobile home parks in the general area. Being approximately 20 miles northeast of Fort Ord, impact from the base closure has been minimal and not measurable. Given that the Ford Ord area is not in the immediate environs of the subject property, the effect of the base closure on the Boronda Manor Apartments has not been minimal. The closure of Fort Ord was the dominant economic news for the county during 1994. The closing was the single largest national closure to date, with most of the base's 35,000 residents and $600 million payroll moving to other bases. Currently, the base's 44 square miles of land is being administered by the Fort Ord Reuse Authority. Local communities formed the Fort Ord Reuse Authority as an advisory planning committee which under an agreement formed a Fort Ord Joint Powers Agency (JPA). The JPA agreement gave voting membership to the cities of Marina, Seaside, Sand City, Del Rey Oaks, Monterey, and Salinas and extended non-voting status to Pacific Grove and Carmel. The county is also a voting member. The premise of the JPA was to create a forum for discussing reuse issues; to facilitate community involvement and to speed up the decision process via a cohesive voting unit. Initially, the base closure stirred dire predictions about the short-term impact on the county. However, as the closure set in, the immediate economic impact was much less severe than expected, and limited primarily to the adjacent communities. Fort Ord was so large that much of the base was self-contained with its own housing, stores, services, and restaurants. The long-term prospects after closure are encouraging, assuming the base's land can be opened to large scale private sector development. In fact, the first major reuse of the base was the opening of the California State University-Monterey Bay which opened its doors on August 28, 1995 to 633 students. The state university at Fort Ord "is expected to grow substantially over the years, attracting students, well paid employees, research dollars and private businesses," according to the 1995 BT Commercial Real Overview published in April 1995. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 10 <PAGE> Capri Apartments, Salinas, CA The Fort Ord complex was the largest military installation in the county with a total of 28,057 acres -- nearly the size of the city and county of San Francisco. Approximately 22 percent of the base (6,250 acres) was developed with barracks, housing, motor pools, administrative buildings, and various other support facilities. Other military installations on the Monterey Peninsula include the Presidio of Monterey, which is the home of the Defense Language Institute (foreign language school for all branches of the armed forces); the United States Naval Post Graduate School (NPGS), and the United States Coast Guard Station. The United States Department of Interior maintains 304,035 acres in the Los Padres National Forest and 164,503 acres along the Big Sur coast in the Ventana wilderness. Fort Ord Reuse Plans After more than six years of planning, the final version of the Fort Ord reuse plan shows a closed military base converted to a huge community of new homes, businesses, schools, parks, hotels and golf courses. The four volume reuse plan, filed in public libraries in the area during the first week of June 1996 by the Fort Ord Reuse Authority, has evolved from the days when a 250 member community task force first saw the base as an educational center. Along the way, planners ruled out suggestions that Fort Ord might give way to a "Disneyland in the dunes", an industrial center with 12 story high rises sprinklered about, or an endless shopping center with no room for houses. The more realistic, final plan, which the FORA board is expected to act on in July includes market research, financing analyses, economic forecasts and population projections. Still, the numbers in the reuse plan are almost overwhelming: - -Nearly 4,000 acres of land available for private owners, an area six times the size of Carmel. - -More than 13,000 new houses to be built, half as many as now exist in Salinas. - -About 12 million square feet of industrial parks and office complexes, enough to fill an area 20 times the size of Del Monte Shopping Center in Monterey. - -More than 45,000 new jobs in those businesses, a third as many as now exist in the entire county. - -A new community of more than 71,000 people, twice as many as now live in Monterey. - -About 1,800 hotel rooms, three times as many as the Hyatt Regency in Monterey and eight times as many as Embassy Suites in Seaside. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 11 <PAGE> Capri Apartments, Salinas, CA - -Development costs of $451 million over the next 20 years, as much money as it takes to run the city of Pacific Grove for 50 years. The plan shows development, including the 800 acre military enclave left behind as the Presidio of Monterey Annex, the 1,300 acre California State University at Monterey Bay (CSUMB), the 845 acre Marina Municipal Airport and as many as seven golf courses, covering about a third of the 44 square file base. About 18 percent of the land at Fort Ord has been developed. Another 14 percent is slated to be developed in the next 60 years, according to the reuse plan. About two-thirds of the base is to be preserved in its natural state by the U.S. Bureau of Land Management (BLM), the State Department of Parks and Recreation, the University of California Natural Reserve System, the county, and the city of Marina. The environmental impact report for the reuse plan fills one of the volumes, a 327 page document, filed in early June as FORA's proposed final plan. The environmental analysis doesn't have many specifics because a special state law allows that at Fort Ord. The reuse plan, which has taken six years and many political battles to achieve, is seen as a master sketch, with details and designs to be filled in as individual development projects emerge. Fort Ord's Impact on the Local Economy It is extremely difficult to accurately ascertain the full impact that Fort Ord's closure has had on the local economy because California was suffering through a recession during the early part of the 1990's when the base was closing. The recession has made it difficult to isolate how much of the impact the close of Fort Ord has had on the economy. What has been evident is that there was a short-term glut of rentals on the Monterey Peninsula. Surrounding communities, especially Marina, Seaside and Sand City suffered the greatest negative impact as the closure process evolved. Conversely, the prestigious residential areas such as Pebble Beach, Carmel and the more upscale areas of Monterey were not impacted by the closure. Similarly, the City of Salinas' housing market was not adversely affected to a significant degree. In the Salinas Valley the base closure has had little to no significant impact. Rather, population growth and new development in the area of Salinas continued to be most effected by issues such as the shortage of water and salt-water intrusion. In general, the Salinas Valley could be described as being somewhat of an isolated market area. As such, a Salinas Valley location became more desirable, as investor's uncertainty associated with Fort Ord's closure was primarily directed at investment properties located on the Monterey Peninsula. Overall, a somewhat stagnant to moderate housing market appears to be the continued status for the general area over the short term, although there are signs that economic conditions are improving. This is especially the case in nearby Santa Clara County ("Silicon Valley") where the housing and rental markets have exploded due to strong job growth. Little investment activity Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 12 <PAGE> Capri Apartments, Salinas, CA and/or new construction is anticipated in the communities adjoining Fort Ord, at least until the major issues surrounding the redevelopment/reuse of the base are resolved. As discussed, there are several issues surrounding the base closure and its reuse which need to be resolved before the prevailing atmosphere of uncertainty blanketing the local real estate market is cleared. Business / Industry Monterey County, with a full-time civilian work force of approximately 172,000 - -175,000 workers, has two major urban areas -- Salinas and the Monterey Peninsula. As shown on the following page, employment in Monterey County (not including agriculture) is projected by the Employment Development Department (EDD) to average 113, 100 in 1996, which will be 2,400 jobs above the 1989 annual average. At just +2.2 percent, this very small gain in jobs reflects EDD's assessment of the impact of the Fort Ord closure. Unemployment rates in Monterey County have been consistently higher than for California as a whole. The seasonal nature of the county's economy accounts for double-digit unemployment in the winter when agriculture, food processing, and tourist-oriented industries are at a lull. Agriculture While the economy of Monterey County is diversified, agriculture is the county's leading industry and the mainstay of the local economy. Agriculture provides approximately 1/4 of the county's basic income. Almost 1/5 of California's top-producing crop farms are located in Monterey County. With 86 farming operations, the county ranks second in the state, behind Fresno County with 97 farming operations. A farming operation is defined as a farm producing a crop with a value in excess of $4 million. The county ranks third in the state in gross dollar agricultural production, making it one of the top ten producing counties in the nation. Monterey County has a total of 976,000 acres used exclusively for agriculture and another 343,680 are combined agricultural and grazing land. The county's highly productive agricultural land is often referred to as the "fog belt" agricultural area of California. The long growing season in this area makes it possible to grow as many as three crops annually. Nationwide, the county leads in the production of lettuce, broccoli, artichokes, cauliflower, mushrooms, and strawberries. According to the county's agricultural commissioner, strawberries were the third-ranked cash crop in 1994, behind broccoli and head lettuce. Despite the damage done by the 1995 historic floods, the crop value for Monterey County agriculture surpassed the $2 billion mark, after creeping toward the milestone for several years. The 1995 crop value, $2.03 billion, market a 4.8 percent increase over 1994. Among the top 12 crops, the order in terms of dollar value remained almost identical to that of 1994. Besides breaking local production records, Monterey County surpassed Kern County in 1995 to become the third in the state in gross dollar value of agriculture. It was surpassed by only Fresno and Tulare counties. By the same measure, Monterey County also is the largest vegetable Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 13 <PAGE> Capri Apartments, Salinas, CA producing county in the United States. The crop value for the state of California stands at $20 billion. Assuming water for irrigation remains sufficient, employment in agriculture is projected to increase as growers expand production of vegetables and labor-intensive strawberry and nursery crops. But because of foreign competition, the rate of growth will be slower through 1996 than over the past seven years. Foreign demand for the county's produce remains strong, however. Additional market growth is also expected as the pre-cut salad mix processing market is rapidly expanding. Agriculture continues to be effected by water availability. Even with above normal rainfall in 1993 and 1996, the effects of years of drought have brought to focus the water issue. At this time, the issue of sufficient water supply and overdrafting (saltwater intrusion) are being addressed through water conservation and other management practices which have included moratoriums on new development. Other issues facing the agriculture industry include nitrates leaching into groundwater and soil compaction. Tourism/Convention Industry Following agriculture, the health of the county's business and industry is tied to the tourism/convention industry. According to the California Office of Tourism, an estimated 5 million visitors spent $1.2 billion in 1991 in traveling to Monterey County. That total represented about 2 percent of statewide travel spending that totaled $54.1 billion. As shown in the following table, Monterey County ranked ninth among the state's counties in total travel dollars spent in 1991. TRAVEL IMPACTS BY COUNTY (Office of Tourism) - -------------------------------------------------------------------------------- Travel Expenditures Payroll Employment Tax Receipts ($000) County ($000) ($000) (Jobs) Local & State Los Angeles $13,617,556 $3,316,360 154,734 $221,008 $391,987 San Francisco 5,777,445 1,524,457 63,236 99,816 133,011 Santa Clara 1,816,493 414,511 26,269 39,982 62,715 Alameda 1,502,588 353,077 19,663 25,024 46,024 San Mateo 1,496,321 363,301 18,626 26,209 41,447 Monterey 1,062,686 199,309 16,210 29,922 45,087 Sonoma 571,605 117,118 8,788 9,660 26,355 Santa Cruz 385,672 80,350 5,347 7,464 13,561 Napa 321,794 67,972 5,078 7,023 13,489 San Benito 49,459 8,713 724 591 2,327 - -------------------------------------------------------------------------------- Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 14 <PAGE> Capri Apartments, Salinas, CA The Association of Monterey Bay Area Governments (AMBAG) estimates that 15 percent of total employment in the county and about 45 percent of all services and trade employment in the county are supported by tourism. The Monterey County Hospitality Association estimates that the industry is directly responsible for creating over 16,000 jobs locally with a payroll of nearly $200 million. And including the estimated 10,000 indirect jobs, the payroll increases to $322 million. By the Monterey County Hospitality's estimates, the "trickle-down" effect of tourism puts the total impact at $4 billion to $5 billion. Restaurants, hotels and inns, retail trade, numerous publications, and a variety of other service-oriented businesses are directly dependent on the tourist trade for their welfare. Based on 1989 data, there was a total of 220 lodging facilities in Monterey County consisting of 10,381 rooms. Because the majority of the tourism industry is centered around the hotel and convention complexes, it has more of an impact on the Monterey Peninsula area. The Monterey Peninsula area provides for a plethora of recreational and cultural activities which in combination with the natural scenic beauty create a tremendous attraction for tourism. The area has a number of public beaches that cater to swimming and sunbathing as well as surfing and scuba diving. In addition to the beaches, there is boating and sailing as well as two yacht clubs servicing the Monterey Peninsula. The area also boasts a number of parks and campgrounds, including the Los Padres National Forest and State beaches and parks. Within these parks and reserves, there are facilities for riding, hiking, hunting, and fishing. There is also the renown Del Monte Forest area and its 17-Mile Drive; Cannery Row and Fisherman's Wharf; as well as the Carmel-by-the-Sea and the ocean-front drives of the peninsula communities. The growth of the tourist industry is reflected in the continuous extension of the visitor season. More and more small business meetings, conventions and recreational events are now being held on a year-round basis. Although travelers and visitors to the Monterey Peninsula area come from all over the world, the primary points of origin are from within California, particularly within one day's driving distance. Again, attractions such as the Monterey Bay Aquarium and John Steinbeck's Cannery Row, as well as the Monterey Fisherman's Wharf, continue to be prime sources of vacation and tourism attractions. Paralleling the growth of the travel & lodging industry, was the development of the Monterey Bay Aquarium. The aquarium was approved by the coastal commission in 1978 and the 60,000 square foot facility was completed in 1985. The entire cost of the $50 million aquarium was absorbed by the philanthropist/businessman David Packard. The aquarium drew 2.227 million visitors in its first year and has averaged approximately 1,730,000 annually through 1991 -- making it the single largest tourist attraction in the county. A substantial expansion to the facility is now underway. Upon completion of the expansion, attendance is expected to substantially increase. Occupancy for hotels and motels often reach 100 percent during peak season on the Monterey Peninsula. In fact, visitation patterns are being strongly affected by the lack of available rooms. The major limiting factor to the growth of the tourist industry in Monterey County in the future will be accommodations and facilities. According to statistics provided by the Monterey Peninsula Chamber of Commerce, the average occupancy rate has been approximately 65-75 percent, although 1996 is turning out to exceed those numbers. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 15 <PAGE> Capri Apartments, Salinas, CA In an effort to further promote tourism, leaders in Monterey County's tourism industry are beginning an ambitious campaign to market the area. The general plan is to form an alliance among merchants, city officials and representatives of major events such as the Monterey Jazz Festival and Sports Car Racing Association of the Monterey County. The strategy for expanding tourism in the county is to spread out the times when visitors come to the county and to advertise the attractions of the region, rather than just Monterey, Pebble Beach or Carmel. Traditionally, the tourist season peaks from Memorial Day to Labor Day. Additionally, the alliance would like to also extend the average stay from two to three days in the county. To that effect, tourists would be encouraged to spend time touring the Big Sur Coast, wineries of Salinas and Carmel Valley, John Steinbeck's Salinas, and even the lesser-known missions of San Antonio and Soledad. The concept of "ecotourism" is also being promoted as a means of courting more visitors to the county. Monterey County, by virtue of its fragile ecosystem, scenic natural beauty and 20 years of "no growth" planning policy appears ideally suited to this new industry. Because the future of Monterey County may very well depend on its natural environment, "ecotourism" represents a mutual interest of both business and environmentalists. Thus the adverse impacts of increased traffic, use of precious water and growth of facilities geared to tourists are sure to be carefully weighed as community leaders look towards expanding the tourism industry in order to offset losses from the closure of Fort Ord. Monterey County's tourist season has traditionally run from Memorial Day to Labor Day, but recent patterns of hotel occupancy and retail sales show that the season starts and ends later. The summer 1995 aquarium attendance was up 10% over 1994. In June and July 1995, attendance was up 7 percent and 7.6 percent, respectively, over the same months of last year. August was expected to experience increases of up to 5 percent, according to Mr. Jim Hekkers, vice president of external affairs at the Monterey Bay Aquarium. Commercial Market The county's office market caters primarily to small local service business, while most regional and national companies are located on the Garden Road/Ryan Ranch/Highway 68 corridor, drawn by newer buildings, attractive rents, better parking ratios, and large contiguous spaces. The industrial market is "tight" in Monterey County. Vacancies are minimal and have continued to decline. Contiguous blocks of available space over 15,000 square feet are non existent. Most knowledgeable real estate brokers expect rents to increase slightly over the next year. New development should be limited because of minimal available industrial-zoned land. The local retail market may seem crowded with large shopping complexes on the drawing boards in Salinas and Sand City, but marketing reports and consultants say there's room for more. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 16 <PAGE> Capri Apartments, Salinas, CA Housing Market Monterey County's real estate sales surged in April/May 1996 with total sales coming in 67 percent higher than for the month last year. The increased activity has promoted optimism about a recovering market. The median home price for the county is approximately $300,000. This is up slightly over the past year. Regional Description & Analysis - Conclusion A survey of statistics on agriculture, home sales, retail sales and other indicators shows that the Monterey County economy is proving wrong the dire predictions made before Fort Ord closed down. For decades, farming and the military were the area's two economic mainstays. Today agriculture remains paramount, but other sectors are changing rapidly to fill the void created by the base closure. Jobs While unemployment estimates remain seasonally high, county business have added more than 6,000 new jobs in the past 12 months, mostly in agriculture and service related fields, according to the State Employment Development Department. Construction Although the county construction permits dropped by about 4 percent in 1995, when compared to the year before, to about $319 million, single family dwelling starts have bolstered this year's construction, which is about 20 percent ahead of last year's rate. In addition, government projects are still underway, including the $100 million Natividad Medical Center in Salinas. Completion is expected in early 1997. Built around a courtyard, the new facility will offer patients an array of outpatient services devoted to the needs of families, women and children. Construction has started on the 680,000 square foot Westridge Shopping Center in Salinas. It is expected that the Wall Mart Store will open in February 1997. Real Estate Sales Although Monterey County is considered the second least affordable area in the country, higher priced homes on the Peninsula are still attractive, particularly to the people in the 45 to 54 age range. Agriculture Monterey's total crop ranks third in the state in total dollar value, behind Fresno and Tulare counties. In terms of vegetable production,, the county is the largest in dollar value in the country. The county's crops amounted to 10 percent of the statewide crop total of $20 billion in 1995. Tourism The area's coastline, golf courses and resorts attract visitors from throughout the world. In 1995, attendance at the Monterey Bay Aquarium was 1.6 million and, with the opening of the Outer Bay wing in March, attendance is expected to go as high as 2.2 million this year, according to aquarium officials. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 17 <PAGE> Capri Apartments, Salinas, CA CITY OF SALINAS-COMMUNITY PROFILE The City of Salinas, incorporated in 1874, is located eight miles inland from the Monterey Bay, at the head of the Salinas Valley. The level fertile floor of the valley tapers to a funnel just north of the City. The original King's Highway, now called El Camino Real and/or Highway 101, traverses the approximate center of the valley floor from the Prunedale area of rural north Monterey County to King City to the south. Other cities located in the valley south of Salinas includes Chular, Gonzales, Soledad, Greenfield, San Lucas, and San Ardo. A map of the city appears in the Addenda. Salinas has been recognized historically as the distribution center for agricultural products from the Salinas Valley, one of the world's richest, most fertile growing areas, with approximately 1,000 square miles of land. The economic base of Salinas has always been agriculturally oriented; however, during the past decade, rising property values have helped to make the city of Salinas a bedroom community of the Monterey Peninsula. Salinas has become the population growth center of the Monterey Bay region. Recent projections show the city will continue to grow at an annual rate of 3 percent. There are 100 manufacturing firms in Salinas. The leading group classes of products are food, electronic components and electrical products. The largest manufacturing firms in the community are: Simplot Corporation, 550 employees; National Refractories, 419 employees; Integrated Device Technology, 360 employees; Radionics, 359 employees; and McCormick & Company, Inc. (Shilling), 350 employees. The city has three distinct geographical business areas: South Salinas, East Salinas, and North Salinas (where The Capri Apartments are located). South Salinas "Old Town" is located south of West Market Street, along Main Street in south Salinas. This area has many specialty retail stores, financial institutions and restaurants. The City is actively pursuing the redevelopment of "Old Town." Since 1974, $15 million in private investments, matched by $34 million in publicly financed improvements, have been committed to this project. This redevelopment has revitalized the area and has attracted many new commercial tenants to this part of the city. This redevelopment is to include the Steinbeck Plaza, which is anticipated to be a much-heralded showpiece of the city's downtown district. It will consist of a mixed land-use project for the blighted 100 block of South Main Street and will include a five-story, 94 room hotel with rooftop restaurant; a five story, 110,000 square foot office building with conference rooms and retail shops; a four level parking garage; restaurants with a total seating of 400; and a 33,000 square foot public plaza that will include an amphitheater. County and city government offices are located in the south Salinas area. This part of the city is generally known as the financial center. It has the highest concentration of larger office buildings. One of the largest tenants in south Salinas is the County of Monterey and its support service agencies. Salinas is the county seat of Monterey County. As the county seat, Salinas serves as the Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 18 <PAGE> Capri Apartments, Salinas, CA area's center for finance and agribusiness. It has captured nearly 40 percent of the county's office development. North Salinas The north Salinas business district of the city is located along North Main Street, south of Boronda Road and north of East Laurel Drive. The Northridge Regional Shopping Center, with over 120 specialty shops, three savings and loans, a bank, theater complex, and four major department stores, is located in this area of the city. In 1985, Northridge concluded a four year expansion, representing an investment of over $55 million. Convenience stores, financial institutions and other neighborhood stores are also located along North Main Street, which connects the north and south Salinas areas. Over the past five years, with the development of Northridge Shopping Center, north Salinas has become the retail center of the city. Office development in this part of the city has generally been directed toward smaller buildings. East Salinas The East/Alisal area of Salinas is generally described as that part of the city that is located east of Highway 101 and Natividad Road. The central commercial district is located along East Alisal. Portales de Alisal, a three level mix of retail shops and day care center, as well as medical and other professional offices, are planned on approximately eight acres located in the 500 block of East Alisal Street, in the Hebbron Heights neighborhood of the Alisal District. Neighborhood retail shops, small professional office users and trades people comprise the typical tenant profile in the east Salinas area. Vacancy in this area is low. Very few spaces are for lease. New retail space has leased very well as evidenced by the strong activity of a 19,600 square foot retail/shopping center located at 45 Sanborn Road. Population & Growth Percentage-City of Salinas vs. Monterey County - -------------------------------------------------------------------------------- Year Monterey County City of Salinas - -------------------------------------------------------------------------------- 2000 422,710 144,500 - -------------------------------------------------------------------------------- 1995 370,996 122,390 - -------------------------------------------------------------------------------- 1990 355,657 108,777 - -------------------------------------------------------------------------------- 1980 289,861 80,479 - -------------------------------------------------------------------------------- 1970 247,450 58,896 - -------------------------------------------------------------------------------- Monterey County-Employment by Industry - -------------------------------------------------------------------------------- 1992 1998 (projected) Percent Change - -------------------------------------------------------------------------------- Agriculture 30,600 32,900 8% Services 28,300 32,000 13% Retail Trade 23,700 25,700 8% Government 27,900 26,300 -6% Manufacturing 8,900 9,800 10% Finance,Insurance, 6,300 7,000 11% Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 19 <PAGE> Capri Apartments, Salinas, CA Capri Apartments, Salinas, CA Real Estate Transportation & 5,100 4,900 -4% Public Utilities Wholesale Trade 5,000 5,100 2% Construction 3,900 4,200 8% Mining 300 200 -33% Local Economic Developments-City of Salinas Early in 1996 the Salinas Valley Maximum Security Prison opened its new operation with its expanded correctional facilities. The new facility added nearly 700 new employees; an additional 800 new employees (the highest percentage are correctional officers) have recently been added, and by the beginning of 1997 an additional 450 new employees may be added. The recent hirings have already impacted the local apartment housing market throughout Salinas; interviews with numerous apartment managers have indicated that large numbers of newly-leased units are to correctional officers working at the Soledad State Correctional Facility; extremely limited housing within the city of Soledad have heavily impacted the demand for rental units in Salinas, considered only an approximate twenty (20) mile northerly commute from the prison. Increases in the city's services, retail trades, manufacturing, construction, and finance sector have resulted in a stronger demand for affordable multi-family housing units. The current shortage of rental units has been primarily the result of local economic activity. The expansion of the Westridge Shopping Center, a 650,000 square foot retail center, is within one-half mile of the subject property and includes a Wall Mart Store opening in February, 1997; this will also increase housing demand in the North Salinas area. Household Credit Corporation recently hired 200 new employees in 1996. Residential Growth-City of Salinas The Salinas Valley has long been an attractive area for homebuyers, especially first-time buyers who are looking for an affordable home in Monterey County. The average annual growth rate over the past 10 years was nearly 2 percent, and, as a result of continuing developments throughout both Monterey County and Salinas itself the rate should approximate 3 percent for the remaining few years to 2000. Salinas has been moving forward with several new developments that will add thousands of new people to the city by the time the next U.S. Census is taken in the year 2000. The Harden Ranch subdivision in North Salinas, for example, includes 1,683 single family homes, 719 multifamily units and an area for churches, schools and a park. Creekbridge subdivision is a mix of new homes, including 1,000 single family homes and 1,030 multifamily units. The Williams Ranch subdivision in East Salinas was planned for 1,551 homes and 519 condominiums or apartment units. If there are any restrictions to growth in Salinas it's the agricultural land that surrounds the city. The city's master plan for growth forbids city officials from considering new building projects to the south and west of the city limits because that land is some of the richest, most productive farmland in California. "Slow" of "No-Growth" policies will limit Salinas' development in the Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 20 <PAGE> Capri Apartments, Salinas, CA south and west portions of the city; therefore, future developments will concentrate more heavily in North Salinas, in the general vicinity of The Capri Apartments. City of Salinas-Apartment Market Analysis Below is a simple chart illustrating the structural and vacancy characteristics estimated for the City of Salinas, as of September 28, 1996, the effective date of this appraisal. From a total of 35,902 housing units within the city, 13,247 units are considered multi-family (2 or more units in a structure). This equates to 36.9 percent. This estimate includes apartment units in plan check or currently under construction. All Housing Units <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------- Total 1 unit-detached 1 unit-attached 2-4 units 5-9 units 10+ units Mobile homes - --------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> 35,902* 18,077 2,942 3,239 3,236 6,772 1,636 - --------------------------------------------------------------------------------------------- </TABLE> * Information provided by the Monterey County Association of Realtors and Association of Monterey Bay Area Governments. Utilizing the number of apartment units indicated above there currently exists 13,247 apartment units. Since the end of 1992, no apartment units have been built until 1996; the overall number has remained relatively constant for a number of years. Based on the current estimated population of Salinas of 122,390 and applying a 35% multifamily ratio provides for a total renter population of approximately 42,837. Dividing the renter population by the average 3.21 household size (estimated by the Association of Monterey Bay Area Governments) suggests that the City of Salinas would need 13,345 apartment units to accommodate this demand. Comparing this to the current apartment inventory of 13,247, a deficiency of 98 units exists. If this analysis is accurate, then this explains why the market as a whole is experiencing a very low to no vacancy rate at this time as reported by various apartment building managers throughout North Salinas, South Salinas, and East Salinas. Again, this is very consistent with my findings based on interviews with on-site managers, property managers, brokers and other appraisers. The Salinas apartment market is very tight with many of the larger professionally managed complexes reporting 98%-100% occupancy with a waiting list. The market has tightened up because of several factors including the recent expansion of the Soledad prison facility wherein they recently hired approximately 1,200 employees. As previously indicated, Household Credit Corporation recently hired 400 new employees and a host of other ancillary businesses have been hiring in and around Salinas. Additionally, the population has been growing at approximately 3,500 new residents per year. Much of this growth is due to the migration from Santa Cruz, Los Angeles, and San Jose. Many of these people are purchasing homes in the newly-developed master plan communities and many are renting. According to many of the on-site property managers renters are coming from as far as San Jose which is approximately 3/4 of an hour drive north. Rents are significantly higher in San Jose. Rents in Salinas are estimated at between $250 and $500 below San Jose rents and therefore is attracting tenants who view making the commute an attractive alternative to paying higher rents. Below are the results of a survey performed by this appraiser of ten (10) apartment complexes within the City of Salinas as of the date of this appraisal. The average apartment building size was Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 21 <PAGE> Capri Apartments, Salinas, CA 146 units. The survey indicates the name of the complex, total number of units, total number of vacant units, and total number of units "on notice". Apartment Survey-City of Salinas September 28, 1996 - -------------------------------------------------------------------------------- Name Total No. Units No. Vacant Units Units on Notice - -------------------------------------------------------------------------------- Cypress Creek Apartments 288 0 12 - -------------------------------------------------------------------------------- Cypress Landing Apartments 112 0 0 - -------------------------------------------------------------------------------- Los Padres Apartments 220 4 2 - -------------------------------------------------------------------------------- Mariner Village Apartments 176 1 3 - -------------------------------------------------------------------------------- Northridge Park Apartments 232 3 3 - -------------------------------------------------------------------------------- Kipling Manor Apartments 92 0 0 - -------------------------------------------------------------------------------- Olive Tree Apartments 34 1 0 - -------------------------------------------------------------------------------- Shadowbrook Apartments 88 3 0 - -------------------------------------------------------------------------------- Sheridan Park Apartments 116 0 10 - -------------------------------------------------------------------------------- Village Green Apartments 104 0 4 - -------------------------------------------------------------------------------- TOTALS 1,462 12 34 - -------------------------------------------------------------------------------- This particular sample surveyed represents only 11.04 percent of the total number of apartment rentals in the city of Salinas. Based on information from the above respondents a vacancy rate of .8 percent was indicated. If one includes the number of "units on notice" (tenants who plan to vacate within 30 days), the vacancy rate becomes 3.15 percent. Most of the tenants who have given notices to vacate are considered "seasonal workers" engaged primarily in the agricultural trades, according to property managers surveyed. NEIGHBORHOOD DESCRIPTION AND ANALYSIS The subject property is located in a north central section of the North Salinas area of the city bounded by Iris Drive north, Tyler Street to the west, U.S. 101 Freeway south and by N. Main Street to the east. The area as defined is nearly triangular in shape and contains a total of less than .25 square miles. Immediate Neighborhood Environs The subject property is located on the southwest corner of Iris Drive and Heather Circle. In the area immediately west of The Capri Apartments is an average quality tract of detached single family homes built circa 1960. Located to the immediate south of the 114 unit development is a portion of the Heater Plaza Apartments and the U.S. 101 Freeway. Tyler Street is considered the westerly boundary line and is also improved with single family homes. Directly across Iris Drive at Heather Drive to the immediate north of the subject property are the Crestwood and Skyline Convalescent Hospitals (residential care facilities). The Petra Bible Church occupies the southwest corner of Lupin Drive and Iris Drive. Located along N. Main Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 22 <PAGE> Capri Apartments, Salinas, CA Street in sections north and south of the Iris Drive intersection is the Sherwood Gardens Shopping Center. In the southern portion of the neighborhood commercial center are tenants that include Buon Appetito Cafe & Deli, Salinas Western Store, Boots & Western Wear, The Krate Records & Tapes, Evelyn's Unique European Boutique, Arby's Fast Food Restaurant, DKA Computers, Andrus Jewelers, Your Community Blood Center, Thee Salon, Magana's Meat Market, Jenny Craig's Weight Loss Clinic, Avco Financial Services, House of Fabrics, United Travel, Mandarin Garden Chinese Restaurant, Quito's Mexican Restaurant, South Valley Bikes, Shadow Walkers Cards & Comics, 3-Day Blinds, Salinas Radio & Stereo and Golden West Restaurant. Located at Bernal Drive and N. Main Street are Standard Stationers and the Rodeo Inn (motel). Located in the northern portion of the Sherwood Gardens Neighborhood Shopping Center are the Sherwood Care Pharmacy and Laundry Care; large users of space also include anchor tenants such as Canned Foods & Grocery Outlets, Grand Auto Supply & Tires and 24 Hour Nautilus Fitness Center. The Casa Linda Motel is "outside" the shopping center located to the north along N. Main Street's west side of the street. It should be noted that immediately east of the neighborhood as defined along N. Main Street are the California Rodeo Grounds and Salinas Community Center & Swimming Pool. The subject property, The Capri Apartments, has relatively good freeway access to U.S. 101 within one-half mile northwest at West Laurel Drive or within one-half mile south at N. Main Street. SITE ANALYSIS ================================================================================ General: The Capri Apartments Based on a plat map furnished by our client (a copy is included in the Addenda), the site for The Capri Apartments contains a total of 5.078 acres comprised of two (2) parcels. A survey of the site has not been made, and it is assumed that the Plat Map is correct. The two individual parcels that make up the subject site are irregularly configured.. Topography and Drainage: The topography of both of the sites is predominantly level to slightly rolling. Drainage is believed to be adequate. Access: The Capri Apartments has two access driveways fronting to Iris Drive only. Utilities: All major utility services are available and connected to the property. These utilities include sewer, water, electricity, cable television, and telephone services. Sewer service is provided by the Monterey Regional Water Pollution Agency. The capacity of the sewer plant is 30 million gallons per day. Water is provided by the Alco Water Service and California Water Service Company. For both water companies combined, the maximum daily pumping capacity is 45,383,680 gallons per day. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 23 <PAGE> Capri Apartments, Salinas, CA Quantity rates are $3791 per 100 cubic feet. Natural gas and electric power are provided by Pacific Gas & Electric (PG&E). Local telephone service is provided by Pacific Bell. The City of Salinas Department of Public Works has adopted a master plan of storm drains. A storm drain easement is located over the subject's smaller parcel, i.e. 003-801-008. Site Hazards: The subject property is located in a designated FEMA Zone "B", according to Community Panel Map Number # 060202-0002 D, dated November 4, 1981. The "B" designation does not require flood insurance. Earthquake Fault Zone The property is not located in any known earthquake fault zones. However, the region is subject to periodic earthquake tremors. We know of no particular reason why the site would be at a greater risk than other area properties. Rent Control: Monterey County does not have rent control. The county does have an "inclusionary housing" program that provides for affordable 'low-income" housing. Low and moderate housing assistance is available through a variety of programs offered by the Housing Authority of Monterey County, the City of Salinas and CHISPA, a non-profit housing developer. Apartment complexes for low-income families, the elderly, handicapped and farm-labor families are located throughout Salinas. The city has established a Housing Trust Fund to help increase the supply of affordable rental units as well as opportunities for home ownership. Contamination/Toxics: We have inspected the property with the due diligence expected of a professional real estate appraiser. It is important to note, however, that the appraiser(s) are not qualified to detect hazardous waste and/or toxic materials. Such a determination would require investigation by a qualified expert in the field of environmental assessment. To our knowledge, there are no potentially hazardous materials that would affect the valuation and/or marketability of the property as of the date of valuation. The appraised value of The Capri Apartments is specifically predicted on the assumption that there are no hazardous materials on or in the property that would cause a loss in value. Easements and Restrictions: Normal public utility easements are assumed that are not considered to adversely affect marketability. Site Analysis Conclusion In summary, The Capri Apartments complex has a site consisting of 5.078 acres configured on two parcels that are improved with 114 rentable units. All utilities are available, including sewer service, Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 24 <PAGE> Capri Apartments, Salinas, CA electricity, gas, telephone and cable television. The site lies in Flood Zone 'B" (no flood insurance required). Zone'13"is typical of the neighborhood. TAXES AND ASSESSMENT ANALYSIS In the State of California, property is enrolled at 100% percent of market value, as determined by the Assessor upon transfer of ownership or significant new construction. The maximum tax rate cannot exceed one percent of the enrolled value, plus general and/or special assessment bonds and fees approved by the voters. The Monterey County Assessor Parcel Numbers for The Capri Apartments are 003-801-007 and 003-801-008 (this parcel refers in part to the landscaped corner at Heather Circle and Iris Drive). The assessed values allocated between land and improvements, for the tax year 1996-97, are as follows: - -------------------------------------------------------------------------------- APN 003-801-007 003-801-009 - -------------------------------------------------------------------------------- LAND $1,131,205 $16,483 - -------------------------------------------------------------------------------- IMPROVEMENTS $2,890,225 -0- - -------------------------------------------------------------------------------- PERSONAL PROPERTY $57,000 -0- - -------------------------------------------------------------------------------- TOTAL $4,078,430 $16,481 - -------------------------------------------------------------------------------- For The Capri Apartments, real estate taxes for the 1996-97 tax year are $41,870.54. Direct assessments of $898.86 are included. The tax rate for The Capri Apartments is 1.004660 percent per $100 of full cash value. A direct assessment, considered typical of North Salinas, is imposed by the North County Water Regional Agency (.004660) and added to the one (1) percent base tax rate as specified by Proposition 13 for California. There are no special assessment bonds, according to the Monterey County Tax Collector Department. Both installments have not been paid for 1996-97. The reader should refer to the preliminary title insurance report for specific amounts of any unpaid previous tax installments. The first installment for 1996-97 is due November 10, 1996. The tax rate area for The Capri Apartments is 005-015. Re-assessment of The Capri Apartments: Proposition 13 The current tax amounts for the 1996-97 tax year will not remain the same beginning on July 1, 1197. According to Proposition 13 for California, the subject property will be re-assessed, most likely based on the new sale price or market value at time of sale. The assessments will be based on full cash value using a tax rate per $100 of full cash value. The passage of Proposition 13 establishes a maximum property tax of one percent of full cash value. The mandated one percent (1%) property tax level converts to a $1.00 base tax rate. The additional rate imposed by the Water Regional Agency is added to the $ 1. 00 base rate. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 25 <PAGE> Capri Apartments, Salinas, CA ZONING DESCRIPTION AND ANALYSIS The Capri Apartments complex is currently under the zoning designation of R-H-2-3 by the City of Salinas. This zoning designation specifically refers to a high density residential district. Section 37-44 addresses specific purposes of the particular district's regulations. They are as follows: (1) To provide appropriately located areas for high density multiple family dwelling units consistent with the General Plan and with standards of public health and safety established by the Salinas Municipal Code. (2) To provide adequate light, air, privacy, and open space for each dwelling unit and protect residents from the harmful effects of excessive noise, population, density, traffic congestion and other adverse environmental impacts. (3) To promote development of affordable housing by providing a density bonus for projects in which a portion of the dwellings are affordable to qualifying households. (4) To achieve design compatibility through the use of site development standards. (5) To protect adjoining low density residential districts from excessive noise or loss of sun, light, quiet, and privacy resulting from proximity to multifamily dwellings. (6) To provide sites for public and semipublic land uses needed to complement residential development or requiring a residential environment. (7) To ensure the provision of public services and facilities needed to accommodate planned population densities. For a comprehensive list of all property development regulations under the R-H-2.3 Zoning District the reader may refer to the Addenda of this report. Parking Requirements-On-site Division 18-Off-Street Parking and Loading Regulations of the City of Salinas Municipal Code lists all use classifications. For multi-family residential complexes containing over ten (10) units, the off-street parking and loading requirement is 1.6 spaces per unit. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 26 <PAGE> Capri Apartments, Salinas, CA The Capri Apartments has 112 carport spaces and 50 open spaces for a combined total of 162 spaces. This equates to a 1.42 (rounded to 1.4) parking ratio, considered to meet code requirements as a -legal non-conforming use according to the zoning ordinance adopted in 1960. Pre-1993 parking requirements were last enacted in 1960; the subject property, built in two phases in 1965 and in 1973, conformed to the code requirements previously adopted in 1960. The parking requirement was amended in 1993 to 1.6 spaces per unit. Although slightly below code, parking is adequate for this complex and is similar to many other complexes in this area. Conclusion It appears that the subject property meets all applicable city zoning, building and parking requirements (grandfathered-in according to 1960 requirements). IMPROVEMENT DESCRIPTION AND ANALYSIS The Capri Apartments were constructed in two phases-, in 1965 and in 1973. 64 units were first constructed in 1965 and the remaining 50 units added in 1973. There are a total of 114 rentable units located on a 5.078 acre site (a combination of 2 parcels) configured with twelve (12) 2-story buildings, with the first phase constructed around the only swimming pool. The net rentable building area is estimated at 72,720 square feet. There are also two (2) laundry rooms and two (2) saunas. The Capri Apartments are considered Class D Building(s) Construction Type V (wood frame) of the Uniform Building Code. Class D buildings are characterized by combustible construction. The exterior walls are made up of closely spaced wood studs with an exterior wood siding. The roof, of asphalt shingle composition, is supported by a wood truss system with a concrete slab floor on 1st floor area. The upper floor (2nd story) consists of plywood sheets. Also, the subject is in a class of construction referred to as protected one-hour construction. Unit Mix-Capri Apartments - -------------------------------------------------------------------------------- TYPE UNITS AREA (sf) - -------------------------------------------------------------------------------- 1BR/1B 72 600 - -------------------------------------------------------------------------------- 2BR/1BA 30 814 - -------------------------------------------------------------------------------- STUDIO 12 425 - -------------------------------------------------------------------------------- TOTAL 114 72,720 - -------------------------------------------------------------------------------- Note: Information regarding the individual unit sizes was provided by the Lincoln Residential Services Management Company. The appraiser was provided interior access to studio, one bedroom and two bedroom floorplans purported to be representative units. Gross living area estimates for these units are based on exterior wall measurement taken by the appraiser. It is assumed that the interior conditions of all units are similar to those inspected Interior Improvements: Capri Apartments Floor coverings consist of wall to wall carpeting over concrete slab in lower levels and over plywood subfloor in upper levels. Vinyl flooring is in kitchens and bathrooms. Electric wall Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 27 <PAGE> Capri Apartments, Salinas, CA heating is included in all units. The kitchens have formica countertops, free-standing electric range and ovens, garbage disposals, stainless steel sinks and dishwashers. There are no dishwashers included in the one bedroom units, however. Each of the units are served with individual hot water heaters. Bathrooms are improved with fiberglass tub and shower enclosures and cultured marble vanities. Overall condition is considered good. Many of the units have recently been upgraded with new carpeting and interior painting. Effective Age: Capri Apartments The actual ages of The Capri Apartments complex range from 23 years to 31 years. An average quality Class D apartment project is estimated to have a total economic life of fifty (50) years. This is based primarily on the performance of many comparable properties built in the 1940's and 1950's still in existence in Monterey County and capable of attracting tenants due to upgrading and above-average maintenance. In addition, the Marshall and Swift Cost Valuation Service provides reasonable support for an estimated total economic life expectancy of fifty (50) years. Because The Capri Apartments has undergone recent upgrading as needed under the current management to date it is the appraiser's opinion that an estimated overall effective age of eighteen (18) years is considered reasonable and supportable.. Remaining Economic Life: The remaining economic life of The Capri Apartments is estimated at 32 years, although it certainly could be longer or even shorter. This estimate is made by deducting the effective age of 20 years from total economic life of 50 years. External Obsolescence Because some of the apartment units located in The Capri Apartments are in relative close proximity to U.S. 101 Freeway (within 250'), Lincoln Residential Services was consulted as to any adverse effects any of the rental units may have experienced in attracting and maintaining tenants over a reasonable period of time. No significant problems have occurred in renting any of the few units that are located close to the freeway, which is separated by a 12' noise abatement wall and adequate distance setbacks. There is no difference in rental rates (i.e. rent loss) between apartment units located in closer proximity to the freeway than those located in other more distant sections of the development. HIGHEST AND BEST USE ANALYSIS Definition Highest and best use, as used in this appraisal, is defined as that reasonable and probable use that will support the highest present value, as defined, as of the effective date of the appraisal, September 28, 1996. Alternatively, that use, from among reasonably probable and legal alternative uses, found to be physically possible, appropriately supported, financially feasible, which results in highest land value. The above definition of the 'Highest and Best Use is in reference to land that is unimproved. In cases of improved land, a determination of the contributory value of the improvements to the land must be made. The improvements found on a site may be of inappropriate use, but will continue until the land value exceeds the total value of the property in its existing use. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 28 <PAGE> Capri Apartments, Salinas, CA Discussion Our opinion of the highest and best use of the subject land parcel will be supported based upon our analysis of the four tests outlined below: 1. Legally Permissible Use. This type of use is legal and conforms to the zoning assigned to property, as well as to the City's planning goals. 2. Physically Possible Use. The shape, size, and available utilities are adequate to serve this use. 3. Financially Feasible Use. Population and immediate income statistics support the feasibility of the highest and best use based upon the quantity, quality, and distribution of the income and its prospective users. 4. Maximally Possible Use. An analysis of which possible legal uses will produce a net return and/or create value to the site. All three standard appraisal approaches to value are affected by the highest and best use. Therefore, valuation is highly dependent upon the conclusions set forth by this analysis. Physically Possible Section 37-46 of the City of Salinas Municipal Code specifies a minimum lot size of 7,200 square feet in a R-H-2.3 high density residential district. The Capri Apartments has a site size of 221,198 square feet. A minimum of 1,800 square feet is required for each unit, according to Section 37-46 of the Regulations. Based on this requirement, therefore, the site is physically capable of being developed with the current apartment improvements. Legally Permissible The subject is zoned and general plan designated to allow high density residential uses. As existing, the subject is a legal and conforming use. The Capri Apartments complex is legally permissible under the current zoning regulations. Financially Feasible In evaluating the most reasonable and probable use of the vacant site, we considered the demographics of the surrounding area, land use patterns, local market supply and demand, general market conditions, and the physical characteristics of the property itself. The most feasible and marketable use for the subject site appears to be for apartment use, given the present shortage of rental housing in Salinas, which is a result of the local economy and current growth of Salinas. Rapid changes in market conditions which were previously discussed in the Neighborhood Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 29 <PAGE> Capri Apartments, Salinas, CA and City Sections indicate apartment and multi-family housing as the most reasonably probable use of the subject property. Maximally Possible Use The final of the four tests in the highest and best use analysis is the use that maximizes the land value by providing the highest return. This test must be considered sequentially with the prior three tests; it makes no difference that the most probable highest value is a apartment complex, for example, if the zoning does not permit this use. The most profitable use is a multi-family or apartment use. This is largely based on the fact that the current improvements are apartments and are configured on the sites as such. At the present time, the City of Salinas Planning Department recognizes through its general plan the R-H-2.3 high density residential district of the subject's neighborhood in North Salinas and is aware of the changing market conditions and rental shortage that exists in the City of Salinas. There is virtually no availability of vacant land in South Salinas for apartment use, for example, since that area is primarily designated as agricultural land. The City is encouraging the future development of high density residential land in the North Salinas section of the city. Highest and Best Use Conclusion - As Improved In conclusion, the highest and best use of The Capri Apartments, as improved, is apartment use. Highest and Best Use Conclusion - As Vacant In conclusion, the highest and best use as vacant is a multi-family or apartment-type use. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 30 <PAGE> Capri Apartments, Salinas, CA THE APPRAISAL PROCESS ================================================================================ The estimation of a real property's market value involves a systematic process in which the appraisal problem is defined and the data required is gathered, analyzed and interpreted into an estimate of value. Traditionally, three methods of valuation have been used in appraising: the Cost, Sales or Market Comparison and Income Approaches. In the Cost Approach, the value of the site is first estimated by comparing it to similar sites that have recently sold or are currently offered for sale. Replacement cost new of the improvements is determined by reference to actual costs of similarly constructed properties. Depreciation from all sources is then deducted from the replacement cost new of the improvements to arrive at the present value. The depreciated value of the improvements is added to the estimated land value to arrive at the total value by the cost approach. In this appraisal, however, NationsBank has requested that the cost approach be omitted from this appraisal assignment. The cost approach has been determined to have little to no significant applicability in the valuation of 10 to 30 year-old multi-family properties due largely to the subjectivity involved with estimating depreciation in older properties. Moreover, cost and value are oftentimes not the same. The Sales Comparison Approach involves comparison of the subject to similar properties that have recently sold or that are offered for sale. These sales are reviewed for differences from the subject *in the date of sale, location of the site, physical characteristics and other factors. The comparable properties are then adjusted to formulate a value range for the property being appraised. The third of the three valuation techniques is the Income Capitalization Approach. This approach involves estimating net operating income, and discounting this income to a present worth through the capitalization process. For most income-producing properties, including apartments and multi-family properties, this is the better valuation technique. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 31 <PAGE> Capri Apartments, Salinas, CA INCOME CAPITALIZATION APPROACH ================================================================================ The first and primary approach applied to the valuation of the subject is the income capitalization method. This technique involves conversion of future anticipated income into an estimate of present value by the capitalization process. This procedure involves three steps as indicated below: 1. Estimate gross income from available rental information and the subject's operating history; 2. Estimate and deduct vacancy and collection loss allowance and operating expenses to derive net operating income; and, 3. Select an applicable capitalization method or methods, develop the appropriate capitalization rate, and complete the necessary computations to derive an economic value indicated by the income capitalization approach. Required Information Documents that are helpful to better estimate value under the Income Approach include the following: o Income/Expense statements o Personal Financial Statements of Owner (if applicable) o Rent Roll o Lease Agreements o Other (service agreements) Income and expense statements. Operating statements provided by management over the past two years and seven months are included in the Addenda. Personal Financial Statements. The owner's personal financial statements are not required to appraise the property, but can be helpful under certain circumstances. While market value intrinsically assumes transfer to a willing and knowledgeable buyer at market price, financial statements of the owner often provides insight into the current management quality and style of the property. An undercapitalized owner, for example, may not be able to institute correction of deferred maintenance that will enhance livability. As such, occupancy and rates may suffer from inadequate level of maintenance, which results in loss of reputation. Financial statements of the subject ownership have not been reviewed. However, based on conversations with management and the overall good maintenance level and high occupancy of the property, it can logically be assumed that ownership is capable of operating the property in a strong professional manner. Based on conversations with management, and inspections of other properties owned by Thysen and managed by Lincoln Residential Services, the subject has been operated in a professional manner and there appears to be no operational problems. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 32 <PAGE> Capri Apartments, Salinas, CA Rent Roll: A roll of the current tenants has been provided by management as of September 28, 1996. As of this date, 4 units were vacant, but all have been preleased. Thus, there is no vacancy at this particular time. Lease Agreements: A copy of the standard 2-page residential rental agreements has been reviewed, and has been included in the Addenda. Units are on either 7, 8, 9 and 10 month short-term leases. The rental agreements are typical of others used in the marketplace. Utilities, except for water, trash and basic cable are paid for by the tenants. However, it should be noted that the landlord pays gas for units 1-65. The residents pay for electricity in all units. There is a late charge of $30 if management elects to accept rent after the third of the month, and a $20 returned check fee. No pets are allowed without written consent. Use of the premises shall be for a private residence only. No more than three persons shall occupy a one bedroom unit; no more than 5 are allowed in a two bedroom. Occupancy limits are strongly enforced. First month and security deposits are collected prior to the tenant moving in. Capital Improvements: Capital expenditures over the past two years have also been reviewed and/or discussed with the property manager. Improvements to the property over the past year and half include the following: o Asphalt repair, seal and striping o Carpets in common hallways o New appliances and carpets in most units Occupancy trends: In addition to the above, occupancy trends of the complex have been reviewed. Since Lincoln Property took over as managers approximately 1.5 years ago, occupancy has been increasing. This is due mainly to correction of deferred maintenance items and an improving rental market. The new management has also qualified tenants better which have resulted in less turnover and less evictions. Moreover, seasonal tenancy has been reduced to virtually nothing by the implementation of leases. Other: According to management laundry equipment is owned by the service company. Subject Asking Rents As of September 28, 1996, the following monthly rents (all unfurnished) were being charged at the subject complex: 72 1 BR/lBA 600 sf $540 $0.90/sf $38,880 30 2 BR/lBA 814 sf $675 $0.83/sf $20,250 12 STUDIOS 425 sf $490 $0.86/sf $ 5,880 -- ------ ---- -------- ------- 114 638 avg. $570/avg. $0.89/sf avg. $65,010 Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 33 <PAGE> Capri Apartments, Salinas, CA All rents include water, trash removal and basic cable. Tenants pay their own electric (Pacific Gas & Electric Company), telephone, and premium cable channels. Tenants in units #66-114 pay for their own gas. To qualify, prospective tenants must have three times the monthly rental rate and a positive credit report and previous rental history. There is a $25 application fee (includes credit report). The application fee is non-reimbursable. The above price list was set within the past few months. Management periodically surveys other complexes in the area in order to maintain market rental levels. At this time, there are no rental specials or concessions. As explained earlier, market conditions have been improving gradually over the past year, and most apartment complexes in Salinas are not offering any rental concessions at this time. As can be noted on the rent roll in the Addenda, a number of subject apartment units are at the above quoted rates. Those units with leases expiring will be moved to the new rates. At this time, there is a difference of approximately 4.59 percent between the market and actual rents. Rent Survey and Analysis In order to determine whether the subject rentals are at or within a market rental range, a survey of competing complexes was made. This analysis involved a comparison of amenities and facilities offered by competitive projects with those offered by the subject. The competing complexes considered most helpful in estimating the subject economic or market rental level are summarized on the Mowing pages. All rental rates quoted in the survey are month-to-month or short-term leases. None of the complexes surveyed in this report had long-term leases. All complexes are garden style two and/or three-stories of similar vintage and design as the subject. All are located in the general subject neighborhood. Typically, rents include water and trash removal (and sometimes basic cable service). None of the complexes were offering any specials. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 34 <PAGE> RENT COMPARABLE NUMBER 1 Name: CYPRESS CREEK Location: 162 Casentini Street, Salinas Age/Type: 9 years old/ two-story garden design - 288 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $725-750 750 $0.97-1.00 2BR/2BA = $925-950 1,000 $0.925-0.95 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, racquetball, spa, w/d hookups, laundry rooms Vacancy: 0% (some units will become available in next few weeks) Comments: Nine year old project; good tenant appeal. Located off N. Main Street. Close to shopping, schools, freeway. Deposit = $300/400. $25 per month extra with lease (either 6 or 9 months). Pet deposit of $400 (cats). Good demand over past year. Source: (408) 758-3008 [GRAPHIC OMITTED] 35 <PAGE> RENT COMPARABLE NUMBER 2 Name: FOX CREEK Location: 136 W. Alvin, Salinas Age/Type: 1986/ two-story garden design - 168 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $625 708 $0.88 2BR/1BA = $725 875 $0.83 2BR/2BA = $750 986 $0.76 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, w/d hookups in all units, laundry rooms Vacancy: 0% (some units will become available in December) Comments: Ten year old project; good tenant appeal. Located off N. Main Street. Close to shopping, schools, freeway. Deposit = $250. Pet deposit of $350 (20 lbs.). Good demand over past year. No units available. Some units may become available in December. Carport parking plus open. No specials. Month-month rentals. Source: (408) 449-1800 [GRAPHIC OMITTED] 36 <PAGE> RENT COMPARABLE NUMBER 3 Name: CYPRESS LANDING Location: 552 Rico Street, Salinas Age/Type: 1989/ two-story garden design - 112 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $655-690 750+/- $0.87-0.92 2BR/1BA = N/A 2BR/2BA = $765-825 975+/- $0.78-0.84\5 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, some units have fp's (all 1/br's), laundry rooms Vacancy: 0% (some units will become available in October) Comments: Good tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit = $350/450. Good demand over past year. No units available. Some units may become available in October. Carport parking plus open. No specials. 6 and 12 month leases ($15/mo. taken off 12 mo lease). Source: (408)424-4343 [GRAPHIC OMITTED] 37 <PAGE> RENT COMPARABLE NUMBER 4 Name: NORTHPOINTE Location: 196 E. Alvin Drive, Salinas Age/Type: 1976/ two-story garden design - 138 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $568 648 $0.87-0.92 2BR/1BA = $620 735 $0.84 2BR/1BA = $669 835 $0.80 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, some units have fp's (all 1/br's), laundry rooms Vacancy: 1% (only one unit available at survey time) Comments: Avg-Avg+ tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit = $300/400. Good demand over past year. Carport parking plus open. No specials. 6 month leases. Source: (408)443-1776 [GRAPHIC OMITTED] 38 <PAGE> RENT COMPARABLE NUMBER 5 Name: THE REEF APARTMENTS Location: 333 W. Laurel Drive, Salinas Age/Type: 1960's/ garden court design - 54 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $530-545 625 $0.87 2BR/1BA = $650 800 $0.81 Studio = $450 400+/- $1.13 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: pool only Vacancy: 0% (none at time of survey; waiting list) Comments: Avg tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. No specials. Source: (408) 449-1680 [GRAPHIC OMITTED] 39 <PAGE> RENT COMPARABLE NUMBER 6 Name: SHERIDAN PARK Location: 1450 N. First Street, Salinas Age/Type: 1983+/two-story garden design - 116 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $570 630 $0.90 2BR/1BA = $620 800 $650 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Heated pool, 2 sauna, spa, laundry rooms, security gates Vacancy: 0% (none at time of survey) Comments: Avg-Avg+ tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit = first month's rent plus key deposit. Carport parking plus open. No specials. No units available, but 10 units will be in November. Source: (408) 449-8203 [GRAPHIC OMITTED] 40 <PAGE> Capri Apartments, Salinas, CA All rental rates quoted in the survey are month-to-month or short-term leases. None of the complexes surveyed in this report had long-term leases. All complexes are garden style two and/or three-stories of similar vintage and design as the subject. All are located in the general subject neighborhood. Typically, rents include water and trash removal. None of the complexes were offering any specials. Rental Number 1 represents Cypress Creek, located at 162 Casentini Street in north Salinas. This is a 288-unit complex built in 1987. It is of good quality and in good condition. Amenities include tennis courts, heated pool, sauna, racquetball, spa, laundry hookups, laundry rooms and carport parking. No promotional specials or concessions. Leases are 6 and 12 month terms. Security deposits are $300 and $400 (depending on the unit size). Pets are allowed with a $400 deposit. One bedroom units are reported at 750 square feet and rent from $725 to $750, depending on variation of location within the complex. Two bedroom/two bath units measure 1,000 square feet and rent from $925 to $950, or $0.93 to $0.95/sf Only four units are available. This is one of the newer and better quality complexes in Salinas and is similar in many respects to the subject. Like Rental Number 2 below, it is comparable to the subject, but superior. The subject does not offer the level of recreational amenities nor does it have the appeal as Rental #1. On a per unit basis, the subject should definitely rent lower than $725 for one bedrooms, and $925 for two bedrooms. Rental Number 2 represents the 168-unit Fox Creek Apartments, located at 136 West Alvin Drive nearby the subject in north Salinas. The overall quality and condition are good. No promotional specials or concessions. Leases are 6 and 12 month terms. Security deposits are $250. Amenities consists of a pool, spa, weightroom, clubhouse, laundry rooms, and tennis courts. Some units have washer/dryer hookups. There are 76 one bedroom, 24 two bedroom/one bath, and 68 two bedroom/two bath units. One bedroom units are reported by management at 708 square feet, and rent at $625 per month, or $0.88/sf. Two bedroom/ one bath units are 875 square feet, and rent at $725 per month, or $0.83/sf Two bedroom/two bath units are 986 square feet, and rent at $750 per month, or $0.76/sf Current vacancy is zero. Like Rental # 1, this comparable is superior to the subject as it contains more recreational amenities and is newer. This comparable is useful in setting the upper end of the per unit rental range for the subject. It is clear that the subject one bedroom units should rent below $625, and the two bedrooms should fall slightly below $725 per month based on this particular comparable. Rental Number 3 is the 112-unit Cypress Landing Apartments located at 552 Rico Street, nearby the subject in north Salinas. This is a newer complex built in 1989. It is of good quality and in good condition. There are 36 one bedroom and 76 two bedroom/ two bath units. One bedroom units measure approximately 750 square feet and are $640-665 per month. Two bedroom units are approximately 975 square feet, and rent from $745-795 per month. Amenities include a pool, spa, clubhouse and carport parking. Some units have fireplaces. No rental concessions or specials. The property is close to shopping, freeway access and schools. The overall appeal is good. Only one unit is currently available. As with the previous two comparables, Rental #3 is superior to the subject. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 41 <PAGE> Capri Apartments, Salinas, CA Rental Number 4 is the 138-unit Northpointe Apartments located at 196 East Alvin in North Salinas nearby the subject. This is a two-story garden complex built in 1976. The overall quality and condition are above average to good. The location directly off N. Main is close to shopping, schools and freeway access. The complex has 1, one bedroom unit currently available at $568/month, and 1, two bedroom/one bath unit at $620/month. Two bedrooms reportedly rent as high as $669 per month. One bedrooms range from 624 to 648 square feet, and two bedrooms contain 735 to 835 square feet. Rents include water and trash. Security deposits are $300 for one bedrooms and $400 for two bedrooms. Leases of six months are required. There are no specials or concessions. Pets are not allowed. Amenities include two laundry rooms, and one swimming pool. The appeal, age and level and quality of amenities are similar, but slightly inferior to the subject. The subject has an advantage of having security fencing. Overall, this comparable brackets the potential subject "market" rents on the lower end. Rental Number 5 represents 7he Reef Apartments, a 54-unit garden court design complex built in the 1960's. This complex is also located in north Salinas nearby the subject. It is older than the subject, and has slightly less appeal. This complex is renting one bedroom units at $530 to $545, and two bedroom units at $650. Studios are $450 per month. All rents include water and garbage. The subject offers superior appeal in that the rent includes basic cable and security gates. Given these differences, the subject should rent higher. Overall, Rental #5 gives good support to the subject market" rents by bracketing at the lower end. Rental Number 6 represents Sheridan Park, located in the general neighborhood. This is an average quality property that features security gates. Rents are $570 for one bedrooms and $620 per month for two bedroom/one bath units. Water and trash removal are included in the rent, but basic cable is not. The overall quality and appeal are similar, but slightly inferior to the subject. According to management, there are no available units at this time. Overall, this comparable provides good support for the subject units. Other: In addition to the above primary comparables, several other complexes including many owned by Thysen in the Salinas marketplace were considered. Thysen owns another 12 complexes in Salinas (most are in North Salinas). Although not enough to "set" the market, the number of complexes controlled by Thysen has an influence on rental levels. Thysen property managers (employees of Lincoln Property) regularly refer clientele to other Thysen complexes. Still, there are more than enough competing projects to make it difficult if not possible to "control" the market. Rental rates at these complexes are consistent with one another and with competing projects. Market Rental Conclusion The comparables surveyed support the "market" rents of the one bedroom units at $540/month, or $0.90 per square foot. There is also good support for the two bedroom units at $665 per month-, it appears that these units could go higher. Based on the survey, the market rent for the two bedroom units appears to be closer $20-25 per month higher. The studios are adequately priced at $490 per month. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 42 <PAGE> Capri Apartments, Salinas, CA Of the complexes surveyed (including those not shown in this appraisal) which consisted of about 2,000 total units, overall vacancy is running between 1-2 percent. Most had no vacancy. Some had only a few units available. A few managers stated that units should become available in November and December as seasonal workers go home. When a unit does become available, it typically takes 3 to 7 days to re-rent. However, in several cases, the unit is pre-leased (rented prior to the occupant moving out). Subject Market Rental Income (@ 100 Percent Occupancy) Based on market rents, the subject would have the following monthly income at 100 percent occupancy. 1BR @ $540/mo. x 12 $ 6,480 2BR @ *$665/mo. x 72 $47,880 ST @ $490/mo. x 30 $14,700 -- ------- 114 $69,060 * - the market rate for these units may be somewhat higher Actual Reported Income Shown below is a table outlining revenue for 1994, through July 31, 1996. Rental income for September 1996 is also shown. Income statements are shown in the Addenda. <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------ 1994 1995 YTD ('96) Sept. 96 - ------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> *Gross Rents: $ 617,368 ($451/unit) $621,884 ($455/un) $457,762 ($502/un) $ 59,810 ($544/un) Laundry $ 11,906 $ 10,747 $ 8,725 N/A **Other $ 32,062 $ 45,402 $ 34,320 N/A </TABLE> * - collected rents ** - includes deposits ($22,094 refunded in 1995) N/A = Not available Rental Income Estimate: Almost all of the subject's total income is derived from rents. As shown above, rental income has increased significantly over the past year. This is due to in part to new management and an improving rental market. The actual rental income for the month of September 1996 was $59,810, or $544 per unit. This amount does not include vacant-preleased units. The market rent for the vacant units total $2,060. Blending this with actual rental income, results in a gross scheduled rental income of $61,870, or $543 per unit. This amount is supported by actual and comparable rents, and is achievable over the near term. Consequently, $61,870, or $742,440/ annual has been used as a stabilized gross income figure. Laundry: The laundry income is stabilized at $12,000 per year. Other: Other income consists of retained deposits, late charges, nsf checks, and miscellaneous charges to tenants. The large percentage of this category relates to security deposits. Although forfeited security deposits and late charges are a source of income, it is not included in the reconstructed Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 43 <PAGE> Capri Apartments, Salinas, CA operating statement as part of ongoing cash flows. This is because this type of income was not accounted for in the computation of gross and net operating incomes for the comparable sales. Total Gross Income: Total gross income is estimated at $754,440. Vacancy and Collection Loss In estimating a stabilized vacancy factor, several factors were considered- First, vacancy has decreased over the past few years due to new management and improving market conditions. In 1993, market conditions were soft and vacancy was higher than it is today. The property has been upgraded over the past two years. Meanwhile, market conditions have improved due to an expanding economy. The resurgence of 'Silicon Valley" 70 miles to the north, the new Soledad Correctional facility, and several thousand feet of regional shopping space has created many new jobs. The new Wal-Mart in this area will also expand the retail base, and bring in newjobs. As of the inspection date, the subject complex was fully occupied. This is consistent with comparable Salinas projects at this time. There may be some seasonal variance as workers leave agricultural jobs in November, but the overall affect on the subject should be minimal as the subject does not rely on this type of tenancy. In addition to vacancy, consideration must also be made for ongoing collection loss. In the case of the subject, collection loss has been reduced from previous years due to the stricter qualifying policies. Deposits are collected upfront, thus actual collection loss is mitigated to some degree by any evictions that may occur during the year. However, consideration should still be made for collection loss. A reasonable stabilized collection loss rate is 1 to 2 percent of gross income. Assuming continued good professional management, stabilized vacancy and collection loss should run at approximately 5 percent on average. There is the strong possibility that vacancy and collection will fall below this estimate over the next 12 to 24 months, however, longer-term consideration should be made for construction of new units and decreased economic activity. Effective Gross Income The effective gross income is estimated by deducting five percent from estimated gross *income, as shown below: - -------------------------------------------------------------------------------- Gross Annual Income: $754,440 Less: Allowance for Vac/Collection (5%) (37,722) -------- EFFECTIVE GROSS INCOME $716,718 - -------------------------------------------------------------------------------- Expense Analysis In order to estimate the value of the property by the income capitalization approach, expenses must be deducted from effective gross income to arrive at a net operating income estimate. Like other types of income property, apartment property expenses are a function of services provided as well as physical and geographical characteristics of the property itself. Operating and 'fixed" expenses Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 44 <PAGE> Capri Apartments, Salinas, CA vary from complex to complex, but generally fall between 33 to 45+ percent of revenue (gross income), including replacement reserves. Expenses can be broken down into per unit per year (or month), or as a percentage of rental revenue or effective gross income. Expenses as a percentage of income change depending on revenue levels. It can be difficult to compare apartment expenses on a line-by-line basis. No two apartment complexes are alike. Shown on the following page is a recent operating history of the subject. Expense categories are analyzed and discussed below. It should be noted that new management took over in 1995; expense records previous to 1995 are not complete and do appear to reflect current conditions. Real Estate Taxes & Direct Assessments California state law requires the reassessment of any parcel upon change of ownership. The market value of the subject property intrinsically assumes a hypothetical sale. Therefore, it is necessary to estimate real estate taxes based upon market value. In the State of California, property is enrolled at 100 percent of market value as determined by the County Assessor upon transfer of ownership or significant new construction. The maximum tax rate cannot exceed I percent of the enrolled value, plus general assessment bonds and fees approved by the voters. Enrolled value can be increased by a maximum of 2 percent per year, absent transfer, or new construction, based on the cost of living. Under Proposition 8, approved subsequent to Proposition 13, value can also be decreased to reflect current market conditions. The actual taxes are below what the new taxes would be based upon market value. According to the Monterey County Tax Collector Department, there are no special assessment bonds. The tax rate is approximately 1.05 percent. Since market value has not yet been estimated by the income capitalization approach, a technique which adds the composite tax rate reflecting the ad valorem taxes to the capitalization rate has been used. The resulting value estimate is then multiplied by the composite tax rate to obtain the amount of new taxes. This method gives only an approximation since the assessed value may not necessarily be the sale price (or market value). In addition, the value conclusion by the sales comparison approach has been used as a guide. Applying the tax rate of 1.05 percent, results in new taxes of $42,000. - -------------------------------------------------------------------------------- SUBJECT PROPERTY OPERATING HISTORY - -------------------------------------------------------------------------------- Expense Item 1994 1995 1996 (Ytd) - ------------ ---- ---- ---------- Payroll $49,950 $ 90,132 $51,565 Utilities $91,320 $102,421 $79,817 Insurance $36,395 $ 5,000 $ 196 Taxes & $25,902 $ 26,210 $26,210 License & Permits $ 456 $ 1,888 $ 1,558 Management Fee N/A $ 17,403 $16,865 Administrative $10,753 $ 19,996 $8,173 Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 45 <PAGE> Capri Apartments, Salinas, CA Maintenance & Repair $ 33,395 $122,303 $ 57,335 Gardening/Landscaping $ N/A $ 7,168 $ 7,488 Cable T.V. $ 10,851 $ 18,632 $ 7,218 Security $ N/A $ 2,747 $ 3,183 ----- -------- -------- - -------------------------------------------------------------------------------- TOTAL N/A $413,900 $259,608 Per Unit $3,630/unit *$3,415/unit *-annualized - -------------------------------------------------------------------------------- Note: Maintenance & Repair in 1995-96 'include carpet replacement at a cost of $45,890. This is not an annually recurring expense and has not been treated as such. License and Permits In addition to taxes, apartment properties incur license and permit fees. Based on $15 per unit the stabilized annual estimated is $1,700 (rounded). Payroll The manager fives in the complex and the unit rent is included as part of her compensation. Payroll expense was reported at $49,950 for 1994. In 1995, it increased to $90,132. This category includes payroll taxes, state compensation insurance, unemployment taxes, wages for manager and office workers as well as maintenance personnel, and bonus. It should also include the loss of rent for the manager's unit. To date, this category is $51,565, or $678 per unit annualized. Based on payroll at other complexes, this expense has been stabilized at $75,000, or $658 per unit. Utilities Utility expense includes water, trash, basic cable, sewer, electrical for exterior site lighting and for other common amenities, including laundry facilities, filtering equipment for the pool, lighting for the clubhouse, etc.; tenants pay their own telephone, electric, and premium channel cable. Trash removal service is included in the monthly rent for all units. Utility expense can be estimated on a price per unit or on a price per square foot basis. The projects with the greatest amount of amenities and larger unit sizes generally show the highest rates of utility expenses. In 1994, utilities were reported at $801 per unit, and in 1995 it was reported at $898 per unit. The annualized projection for 1996 is $1,050 per unit. We have stabilized this expense at $103,000, which is consistent with prior years and other apartment complexes throughout the region. Insurance Insurance expense has been stabilized at $120 per unit as based on similar complexes throughout the region. Actual expense has not been reported. Management Fee (Supervisory Management) Lincoln Property Company has been managing the property over the past year and one-half. The reported fee was $17,403 for 1995. To date in 1996, the fee totals $16,865. The fee will increase with Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 46 <PAGE> Capri Apartments, Salinas, CA the increase in rental. Normally, management companies will charge from a low of 3 for large projects to a high of 6 percent of collected rent for smaller complexes. A rate of 4.0 percent on collected rents is reasonable for this project. Maintenance and Repair This category includes on-going maintenance and repairs that include the common areas, plumbing, pool, and electric. This category also includes building/pool supplies, appliance replacement and decorating supplies. In 1995, several carpets were replaced. Carpets have also been replaced in 1996 as tenants move out. Appliances were also replaced. This level of replacement does not recur on an annual basis, thus an adjustment is required in stabilizing this expense. Normally, maintenance and repair ranges from $400 to $600 per unit. The actual subject expense has been substantially higher due to the refurbishing of the complex over the past year. It should also be noted that this category does not include landscape/gardening and exterminating contracts or wages for maintenance personnel. Administrative This category consists of advertising and promotion, office supplies, computer expense, legal, credit check expense, and miscellaneous expense such as stationary, postage, etc. As shown in the Income & Expense Statement prepared by Lincoln Property Residential, a management fee paid to Lincoln is included under this category. In this analysis, the management fee has been separated and discussed under its own category. Gardening/Landscaping/Cable T.V./Security Landscaping is contracted to a private landscape company (recently hired). Basic cable is included in the rent thus it is an expense to the landlord. Security patrol and exterminating are also contracted. Total expense reported in 1995 was $28,547. The total for the first eight months of 1996 is $17,889. We have stabilized this category at $25,000 per year. Replacement Reserves Most owners do not utilize the replacement reserve account during the analysis or operation of an apartment complex. Rather, capital improvement items are often expensed as they are incurred. However, since capital expenditures affect the investor's cash flow, an analysis of the property's value must account for these expenses in the form of appropriate reserves for replacement. Reserves for replacements are estimated at 2.5 percent of EGI which equates to $160/unit. This takes into account the current good condition, lower effective age and recently completed capital improvements of the project. Items which are commonly associated with a reserve account include repaving of drives, replacement of underground utility pipes and electrical conduit, roof and foundation, as well as resurfacing of the pool new appliances, etc. (i.e., items that are not normally expensed year to year). Net Operating Income Total stabilized expenses and collection loss allowance amount to $387,700, or $3,400 per unit. This also equates to 54 percent of effective gross income. It should be noted that as a percentage of income, expenses are higher at the subject than they are for many complexes in this region. The reasons for this include: (1) basic cable service included in the rent; (2) more common amenities (hallways) than the Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 47 <PAGE> Capri Apartments, Salinas, CA typical complex resulting in a higher level of maintenance; (3) rents are relatively low in comparison to complexes in neighboring counties, thus as a percentage of income, expenses appear high. In terms of per unit cost the subject is well supported by other complexes throughout the region. Net operating income is estimated by deducting operating and fixed expenses from effective gross income, as shown below and on the following page: - -------------------------------------------------------------------------------- Effective Gross Income $716,718 Total Expenses (387,700) --------- Net Operating Income Before Income Taxes & Depreciation $329,018 - -------------------------------------------------------------------------------- Capitalization Rate Analysis After net operating income is estimated, an appropriate capitalization method is selected. Of the various techniques, the one that is almost always used due to its simplicity is direct capitalization. This method employs the use of a single rate known as the overall rate. The overall rate reflects the relationship between the projection of annual net operating income and a sale price or an estimate of value. It is calculated by dividing the net operating income of the sale into the sale price. When the property is purchased all cash, which is rare for larger apartments, and there is no subsequent change in value or income, then the capitalization rate is also the rate of return on the total property investment. In the Sales Comparison Approach section of this report, there is a table in which we have summarized our analysis of capitalization rates for the comparable sales. These capitalization rates were based on actual or actual near-term potential gross annual income less expenses at time of sale. In each case, expenses included new real estate taxes at market value as opposed to actual taxes which are typically much lower. The capitalization rates derived from each of these sale properties are summarized below: Sale No. 1 2 3 4 5 6 7 8 - -------------------------------------------------------------------------------- Cap Rate%: 8.54 8.6 9.1 9.34 9.6 10.15 7.9 9.69 The main factor influencing capitalization rates is the perception of risk. Those properties perceived to have higher risk, will sell at higher capitalization rates. The lower risk properties sell at lower capitalization rates. Apartment properties, because of their low vacancy, generally fall into the low risk category. Risk factors that should be taken into account in selecting an appropriate capitalization rate include the following: o Amount of available land zoned to allow future apartments o Upside (or downside) potential of cash flow o Existing or planned government restrictions on use and/or rent increases o Deferred maintenance and remaining life of site improvements o Marketability/liquidity o Availability of financing Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 48 <PAGE> Capri Apartments, Salinas, CA Availability of Land (potential of future competition) While there are several hundred acres of undeveloped land in the general area, most is zoned agriculture or has environmental issues such as sloughs/wetlands. This is not to say, however, that additional apartments could not be developed within a 50 mile radius. There has been very little apartment construction in the area over the past 9 years. One of the main reasons is the high cost of land and building. So, while future construction of apartments will occur to some degree, the high cost will result in higher rents that likely will not compete with the subject. Upside Potential of Cash Flow Gross revenue projected at stabilized occupancy is based largely on the current average rate. The market rate, although close, is still lower than the actual income. And given high occupancy in almost all Salinas apartment properties, it appears certain that rents will continue to gradually increase over the next 12 to 24 months. Consequently, upside rental potential appears good at this particular time. The subject is not affected by rent control, so this would not be a limiting factor. Deferred Maintenance The subject is well-maintained without any significant repairs or deferred maintenance. Better-conditioned apartments tend to sell at lower capitalization rates. Marketability/Liquidity Appropriately priced, the subject would have reasonably good marketability (see Marketing and Exposure Estimate sections). This tends to lower the overall capitalization rate since there would be good buyer demand. Availability of Financing Financing should not have a significant impact on the capitalization as capital is available for this type of property. Capitalization Rate Conclusion In conclusion, the subject capitalization rate should fall between 8.5 to 9.0 percent, as evidenced by the sales. Discussions with brokers, property owners and management companies indicate that apartment capitalization rates are dropping in Santa Clara and Santa Cruz Counties. The subject has good upside potential. It may also have extra or "excess" land to construct additional units. Based on our analysis, the most probable subject capitalization rate is at the lower end of the above range, or 8.5 percent. $329,108/ .085 = $3,870,000 (rounded) Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 49 <PAGE> Capri Apartments, Salinas, CA INCOME APPROACH SUMMARY - -------------------------------------------------------------------------------- INCOME - ------ Gross Annual Rental Income $742,440 Laundry $ 12,000 -------- TOTAL GROSS INCOME $754,440 Less: Vacancy & Collection Loss Allowance (5%) (37,722) -------- EFFECTIVE (COLLECTED) GROSS INCOME $716,718 Stabilized Operating Expenses Per Unit (rd) ----------------------------- ------------- Payroll $ 75,000 $658 Taxes (Prop 13) $ 42,000 $395 License & Permits $ 1,700 $ 15 Utilities $ 103,000 $900 Insurance $ 14,000 $122 Management Fee $ 29,000 4% *Administrative $ 14,000 $122 Maintenance + Repair $ 66,000 $579 Landscape/Cable T.V./Security $ 25,000 $219 Replacement Reserves $ 18,000 $160 --------- ---- *includes -Advertising & Promotional TOTAL OPERATING EXPENSES $387,700 $3,400 (54%) NET OPERATING INCOME (NOI) $329,018 OVERALL CAPITALIZATION RATE (Applied to NOI) .085 ---- - -------------------------------------------------------------------------------- Market Value As Is: $3,870,800 Rounded: $3,870,000 - -------------------------------------------------------------------------------- Other Capitalization Procedures Other capitalization methods may be used in the appraisal of apartment properties, although their understanding and use falls far short of direct capitalization. The Discounted Cash Flow analysis (DCF) is one such method. In this procedure, the value of a property is equivalent to the present value of the annual before tax cash flows, over an assumed investment holding period, plus the sale (reversion) of the property at the end of the holding period, at a single discount rate. The Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 50 <PAGE> Capri Apartments, Salinas, CA advantage of this approach is that it identifies variability in annual cash flows, especially in a startup operation. The Discounted Cash Flow Analysis requires several assumptions that impairs its reliability. For this reason, it is oftentimes considered a secondary valuation method in the appraisal of apartment appraisals. In this appraisal, the DCF procedure has not been used as it does not provide any additional insight into the valuation of this property. There are several reasons for excluding this approach. There is nothing to suggest at this time that there will be substantial changes in income patterns, although the near-term trend appears to be continued strengthening and gradual increasing of rents. Another reason is that there would be several assumptions that would have to be made. Perhaps the most compelling is that the sales were not purchased on a DCF approach. Employing a DCF for the subject would require that inferences be made about each sales as to applicable yield and going-out capitalization rates, as well as hold periods and annual expense and income increase (or decrease) projections. If the majority of these sales were purchased in this manner, then a DCF would have applicability; however, this is not the case. Income Approach Conclusion The Income Approach concludes a value of $3,870,000. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 51 <PAGE> Capri Apartments, Salinas, CA SALES COMPARISON APPROACH ================================================================================ The Sales Comparison or Market Data Approach involves making an analysis of the property being appraised based on sales of similar properties. To a lesser degree, this procedure may consider the asking prices of current listings. The market data approach presumes that a prospective purchaser would pay no more for a property than the amount with which he or she could buy another of equal utility. The reliability of this procedure is determined by: 1) availability of comparable sales; 2) comparability of sales in terms of date of sale, location, size, density, or other physical characteristics; and, 3) verification of the sales data. Although there are variations, apartment property sales are often analyzed using four unit-of-comparison indicators: o Price per unit o Gross Income Multiplier or Effective Gross Income Multiplier o Price per Rentable Square Foot o Price per Room Price Per Unit Method.- The price per unit method is most often affected by unit size, condition, overall functional utility, and location of a property. Sales with high average unit sizes which are situated in the most desirable locations tend to command the highest price per unit. Naturally, the existing potential rent levels also affect the sale price, thus influencing the price per unit value. Each of these factors determine the amount of net operating income that can be generated per unit which is a fundamental measurement of investor return when applying the price per unit method. Price Per Room Method.- Sale price per room demonstrates the same relationship as price per unit. Applying the same logic discussed above, which considers the average unit size of the subject, existing rent levels, and location relative to the comparable sales, a value per room can be estimated for the appraised property. Price Per Square Foot Method.- While size is a strong influence in sale price per unit and price per room, the rent levels attained by a property per square foot are closely related to the price per square foot it may attain in the marketplace. It is generally true that all else being equal, the rent per square foot for larger units is less than the rents per square foot for small units. Thus, apartment buildings which have larger unit sizes have lower rents per square foot and therefore have lower selling prices per square foot. Gross Income Multiplier Method.- The gross income multiplier (GIM) technique is oftentimes perceived as one of the most accurate market measure of value by the Direct Sales Comparison Approach. The GIM is calculated by dividing the sale price of the sale property by its gross annual income. This method tends to equalize property differences such age, size, and number of units. In general, where there is a fee simple title, apartment properties tend to sell at 5.5 to 8 times multiple on actual income. The range is tempered by a number of factors that include location, condition, quality, and upside rental potential. The more desirable properties with good track records will typically be higher on the scale, whereas lower quality facilities in weak locations tend Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 52 <PAGE> Capri Apartments, Salinas, CA to fall at the lower side. Since the GIM involves gross income rather than net income, the appraiser must compare the level of expenses of the comparables with the subject. This technique works best when expense operating ratios are reasonably consistent. Comparison is not straightforward, for example, when the sale property has an operating expense ratio that is significantly higher than the subjects'. Consequently, when estimating a GIM, care must be taken when comparing gross incomes. A variation of the GIM technique -- effective gross income multiplier (EGIM) -- is calculated by dividing the sale price by the effective gross annual income instead of the gross annual income. This technique, however, often does not result in a further refinement since apartment vacancy (and collection loss) throughout the region is very low. Comparable Sales Description & Analysis A search for apartment properties was made in Salinas and surrounding areas. No sales of larger apartment complexes (over 100 units) in Salinas during 1995 and 1996 were found. The most recent larger apartment transaction in Salinas occurred in 1994; a 60 unit complex sold in 1993 and a 112-unit property transferred in late 1991. A summary of these sales is summarized on the following pages. Additional information is included in the Addenda. To obtain more recent sales data, it was necessary to expand the search into nearby cities and counties. The strongest sales activity at this time is taking place in Santa Clara County, adjacent to the north of Monterey County. A number of larger sales have also taken place in Santa Cruz County, to the west. A brief description of each sales area and how it relates to Salinas is summarized in the following paragraphs. Santa Clara County San Jose: This is the largest county in the region with a population of over 1.4 million. It contains the City of San Jose, the third largest city in California. "Silicon Valley" originated in Santa Clara County. The county is home to over 2000 electronic firms, including industry leaders such as Intel and Hewlett-Packard. Over the past 20 months, technological employment has dramatically increased resulting in the creation of several new jobs. To fill new jobs, several thousand people have moved into "Silicon Valley" thus creating a demand for housing. As a result, apartment and other housing rents have increased substantially, nearly doubling from previous lows in some cases. Investors have now caught on to increasing rental activity, and sales activity is brisk. This market has "filtered" into nearby communities, including Santa Cruz, Alameda County, and to some lesser degree, Salinas. The resurgence of the Santa Clara County market comes after six years of sluggish performance. The last major upswing was in 1982-85 when rents increased annually by 18 to 20 percent. From 1995 to 1989, rents and vacancy were steady. In late 1989, following the Loma Prieta earthquake and a decline in economic activity, vacancy levels started to increase and rents became soft with rental concessions given in some complexes. Starting in late 1994, the market started to once again turn upward. In 1995, economic conditions improved and rents increased to reflect a landlord's market. Today, vacancy is extremely low with very units available for rent. This is expected to continue for at least the next six to 12 months as little land is available for new apartment construction. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 53 <PAGE> COMPARABLE MARKET DATA - APARTMENT SALES <TABLE> <CAPTION> Project Name Sale Location No. Units Sale Date (COE) Year Sale Price/ GIM Price Per Unit No. A.P.N. RSF-Bidg Built Price Sq. Ft OAR Cash-on-Cash ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> [1] Willow Gardens Apartments 1750 Stokes Street 186 6/14/96 1971 $13,650.000 $85.17 7.04 $73,387 San Jose, CA 160,260 8.64% 6.8% 2-story apartment garden sytle built in 1979. Wood frame, wood exterior. Average quality and condition. 190 covered parking spaces (carports). Amenities include pool, spa, laundry, recreation roon, balconies/patios, storage lockers, a/c. 6.40 acres (29.06 du/ac). First loan $10,600,000 from St. Paul Federal Bank. Document #13330744. [2] Ocean Terrace 1630 Merrill Street 100 7/12/96 1972 $6,300,000 $78.04 6.5 $63,000 Santa Cruz, CA 80,724 sf 8.6% 8.1% 100-unit garden style built on 2.7 acres in county area of Santa Cruz. Built in 1972, there are six buildings, a pool, exercise room, sauna, three laundry rooms, and on-site manager's office. Wood frame construction. Average quality and avg+ condition. 130 on-site parking spaces. AEK kitchens. $4,725,000 first from Home Savings of America. [3] Fox Creek Village 196 West Alvin Rd., 168 9/24/94 1986 $9,350,000 $66.31 9.8 $55,660 Salinas, CA 141,856 sf 9.1% 9.87% Built in 1986, Fox Creek Village consists of 76, 1/br/1ba units measuring 708 sf; 24, 2br/1ba units measuring 875 sf, and 68, 2/br/1ba units 986 sq ft. The gross building area is 145,023; the net rentable has been reported at 141,856 sf. 36 units have wood-burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. There are laundry rooms with washers and dryers in the complex. Above average to good quality and condition. One covered parking space per unit. [4] Kingdale Oaks 1919 Fruitdale Avenue 331 8/15/95 1970 $16,760,000 $66.22 6.01 $50,634 San Jose, CA 253,098 sf 9.34% 11.1% Average quality, 1, 2 and 3-story buildings built in 1964-1970. Wood frame and stucco. Concrete slab. Average condition. 331 covered parking spaces (carport). 166 open parking. Amenities include 2 heated pools, spa, poolside grills, laundry rooms, volleyball, and recreation building. Elevator served. New first loan from St. Paul Federal Bank, and seller second. Marketing time was reported at six months. 11.76 acres (28.15 du/ac). 1,2 and 3 bedroom units. ==================================================================================================================================== </TABLE> Note: The above data was obtained from sources deemed reliable. However, the accuracy of the data cannot be guaranteed by R. Saia, MAI Associates (9/96) 54 <PAGE> COMPARABLE MARKET DATA - APARTMENT SALES <TABLE> <CAPTION> Project Name Sale Location No. Units Sale Date (COE) Year Sale Price/ GIM Price Per Unit No. A.P.N. RSF-Bidg Built Price Sq. Ft OAR Cash-on-Cash ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> [5] Hidden Creek Apartments 200 Button Street 146 7/14/94 1973 $7,400,000 $77.81 6.78 $50,685 Santa Cruz, CA 95,100 9.6% N/A 3.8 acres (37 du/ac). 2-story, nine buildings. Garden style walk-up. Average quality and condition. 42 studies, 40 1br/1ba, 44 2br/1ba units. About half of complex is subsidized housing tenants. Financing terms n/a. Marketing time = 3 months. Amenities include pools, creek fountain and extensive landscaping. [6] North Bay Apartments 41 Granview Streett 115 12/15/95 1989 $8,550,000 $81.88 6.11 $74,348 Santa Cruz 104,421 10.15% 10.8% Good quality, 2-story garden style complex built in 1989. Average to good location. Buyer had to pay $300,000 in repairs and $175,000 in commissions. Cap Rate is somewhat high based on other sales of similar age, size, and location. Property was never exposed to open market. [7] 2186-2198 Brutus Street 60 5/26/93 1988 $3,072,000 $61.46 7.83 $51,200 Salinas, CA 49,980 7.99% N/A Average to good quality garden complex located in north Salinas close to shopping, schools and freeway access. There are 23, 1br units, and 37, 2br/2ba units. Average unit size is 833 square feet. No rent control. Financing terms were not available. [8] Cypress Landing 552 Rico Street 112 11/1/91 1989 $5,950,000 $59.11 6.01 $53,125 Salinas, CA 100,660 9.69% Newer, garden style consisting of 36 1br/1ba and 76, 2br/2ba units. 2-story buildings. Good quality and condition. Amenities include clubhouse, spa, pool, weight room, tennis courts. Carport + open spaces. Average monthly rent at time of sale = $689. Average unit size = 889 square feet. All cash to seller. ==================================================================================================================================== </TABLE> Note: The above data was obtained from sources deemed reliable. However, the accuracy of the data cannot be guaranteed by R. Saia, MAI Associates (9/96) 55 <PAGE> Capri Apartments, Salinas, CA Housing prices in San Jose are higher than they are in Salinas. Good Salinas neighborhoods, such as those found in north Salinas, can be compared to the more average/middle income areas of San Jose as well as the agricultural communities of Gilroy and Morgan Hill, in southern Santa Clara County. Still, downward adjustments are required for location when comparing San Jose to Salinas. Santa Cruz: In general, rental housing in Santa Cruz is less than it is in San Jose, but higher than in Salinas. Although considered more desirable, Santa Cruz is a relatively good area to draw comparable sales for comparison to Salinas. Santa Cruz is a coastal community that relies heavily on tourism and agriculture; some technology has filtered into the area from Silicon Valley. Rents have been increasing, but not nearly at the pace of San Jose. Occupancy is also extremely high in this area. A downward location adjustment is required when comparing a Salinas property to a Santa Cruz property. Monterey: No sales over 100 units were found in Monterey. This is mainly due to the limited number of larger units in the city. Although the City of Monterey is superior to Salinas in residential desirability, nearby cities such as Seaside and Marina are overall comparable. However, no sales of larger units were found in this area as well. Adjustment Process The most common unit of comparison indicator for apartments is price per unit. As such, the subject has been adjusted to the comparable sales on this basis. A sequence for making adjustments must be followed when percentage adjustments are calculated and added together. The first adjustment is for property rights conveyed. In this case, all properties sold fee simple or leased fee (short-term leases of less than one year); no leasehold sales were included. Thus, no adjustment was required. The second adjustment converts the transaction price of the comparable into its cash-equivalent or modifies it to match the financing terms projected for the subject property. No sales with financing favorable enough to significantly influence the sales price were included, no adjustment was required. The third adjustment is made for conditions of sale or other (e.g., personal property included in sale price). No REO or distressed sales were included, and no sales with furnished units were considered. Every apartment has some amount of personal property that transfers with the property; however, these items are nominal. Other adjustments considered were based on differences in market conditions, appeal, quality/density, condition, and size. No specific adjustment was made for rent control (i.e., San Jose complexes), although this is considered in the location adjustments. Shown on the following pages is a table summarizing eight apartment sales. Additional information concerning each sale, including recording data and a photograph, is in the Addenda. Apartment Sale Number 1, at $73,387 per unit, is a June 1996 sale of the Willow Gardens Apartments, an 186-unit garden style walk-up apartment located in a centrally-located middle-income neighborhood in San Jose. This is an average quality complex in average condition at time of sale. There are 162, two bedroom/two bath units, and 24, three bedroom/two bath units. The average unit size is 861 square feet. Amenities consist of a pool, spa, recreation building, and laundry rooms. The Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 56 <PAGE> Capri Apartments, Salinas, CA project sits on 6.40 acres, indicating a density of 29.06 units per acre. The project falls under San Jose Rent Control, which limits rental increases to eight percent with pass-through for extraordinary and capital expenses. The purchase price of $13,650,000 represents a rentable per square foot indicator of $85.17, and a per room value of $17,773. The GIM on actual rental income is 7.04. On market rents, the GIM is 6.29, indicating reasonably good upside rental potential. The Overall Capitalization Rate is 8.54 percent on actual income less actual expenses adjusted for new taxes and reserves. The cash-on-cash rate is 6.8 percent. In comparison to the subject, a downward adjustment is required for location. As noted, San Jose rent levels are higher than those found in Salinas. For example, a two bedroom/two bath unit at Willow Garden is $1,000+, or about $300 per month per unit higher than in Salinas. A downward adjustment of 25 percent as based on rental differential appears reasonable. The subject's average unit size at only 676 square feet is well below the comparable, resulting in a 15 percent downward adjustment. The quality and condition are similar. the subject has a lower density, but this has already been reflected in the location adjustment. Adjusting this comparable by 40 percent, results in an indicated subject per unit value of $44,000 (rounded). Apartment Sale Number 2, at $63,000 per unit, is a July 1996 sale of the Ocean Terrace Apartments, an 100-unit garden style walk-up apartment located in an unincorporated area of Santa Cruz County between the cities of Capitola and Santa Cruz. This is an average plus quality complex in above average condition at time of sale. There are 52, two bedroom/ units, and 32, one bedroom/ units. There are also 16, 3 bedroom units. The average unit size is 807 square feet. Amenities consist of a pool, sauna, exercise room, and laundry rooms. The project sits on 2.70 acres, indicating a density of 37 units per acre. The purchase price of $6,300,000 represents a rentable per square foot indicator of $78.04, and a per room value of $16,406. The GIM on actual rental income is 6.5. Market rents were about 3 percent higher than actual income during the six month marketing period. The Overall Capitalization Rate is 8.6 percent on actual income less actual expenses adjusted for new taxes and reserves. The cash-on-cash rate is 8.1 percent. In comparison to the subject, a downward adjustment is required for location. As noted, Santa Cruz rent levels are higher than those found in Salinas. For example, a two bedroom/two bath unit at Ocean Terrace is $800-850+, or about $100-250 per unit higher than in Salinas as compared to a similar complex. A downward adjustment of 15 percent as based on rental differential appears reasonable. The subject's average unit size is smaller, resulting in a 10 percent downward adjustment. In addition, a downward adjustment of 10 percent is made for the subject's larger size. Smaller properties tend to sell at higher unit values because they appeal to a larger group of buyers. Adjusting downward by a total of 35 percent results in an indicated subject per unit value of $41,000 (rounded). Apartment Sale Number 3, at $55,655 per unit, represents Fox Creek Village, an 168-unit two-story garden complex built in 1986, located nearby the subject in north Salinas. Fox Creek includes a pool, tennis court, recreation building and laundry facilities. There are 76, one bedroom units; and, 92 two Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 57 <PAGE> Capri Apartments, Salinas, CA bedroom units. The average unit size is 844 square feet - almost 25 percent higher than the subject. Some of the units have fireplaces. Parking is by carport stalls and open spaces. The overall quality and condition are good, superior to the subject. In comparison to the subject, a downward adjustment of 10 percent is required for size. Another adjustment of 20 percent is made for this property's lower effective age and superior quality and amenities. Although there are no sales in Salinas to determine whether apartment property value has increased since the September 1994 sale date, it is logical to assume that since rents are now somewhat higher that values are likely higher as well. Consequently, an upward adjustment of 5 percent is made. Overall, the adjustments total downward by 25 percent, indicating a subject unit value of $42,000 (rounded). Apartment Sale Number 4, at $50,634 per unit, is located south of Freeway 280 near San Jose City Community College within single family and apartment neighborhood. the project is under San Jose Rent Control Ordinance. This is average quality and condition. The buildings are wood frame and stucco with flat T&G roofs built in 1964 and 1970. There are 36, studios; 264 1br/1ba units; 20, 2br/1ba units; 5, 3br/2ba; and, 6 2br/2ba units. Amenities include 2 heated pools, poolside grills, laundry rooms, recreation room, and volleyball. Elevator served. Units have either balcony or patio and are separately metered. Average condition. 1.5 parking spaces per unit (166 open spaces and 331 carport). According to selling broker Bruce Hermann with Marcus & Millichap, gross scheduled actual income at time of sale was $2,787,000, or approximately $700 per unit per month. Actual vacancy (and stabilized vacancy) was 4.38%. Factoring-in taxes at market (per Prop 13), total expenses were reported at approximately $1,100,000. Net operating income is estimated at $1,565,000. Financing consisted of a 1st from St. Paul Federal Bank of $14,850,000 (VIR) 8%, 25-yr amortization and a seller second of $556,000 @ 7%, 2 years resulting in a total annual debt service of $1,414,297. Cash flow (after debt service) is $150,703, indicating a cash-on-cash rate of 11.1% on the cash down payment of $1,354,000. The marketing time was reported at 6 months. The sale reportedly did not involve an exchange. This sale closed in August 1995, but was negotiated several months prior. In comparison to the subject, a downward adjustment is required for location, although not as great as the adjustment made for Sale 1. The subject has superior appeal, but due to the locational difference a downward adjustment of 15 percent is made. A 5 percent upward adjustment is required for market conditions, that is, rents have moved upward over the past 1.5 years. A 5 percent upward size adjustment was since the subject is a smaller project. The subject's average unit size is smaller, thus requiring a 10 percent downward adjustment. In total, a 15 percent downward adjustment is made resulting in an indicated subject value of $43,000 (rounded). Apartment Sale Number 5, at $50,685 per unit, represents a nine building, two-story, garden style complex of average quality. The project is located near Highway 1 in the City of Santa Cruz. It is in a neighborhood of predominately small bungalow single family homes built from 1930 to 1970; a new zero-lot line SFR development is located directly across. There are 42 studio units with an average size of 550 square feet; 60, 1br/1ba units @ 650 sf, and, 44, 2br/1ba units of 750 sf. The rentable area is 95,100 square feet (avg. unit = 651). There are no recreational amenities except for pool and common utility rooms. Landscaping is extensive in some areas. One-half of Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 58 <PAGE> Capri Apartments, Salinas, CA the units are subsidized housing units. At time of sale, "market" rents were $600 for studio, $750 for 1 bedrooms, and $850 for two bedrooms. The gross and net incomes are estimates based on reported actual income per MLS listing (#369018). According to assessor's office, some buildings had deferred maintenance, however, the cost to repair is not known. In comparison to the subject, a downward adjustment of 20 percent is required by this comparable's superior location. No adjustment are required for average unit size, quality and condition. Applying the 20 percent downward location adjustment, results in an indicated subject unit value of $40,500 (rounded). Apartment Sale Number 6, at $74,348 per unit, is located in west Santa Cruz off Highway 1. This is a good quality walk-up garden design built in 1989. It is the newest complex built in west Santa Cruz area. Amenities include a swimming pool and carport parking. There are no other recreational facilities, although the complex is within a short drive to beaches and three miles to Santa Cruz Beach & Boardwalk (good tenant appeal). The buyer paid $300,000 in repairs and $175,000 commission, thus actual price was somewhat higher than reported above. The property was never exposed to the open market. The higher than normal capitalization rate is reflective of this and the extra cost to the buyer of repairs and commission. There are 18, 1br/1ba units; 69, 2br/2ba units; and, 28, 2br/2.5 ba units. Market rents are about 3-5 % higher than actual. In comparison to the subject, downward adjustments are required for age, location, average unit size and size. We estimate these to be 40 percent. The indicated subject value per unit from this sale is $44,500 (rounded). Apartment Sale Number 7, at $51,200 per unit, represents an average to good quality garden style apartment complex located in north Salinas. There are 23, 1 bedroom units and 37, 2 bedroom units. The 60 unit complex is smaller and newer than the subject, however, it is very similar in location. The subject's average unit size is significantly smaller, thus requiring a 10 percent downward adjustment. In addition, adjusting this sale down by 20 percent for size and effective age, and upward by 5 percent for improved market conditions since date of sale results in an indicated subject value per unit of $38,500 (rounded). Although this is a nearby comparable, because of its smaller size and older sales date less emphasis was placed on it in the final analysis. Apartment Sale Number 8, at $53,125 per unit, represents the sale of the 112-unit Cypress Landing Apartments in north Salinas. One of the last complexes to have been built in Salinas, Cypress was completed in 1989. There are 12, two-story buildings. Amenities include a pool, hot tub, weight room, tennis court and recreation building. All units have patios or balconies, refrigerators, R/O and dishwashers; some have fireplaces. There are 36, 1br/1ba units; and, 76 2br/2ba units measuring between 955 to 985 square feet. Carport and open parking. The average unit size is 899 square feet. Gross annual income at time of sale was $925,740, and net operating income was $573,218, indicating a cap rate of 9.69%. Normally, a 1991 sale would not be used as part of a primary sales analysis. In this case, given the scarcity of large apartment sales in Salinas, it has been used. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 59 <PAGE> Capri Apartments, Salinas, CA No adjustment is required for location. Cypress is newer than the subject, and has superior appeal. It is also smaller, and has a significantly higher average unit size. A 35 percent downward adjustment is reasonable for these factors. On the other hand, an upward adjustment of 5 percent is made for improved market conditions since late 1991. On balance, a negative 30 percent adjustment is applied indicating a subject unit value of $37,000 (rounded). Sales Comparison Approach Summary & Conclusion The sales analyzed in the sales comparison approach range in size from 60 to 331 spaces, and in unadjusted price from $50,634 to $74,3 87 per unit. After adjustment the sales indicated the following range of value: Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Sale 6 Sale 7 - ------ ------ ------ ------ ------ ------ ------ $44,000 $41,000 $42,000 $43,000 $40,500 $44,500 $38,500 Sale 8 - ------ $37,000 For one reason or another, the sales are not highly similar. They do, however, provide a reasonably narrow range of potential subject value. The sales consistently group around $40,000, however, the better comparables tend to indicate a unit value at the lower end, that is $37,000/unit. As such, the subject's indicated per unit value is $37,000, or $4,220,000, as outlined below. - -------------------------------------------------------------------------------- 114 units x $37,000/unit = $4,220,000 (rd) - -------------------------------------------------------------------------------- Check for Reasonableness: Based on a market value of $4,220,000, the subject property would have the following unit of comparison indicators: Price Per Rentable SF: $58.03 Price Per Room: $11,722 GIM: 5.6 Price Per Rentable SF: The unadjusted range of the comparables is $59.11 to $85.17. Although at the lower end, the indicated $58.03 per square foot value is supported by this range. Price Per Room: The unadjusted range of the comparables is $14,157 to $19,344; most are in the $14,000 to $16,000 range. The subject is below the lower end. As such, the price per room method is not supported. GIM: The subject has a high expense ratio (in comparison to gross income) which should be considered in selecting the appropriate GIM. The range of the comparables is 6.01 to 7.83; most range from 6.01 to 6.8. At 5.68, the subject is supported by the sales when considering its higher expense ratio. Consequently, it is our opinion that the above value estimate is adequately supported by the GIM technique. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 60 <PAGE> Capri Apartments, Salinas, CA Two of the three sales comparison unit-of-comparison indicators support the per unit value conclusion. The most important of the three -- GIM -- supports the conclusion, therefore we have concluded the following Sales Comparison Method value: CONCLUSION: $4,220,000 Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 61 <PAGE> Capri Apartments, Salinas, CA RECONCILIATION OF THE VALUE ESTIMATES The market value of the subject property has been estimated by two of the three traditional appraisal approaches. The indications given by each are summarized as follows: - -------------------------------------------------------------------------------- Income Approach $3,870,000 Sales Comparison Approach $4,220,000 - -------------------------------------------------------------------------------- In order to determine our final opinion of value, the reliability and relevance of each value based upon the quality of data collected, and the applicability of the assumptions underlying each approach was considered. The cost approach was not used in this appraisal. Although it may have some relevancy, it is not a primary valuation method. The Sales Comparison Approach is a more accurate method than the Cost Approach, but is flawed to some degree by the limited number of comparable sales in the Salinas area. The sales that were available, however, provided consistent support. The Income Capitalization Approach is the better of the two methods, but is also flawed to some degree by the lack of recent sales in Salinas. The sales provided a strong central tendency in indicating that capitalization rates are within a range of 8.0 to 9.5 percent; however, market conditions are improving and capitalization rates may be decreasing. Without recent empirical data in Salinas, however, it is difficult to pinpoint a specific rate for the subject property. Still, most weight has been given to the Income Approach in concluding a final value estimate. STATEMENT OF VALUE Based on the foregoing analysis, the value of the subject property, as of September 28, 1996, is estimated as follows: FOUR MILLION DOLLARS ($4,000,000) Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 62 <PAGE> Capri Apartments, Salinas, CA MARKETING PERIOD ================================================================================ The sales marketing time is the time that it should take to market and sell the property in its "as is" condition as of the date of the appraisal. This should not be confused with exposure time which is the amount of time necessary to expose a property to the open market in order to achieve a sale. Marketing time is a forward estimate of the amount of time necessary to expose a property on the open market in order to achieve a sale from the effective date of the appraisal. Indications of the marketing times associated with the "as is" market value estimates are provided by the marketing time of sale comparables, and interviews with participants in the market. The sales marketing period is a period of time that is reasonable in light of a given property's characteristics and market conditions, based on certain assumptions. To our knowledge, there have been no sales the size of the subject in the Northern Monterey County market area over the past year. Sales from other parts of Northern California indicate that the marketing time would be less than 6 months. Apartment sales that have taken place over the past 24 months indicate that marketing times rarely exceed 6 months, and usually fall between 1 to 6 months. The length of time is not only a function of physical and locational characteristics, but the marketing and pricing. Based on the subject characteristics and assuming a list price close to the estimated market value, marketing time is estimated at 2-5 months. EXPOSURE PERIOD ================================================================================ USPAP requires that an estimate of reasonable exposure time be made in the performance of an appraisal where the value being sought is "as-is". In the USPAP, the Comment to Standards Rule 1-2(b) states: When estimating market value, the appraiser should be specific as to the estimate of exposure time linked to the value estimate. The Comments to Standard Rules 2-2(a)(v) and 2-2(b)(v) state: ... Defining the value to be estimated requires both an appropriately referenced definition and any comments needed to clearly indicate to the reader how the definition is being applied [See Standards Rule 1-2(b)]... The Statement issued by the Appraisal Standards Board is as follows: Reasonable exposure time is one of a series of conditions in most market value definitions. Exposure time is always presumed to precede the effective date of the appraisal. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 63 <PAGE> Capri Apartments, Salinas, CA Exposure time may be defined as follows: The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market. Exposure time is different for various types of real estate and under various market conditions. It is noted that the overall concept of reasonable exposure encompasses not only adequate, sufficient and reasonable time but also adequate, sufficient and reasonable effort. This statement focuses on that time component. The fact that exposure time is always presumed to occur prior to the effective date of the appraisal is substantiated by related facts in the appraisal process: supply/demand conditions as of the effective date of the appraisal; the use of current cost information; the analysis of historical sales information (sold after exposure and after completion of negotiations between the seller and buyer); and the analysis of future income expectancy estimated from the effective date of the appraisal. Since there are few comparable properties to the subject that have sold in this market area, estimating exposure time is based more on discussions with knowledgeable real estate professionals. All of the sales with known marketing times took less than 6 months. The exposure time period assumes that the subject is appropriately priced and marketed. Obviously, a list price that is significantly higher than what the property is worth will result in a longer than typical marketing period. Although it could be sooner or later, our best estimate of an exposure period (based on our appraised value is) 4 months. ALLOCATION OF FURNITURE, FIXTURES AND EQUIPMENT ================================================================================ For the most part, apartment in the subject region do not require significant furniture, fixtures or equipment as part of the ongoing operation of the property. In the case of the subject, FF&E is minimal and contributes only a nominal value to the overall property worth. Personal property items observed on the premises include pool equipment, furniture in the recreation/clubhouse, office furniture and equipment (e.g., computer/printer) carts, supplies, etc. The market value of the above is estimated at less than $15,000. Some of the personal property items such as the computer and copier (i.e., office equipment) would be removed upon sale. All of the comparables had similar amounts of personal property items that were included in the sale, thus there is no need for an adjustment. Although not as management intensive as a hotel, apartments require management expertise that technically creates some (minor) going-concern value. In valuing the subject, any going-concern/goodwill has effectively been removed by deducting an offsite professional management Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 64 <PAGE> Capri Apartments, Salinas, CA fee. The net incomes estimated from each sale comparable also had offsite management fees deducted. It is assumed that the subject will continue to operate under professional management. In conclusion, the estimated market value of the subject is of the real estate only; FF&E (personal property) is nominal and any going-concern/goodwill value would have been removed in the deduction of an offsite professional management fee. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 65 <PAGE> Capri Apartments, Salinas, CA ASSUMPTIONS AND LIMITING CONDITIONS ================================================================================ The estimate of value contained herein is based upon and subject to the following assumptions and qualifying conditions, to which the addressee shall be deeded to consent by acceptance hereof: It is assumed that merchantable fee simple title, free of encumbrance, is vested in the owner of record. It is recognized that a potential purchaser would likely consider the effect of value through consideration of the maximum conventional financing available for the property type as of the date of value. It is assumed that the property is subject to lawful, competent and informed ownership and management. It is also assumed that all financial information on the business operation is correct; errors or misstatements may have a material impact on the appraised value. We reserve the right to make changes if such errors or misstatements were later discovered. It is assumed that the information supplied by the addressee as to the parcel or parcels of real estate is correct and complete, including the legal description as it appears in this report. The appraisers assume no responsibility for matters of legal nature affecting the property or the title thereto, nor does the appraisers render any opinion as to title. No attempt has been made to render an opinion of or status of easements that may exist. It is understood that exhibits included in this report are solely for the purpose of assisting the reader to visualize or understand its content and are not intended to be exact in scale or detail. It is understood that no survey has been made to render an opinion of or status of easements that may exist. It is understood that material contained herein which is stated to be or is obviously furnished by others is believed to reliable but has not been verified except as specifically stated. Such information is believed to be true and correct; however, no responsibility for accuracy can be assumed by the appraisers. We are not required to give testimony or appear in court because of having made this appraisal, with reference to the property in question, unless arrangements have been previously; made therefor. The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization. The separate valuations of land and building must not be used in conjunction with any other appraisal and are invalid if so used. If this appraisal contains a valuation relating to a geographical portion of a large parcel or tract or real estate, the value reported for such geographical portion relates to such portion only and should not be construed as applying with equal validity to other portions of the larger parcel or tract, and the value of all geographical portion may or may not equal the value to the entire parcel or tract considered as an entity. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 66 <PAGE> Capri Apartments, Salinas, CA We assume that there are no hidden or unapparent conditions of the property, subsoil or structures which would render it more or less valuable. We assume no responsibility for such conditions or for engineering which might be required to discover such factors. The appraisers assume the mechanical equipment to be in good working order unless expressed otherwise. Unless otherwise stated in this report, the existence of hazardous materials, which may not be present on the property, was not observed by the appraisers. The appraisers have no knowledge of the existence of such materials on or in the property. The appraisers, however, are not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired. All information and comments concerning the location, neighborhood, trends, construction quality and costs, loss in value from whatever cause, condition, rents, or any other data of the property appraised herein represent the estimates and opinions of the appraisers formed after an examination and study of the property. While it is believed the information, estimated and analysis given and the opinions and conclusions drawn therefrom are correct, the appraisers do not guarantee them and assumes no liability for any errors in fact in analysis or in judgment. Disclosure of the contents of this appraisal report (especially any conclusions as to value), the identity of the appraisers or the firm with which they are connected, or any reference to the Appraisal Institute, or the SRPA/MAI designations shall not be disseminated to the public through advertising media, public relations media, news media, sales media, or any other public means of communication without the prior written consent and approval of the undersigned. The appraisers are considered the owner of the report, and delivery of same has been to addressee only for his specific intended real estate decision. Certain forms, formatting and techniques contained herein are private property and proprietary in nature. As such, they are protected under state and federal laws covering trademarks, copyrighting, etc. Copying or re-use is strictly prohibited without expressed written consent. Certain information contained herein is considered "not for public knowledge" and is provided herein "under strictest confidence." Said information shall be used only in connection with the business decision as specifically described in the function of the appraisal. No other use of any information contained herein is permitted. Said information shall not be re- used, shared, disclosed, etc., except in accordance with the certification, limiting conditions, function and purposes as contained herein. Any deviation from the above may subject the user to additional legal action for invasion of privacy. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 67 <PAGE> Capri Apartments, Salinas, CA Acceptance and use of this report constitutes specific and implied consent to all condition, limitations, etc. Further, the client shall hold harmless the appraisers for any unpermitted use or action resulting from such use. On appraisals subject to satisfactory completion of repairs, alterations, or new construction, the appraisal report and value conclusions are contingent upon completion of the improvements in a timely and workmanlike manner, and as of the effective date of the appraisal. Any projections in income and expenses in this report are not predictions of the future. Instead, they are an estimate of current thinking of market participants of what future income and expenses will be. No warranty or representation is made that these projections will materialized. This appraisal was prepared for Home Savings as client to be used in lending decisions or any related business pertaining to its interest in the appraised property. If an informational copy has been provided to the owner it should not be utilized for other functions. The Americans with Disabilities Act (ADA) became effective January 26, 1992. The appraiser has not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 68 <PAGE> Capri Apartments, Salinas, CA CERTIFICATION OF APPRAISAL ================================================================================ I certify that, to the best of my knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions and conclusions. 3. I have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. 4. My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. 5. The analyses, opinions and conclusions were developed, and, this report has been prepared, in conformity with Title XI of the Federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and its regulations, as well as the Code of Professional Ethics and Standards of the Professional Conduct of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation and the Appraisal Institute. 6. Robert Saia and James Barcells, SRA have made a personal inspection of the property. Mr. Saia's General Certificate from the State of California is valid and in good standing as of the appraisal date. 7. No one other than the undersigned prepared the analyses, conclusions, and opinions concerning real estate that are set forth in this appraisal report. It should be noted that James Barcells helped with the preparation of the report. 8. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 9. Members of the Appraisal Institute are required to meet certain continuing education requirements. As of the date of this report, Mr. Saia have completed the requirements of the continuing education program of the Appraisal Institute. /s/ Robert S. Saia - ----------------------- Robert S. Saia, MAI OREA Cert. #AGO03191 Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 69 <PAGE> Capri Apartments, Salinas, CA -ADDENDA- Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 70 <PAGE> SUBJECT PHOTOGRAPHS [GRAPHIC OMITTED] [GRAPHIC OMITTED] <PAGE> SUBJECT PHOTOGRAPHS [GRAPHIC OMITTED] [GRAPHIC OMITTED] <PAGE> REGIONAL LOCATION MAP - -------------------------------------------------------------------------------- MAP OF SALINAS AND VICINITY [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- <PAGE> NEIGHBORHOOD LOCATION MAP - -------------------------------------------------------------------------------- MAP OF SALINAS AND VICINITY [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- <PAGE> PLAT MAP - -------------------------------------------------------------------------------- TAX CODE AREA COUNTY OF MONTEREY ASSESSOR'S MAP BOOK 3 PAGE 80 [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- <PAGE> ZONING MAP [GRAPHIC OMITTED] <PAGE> RENTAL LOCATION MAP - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- <PAGE> COMPARABLE SALES LOCATION MAP - -------------------------------------------------------------------------------- MAP OF SALINAS AND VICINITY [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- <PAGE> COMPARABLE SALES LOCATION MAP San Jose - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- <PAGE> COMPARABLE SALES LOCATION MAP Santa Cruz - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- <PAGE> APARTMENT SALE NUMBER 1 Project Name: Willow Garden Apartments Location: 1750 Stokes Street, San Jose Assessor's Parcel No.: 284-24-008 Grantor: Marie Helen Pejcha Trust Grantee: Willow Gardens Ltd. Rec. Doc. #: #13330744 Sales Date: June 14, 1996 Sales Price: $13,650,000 No. of Units: 186 Condition/Quality: Average/average Site Area: 6.40 acres (29.06 du/ac) Year Built: 1971 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $73,387 Price/Room: $17,773 GIM: 7.04 Price/RSF: $85.17 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $1,165,752 - -------------------------------------------------------------------------------- OAR: 8.54% - -------------------------------------------------------------------------------- Occupancy: 99.0% (1 unit vacant @ time of sale) Financing: see comments below Comments: Average quality garden style two-story walk-up built in 1971. Average condition and appeal. There are 162, two bedroom/two bath units, and 24, three bedroom/2 bath units. Gross rentable area is 163,740 sf. Zoning is R-4, high density. Located in area of apartments, condominiums and single family homes (middle income) with commercial/retail along major arterials. Centrally-located, close to shopping, schools, employment and freeway access. Financing terms consisted of $10,600,000 first, and a seller second of $1,275,000 @ 8%, 2 yrs. The buyer put down $1,775,000. The <PAGE> market income is estimated at $2,170,200 and the actual was $1,940,052 at time of sale. The market derived GIM is 6.29, and the market derived OAR is 9.06% (actual OAR = 8.54%). Under San Jose Rent Control Ordinance which limits annual rent increases to 8 percent. Source/Confirmation: various, including public records, inspection, Comps Inc., Stan Jones Marcus & Millichap. [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 2 Project Name: Ocean Terrace Location: 1630 Merrill Street, Santa Cruz Assessor's Parcel No.: 027-274-41 Grantor: Santa Cruz Central Investments Grantee: D&M Piterman Rec. Doc. #: #8760321 Sales Date: July 12, 1996 Sales Price: $6,300,000 No. of Units: 100 Condition/Quality: Average+/Average+ Site Area: 2.7 acres (37 un/ac) Year Built: 1972 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $63,000 Price/Room: $16,406 GIM: 16.5 Price/RSF: $78.04 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $543,984 - -------------------------------------------------------------------------------- OAR: 8.6% - -------------------------------------------------------------------------------- Occupancy: 100% (0 unit vacant @ time of sale) Financing: New First from Home Savings (see below) Comments: 100 unit garden style two-story walk-up built in 1972. It is located in an unincorporated area of Santa Cruz County one mile from the city limits of Santa Cruz and two miles north of Capitola Village, a seaside tourist area. The neighborhood is predominately average quality single family and apartments with scattering of mobilehome parks and small retail/shopping centers. The ocean is approximately one-half mile south. Amenities include a pool, sauna, three laundry rooms, <PAGE> on-site manager's office, and exercise room. There are six buildings on the 2.7 acre site. Construction is wood frame and wood siding and stucco. Roofs are flat tar and gravel. Parking is 130 spaces. All units feature AEK kitchens including dishwashers, refrigerators, garbage disposals and R/0's. There are 32, 1br/1ba units containing 624 sf; 40, 2br/1ba units measuring 860 sf; 12 units are 2br/1.5 ba @ 923 sf; and, 16 are 3br/2ba units @ 955 square feet. Market rents range from $680-695 for the 1br units to $955-$980 for the 3br units. The 2 br units range from $780 to $855. Based on market rents, the monthly gross rental income is $79,950. Laundry income is $1,125 per month. The actual income for January 1996 was $77,480, or 3% below market. Based on market rental income and laundry income, gross annual income is projected (over next 12 months) at $972,900. Deducting 4 percent for vacancy and collection loss, results in EGI of $933,984. Expenses estimated by seller are approximately $390,000 (including reserves), resulting in a NOI of $543,984 and a cap rate of 8.6 percent. The Home Savings first loan has an estimated annual debt service of $416,044, yielding cash flow of $127,939 and a cash-on-cash rate of 8.1%. reportedly, the property was purchased by the seller in 1985 at $5,200,000 (unconfirmed). Source/Confirmation: Home Savings of America, South Bay Equities [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 3 Project Name: Fox Creek Village Location: 196 W. Alvin Road, Salinas Assessor's Parcel No.: 261-631-010 Grantor: Sollecito Grantee: Fox Creek Partners Rec. Doc. #: Reel 3151 pg 1419 Sales Date: September 24, 1994 Sales Price: $9,350,000 No. of Units: 168 Condition/Quality: Good/Good Site Area: 7.84 acres (21.43 du/ac) Year Built: 1986 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $55,655 Price/Room: $15,688 GIM: 6.8 Price/RSF: $66.31 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $850,850 - -------------------------------------------------------------------------------- OAR: 9.1% - -------------------------------------------------------------------------------- Occupancy: 96.5% Financing: New loan through Bank of America Comments: Well-located in north Salinas near schools and shopping. Fox Creek consists of 76, 1br/1ba units measuring 708 sf; 24, 2br/1ba units @ 875 sf; and, 68, 2br/1ba units @ 986 sf 36 units have wood burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. Amenities include a pool, tennis court, and recreation room. Financing terms were not available, although there was a first made by Bank of America at market rate and terms. Assuming normal downpayment and market interest rate at time of sale, cash-on- <PAGE> cash is estimated at 9.87%. No rent control. Vacancy at time of sale was reported at 3.5 percent. One covered parking space plus open parking. Garden-design walk-up. Source/Confirmation: various, including public records, inspection, etc. [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 4 Project Name: Kingdale Oaks Location: 1919 Fruitdale Avenue, San Jose Assessor's Parcel No.: 282-40-022,023 Grantor: Marie Helen Pejcha Trust Grantee: Tod & Catherine Spieker Rec. Doc. #: #12983233 Sales Date: August 15, 1996 Sales Price: $16,760,000 No. of Units: 331 Condition/Quality: Average/Average Site Area: 11.76 acres (28.15/un per ac) Year Built: 1970 - -------------------------------------------------------------------------------- Value. Indicators Price/Unit: $50,634 Price/Room: $16,878 GIM: 6.01 Price/RSF: $66.22 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $1,565,000 OAR: 9.3% Occupancy: 95.62% (14 units vacant @ time of sale) Financing: See Comments Below Comments: Located south of Freeway 280 near San Jose City Community College within single family and apartment neighborhood. Close to shopping, schools and freeway access. Zoned R24 and R4 (high density residential). Under San Jose Rent Control Ordinance. Average quality, wood frame and stucco buildings (flat T&G roofs) built in 1964 and 1970. There are 36, studios; 264 1br/1ba units; 20, 2br/1ba units; 5, 3br/2ba; and, 6 2br/2ba units. Amenities include 2 heated pools, poolside grills, laundry rooms, recreation room, and volleyball. Elevator served. Units have either balcony or <PAGE> patio and are separately metered. Average condition. 1.5 parking spaces per unit (166 open spaces and 331 carport). According to selling broker Bruce Hermann with Marcus & Millichap, gross scheduled actual income at time of sale was $2,787,000. Actual vacancy (and stabilized vacancy) was 4.38%. Factoring-in taxes at market (per Prop 13), total expenses were reported at approximately $1,100,000. Net operating income is estimated at $1,565,000. Financing consisted of a 1st from St. Paul Federal Bank of $14,850,000 (VIR) 8%, 25-yr amortization and a seller second of $556,000 @ 7%, 2 years resulting in a total annual debt service of $1,414,297. Cash flow (after debt service) is $150,703, indicating a cash-on-cash rate of 11.1% on the cash downpayment of $1,354,000. The marketing time was reported at 6 months. The sale reportedly did not involve an exchange. Source/Confirmation: Marcus & Millichap (415) 494-8900 [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 5 Project Name: Hidden Creek Apartments Location: 200 Button Street, Santa Cruz Assessor's Parcel No.: 008-202-026 Grantee: Hidden Creek Rec. Doc. #: #5547479 Sales Date: July 24, 1994 Sales Price: $7,400,000 No. of Units: 146 Condition/Quality: Avg/Avg Site Area: 3.8 acres (37 du/ac) Year Built: 1973 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $50,685 Price/Room: $16,818 GIM: 6.78 Price/RSF: $77.81 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $710,400 - -------------------------------------------------------------------------------- OAR: 9.6% - -------------------------------------------------------------------------------- Occupancy: 98% (est) Financing: Not available Comments: Nine two-story buildings, garden style, complex of average quality. Located near Highway 1 in City of Santa Cruz. located in neighborhood of predominately small bungalow single family homes built from 1930 to 1970; a new zero-lot line SFR development is located directly across. There are 42 studio units with an average size of 550 square feet; 60, 1br/1ba units @ 650 sf; and, 44, 2br/1ba units of 750 sf. The rentable area is 95,100 square feet (avg unit = 651). There are no recreational amenities except for pool and common utility rooms. Landscaping is extensive in some areas. One-half of the units are subsidized housing units. At time of sale, "market" rents were $600 for studio, $750 for 1 bedrooms, and $850 for two bedrooms. The gross and <PAGE> net incomes are estimates based on reported actual income per MLS listing (#369018). According to assessor's office, some buildings had deferred maintenance, however, cost to repair are not known. Source/Confirmation: various, including public records, assessor, MLS [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 6 Project Name: North Bay Apartments Location: 41 Grandview Street, Santa Cruz Assessor's Parcel No.: 002-051-65 Grantor: EQR Northbay Chicago Inc. Grantee: Sequoia Equities Rec. Doc #: #7770608 Sales Date: December 1995 Sales Price: $8,550,000 No. of Units: 115 Condition/Quality: Good/Good Site Area: 5.17 (22.2 du/ac) Year Built: 1989 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $74,348 Price/Room: $19,344 GIM: 6.11 Price/RSF: $81.88 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $867,825 - -------------------------------------------------------------------------------- OAR: 10.15% - -------------------------------------------------------------------------------- Occupancy: 100% (no vacancy at time of sale) Financing: $2,425,000 down, $6,300,000 first (see below) Comments: Good quality walk-up garden design built in 1989. Newest complex built in west Santa Cruz area. Located off Highway 1 (Mission Street) in area of single family and apartments/condos. Above average to good location. Buyer paid $300,000 in repairs and $175,000 commission, thus actual price was somewhat higher than reported above. The property was never exposed to the open market. The higher than normal capitalization rate is reflective of this and the extra cost to the buyer of repairs and <PAGE> commission. There are 18, 1br/1ba units; 69, 2br/2ba units; and, 28, 2br/2.5 ba units. Market rents are about 3-5 % higher than actual. Amenities include a swimming pool and carport parking. No other recreational facilities, although the complex is within a short drive to beaches and three miles to Santa Cruz Beach & Boardwalk. Overall good tenant appeal. Source/Confirmation: various, including public records, broker [GRAPHIC OMITTED] <PAGE> [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 7 Location: 2186-2198 Brutus Street, Salinas Assessor's Parcel No.: 253-081-015 Grantee: Tom Favazza Rec. Doc #. #35062 Sales Date: May 26, 1993 Sales Price: $3,072,000 No. of Units: 60 Condition/Quality: Good/Good Site Area: 1.8+/-ac (33 du ac) Year Built: 1988+/- - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $51,200 Price/Room: $14,157 GIM: 7.83 Price/RSF: $61.46 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $242,445 - -------------------------------------------------------------------------------- OAR: 7.9% - -------------------------------------------------------------------------------- Occupancy: Not available Financing: Not available Comments: Average to good garden style complex located off N. Main Street in north Salinas. Close to shopping, schools, and freeway access. There are 23, 1br/1ba units, and 37 2br/2a units. Total rentable area is 49,980 sf Average unit size is 833 sf. Market income at time of sale was estimated at $392,445. Vacancy and expenses were estimated at $150,000, resulting in an estimated NOI of $242,445 (7.9% cap rate). Source/Confirmation: public records, damar <PAGE> [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 8 Project Name: Cypress Landing Apartments Location: 552 Rico Street, Salinas Assessor's Parcel No.: 261-201-018 Grantee: William Lewis Rec. Doc. #: Reel 2692 pg: 0774 Sales Date: November 1991 Sales Price: $5,950,000 No. of Units: 112 Condition/Quality: Good/Good Site Area: 6 acres (18.7du/ac) Year Built: 1989 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $53,125 Price/Room: $14,442 GIM: 6.4 Price/RSF: $59.11 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $573,218 - -------------------------------------------------------------------------------- OAR: 9.69% - -------------------------------------------------------------------------------- Occupancy: 2.7% (3 units vacant @ time of sale) Financing: All cash to seller Comments: Two story, garden style apartment complex of good quality and condition, built in 1989. One of the last apartment complexes to have been built in the north Salinas area. Close to shopping, schools and freeway access. 12, two story buildings. Amenities include pool, hot tub, weight room, tennis court and recreation building. All units have patios or balconies, refrigerators, R/O and dishwashers; some have fireplaces. There are 36, 1br/1ba units; and, 76 2br/2ba units measuring between 955 to 985 square feet. Carport and open parking. No rent control. 899 sf average unit size. <PAGE> 09/27/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 1 10:39 am Capri ID 3.6.1 All Units <TABLE> <CAPTION> ====Unit Profile=== ====Scheduled vs Actual Rent==== =========================== ==Moved== ===Current Lease=== =Security= YNAD=== I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1 B1.1 814 665.00 0.817 610.00 0.749 Dominguez, Luis A 01/24/96 01/31/96 02/27/96 0.00 Y -- 2 B1.1 814 665.00 0.817 665.00 0.817 Delgado, Veronica 02/14/90 08/09/96 07/31/97 375.00 Y -- 3 B1.1 814 665.00 0.817 590.00 0.725 O'Connor, Genevieve 08/15/70 05/06/96 05/05/97 60.00 Y -- 4 B1.1 814 665.00 0.817 610.00 0.749 Perry, Rhonda 03/01/95 04/10/96 04/09/97 375.00 Y -- 5 B1.1 610 540.00 0.885 510.00 0.836 Garcia, Juan 01/11/93 05/28/96 03/27/97 375.00 Y -- 6 A1.1 610 540.00 0.885 510.00 0.836 Marquez, Frank 02/05/96 02/02/96 02/01/97 375.00 Y -- 7 A1.1 610 540.00 0.885 0.00 0.000 VACANT/PRELEASED 09/13/96 09/13/96 100.00 N VL 8 A1.1 610 540.00 0.885 565.00 0.926 Ponce, Sylvia 07/28/95 07/28/95 01/27/96 375.00 Y -- 9 A1.1 610 540.00 0.885 540.00 0.885 Del Real, Conrado & 03/05/94 03/29/96 03/28/97 475.00 Y -- 10 A1.1 610 540.00 0.885 510.00 0.836 Lopez, Rogelio 04/01/95 05/31/96 02/27/97 375.00 Y -- 11 A1.1 610 540.00 0.885 540.00 0.885 Pinedo, Leonardo 01/30/96 08/01/96 07/31/97 175.00 Y -- 12 A1.1 610 540.00 0.885 540.00 0.885 Maciel, Kendra 05/17/96 05/17/96 05/31/97 675.00 Y -- 14 A1.1 610 540.00 0.885 545.00 0.893 De La Rosa, Ramon 03/19/95 09/05/95 06/02/97 375.00 Y -- 15 A1.1 610 540.00 0.885 510.00 0.836 Chavez, Sandra 11/21/95 11/21/95 08/31/96 375.00 Y -- 16 A1.1 610 540.00 0.885 540.00 0.685 Vieira, Dawn 07/12/96 07/12/96 04/11/97 375.00 Y -- 17 A1.1 610 540.00 0.885 510.00 0.836 Clements, Horace 11/15/92 05/03/96 05/02/97 375.00 Y -- 18 A1.1 610 540.00 0.885 490.00 0.803 Hopper, Ricky 02/28/91 05/08/96 05/07/97 375.00 Y -- 19 A1.1 610 540.00 0.885 510.00 0.836 Preston, Cindy 09/15/95 09/15/95 09/14/96 375.00 Y -- 20 A1.1 610 540.00 0.885 510.00 0.836 De La Cruz, Ann 07/18/92 05/02/96 05/01/97 375.00 Y -- 21 A1.1 610 540.00 0.885 490.00 0.803 Walters, Joyce 06/01/94 12/08/95 12/07/96 375.00 Y -- 22 A1.1 610 540.00 0.885 490.00 0.803 Booth, Norma 07/01/93 12/08/95 12/07/96 375.00 Y -- 23 A1.1 610 540.00 0.885 510.00 0.836 Enriquez, Jimmy 03/01/95 04/30/96 02/28/97 575.00 Y -- 24 A1.1 610 540.00 0.885 540.00 0.885 Michalko, David 05/29/96 05/29/96 02/28/97 375.00 Y -- 25 B1.1 814 665.00 0.817 610.00 0.749 Salinas, Jon 08/09/93 05/17/96 02/16/97 375.00 Y -- 26 B1.1 400 490.00 1.225 450.00 1.125 Valdez, Oscar 12/26/95 12/26/95 12/25/96 375.00 Y -- 27 B1.1 400 490.00 1.225 0.00 0.000 VACANT/PRELEASED 08/06/96 375.00 N VL 28 B1.1 400 490.00 1.225 490.00 1.225 Aguilar, Rick 06/14/96 06/14/96 03/13/97 375.00 Y -- 29 B1.1 400 490.00 1.225 460.00 1.150 Benedetti, Robin 05/05/95 06/14/96 05/13/97 375.00 Y OL 30 B1.1 400 490.00 1.225 0.00 0.000 VACANT/PRELEASED 09/04/96 100.00 N VL 31 B1.1 400 490.00 1.225 475.00 1.188 Chambless, Jean 01/26/96 08/01/96 04/30/97 375.00 Y -- 32 B1.1 814 665.00 0.817 610.00 0.749 Perez, Jesus 02/01/95 05/02/96 05/01/97 375.00 Y -- 33 B1.1 814 665.00 0.817 665.00 0.817 Garcia, Frank 09/05/96 09/15/96 08/31/97 750.00 Y -- 34 B1.2 814 665.00 0.817 575.00 0.706 Del Real, Sally 07/15/95 07/15/95 07/31/97 375.00 Y -- 35 B1.2 814 665.00 0.817 610.00 0.749 Nava, Ruben & Alma 02/01/95 05/30/96 02/28/97 375.00 Y -- 36 B1.2 814 665.00 0.817 665.00 0.817 Mikashima, Setsuko 06/26/96 06/26/96 06/30/97 375.00 Y -- 37 B1.2 814 665.00 0.817 675.00 0.829 Najera, Eliel 04/10/96 04/10/96 07/09/96 375.00 Y -- 38 A1.2 610 540.00 0.885 500.00 0.820 Lozano, Guadalupe & 02/29/92 05/06/96 05/05/97 375.00 Y -- 39 A1.2 610 540.00 0.885 540.00 0.885 Vincent, Karen 10/08/95 05/20/96 04/19/97 375.00 Y -- 40 A1.2 610 540.00 0.885 540.00 0.885 Diaz, Nora 09/29/95 04/24/96 11/12/96 375.00 Y -- 41 A1.2 610 540.00 0.885 540.00 0.885 Andrade, Mario A 07/22/96 07/22/96 01/21/97 375.00 Y -- 42 A1.2 610 540.00 0.885 500.00 0.820 Jimenez, Carlos 02/11/91 05/06/96 05/04/97 375.00 Y -- 43 A1.2 610 540.00 0.885 0.00 0.000 VACANT/PRELEASED 09/17/96 475.00 N VL 44 A1.2 610 540.00 0.885 545.00 0.893 Smith, Maria 03/03/94 06/01/96 06/30/96 375.00 Y -- 45 A1.2 610 540.00 0.885 510.00 0.835 Killinger, Stacy 11/01/94 06/27/96 02/27/97 375.00 Y -- 46 A1.2 610 540.00 0.885 510.00 0.836 Folsom, David 11/01/89 05/15/96 04/16/97 375.00 Y -- 47 A1.2 610 540.00 0.885 510.00 0.836 Garcia, Adrian & Hi 02/26/96 02/26/96 02/25/97 375.00 Y -- 48 A1.2 610 540.00 0.885 565.00 0.926 Solis, Lorenzo 04/26/96 04/26/96 07/25/96 375.00 Y -- 49 A1.2 610 540.00 0.885 545.00 0.893 Rodriguez, Raul 12/30/91 07/31/96 375.00 Y -- 50 A1.2 610 540.00 0.885 490.00 0.803 Martin, Jimmy 06/01/90 05/28/96 02/27/97 375.00 Y -- </TABLE> <PAGE> 09/27/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 2 10:39 am Capri ID 3.6.1 All Units <TABLE> <CAPTION> ====Unit Profile=== ====Scheduled vs Actual Rent==== =========================== ==Moved== ===Current Lease=== =Security= YNAD=== I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 51 A1.2 610 540.00 0.885 510.00 0.836 Jacquin, Jim 09/29/91 05/28/96 02/27/97 875.00 Y -- 52 A1.2 610 540.00 0.885 510.00 0.836 Rendon, Sandra 04/01/95 05/22/96 05/21/97 375.00 Y -- 53 A1.2 610 540.00 0.885 540.00 0.885 Vejar, Guillermo 07/12/96 07/12/96 04/11/97 375.00 Y -- 54 A1.2 610 540.00 0.885 540.00 0.885 Porter, David 03/05/96 03/05/96 09/04/96 375.00 Y -- 55 A1.2 610 540.00 0.885 545.00 0.893 Pegdanganan, Caesar 03/01/95 08/28/96 09/27/95 375.00 Y -- 56 A1.2 610 540.00 0.885 500.00 0.820 Thomas, Case 01/01/89 04/10/96 04/09/97 375.00 Y -- 57 B1.2 814 665.00 0.817 675.00 0.829 Lopez, Luis 03/21/96 03/21/96 06/20/96 375.00 Y -- 58 B1.2 400 490.00 1.225 440.00 1.100 Moreno, Manuel 05/13/95 11/06/95 08/05/96 375.00 Y -- 59 B1.2 400 490.00 1.225 460.00 1.150 Wartinger, Hugo 12/01/92 05/08/96 02/07/97 375.00 Y -- 60 B1.2 400 490.00 1.225 460.00 1.150 Dennehy, robert 11/01/90 05/02/96 04/01/97 375.00 Y -- 61 B1.2 400 490.00 1.225 440.00 1.100 Ceballos, Robert 03/01/95 11/09/95 08/08/96 375.00 Y -- 62 B1.2 400 490.00 1.225 460.00 1.150 Daniero, Margaret 03/18/95 06/04/96 05/03/97 750.00 Y -- 63 B1.2 400 490.00 1.225 450.00 1.125 Gonsalves, Virgil 09/01/85 08/01/96 07/31/97 200.00 Y -- 64 B1.2 814 665.00 0.817 610.00 0.749 Cancino, Jaime & Ag 11/24/95 11/24/95 06/23/96 375.00 Y -- 65 B1.2 814 665.00 0.817 590.00 0.725 Snyder, Richard 02/01/78 05/14/96 05/13/97 100.00 Y -- 100 A2.1 610 540.00 0.885 540.00 0.885 Hernandez, Teresa 10/31/95 07/02/96 04/02/97 375.00 Y -- 101 A2.2 610 540.00 0.885 510.00 0.836 Markert, Craig 01/10/96 01/10/96 01/09/97 375.00 Y -- 102 A2.1 610 540.00 0.885 510.00 0.836 Vale, Susan K. 12/21/90 05/29/96 05/28/97 860.00 Y -- 103 A2.2 610 540.00 0.885 510.00 0.836 Pierce, Elizabeth M 10/30/93 04/30/96 04/30/97 375.00 Y -- 104 A2.1 610 540.00 0.885 490.00 0.803 Rosales, Mauel & V 01/19/90 05/20/96 05/19/97 375.00 Y -- 105 A2.2 610 540.00 0.885 540.00 0.885 Martinez, Ignacio 06/14/96 07/21/95 375.00 Y -- 106 A2.1 610 540.00 0.885 490.00 0.803 Mederos, Ignacio & 06/15/90 05/09/96 02/08/97 375.00 Y -- 107 A2.2 610 540.00 0.885 540.00 0.885 Watkins, Donna 08/20/96 08/20/96 02/19/97 375.00 Y -- 108 A2.1 610 540.00 0.885 510.00 0.836 Neria, Jesse 09/07/90 05/29/96 05/28/97 375.00 Y -- 109 A2.2 610 540.00 0.885 510.00 0.836 Dominguz, Bayardo A 11/17/89 11/17/89 11/16/90 375.00 Y -- 110 A2.1 610 540.00 0.885 540.00 0.885 Bombela, Serena 06/27/96 06/27/96 07/26/96 375.00 Y -- 111 A2.2 610 540.00 0.885 540.00 0.885 Rohrbough, Randall 09/21/96 09/21/96 06/20/98 375.00 Y -- 112 A2.1 610 540.00 0.885 540.00 0.885 Medina, Arturo 07/25/96 07/25/96 04/24/97 375.00 Y -- 113 A2.2 610 540.00 0.885 540.00 0.885 Nicholas, Jennifer 08/10/95 04/23/96 10/22/96 375.00 Y -- 114 A2.1 610 540.00 0.885 540.00 0.885 Ortiz, Eugene A. 09/21/96 09/21/96 06/30/97 750.00 Y -- 115 A2.2 610 540.00 0.885 540.00 0.885 Tackel, Chad J And 09/14/96 09/14/96 09/13/97 375.00 Y -- 116 B2.1 760 665.00 0.875 640.00 0.942 Moreno, Gilbert 09/01/95 05/30/96 05/29/97 375.00 Y -- 117 B2.2 760 665.00 0.875 610.00 0.803 Sanches, Juan & Cin 05/05/95 05/15/96 04/14/97 375.00 Y -- 118 B2.1 760 665.00 0.875 610.00 0.803 Sangerman, Alfonso 11/01/94 06/03/96 06/02/97 375.00 Y -- 119 B2.2 760 665.00 0.875 610.00 0.803 Watts, Andre & Cris 01/02/94 04/30/96 01/29/97 375.00 Y -- 120 B2.1 760 665.00 0.875 665.00 0.875 Castillo, Guadalupe 08/30/96 08/30/96 05/29/97 375.00 Y -- 121 B2.2 760 665.00 0.875 675.00 0.888 Macias, Armando 05/03/96 05/03/96 08/02/96 375.00 Y -- 122 B2.1 760 665.00 0.875 640.00 0.842 Avilla, Alvert J 11/10/95 09/01/96 05/31/97 375.00 Y -- 123 B2.2 760 665.00 0.875 665.00 0.875 Rocha, Mauel 06/11/96 06/11/96 02/28/97 375.00 Y -- 124 A2.1 610 540.00 0.885 540.00 0.885 Lopez, Veronica 05/23/96 05/23/96 02/28/97 375.00 Y -- 125 A2.2 610 540.00 0.885 540.00 0.885 Aguilera-Smith, Mar 03/01/95 02/02/96 02/01/97 750.00 Y -- 126 A2.1 610 540.00 0.885 540.00 0.885 Naranjo, Sergio 09/18/96 09/18/96 03/17/97 375.00 Y -- 127 A2.2 610 540.00 0.885 510.00 0.835 Aruiza, Naty 12/01/93 05/07/96 05/06/97 375.00 Y -- 128 A2.1 610 540.00 0.885 510.00 0.836 Munoz, Josie 04/01/95 05/09/96 04/08/97 375.00 Y -- 129 A2.2 610 540.00 0.885 510.00 0.836 Achay, April 03/22/96 03/22/96 03/21/97 375.00 Y -- 130 A2.1 610 540.00 0.885 490.00 0.803 Gonzales, Alicia 07/10/95 02/09/96 08/08/96 375.00 Y -- 131 A2.2 610 540.00 0.885 510.00 0.836 Paez, Jesus 03/05/94 05/29/96 02/28/97 375.00 Y -- 132 B2.1 760 665.00 0.875 590.00 0.776 Contreras, Benjamin 03/09/90 05/14/96 02/13/97 950.00 Y -- 133 B2.2 760 665.00 0.875 590.00 0.776 Harrigan, Elroy 04/10/96 06/07/96 06/06/97 250.00 Y -- </TABLE> <PAGE> 09/27/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 1 10:39 am Capri ID 3.6.1 All Units <TABLE> <CAPTION> ====Unit Profile==== ====Scheduled vs Actual Rent====== ======================== ==Moved== ===Current Lease=== =Security= YNAD=== I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 134 B2.1 760 665.00 0.875 665.00 0.875 Ramirez, Louie 08/15/96 08/15/96 05/14/97 375.00 Y -- 135 B2.2 760 540.00 0.875 665.00 0.875 Allen, Carla 06/21/96 06/21/96 07/20/96 375.00 Y -- 136 A2.1 610 540.00 0.885 490.00 0.803 Byrd, Larry Q. 03/29/93 05/05/96 02/06/97 375.00 Y -- 137 A2.2 610 540.00 0.885 540.00 0.885 Sincerbox, William 08/08/96 08/09/96 01/31/97 657.00 Y -- 138 A2.1 610 540.00 0.885 500.00 0.820 Phillips, Marilyn 06/23/96 05/10/96 04/09/97 375.00 Y -- 139 A2.2 610 540.00 0.885 510.00 0.836 Johnson, Barbara 07/01/88 04/26/96 04/25/97 375.00 Y -- 140 A2.1 610 540.00 0.885 510.00 0.836 Jenkins, Jennifer 11/10/95 11/10/95 08/09/96 375.00 Y -- 141 A2.2 610 540.00 0.885 510.00 0.836 Proper, James 12/21/93 04/15/96 04/14/97 375.00 Y -- 142 B2.1 760 665.00 0.875 590.00 0.776 Crespo, Amalia 12/01/94 05/20/96 03/19/97 375.00 Y -- 143 B2.2 760 665.00 0.875 590.00 0.776 Hernandez, Bontilio 12/08/93 12/06/93 06/01/94 375.00 Y -- 144 B2.1 760 665.00 0.875 590.00 0.776 Mallobox, Johnny 06/30/95 01/02/96 01/01/97 375.00 Y -- 145 B2.2 610 665.00 0.875 610.00 0.803 Knowles, Mike 12/29/95 12/30/95 09/29/96 375.00 Y -- 146 A2.1 610 540.00 0.885 510.00 0.836 Burela, Antonio 06/01/94 05/10/96 05/09/97 375.00 Y -- 147 A2.2 610 540.00 0.885 510.00 0.836 Galvan, Javier 11/01/93 05/22/96 05/21/97 375.00 Y -- 148 A2.1 610 540.00 0.885 530.00 0.869 Samora, John 02/18/94 08/28/95 08/27/96 375.00 Y -- 149 A2.2 610 540.00 0.885 510.00 0.836 Gladden, Leroy 05/01/95 09/01/96 05/31/97 750.00 Y -- ==================================================================================================================================== TOTAL 114 72276 64710.00 0.895 59810.00 0.851 70256 SF Occupied ==================================================================================================================================== </TABLE> <PAGE> 09/27/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 1 10:39 am Capri ID 3.6.1 All Units <TABLE> <CAPTION> PHYSICAL OCCUPANCY: Occupied Pct Vacant Pct Total OCCUPANCY PERCENT: Excl. Off-Line Incl. Off-line ================== ======== ====== ====== ===== ====== =================== =============== ============== <S> <C> <C> <C> <C> <C> <C> <C> <C> Square Footage.: 70,256 97.2% 2,020 2.8% 72,276 Incl. Vac. Leased.: 100.0% 100.0% Unit Count.: 110 96.5% 4 3.5% 114 Excl. Vac. Leased.: 96.5% 96.5% <CAPTION> EXPOSURE TO VACANCY: Number Pct MOVES/TRANSFERS: MAKE-READY STATUS.: Number Pct ======================== ======= ===== ================= ====================== ======= ======== <S> <C> <C> <C> <C> <C> <C> Currently Vacant Units.: 4 3.5% Oct In.: 4 Total Vacant Units.: 4 100.0% Lead Vacant Leased.: -4 3.5% Oct Out.: 2 Ready to Rent (Y).: 0 0.0% Less Occupied Pre-Leased.: -1 0.9% Need Make-Ready (N).: 4 100.0% Plus Occupied on Notice.: 4 3.5% Off-Line Down (D).: 0 0.0% Occupied But Skipped.: 0 0.0% Off-Line Admin (A).: 0 0.0% --- ---- Net Exposure to Vacancy.: 3 2.6% <CAPTION> RENTAL RATES: Occupied /SqFt Pct Vacant /SqFt Pct Total /SqFt Pct =================== ========== ====== ====== ========= ====== ==== ========== ======= ====== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Scheduled Rent.: 62.650.00 0.892 96.8% 2,060.00 1.020 3.2% 64,710.00 0.895 100.0% Actual Status.: 59,810.00 0.851 92.4% 2,060.00 1.020 3.2% 61,870.00 0.856 95.6% Less to Lease.: 2,340.00 0.040 4.4% <CAPTION> STATUS OF UNIT TYPES, SUBTOTALED BY FIRST 8 CHARACTERS OF UNIT TYPE: ============================================================================================================================= Unit Total # % Avg. Occup. Total Sch.$ Avg.$ Act.$ Rent Sched. Loss to Made Not OffLn Type Units Occ. Occ. SqFt SqFt SqFt /Unit /SqFt /Unit /SqFt Rent Lease Rdy. Rdy. Down ===== ===== ==== ===== ===== ======= ======= ======= ======= ====== ======= ========= ======= ===== ==== ===== A1.1 19 18 95% 610 10980 11590 540.00 0.885 520.00 0.852 10260.00 360.00 0 1 0 A1.2 19 18 95% 610 10980 11590 540.00 0.885 524.44 0.860 10260.00 280.00 0 1 0 A2.1 17 17 100% 610 10370 10370 540.00 0.885 516.47 0.847 9180.00 400.00 0 0 0 A2.2 17 17 100% 610 10370 10370 540.00 0.885 522.35 0.856 9180.00 300.00 0 0 0 B1.1 7 7 100% 814 5698 5698 665.00 0.817 622.86 0.765 4655.00 295.00 0 0 0 B1.2 7 7 100% 814 5698 5698 565.00 0.817 628.57 0.772 4655.00 255.00 0 0 0 B2.1 8 8 100% 760 6080 6080 565.00 0.875 623.75 0.821 5320.00 330.00 0 0 0 B2.2 8 8 100% 760 6080 6080 665.00 0.875 626.88 0.825 5320.00 305.00 0 0 0 B3.1 6 4 67% 400 1600 2400 490.00 1.225 468.75 1.172 2940.00 85.00 0 2 0 B3.2 6 6 100% 400 2400 2400 490.00 1.225 451.67 1.129 2940.00 230.00 0 0 0 ===== ===== ==== ===== ===== ======= ======= ======= ======= ====== ======= ========= ======= ===== ==== ===== 10 114 110 96% 634 70256 72276 567.63 0.895 543.73 0.851 64710.00 2840.00 0 4 0 ============================================================================================================================= </TABLE> <PAGE> SKETCH ADDENDUM - -------------------------------------------------------------------------------- Borrower/Client J.H. Real Estate Partners - -------------------------------------------------------------------------------- Property Address 349 Iris Drive - -------------------------------------------------------------------------------- City Salinas County Monterey State CA Zip Code 93906 - -------------------------------------------------------------------------------- Lender NationsBank - -------------------------------------------------------------------------------- Remarks Improvement Plat ================================================================================ [GRAPHIC OMITTED] [GRAPHIC OMITTED] TYPICAL STUDIO UNIT TYPICAL 18R/1BA UNIT 425 sf 600 sf [GRAPHIC OMITTED] TYPICAL 2BR/lBA UNIT 814 sf <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME -- 54,612.09 162,536.62 659,693.89 (497,157.27) RENTAL INCOME VARIANCE -- (3,398.13) (19,716.62) (41,848.04) 22,131.42 ---------- ---------- ------------ ------------ ---------- NET CURRENT RENT 55,473.26 50,735.79 621,884.01 617,367.68 4,516.33 OTHER RENTAL INCOME SECURITY DEPOSITS (3,548.85) 5,142.75 21,601.15 22,800.00 (1,198.85) FORFEITED SECURITY DEPOSITS 371.50 -- 1,808.97 -- 1,808.97 LAUNDRY INCOME 818.40 956.35 10,747.35 11,906.10 (1,158.75) CHARGES TO TENANTS 484.00 230.00 2,525.19 3,65O.00 (1,124.81) MISCELLANEOUS -- 20.00 920.24 65.00 855.24 STORAGE 5.50 7.21 112.00 223.02 (111.02) UTILITIES -- 471.23 13,134.48 3,612.72 9,521.76 DAMAGE 500.00 -- 45.00 362.22 (317.22) LATE CHARGES 250.00 -- 2,798.91 595.00 2,203.91 NSF FEES 10.00 20.00 200.00 134.50 65.50 CREDIT CHECK 25.00 60.00 2,256.33 620.00 1,636.33 ---------- ---------- ------------ ------------ ---------- TOTAL OTHER RENT INCOME (1,084.45) 6,907.74 56,149.62 43,968.56 12,181.06 TOTAL RENTAL INCOME 54,388.81 57,643.53 678,033.63 661,336.24 16,697.39 ---------- ---------- ------------ ------------ ---------- OTHER INCOME REFUNDED DEPOSITS (4,325.00) (1,635.00) (22,094.20) (20,998.30) (1,095.90) INTEREST INCOME 116.86 -- 428.39 15.00 413.39 ---------- ---------- ------------ ------------ ---------- TOTAL OTHER INCOME (4,208.14) (1,635.00) (21,665.81) (20,983.30) (682.51) TOTAL INCOME 50,180.67 56,008.53 656,367.82 640,352.94 16,014.88 ========== ========== ============ ============ ========== TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 490.00 200.00 2,835.00 200.00 2,635.00 CLEANING PAYROLL -- 136.50 577.50 164.00 413.50 REPAIRS/MAINT.PAYROLL 3,062.28 1,145.27 35,084.85 21,600.45 13,484.40 MANAGERS SALARIES 2,861.55 410.60 18,898.17 4,217.89 14,680.28 OFFICE SALARIES 1,272.13 1,717.35 8,388.45 6,996.35 1,392.10 GROUNDS PAYROLL -- 168.50 1, 312.89 5,583.35 (4,270.46) DECORATING PAYROLL -- 199.60 2, 580.82 374.40 2,206.42 STATE COMP. INS.-PAYROLL 550.98 393.30 5,061.32 3,824.27 1,237.05 PAYROLL-HOSPITAL INS 1,101.95 -- 8,665.78 2,296.53 6,369.25 FICA PAYROLL TAX 581.60 199.68 5,148.73 2,993.96 2,154.77 FUTA PAYROLL TAX 61.22 7.34 535.93 229.06 306.87 SDI TAX-PAYROLL-UNEMPL0Y 76.53 1.11 1,042.61 1,469.98 (427.37) ---------- ---------- ------------ ------------ ---------- </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> PAYROLL EXPENSES 10,058.24 4,579.25 90,132.05 49,950.24 40,181.81 ADMINISTRATIVE EXPENSES -- -- -- -- -- PROMOTIONS 176.22 833.82 -- 833.82 ADVERTISING 480.38 180.80 8,666.57 2,835.23 5,831.34 SIGNS, FLAGS, BANNERS -- -- 480.49 -- 480.49 OFFICE SUPPLIES 208.61 235.67 4,274.94 1,024.92 3,250.02 LEGAL EXPENSES -- -- 596.39 5,806.58 (5,210.19) MISCELLANEOUS 77.15 -- 409.01 444.10 44.91 CREDIT CHECK EXPENSE 32.00 37.50 1,589.50 437.90 1,151.60 BANK CHARGES 8.00 0.23 32.02 0.05 31.97 PETTY CASH REIMB -- -- 26.22 200.82 (174.60) POSTAGE 152.23 -- 290.47 -- 290.47 DUES & SUBSCRIPTIONS -- -- (16.99) -- (16.99) LINCOLN FEE 2,006.80 -- 17,403.82 -- 17,403.82 NSF CHECK -- (950.00) -- 3.50 (3.50) EMPLOYEE TRAINING 100.O0 -- 864.93 -- 864.93 OUSTIDE STATIONARY MISC 140.03 1,869.53 -- 1,868.53 ---------- ---------- ------------ ------------ ---------- ADMINISTRATIVE EXPENSE 3,381.42 (495.80) 37,399.72 10,753.10 26,646.62 CONTRACT SERVICES SEC SUP/EXP-FIRE PROTECT -- -- 2,747.45 29.50 2,717.95 EXTERMINATING CONTRACT -- -- 1,483.85 -- 1,483.85 CABLE T.V. 902.23 1,804.46 9.924.53 10,851.13 (926.60) GARDENING CONTRACT 815.00 -- 7,167.71 -- 7,167.71 WATER SOFTNER EXPENSE -- 227.00 1,589.00 2,669.00 (1,080.00) ---------- ---------- ------------ ------------ ---------- CONTRACT SERVICES 1,717.23 2,031.46 22,912.54 13,549.63 9,362.91 UTILITY SERVICES TELEPHONE EXPENSE 85.09 64.18 1,961.07 688.58 1,272.49 TRASH REM0VAL (1,250.68) 2,009.85 20,461.22 22,545.75 (2,084.53) PGE - HOUSE -- 3,712.68 36,298.07 46,029.14 (9,731.07) GAS - HOUSE -- -- 18,347.26 -- 18,347.26 PGE APARTMENT METERS (1,463.50) 66.97 (3,629.43) (2,327.86) (1,301.57) WATER 227.00 847.10 14,351.79 9,754.43 4,597.36 SEWER CHARGES -- -- 14,630.76 14,630.76 -- ---------- ---------- ------------ ------------ ---------- UTILITY SERVICES (2,402.09) 6,700.78 102,420.74 91,320.80 11,099.94 MAINTENANCE EXPENSES CARPET REPAIRS/MAINT. 286.00 190.00 1,788.02 1,744.29 43.73 CARPET REPLACEMENT 1,060.30 643.49 41,854.48 7,312.29 34,542.19 GROUNDS SUPPLY/REPLACEMENT -- -- 51.93 1,079.23 (1,027.30) EQUIPMENT RENTAL -- -- -- 78.82 (78.82) POOL SUPPLY/REPLACEMENT 578.37 -- 5,242.18 244.75 4,997.43 </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> DECORATING SUPPLIES 357.27 203.63 16,772.71 1,747.19 15,025.52 CLEANING SUPPLIES/SERV 353.19 305.00 6,226.44 2,805.00 3,421.44 EXTERMINATING SUPPLIES -- -- 178.56 411.00 (232.44) BLDG MAINT SUPPLIES 2,606.91 1,260.29 29,066.52 14,206.85 14,859.67 PLUMBING MAINTENANCE 189.82 120.00 8,572.56 783.45 7,789.11 APPLIANCE REPLACEMENT 818.75 -- 10,288.03 400.61 9,887.42 BLDG MAINT SVC/CONTRACT (169.62) (10,175.60) 675.00 1,208.53 (533.53) ELECTRIC MAINTENANCE (5,032.91) -- 1,501.00 1,373.42 127.58 MISC. MAINT. EXPENSES -- -- 86.40 -- 86.40 ---------- ---------- ------------ ------------ ---------- MAINTENANCE EXPENSES 1,048.08 7,453.19) 122,303.83 33,395.43 88,908.40 CONTROLLABLE EXPENSES 13,802.88 5,362.50 375,168.88 198,969.20 176,199.68 ---------- ---------- ------------ ------------ ---------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE 2,500.10 36,395.13 5,000.20 36,395.13 (31,394.93) PROPERTY TAXES -- 25,902.32 26,209.90 51,804.64 (25,594.74) LICENSES & PERMITS -- -- 1,888.00 456.00 1,432.00 ---------- ---------- ------------ ------------ ---------- FIXED EXPENSES 2,500.10 62,29745 33,098.10 88,655.77 (55,557.67) NET OPERATING INCOME (NOI) 33,877.69 (11,651.42) 248,100.84 352,727.97 (104,627.13) ========== =========== ============ ============ ========== DEBT SERVICE INTEREST ON 1ST MORTGAGE 1,173.98 1,670.18 16,857.98 22,590.61 (5,732.63) PRINCIPAL-1ST MORTGAGE (65,397.00 (60,160.57) -- -- -- ---------- ---------- ------------ ------------ ---------- DEBT SERVICE (64,223.02) (58,490.39) 16,857.98 22,590.61 (5,732.63) OPERATING CASH FLOW 98,100.71 46,838.97 231,242.86 330,137.36 (98,894.50) =========== =========== ============ ============ ========== NON OPERATING EXPENSES DEPRECIATION EXPENSE 130,896.00 130,896.0O 130,896.0O 130,896.00 130,896.00 REFURBISHMENT & DEFERRAL 2,276.32 10,175.60 40,870.86 10,175.60 30,695.26 ---------- ---------- ------------ ------------ ---------- NON OPERATING EXPENSES 133,172.32 141,071.60 171,766.86 141,071.60 30,695.26 PROFIT/LOSS (35,071.61) (94,232.63) 59,476.00 189,065.76 (129,589.76) =========== =========== ============ ============ =========== </TABLE> <PAGE> CAPRI INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 162,536.62 (162,536.62) RENTAL INCOME VARIANCE (19,716.62) 19,716.62 --------- --------- ---------- ---------- ---------- NET CURRENT RENT 56,634.21 55,693.66 457,762.19 398,778.29 58,983.90 OTHER RENTAL INCOME SECURITY DEPOSITS 2,282.00 1,950.00 13,957.00 19,975.00 (6,018.00) FORFEITED SECURITY DEPOSITS 237.71 75.00 3,961.23 487.45 3,473.78 LAUNDRY INCOME 1,157.85 1,233.90 8,725.80 6,770.70 1,955.10 CHARGES TO TENANTS 137.29 27.52 1,648.56 1,579.93 68.63 MISCELLANEOUS 920.24 (920.24) STORAGE 30.00 17.50 196.50 87.00 109.50 UTILITIES 1,391.65 1,141.41 11,521.20 9,458.51 2,062.69 DAMAGE 40.00 105.00 (455.00) 560.00 LATE CHARGES 195.00 225.00 1,660.00 1,735.00 (75.00) NSF FEES 60.00 20.00 300.00 120.00 180.00 CREDIT CHECK 75.00 248.00 970.29 1,906.33 (936.04) --------- --------- ---------- ---------- ---------- TOTAL OTHER RENT INCOME 5,606.50 4,938.33 43,045.58 42,585.16 460.42 TOTAL RENTAL INCOME 62,240.71 60,631.99 500,807.77 441,363.45 59,444.32 --------- --------- ---------- ---------- ---------- OTHER INCOME REFUNDED DEPOSITS (750.00) (2,075.00) (11,150.00) (12,144.20) 994.20 INTEREST INCOME 29.94 41.56 302.25 201.67 100.58 --------- --------- ---------- ---------- ---------- TOTAL OTHER INCOME (720.06) (2,033.44) (10,847.75) (11,942.53) 1,094.78 TOTAL INCOME 61,520.65 58,598.55 489,960.02 429,420.92 60,539.10 ========= ========= ========== ========== ========= TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 350.00 3,246.24 525.00 2,721.24 CLEANING PAYROLL 577.50 (577.50) REPAIRS/MAINT.PAYROLL 2,312.32 5,152.45 17,114.27 18,980.10 (1,865.83) MANAGERS SALARIES 880.00 2,074.46 12,880.04 10,498.14 2,381.90 OFFICE SALARIES 484.62 22.50 7,566.10 5,103.64 2,462.46 GROUNDS PAYROLL 1,312.89 (1,312.89) DECORATING PAYROLL 2,580.82 (2,580.82) STATE COMP. INS.-PAYROLL 243.61 519.55 2,582.14 2,903.78 (321.64) PAYROLL-HOSPITAL INS 453.41 1,039.11 4,805.60 4,350.70 454.90 FICA - PAYROLL TAX 257.15 548.42 2,725.58 2,871.31 (145.73) FUTA - PAYROLL TAX 27.07 57.73 286.90 296.20 (9.30) SDI TAX-PAYROLL-UNEMPLOY 33.84 72.16 358.63 742.94 (384.31) --------- --------- ---------- ---------- ---------- </TABLE> <PAGE> CAPRI INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> PAYROLL EXPENSES 5,042.02 9,486.38 51,565.50 50,743.02 822.48 ADMINISTRATIVE EXPENSES PROMOTIONS 121.99 164.86 1,392.90 164.86 1,228.04 ADVERTISING 309.36 541.18 2,548.64 3,869.68 (1,320.84) SIGNS, FLAGS, BANNERS 480.49 12.00 480.49 (468.49) BROCHURES 43.89 43.89 OFFICE SUPPLIES 76.72 374.58 702.56 1,178.98 (476.42) FURNITURE RENTAL 105.03 1,362.76 1,362.76 COMPUTER EXPENSES 7.78 7.78 LEGAL EXPENSES 8.50 8.50 MISCELLANEOUS 17.50 131.62 229.36 228.56 0.80 CREDIT CHECK EXPENSE 155.20 306.25 763.20 1,311.75 (548.55) BANK CHARGES 22.00 (30.00) 179.00 0.02 178.98 PETTY CASH REIMB 26.22 (26.22) POSTAGE 16.00 10.37 348.11 201.32 146.79 DUES & SUBSCRIPTIONS (58.99) (22.98) 375.50 (398.48) LINCOLN FEE 2,132.18 1,992.95 16,864.86 9,291.44 7,583.42 EMPLOYEE TRAINING 100.00 264.93 (164.93) OUSTIDE STATIONARY MISC 109.97 92.00 496.43 1,677.50 (1,181.07) ---------- -------- --------- --------- -------- ADMINISTRATIVE EXPENSE 3,006.96 4,064.30 25,037.21 19,061.25 5,975.96 CONTRACT SERVICES SEC SUP/EXP-FIRE PROTECT 407.33 1,421.00 3,183.92 2,504.85 679.07 EXTERMINATING CONTRACT 474.82 198.22 1,794.82 603.85 1,190.97 CABLE T.V 902.07 1,804.46 7,217.68 7,217.84 (0.16) GARDENING CONTRACT 872.70 406.16 7,488.40 2,176.66 5,311.74 WATER SOFTNER EXPENSE 229.00 1,145.00 908.00 237.00 ---------- -------- --------- --------- -------- CONTRACT SERVICES 2,885.92 3,829.34 20,829.82 13,411.20 7,418.62 UTILITY SERVICES TELEPHONE EXPENSE 97.61 191.46 1,119.72 1,101.41 18.31 TRASH REMOVAL 3,391.72 2,211.65 14,568.52 11,964.25 2,604.27 PGE - HOUSE 5,998.49 23,134.41 25,029.63 (1,895.22) GAS - HOUSE 5,124.23 19,853.83 6,809.76 13,044.07 PGE APARTMENT METERS 20.31 89.04 114.20 364.83 (250.63) WATER 1,324.53 1,285.04 11,273.02 7,764.01 3,509.01 SEWER CHARGES 9,753.84 9,753.84 ---------- -------- --------- --------- -------- UTILITY SERVICES 15,956.89 3,777.99 79,817.54 62,787.73 17,029.81 MAINTENANCE EXPENSES CARPET REPAIRS/MAINT 310.00 112.02 4,036.96 1,127.02 2,909.94 CARPET REPLACEMENT 3,912.93 3,000.00 19,575.29 21,703.20 (2,127.91) GROUNDS SUPPLY/REPLACEMENT 27.88 51.93 (51.93) </TABLE> <PAGE> CAPRI INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> POOL SUPPLY /REPLACEMENT 529.41 2,323.45 1,925.77 397.68 DECORATING SUPPLIES 2,990.94 1,569.93 6,446.90 10,491.97 (4,045.07) CLEANING SUPPLIES/SERV 1,153.31 1,162.98 3,350.17 4,692.78 (1,342.61) EXTERMINATING SUPPLIES 178.56 (178.56) BLDG MAINT SUPPLIES 1,126.22 4,466.83 7,318.48 23,257.91 (15,939.43) PLUMBING MAINTENANCE (660.77) 1,102.16 4,385.98 4,703.00 (317.02) APPLIANCE REPLACEMENT 1,501.81 5,800.62 3,406.30 2,394.32 BLDG MAINT SVC/CONTRACT 381.07 (160.72) 3,459.19 510.44 2,948.75 ELECTRIC MAINTENANCE 123.69 19.05 627.45 1,279.93 (652.48) MISC. MAINT. EXPENSES 10.49 10.49 86.40 (75.91) ---------- ---------- ---------- ---------- --------- MAINTENANCE EXPENSES 11,379.10 11,300.13 57,334.98 73,415.21 (16,080.23) CONTROLLABLE EXPENSES 38,270.89 32,458.64 234,585.05 219,418.41 15,166.64 ---------- ---------- ---------- ---------- --------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE (196.87) (196.87) PROPERTY TAXES 26,209.90 26,209.90 LICENSES & PERMITS (154.00) 1,558.00 1,698.00 (140.00) ---------- ---------- ---------- ---------- --------- FIXED EXPENSES (154.00) 27,571.03 1,698.00 25,873.03 NET OPERATING INCOME (NOI) 23,403.76 26,139.91 227,803.94 208,304.51 19,499.43 ========= ========= ========== ========== ========= DEBT SERVICE LOAN PRE-PAYMENT PENALTY 2,616.09 2,616.09 INTEREST ON 1ST MORTGAGE 1,344.00 3,122.12 11,905.55 (8,783.43) PRINCIPAL-1ST MORTGAGE 6,027.00 47,062.45 (47,062.45) ---------- ---------- ---------- ---------- --------- DEBT SERVICE 7,371.00 5,738.21 58,968.00 (53,229.79) OPERATING CASH FLOW 23,403.76 18,768.91 222,065.73 149,336.51 72,729.22 ---------- ---------- ---------- ---------- --------- NON OPERATING EXPENSES REFURBISHMENT & DEFERRAL 1,856.36 11,567.94 29,980.11 17,506.11 12,474.00 ---------- ---------- ---------- ---------- --------- NON OPERATING EXPENSES 1,856.36 11,567.94 29,980.11 17,506.11 12,474.00 PROFIT/LOSS 21,547.40 7,200.97 192,085.62 131,830.40 60,255.22 </TABLE> <PAGE> CAPRI LFC - Employee Compensation Report 05 SEP 1996 Page 24 <TABLE> <CAPTION> CO# LOC HOME RC EMPL# EMP NAME ........ RT HIRE.. MONTHLY HOURLY MONTHLY PROJ DATE CASH CASH NONCASH <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> LP6 939 1796 SC 61883 DOMINGUEZ, LUIS A R 04/01/95 1157.24 6.68 406.69 LP6 939 1796 SC 65758 MONROE, MARLEME A R 08/05/96 1906.67 11.00 --------- -------- 1796 3063.91 406.69 <CAPTION> CO# MONTHLY AUTO MONTHLY 100 PERCENT MULTIPLE DIST PERCENT SALARY ALLOW RENT DISTRIBUTION PROJ ACCT SUB <S> <C> <C> <C> <C> LP6 1.561.93 610.00 l798 0503 0004 LP6 l.906.67 l798 0501 0001 ---------- ------ -------- 3,470.60 .00 610.00 </TABLE> <PAGE> - -------------------------------------------------------------------------------- QUALIFICATIONS OF ROBERT SAIA, MAI, SRA Calif. OREA Certificate #AGO03191 - -------------------------------------------------------------------------------- EXPERIENCE Independent real estate appraiser since 1981. EDUCATION Associate Arts Degree from West Valley College. Major in Real Estate. Bachelor of Arts Degree in Economics from San Jose State University. Graduated with distinction. Graduate Studies in the Master of Business Administration Program at Golden Gate University, San Francisco. Advanced courses in appraisal taken at California State University, Hayward, University of San Francisco and San Jose State University, through the Appraisal Institute. MEMBERSHIPS Former Member of the Society of Real Estate Appraiser (SRPA designation) Current Member of the Appraisal Institute, MAI #8841 Current Member of Admissions Committee Appraisal Institute Board of Directors, South Bay Chapter Appraisal Institute 1993-95. National admissions board member. STATE CERTIFICATES AND LICENSES State of California "Certified-General" Appraiser Certificate No. AGO03191 State of California Real Estate License (non-active) State of Nevada "Certified-General" Appraiser Certificate No. 00621 APPRAISAL ASSIGNMENTS Some of the types of properties appraised in the past are outlined below: Commercial: Retail stores, office buildings, service stations, vacant land, Residential: Single family, multi-family, townhouse/condominium, vacant land, subdivision, apartments and mobile home parks. Industrial: Vacant land, warehouses, research and development facilities, industrial condominiums and manufacturing facilities, mini-storage warehouses, food processing facilities, truck terminals. <PAGE> Special Use: Airport, carwash, landfill, right-of-way, easement valuation, commercial nursery, and golf courses. Lodging Facilities: Motels, hotels, inns, SRO, Recreational vehicle parks CLIENTS A brief partial List of past clients with whom Mr. Saia has worked with includes: American Savings Bank County of Santa Clara Comerica Bank Bank of America NT&SA First National Bank of Central California Bank of Salinas Home Savings of America Metropolitan Securities & Trust City of Monterey City of San Jose City of Palo Alto Imperial Thrift & Mortgage NationsBank Pacific Western Bank Bay View Federal Bank Wells Fargo Bank Phoenix Home Life MARKET VALUE APPRAISAL of the GAVIIDAE I & GAVIIDAE II/DAIN PLAZA OFFICE TOWER DEVELOPMENTS located in Downtown Minneapolis, Minnesota <PAGE> [LUNZ MASSOPUST REID DECASTER & LAMMERS INC LETTERHEAD] March 15, 1996 Mr. Lawrence Miller Director Merrill Lynch Mortgage Capital, Inc. 250 Vesey Street New York, NY 10281-1326 RE: Market Value Appraisals Gaviidae I and Dain Plaza/Gaviidae II 601 Nicollet Mall and 501 Nicollet Mall Downtown Minneapolis Dear Mr. Miller: At your request, we have made an inspection and analysis of the above referenced properties for the purpose of estimating both their individual and collective Market Value. The leased fee estate interest, as of March 1, 1997 is considered in this analysis. The estimates of Market Value are based on the development of the Cost, Sales Comparison and Income Approaches to value. For the specialty retail centers, the Sales Comparison Approach could not be meaningfully developed given the lack of comparable specialty mall sales. The following report of the investigation, analysis and reasoning employed in our determination of value has been made in compliance with the prevailing standards outlined in the Uniform Standards for Professional Appraisal Practice (USPAP) and Standards of Professional Practice of the Appraisal Institute. It should be noted that this appraisal has been made to evolve neither a minimum nor a specific value requested by the client, any of its affiliates or any other party. It is understood that the opinions of value rendered in this report will be used in consideration of a loan where the real estate would serve as collateral. This report is considered self contained based on the extent of the information collected, analyzed, and reported in this document. <PAGE> Mr. Lawrence Miller March 15, 1997 Page Two It is concluded, based on the investigation, analysis and reasoning employed in this appraisal assignment, that as of March 1, 1997, the market evidence best supports a Market Value estimate for the Gaviidae I and Gaviidae II/Dain Plaza Developments of: --------------------------------- NINETY EIGHT MILLION DOLLARS $98,000,000 --------------------------------- This value estimate is based on Final Value Estimates of $86,000,000 for Gaviidae II/Dain Plaza and $12,000,000 for Gaviidae I. Please refer to the Summary and Conclusion section of this report for the reasoning employed in arriving at a single value estimate of $98,000,000. These opinions of value are subject to the assumptions and limiting conditions set forth in the accompanying report. The Appraisal Institute conducts a program of continuing education for its designated members. MAI's and SRA's who meet the minimum standards of this program are awarded periodic educational certification. The undersigned are currently certified under this continuing education program. Upon your review of the report, we would be happy to discuss the contents with you. Sincerely, LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. /s/ Todd M. Reid /s/ Robert G. Lunz Todd M. Reid, MAI Robert G. Lunz, CRE, MAI Certified General Real Certified General Real Property Appraiser Property Appraiser MN License No. 4000839 MN License No. 4000843 WI License No. 452 IA License No. 361406069 /s/ Kathryn Lammers Kathryn I. Lammers, MAI Certified General Real Property Appraiser MN License No. 4002792 NE License No. CG 960171 <PAGE> ================================================================================ INTRODUCTION ================================================================================ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 3 - -------------------------------------------------------------------------------- <PAGE> MARKET VALUE APPRAISAL of the GAVIIDAE I & GAVIIDAE II/DAIN PLAZA DEVELOPMENTS located in Downtown Minneapolis, Minnesota Prepared for: Mr. Lawrence Miller Director Merrill Lynch Mortgage Capital, Inc. 250 Vesey Street New York, NY 10281-1326 Prepared by: LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC Todd M. Reid, MAI Principal Robert G. Lunz, CRE, MAI Principal Kathryn I. Lammers, MAI Principal (copyright 1997) - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 4 - -------------------------------------------------------------------------------- <PAGE> TABLE OF CONTENTS - -------------------------------------------------------------------------------- Page ---- Letter of Transmittal ..................................................... 1 Introduction .............................................................. 3 Certification ............................................................. 7 Limiting Conditions ....................................................... 9 SECTION I Premises of the Appraisal ................................................. 11 Appraisal Development and Reporting Process ............................ 12 Purpose and Use of the Appraisal ....................................... 12 Property Rights Being Appraised ........................................ 13 Definition of Market Value ............................................. 13 Exposure Time .......................................................... 13 Marketing Period ....................................................... 14 History of the Properties .............................................. 15 Report Format .......................................................... 17 Presentation of the Data .................................................. 18 Regional and City Data ................................................. 19 Neighborhood Information ............................................... 33 Land Sales Comparison Approach ......................................... 43 SECTION II - DAIN PLAZA & GAVIIDAE II Summary of Salient Facts and Conclusions ............................... 65 Presentation of the Data ............................................... 67 Identification of the Property ......................................... 68 Legal Description ...................................................... 68 Plat Map ............................................................... 70 Real Estate Taxes ...................................................... 71 Special Assessments .................................................... 72 Description of the Land ................................................ 73 Description of the Improvements ........................................ 74 Highest and Best Use Analysis .......................................... 89 Cost Approach .......................................................... 92 Sales Comparison Approach - Office ..................................... 100 Income Approach - Office ............................................... 118 Office Market Analysis ................................................. 127 SECTION III Retail Market Analysis ................................................. 150 SECTION IV Income Approach - Gaviidae II/Neiman Marcus ............................ 171 - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 5 - -------------------------------------------------------------------------------- <PAGE> TABLE OF CONTENTS (Continued) - -------------------------------------------------------------------------------- Page ---- SECTION V - GAVIIDAE I Summary of Salient Facts and Conclusions ............................... 188 Presentation of the Data ............................................... 190 Identification of the Property ......................................... 191 Legal Description ...................................................... 192 Plat Map ............................................................... 193 Real Estate Taxes ...................................................... 194 Special Assessments .................................................... 195 Description of the Land ................................................ 196 Description of the Improvements ........................................ 197 Highest and Best Use Analysis .......................................... 211 Cost Approach .......................................................... 214 Income Approach ........................................................ 222 SECTION VI Summary and Conclusions ................................................ 241 EXHIBITS AND ADDENDA (Under Separate Cover) - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 6 - -------------------------------------------------------------------------------- <PAGE> CERTIFICATION - -------------------------------------------------------------------------------- The undersigned hereby certifies that, except as otherwise noted in this appraisal report: 1. We have made a careful, personal and thorough inspection of the subject properties. 2. No one other than the person(s) signing this report have provided significant professional assistance to the analyses, conclusions and opinions set forth herein except as otherwise noted in the report. 3 Neither the employment nor compensation for this appraisal assignment is contingent upon an action or event resulting from the analyses, opinions, or conclusions in, or use of, this report. The appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. 4. We have no present or contemplated interest in the subject property, and we have no personal interest or bias with respect to the parties involved. 5. To the best of the appraisers' knowledge and belief, the statements of fact contained in this report are true and correct. The reported analyses, opinions and conclusions are limited only by the assumptions and limiting conditions set forth in the report and are our personal, unbiased professional analyses, opinions, and conclusions. 6. The analyses, opinions, and conclusions were developed in conformity with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation. The undersigned further certifies that the reported analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. 7. The Appraisal Institute conducts a formal program of continuing education for its designated members. MAI's who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, Todd M. Reid, Robert G. Lunz and Kathryn L. Lammers have completed the requirements under the continuing education program of the Appraisal Institute. Todd M. Reid, Robert G. Lunz, and Kathryn L. Lammers are licensed Certified General Real Property Appraisers with the State of Minnesota. 8 The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 7 - -------------------------------------------------------------------------------- <PAGE> CERTIFICATION (Continued) - -------------------------------------------------------------------------------- 9. To the best of the appraisers' knowledge and belief, based on the foregoing analyses and subject to the limitations and conditions of this report, as of March 1, 1997, the Market Value of the leased fee estate interest in the Gaviidae I and Gaviidae II/Dain Plaza developments was: NINETY EIGHT MILLION DOLLARS $98,000,000 =========== Sincerely, LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. /s/ Todd M. Reid /s/ Robert G. Lunz Todd M. Reid, MAI Robert G. Lunz, CRE, MAI Certified General Real Certified General Real Property Appraiser Property Appraiser MN License No. 4000839 MN License No. 4000943 WI License No. 452 IA License No. 361406069 /s/ Kathryn Lammers Kathryn I. Lammers, MAI Certified General Real Property Appraiser MN License No. 4002792 NE License No. CG 960171 - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 8 - -------------------------------------------------------------------------------- <PAGE> LIMITING CONDITIONS - -------------------------------------------------------------------------------- The legal description furnished us is assumed to be correct. If the exact description was not available, an "approximate" legal description will be found in the report, in which case its accuracy should not be relied upon. No responsibility is assumed for matters legal in character. The title is assumed to be marketable, but we have made no title examination, and items such as deed restrictions or unusual easements not readily apparent have not been taken into consideration in the valuation unless divulged by the client and so stated in the report. All existing liens and encumbrances have been disregarded, and the property is appraised as though free and clear and under responsible ownership and competent management unless otherwise stated. All drawings or sketches are included to assist the reader in visualizing the property. While every effort is made to maintain accuracy, measurements are sometimes distorted in reproduction, thus these illustrations should not be used to obtain exact dimensions. We have made no survey of the property and assume no responsibility in that regard. We make no claims as to the presence of hazardous materials either in the construction components of the improvements or in the land. Information furnished to us by others, and on which we have relied, is believed to be correct, but its accuracy cannot be guaranteed. The estimates of value evolved in this report are based on existing tax laws in place as of the date of this appraisal. Estimates herein are based on the present status of the national business economy, and the current purchasing power of the dollar. It is assumed that there is full compliance with all applicable federal, state and local environmental regulations and laws unless non-compliance is stated, defined and considered in the appraisal report. One (or more) of the signatories of this appraisal report is a Member (or candidate) of the Appraisal Institute. The Bylaws and Regulations of the Institute require each Member and Candidate to control the use and distribution of each appraisal report signed by such Member or Candidate. Therefore, except as hereinafter provided, the party for whom this appraisal report was prepared may distribute copies of this appraisal report, in its entirety, to such third parties as may be selected by the party for whom this appraisal report was prepared; however, selected portions of this appraisal report shall not be given to third parties without the prior written consent of the signatories of this appraisal report. Further, neither all nor part of the appraisal report shall be disseminated to the general public by the use of advertising media, public relations media, news media, sales media or other media for public communication without the prior written consent of the signatories of this appraisal report. Testimony as an expert witness or attendance in court because of this appraisal is not required unless arrangements have been previously made. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 9 - -------------------------------------------------------------------------------- <PAGE> LIMITING CONDITIONS (Continued) - -------------------------------------------------------------------------------- The distribution of total value between land, improvements and personal property, or statement of land value alone, applies only under the program of utilization stated in the report. This may be, but is not necessarily, the existing use. The separate valuations for land or buildings must not be used in conjunction with any other appraisal as erroneous conclusions could be drawn. Similarly, where a portion or fraction of a real estate holding is being appraised, the sum of all fractional interests or components is not necessarily equal to the sum of the total interest or property. The personal property included in the appraisal has not been separately valued. A reliance was made on original cost, trended costs and/or net book value in the allocation of these property items. The Americans with Disabilities Act (ADA) became effective January 26, 1992. Neither the appraiser(s) nor Lunz Massopust Reid DeCaster & Lammers (LMRD) have made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since the neither the appraiser(s) nor LMRD have direct evidence relating to this issue, the possible non-compliance with the requirements of ADA was not considered in estimating the value of the property. Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property, was not observed by the appraiser(s). Neither the appraiser(s) nor LMRD have knowledge of the existence of such materials on or in the property. The appraiser(s), however, is/are not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge, required to discover them. The client is urged to retain an expert in this field, if concerned and conditions are unknown. The subject property was inspected on February 19, 1997 and it is assumed the property and market conditions have not, and will not, change significantly before March 1, 1997, the effective date of value. It was assumed that all tenants including but not limited to Saks, Nieman Marcus, and National City Bank would honor their respective lease obligations through their base lease expiration dates. Per direction of the client, this appraisal considers the value of all underlying land in fee simple ownership only. The appraisers are aware of several encumbrances including a land lease between the owner and the Minneapolis Community Development Agency (MCDA) for a parcel of land beneath portions of Gaviidae I and a land lease between the owner and a Brookfield related company for a portion of land beneath the Gaviidae II/Dain Plaza development. These encumbrances have not been considered in this analysis. If these were considered it is likely that the resulting value conclusion would be lower. However, we have not reviewed the encumbrance documents. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 10 - -------------------------------------------------------------------------------- <PAGE> ================================================================================ PREMISES OF THE APPRAISAL ================================================================================ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 11 - -------------------------------------------------------------------------------- <PAGE> APPRAISAL DEVELOPMENT AND REPORTING PROCESS - -------------------------------------------------------------------------------- In preparing these appraisals, the appraisers first inspected both properties and then proceeded to gather and confirm information on comparable improved properties. In estimating the market value, the appraisers utilized only two of the three approaches to value; the Cost and Income Approaches in a valuation methodology termed "The Valuation Process", which, according to the Appraisal of Real Estate, 10th edition, on page 69 is defined as: .. "a systematic procedure employed to provide the answer to a client's question about real property value". For the two retail components, the Sales Comparison Approach was not developed given the lack of comparable specialty retail transactions. The Cost Approach was developed but accorded little weight given the degree of functional and economic obsolescence present in both retail components. All of the persons interviewed for this assignment believe that the Income Approach is the only meaningful approach in valuing the retail components. For Dain Plaza, the Cost, Sales Comparison and Income Approaches were developed and duly reconciled. The development of the each approach is based upon factual data extracted from the market. A detailed description of each approach has been included in subsequent sections of the report. Foundational to the application of each approach, is the analysis of highest and best use. Highest and best use is the determination by the appraisers of which potential application of the property would produce the highest value at the appraisal date. This report is considered self contained based on the extent of information collected and reported in this document. Finally, this report is considered a narrative report since the findings are not reported in a summary format. Sources of data that were utilized in this analysis include information from office files, discussions with other real estate professionals including sales and leasing brokers, mortgage bankers, owners and managers, other appraisers, and buyers and sellers. The appraisers developed each of the approaches to obtain separate indications of market value which were then reconciled to a Final Estimate of Value. This process is accomplished in the reconciliation and Final Value Estimate section of the report. The undersigned acknowledges that they have the appropriate education and experience to complete the assignment in a competent manner. The reader is referred to the Qualifications of the Appraisers included in the Addenda of this report. PURPOSE AND USE OF THE APPRAISAL - -------------------------------------------------------------------------------- The function and objective of these appraisals is to individually and collectively estimate the Market Values of the leased fee estate interests in the Gaviidae I and Dain Plaza/Gaviidae II developments as of March 1, 1997. It is understood that the opinions of value rendered in this report will be used in conjunction with obtaining new financing where the real estate would serve as loan collateral. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 12 - -------------------------------------------------------------------------------- <PAGE> PROPERTY RIGHTS BEING APPRAISED - -------------------------------------------------------------------------------- The real property rights considered in the appraisals are those of the leased fee estate ownership interest in the real estate subject to the leases in place and as typical of the marketplace for vacant spaces. For purposes of this analysis, the 'leased fee estate interest', is as defined on page 204 of The Dictionary of Real Estate Appraisal, third edition, published by the Appraisal Institute, 1993, as: "An ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others. The rights of lessor (the leased fee owner) and leased fee are specified by contract terms contained within the lease." DEFINITION OF MARKET VALUE - -------------------------------------------------------------------------------- "Market Value" as used in this report, is as defined under FIRREA Appraisal Standards in the Federal Register, Vol. 55, No. 165, August 24, 1990, "Rules and Regulations", 34.42 as below: "Market value means 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 interest; 3) A reasonable time is allowed for exposure in the open market; 4) Payment is made in terms of cash in U.S. 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." EXPOSURE TIME - -------------------------------------------------------------------------------- According to the Standards of Professional Appraisal Practice of the Appraisal Institute, reasonable exposure time is one of a series of conditions in most market value definitions. Exposure time is defined as follows: "The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market." - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 13 - -------------------------------------------------------------------------------- <PAGE> EXPOSURE TIME (continued) - -------------------------------------------------------------------------------- Exposure time may be different for various types of real estate depending upon market conditions for that specific property type. The concept of exposure not only encompasses reasonable time but assumes adequate, sufficient and reasonable effort. For purposes of this appraisal, exposure time has been estimated at one year or less which is consistent with the most recent office property sales. MARKETING PERIOD - -------------------------------------------------------------------------------- For the subject property, a marketing period of one year is considered reasonable. According to Real Estate Research Corporation, Third Quarter 1996, "Real Estate Report", the demand for CBD office has been increasing over the last several years. With National City Bank's occupancy in Gaviidae I, the overall development is essentially 65% office and 35% retail. CURRENT INVESTMENT CONDITIONS BY PROPERTY TYPE -------------------------------------------------------------- 3RD QTR 3RD QTR 3RD QTR PROPERTY TYPE 1996 1995 1994 -------------------------------------------------------------- I Industrial - Warehouse 7.7 7.0 6.7 2 Office - Suburban 7.2 6.9 5.6 3 Apartment 7.0 7.1 6.4 4 Industrial - R&D 6.5 5.6 4.5 5 Hotel 6.2 6.4 5.2 6 Retail - neighborhood 5.8 6.4 6.0 7 Office - CBD 5.6 5.1 4.2 8 Retail - Regional 5.3 5.6 6.2 9 Retail - Power Center 4.6 6.5 6.3 -------------------------------------------------------------- Rated on a scale of 1 (very bad) to 10 (very good) -------------------------------------------------------------- Source: Real Estate Research Corporation -------------------------------------------------------------- Given improving buyer sentiment for CBD Office, these properties should exhibit shorter marketing periods than experienced over the last two or three years. A twelve month marketing period is considered reasonable for the subject property for several reasons. First, it is extremely well located in Downtown Minneapolis's core blocks. Second, the quality and condition of the property are considered excellent. Thirdly, the subject property is leased by several highly credit worthy tenants which occupy a significant portion of the project. Finally, the Downtown office market has improved considerably over the last two years. Class A office vacancy is currently at a 25 year low of 3.9%. As such, a marketing period of twelve months is considered reasonable. This period is considered to begin at that time the property is formally listed for sale and exposed to the market, both locally and nationally. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 14 - -------------------------------------------------------------------------------- <PAGE> HISTORY OF THE PROPERTIES - -------------------------------------------------------------------------------- In 1975, the City of Minneapolis distributed a brochure to a number of real estate development companies containing a request for proposal for several blocks in the Downtown core including the City Center block and the half block now improved with Gaviidae I. At the time, the Gaviidae site was improved with the old Donaldson's Glass Block Department store building. Given the key presence of the block at the 7th and Nicollet corner, the City wanted to spur redevelopment on it. In the summer of 1977, Oxford Properties U.S. LTD, Oxford Development Group, LTD and the City signed a development contract which extended a one year development option to Oxford. Oxford exercised their option in July of 1978 and the City condemned or purchased outright the numerous properties and real property interests on the City Center block and the Gaviidae I site. The Gaviidae I site was included in this redevelopment project because Donaldson's had agreed to move across Nicollet Mall and anchor the City Center retail development. In November (Thanksgiving Day) 1982, while the old Donaldson's Department store was being razed, the neighboring Northwestern National Bank Building (predecessor to Norwest Bank) suffered extensive fire damage and the decision was made by Norwest to demolish it and build a new flagship headquarters. Meanwhile, Saks Fifth Avenue had expressed interest in the block during this period and in 1984, Oxford and Northwestern National Bank entered into a joint venture agreement to redevelop the entire block with a mixed use office and retail development. In early 1985, this joint venture was terminated. Oxford then proceeded alone to develop Gaviidae I in 1987 and completed the project in 1989. Also in 1985, IDS had approached Oxford to develop a large office tower on the Gaviidae I site. By this time, Norwest had completed the design plans for the new Norwest Center on their existing site. IDS and Oxford concluded that, due to sight line and design difficulties created by the new Norwest Center, a new IDS tower could not be developed on the Gaviidae I site. At the time, Oxford (now BCED Development) owned a 50% interest in the landmark 1970 vintage IDS Center. BCED was clearly motivated to find expansion space for their prime tenant. With the Gaviidae I site no longer an option, BCED looked to the Gaviidae II site as a possible location for IDS. JC Penney had just vacated their department store, and their approximate half site on Nicollet Mall between South 5th and 6th Streets was generally considered to be a prime candidate for redevelopment. BCED had reportedly invested several million dollars into the Penney's site during the failed plan and design phase with IDS. In 1987, IDS decided against building a new headquarters. Despite this happening, BCED decided to exercise their option to lease the site given the significant amount of capital already invested. The Penney's site was owned by the Bradley Real Estate Investment Trust (Bradley) of Boston. By this time, BCED had found an anchor tenant for the development; Inter-Regional Financial Group (Dain Bosworth). BCED tried to purchase the site but Bradley was not willing to sell. As such, in 1988, BCED and Bradley entered into a complex 99 year ground lease, specifying among other atypical conditions the ground landlord's participation in defined cash flow from the new development, and also in a Board of Governors set up to administer the ground lease. In estimating the initial rent for this lease, the land was valued at approximately +/-$200 per square foot. Neiman Marcus then committed to anchor the retail center and construction of the Gaviidae II and the Dain Plaza commenced in 1989. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 15 - -------------------------------------------------------------------------------- <PAGE> HISTORY OF THE PROPERTIES (continued) - -------------------------------------------------------------------------------- In January 1996, DB Holdings, Inc., a related Brookfield Development (formerly BCED) entity purchased the leased fee estate interest in the ground lease, essentially gaining fee simple control of the site, for $12,900,000, or +/-$264 per square foot. The purchase was a strategic move. With the non-subordinated, and participating ground lease in place, it was difficult to finance or sell the property. In mid-1995 Brookfield attempted to sell an equity interest in the project (Gaviidae I, Gaviidae II and Dain Plaza) in the market for $119,000,000. The offering terms are outlined below: Investor's Preferred Position Price: $119,000,000 ($114.87 per square foot of combined rentable and gross leasable area) Return: An 8% preferred return on investment to be paid from project revenues. Shortfalls for the first three years will be supported by a cash collateral account funded at closing. The investor will also receive 75% of excess cash flow after its preference. Right to Finance: Brookfield will have the right to finance up to $80,000,000 on the property in the first five year period. According to the offering, the cash flow projections indicated an 11% unleveraged yield (IRR) to the investor over the holding period. With assumed debt of $80,000,000 at 8% and a 25 year amortization, the leveraged IRR increases to 13%. An equity investor was not found and Brookfield Development Inc. remains the owner. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 16 - -------------------------------------------------------------------------------- <PAGE> REPORT FORMAT - -------------------------------------------------------------------------------- To avoid repetition, this report was broken down into four sections outlined as follows: Letter of Transmittal Introduction Certification Limiting Conditions Section I - General Overview and Analysis Premises of the Appraisal Appraisal Development and Purpose of the Appraisal Reporting Process Property Rights being Appraised Definition of Market Value Exposure Time Marketing Period History of the Properties Report Format Presentation of Data Regional and City Data Neighborhood Information Land Sales Comparison Approach Section II - Dain Plaza & Gaviidae II Summary of Salient Facts and Conclusions Presentation of Data Identification of Property Legal Description Plat Map Real Estate Taxes Special Assessments Description of the Land Description of the Improvements Highest and Best Use Cost Approach Sales Comparison Approach - Office only Income Approach - Office Office Market Analysis Section III - Retail Market Analysis Section IV - Income Approach - Gaviidae II/Neiman Marcus Section V - Gaviidae I Summary of Salient Facts and Conclusions Presentation of Data Identification of Property Legal Description Plat Map Real Estate Taxes Special Assessments Description of the Land Description of the Improvements Highest and Best Use Cost Approach Income Approach Section VII - Summary and Conclusions Exhibits and Addenda - (Under Separate Cover) - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 17 - -------------------------------------------------------------------------------- <PAGE> ================================================================================ PRESENTATION OF DATA ================================================================================ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 18 - -------------------------------------------------------------------------------- <PAGE> REGIONAL AND CITY DATA - -------------------------------------------------------------------------------- The subject property lies in the City of Minneapolis, Hennepin County, Minnesota. Hennepin County is the largest of the seven counties that comprise the Minneapolis-St. Paul Metropolitan Statistical Area (MSA). The MSA is generally situated in the east central portion of the state near the confluence of the Minnesota and Mississippi Rivers. A map illustrating the City of Minneapolis in relation to the Greater Twin Cities Metropolitan Area is shown on the following page. Minneapolis is the largest city in Hennepin County and has the largest Downtown in the five state area. Minneapolis contains 57 square miles and is located in the east portion of Hennepin County along the Mississippi River. According to the Land Use Trends completed by the Metropolitan Council, approximately 98% of the city's land area is developed with either residential, commercial, or industrial applications. Although the eastern portion of Hennepin County is intensely developed, the western portion is, for the most part, agricultural land. A historical land use breakdown for both Hennepin County and the City of Minneapolis is as follows: <TABLE> <CAPTION> Minneapolis ============================================================================================================================ Multi- Year Residential Single Family Family Farm Commercial Industrial Public Highways Lakes/Streams Vacant Total - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1970 N/A 19,583 N/A N/A 1,887 5,448 5,913 748 2,248 1,504 37,331 1980 N/A 15,983 3,584 0 1,887 5,503 5,935 1,006 2,248 1,185 37,331 1990 N/A 16,006 3,629 0 1,903 5,480 5,983 1,294 2,247 772 37,314 - ---------------------------------------------------------------------------------------------------------------------------- Source: Metropolitan Council - Land Use Trends - Minneapolis ============================================================================================================================ <CAPTION> Hennepin County =============================================================================================================================== Multi- Agricultural & Year Residential Single Family Family Farm Commercial Industrial Public Highways Lakes/Streams Vacant Total =============================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1970 N/A 85,275 N/A N/A 6,457 15,237 42,876 6,102 32,071 199,539 387,557 1980 N/A 87,655 8,797 2,207 8,051 17,517 47,754 6,360 32,071 177,145 387,557 1990 N/A 99,749 10,947 2,244 10,850 19,492 49,776 7,004 32,125 155,215 387,402 - ------------------------------------------------------------------------------------------------------------------------------- Source: Metropolitan Council - Land Use Trends - Hennepin County =============================================================================================================================== </TABLE> From this data it is evident that the City of Minneapolis was nearly 100% developed prior to 1970. There are no large concentrations of available vacant land. Rather, most of the vacant land is scattered throughout the City. It should be noted that in Hennepin County, there are only 30,257 acres of vacant land within the boundaries of the Municipal Urban Service Area (MUSA), where services such as sewer and water are provided. In Downtown Minneapolis however, there is a large supply of vacant land within the central business district (CBD). In the late 1980's and early 1990's, several older buildings were demolished for interim-use surface parking. In addition to these sites, there are also several improved properties that are nearing the end of their economic life. These include the Conservatory property located two blocks south of Gaviidae I on the Nicollet Mall, a small three story structure immediately west of the Gaviidae II in the northwest corner of South Sixth Street and the Nicollet Mall and the former Minnegasco building located three blocks east of Dain Plaza on the south side of Seventh Street South. On February 24, 1997, Opus announced plans to build a 30-story office tower on the Minnegasco site for American Express Financial Advisors. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 19 - -------------------------------------------------------------------------------- <PAGE> {Graphic omitted] <PAGE> REGIONAL AND CITY DATA (continued) - -------------------------------------------------------------------------------- Due to its large size and long, narrow shape, the City borders many neighboring communities. The Cities of Fridley and St. Paul lie directly to the east of Minneapolis with Brooklyn Center on the north; Robbinsdale, Golden Valley, St. Louis Park and Edina on the west; and Richfield and the Minneapolis-St. Paul International Airport to the south. Real estate, which includes the land and improvements and real property, which includes the interest, benefits and rights inherent in the ownership of real estate are influenced by four major forces: Social, Economic, Governmental, and Environmental. The value of the subject property is a function of the interaction of these forces. The following analysis describes each of these forces that affect the region, city, and subject property. Social Forces - Social forces are primarily related to the past, present, and future demographic influences experienced and expected in a specific area. According to the US Bureau of Census, population within the MSA has increased 15.3% from 1,985,873 persons in 1980 to 2,288,721 persons in 1990 ranking the MSA 16th largest in the United States. Population growth has increased from an average annual rate of 0.59% in the 1970's to an average annual rate of 1.53% in the 1980's. Population growth in both Hennepin County and the MSA mirror the region's growth. Between 1980 and 1990 Hennepin County's population grew 9.67% from 941,411 persons to 1,032,431 persons in 1990. Between 1990 and April of 1995 (the most recent survey date), population increased 3.02% to 1,063,631 persons. Hennepin County is the most populous county in the State of Minnesota at roughly twice the size of Ramsey County, which lies immediately to the east and ranks second. On the other hand, the population in the City of Minneapolis continues to decline, while the Metropolitan Area continues to grow. Between 1970 and 1980 the population fell by 14.6% from 434,400 to 370,951 residents. Between 1980 and 1990, the population fell an additional 0.69% to 368,383 residents. The Metropolitan Council places the most current population estimate at 365,889 (as of April, 1995) a 0.67% decline from 1990. Declining inner-city population is occurring in most of the top 20 cities in the nation. The core cities of Minneapolis and St. Paul are not immune to this. Most of the decline is due to fewer persons per household. Migration to the suburbs is also occurring. The decline in population is also a function of a maturing age strata as well as the upgrading of the metro area's freeway network with makes Minneapolis easily accessible from the outlying suburbs. For the Downtown CBD, however, the recent trend has been in-migration which has boosted multi-family occupancy levels. The Metropolitan Council and the City of Minneapolis Planning Department project continued employment growth in the Downtown area which should benefit both commercial and residential real estate. A recap of the population growth in the seven county metropolitan area, Hennepin County and those cities surrounding Minneapolis is exhibited below: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 21 - -------------------------------------------------------------------------------- <PAGE> REGIONAL AND CITY DATA (Continued) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> ============================================================================================================================ Population - Minneapolis and Surrounding Municipalities % Change % Change % Change 1970 1980 1990 Apr-'95 2000 1980-1990 1990-1995 1990-2000 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Minneapolis 434,400 370,951 368,383 365,889 370,500 -0.7% -0.7% 0.6% Brooklyn Center 35,173 31,230 28,887 28,463 29,000 -7.5% -1.5% 0.4% Robbinsdale 16,845 14,422 14,396 14,206 15,100 -0.2% -1.3% 4.9% Golden Valley 24,246 22,775 20,971 20,911 21,200 -7.9% -0.3% 1.1% St. Louis Park 48,883 42,931 43,787 43,568 46,500 2.0% -0.5% 6.2% Edina 44,046 46,073 46,070 46,845 47,000 0.0% 1.7% 2.0% Richfield 47,231 37,851 35,710 35,237 36,000 -5.7% -1.3% 0.8% St. Paul 309,866 270,230 272,235 271,120 275,000 0.7% -0.4% 1.0% Fridley 29,233 30,288 28,335 28,204 28,500 -6.4% -0.5% 0.6% - -------------------------------------------------------------------------------------------------------------------------- Totals 989,923 866,751 858,774 854,443 868,800 -0.9% -0.5% 1.2% Seven County Metro 1,874,612 1,985,873 2,288,721 2,488,967 2,560,000 15.3% 8.7% 11.9% Hennepin County 960,080 941,411 1,032,431 1,063,631 1,109,120 9.7% 3.0% 7.4% Source: Metropolitan Council - Population and Household Estimates (April, 1995) ============================================================================================================================ </TABLE> The Metropolitan Council's forecast of population for the year 2000 indicates that the immediate seven county metropolitan area's population growth is expected to continue, although more modestly, into the next decade. The Metropolitan Council projects that the population will grow at a rate of 11.9% between 1990 and 2000, and 8.0% between the year 2000 and 2010. The long term outlook for the City of Minneapolis is for a modestly declining population as the number of persons per household continues to decline. Economic Forces - Economic forces deal with the overall state of the economy in a specific area. Inter-related economic factors that affect the subject property include the unemployment rate, the area's per capita income and the existing industrial base. The MSA's unemployment rate as of December of 1996 was 3.5% compared with a national rate of 5.4% (January, 1997). The local unemployment rate has been consistently 1% to 2% below that of the national unemployment rate over the last 20 years, and according to the Minnesota Department of Jobs and Training should remain so in the future due to a diverse employment base. Although a low unemployment rate is considered an overall positive for MSA, it has created a job shortage particularly in the service and retail sectors. As a result, hourly wages for restaurant and retail work have increased to as much as $7.50 per hour. The Twin Cities ranked seventh in job growth from 1993 to 1994 among the 25 largest metropolitan areas in the nation. Employment grew 3.6% during this period. Phoenix ranked first with growth of 6.5%. Atlanta, Tampa, Portland, Dallas and Denver consecutively followed Phoenix. Since 1990, the fastest growing employment base in the MSA occurred in the Construction sector, followed by the Service sector and Government sector. Historical employment statistics by sector is as follows: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 22 - -------------------------------------------------------------------------------- <PAGE> REGIONAL AND CITY DATA (continued) - -------------------------------------------------------------------------------- Minneapolis-St. Paul SMSA Non-Agricultural Employment by Industry (000's) <TABLE> <CAPTION> ============================================================================================================================ Transportation Finance Communication Insurance Year Manufacturing Construction Public Utilities Trade Real Estate Services Government Total - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 1980 249.2 46 64.8 273.4 70.8 244.4 161.2 1109.8 1985 257.6 46.7 67 297.2 84.3 295.8 161.7 1210.3 1990 251.1 48.4 69.8 324.3 94.4 340.8 163.7 1292.5 Jul-96 276.9 65.1 85.6 374.8 113.2 451.3 201.8 1568.7 - ---------------------------------------------------------------------------------------------------------------------------- Change'80-'90 0.8% 5.2% 7.7% 18.6% 33.3% 39.4% 1.6% 16.5% Change'80-'96 11.1% 41.5% 32.1% 37.1% 59.9% 84.7% 25.2% 41.3% Change'90-'96 10.3% 34.5% 22.6% 15.6% 19.9% 32.4% 23.3% 21.4% Source: Current Employment Statistics Program ============================================================================================================================ </TABLE> It should be noted that prior to 1992, the SMSA consisted of the eleven counties including Anoka, Carver, Chisago, Dakota, Hennepin, Isanti, Kanabac, Ramsey, Scott, Sherburne and Washington. In 1992, two Wisconsin Counties were added; Pierce and St. Croix bringing the total to thirteen. Due to this change, it is difficult to analyze the most recent employment growth statistics. Since 1980, the fastest growing employment base in the MSA occurred in the services sector, followed by finance, insurance and real estate (FIRE). According to the Metropolitan Council, this trend began in the 1950's as the economy, which was primarily related to transporting and processing raw materials generated by the farms, forests, and mines of the Upper Midwest began to change to a regional capital concentrating in computers, insurance, medical technology, information services, and foreign trade. Between 1980 and 1996, the most recent survey date, the number of persons employed in the MSA has increased 41% from 1,109,000 to 1,569,000. Average annual employment growth was 1.8% between 1980 and 1985, 1.4% between 1985 and 1990 and 4.3% between 1990 and June of 1996. As previously mentioned, the 1992 addition of St. Croix and Pierce Counties to the SMSA results in an exaggerated growth rate. However, these preceding statistics illustrate the strong growth experienced and projected in the MSA and Hennepin County. The strong employment growth is a function of a well diversified industrial base. Hennepin and Ramsey Counties encompass the majority of the industrial and business applications located in the metropolitan area. The two counties serve as the processing and distribution point for the large Upper Midwest agricultural region. Such large agro-industrial processing firms as Cargill, Cenex, General Mills, Harvest States Cooperatives, Land O'Lakes, International Multifoods, Northrup King, Grand Met/Pillsbury all have their headquarters in the Twin Cities area. The MSA is also a major center for research and data processing firms with the headquarters and major manufacturing facilities of such companies as Ceridian, Cray Research, Honeywell, 3M, Unisys, and Zeos. A large insurance industry is also based in the Twin Cities with the largest companies here being Blue Cross/Blue Shield, Lutheran Brotherhood, Minnesota Mutual, Mutual Service, Reliastar, and the St. Paul Companies. Northwest Airlines, and the Soo Line Railroad are major transportation companies with their main offices in the Twin Cities. There are 14 publicly held Fortune 500 companies with their - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 23 - -------------------------------------------------------------------------------- <PAGE> REGIONAL AND CITY DATA (continued) - -------------------------------------------------------------------------------- headquarters located in the Twin Cities. They are ranked by Fortune Magazine by their 1995 sales volume as follows: ================================================================================ 1995 Revenue Ranking Company $ Millions - -------------------------------------------------------------------------------- 28 Dayton Hudson $23,516.0 57 Super Valu $16,563.8 62 Minnesota Mining & Mfg. $16,105.0 143 Northwest Airlines $ 9,084.9 156 General Mills $ 8,393.6 170 Norwest Corp. $ 7,582.3 197 Honeywell $ 6,731.3 232 United Healthcare $ 5,670.0 244 St. Paul Cos. $ 5,409.6 262 Best Buy $ 5,079.6 371 First Bank System $ 3,328.3 409 Hormel Foods $ 3,046.2 437 Nash Finch $ 2,888.8 476 Northern States Power $ 2,568.6 Source: Fortune 500, April, 1996 - -------------------------------------------------------------------------------- In addition to these publicly held companies, the Twin Cities is also home to several very large privately held companies including the following: PRIVATELY HELD FIRMS WITH LOCAL HEADQUARTERS 1995 Corporate Report 100 List - -------------------------------------------------------------------------------- Company 1995 Rank - -------------------------------------------------------------------------------- Cargill 1 Carlson Companies 2 Schwan's Sales Enterprises Inc. 3 Holiday Companies 4 C. H. Robinson 5 National Car Rental System Inc. 6 Andersen Corporation 7 Hidden Creek Industries 8 M. A. Mortenson (Construction) 9 Taylor Corporation 10 - -------------------------------------------------------------------------------- With 14 Fortune 500 companies, the Twin Cities Metropolitan Area is ranked fourth among the nation's twenty largest metro areas and exemplifies the strong local economy. The existence of these well established employers benefits the subject property by providing a diverse and growing industrial base with little dependency on the fortunes of a few businesses for the economic well being of the city or the region. As such, the demand for the subject property is enhanced. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 24 - -------------------------------------------------------------------------------- <PAGE> REGIONAL AND CITY DATA (continued) - -------------------------------------------------------------------------------- According to the most recent statistics complied by the Federal Bureau of Economic Analysis, the MSA has outpaced both the State of Minnesota and the United States in per capita income. Historical per capita income is exhibited below: - -------------------------------------------------------------------------------- % Change Area 1970 1980 1990 1980-1990 - -------------------------------------------------------------------------------- MSA $4,634 $11,510 $21,330 +86% State of Minnesota $3,995 $11,018 $18,731 +70% United States $4,051 $ 9,919 $18,696 +88% - -------------------------------------------------------------------------------- Source: Regional Economic Information System Federal Bureau of Economic Analysis, Washington, DC - -------------------------------------------------------------------------------- According to the most recent statistics compiled by the Federal Bureau of Economic Analysis, 1990 per capita income in the Minneapolis-St. Paul Statistical Area (MSA) ranked 39th of the 320 MSA's in the United States. According to the most recent statistics complied by the Federal bureau of Economic Analysis, the Hennepin County per capita income for 1990 was $23,705, ranking it first in the seven county metropolitan area. This figure represents an 86% increase over the 1980 figure of $12,733. Historical per capita income for both the MSA and Hennepin County is exhibited below: - -------------------------------------------------------------------------------- % Change Area 1970 1980 1990 1980-1990 - -------------------------------------------------------------------------------- MSA $4,634 $11,510 $21,330 +86% Hennepin County $5,089 $12,733 $23,705 +86% State of Minnesota $3,995 $11,018 $18,731 +70% United States $4,051 $9,919 $18,696 +88% - -------------------------------------------------------------------------------- Source: Regional Economic Information System Federal Bureau of Economic Analysis, Washington, DC As of 1990, the Minneapolis-St.Paul Statistics Area (MSA) ranked 39th in the 320 MSA's in the United States. Hennepin County ranked first among the 87 counties in the state and 89th out of the 3,107 counties in the country. The Metropolitan Council tracks median household income for each of the cities in the Metropolitan area. Income figures for Minneapolis and its surrounding communities as well as the seven county Metro area are as follows: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 25 - -------------------------------------------------------------------------------- <PAGE> REGIONAL AND CITY DATA (continued) - -------------------------------------------------------------------------------- ================================================================================ Median Household Income - Minneapolis & Surrounding Communities % Change 1970 1980 1090 198O-l990 - -------------------------------------------------------------------------------- Minneapolis $14,351 $24,048 $25,324 5.3% Brooklyn Center $22,282 $37,338 $34,168 -8.5% Robbinsdale $20,167 $33,794 $33,107 -2.0% Golden Valley $30,186 $50,583 $46,212 -8.6% St. Louis Park $21,362 $35,796 $34,778 -2.8% Edina $30,201 $50,608 $48,936 -3.3% Richfield $20,424 $34,224 $32,405 -5.3% St. Paul $16,029 $26,860 $26,498 -1.3% Fridley $22,850 $38,290 $36,855 -3.7% - -------------------------------------------------------------------------------- Average $21,984 $36,838 $35,365 -4.0% (1) Out of 109 Communities surveyed ================================================================================ Median Household Income - Seven County Metropolitan Area % Change 1970 1980 1990 1980-1990 - -------------------------------------------------------------------------------- Anoka County $23,394 $39,201 $40,076 2.2% Carver County $20,471 $34,303 $39,188 14.2% Dakota County $23,587 $39,525 $42,218 6.8% Hennepin County $20,077 $33,643 $35,659 6.0% Ramsey County $18,939 $31,736 $32,043 1.0% Scott County $22,468 $37,650 $40,798 8.4% Washington County $24,257 $40,647 $44,122 8.5% MSA $20,654 $34,610 $36,678 6.0% Source: Metropolitan Council - Community Profile ================================================================================ The economic outlook for the region is for modest but continued growth. Several developments in particular are expected to contribute to the economy in the 1990's. One of these is the Minneapolis Convention Center in Downtown Minneapolis. The Convention Center is located seven blocks south and one block east of Gaviidae I. The property opened in 1990 at a cost of $200,000,000. The center has approximately 775,000 square feet of convention space and annually hosts between 30 and 40 national and international conventions with 1995 revenues of about $95,000,000. These conventions bring in an estimated $50,000,000 into the local economy on an annual basis. The City of Minneapolis is currently working on plans to expand the convention center by an additional 275,000 square feet in an effort to capture more of the "Tradeshow 200" events-the 200 largest tradeshows in the nation. The expansion cost is estimated at $162,000,000. The Governor voted down the expansion in the Spring of 1996. However, the City is still determined to expand. The other major Twin Cities development is the Mall of America (MOA). This property opened in August of 1992 on the 86 acre vacated Metropolitan Stadium located off State Trunk Highway 77 near 1-494 in Bloomington, approximately eight miles southeast of Downtown Minneapolis. This mixed use development includes shops, restaurants, and a seven acre Camp Snoopy amusement Park. The mall is anchored by four major retailers; Macy's, Sears, Bloomingdale's, and Nordstrom. UnderWater World, a $26 million dollar aquatic amusement park opened in the Summer of 1996. Mall officials anticipate that the park will attract 1.8 million visitors in its first year; approximately 4.5% of the estimated 40 million annual visitors which visit the MOA each year. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 26 - -------------------------------------------------------------------------------- <PAGE> REGIONAL AND CITY DATA (continued) - -------------------------------------------------------------------------------- Preliminary estimates of the MOA's tourism impact approximate more than 2,000,000 out-of-town visitors to the Twin Cities annually and projections in excess of $800,000,000 in annual retail sales. According to a study conducted by the accounting firm of Deloite & Touche, and David Brennan, Director of the Small Business Instate at the University of St. Thomas, in 1994, the MOA generated approximately $1.4 billion in economic activity in Minnesota. According to the study, these are dollars that would otherwise not have been spent. The coming of the Mall spurred the renovation and remodeling of all but one of the Twin Cities seven regional malls. Retailers at the MOA reportedly employ approximately 9,600 full and part-time employees. As such, the Mall houses one of the greatest concentrations of employees in the state. Officials at the MOA are currently negotiating with the Metropolitan Sports Facilities Commission for the vacant tract of land located immediately north of the Mall. This 53 acre tract was the former Metropolitan Sports Center and home to the former Minnesota North Stars, a National Hockey League franchise. The Met Center, as it was commonly referred to, was demolished in December of 1994. The surrounding parking lot is now used for piling snow and for Mall of America surface parking. Although several plans have been discussed publicly, the site will most likely be improved with some type of entertainment retail and lodging which would compliment the MOA. The impact of the Convention Center on the subject retail components has been positive as visitors and convention goers shop at theses properties. However, according to the property managers at both Gaviidae and City Center, the Mall of America has attracted a significant amount of would-be shoppers that would otherwise have visited Downtown Minneapolis. Convention Center visitors often visit the Mall of America rather than shopping or spending entertainment dollars in Downtown Minneapolis. According to the property manager at City Center, retail sales have fallen between 10% and 15% since the MOA opened in 1992. The University of St. Thomas Graduate School of Business opened their Downtown Campus in 1992. This property is located at the corner of LaSalle Avenue and South Tenth Street. Enrollment averages approximately 18,000 undergraduate and 3,000 graduate students per year. St. Thomas plans to expand their presence in the Downtown with the opening of a magnet school in the Fall of 1997. The school was to be located in the block immediately to the east of their main campus. However, Dayton Hudson announced their plans to build the new Target Office Tower on this block. St. Thomas is now searching for a new site and the south half of the block across South Tenth Street appears to be the most likely candidate. This parcel lies directly north of the main Minneapolis campus and directly south of and abutting the Downtown Auto Park Ramp. As of the date of this appraisal, St. Thomas has presented several proposals for skyway construction which would connect their main facility to the proposed magnet school and into the LaSalle Plaza development. The South Nicollet Mall Advisory Board has recommended the proposals to the Minneapolis Community Development Agency (MCDA). - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 27 - -------------------------------------------------------------------------------- <PAGE> REGIONAL AND CITY DATA (continued) - -------------------------------------------------------------------------------- The MCDA is currently finalizing the development and financing agreement with Opus on behalf of the University of St. Thomas. If approved, the tax increment financing package could total $30 to $40 million. This proposed project, as well as the new Target Office Tower, will undoubtedly benefit the subject neighborhood. The Downtown office market, and in particular, the Class A market is in a period of strong recovery. According to Towle Real Estate, which conducts annual surveys of the office market, overall vacancy, as of the Second Quarter of 1996 was 9.4%; its lowest point since Towle began tracking the office market in 1983. Overall vacancy is down slightly from 9.7% recorded one year earlier. As of the Second Quarter of 1996, Class A vacancy was 3.9%, down from 4.5% one year earlier. As a result of this tight market, Class A absorption totaled only 83,340 square feet during the last fiscal year; down considerably from the 480,000 square feet of absorption experienced in 1995. With a tightening Class A market, quoted rental rates jumped 25%; averaging $14.21 per square foot. Although the Class A market has improved significantly, there is still economic obsolescence in the market as net rental rates are several dollars below the level necessary to support new construction. The most recent downtown office building sales have transacted at a discount to their estimated or reported development cost. Examples include the following: Sale Price/Sf Est./Reported Indicated No. Property of RA Cost/Sf of RA Discount - -------------------------------------------------------------------------------- 1 IBM First Bank Place $151.88 $233.12 35% 2. LaSalle Plaza $123.96 $195.28 36% Despite this occurrence, new construction is expected in the near future. As of the date of this appraisal, three developers (Opus, Ryan and Brookfield LePage) are currently vying for tenants to anchor a new Downtown office tower. Target, the discount division of Dayton Hudson, was considered the most probable anchor tenant with immediate space needs in excess of 450,000 square feet. However, on Friday, October 25 they announced that they will build their own office tower on the Nicollet Mall, three blocks south of the Gaviidae I. Construction of the 12 to 15 story office building is expected to begin in the Spring of 1997. The Ryan Companies had negotiated with Target to build a new office tower on portions of the block immediately south of the Conservatory site. Ryan had proposed building the office tower on top of a two-story Target store which would also front on the Nicollet Mall. Ryan may still construct the two-level Target store along the Nicollet Mall between 9th and 10th Streets. With the Target office tower out of the running, Ryan is focusing their efforts on demolishing the Conservatory and building the 800,000 square foot 800 Nicollet Mall Tower. As of the appraisal date, no anchor tenants have been announced for this project. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 28 - -------------------------------------------------------------------------------- <PAGE> REGIONAL AND CITY DATA (continued) - -------------------------------------------------------------------------------- According to an article published in the October 11, 1996 issue of City Business, it is reported that a city council subcommittee has given Brookfield LePage preliminary approval to pursue redevelopment of Block E. Block E is located between the City Center development on the east and the Target Center on the west. Brookfield has proposed a $143 million, 589,700 square foot office and retail project on Block E and portions of the block immediately to the south. According to the article, the project would include three levels of retail anchored by restaurants, shops and movie theaters, as well as a 275-room hotel. A seven story office complex would also be part of the development. Brookfield LePage, which owns the Gaviidae Common, Dain Plaza and the City Center, estimates it will need $27 million in tax increment financing. Opus Corporation, which owns several prominent land parcels in the Downtown core, is aggressively pursuing development. Opus owns the Powers site, the former Minnegasco Budding, the former Sheraton-Ritz Block and has control of several land parcels in the block immediately south of the Conservatory. This is the same block on which Ryan is proposing to build a Target store. In September of this year, Opus notified the City that it had plans to build an 820,000 square foot office tower over a two level combination Sam's Club and Wal-Mart. The plans were later dropped after Opus was convinced by the City that a similar Ryan announced development with Target would receive no favorable tax-increment financing treatment. Most industry observers agree that a Wal-Mart development, in Dayton Hudson's back yard, would be both politically and economically difficult to pull off. The largest single tenant in the Downtown market is American Express Financial Advisors (AMEX), formerly IDS. Several developers were courting this tenant in hopes of developing a new office tower which would open in 1997. However, AMEX extended all of their leases in several Downtown buildings until 2002. In the summer of 1995, the locally based vice president of corporate real estate was fired and his duties were transferred to executives in Chicago. According to an article published in City Business, American Express has begun drawing plans to consolidate its projected 7,200 workers onto a single campus when leases expire in 2002. It should be noted that AMEX owns approximately 100 acres of land in Chaska where the Oakridge Conference Center is located' This has resulted in a heightened level of uncertainty with respect to the Downtown office market. However, it is reported that a significant percentage of Downtown AMEX employees rely on public transportation. AMEX is committed to a strong public transit system and as such, it is more likely that they will continue to lease or develop in Downtown Minneapolis. Furthermore, AMEX made a public announcement in December 1996 that ..."It's safe to say that we will be staying Downtown...". However, in response to an unfavorable ruling in Minnesota Tax Court, Amex at first put off their decision to build a new Downtown office tower. Amex had contested the assessed value at their 171,000 square foot Oakridge Conference Center in Chaska, a southwestern Twin Cities suburb. At the trial, Amex argued that the value of the property should be $10 million versus the current $20 million assessed value. The tax court ruled that the assessed value was low and set the value at $27.3 million, increasing the property's tax burden by an additional $464,000 per year. In a Star Tribune article dated January 28, 1997, Amex expressed their concern that the decision has negative implications for owner-occupied buildings. Amex indicated that the decision will be appealed to the Minnesota Supreme Court. Subsequently, during the last week of February, - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 29 - -------------------------------------------------------------------------------- <PAGE> REGIONAL AND CITY DATA (continued) - -------------------------------------------------------------------------------- 1997, Amex announced they have selected Opus Corp. as the developer of their new office headquarters to be located on the Minnegasco/Minneapolis Club block. The Downtown retail market is continuing its metamorphosis from specialty and upscale retailing to discount retailing. As a result of this shift, several of the most prominent retail properties in the Downtown, including Gaviidae I, Gaviidae II, IDS Crystal Court, and City Center have repositioned their tenant base. Overall, the consensus is that the Downtown retail market has been hurt by the Mall of America and a change in consumer spending habits with soft good purchases falling and hard good purchases increasing. Unfortunately, a Downtown environment is not where consumers are typically attracted to buy larger item hard goods. Such purchases are typically made in stores situated in a more spacious suburban location. There are four department stores located in the Downtown Core; Saks Fifth Avenue, Neiman Marcus, Montgomery Ward and Dayton's. With exception to Dayton's, which benefits from a loyal customer base, the remaining anchors are struggling enormously. At Gaviidae I, Brookfield LePage converted its specialty retail space on the third, fourth and fifth floors to office/bank space for National City Bank. It is clear that the Mall of America and the growth in big box/community center retail development has hurt Downtown retail sales. The subject MSA still remains one of the largest distribution hubs in the Upper Midwest. Transportation facilities for the Twin Cities are excellent by land, water and air. By land, the Twin Cities area is served by major cross-country freeways, Interstates 35E/35W and 94, running north/south and east/west respectively. The area's circumferential freeway, Interstate 494/694, provides quick and efficient access throughout the entire metropolitan area. Additionally, there are five main line and two trunk line railroads, three local and four national bus lines. There are 110 first-class carrier truck lines for interstate commerce. The Twin Cities ports handle in excess of fifteen million tons annually. The Minneapolis-St. Paul International Airport is serviced by nine national/international airlines and seven regional commuter airlines. The Metropolitan Airport Commission also operates four additional municipal airports located in Hennepin County. Governmental Forces - The Twin Cities are the government, financial and banking center for the region. St. Paul is the capital of Minnesota and is concentrated with state and federal agencies. The US Government's Ninth Federal Reserve Bank is located in Downtown Minneapolis, as well as the region's two largest commercial bank holding companies, First Bank System and Norwest Corporation. The Twin Cities is also home for one of the largest thrift institutions in the country, TCF Bank fsb. Governmental forces that particularly influence the subject property are primarily related to the City of Minneapolis. Like most other cities in the MSA, Minneapolis has a mayoral-council form of government. The mayor and council, through citizen input, govern the various departments which include police and fire, assessing, zoning, engineering, planning, finance, parks, and public works. The City of Minneapolis has adopted a zoning ordinance which regulates and controls the city's real estate applications. The city also requires all proposed properties and developments meet planning commission requirements regarding conformity and aesthetics. The Planning - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 30 - -------------------------------------------------------------------------------- <PAGE> REGIONAL AND CITY DATA (continued) - -------------------------------------------------------------------------------- Commission and the existence of the zoning ordinance benefit the subject property and all other properties in the city by prohibiting incompatible uses, creating homogeneous use districts, and promoting the health, safety and general welfare of the city's inhabitants. Another significant governmental factor that effects real estate in the MSA is the Metropolitan Urban Service Area or MUSA. The MUSA, or as it is commonly referred to, the MUSA line, denotes the boundary for which typical urban utilities such as water and sewer have been approved. In 1976, the State Legislature passed the Metropolitan Land Planning Act requiring all cities in the MSA to create and employ a Comprehensive Guide Use Plan. The city's Comprehensive Guide Use Plans are submitted to the Metropolitan Council. The Metropolitan Council along with the Metropolitan Waste Commission regulate urban expansion by analyzing specific demands in an area including roadway and utility capacity. The City of Minneapolis is located in its entirety within the MUSA area. The existence of MUSA will inhibit future development outside the border given the lack of typical urban utilities. The subject property benefits from its location within the Metropolitan Urban Service Area given the existence of full urban utilities and the MUSA border which creates a barrier to future development. Environmental Forces - The Twin Cities Metropolitan Area has grown outward from its initial settlement near the confluence of the Minnesota and Mississippi Rivers. These two rivers, at one time, provided the bulk of transportation in and out of the area, as well as the power that created the largest milling industry in the United States. Given the climactic conditions in this state, the rivers are frozen and unnavigable throughout most of the winter months. As such, travel and transport via airway, freeway and to a lesser degree, railway, have emerged as the predominate transportation vehicles. These transportation industries are not as adversely effected by the area's climate. Interstate 494/694 is a 75 mile circumferential highway system that surrounds the bulk of the core metropolitan area. Interstate 35W is the region's major north/south interstate and I-94, the major east/west interstate. Distance and time estimates from the subject property to several important destinations are as follows: - -------------------------------------------------------------------------------- Distance- Approximate Destination Miles Travel Time - -------------------------------------------------------------------------------- Mpls-St. Paul International Airport 8 (SE) 15 minutes Downtown St. Paul 11 (E) 20 minutes I-35W (north and south bound) within blocks N/A I-94 (westbound) within blocks N/A I-94 (eastbound) within blocks N/A Wisconsin Border 27 (E) 20-40 minutes South Dakota Border 150 (W) 3 hours Iowa Border 100 (S) 2 hours Canadian Border 280 (N) 5.5 hours - -------------------------------------------------------------------------------- These travel time estimates by local standards are considered good to excellent. The city's desirable location is reflected in the high residential occupancy levels and valuable housing stock. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 31 - -------------------------------------------------------------------------------- <PAGE> REGIONAL AND CITY DATA (continued) - -------------------------------------------------------------------------------- Other environmental forces that affect the subject property include climatic and geographic conditions. Minnesota climate varies drastically from northern to southern portions of the state. In the northern portions, the winter lasts approximately four to six weeks longer than the east central portion where the subject property is located. In the east central area the coldest month of the year is January when the mean daily high temperature is 22(degrees)F and the mean daily low temperature is 2(degrees)F. The hottest month of the year is July when the mean daily high is 83(degrees)F and the mean daily low is 6O(degrees)F. Average annual precipitation is 24 inches with approximately 42 inches of snowfall. The region's warm summers, coupled with the 11,842 lakes (measuring over 5 acres in size) in the state make Minnesota one of the most desirable for living and vacationing. The four lake chain which includes Cedar Lake, Lake of the Isles, Lake Calhoun, and Lake Harriet is among the most popular attractions in the City of Minneapolis. The lakes attract many joggers and walkers, as well as those who sail, sailboard and fish. All of these lakes are well developed with upper-end residential homes. Conclusion - The overall economic outlook for the region and city is considered very good. However, Minneapolis's population and employment has been decreasing at a modest rate over the last ten years while the Metropolitan Area has continued to experience solid growth. Downtown Minneapolis is, however, expected to post modest gains in employment over the next ten years. As the financial and banking center for the region, Minneapolis should continue to show modest, but steady, appreciation over the long term. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 32 - -------------------------------------------------------------------------------- <PAGE> NEIGHBORHOOD INFORMATION - -------------------------------------------------------------------------------- For this analysis, a neighborhood has been defined by The Dictionary of Real Estate Appraisal, Third Edition, page 242, as .... "a group of complementary land uses." The subject's immediate vicinity clearly meets this definition as nearly all of the nearby properties are of office, service or retail application. Neighborhood boundaries essentially represent the core central business district and the B4-2, Central Retail zoning district. The two most common elements to these properties within the subject neighborhood include the Nicollet Mall and the skyway system. The Nicollet Mall is a two-lane, tree-lined street open only to public transportation. The mall is anchored by four major department stores and eight blocks of specialty stores. The Nicollet Mall represents one of the most successful pedestrian promenades constructed in an urban metropolitan area in the United States. Originally conceived in the late 1950's, construction of the mall has progressed where, combined with the Loring Park Development District, it now literally traverses Downtown from Washington Avenue on the north to East Grant Street on the south. The Nicollet Mall underwent a complete $23,000,000 renovation during the summer of 1990. Both Gaviidae properties have over 330 feet of frontage on the Nicollet Mall. The second floor skyway system links core city buildings and provides year-round climate controlled passageways, as well as an additional level of predominantly retail space. As of the appraisal date, the system consists of three plus miles of continuous skyways connecting 52 city blocks. The subject properties have multiple skyway connections outlined as follows: Property Skyway to/from - -------------------------------------------------------------------------------- Gaviidae I IDS Center to the south Norwest Center to the east Gaviidae II to the north - 2nd floor skyway Gaviidae II to the north - 4th floor skyway City Center to the west Gaviidae II/Dain Plaza Gaviidae I to the south - 2nd floor skyway Gaviidae I to the south - 4th floor skyway Nicollet Center to the west Powers Site (not connected) to the north Marquette (F&M) to the east 510 Marquette Building to the east Of all the skyway linked developments in Downtown Minneapolis, Gaviidae II has the greatest number of linkages. Being skyway linked has proven to be advantageous in the form of higher occupancies, lower turnover, and greater net rent. All of the Class A office properties are located on the skyway system. The map on the following page delineates the primary boundaries of the Downtown Minneapolis neighborhood. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 33 - -------------------------------------------------------------------------------- <PAGE> - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] DOWNTOWN DISTRICT -- of -- MINNEAPOLIS - -------------------------------------------------------------------------------- <PAGE> - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] [MAP] - -------------------------------------------------------------------------------- <PAGE> NEIGHBORHOOD INFORMATION (continued) - -------------------------------------------------------------------------------- A breakdown of the major uses within each of the blocks that comprise the core Downtown neighborhood is as follows: Block 1 Lumber Exchange - This 228,785 square foot renovated office building was constructed in 1885 and renovated in 1980. The property is currently 76% occupied with quoted rental rates at from $15.00 to $17.00 per square foot gross. Block 2 This block is comprised of three parking applications. The Nicollet Parking Ramp will accommodate approximately 450 vehicles. The Marquette Building was demolished in 1992 and was improved with a surface plus lower level parking deck. Also in 1992, OPUS Development demolished the former Power's Building for use as a surface parking lot. Block 3 The south half of Block 3 is comprised of the 100 and 150 South 5th Street Office Towers. These properties are now referred to as the Fifth Street Towers. The building located at 100 South 5th Street was constructed in 1985 and is comprised of 414,581 square feet of rentable area. The property is currently 88% occupied with quoted rental rates from $14.00 to $16.00 per square foot net. The 150 South 5th Street Building was constructed in 1988 and is comprised of 607,711 square feet. The property is currently 89% occupied with a similar rental rate. This building's primary tenant is the Leonard, Street & Deinard law firm. This firm was at one time considered to be a potential anchor tenant for a new office tower in the Downtown area. However, that the firm has decided to renew their lease and remain in their existing space. The towers rise 25 and 36 stories respectively. Both buildings are considered high quality Class A office towers. The buildings sold in December of 1996 for $140,895,000 or $137.82 per square foot of rentable area. Block 4 This block is primarily comprised of the U.S. West Telephone Company headquarters and parking ramp. In the northwest corner of the block is the Norwest Midland Bank Building. This ten-story property was originally constructed in 1905 with an addition in 1964. The property measures 173,375 square feet and is 72% occupied. The Miller-Davis, or 219 South 4th Street Property, is a 36,448 square foot renovated five-story office building. The property was constructed in 1914 and was renovated in 1984/85. This property is 100% occupied. The Miller-Davis building sold in March of 1996 for $875,000 or $24 per square foot of rentable area. Block 5 Minneapolis City Hall Block 6 This block is primarily comprised of the Plymouth Building, the Chamber of Commerce Building and the Nicollet Center Office Building. The Plymouth Building is a 259,301 square foot, Class C office building constructed in 1910. The property is currently 81% occupied with rents quoted at $13.00 per square foot gross. The Chamber of Commerce Building measures approximately 135,272 square feet. The property measures twelve stories in height and was built in 1925. The Nicollet Center property measures 37,117 square feet. The property was constructed in 1984 and is skyway linked to the subject on the south side of South 6th Street. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 35 - -------------------------------------------------------------------------------- <PAGE> NEIGHBORHOOD INFORMATION (continued) - -------------------------------------------------------------------------------- Block 7 Subject property - Dain Plaza/Gaviidae II. The east half of the block is comprised of the 510 Marquette Building (formerly the National City Bank Building) and the F&M Building (formerly the Marquette bank building). The 510 Marquette Building is twelve stories in height and contains 192,215 square feet of rentable area. The property was constructed in 1910 and is currently 96% occupied. Inter-Regional Financial Group, which owns Dain Bosworth, recently signed a lease to move its operation and technology subsidiary, Regional Operations Group to the building. The tenant occupies 78,000 square feet. National City Bank vacated the building in March of 1996 and now occupies three plus levels at the Gaviidae I development. The 510 Marquette building sold to a Griffin Companies Partnership in the summer of 1995 for $4,200,000 or $21.85 per square foot of rentable area. A substantial renovation of this building has just been completed. The Marquette Bank building is a historically designated bank building with a First Bank branch on the first floor. The building sold in January of 1997 for $4,800,000 or about $32 per square foot of rentable area. First Bank occupies virtually the entire building but will be downsizing 100,000 square feet by June of 1997. The bank will reportedly retain approximately 42,000 square feet of space including the bank lobby on the first floor. The eleven story property was built in 1941 and is skyway linked to the 510 Marquette building and the Gaviidae II development. Block 8 This block is comprised of four office buildings including the Soo Line, One Financial Plaza, Concourse and the Rand Tower. The largest property is the former First Bank Place West office building, now referred to as One Financial Plaza. This property was significantly occupied by First Bank. With the construction of the IBM/First Bank Place in 1992, First Bank vacated this property and moved into its new headquarters building. This property contains 386,000 square feet and is 80% occupied. The property was constructed in 1960 and is 26 stories in height. Quoted net rental rates are $9.00 per square foot net. Heitman reportedly sold the property on November 7, 1996 to Zeller Realty Corporation. The purchase price and terms are not yet available although it is rumored to have sold in the $25,000,000 range. Based on this estimated figure, the property sold for approximately $64.77 per square foot of rentable area. The Soo Line building was built in 1914 and renovated in 1993. The property measures 296,000 square feet and is 92% occupied. The Rand Tower was built in 1929 and measures 132,074 square feet. This property was also partially renovated in 1993. Occupancy is reported at 93% with quoted net rent at $7.50 to $9.00 per square foot. This building sold in November of 1993 for a cash equivalent sale price of $2,900,000, or $18.80 per square foot of net rentable area. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 36 - -------------------------------------------------------------------------------- <PAGE> NEIGHBORHOOD INFORMATION (continued) - -------------------------------------------------------------------------------- Block 9 This block is comprised of Pillsbury Center, a 1,319,057 square foot (rentable) office building primarily occupied by Grand Met/Pillsbury, the Dorsey & Whitney law firm, and Ernst & Young. The property is currently 99% leased. Block 10 This block is comprised of the Hennepin County Government Center which spans over South 6th Street. Block 11 Block E was acquired by the City of Minneapolis in the late 1980's in order to remove undesirable, older properties and spur a redevelopment to link the core Downtown to the Target Center and Warehouse District. Ray Harris, who developed Calhoun Square, a two-level specialty retail mall at the corner of Lake Street and Hennepin Avenue was awarded the development rights. However, anchor tenants were not secured and by 1991 the City abandoned its redevelopment plan. The Minneapolis Community Development Agency has recently received several proposals for redevelopment. According to an article published in the October 11, 1996 issue of City Business, it is reported that a city council subcommittee has given Brookfield LePage preliminary approval to pursue redevelopment of Block E. Brookfield has proposed a $143 million, 589,700 square foot office and retail project on Block E and portions of the block immediately to the south. According to the article, the project would include three levels of retail anchored by restaurants, shops and movie theaters, as well as a 275-room hotel. A seven story office complex would also be part of the development. Brookfield, which owns the subject property and Gaviidae I & II estimates it will need $27 million in tax increment financing. Block 12 This block is improved with the largest mixed use development in the State of Minnesota. The property consists of a 50 story Class A office tower, a 155,000 square foot department store wing occupied by Marshall's and Montgomery Wards, a 190,000 square foot, three level multi-tenant retail mall, and a 687 car parking ramp. Adjoining the property is a 32 story, 600 room luxury Marriott hotel. As of the appraisal date, the office tower is 100% occupied. The retail development is 92% occupied. The entire development was constructed in 1981 and 1982. Block 13 Subject property - Gaviidae I. The eastern half of the Gaviidae I block is comprised of the Norwest Center, a 1,110,000 square foot Class A office tower constructed by a Hines Development/Norwest joint venture in 1988. Norwest Center is currently 100% occupied. It should be noted that the two major tenants in the property, Norwest Bank and the Faegre and Benson Law Firm, occupy approximately 700,000 square feet. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 37 - -------------------------------------------------------------------------------- <PAGE> NEIGHBORHOOD INFORMATION (continued) - -------------------------------------------------------------------------------- Block 14 This block is referred to as the Northstar Block. The block is actually comprised of five structures including the Firstar Bank Building, Northstar East, Northstar West, Northstar Center, and the Holiday Inn Hotel. A breakdown of the building occupancies, age, and story height is as follows: Building Stories Age Rentable Occupied % -------------------------------------------------------------------- Firstar Bank 7 1928 72,326 86% Northstar East 13 1962 276,000 93% Northstar West 17 1962 361,000 100% Quoted net rents range form $7.00 to $12.00 per square foot at the Northstar properties and from $5.00 to $7.00 per square foot at the Firstar property. Block 15 This block is primarily comprised of the First Bank Place development which was constructed in 1992. This 1.423 million square foot office tower is anchored by First Bank and IBM. First Bank System occupies approximately 650,000 square feet and IBM Corporation occupies approximately 275,000 square feet. It should be noted that First Bank vacated the Pillsbury Center and One Financial Plaza for their consolidated occupancy in this new tower. As of the appraisal date the property is approximately 95.2% occupied. Quoted net rent ranges from $15.00 to $19.00 per square foot. The property sold in August of 1995 for $215,000,000 or approximately $152 per square foot of rentable area. The buyer was Houston-based Hines Interests Limited Partnership and The General Motors Pension Plan. Hines now owns three of the most prominent office towers in Minneapolis; Norwest Center, First Bank Place, and the Pillsbury Center. Located in the southwest corner of the block is the Minneapolis Athletic Club and the WCCO Radio building. The Minneapolis Athletic Club was renovated in 1990 and is a popular attraction among Downtown business people. The WCCO Radio Building was constructed in 1914 and contains 56,201 square feet. As of the appraisal date this property is 71% occupied. The property is home to WCCO Radio, the most prominent AM radio station in the Upper Midwest. Block 16 This block is comprised of the Dayton's department store and the Radisson Plaza Hotel and Plaza VII office tower. Dayton's department store is the largest store in the Downtown area at approximately 500,000 square feet. Dayton's reportedly generates over $150 million in annual sales out of this single store. The Radisson Plaza Hotel and office tower are completely surrounded by Dayton's except for the frontage along South 7th Street. The hotel and office tower were completed in 1987. The hotel is comprised of 357 rooms and 17 stories. The office tower contains approximately 316,000 square feet and extends an additional 17 stories above the hotel. The primary tenants in Plaza VII are Arthur Anderson and the Oppenheimer, Wolff & Donnelly law firm. The office property is currently 92% occupied with quoted rental rates range from $17.00 to $20.00 per square foot net. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 38 - -------------------------------------------------------------------------------- <PAGE> NEIGHBORHOOD INFORMATION (continued) - -------------------------------------------------------------------------------- Block 17 This block is improved entirely with the IDS Center. Since its construction in 1973, the IDS Center has been the visual focal point of Downtown Minneapolis. The IDS Center is actually a mixed use development containing office, retail, parking and hotel applications. The office portion contains approximately 1,216,728 square feet and is currently 94% occupied. The retail component, comprised of the Crystal Court area, contains approximately 166,000 square feet and is 95% occupied. In 1993, the retail area underwent a substantial redevelopment including the addition of TJ Maxx, Gap, Gap Kids, and Banana Republic in the former Woolworth's space. With their new store in the cater-corner IDS Center, Gap is not expected to renew their lease at the subject. The Marquette Inn has 285 rooms as well as an elegant restaurant. There is available underground parking for 560 cars. Block 18 Commonly referred to as the Baker Block, this block is actually home to the Roanoke Building, the Investors Building, the Peavey Building and the Baker Building. A breakdown of the properties' specifics is as follows: Building Stories Age Rentable Occupied % -------------------------------------------------------------------- Roanoke Bldg 12 1927 199,000 100% Investors Bldg 13 1926 396,576 100% Baker Bldg 12 1926 96,583 86% Peavey Bldg 14 1969 299,114 89% The quoted net rent ranges are from $8.00 to $10.00 per square foot at these properties. Block 19 The east half of this block is improved with the 31 story Metropolitan Centre, constructed in 1987. The property measures 627,324 square feet and is currently 92% occupied. Anchor tenants include Metropolitan Financial Corporation (acquired by First Bank System in 1994), the Rider-Bennett law firm, and Anderson Consulting. Quoted net rent ranges from $10.00 to $15.00 per square foot. The west half of the block is vacant. This block is to be eventually developed with the second phase of Metropolitan Centre. Block 20 This block is comprised of LaSalle Plaza and the new YMCA. This 1.1 million square foot office and retail development was completed in 1991 and is anchored by the Ellerbe Becket architectural firm (87,096 square feet), Norwest (91,343 square feet), Minnegasco (104,185 square feet) and the Robbins Kaplan Miller and Cerisi Law Firm (129,620 square feet). The office property measures approximately 520,000 square feet and is 100% occupied with the recent additions of Norwest and Minnegasco in the summer and fall of 1994. The building sold to the Shorenstein Company in November of 1994 for $73,000,000 or approximately $124 per square foot of rentable area. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 39 - -------------------------------------------------------------------------------- <PAGE> NEIGHBORHOOD INFORMATION (continued) - -------------------------------------------------------------------------------- Block 21 This block is primarily comprised of the Conservatory, a 249,000 square foot, intended upscale retail center with office space on the fifth and sixth floors. The property is skyway linked over South 8th Street to Dayton's in two places and also has a tunnel under South 8th Street connecting both lower levels of retail. The property, which opened in 1987, was developed for approximately $75,000,000 by a partnership of Bob Dayton, M.A. Mortensen Development Company and Northco, Ltd. The property never reached its potential due to the difficulty in floor to floor movement for patrons. The property also suffered from a retail standpoint in that it did not have an atrium to allow shoppers visual continuity between floors. In terms of construction quality, however, the property is clearly one of the best in the Downtown area. A joint venture syndication by Goldman, Sach's and Company of New York and J.E. Roberts Companies of Alexandria, Virginia paid $434,000 for the center on December 28, 1992. The property was sold as part of a package of distressed properties offered by Mellon Bank. The property was resold to Irwin Jacobs in December of 1993 for $1,500,000. As of the appraisal date, the property is entirely vacant except for a three office tenants. Ryan Cos. has reportedly reached an agreement with Jacobs to demolish the property and build a 750,000 to 800,000 square foot office tower, preliminarily called the 800 Nicollet Mall Tower. Ryan has yet to announce an anchor tenant for the development. Block 22 This block is comprised of Midwest Plaza, Medical Arts, and the Doctors & Professional Buildings. A breakdown of the properties' specifics is as follows: Building Stories Age Rentable Occupied % -------------------------------------------------------------------- Midwest Plaza 21 1968 418,000 77% Medical Arts 19 1919 241,142 76% Drs./Professional 4 1910 39,945 47% The Midwest Plaza building recently sold in December of 1994 to a United Properties partnership. The sale price was approximately $25,000,000 or approximately $60 per square foot of rentable area. The Medical Arts Building is owned by Connecticut Mutual Life Insurance. This property, as well as the Foshay Tower and the Southgate Office Building in Bloomington were listed for sale throughout most of 1995. However, after receiving several low offers, the Downtown properties were taken off the market. The Doctor's and Professional Building is currently listed for sale at $2,250,000 or approximately $56 per square foot of rentable area. Block 23 This block is comprised of the TCF Bank, TCF Office Tower and the historic Foshay Tower. A breakdown of the properties' specifics is as follows: Building Stories Age Rentable Occupied % -------------------------------------------------------------------- TCF Bank 17 1980 284,902 72% Foshay Tower 28 1929 163,764 89% - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 40 - -------------------------------------------------------------------------------- <PAGE> NEIGHBORHOOD INFORMATION (continued) - -------------------------------------------------------------------------------- Block 24 Located in the southeast corner of the block is the Piper Jaffray Office Tower containing 725,000 square feet. The property was constructed in 1984 and measures 41 stories in height. The property is currently 98% occupied with quoted net rents ranging from $14.00 to $16.00 per square foot. Anchor tenants include Piper Jaffray, the Popham Haik law firm, and Campbell-Mithun-Esty Advertising. Block 25 This block is comprised of three office towers built between 1984 and 1991. In the northwest corner of the block is the AT&T Tower, constructed in 1991. This 607,300 square foot property is anchored by AT&T which vacated their Edina facility in 1991. The property is currently 91% occupied. Major tenants include AT&T, Aetna, and Fallon McElligot advertising. Quoted net rent is $14.00 per square foot. International Center I and II (now called Kinnard Financial Center) are located in the northeast and southeast corners of the block. These 18 and 22 story buildings were constructed in 1984 and 1988. International Centre I measures 340,877 square feet, and is in condominium by floor ownership. The property is currently 87% occupied. Kinnard Financial Center is located in the southeast corner of the block. This property contains 271,000 square feet and is 17 stories in height. The property is currently 98% occupied. As is evidenced by this composite of applications, the core portion of the Downtown has primarily an office, retailing, and hotel orientation that is centered on the pedestrian traffic generated by the twelve block Nicollet Mall, the office and retail work populace, and the skyway system interlocking all of the major Downtown buildings. Private and public parking is abundant. The City of Minneapolis is the largest single operator controlling over 20,000 parking spaces or roughly 38% of all Downtown parking. Through the Municipal Parking System, the City operates 5,000 parking meters and owns fifteen parking ramps and nine parking lots. Several of the largest ramps include the Third Avenue Distributor Ramps (TAD Ramps) on the west edge of the Downtown and the newly constructed Jerome Haaf Memorial Parking Ramp adjacent to the new Federal Courts Building which is under construction. Several other recent and/or significant developments should also be recognized. First, in 1994, construction began on the new Federal Courts Building in the block bounded by South Third and Fourth Streets on the north and south, and Third and Fourth Avenues South on the east and west. The project consists of a 15-story office building with a one acre landscaped plaza along South Fourth Street. Construction completion is scheduled in the Fourth Quarter of 1996. Second, in late 1994, the Ninth Federal Reserve Bank broke ground on a new office and operations facility to be located on the west side of Hennepin Avenue, just south of the Mississippi River. Following completion, the Bank will vacate their current full-block facility located on Marquette Avenue and relocate to the new building. Their existing facility, which has 237,000 square feet in 11 above-ground floors and an additional 312,000 square feet in three underground floors, was completed in 1973. The building, which suffers from asbestos - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 41 - -------------------------------------------------------------------------------- <PAGE> NEIGHBORHOOD INFORMATION (continued) - -------------------------------------------------------------------------------- contamination, structural deterioration, and mechanical limitations, is currently assessed at $9,000,000. Towle Real Estate has been retained by the Federal Reserve to sell the property. Only closed bid offers will reportedly be accepted. Another significant development affecting the greater Downtown neighborhood is the Minneapolis Convention Center, located eight blocks southeast of the subject property. This project was completed in the Fall of 1990 at a total hard cost of $103,000,000. In addition to the direct costs, $100,000,000 was spent on relocation costs and land acquisition for the five-plus block development. The Convention Center contains close to 750,000 square feet of convention space in three domed adjacent and/or conjoined exhibit halls. Since opening, bookings at the new Convention Center have been very heavy, prompting local government entities to already propose plans for an expansion. The City of Minneapolis is currently working on plans to expand the convention center by an additional 275,000 square feet in an effort to capture more of the "Tradeshow 200" events - the 200 largest tradeshows in the nation. The expansion cost is estimated at $162,000,000. The Governor voted down the expansion in the Spring of 1996. However, the City is determined to expand and the issue will be brought in front of the State Legislature in 1997. The new Minnesota Convention Center Hilton is situated across the street from the convention hall and was designed to complement the new Convention Center. This 24 story, 816 room hotel opened in the Winter of 1992 at a cost of $l40,000,000. To the east of the hotel is a new $50-$60,000,000 parking ramp and public transit facility. This ramp opened in the fall of 1992. Except for questions concerning the continued viability of retailing, Downtown Minneapolis has firmed up its office space situation and is in the midst of experiencing a major rental correction in the owner's/landlord's favor. As a business location, Downtown Minneapolis continues to be the most important commercial center in the region. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 42 - -------------------------------------------------------------------------------- <PAGE> LAND SALES COMPARISON APPROACH - -------------------------------------------------------------------------------- Land value may be estimated through the application of several techniques including the following: o Direct Sales Comparison Approach o Allocation o Extraction o Subdivision Development o Land Residual Technique o Ground Rent Capitalization The most common method of valuing land in this market involves the Direct Sales Comparison Approach. This approach produces an estimate of value by comparing the prices paid, asked and offered in the marketplace on parcels that are as similar as possible to the property being appraised. This approach is considered the most appropriate method of valuation as there are an adequate number of recent land transactions from which a supportable land value estimate can be derived. The most common element of comparison in this market is the price per square foot. Activity among Downtown land parcels has been limited in recent years due to the lack of development opportunities that resulted from the overbuilding of almost every type of commercial property during the late 1980's and early 1990's. The appraisers have analyzed the most recent land sales that have a reasonable proximity to the Downtown core area. The land sales have been outlined and summarized as follows: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 43 - -------------------------------------------------------------------------------- <PAGE> LAND SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- Land Sale Comparable No. 1 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Name: Curtis Ramp Site Location: 930 Fourth Avenue South, Minneapolis, MN Legal Description: SW'ly 135' of Lots 3,4,5, and 6, and SW'ly 135' of the SE'ly 25' of Lot 2, Block 6, Snyder and Cos. First Addition to Minneapolis, Hennepin County, MN Sale Date: December, 1991 Shape/Dimensions: Rectangular, 135' along Fourth Avenue South x 245' along South 10th Street Land Area: 33,075 square feet, or 0.76 acres Block Percentage: 30% Zoning: B4-2, Central Retail District Seller: Colonade Limited Partnership Buyer: LST Properties Sale Price: $1,115,000 ($800,000 purchase price, $240,000 of demolition costs and $75,000 option termination to Kirt Woodhouse) Price/Square Foot: $33.7l - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 44 - -------------------------------------------------------------------------------- <PAGE> Land Sale Comparable No. 1 Sale Terms: Cash Comments: This property is located three blocks east and three blocks south of Gaviidae I in the northwest corner of the South 10th Street and Fourth Avenue South intersection. The property is considered inferior in access and exposure given its distance from the core. This parcel, along with the whole block parcel to the south, were assembled by Colonade Ltd. Partnership (Trammell Crow). The whole block parcel was later sold to IDS for development of a computer operations center. This parcel (The Curtis Ramp Site) previously sold to Colonade Ltd. Partnership for $2,135,000 in April of 1987. This most recent sale price indicates a decrease in value of (48%) since the previous transaction in April, 1987. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 45 - -------------------------------------------------------------------------------- <PAGE> LAND SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- Land Sale Comparable No 2 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Name: Ritz Block Location: 301 Nicollet Mall, Minneapolis, MN Legal Description: PID No. 22-029-24-44-0013, Hennepin County, MN Sale Date: December, 1991 Shape: Square, 330' x 330', on all four street boundaries Land Area: 108,900 square feet, or 2.50 acres Block Percentage: 100% Zoning: B4-1, Central Retail District Seller. The Landmarks Group Buyer: OLAF Properties (OPUS) Sale Price: $4,500,000 Price/Square Foot: $41.32 Sale Terms: Cash Sale - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 46 - -------------------------------------------------------------------------------- <PAGE> Land Sale Comparable No. 2 Comments: This full block parcel is located directly north of Gaviidae I. The property is leased by the City of Minneapolis for the operation of a daily/hourly surface parking lot. The property was purchased by Minneapolis Ritz Associates in December, 1986 for $7,500,000. At the time, the property consisted of a seventeen story, 303 room hotel with an attached 250 car parking ramp. The building improvements were razed in mid-1990. Total demolition costs for the hotel and ramp were reported to be $1,131,160. The combined purchase price and demolition costs thus totaled $8,631,610 for an indicated land value of $79.26 per square foot. This sale indicates a decrease of value of approximately (48%) over the seller's ownership period. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 47 - -------------------------------------------------------------------------------- <PAGE> LAND SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- Land Sale Comparable No. 3 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Name: Marquette Building Location: 400 Marquette Avenue, Minneapolis, MN Legal Description: Lots 8-14, Johnson's Subdivision of Part of Block 80, Hennepin County, Minnesota Sale Date: June, 1992 Shape/Dimensions: Rectangular, 100' along South Fourth Street x 157.15' along Marquette Avenue Land Area: 15,715 square feet, or .36 acres Block Percentage: 14.9% Zoning: B4-2, Central Retail District Seller: Travelers Insurance Company Buyer: LST Properties Sale Price: $990,000 ($700,000 purchase price plus $215,000 for demolition, $15,000 for removal, and $60,000 to buy out a long-term lease) Price/Square Foot: $63.00 Sale Terms: Cash - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 48 - -------------------------------------------------------------------------------- <PAGE> Land Sale Comparable No. 3 Comments: This property is located in the block immediately north of Gaviidae II in southwest corner of South Fourth Street and Marquette Avenue. Although somewhat dated, it illustrates the extreme depreciation Downtown real estate has experienced in the early 1990's. This five-story office building was purchased for demolition and redevelopment as a two-level parking structure. It also sold as improved in November of 1984 for $6,550,000. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 49 - -------------------------------------------------------------------------------- <PAGE> LAND SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- Land Sale Comparable No. 4 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Name: Nicollet Hotel Block Location: 235 Hennepin Avenue, Minneapolis, MN Legal Description: Lengthy, retained in appraisers' files. Sale Date: April, 1993 Shape: Irregular Land Area: 74,378 square feet, or 1.71 acres Block Percentage: 68.3% Zoning: B4-l, Central Retail District Seller: Nicollet Land, Inc. (Chase Manhattan Bank) Buyer: City of Minneapolis Sale Price: $2,500,000 Price/Square Foot: $33.61 Sale Terms: Cash - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 50 - -------------------------------------------------------------------------------- <PAGE> Land Sale Comparable No. 4 Comments: This property is located three blocks north and one block west of Gaviidae II between Nicollet Avenue and Hennepin Avenue, and between Washington Avenue and Third Street South. The sales price included $225,000 that was escrowed by the seller to clean up some limited pollution and provide some new fill. The south half of this block sold in May of 1988 for $2,610,000, or $64.36 per square foot. This indicates a depreciation rate of (9.72%) over the 59 month time period between sales. The lot is currently used for surface parking. The City of Minneapolis bought the site for the future development of a light rail transit commuter station. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 51 - -------------------------------------------------------------------------------- <PAGE> LAND SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- Land Sale Comparable No. 5 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Name: Augsburg Fortress Publishing Block Location: 426 South 5th Street, Minneapolis, MN Legal Description: Lots 2-8, Block 76, Town of Minneapolis, Hennepin County, MN, PID Nos. 26-029-24-22-0017, -0018, -0019 and -0020 Sale Date: The purchase agreement was signed in the Second Quarter of 1996. The closing is scheduled to occur in the Fourth Quarter of 1996. Shape: Irregular, approximately 264 along 5th Street South and 330' along 5th Avenue South Land Area: 71,610 square feet, or 1.64 acres (without vacated alley) Block Percentage: 65.8% Zoning: B4-l, Central Retail District (43% of site) B4C-2, Central Commercial District (57% of site) Seller: Augsburg Fortress Publishing Company Buyer: Hennepin County Sales Price; $8,250,000 Price/Square Foot: $115.21 (w/o demolition) $119.40 (w/ demolition estimated at $300,000) - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 52 - -------------------------------------------------------------------------------- <PAGE> Land Sale Comparable No. 5 Comments: This property is located four blocks east and one block north of Gaviidae II. The property is improved with four older, three and four story structures with a gross building area of 242,000 square feet. The buyer, Hennepin County, owns the remaining three lots in the block. The property was acquired for the new Hennepin County Jail. Although the County ultimately could have condemned the property, the seller was reportedly willing to sell evidencing an arms length transaction. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 53 - -------------------------------------------------------------------------------- <PAGE> LAND SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- Land Sale Comparable No. 6 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Name: The Conservatory Site Location: 800 Nicollet Mall Minneapolis, MN Legal Description: Tracts A, B and E, Registered Land Survey No. 1625, Files of Registrar of Titles, County of Hennepin, State of Minnesota. PID Nos. 27-029-24-12-0012, -0013, and -0015. Sale Date: See comments - purchase option dated May of 1996 Shape: Generally rectangular with 330 feet on the Nicollet Mall Land Area: 52,295 square feet, or 1.64 acres (Per public records) Block Percentage: 48% Zoning: B4-2, Central Retail District Seller: Jacobs Realty II, Inc. Buyer: Ryan Cos. et al Sales Price: See Comments - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 54 - -------------------------------------------------------------------------------- <PAGE> Land Sale Comparable No. 6 Comments: This property is located two blocks south of Gaviidae I on the west side of the Nicollet Mall. The development, which included a vertical specialty center and a historically designated/renovated office building was developed in 1987 at a reported cost of $75,000,000. Since opening, the property struggled enormously. The property has transacted twice in the last five years. In December or 1992, a joint venture of Goldman Sachs & Co. of New York and J.E. Roberts Cos. of Alexandria, Virginia purchased the center from Mellon Bank for $434,000. The complex was purchased as part of a package of distressed real estate from Mellon Bank. In December of 1993, Irwin Jacobs, a local investor purchased the property for $1,500,000. By that time the retail component was approximately 50% occupied with most tenants paying rent based on a percent of gross sales. According to local sources, Ryan entered into a purchase option in May of 1996 whereby they will pay the seller $1 million for a 1/7 interest in the property. Within one year, Ryan has the option of purchasing the remaining 6/7 interest for $9 million. The total value would then be $10 million or $191.22 per square foot. Demolition is estimated at approximately $2,000,000 bringing the total reported price to $12 million or roughly $230 per square foot. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 55 - -------------------------------------------------------------------------------- <PAGE> LAND SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- Land Sale Comparable No.7 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Name: Doctors & Professional Building Location: 82 South 9th Street and 818 Marquette Avenue Minneapolis MN Legal Description: PID Nos 27-029-24-11-0069 and 0070, Hennepin County, MN Sale Date: Current Listing Shape: Irregular, approximately 165' along 9th Street South and approximately 165' along Marquette Avenue Land Area: 22,973 square feet, or 0.527 acres Block Percentage: 21% Zoning: B4-2, Central Retail District Seller: Principal Financial Group Listing Price: $2,900,000 ($2,250,000 plus $650,000 for demo & environmental) Price/Square Foot: $126.24 - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 56 - -------------------------------------------------------------------------------- <PAGE> Land Sale Comparable No.7 Comments: This parcel is located two blocks south of Gaviidae I in the northwest corner of the intersection of 9th Street South and Marquette Avenue. The property is improved with two older, low story structures conjoined as one operating building. The buildings were constructed in 1911 and 1912. Given the age and condition of the improvements, the listing is regarded as a land sale. The seller indicated that the property was first listed at $2,250,000 in October of 1995 and four offers had been received, although none at terms acceptable to the seller. The seller estimates that an additional $650,000 would be required to demolish and remove the out-dated buildings and deal with some minor environmental problems. One of the bidders would operate the property as a surface parking lot. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 57 - -------------------------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> GAVIIDAE I & GAVIIDAE/DAIN BOSWORTH PLAZA VALUATION DATE: JANUARY 1, 1997 DOWNTOWN LAND COMPARABLES - ------------------------------------------------------------------------------------------------------------------------------------ COMP NO. 1 2 3 4 5 6 7 SUBJECT SUBJECT - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> PROPERTY: CURTIS RITZ HOTEL MARQUETTE NICOLLET AUGSBURG CONSERV- DOCTOR'S & GAVIIDAE I GAVIIDAE II RAMP SITE BLOCK BUILDING HOTEL BLOCK FORTRESS ATORY SITE PROF BLDG SAKS DAIN/NEIMAN ADDRESS: 930 301 400 235 426 800 82 601 & 629 501 FOURTH NICOLLET MARQUETTE HENNEPIN SOUTH 5TH NICOLLET SOUTH NINTH NICOLLET NICOLLET AVE. SOUTH MALL AVE. SOUTH AVE. SOUTH STREET MALL STREET MALL MALL INTENDED USE: SURFACE SURFACE SURFACE SURFACE COUNTY OFFICE UNKNOWN RETAIL MIXED USE PARKING PARKING PARKING PARKING JAIL TOWER OFFICE/RETAIL SALE DATE: Dec-91 Dec-91 Jan-92 Apr-93 Dec-96 May-96 CURRENT LISTING LAND AREA - - SQUARE FEET: 33,075 108,900 15,715 74,378 71,610 52,295 22,973 65,635 57,837 - - ACRES: 0.76 2.50 0.36 1.71 1.64 1.20 0.53 1.51 1.33 ZONING: B4-2 B4-1 B4-2 B4-1 B4-1 & B4-2 B4-2 B4-2 B4-2 B4C-2 % OF TYPICAL BLOCK: 30% 100% 14% 68% 66% 48% 21% 60% 53% CASH EQUIVALENT SALE PRICE: $1,115,000 $4,500,000 $990,000 $2,500,000 $8,550,000 $9,000,000 to $2,900,000 $12,000,000 SALE PRICE/SF LAND: $33.71 $41.32 $6300 $33.61 $119.40 $172.10 to $126.24 $229.47 # OF MONTHS TO APPRAISAL DATE: 63 63 57 47 2 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 58 - -------------------------------------------------------------------------------- <PAGE> [GRAPHIC OMITTED] [MAP: DOWNTOWN DISTRICT OF MINNEAPOLIS] <PAGE> [GRAPHIC OMITTED] [MAP] <PAGE> LAND SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- SUMMARY To estimate the value of the Gaviidae I and Gaviidae II land, the appraisers have reviewed both current and historical land transactions as well as recent offerings. It should be noted that the appraisers do not consider Brookfield's purchase of the leased fee estate interest in the Dain Ground Lease to be an arm's length transaction. This lease was struck in 1988 during the peak of the market and since that time, conditions have changed considerably. With the downturn in the office and retail markets in the late 1980's and early 1990's, very few land transactions have occurred in the Downtown core or periphery. Included in this analysis are four older land sales, one current listing in the core, and a purchase option also located in the core. A recap is as follows: - -------------------------------------------------------------------------------- # of Blocks Sale Sale From 100% Land No. Date Property Corner (1) Area-sf Price/sf - -------------------------------------------------------------------------------- 1 Dec. 1991 Curtis Ramp 5 33,075 $33.71 2 Dec.1991 Ritz Block 4 108,900 $41.32 3 June 1992 Marquette Bldg 3 15,715 $63.00 4 April 1993 Nicollet Hotel 4 74,378 $33.61 6 May 1996 Conservatory 0 52,295 $172.10 to $229.47 7 Listing Dr's & Prof. Bldg 1 32,973 $126.24 - -------------------------------------------------------------------------------- (1) Corner of Nicollet Mall & Seventh Avenue South It is difficult to compare several of these sales to the subject given their age and distance from the core. Comparable Nos. 1 through 4 were purchased for interim use parking lot applications. They occurred when the office market was at its lowest point. They are not considered to be fully representative of the subject land's current market value. Undoubtedly, central core land values have increased dramatically as the Class A market has strengthened. As of the Second Quarter 1996, the Class A market is 96.1% occupied. The overall Downtown market is 90.5% occupied, the highest level since Towle began its survey in 1983. As a result, the question is not 'when will a new office tower be built', but 'where will the new office tower(s) be built.' Three developers; Ryan, Opus and Brookfield LePage are in the process of securing anchor tenants for their next development. In addition, plans for Phase II of the Metropolitan Centre are in process. In contrast to the prices paid for land parcels during the early 1990's, average Downtown land sites were selling well above $100 per square foot during the mid-to late 1980's. For example, the First Bank Place office tower located at South Sixth Street and Second Avenue South was completed in 1992 and constructed on a 1.56 acre land parcel that was assembled for $16,820,000, or $248.15 per square foot. This land parcel assemblage occurred in the late 1970's and represents the peak price paid for land Downtown in an arms-length transaction. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 60 - -------------------------------------------------------------------------------- <PAGE> LAND SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- SUMMARY (continued) The Metropolitan Centre office tower located at Fourth Avenue South and South Seventh Street was purchased for $19,238,163, or $176.66 per square foot in January of 1985. This parcel is 2.50 acres, or 108,900 square feet which represents a full Downtown city block. The east half of this parcel was developed in 1987 and there are currently preliminary plans for the construction of the second office tower on the remaining half of the block. A one-half acre parcel located at South Fifth Street and Fourth Avenue South was purchased in October of 1990 for $2,687,187, or $123.38 per square foot. This parcel was purchased for the development of a combination new drive-in bank and parking ramp. These land sales demonstrate the prices that were paid in the Downtown area for viable development opportunities when the market was considered to be on the up trend and both anchor and small tenant rental rates were at levels that could support the cost of new construction. As the market is now at or near this same level of feasibility, it is reasonable to place some weight on these older sales. Also, there is no shortage of potential development sites in Downtown Minneapolis, and the probable locations for the next generation of office tower construction is easily recognizable. Between 1990 and 1992 the Class A competitive office market increased 32% from 9,600,000 square feet to 12,700,000 square feet with the completion of four new office towers. This resulted in an all-time high vacancy rate of 22.6% in the second quarter of 1992. However, since that time over 3,190,000 square feet of space has been absorbed. According to Towle Real Estate, overall vacancy is 9.4% as of the Second Quarter of 1996. Class A vacancy is at an all time low of 3.8%. Two building sales have occurred in Downtown Minneapolis within the past several years that could be viewed as being purchased for land value primarily. The first is the Physicians and Surgeons Building located at 59 South Ninth Street, three blocks south of Gaviidae I and facing Nicollet Mall. It was built in 1910/1915 with reinforced concrete construction and was considered to be in poor to fair condition at the time of sale. This building sold in January of 1994 for $980,000. The estimated demolition costs were $676,000 indicating a total price of $1,656,000, or $79.10 per square foot of land area. As of the appraisal date, this sale is over three years old and a much higher price would be expected today. The second building sale is the Rand Tower located at South Fifth Street and Marquette Avenue, two blocks east of the subject. It was built during the late 1800s/early 1900s and sold in December of 1993. The property was approximately 50% occupied at the time of sale and suffers from functional obsolescence due to its small floor plates. It sold for $3,003,250 with favorable financing. Based on a cash equivalent price of $2,900,000 or approximately $170 per square foot of land area. Clearly, the buyer attributed some value to the improvements. However, it is likely that a majority of the value was comprised in the underlying land value as the building required substantial modernization. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 61 - -------------------------------------------------------------------------------- <PAGE> LAND SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- SUMMARY (continued) The subject land parcels, and particularly the Gaviidae I parcel, are well located given their adjacency to the Nicollet Mall and its focus at the center core of Downtown Minneapolis. Gaviidae I is located in the northeast quadrant of South 7th Street and the Nicollet Mall; the 100% corner. Neighboring uses include the IDS Center, City Center and the Dayton's Department Store. It is likely that the Dain Plaza/Gaviidae II property would have a lower value than the Gaviidae I parcel as land values tend to moderate from this corner as a function of distance. The Gaviidae I parcel would clearly be considered one of the premier development sites in Downtown Minneapolis. A market value of $200 per square foot is considered reasonable for this site. Support for this is available in reviewing the Ryan purchase offer on the Conservatory site just two blocks to the south. The Dain/Gaviidae II parcel would be worth slightly less given its more removed distance from the South Seventh Street and Nicollet Mall corner. Furthermore, both office and retail development essentially end at South Fifth Street which forms the subject's northern border. A value of approximately $150 per square foot would be considered reasonable for the Gaviidae II parcel. These land value estimates are clearly higher than some of the most recent land sales. However, they are considered to be appropriate given the upturn in the office market and the properties' premier location in the Downtown area. It should be noted that the 1997 assessed land value for Gaviidae I and Gaviidae II are $200 and $140 per square foot, respectively. The land parcels can now be valued as follows: ================================================================================ Gaviidae I Estimated Indicated Land Area - SF x Value/SF = Value ------------------------------------------------------- 65,635 x $200 = $13,127,000 Estimated Market Value of the Subject Land - rounded to, $l3,000,000 =========== ================================================================================ ================================================================================ Dain Plaza/Gaviidae II Estimated Indicated Land Area - SF x Value/SF = Value -------------- - -------- - ----- 57,837 x $150 = $8,675,550 Estimated Market Value of the Subject Land - rounded to, $8,675,000 ========== ================================================================================ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 62 - -------------------------------------------------------------------------------- <PAGE> ================================================================================ DAIN PLAZA & GAVIIDAE II ================================================================================ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 63 - -------------------------------------------------------------------------------- <PAGE> [GRAPHIC OMITTED] [PHOTO] <PAGE> SUMMARY OF SALIENT FACTS AND CONCLUSIONS - -------------------------------------------------------------------------------- The Property: Dain Plaza & Gaviidae II Downtown Minneapolis, Minnesota Valuation Date: March 1, 1997 Dates of Inspection: February 18, 1997 as well as numerous times before and after Land Area: 57,837 square feet, or 1.33 acres Percent of Typical Downtown Block: 53% (typical Downtown block contains 108,900 sf) Floor Area Ratio: 18.5 to 1 (rentable area including gross parking ramp area/land area-square feet) Building Areas: ------------------------------------------------ GBA-sf RA-sf GLA-sf ------------------------------------------------ Dain Plaza 683,807 592,953 0 Neiman Marcus 119,271 0 119,271 Gaviidae II 264,311 0 69,593 ------------------------------------------------ Totals 1,067,389 592,953 188,864 ------------------------------------------------ Flood Zone Designation: Zone C, Areas of Minimal Flooding Community Panel Number: 270172-0006 B Census Tract Number: 46 Zoning: B4-2, Central Retail District Tenant Composite: DAIN PLAZA - -------------------------------------------------------------------------------- Expiration Term Major Tenants Area-sf % of RA Date Remaining-Yrs - -------------------------------------------------------------------------------- Inter-Regional Financial 207,262 35.0% 12/01/06 9.75 Decision Systems, Inc. 38,518 6.5% 12/15/00 3.79 Martin Williams 57,653 9.7% 11/30/04 7.75 Marquette Bancshares 43,064 7.3% 5/06/02 5.18 - -------------------------------------------------------------------------------- Total Anchor Tenants 346,497 511.4% Other non-anchor tenants 208,753 35.2% Vacant Area 37,703 6.4% - -------------------------------------------------------------------------------- Total Rentable 592,953 100.0% - -------------------------------------------------------------------------------- GAVIIDAE II - ------------------------------------------------------------------------------- % of Expiration Remain. Major Tenants Area-sf GLA Date Term-Yrs - ------------------------------------------------------------------------------- Neiman Marcus 119,271 63.2% 1/2004 7.08 - ------------------------------------------------------------------------------- Total Anchors 119,271 63.2% % Occupied Vacant Vacant ------------------------------------- Food Court 12,031 6.4% 5,561 6,470 53.8% In-Line Retail 57,562 30.5% 39,153 18,409 32.0% - -------------------------------------------------------------------------------- Totals 188,864 100.0% 24,879 13.2% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 65 - -------------------------------------------------------------------------------- <PAGE> SUMMARY OF SALIENT FACTS AND CONCLUSIONS (continued) - -------------------------------------------------------------------------------- Year Built: 1989-1992 (initial occupancy in late 1991 and early 1992) Value Indications: Estimated Market Value Of the Land: $ 8,675,000 ($150/sf of total area as rounded) Estimated Market Value of the Subject Property by the Cost Approach: $96,000,000 Estimated Market Value of the Subject Property by the Sales Comparison Approach: Office Tower Only: $85,000,000 ($143/sf of RA, as rounded) Estimated Market Value of the Subject Property by the Income Approach: Office Tower: $86,000,000 ($145/sf of RA, as rounded) Retail/parking: $0 ================================================================================ Final Value Estimate $86,000,000 ================================================================================ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 66 - -------------------------------------------------------------------------------- <PAGE> ================================================================================ PRESENTATION OF DATA ================================================================================ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 67 - -------------------------------------------------------------------------------- <PAGE> IDENTIFICATION OF THE PROPERTY - -------------------------------------------------------------------------------- Dain Plaza/Gaviidae II is a mixed-use office and retail development located in the Downtown core of Minneapolis, Minnesota. The property consists of a 40-story, 592,953 rentable square foot Class A office tower, a 119,271 square foot department store occupied by Neiman Marcus, and a 69,593 square foot, four level, vertical retail mall. Three subterranean levels provide for off street parking and a central loading dock serving the tower and retail components. There is available valet only parking for 210 vehicles. The office portion, or Dain Plaza, is named after the anchor tenant, Dain Bosworth, a regional brokerage and investment banking firm operating under their parent, Inter-Regional Financial (IFG). IFG is one of the largest regional brokerage and investment banking companies in the United States. IFG is publicly traded on the New York Stock Exchange and has a market capitalization of $500,000,000. The tenant occupies 207,062 square feet or 35% of the tower's rentable area. The specialty retail portion is referred to as Gaviidae II. There are 18 tenants in this high quality retail center. The Neiman Marcus department store (119,271 sf) anchors the specialty retail component on the north end of the development. The development is situated on a 57,837 square foot land parcel in the Minneapolis Central Business District. The property is located at the intersection of South 6th Street and the Nicollet Mall, one block north of the 100% corner, Downtown's most central core intersection. The property was constructed between 1990 and 1992 with initial occupancy in the Fourth Quarter of 1991. The property is skyway linked on the second and fourth floors with the Gaviidae I development located immediately to the south, across South Sixth Street. Other skyways connect the subject with the F&M Building, the 510 Marquette Building, and the Nicollet Center. The property is located within two blocks of several major retail developments including City Center and the Dayton's Department Store. LEGAL DESCRIPTION - -------------------------------------------------------------------------------- According to information provided by the owner, the subject property, which is located in Hennepin County, Minnesota, is legally identified as follows: Parcel 1: Lots 1, 2, 9 and 10, and the Northwesterly 23 feet (front and rear) of Lots 3 and 8, all in Block 87, Town of Minneapolis (now City of Minneapolis); also the Northwesterly 1/2 of the alley running through the center of said Block 87, from 5th Street to 6th Street (being streets in the City of Minneapolis), the Northwesterly boundary line of which alley is parallel to and 23 feet Southeasterly from the Northwesterly line of said Lots 3 and 8, in said Block 87; it being intended hereby to embrace the Northwesterly1/2of said Block 87. Abstract Property. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 68 - -------------------------------------------------------------------------------- <PAGE> LEGAL DESCRIPTION (continued) - -------------------------------------------------------------------------------- Parcel 2: The Northwesterly 10 feet of the following described property: All that part of Block 87 in the original town of Minneapolis (now a part of the City of Minneapolis) bounded and described as follows, to-wit: Commencing at the most Easterly corner of said Block 87 being the corner formed by the intersection of the Southwesterly boundary line of Fifth Street with the Northwesterly boundary line on First Avenue South (now Marquette Avenue and formerly Minnetonka Street) in the City of Minneapolis; thence running Southwesterly along the line dividing said Marquette Avenue from said Block 87 a distance of 165 feet, more or less, to an intersection with a line drawn through the center of said Block 87 parallel with and equally distant from the Northeasterly boundary line of Sixth Street and the Southwesterly boundary line of Fifth Street; thence running Northwesterly along said line drawn through the center of Block 87 a distance of 165 feet; thence Northeasterly and parallel with the said Northwesterly boundary line of said Marquette Avenue a distance of 165 feet, more or less, to the Southwesterly boundary line of Fifth Street at a distance of 165 feet Northwesterly from the Northeasterly corner of said Block 87; thence Southeasterly along said line dividing said Fifth Street from said Block 87 a distance of 165 feet to the point of beginning, according to the plat thereof on file and of record in the office of the County Recorder, in and for Hennepin County, Minnesota. Abstract Property. Parcel 3: The Northwesterly 10 feet of the Southeasterly Half (SE'ly 1/2) front and rear of Lot Three (3), Block Eighty-seven (87), Town of Minneapolis, and the Southwesterly Half (SW'ly 1/2) front and rear of the Southeasterly Half (SE'ly 1/2) front and rear of the vacated alley in said block, according to the recorded plat thereof, and situated in Hennepin County, Minnesota. Being registered land as is evidenced by Certificate of Title No.82330. Together with appurtenant easements and rights and subject to easements, rights, restrictions and reservations burdening said real estate, all of record. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 69 - -------------------------------------------------------------------------------- <PAGE> PLAT MAP The following plat map has been included for visual reference. ================================================================================ [GRAPHIC OMITTED] ================================================================================ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 70 - -------------------------------------------------------------------------------- <PAGE> REAL ESTATE TAXES - -------------------------------------------------------------------------------- The subject property's tax code identification number PID) is 22-029-24-40-0059. The property is assessed by the Minneapolis Assessor in the name of DB Holdings, Incorporated. This is reportedly a Brookfield LePage related company. The property is taxed on an ad valorem or property value basis. A historical outline of the subject property's assessed values and taxes payable are as follows: <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------- ASSESSOR'S ESTIMATED LAND BUILDING TOTAL VALUE/ SUBSEQUENT TAX/SF EFF. TAX MARKET VALUE AS OF VALUE + VALUE = VALUE SF (2) YEAR'S TAX (2) RATE - ---------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> JANUARY 2, 1991 $11,550,000 $29,450,000 $41,000,000 $52.44 JANUARY 2, 1992 $9,530,000 $50,470,000 $60,000,000 $76.74 $3,783,697 $4.84 6.31% JANUARY 2, 1993 $8,375,000 $59,425,000 $67,800,000 $86.72 $4,341,948 $5.55 6.40% JANUARY 2, 1994 $7,220,000 $60,580,000 $67,800,000 $86.72 $4,489,788 $5.74 6.62% JANUARY 2, 1995 $7,220,000 $60,580,000 $67,800,000 $86.72 $4,563,091 $5.84 6.73% JANUARY 2, 1996 $7,220,000 $75,280,000 $82,500,000 $105.52 $5,425,226 $6.94 6.58% JANUARY 2, 1997(1) $7,550,000 $74,950,000 $82,500,000 $105.52 - ---------------------------------------------------------------------------------------------------- </TABLE> SOURCE: HENNEPIN COUNTY ASSESSOR'S OFFICE PID NO. 22-029-24-44-0059 (1) AEMV Subject to change . final posting in March, 1997 (2) Combined rentable/leasable area of 781,817 square feet Office rentable area: 592.953 sf Retail gross leasable area: 188,864 sf - -------------------------------------------------------------------------------- With an improving office market, the subject's assessed value increased 21.7% between 1995 and 1996. This is below an average 27% value increase experienced among the other top 14 Class A properties over the same time period. Real Estate Taxes will be discussed in greater detail in the Income Approach section of this report. It should be noted that in Minnesota, real estate taxes are paid in the year following the assessment date. For example, the 1997 payable taxes are based on the Assessor's Estimated Market Value as of January 2, 1996. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 71 - -------------------------------------------------------------------------------- <PAGE> SPECIAL ASSESSMENTS - -------------------------------------------------------------------------------- The subject property is subject to four special assessments. Two of the assessments are for Nicollet Mall related capital improvements and two are for the maintenance of the Nicollet Mall. It should be noted that the Nicollet Mall Service Charge Assessment is not based on a declining principal payoff. Rather, the charge is based in part on the value of the commercial real estate in the Nicollet Mall area. According to the Minneapolis Department of Assessments, the charge is recalculated every year and allocated to all properties, on an ad valorem basis, within the Nicollet Mall benefit area. The Nicollet Mall Maintenance Fee represents the on-going cost to maintain the Nicollet Mall. The subject's 1997 assessment is $59,212.05. This figure is calculated each year and allocated to all properties within the same benefit area. A breakdown of the special assessment payoff schedule is included in the Addenda of this report. A summary is offered below: ------------------ GRAND TOTAL SPECIAL ASSESSMENT PER YEAR ------------------ YEAR $ 1979 $24.884.93 1980 $24.856.41 1981 $24,827.90 1982 $24,799.38 1983 $24,770.87 1984 $24,742.35 1985 $24,713.83 1986 $24,685.32 1987 $24.656.80 1988 $24,628.28 1989 $24,599.77 1990 $70,597.32 1991 $70,568.81 1992 $70,540.29 1993 $70,511.77 1994 $70,483.26 1995 $70,454.74 1996 $70,426.22 1997 $129,609.76 1998 $130,173.36 1999 $106,428.28 2000 $107,032.30 2001 $107,642.37 2002 $108,258.53 2003 $108,880.85 2004 $109,509.40 2005 $110,144.24 2006 $110,785.42 2007 $111,433.01 2008 $112,087.08 2009 $112,747.69 2010 $67,388.84 2011 $68,062.72 ------------------ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 72 - -------------------------------------------------------------------------------- <PAGE> DESCRIPTION OF THE LAND - -------------------------------------------------------------------------------- The Gaviidae II site is a rectangular land parcel Occupying the west/northwest most +/-60% of one of the clearly defined core blocks of Downtown Minneapolis. This places the subject land at the corners of South Fifth and Sixth Streets and Nicollet Mall. As most Downtown blocks are uniform at 330' x 330' (10 lots each at 165' x 66' = 108,900 square feet, or 2.5 acres), the Gaviidae II site comprises approximately 57,837 square feet, or 1.33 acres. According to a survey dated August 28, 1991 (revised 1/18/94), by John Coulter Peterson, Minnesota Registered Land Surveyor No.13792, the parcel has a frontage of 330.47 feet along Nicollet Mall running to depths of 175.0 feet east/northeastward along both South Fifth and Sixth Streets. These measurements give the subject parcel a total street frontage of 680 lineal feet. A reduced survey is included in the Addenda of this report. This outstanding specific location places the subject tract cater-corner to the northeast from the main entrance to the City Center at its South Sixth Street corner, and directly north of the Gaviidae I/Norwest Center block. Developments directly west across Nicollet Mall from the Gaviidae II are in mixed uses with an old, and small three story commercial building occupying the South Sixth Street corner, and the Baker Center and NSP/Renaissance Center making up the rest of the Nicollet Mall frontage proceeding north. The block directly to the north of the subject land is comprised in a half block open parking lot, a two-story McDonald's restaurant building, the Nicollet Parkade parking ramp, and the two-level Allied parking deck. The subject is bordered mid-block on the east by two major office properties, the 11 story, 510 Marquette Building and the First Bank/Marquette Building (former F & M Bank). As such, the subject ground benefits from the potential for direct skyway access on all four of its sides. This strategic position then is clearly in the heart of the Downtown neighborhood. The Gaviidae II parcel is flat and at the grade of its border streets. The subject improvements cover virtually 100% of the land surface. The parcel is bounded by sidewalks on its three street sides. These sidewalks are partly overhung by canopies and awnings on the Gaviidae II building. Traffic flows by the site are One-way west bound on South Fifth Street, one-way east bound on South Sixth Street, and two-way north/south bound on Nicollet Mall. All vehicle access onto the subject land and its underground garage and loading facilities is by way of a wide curb cut off of South Fifth Street at the subject parcel's mid-block boundary with the 510 Marquette site. Nicollet Mall follows a serpentine route through the Downtown core and is designed as a pedestrian promenade with motorized traffic restricted to public transportation and safety vehicles only. As Nicollet Mall passes by Gaviidae II, the curve of its two lanes is westward resulting in the sidewalk space on the subject's side to be on the wider side of the Mall. This means that properties like the subject with street level retail spaces along Nicollet Mall that are also on the wider side of the route, a better potential exists for a sidewalk cafe or other tenants that have a need for occasional outdoor retailing. Public sidewalk widths on South Fifth and Sixth Streets are roughly 10'. The most recent traffic flows (1995) past Gaviidae II on South Fifth and Sixth Streets are approximately 12,200 and 15,700 vehicles per day respectively. Specialty Mall improvements along the subject's frontage include tree plantings and a large fountain near the mid-block point. The Gaviidae I land parcel conforms very well as to shape, size and location/position for supporting a major landmark Downtown development. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 73 - -------------------------------------------------------------------------------- <PAGE> DESCRIPTION OF THE IMPROVEMENTS - -------------------------------------------------------------------------------- The subject improvements consist of four distinct components; a 40 story office tower, a four level specialty retail center, a four story anchor department store, and a three level, subterranean parking ramp/loading dock. The improvements were constructed in 1991-1992. The property is of Class B construction. The primary characteristic of a Class B building is a reinforced concrete frame in which columns and beams can be either formed or precast concrete. Class B buildings are considered fire resistant structures. It should be noted that this descriptive section is intended to be a brief overview of the project specifics. The appraisers acknowledge that, given the size of the development, a more detailed description could be made on each of the separate components. More specific information in the form of building plans and specifications are available from Brookfield LePage. Project Designer & Architect: Lohan Associates, 225 North Michigan Avenue, Suite 800, Chicago, 60601 General Contractor: Kraus Anderson/PCL (Joint venture) Height: The office portion is 40 stories plus mechanical penthouse. The retail area is four stories with three levels of subterranean parking. Story heights are as follows: ------------------------------ Story Floor Height-ft ------------------------------ 40 14.67 20-39 12.67 16-19 13.17 15 (Dain trading floor) 17.75 11-12 13.17 7-10 12.67 5 & 6 (mech) 17.00 4-retail 16.00 3-retail 16.00 2-retail 16.00 1-retail 18.50 ------------------------------ Total Above Grade 530.08 Average - office 12.99 LL1 - parking 13.97 LL2 - parking 10.00 LL3 - parking/loading 10.00 ------------------------------ Total Below Grade 33.97 ------------------------------ Rentable Area: 592,953 square feet in 33 office floors. Floors 1, 2, 3, and 4 represent the retail portion of Gaviidae II/Neiman Marcus. The 5th and 6th floors, which are actually only one floor with an above standard ceiling height, house the building's mechanical equipment. The first floor of office space begins on the 7th floor. There is no 13th floor. Floorplates range from 13,681 to 19,832 square feet of rentable area with an average of 17,968 square feet. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 74 - -------------------------------------------------------------------------------- <PAGE> DESCRIPTION OF THE IMPROVEMENTS (continued) - -------------------------------------------------------------------------------- Gross Leasable Area: 188,864 square feet including 119,271 square feet of anchor department store area and 69,953 square feet of combined specialty retail and food court. Gross Building Area: 1,067,389 square feet based on the following: ------------------------------------------------ GBA-sf RA-sf GLA-sf ------------------------------------------------ Dain Bosworth Plaza 683,807 592,953 0 Neiman Marcus 119,321 0 119,271 Gaviidae II 264,261 0 69,593 ------------------------------------------------ Totals 1,067,389 592,953 188,864 ------------------------------------------------ Foundation: Poured concrete foundation wall over caissons and concrete spread footings. Frame: The floor and roof slab for both the office and retail components consists of a wide module pan and joist concrete slab supported by concrete beams and columns. Lateral load resistance is provided by a concrete shear wall stair and elevator core. Exterior Wall: Gaviidae II has an 8' concrete block exterior wall with several feature veneer panels of including glazed marble, limestone and polished granite. The Tower has a reflective spandrel glass exterior curtain wall (silver and green) supported in an extruded aluminum frame. Floor: 6" poured in place concrete slab supported by steel joists. Office floors are designed to support a live load of 80 pounds per square foot with a partition load of 20 pounds per square foot. Office corridors are designed for 75 pounds per square foot. Ceilings: Office - Ceiling finishes vary throughout the tower. Several tenants have sheetrock ceilings in portions of their space, particularly in the lobby area. The 26th floor occupied by Martin Williams has an exposed ceiling. The building standard ceiling is a 2' x 2' revealed edge acoustical tile in a laser leveled grid suspension system. This ceiling tile system is located throughout the common area hallways. Restroom and elevator lobby area ceilings are sheetrocked, taped and painted. Retail - The retail common area ceilings are sheetrocked, taped and painted. Most of the retail stores, including Neiman Marcus, have a similar ceiling finish. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 75 - -------------------------------------------------------------------------------- <PAGE> DESCRIPTION OF THE IMPROVEMENTS (continued) - -------------------------------------------------------------------------------- Lighting: Office - Lighting is provided by deep cell parabolic lens fixtures with T-8 diameter U-bent fluorescent tubes (2 lights per fixture). This fixture is the building standard and is found throughout the common area hallways. Incandescent fixtures are used in the main building entrance, elevator lobbies Retail - Primarily incandescent lighting or track lighting. Parking - High pressure sodium vapor. HVAC: The entire property is served by a variable air volume (VAV) heating and cooling system. Both steam and chilled water are purchased from the City of Minneapolis. For the office component both heating and cooling is provided by the VAV system. For the retail component, heat is provided by a perimeter radiant hot water system. Cooling and make up air are provided by individual fan coil units (forced air) which are served by chilled water. Energy Management System: Automation, temperature control and fire alarm are managed and controlled by a Honeywell DeltaNet Graphic Central Building Management System. The management System is housed at the IDS Central Operations Center. This PC system features an intuitive graphic operative interface which provides historical trend data, curve plotting and charting, and report generation. Life Safety System: The development is frilly sprinkled for fire protection. Fire suppression elements include pressurized stairwell, smoke detection system, duct smoke detection, automated smoke evacuation, and automatic elevator recall. The underground parking garage and the loading dock area have a dry sprinkling system due to the potential for freezing. In addition to the base building fire sprinkling and suppression system, several tenants including Dain Bosworth and Decision Systems, Inc. have a Halon fire suppression system in their telephone switching and computer rooms. Emergency Power: The subject has two diesel powered Caterpillar (Model #3508) back-up generators located on the fifth floor. Each generator produces 1,456 horsepower and generates 1,000 Kilowatts of standby. In case of a power failure or interruption, one generator will supply power to the smoke exhausts, emergency lighting, pressurization fans for stairwell fire control and fire pumps. The generator will also service the Dain Bosworth main computer system. A 3,000 gallon diesel storage tank is located on the concourse level. According to the operations manager, the tank is divided into 1,500 gallon increments. It is reported that 1,500 gallons is stored on site for the neighboring F&M Building (formerly the Marquette Bank Building) with the balance retained for the subject property and Gaviidae I. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 76 - -------------------------------------------------------------------------------- <PAGE> DESCRIPTION OF THE IMPROVEMENTS (continued) - -------------------------------------------------------------------------------- Card Access System: The subject development is improved with a PC driven Honeywell Line-Net Card Access Security System. The system will support 13,000 card users. The cards are given to all building tenants for after hours access to the building and elevators. The system allows for tenants to "piggy back" or expand on the base building system for a private card access system. According to the operations manager, all full floor tenants at the subject have an individual system. The system allows for detailed reporting on a system or individual office subscriber basis. Roof Structure: The roof consists of a Firestone single ply rubber membrane water barrier. Portions of the lower roofs and roof set back areas are adhered and ballast is provided by sheet insulation and interlocking pavers. An aggregate ballast is used for adhered portions. The office tower roof has a 15 year warranty which commenced August 19, 1991. The lower setback roofs and the retail roof have a 10 year warranty. Elevators & Escalators: The office tower has a low and high rise bank of elevators. Six elevators serve the low rise floors from ground level to the 24th floor and six elevators serve the high rise floors from the 24th to 40th floors. The retail area has two escalators per floor (one up, one down). A breakdown is as follows: <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------- Unit Floors Capacity Speed # Area Type Served/stops Make lbs FPM - --------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> 1-8 Retail 48" Escalators LLl, G,2,3,4 0 & K -- 100 l-6 low Rise Office Gearless Passenger Elevator G, 7-24 Dover 3.500 1,000 7-12 High Rise Office Gearless Passenger Elevator G, 24-40 Dover 3,500 1,000 13 Office Service Gearless Service LL2, 4-40, PH Dover 5,000 500 l4-15 Retail Service Geared Service LL2, LLl, G-4 Dover 3,500 350 20 Feature Retail Geared Observation Elevator LLl, G,2,3,4 Dover 3.500 350 - --------------------------------------------------------------------------------------------- </TABLE> In addition, Neiman Marcus has two escalators per floor, two passenger elevators and a freight elevator. Internal Stairways: The office tower has four private (internal) stairways. Martin Williams has internal stairways connecting the 27th and 28th floors and the 28th and 29th floors. Decision Systems, Inc., has a stairway connecting the 22nd and 23rd floors. Intern-Regional Financial has an internal stairway connecting the 18th and 19th floors. According to the property manager, the cost to install a single stairway ranges from $50,000 to $75,000 depending upon the size of the Opening. Electrical: Siemens buss duct riser system provides power to all building areas. Northern States Power (NSP) services the property with a 13,800 volt, 3 phase redundant power supply. This supply is converted to 480 volt service and then to 120 volt service at each floor. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 77 - -------------------------------------------------------------------------------- <PAGE> DESCRIPTION OF THE IMPROVEMENTS (continued) - -------------------------------------------------------------------------------- Restrooms: Office - Each floor has a separate restroom for men and women. The restroom finish includes marble floors and vanities, vinyl wallcovering and a sheetrock ceiling. Each men's room consists of three toilets, two urinals and three sinks. Each women's room consists of four toilets and three sinks. Hot water is provided by a recirculating system with an electric hot water heater serving every five floors. Other features include courtesy electrical outlets. Retail - Public restrooms are located on the concourse level (men's and women's), level three (women's) and level four (men's). Neiman Marcus also has public restrooms. Doors: All interior doors are 9-0" Sapeli solid core wood doors in a 1.5" hollow metal door frame. Some office door frames have side lights. Flooring: Retail - Floor finishes vary throughout the development. However, in the retail common area they are predominantly floor stone tile and terrazzo. The Tenant Design Criteria information provided by the owner indicates that the lower level, first and second floors consist of a field of varied colored terrazzo's with inserts of "Breche Damaschata" and "Rosso Levanto" and a border of green medium Verde "T" stone tile. All floor stone tiles are 3/8" nominal thickness and thinset. Floors three and portions of four are carpeted with a border of green medium verde "T" stone tile. The food court area has a tile floor. Office - Typically office floors are finished with a commercial grade carpet with either a wood or carpet trim base. The main lobby is finished with terrazzo. Walls: The building standard calls for 5/8" sheetrock walls. All walls are either painted or wallpapered. Features: The subject property has a very unique water feature positioned on the north end the retail atrium. According to the property manager, the exhibit was the first upward flowing water feature in the world. Unlike water features which are controlled by gravity, this computer controlled attraction directs concentrated streams of water (laminar flow) skyward to a ladder of pools. Each stream is lit by fiber Optics. From a pool on the street level, three streams flow upward to the skyway level of the center. Two streams flow up to the third floor. On the third floor, two steady streams flow up and form an arch 14' above the pedestrian walkway. A single stream rises up to and through a slot in the ceiling where it disappears amidst floating, lighted bubbles on the fourth floor pool. The system moves approximately 800 gallons of water per minute with a 52' vertical rise from top to bottom. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 78 - -------------------------------------------------------------------------------- <PAGE> DESCRIPTION OF THE IMPROVEMENTS (continued) - -------------------------------------------------------------------------------- Hazardous: The building was completed in 1992 and no known hazardous substances are present in the building including asbestos. Overview: The specialty retail or mall area is comprised of one below grade and four above grade floors of retail shops peripheral to a frill central atrium. The retail center is generally occupied by upscale retailers. The food court is located on the fourth floor and includes eight food tenants. The retail area serves as the common link or hub between the department store and office applications. Access to the first floor or from floor to floor is provided by six escalators in the atrium retail area. Two other escalators service the lower level and first floor. A single enclosed glass observation elevator which serves all retail levels is located on the south side of the central atrium. The main skyway system, which connects with the neighboring buildings, is located on the second floor of the retail area. In addition, the subject is skyway linked on the fourth floor to the Saks Fifth Avenue/Gaviidae I development. The office building is not directly linked to the skyway system. All access to the office building is gained at the first floor lobby. Morton's Steakhouse restaurant has an interior and exterior entrance. The interior entrance is located in the southwest corner of the lower level retail area. Exterior access is located on South Sixth Street near the main entrance to the office tower. Several retail tenants, including Talbot's and Cole Haan have exterior entrances off the Nicollet Mall as well as interior entrances to the mall. Overall, the office and retail components are in excellent condition. For visual reference, several reduced plans have been included. The first is the development stacking plan. This is followed by the retail floor plans. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 79 - -------------------------------------------------------------------------------- <PAGE> DAIN BOSWORTH PLAZA LEASING PROGRESS SUMMARY - OFFICE JANUARY 31, 1997 FLOOR LEASED VACANT TOTAL ----- ------ ------ ----- Marquette Bank 40 13,681 0 13,681 Marquette Bank 39 13,681 0 13.681 Marquette Bank 38 14,788 0 14,788 Marquette Bank, Woodland, Grossman 37 10,016 4,772 14,788 Goldstein, Executive Speaking, Wilshire 36 8,744 6,044 14,788 Cora Group, SAP America 35 14,318 470 14,788 Reden & Anders 34 12,952 1,836 14,788 Fish & Richardson 33 16,114 0 16,114 Storage Technology, SAS Inst. 32 12,189 3,925 16,114 NPMB Dr. Joel Brown. Winthrop 31 13,067 4,922 17,989 Winthrop 30 17,989 0 17,989 Martin/Williams 29 17,989 0 17,989 Martin/Williams 28 19,832 0 19,832 Martin/Williams 27 19,832 0 19,832 Martin/Williams 26 19,216 0 19,832 ATI Title Co., Mitchell Hutchins, Whitecliff 25 15,044 4,172 19,21? AIG, Jacobs, Blair Television 24 13,288 5,928 19,21? DSI 23 19,259 0 19,259 DSI 22 19,259 0 19,259 Korridor, Dahlen, Berg, Selmer, IRI 21 13,452 5,807 19,259 DAIN/IFG, Firstaff 20 19,022 237 19,259 DAIN/IFG 19 19,259 0 19,259 DAIN/IFG 18 19,259 0 19,259 DAIN/IFG 17 19,259 0 19,259 DAIN/IFG 16 19,259 0 19,259 DAIN/IFG 15 19,259 0 19,259 DAIN/IFG 14 19,259 0 19,259 DAIN/IFG 12 19,259 0 19,259 DAIN/IFG 11 19,259 0 19,259 DAIN/IFG 10 19,259 0 19,259 Radio 100, DAIN/IFG 9 18,696 563 19,259 DAIN/IFG 8 19,259 0 19,259 DAIN/IFG, ARO, IMPARK 7 19,259 0 19,259 ----------------------------- 554,277 38,676 592,952 <PAGE> [GRAPHIC OMITTED] [FLOOR PLAN GAVIIDAE COMMON: LOWER LEVEL THREE] <PAGE> [GRAPHIC OMITTED] [FLOOR PLAN GAVIIDAE COMMON: LOWER LEVEL TWO] <PAGE> [GRAPHIC OMITTED] [FLOOR PLAN GAVIIDAE COMMON: CONCOURSE TWO] <PAGE> [GRAPHIC OMITTED] [FLOOR PLAN GAVIIDAE COMMON: STREET LEVEL] <PAGE> [GRAPHIC OMITTED] [FLOOR PLAN GAVIIDAE COMMON: SKYWAY LEVEL] <PAGE> [GRAPHIC OMITTED] [FLOOR PLAN GAVIIDAE COMMON: LEVEL THREE] <PAGE> [GRAPHIC OMITTED] [FLOOR PLAN GAVIIDAE COMMON: LEVEL FOUR] <PAGE> DESCRIPTION OF THE IMPROVEMENTS (continued) UNDERGROUND PARKING & LOADING The subject development includes three full levels used for off-street parking and loading. Ingress and egress is gained off South Fifth Street near the northeast corner of the site. Two levels of subterranean parking are available in lower levels 3, 2 and concourse. As with the retail and office components, the parking structure is also of Class B construction. The parking area is fully sprinkled (dry system) for fire protection. There is available valet only parking for 210 vehicles. According to the manager, the parking component was designed for valet only parking for two reasons. First, the large loading dock necessary to serve the tower, Neiman Marcus and the retail component, reduced the available parking area. Second, it was considered cost prohibitive to add additional lower levels due to excessive soil stabilization and foundation costs. The loading dock area is located on lower level 2. The dock are serves the subject development as well as the neighboring 510 Marquette Building (former National City Bank Building) and the First Bank-Marquette Building (formerly F&M Building) through an easement agreement. The loading dock is not sufficiently large enough for semi-trailer tractors to turn around. As such, a 56' diameter Mactron truck turntable is used to rotate large trucks for alignment to the loading docks and the exit ramp. The six docks serving the office and specialty retain components and two docks serving Neiman Marcus. All docks are improved with levelers and bumpers. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 88 - -------------------------------------------------------------------------------- <PAGE> HIGHEST AND BEST USE ANALYSIS - -------------------------------------------------------------------------------- This analysis identifies the most profitable use to which the property can be developed. The use of a property greatly influences value and all factors that influence and contribute to value must be considered. Highest and Best Use is defined in The Dictionary of Real Estate Appraisal, Third Edition, by the Appraisal Institute, copyright 1993, page 171 as follows: "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 is based on the application of four tests of the land as though vacant and of the property as improved. They are as follows: Legally Permissible Physically Possible, Financially feasible, and Maximally Productive These tests will now be applied to the subject as though vacant. Legally Permissible - Given the permitted uses in the B4-2, Central Retail District an office, retail, or parking application or a complex integrating these three applications is allowed. Physically Possible - Given the range of legally permitted use and in consideration of the existing office, hotel and retail applications existing along the Nicollet Mall, it is believed that over the long term that an office, hotel and/or retail application would be the most appropriate applications for the site, if vacant. The subject land constitutes one of the prime commercial sites in Downtown Minneapolis. The property is located just two blocks north of the 100% corner. The physical and locational characteristics of the subject site are all suitable for such a development. The total site measures approximately 57,837 square feet in size and its topography is level and at grade with the bordering streets. Financially Feasible - This test relates to the financial feasibility of the legally permitted uses on the site. As of the appraisal date the office market is rebounding after three years of downturn. Class A occupancy is 96.1%, up from 95.5% in the Second Quarter of 1995 and 91.7% in the second quarter of 1994. Class A office rents are generally in the $12 to $16 per square foot range, compared with $10 to $13 per square foot last year. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 89 - -------------------------------------------------------------------------------- <PAGE> HIGHEST AND BEST USE ANALYSIS (continued) - -------------------------------------------------------------------------------- The office market has tightened considerably and several new developments are in process. New construction will likely commence on both the Target office building (400,000 sf) and the 800 Nicollet Mall Tower building (800,000 sf) in the Spring of 1997. As previously discussed, Target will own and occupy their new building. Anchor tenants have yet to be announced for the 800 Tower property. On February 24, 1997, Opus announced that it will build a 30-story office for American Express Financial Advisors on the former Minnegasco building site. On the other hand, the Downtown retail market continues to struggle. Gaviidae I converted its third, fourth and fifth floors to office. The subject's in-line retail component is 37% vacant with several tenants paying percentage rent only. The Conservatory is scheduled for demolition in the Spring of 1997. For both Gaviidae Developments, total sales have fallen from $57,000,000 in 1994 to $53,000,000 in 1996. Other than the flagship Dayton's store, the remaining downtown anchor department stores are struggling. In 1991, Carson Pirie Scott vacated City Center and the space was subsequently leased to Montgomery Ward. However, with Ward's most recent sales in the low to mid $60 per square foot range, it is not likely that this tenant will stay through lease end in 2004. According to the property manager, in 1995 this store was one of the ten poorest performing stores in the Montgomery Ward chain. Saks and Neiman Marcus are in a similar position. In the January 1997 issue of Corporate Report Minnesota, an article titled "Nicollet Mall-aise" described the disappointing performance experienced at these two upscale retailers. According to the article, an average Saks and Neiman store generates $327 and $380 per square foot in annual sales, respectively. This compares to actual 1996 sales of $140 per square foot at Saks and $124 per square foot at Neiman Marcus. A copy of the article is included in the Addenda of this report. The current rental income from the retail component (anchor and in-line) is below the level necessary to support the depreciated value of the improvements plus land. Maximally Productive - This test relates to that use which is financially feasible and most profitable based on dollars invested. If the site were vacant today, it would likely be considered for office development. However, several other sites, including the Conservatory site, the Physicians and Surgeons block, and the Minnegasco office building site (as noted above) are also available and would most likely be developed before the subject. The next step in the Highest and Best Use analysis involved applying these tests to the subject property as improved. In this step, the four tests of highest and best use are used to determine if the current improvements represent the highest and best use. If the property, in its current state, does not represent the highest and best use then other alternatives such as renovation, expansion, or demolition must be considered. These tests will now be applied to the subject property as improved. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 90 - -------------------------------------------------------------------------------- <PAGE> HIGHEST AND BEST USE ANALYSIS (continued) - -------------------------------------------------------------------------------- Legally Permissible - The subject property is legally permitted under the B4-2, Central Service District. The possible renovation or demolition of the property is also legally permissible with the proper municipal permits. However, subsequent sections of this report will prove that the subject property, as improved, is worth substantially more than the value of the land as vacant. Physically Possible - The subject property is physically possible as evidenced by its existence. The subject was physically designed as a mixed use office and specialty retail development. A property of equal construction, quality and style could be constructed today. However, it is likely that the retail component would not be built if the site were vacant today. Or, if it was built, it would not resemble the existing improvements. More likely, a retail development would be incorporated into the first and second floors of a high-rise office tower. A third floor food court is a possibility. A fourth floor would not be built. Nearly every vertical or specialty mall in the region has experienced difficulty in upper floor leasing. The demolition of the property is a physical possibility, but is not financially feasible. Subsequent sections of this report will prove that the property as improved is worth substantially more than the site as vacant. Financially Feasible/Maximally Productive - For the subject property, the continued operation of the property as a multi-tenant mixed use development is financially feasible and maximally productive as the existing improvements do add significant value over and above the value of the land as vacant. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 91 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH - -------------------------------------------------------------------------------- The Cost Approach produces an indication of value derived by estimating the value of the subject land and adding to this the replacement or reproduction cost of the improvements less any accrued depreciation. Fundamental to this approach is the principal of substitution which states, on page 356 of The Dictionary of Real Estate Appraisal, Third Edition, that: "...when several similar or commensurate commodities, goods or services are available, the one with the lowest price will attract the greatest demand and widest distribution" . In other words, a prudent and informed buyer would pay no more for an existing property than it would cost to purchase a site and construct a building of equal utility and desirability. This approach recognizes that the replacement or reproduction cost tends to set an upper limit of value particularly when the improvements represent the highest and best use of the land as vacant. As newly constructed properties tend to represent market standards, any deficiencies existing in the subject property must be quantified by comparison resulting in an indication of accrued depreciation. The Cost Approach involves four basic steps as outlined below: 1. Estimate the value of the land as if vacant and capable of being improved to its highest and best use. This was accomplished in the Land Sales Comparison Approach Section of the report. 2. Estimate the current cost to replace/reproduce the existing improvements. 3. Deduct accrued depreciation (which may be in the form of physical deterioration, functional obsolescence or economic obsolescence) from the replacement or reproduction cost new estimate. 4. Add the land value to the depreciated value of the improvements to arrive at the estimated market value by the Cost Approach. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 92 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH (continued) - -------------------------------------------------------------------------------- COST NEW ESTIMATE Given the substantial elements of functional obsolescence in the property and the degree of economic obsolescence occurring in the upscale retail market, it is recognized that the Cost Approach is not the most appropriate methodology for estimating market value. Arguably, the retail component would not be built today. Or, if it was built, it would not resemble the existing improvements. More likely, a retail development would be incorporated into the first and second floors of a high-rise office tower. A second floor or third floor food court is a possibility. A fourth floor would not be built. Nearly every vertical or specialty mall in the region has experienced difficulty in upper floor leasing. At the subject property, the third floor is 52% vacant and the two tenants in occupancy are paying a gross rent equal to 10% of sales. The fourth floor is 41% vacant. It is the appraisers' opinion that the upper two levels suffer from functional obsolescence. Because of this, little weight was placed on the actual costs reported below: Gaviidae II - Dain Bosworth Tower - Neiman Marcus - -------------------------------------------------------------------------------- $/SF of % of Reported Construction Costs $ GLA/RA Total - -------------------------------------------------------------------------------- Hard Costs General Conditions $10,703,233 $13.70 7.2% Demolition $2,351,226 $3.01 1.6% Shell & Core $52,473,862 $67.15 35.4% Mechanical $11,581,398 $14.82 7.8% Electrical $5,690,575 $7.28 3.8% Contractor Fee $1,258,372 $1.61 0.9% IFG Buildout $5,365,222 $6.87 3.6% Marquette Buildout $925,695 $1.18 0.6% Neiman Marcus Buildout $10,329,231 $13.22 7.0% Spec Office Buildout $11,195,523 $14.33 7.6% Spec Retail Buildout $3,783,000 $4.84 2.6% Contingency $5,333,367 $6.82 3.6% - -------------------------------------------------------------------------------- Total Hard Costs $120,990,704 $154.83 81.7% Soft Costs Architect/Engineering $7,284,200 $9.32 4.9% Taxes & Insurance $2,158,000 $2.76 1.5% Leasing Commissions $1,836,000 $2.35 1.2% Marketing $1,750,000 $2.24 1.2% General & Accounting $2,046,000 $2.62 1.4% Development Fee $5,952,318 $7.62 4.0% Insurance $914,737 $1.17 0.6% Miscellaneous $1,035,000 $1.32 0.7% Interest $3,882,045 $4.97 2.6% Letter of Credit $180,000 $0.23 0 1% - -------------------------------------------------------------------------------- Total Soft Costs $27,038,300 $34.60 18.3% ================================================================================ Total Hard and Soft Costs $148,029,004 $189.43 100.0% - -------------------------------------------------------------------------------- It should be noted that the above estimate does not consider the underlying land value or the accrued carrying costs Brookfield accounted for between the mid-1980's and construction completion. The costs were reported on draw request number 29. Brookfield has indicated that the final draw was number 42. However, they have certified that there were no material changes in the costs between draw numbers 29 and 42. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 93 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH (continued) - -------------------------------------------------------------------------------- REPLACEMENT COST NEW In applying the Cost Approach, the Marshall Valuation Service was relied on for estimating the current Replacement Cost New for a 40 story office tower and an anchored retail center with just two levels of specialty retail as the third and fourth retail floors are considered to be superadequate. The underground parking garage was also considered. The construction of all components is classified as Class B by the Marshall Valuation Service. The primary features of a Class B structure include a reinforced concrete frame in which columns and beams can be either formed or precast concrete. Class B buildings are considered fire resistant structures. This construction classification is consistent with that of the subject. Replacement Cost New here is the cost of creating a structure of equal utility as the subject based on current prices for state-of-the-art construction materials. It is the price of constructing a true substitute building that may not be composed of identical materials or possess an identical design, but would provide an equal factor of usage. Reproduction cost would be used for estimating an identical building and would include any functional obsolescence that might be present in the existing building. The calculator cost method was relied on in arriving at a Replacement Cost new estimate by means of the Marshall Valuation Service. A copy of the estimate is included in the Addenda of this report. The cost estimates are as follows: ------------------------------------------ RCN Component Estimate ------------------------------------------ Office Tower $98,741,698 In-Line Retail & Parking $19,152,899 Anchor Dept. Store $11,741,367 ------------------------------------------ Total $129,635,964 ------------------------------------------ In order to provide a sound value indication, an estimate for entrepreneurial profit should be added if attainable in the marketplace. With the improving office market it is reasonable to apply a market derived rate of profit to the office and parking components given that they are economically feasible/maximally productive. A representative from Opus Corporation, a major Twin Cities based national developer, indicated that they typically expect a 10% to 15% profit (on hard and soft costs) on their next development. For this exercise, entrepreneurial profit was estimated at 10% of hard and soft costs. ----------------------------------------------------------------------- Add: = RCN Entrep. Total Component Estimate Profit @ 10% RCN ----------------------------------------------------------------------- Office Tower $98,741,698 $9,874,170 $108,615,868 In-Line Retail & Parking $19,152,899 $377,906 S19,530,805 Anchor Dept Store $11,741,367 $0 $11,741,367 ----------------------------------------------------------------------- Total $129,635,964 $10,252,076 S139,888,040 ----------------------------------------------------------------------- - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 94 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH (continued) DEPRECIATION ANALYSIS - -------------------------------------------------------------------------------- Three types of depreciation occur in real estate. They are: 1 . Physical depreciation resulting from the wear and tear on the property. It includes both curable and incurable depreciation. 2. Functional obsolescence resulting from the inadequate or super-adequacies of design, style, or layout when compared to a new property serving the same purpose. and, 3. Economic or external obsolescence resulting in a loss of value from causes outside the property itself. All three forms of depreciation are present in the subject property. Functional Obsolescence - According to The Appraisal of Real Estate. Eleventh Edition. Functional obsolescence is caused by a flaw in the structure, materials, or design that diminishes the function, utility and value of the improvement. The result is a loss in value caused by either a deficiency or superadequacy. A superadequacy is a component or system in the property that exceeds market requirements and does not contribute to value an amount equal to its cost. The upper floors of the specialty retail center are considered a superadequacy. Furthermore, the superadequacy is considered incurable given that the cost to cure the superadequacy (demolition or conversion) exceed the value created. As such, the cost to construct the upper two floors of the retail center were not considered in the Replacement Cost New Estimate. Although added costs of ownership (operating costs on vacant space, reserves, etc.) are considered an element of functional obsolescence, they have been addressed under economic obsolescence. Physical Depreciation - Incurable - The average physical depreciation, incurable, from the physical wear and tear on the improvements is calculated by the age/life ratio. The Marshall Valuation Service reports that typically Class A buildings such as the subject have an economic life expectancy of 60 years. The appraisers believe an equal life expectancy exists for both the retail and parking components. Overall, the entirety of the subject improvements have been well maintained and are in excellent condition. In this analysis, a straight line depreciation method for the property based on its effective age and economic life expectancy was calculated as follows: <TABLE> <CAPTION> - ------------------------------------------------------------------------------------ Effective Divide % X = Component Age Econ Life-yrs Depreciated RCN Depr. $ - ------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Office Tower 6 60 10.00% $108,615,868 $10,561,587 In-Line Retail 6 60 10.00% $19,530,805 $1,953,080 Anchor Dept Store 6 60 10.00% $11,741,367 $1,174,137 - ------------------------------------------------------------------------------------ Total 10.00% $139,888,040 $13,988,804 - ------------------------------------------------------------------------------------ </TABLE> - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 95 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH (continued) - -------------------------------------------------------------------------------- DEPRECIATION ANALYSIS (continued) Economic Obsolescence - External or economic obsolescence is generally caused by outside factors affecting property value, such as economic forces or environmental changes which affect the supply and demand relationship in the market. The retail environment is undergoing a fundamental change toward more value oriented retailing and entertainment. These changes have pushed overall sales volume down at both Gaviidae Developments as well as City Center. At City Center, gross sales fell from $62,000,0000 in 1991 to a projected $45,000,000 in 1996. At the Gaviidae properties, gross sales have fallen from $57,000,000 in 1994 to $53,000,000 in 1996. As of the appraisal date, most of the Downtown retail developments are struggling. Downtown retailers have historically missed out on the night and weekend business. Suburban shopping malls offer free parking, a less congested area of travel, and a 1/2% lower sales tax on all non-clothing purchases. Overall sales volume at the subject is below the level necessary to provide the retailers with a sufficient profit to remain in business. At the subject property, Neiman Marcus has experienced declining sales over the last three years. A majority of the first and second floor tenants pay percentage rent only. As a result, the subject's retail rental structure is lower than what would be required to achieve a competitive return on the depreciated replacement cost of the improvements plus land value. In fact, between 1993 and 1996, retail net operating income has averaged a negative ($160,536). Based on the value estimate arrived at in the Income Approach Section of this report, the entire retail and parking component has a positive, but nominal value near $5,000. If the parking component were not considered, the value would be negative. As noted in the Income Approach, the retail component suffers from a number of things, one of which is high operating costs. The 1997 budgeted expense is $28.14 per square foot comprised of operating expenses at $18.32 per square foot and taxes at $8.32 per square foot. Real estate taxes are allocated between the office tower and the retail component on a pro-rata area basis. This places a disproportionate tax burden on the retail component considering its nominal value. This is not expected to change in the near future given that the allocation formula is addressed in every lease. Given the value of the office tower, a reduction in assessed value is not expected either. For this analysis, economic obsolescence relating to the retail component was estimated at $24,000,000 which essentially represents the depreciated cost of the in-line retail and anchor tenant components, net of the parking ramp cost. In this case, economic obsolescence stems from both a negative retail environment and from a burdensome expense allocation. The negative retail environment pressures down sales. With low anchor tenant draw, the in-line tenants, who pay the majority of all rent, fair poorly. When sales are not sufficient to pay the rent, the tenant leaves or the rent structure is lowered. The expense structure also pressures down net rent. If a tenant is able to generate sales of $300 per square foot and pay a 10% gross occupancy cap, then gross rent is $30 per square foot. Subtracting out total operating costs of $28. 14 results in a net rent of $1.86 per square foot. With little retail interest in the third floor, the landlord is incurring carrying costs of $28.14 per square foot on all vacant space. Even with the projected conversion of the third floor to office space, the $20 gross - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 96 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH (continued) - -------------------------------------------------------------------------------- DEPRECIATION ANALYSIS (continued) office rent does not cover operating expenses. Furthermore, to achieve a $20 gross office rent, the landlord spend capital in the form of tenant improvements and leasing commissions. From a theoretical appraisal standpoint, if an improvement does not economically justify cost, it suffers from some form of obsolescence. In most cases, it would not be built if the property were new. In the subject's case however, this is not entirely the case. A smaller retail component would most likely be built if the subject were constructed today, despite the fact that retail value is .nominal. Although the office tower has been separately valued throughout this report, it is recognized that both the office and retail components make up the entire property. In this case, the office tower benefits, in the form of lower taxes and higher value, from the current condition of the retail market. When the entire property is taken into consideration, the elements of both functional and economic obsolescence are more difficult to quantify. Clearly, much more time and effort could be expended in an effort to accurately quantify all elements of obsolescence. However, this was not considered meaningful given that investors typically do not consider the Cost Approach to be as reliable or pertinent when purchasing institutional grade income-producing property like the subject. Economic obsolescence also exists in the office market as net rental rates are several dollars below the level necessary to support new construction. The most recent Downtown office building sales have transacted at a discount to their estimated or reported development costs. Examples include the following: Sale Price/Sf Est./Reported Indicated No. Property of RA Cost/Sf of RA Discount - -------------------------------------------------------------------------------- 1. IBM First Bank Place $151.88 $233.12 35% 2. LaSalle Plaza $123.96 $195.28 36% As a result, speculative office development is not expected to occur. Although Opus and Ryan Cos. have announced plans to build new office towers, neither will be built without a significant anchor tenant commitment. These anchor tenants generally pay a contract rental rate that justifies or provides an acceptable return on construction cost. The physically depreciated cost of the office tower is calculated as follows; ------------------------------------------------------------ Office Tower ------------------------------------------------------------ Replacement Cost New $98,741,698 Add: Entrepeneurial Profit-lO% $9,874,17O ------------------------------------------------------------ Adjusted RCN $108,615,868 Less: Physical Deterioration $10,861,587 ------------------------------------------------------------ Depr. Value of Improvements $97,754,281 Add: Est. Allocated lend Value $3,200,000 ------------------------------------------------------------ Indicated Value $100,954,281 ------------------------------------------------------------ The depreciated value of the improvements plus land estimate of approximately $100,000,000 would require a net income of approximately $9,000,000 to achieve a capitalization rate of 9.0%, - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 97 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH (continued) - -------------------------------------------------------------------------------- DEPRECIATION ANALYSIS (continued) an estimated market yield as of the appraisal date. This compares to a projected Year 1 net operating income of $5,181,000 as calculated in the Income Approach. The disparity is comprised of economic obsolescence and leasehold advantage. Given that a significant amount of leasing occurred during the bottom of the office real estate cycle, contract rents are below market. A simplistic estimate of the leasehold advantage can be calculated by subtracting the value of the leased fee estate interest from the Fee Simple interest. A Fee Simple interest estimate was calculated as follows: Fee Simple Value Estimate ------------------------------------------------------------------ $/sf $ ------------------------------------------------------------------ Estimated Market Rent $15.00 $8,888,895 1996 Reimb. operating costs $13.02 $7,715,561 ------------------------------------------------------------------ Potential Gross Income $28.02 $16,604,456 Less: Vacancy @ 5% ($1.40) ($830,223) ------------------------------------------------------------------ Effective Gross Income $26.62 $15,774,233 Less: Non-reimbursed costs Operating Costs ($13.02) ($7,715,561) Structural ($0.05) ($29,630) Landlord ($0.02) ($10,000) ------------------------------------------------------------------ Total Expenses ($13.09) ($7,755,191) Net Operating Income $13.53 $8,019,043 + Market Capitalization Rate 9.0% 9.0% ------------------------------------------------------------------ Fee Simple Value Estimate $150.36 $89,100,473 Rounded To. $90,000,000 ------------------------------------------------------------------ The value of the leased fee estate interest was calculated at $86,000,000 in the Income Approach. Subtracting the leased fee value estimate from the fee simple value estimate results in an estimated leasehold interest of approximately $4,000,000. For all practical purposes, the difference between the Cost Approach value of $96,000,000 ($100,000,000 - $4,000,000 leasehold advantage) and the $86,000,000 calculated in the Income Approach, represents economic obsolescence. To measure economic obsolescence, the present value of the income shortfall was calculated. The shortfall is defined as the disparity between the net operating income necessary to support the depreciated value of the improvements including land value and the projected net operating income as calculated in the income approach. For this analysis, the required growth in NOI was estimated at 1.38% per annum. This growth rate is based on the improvement value increasing at 3.5% per year and the land value appreciating at 2.0% per year. However, because the improvements are depreciating each year, the total value does not increase correspondingly. The effective rate of NOI increase given the subject land and improvement composite is approximately 1.38% per year. Economic obsolescence is calculated as follows: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 98 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH (continued) - -------------------------------------------------------------------------------- DEPRECIATION ANALYSIS (continued) <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------ RCN Add: Deprec. Income Req'd to FY Estimate Less: Land Value Value of Imp. x Est. Support Depreciated Year + 3.5%/yr Physical Depr. + 2.0%/yr + Land Value Cap Rate Improvements/land - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> 1990 $108,615,868 $10,861,587 $3,200,000 $100,954,281 9.0% $9,085,885 1999 $112,417,423 $13,115,366 $3,263,999 $102,566,057 9.0% $9,230,945 2000 $176,352,033 $15,513,604 $3,329,279 $104,167,708 9.0% $9,375,094 2001 $120,424,354 $18,063,653 $3,395,865 $105,756,566 9.0% $9,518,091 2002 $124,639,207 $20,773,201 $3,463,782 $107,329,788 9.0% $9,659,681 2003 $129,001,579 $23,650,289 $3,533,058 $108,084,347 9.0% $9,799,591 2004 $133,516,634 $26,703,327 $3,603,719 $110,417,026 9.0% $9,937,532 - ------------------------------------------------------------------------------------------------------------ Total - ------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------ Less: Total Net Equals x Discount FY Operating Income Income Factor Year Per Income Approach Shortfall @11.0% Subtotal - ------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> 1990 $5,181,311 $3,904,574 0.901 $3,517,634 1999 $5,702,284 $3,528,661 0.812 $2,863,941 2000 $6,514,386 $2,860,708 0.731 $2,091,725 2001 $7,125,421 $2,392,670 0.659 $1,576,126 2002 $8,205,584 $1,454,097 0.593 $862,936 2003 $9,397,656 $401,935 0.535 $214,891 2004 $9,926,884 $10,648 0.482 $5,129 - ------------------------------------------------------------------------------------ Total $11,132,381 - ------------------------------------------------------------------------------------ </TABLE> SUMMATION By incorporating the site valuation and replacement cost for the subject improvements, an indication of market value by the Cost Approach was determined as follows: <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------------------- Office Tower In-Line Parking Anchor Total - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Replacement Cost New $98,741,698 $15,373,842 $3,779,057 $11,741,367 $129,635,964 Add: Entrepeneurial Profit-10% $9,874,170 $0 $377,906 $0 $10,252,076 - ----------------------------------------------------------------------------------------------------------------- Adjusted RCN $108,615,868 $15,373,842 $4,156,963 $11,741,367 $139,888,040 Less: Physical Deterioration ($10,861,587) ($1,537,384) ($415,696) ($1,174,137) ($13,988,804) - ----------------------------------------------------------------------------------------------------------------- Depr, Value of Improvements $97,754,281 $13,836,458 $3,741,266 $10,567,230 $125,899,236 Less: Economic/Leasehold Obs, ($11,132,381) ($15,661,458) $374,127 ($12,392,230) ($38,811,943) - ----------------------------------------------------------------------------------------------------------------- Subtotal $86,621,900 ($1,825,000) $4,115,393 ($1,825,000) $87,087,293 Add: Est. Allocated Land Value $3,200,000 $1,825,000 $1,825,000 $1,825,000 $8,675,000 - ----------------------------------------------------------------------------------------------------------------- Indicated Value $89,821,900 $0 $5,940,393 $0 $95,762,293 Rounded To, $96,000,000 - ----------------------------------------------------------------------------------------------------------------- </TABLE> Given that the estimate of external obsolescence is based substantially on the assumptions and projections made in the Income Approach, the value estimate by the Cost Approach should be granted only minimal weight as a market Value indication. One of the weaknesses of the Cost Approach is not a function of the methodology or resulting value indication, but rather in the fact that buyers and sellers do not typically rely on it, especially when analyzing multi-tenant income producing properties. Another weakness involves the measurement of accrued depreciation. Since buyers are not relying on the Cost Approach in their decision to purchase real estate, the measure of deterioration or obsolescence is oftentimes based on subjective reasoning. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 99 - -------------------------------------------------------------------------------- <PAGE> SALES COMPARISON APPROACH - -------------------------------------------------------------------------------- The Sales Comparison Approach produces an indication of value by comparing the prices paid, asked and offered in the marketplace on properties that bear characteristics similar to the property being appraised. It represents the actions of informed buyers, sellers and investors in the marketplace. The basis of the approach is the principle of substitution, which implies that a prudent purchaser will not pay more for a property than it will cost him to buy a similar substitute property. The application of the approach requires the appraiser to correlate and analyze the market data of similar properties. A common denominator or unit of comparison between a similar or comparable property and the subject property must be determined. Units of comparison such as price per gross square foot, price per unit or the gross rent multiplier are commonly employed in appraisal practice. The soundness of the method depends upon the following considerations: a) The comparability to the subject of each sale being analyzed. b) The accuracy of the sale data. c) The terms of the sale. d) The date of the sale. The subject property is a very unique mixed-use development with three income producing components; office, retail, and parking. An investigation into the sale of other large, mixed-use properties throughout the Upper Midwest was conducted for this approach although none were found. Considering both the occupancy and rents generated in the Gaviidae retail component, it is clear that the vast majority of the property's value lies in the Dain Office Tower. The findings of the Income Approach confirm this. With a net rentable area of 592,593 square feet, the Dain Tower comprises 76% of the total property's combined GLA and RA of 781,457 square feet. In 1996, net operating income for Gaviidae II totaled a minus ($127,000) versus $4,775,000 for the Dain Tower. Considering the economic situation of Gaviidae II, the Sales Comparison Approach is not considered relevant. However, three Class A office property sales have occurred in the Downtown Minneapolis market that are considered pertinent with respect to Dain Plaza. The Fifth Street Towers, with a combined rentable area of 1,022,292 square feet, sold in December of 1996. The LaSalle Plaza and IBM/First Bank Place, two of the most recently constructed office towers also sold within the last two years. The 701 Building, a 279,608 square foot Class B property, is also scheduled to close within the next 30 days. These four sales, as well as several recent suburban office transactions are outlined on the following pages. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 100 - -------------------------------------------------------------------------------- <PAGE> SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- Improved Sale Comparable No. 1 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Name First Bank Place Location: 601 Second Avenue South Downtown Minneapolis, MN Sale Date: August, 1995 Seller: Second Avenue Associates, Limited Partnership (IBM) Buyer: Hines Interests Limited Partnership and The General Motors Pension Plan Land Area: 72,676 square feet or 1.67 acres Year Built: 1992 - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 101 - -------------------------------------------------------------------------------- <PAGE> Improved Sale Comparable No. 1 (cont'd) Gross Building Area: 1,877,032 square feet including basement parking garage-482 stalls Rentable Area: 1,415,554 square feet Building Efficiency: 91.5% based on above grade GBA of 1,547,390 Land/Building Ratio: 0.04/1 % Occupied: 92% Construction: Class A - Fireproof Steel Height-stories: 58 Sale Price: $215,000,000 Sale Terms: $100,750,000 down, balance financed through Northwestern Mutual Life Insurance Company. Terms: 10 year fully amortizing loan at 8.27% interest. Payments are indicated at $1,402,521 per month or $16,830,255 per year. Price/SF of RA: $151.88 Price/Sf of GBA: $114.54 Comments: This property is located one block south and two blocks directly east of the subject. The property was one of the last four office towers constructed between 1991 and 1992. With this recent acquisition, Hines owns and manages approximately 3.8 million square feet of rentable office space in Downtown Minneapolis. Hines also owns Norwest Center and Pillsbury Center. Anchor tenants include IBM (275,000 sf) and First Bank (640,000 sf). According to local sources, both tenants signed 10 year leases which will expire around 2002. At the time of sale, net rent was quoted at from $15.00 to $19.00 per square foot. Operating expenses were $12.30 per square foot. Income is expected to be flat over the next several years. The going-in capitalization rate was reportedly 8.9% and the overall yield rate 11.0%. The first year equity dividend rate is approximately 2%. Most of the risk in this property is related to the anchors renewal probability in 2002. This risk is reflected in the financing terms which included a 10 year fully amortizing loan. Overall, this property 15 comparable to the subject in age and condition. The building was reportedly built at a cost of approximately $330,000,000. At the time of sale, the property was assessed at $140,000,000 with taxes at $6.64 per square foot. The January 2, 1996 assessment increased 37% to $192,000,000. As a result, 1997 taxes are projected at $8.49 per square foot. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 102 - -------------------------------------------------------------------------------- <PAGE> SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- Improved Sale Comparable No 2 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Name: LaSalle Plaza Location: 800 LaSalle Avenue Downtown Minneapolis, MN Sale Date: November 30, 1994 Seller: LaSalle Plaza Limited Partnership (US WEST) Buyer: Shorenstein Co. Land Area: 99,048 square feet or 2.27 acres Year Built: 1991 Gross Building Area: 845,381 square feet including basement parking garage-345 stalls Rentable Area: Office - 520 356 square feet Retail - 68,522 square feet ---------------------------- Total 588,878 square feet - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 103 - -------------------------------------------------------------------------------- <PAGE> Improved Sale Comparable No. 2 (cont'd) Building Efficiency: 69.7% Land/Building Ratio: 0.12/1 % Occupied: 92% Construction: Class A - Concrete Height-stories: 30 Sale Price: $73,000,000 Sale Terms: Cash Price/SF of RA: $123.96 Price/Sf of GBA: $86.35 Comments: This property is located three blocks south and two blocks west of the subject along Hennepin Avenue. As with the subject, this property was one of the last four office towers constructed between 1991 and 1992. The pre-leasing anchor tenants included the Robins, Zelle law firm (129,260 sf) and the Ellerbe architectural firm (87,096 sf). The building possessed the last largest blocks of space Downtown until the fall of 1994 when Arkla (Minnegasco) leased 104,185 square feet and Norwest Bank took 91,343 square feet. It should be noted that Norwest did not take occupancy of their space until January of 1995 and that the seller paid all leasing commissions and tenant improvement expenditures on the build-out of this space. In 1995, the average office contract rent was $8.53 per square foot. However, over the next several years this increases to $9.66 and $11.31 per square foot net respectively. The property also has approximately 45,000 square feet of established retailers including two successful restaurants, Palomino and the Rock Bottom Brewery. In 1995, retail tenants were paying an average contract rent of$12.46 per square foot. This increased to $12.63 per square foot in 1996 and $14.02 per square foot in 1997. According to the seller, the terminal capitalization rate was 9% and the IRR rate 11.0%. Net office rent was projected to grow over the holding period from $9.00 per square foot in 1994 to over $16.00 per square foot in 2004. Tenant retention was projected at 75%. Projected 1995 net operating income was approximately $3,500,000 or: $5.94 per square foot of rentable area indicating a going-in capitalization rate of 4.8%. Over the first five years of the holding period, the average net operating income is approximately $6,500,000 or approximately $11.04 per square foot of rentable area. Based on this five year average, the going in capitalization rate is 8.9%. Most of the office leases expire in the next six to nine years which indicates that the reversion represents a significant portion of the net present value indication or sales price. Approximately 400,000 square feet or roughly 70% of the property's leases expire over the next ten years. Overall, this property is comparable to the subject in age and condition. The sale occurred just following the bottom of the Minneapolis office cycle and the underwriting criteria, particularly future rent growth, is clearly conservative in the current environment. As of the appraisal date, several Class A office properties, including the subject, are commanding net rents in the $15 to $17 per square foot range. When this sale occurred many industry observers believed that it could take from 5 to 10 years to reach this range of net rental rates. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 104 - -------------------------------------------------------------------------------- <PAGE> SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- Improved Sale Comparable No 3 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Name: ITT Finance Location: 605 Highway 169 North Plymouth, MN Sale Date: June 14 1995 Seller: Second RNNL Limited Partnership Buyer: The Utah State Retirement investment Fund Land Area: 271,380 square feet, or 6.23 acres Year Built: 1989 Gross Building Area: 233,398 square feet Rentable Area: 207,243 square feet - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 105 - -------------------------------------------------------------------------------- <PAGE> Improved Sale Comparable No. 3 (cont'd) Building Efficiency: 88.8% Land/Building Ratio: 1.16 to 1 % Occupied at Sale: 94% Sale Price: $23,400,000 Price/Square Foot RA: $112.91 Sale Terms: Cash Comments: This property is located in the northwest quadrant of the Highway 169/Highway 55 cloverleaf interchange in Plymouth, Minnesota. The building was owned by a limited partnership comprised of a local developer, Ryan Companies, and Northwestern National Life Insurance Company (NWNL). The building went into receivership in July of 1994 when the partnership was unable to meet a large balloon payment. First National Bank of Chicago was the mortgage holder. At the sheriff's sale, Ryan/NWNL redeemed and simultaneously sold the property to the Utah State Retirement Fund. The property includes a 720 stall, two level, parking deck, a fitness center, an audio-visual auditorium with tiered seating and projection room, a corporate boardroom with cafeteria and kitchen, and a first floor class A restaurant/bar with seating capacity for 199 persons. Overall, this is a very high quality office building. ITT Finance leases 183,501 square feet in the property, or roughly 89% of total rentable area. The only other tenant in the building is Ivorie's restaurant. It should be noted that prior to the sale, but after the property was listed, ITT Finance sold off the finance division and had sub-leased all but approximately 30,000 square feet of space in the building. According to the property manager, ITT's lease expires in November of 1999. At the time of sale their contract rental rate was $16.00 per square foot net. They also have step-ups over the remaining term of the lease. The sub-lease tenants are paying ITT between $7.50 and $10.00 per square foot net. An offer of approximately $19,750,000 or roughly $95 per square foot of rentable area was made prior to the sub-lease tenant being secured. Despite the above market rental rate and the creditworthiness of the tenant, the investor group making the offer felt that the term of the ITT lease was very short and it was well known at the time that they were trying to sublease all of their space. As such, the probability of renewal was 0%. Alter the sub-tenant, Norstan, was secured the Utah State Retirement Fund made their offer. Securing the sublease tenant clearly led to a higher purchase price as the probability of renewal upon lease expiration increases. Net rents were $10.00 at the time of sale and operating expenses were quoted at $9.18 per square foot. Net operating income at the time of sale was approximately $2,950,000 indicating a capitalization rate of approximately 12.6%. At the time of sale the property was assessed at $17,000,000 or $82 per square foot of rentable area. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 106 - -------------------------------------------------------------------------------- <PAGE> SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- Improved Sale Comparable No. 4 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Name: ITT Life Location: 505 Highway 169 North Plymouth, MN Sale Date: June 26, 1996 Seller: Aetna Life Insurance Company Buyer: 505 Waterford Park Limited Partnership (Mass Mutual) Land Area: 543,064 square feet, or 12.46 acres Year Built: 1987 Gross Building Area: 271,864 square feet Rentable Area: 251,015 square feet Building Efficiency: 92.3% Land/Building Ratio: 1.99 to 1 % Occupied at Sale: 93.8% Sale Price: $29,800,000 Price/Square Foot RA: $118.72 Sale Terms: Cash Comments: This property is immediately adjacent to the ITT Finance or 605 Building (Sale Comparable No.4). As with the ITT Finance Building, this property is owned by a limited partnership comprised of a local developer, Ryan Companies, and Northwestern National Insurance Company (NWNL) now called Reliastar. The building went into receivership and Aetna eventually foreclosed on the property in the early 1990's. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 107 - -------------------------------------------------------------------------------- <PAGE> Improved Sale Comparable No. 4 (cont'd) [Paragraph illegible] [Paragraph illegible] - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 108 - -------------------------------------------------------------------------------- <PAGE> Improved Sale Comparable No. 5 (cont'd) Price/Square Foot RA: $98.91 Sale Terms: Cash Comments: This property is located on the south side of I-494 between France Avenue to the west and Penn Avenue to the east. The property is situated in the southwest corner of the intersection of the Xerxes Avenue South bridge over 1494 and Southtown Drive. There is no interstate access at Xerxes Avenue. Zeller purchased the property from Prudential in August of 1991 for $16,800,000. At that time, the building was significantly vacant and in need of substantial upgrading. Since that time, the property has undergone a substantial renovation including asbestos abatement and parking deck repair. The property is now 100% occupied. Anchor tenants include Norwest Bank, AT&T, and the Larkin Hoffman Daly & Lindgren law firm. Following the renovation, the building is considered to be an A- to B+ property. It should be noted that the parcel is large enough to accommodate an additional 300,000 square feet of office development. The buyer reportedly attributed very little, if any, value to this excess land. Net operating income at the time of sale was approximately $3,870,000 indicating a 9.0% going-in capitalization rate. The property was originally listed for $45,000,000 in mid-1995. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 110 - -------------------------------------------------------------------------------- <PAGE> SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- Improved Sale Comparable No. 6 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Name 701 Building Location: 701 Fourth Avenue South Downtown Minneapolis, MN Sale Date: Pending Sale - Listing with reported purchase agreement Buyer: Reported to be Taylor Simpson Group Seller: General Electric Capital Corporation Land Area: 25,601 square feet, or 0.588 acres Year Built: Built in 1984 - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 111 - -------------------------------------------------------------------------------- <PAGE> Improved Sale Comparable No. 6 (cont'd) Gross Building Area: 331,337 square feet Rentable Area: 279,608 square feet Building Efficiency: 84.4% Land/Building Ratio: 0.8/1 % Occupied at Sale: Reported at 100% Height: Eighteen stories Offering Price: $26,700,000 ($27,300,000 less $600,000 credited to the buyer for offsetting sub-return cash flow in the first three years) Price/Square Foot RA: $95.49 Price/Square Foot RA: $80.58 Comments: This Class B office property is located on the east edge of Downtown Minneapolis at the corner of Fourth Avenue South and South Seventh Street. The property sold to Colonial Realty in 1988 for $43,592,034 or $156.21 per square foot of RA. General Electric took the property back and following the office recovery is offering the property for sale. The January 2, 1995 Assessed value for taxes payable in 1996 is $17,600,000. The January 2, 1996 Assessed value is $23,900,000. The property was listed for sale at $28,000,000. Net operating income is budgeted at $1,532,000 or $5.47 per square foot for fiscal year end 1997. The resulting going-in capitalization rate of 5.74% is inordinately low given that many of the existing leases are below market. In the next three years, 45% of all the space turns. The seller has underwritten the rents on the rollover space (in 1996 dollars) between $13 and $14 per square foot net. This property is best described as a suburban office building in a downtown location. Although the property has a restaurant and is skyway linked, it lacks several items typically found in downtown office towers including formal storage, skyway retail and subterranean parking. The property's octagonal design and the location of the structural columns results in difficult office layout patterns. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 112 - -------------------------------------------------------------------------------- <PAGE> SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- Improved Sale Comparable No 7 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Name: Fifth Street Towers Location: 100 & 150 South Fifth Street Downtown Minneapolis, MN Sale Date: December 20, 1996 Buyer: Property Minnesota Two LLC c/o Jones Lang Wootton Realty Seller: Trustees of LaSalle Fund IV Land Area: 51,941 square feet, or 1.19 acres Year Built: Built in 1984 and 1988 - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 113 - -------------------------------------------------------------------------------- <PAGE> Improved Sale Comparable No.7 (cont'd) Gross Building Area: 1,282,120 square feet Rentable Area: 1,022,292 square feet Building Efficiency: 80.5% Land/Building Ratio: 0.04/1 % Occupied at Sale: Reported at 90% Height: 25 and 36 stories Sales Price: $140,895,000 ($141,895,000 less $1,000,000 for personal property and artwork) Price/Square Foot GBA: $109.89 Price/Square Foot RA: $137.82 Comments: These Class A office properties are referred to as the Fifth Street Towers. The building located at 100 South 5th Street was constructed in 1985 and is comprised of 414,581 square feet of rentable area. The property is currently 88% occupied with quoted rental rates from $14.00 to $16.00 per square foot net. The 150 South 5th Street Building was constructed in 1988 and is comprised of 607,711 square feet. The property is currently 89% occupied with a similar rental rate. This building's primary tenant is the Leonard, Street & Deinard law firm. According to the offering, 1997 net operating income is projected at $13,500,000 or $13.21 per square foot of rentable area. Based on this figure the going-in capitalization rate is 9.58%. Year one cash flow is $9,868,000 indicating a first year cash on cash return of 7.0%. Approximately 30% of the space turns in the next two years and capital, in the form of leasing commissions and tenant improvements, are budgeted at $3,600,000 in year one and $4,300,000 in year two. Net rents were projected at $15 per square foot for the lower tower floors and $16 per square foot for the upper tower floors. Overall, this is a very good comparable given its recent closing and location just two blocks from the subject. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 114 - -------------------------------------------------------------------------------- <PAGE> DAIN PLAZA OFFICE 60 South Sixth Street Minneapolis, MN SCHEDULE OF PROSPECTIVE CASH FLOW In Inflated Dollars for the Fiscal Year beginning 3/1/1997 <TABLE> <CAPTION> Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 For the Years Ending Feb-1998 Feb-1999 Feb-2000 Feb-2001 Feb-2002 Feb-2003 Feb-2004 ---------- ---------- ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> POTENTIAL GROSS REVENUE Base Rental Revenue $5,880,720 $6,338,955 $6,947,019 $7,612,615 $8,545,456 $9,880,722 $10,336,478 Absorption & Turnover Vacancy (11,990) (45,501) (11,177) (99,848) (25,305) (113,632) (93,527) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Scheduled Base Rental Revenue 5,868,730 6,293,454 6,935,842 7,512,767 8,520,151 9,767,090 10,242,951 Base Rental Step Revenue 1,945 10,657 24,129 35,961 66,802 120,477 Miscellaneous Rental Revenue 206,626 210,084 216,308 226,359 235,711 253,840 259,371 Expense Reimbursement Revenue cleaning 616,277 648,293 687,211 714,522 747,249 767,287 795,826 electrical maintenance 18,965 19,949 21,148 21,984 22,994 23,607 24,488 plumbing maintenance 3,794 3,991 4,229 4,397 4,600 4,725 4,899 HVAC 130,366 137,139 145,375 151,145 158,076 162,308 168,346 elevator & escalator 99,551 104,723 111,011 115,424 120,710 123,946 128,560 security & safety 165,917 174,538 185,016 192,374 201,184 206,577 214,263 general building costs 142,216 149,608 158,585 164,891 172,439 177,067 183,653 common area costs 180,141 189,499 200,876 208,861 218,420 224,287 232,625 repairs & maintenance 94,812 99,738 105,725 109,927 114,953 118,044 122,435 loading dock 18,965 19,949 21,148 21,984 22,994 23,607 24,488 comm. center 199,105 209,447 222,022 230,842 241,420 247,895 257,112 energy costs 1,090,337 1,146,982 1,215,838 1,264,149 1,322,053 1,357,516 1,408,011 water & sewer 28,442 29,918 31,717 32,979 34,486 35,412 36,728 administration 189,620 199,477 211,448 219,851 229,918 236,092 244,869 insurance 78,704 82,797 87,767 91,254 95,434 97,991 101,640 real estate taxes 3,749,272 3,948,122 4,188,975 4,356,188 4,557,491 4,687,572 4,864,185 Management Fee 172,010 190,677 215,227 232,528 256,413 274,818 288,671 Special Assessments 89,112 88,222 76,334 77,251 78, 424 78,369 79,031 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Reimbursement Revenue 7,067,606 7,443,069 7,889,652 8,210,451 8,599,268 8,847,120 9,179,830 Storage Income 30,175 31,231 32,324 33,456 34,627 35,838 37,093 ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL POTENTIAL GROSS REVENUE 13,173,137 13,979,793 15,864,763 16,007,162 12,425,718 18,970,696 19,829,722 Collection Loss (65,866) (69,899) (75,424) (80,036) (87,129) (94,853) (99,199) ---------- ---------- ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS REVENUE 13,107,271 13,909,884 15,009,359 15,927,126 17,338,589 18,875,837 19,740,523 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING EXPENSES cleaning 653,792 676,674 700,358 724,871 750,241 776,499 803,677 electrical maintenance 20,117 20,821 21,549 22,304 23,084 23,892 24,279 plumbing maintenance 4,023 4,164 4,310 4,461 4,617 4,778 4,946 HVAC 138,302 142,143 148,153 153,338 158,705 164,259 170,009 elevator & escalator 105,613 109,309 113,135 117,094 121,193 125,435 129,825 security & safety 176,021 182,182 188,558 195,157 201,988 209,058 216,375 general building costs 150,875 156,156 161,621 167,278 173,133 179,192 185,464 common area costs 191,108 197,797 204,720 211,885 219,301 226,977 234,921 repairs & maintenance 100,583 104,104 107,747 111,519 115,422 119,461 123,643 loading dock 20,117 20,821 21,549 22,304 23,084 23,892 24,729 comm. center 211,225 218,618 226,270 234,189 242,386 250,869 259,649 energy costs 1,156,708 1,197,193 1,239,095 1,282,463 1,327,349 1,373,807 1,421,890 water & sewer 30,175 31,231 32,324 33,456 34,627 35,838 37,093 administration 201,167 208,208 215,495 223,037 230,843 238,923 247,285 insurance 83,497 86,420 89,444 92,575 95,815 99,169 102,639 real estate taxes 4,136,141 4,280,905 4,430,737 4,585,813 4,746,316 4,912,438 5,084,373 Management Fee 393,218 417,297 450,281 477,814 520,158 566,275 592,216 Special Assessments 98,311 95,667 80,745 81,204 81,668 82,136 82,609 landlord expenses 25,146 26,026 26,937 27,880 28,855 29,865 30,911 structural reserve 29,821 30,864 31,945 33,063 34,220 35,418 36,657 ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES 7,925,960 8,207,600 8,494,973 8,801,705 9,133,005 9,478,181 9,813,639 ---------- ---------- ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME 5,181,311 5,702,284 6,514,386 7,125,421 8,205,584 9,397,656 9,926,884 ---------- ---------- ---------- ---------- ---------- ---------- ---------- LEASING & CAPITAL COSTS Tenant Improvements 383,927 619,705 560,368 837,901 181,477 728,055 758,335 Leasing Commissions 44,338 89,534 73,713 155,822 36,296 145,610 151,668 ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL LEASING & CAPITAL COSTS 428,265 709,239 634,081 993,723 217,773 873,665 910,003 ---------- ---------- ---------- ---------- ---------- ---------- ---------- CASH FLOW BEFORE DEBT SERVICE & INCOME TAX $4,753,046 $4,993,045 $5,880,305 $6,131,698 $7,987,811 $8,523,991 $9,016,881 ========== ========== ========== ========== ========== ========== ========== <CAPTION> Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 For the Years Ending Feb-2005 Feb-2006 Feb-2007 Feb-2008 Feb-2009 Feb-2010 ----------- ----------- ----------- ---------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> POTENTIAL GROSS REVENUE Base Rental Revenue $10,778,410 $11,430,504 $11,654,757 $12423,317 $12,631,786 $12,862,919 Absorption & Turnover Vacancy (205,829) (50,845) (537,252) (31,105) (124,785) (129,976) ----------- ----------- ----------- ---------- ----------- ----------- Scheduled Base Rental Revenue 10,572,581 11,379,659 11,117,505 12,392,212 12,507,001 12,732,943 Base Rental Step Revenue 118,650 141,892 189,311 179,915 221,045 338,737 Miscellaneous Rental Revenue 245,206 193,856 163,626 Expense Reimbursement Revenue cleaning 816,414 857,365 853,500 920,064 945,796 978,846 electrical Maintenance 25,123 26,378 26,262 28,309 29,099 30,118 plumbing Maintenance 5,025 5,277 5,253 5,660 5,819 6,021 HVAC 172,701 181,367 180,546 194,629 200,070 207,065 elevator & escalator 131,882 138,495 137,880 148,626 152,782 158,121 security & safety 219,802 230,829 229,789 247,711 254,641 263,538 general building costs 188,404 197,855 196,963 212,326 218,256 225,882 common area costs 238,643 250,613 249,488 268,943 276,465 286,124 repairs & maintenance 125,600 131,902 131,309 141,548 145,506 150,595 loading dock 25,123 26,378 26,262 28,309 29,099 30,118 comm. center 263,766 276,993 275,747 297,252 305,563 316,239 energy costs 1,444,421 1,516,881 1,510,047 1,627,805 1,673,332 1,731,792 water & sewer 37,679 39,572 39,394 42,465 43,649 45,170 administration 251,202 263,805 262,616 283,096 291,014 301,181 insurance 104,265 109,499 109,002 117,504 120,790 125,009 real estate taxes 4,988,410 5,241,333 5,242,948 5,820,683 5,983,472 6,192,530 Management Fee 313,656 403,876 431,460 683,989 716,895 738,670 Special Assessments 78,762 80,418 78,240 84,348 84,258 78,949 ----------- ----------- ----------- ---------- ----------- ----------- Total Reimbursement Revenue 9,430,878 9,978,836 9,986,706 11,153,267 11,476,507 11,865,968 Storage Income 38,391 39,735 41,125 42,565 44,055 45,596 ----------- ----------- ----------- ---------- ----------- ----------- TOTAL POTENTIAL GROSS REVENUE 20,405,706 21,733,978 21,498,273 23,767,959 24,248,608 24,983,244 Collection Loss (102,029) (108,670) (107,491) (118,840) (121,243) (124,916) ----------- ----------- ----------- ---------- ----------- ----------- EFFECTIVE GROSS REVENUE 20,303,677 21,625,308 21,390,782 23,649,119 24,127,365 24,858,328 ----------- ----------- ----------- ---------- ----------- ----------- OPERATING EXPENSES cleaning 831,806 860,919 891,501 922,238 954,516 987,924 electrical maintenance 25,594 26,490 27,417 28,377 29,370 30,398 plumbing maintenance 5,119 5,298 5,483 5,675 5,874 6,080 HVAC 175,959 182,117 188,492 195,089 201,917 208,984 elevator & escalator 134,369 139,071 143,939 148,977 154,191 159,588 security & safety 223,948 231,786 239,898 248,295 256,985 265,980 general building costs 191,955 198,674 205,627 212,824 220,273 227,982 common area costs 243,143 251,653 260,461 269,577 279,012 288,778 repairs & maintenance 127,970 132,449 137,085 141,883 146,849 151,988 loading dock 25,594 26,490 27,417 28,377 29,370 30,398 comm. center 268,737 278,143 287,878 297,954 308,382 319,175 energy costs 1,471,656 1,523,164 1,576,475 1,631,651 1,688,759 1,747,866 water & sewer 38,391 39,735 41,125 42,565 44,055 45,596 administration 255,940 264,898 274,170 283,765 293,697 303,977 insurance 106,232 109,950 113,798 117,781 121,903 126,170 real estate taxes 5,262,326 5,446,507 5,637,135 5,834,435 6,038,640 6,249,992 Management Fee 609,110 648,759 641,723 709,474 723,821 745,750 Special Assessments 83,085 83,567 84,054 84,546 85,042 79,729 landlord expenses 31,993 33,112 34,271 35,471 36,712 37,997 structural reserve 37,940 39,268 40,642 42,065 43,537 45,061 ----------- ----------- ----------- ---------- ----------- ----------- TOTAL OPERATING EXPENSES 10,150,867 10,522,050 10,858,141 11,281,019 11,662,905 12,059,413 ----------- ----------- ----------- ---------- ----------- ----------- NET OPERATING INCOME 10,152,810 11,103,258 10,532,641 12,368,100 12,464,460 12,798,915 ----------- ----------- ----------- ---------- ----------- ----------- LEASING & CAPITAL COSTS Tenant Improvements 1,455,266 418,104 3,198,353 877,926 894,966 932,188 Leasing Commissions 291,055 83,620 639,671 175,584 178,993 186,435 ----------- ----------- ----------- ---------- ----------- ----------- TOTAL LEASING & CAPITAL COSTS 1,746,321 501,724 3,838,024 1,053,510 1,073,959 1,118,623 ----------- ----------- ----------- ---------- ----------- ----------- CASH FLOW BEFORE DEBT SERVICE & INCOME TAX $8,406,489 $10,601,534 $6,694,617 $11,314,590 $11,390,501 $11,680,292 =========== =========== =========== =========== =========== =========== <CAPTION> Year 14 Year 15 Year 16 For the Years Ending Feb-2011 Feb-2012 Feb-2013 ---------- ---------- ---------- <S> <C> <C> <C> POTENTIAL GROSS REVENUE Base Rental Revenue $13,160,506 $13,681,333 $13,892,982 Absorption & Turnover Vacancy (249,426) (71,663) (548,185) ----------- ----------- ----------- Scheduled Base Rental Revenue 12,911,080 13,609,670 13,344,797 Base Rental Step Revenue 216,096 366,562 443,704 Miscellaneous Rental Revenue Expense Reimbursement Revenue cleaning 1,005,072 1,053,279 1,057,020 electrical Maintenance 30,928 32,407 32,526 plumbing Maintenance 6,187 6,482 6,506 HVAC 212,611 222,813 223,600 elevator & escalator 162,357 170,150 170,752 security & safety 270,598 283,580 284,581 general building costs 231,941 243,062 243,926 common area costs 293,791 307,881 308,975 repairs & maintenance 154,628 162,042 162,618 loading dock 30,928 32,407 32,526 comm. center 324,719 340,294 341,499 energy costs 1,778,198 1,863,495 1,870,112 water & sewer 46,387 48,614 48,784 administration 309,249 324,087 325,237 insurance 128,357 134,519 134,996 real estate taxes 6,358,471 6,663,463 6,687,115 Management Fee 751,879 785,773 790,095 Special Assessments 50,304 51,078 48,297 ----------- ----------- ----------- Total Reimbursement Revenue 12,146,605 12,725,426 12,769,165 Storage Income 47,192 48,844 50,554 ----------- ----------- ----------- TOTAL POTENTIAL GROSS REVENUE 25,320,973 26,750,502 26,608,220 Collection Loss (126,605) (133,753) (133,041) ----------- ----------- ----------- EFFECTIVE GROSS REVENUE 25,194,368 26,616,749 26,475,179 ----------- ----------- ----------- OPERATING EXPENSES cleaning 1,022,501 1,058,289 1,095,329 electrical maintenance 31,462 32,563 33,702 plumbing maintenance 6,292 6,513 6,740 HVAC 216,298 223,869 231,704 elevator & escalator 165,173 170,954 176,938 security & safety 275,289 284,924 294,896 general building costs 235,962 244,221 252,768 common area costs 298,885 309,346 320,173 repairs & maintenance 157,308 162,814 168,512 loading dock 31,462 32,563 33,702 comm, center 330,347 341,909 353,876 energy costs 1,809,041 1,872,357 1,937,890 water & sewer 47,192 48,844 50,554 administration 314,616 325,627 337,024 insurance 130,586 135,157 139,887 real estate taxes 6,468,742 6,695,148 6,929,478 Management Fee 755,831 798,502 794,255 Special Assessments 51,164 51,324 50,000 landlord expenses 39,327 40,703 42,128 structural reserve 46,638 48,270 49,960 ----------- ----------- ----------- TOTAL OPERATING EXPENSES 12,434,116 12,883,897 13,299,516 ----------- ----------- ----------- NET OPERATING INCOME 12,760,252 13,732,852 13,175,663 ----------- ----------- ----------- LEASING & CAPITAL COSTS Tenant Improvements 1,659,257 645,268 339,006 Leasing Commissions 331,851 129,055 67,800 ----------- ----------- ----------- TOTAL LEASING & CAPITAL COSTS 1,991,108 774,323 406,806 ----------- ----------- ----------- CASH FLOW BEFORE DEBT SERVICE & INCOME TAX $10,769,144 $12,958,529 $12,768,857 =========== =========== =========== </TABLE> <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- YIELD CAPITALIZATION ANALYSIS (continued) - -------------------------------------------------------------------------------- DAIN BOSWORTH OFFICE TOWER DISCOUNTED CASH FLOW ANALYSIS - -------------------------------------------------------------------------------- INDICATED VALUE: $86,002,629 DIVIDE RENTABLE AREA-SF: / 592,593 - ------------------------------------------------------------------------ INDICATED VALUE PER SQUARE FOOT: $145.13 GOING IN CAPITALIZATION RATE: 6.02% TERMINAL CAP RATE: 9.00% DISCOUNT RATE: 11.00% COSTS OF SALE: -1.0% PRESENT VALUE OF CASH FLOW: $40,463,907 % OF NPV 47.05% PRESENT VALUE OF RESIDUAL: $45,538,722 % OF NPV 52.95% - -------------------------------------------------------------------------------- = CASH FLOW X = YEAR CASH FLOW + REVERSION (1) + REVERSION PV FACTOR SUBTOTAL - -------------------------------------------------------------------------------- 1 $4,753,046 $0 $4,753,046 0.90 $4,282,023 2 $4,993,045 $0 $4,993,045 0.81 $4,052,467 3 $5,880,305 $0 $5,880,305 0.73 $4,299,628 4 $6,131,698 $0 $6,131,698 0.66 $4,039,139 5 $7,987,811 $0 $7,987,811 0.59 $4,740,377 6 $8,523,991 $0 $8,523,991 0.53 $4,557,274 7 $9,016,881 $0 $9,016,881 0.48 $4,343,057 8 $8,406,489 $0 $8,406,489 0.43 $3,647,798 9 $10,601,534 $0 $10,601,534 0.39 $4,144,402 10 $6,694,617 $129,303,604 $135,998,221 0.35 $47,896,462 - -------------------------------------------------------------------------------- NET PRESENT VALUE $86,002,629 (1) AVG. NET OPERATING INCOME-YR 9-13 $11,853,475 DIVIDE TERMINAL CAPITALIZATION RATE / 9.00% ------------------------------------------------------ REVERSIONARY SALE PROCEEDS $131,705,276 LESS: 11TH YEAR TENANT IMPROVEMENTS ($877,926) LESS: 11TH YEAR COMMISSIONS/RESERVE ($217,649) ------------------------------------------------------ SUBTOTAL $130,609,701 LESS: COSTS OF SALE ($1,306,097) NET REVERSIONARY PROCEEDS $129,303,604 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 148 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- YIELD CAPITALIZATION ANALYSIS (continued) The following pricing matrix has been calculated based on the discounted cash flow model found on the preceding page. The matrix displays the range of net present value as a function of both the yield rate or internal rate of return and the terminal capitalization rate. - -------------------------------------------------------------------------------- TERMINAL CAPITALIZATION RATES 8.50% 9.00% 9.500% 10.00% 10.50% - -------------------------------------------------------------------------------- I 10.75% $90,287,709 $87,524,892 $85,052,898 $82,828,103 $80,8l5,l94 R R 11.00% $88,703,87 $86,002,629 $83,585,749 $81,410,558 $79,442,528 R 11.25% $87,155,209 $84,514,082 $82,150,969 $80,024,167 $78,099,917 A T 11.50% $85,640,903 $83,058,401 $80,747,741 $78,668,146 $76,786,609 E S 11.75% $84,160,065 $81,634,758 $79,375,273 $77,341,737 $75,501,870 - -------------------------------------------------------------------------------- Based on the subject's size, quality, age, anchor tenant composite, and location in Downtown Minneapolis, it is the appraisers' opinion that a yield and terminal capitalization rate near the lower end of the range would be appropriate. ================================================================================ Estimated Market Value By Yield Capitalization, $86,000,000 ================================================================================ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 149 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL The Gaviidae I retail component consists of a five level specialty retail mall anchored by a four level Saks Fifth Avenue Department store. Retail levels one and two are generally occupied by regional and national retail tenants. The third, fourth and fifth floors were converted to general office space in 1996 and are nearly 100% occupied by National City Bank. Tenant areas and vacancy are exhibited below: GAVIIDAE I --------------------------------------------------------------- % of Expiration Remaining Major Tenants Area-sf GLA Date Term-Yrs --------------------------------------------------------------- Saks Fifth Avenue 118,338 46.5% 1/31/15 17.90 National City Bank 95,757 37.6% 3/31/06 9.09 --------------------------------------------------------------- Total Anchors 214,095 84.1% In-Line Retail 33,792 13.3% Vacant In-Line Retail 6,593 2.6% --------------------------------------------------------------- Total GLA 254,480 100.0% --------------------------------------------------------------- The Gaviidae II retail component consists of a four level specialty retail mall anchored by a four level Neiman Marcus Department store. Retail levels one through three are generally occupied by regional and national retail tenants. The fourth floor is operated as a food court. Tenant areas and vacancy are exhibited below: GAVIIDAE II --------------------------------------------------------------- % of Expiration Remain. Major Tenants Area-sf GLA Date Term-Yrs --------------------------------------------------------------- Neiman Marcus 119,271 63.2% 1/2004 7.08 Total Anchors 119,271 63.2% % Occupied Vacant Vacant ------------------------------ Food Court 12,031 6.4% 5,561 6,470 53.8% In-Line Retail 57,562 30.5% 39,153 18,409 32.0% ------------------------------------------------------------------------ Totals 188,864 100.0% 24,879 13.2% ------------------------------------------------------------------------ For the most part leases are written on a net basis with the tenant paying their pro-rata share of operating expenses (offset by anchor CAM contribution) and real estate taxes over the leasable area. However, as a result of weak sales, a number of tenants in both developments are paying a gross rent based on a percent of total sales, usually 10%. Rent rolls are included in the respective Income Approach sections. Major tenant lease summaries are included in the Addenda of this report. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 150 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) The Downtown Minneapolis retail market is comprised of approximately 1,800,000 square feet of store, restaurant and service space including an extensive skyway retail component. The Downtown retail market contracted with the closing of the Conservatory in the Third Quarter of 1996. This property, which measured roughly 380,000 square feet, is scheduled for demolition in the First Quarter of 1997. The bulk of all shopping retail is comprised in the following properties. <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ GLA- Vacant Overall In-Line Vacant In-line Quoted Net Rent Operating 1996 Property SF SF Vacancy SF SF Vacancy Low/sf High/sf Expense/sf Sale/sf Anchors - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> IDS Crystal Court 166,298 8,888 5.3% 100,720 8,888 8.8% $20.00 $75.00 $13.56 $236 TJ Maxx (35,578 sf) Gap, Gap Kids Banana Republic AMEX Cafeteria (30,000 sf) William-Sonoma Gaviidae Common I 254,480 6,593 2.6% 42,092 6,593 15.7% $15.00 $30.00 $23.58 $244 Saks Fifth Avenue (118,338 sf) National City Bank (95,575 sf) Gaviidae Common II 188,864 24,879 13.2% 69,593 24,879 35.7% $20.00 $40.00 $28.81 $244 Neiman Marcus (119,271 sf) Dayton's Dept. Store 500,000 0 0.0% 0 0 0.0% City Center 370,150 45,557 12.3% 215,351 45,557 21.2% $15.00 $30.00 $22.94 $189 Montgomery Ward (104,636 sf) Marshall's (50,163 sf) - ------------------------------------------------------------------------------------------------------------------------------------ Totals/Average 1,479,792 85,917 5.8% 427,756 85,917 20.1% $17.50 $43.75 $22.22 $228 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> A brief discussion of IDS and City Center are as follows: IDS Crystal Court - The IDS Center is a mixed use development containing office, retail, parking and hotel applications. The property was built in 1973. The retail component is located on the basement, first and second (skyway) levels and contains approximately 166,000 square feet. Occupancy is 95%. In 1993, the retail area underwent a substantial redevelopment including the addition of Gap, Gap Kids, and Banana Republic in the former Woolworth's space. Banana Republic relocated from their location in the Conservatory. With their new store in the IDS Center less than a block away, the Gap is not expected to renew their lease at the City Center. It is rumored that the TJ Maxx store, which is located in the basement, may close. Marshall's and TJ Maxx merged in 1995 and the economics of operating two stores within several hundred feet of each other is reportedly poor. There is currently one large vacancy located on the first floor. This space has been vacant for two years. Total retail sales for 1996 are reported at $236 per square foot, up from $228 per square foot in 1995. City Center - City Center consists of a 50-story, 1,081,641 rentable square foot Class A office tower, a 104,636 square foot department store occupied by Montgomery Ward, a 50,163 square foot store occupied by Marshall's, and a 215,478 square foot, multi-tenant, three level, vertical retail mall. The entire development was constructed in 1981 and 1982. The specialty retail portion is referred to as City Center. There are over 60 tenants in this portion of the retail center. In addition, Marshall's and Montgomery Ward anchor the specialty retail component. The department store area was formerly occupied by a single tenant; Carson Pirie Scott. In January of 1993, City Center's anchor retail tenant, Carson Pirie Scott (275,276 square feet) vacated the property due to financial difficulty. Ownership responded with a major renovation of the project Including the reconfiguration of this former anchor tenant space. New tenants included Filene's Basement, Montgomery Wards, and a variety of mall retail tenants. The renovation was completed in September of 1993 at a total cost of approximately $20,000,000. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 151 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) Filene's Basement vacated the property on February 28, 1995. The lease was assigned to Marshall's who took occupancy on March 1, 1995. It should be noted that Filene's Basement closed all of their Twin Cities stores with exception to a single store at the Mall of America in Bloomington. The Mall of America store reportedly has a continuous occupancy clause. Retail sales history is offered below: --------------------------- Year $ Sales $/Sf(1) --------------------------- 1991 $62,123,487 $145 1992 $49,031,140 $101 1993 $44,098,708 $127 1994 $48,817,619 $146 1995 $46,281,232 $138 1996 $44,922,314 $135 --------------------------- (1) Sales per square foot of occupied area The precipitous decline between 1991 and 1992 sales volume was almost entirely due to the closure of Carson Pirie Scott. Lower sales volume and increased vacancy have led to lower rents. Compared to the Gaviidae Developments, City Center is predominantly occupied with lower price point retailers. For the most part, the tenant composite is consistent with that found at regional malls throughout the Twin Cities area. Operating expenses were $22.35 per square foot in 1996. For 1997, budgeted expenses are $23.59 per square foot, an increase of 5.5%. Overall, the Gaviidae Developments do not directly compete with City Center. Both Towle and the Minnesota Shopping Center Association (MSCA) classify City Center as a regional mall. IDS Crystal Court and the subject Gaviidae developments are classified as specialty centers. MSCA describes specialty centers as... "generally unanchored centers offering discretionary goods retailers." Historical occupancy information for the Specialty Center classification is offered on the following page: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 152 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) SPECIALTY RETAIL HISTORICAL VACANCY & ABSORPTION FIRST QUARTER 1991 - FIRST QUARTER 1996 - -------------------------------------------------------------------------------- TOTAL TOTAL STUDY # OF RENTABLE AMOUNT PERCENT NET % Sector DATE BLDGS AREA-SF VACANT VACANT ABSORPTION ABSORBED - -------------------------------------------------------------------------------- Minneapolis 1991 5 740,246 182,770 24.69% (44,646) -6.03% 1992 5 732,246 222,535 30.39% (47,765) -6.52% 1993 6 787,544 187,941 23.86% 108,594 13.79% 1994 6 787,544 267,117 33.92% (79,176) -10.05% 1995 5 701,946 257,500 36.68% 3,817 0.54% 1996 5 701,946 254,500 36.26% 82,798 11.80% 1997 4 550,169 85,748 15.59% 23,752 4.32% - -------------------------------------------------------------------------------- Southwest 1991 1 242,355 0 0.00% 0 0.00% (Galleria) 1992 1 417,784 75,201 18.00% 100,228 23.99% 1993 1 417,784 75,201 18.00% 0 0.00% 1994 1 417,784 62,200 14.89% 13,001 3.11% 1995 1 417,784 75,201 18.00% (13,001) -3.11% 1996 1 417,784 31,000 7.42% 44,201 10.58% 1997 1 417,784 8,000 1.91% 23,000 5.51% - -------------------------------------------------------------------------------- St. Paul 1991 3 200,200 29,500 14.74% 28,500 14.24% 1992 3 261,535 75,155 28.74% (42,655) -l6.31% 1993 5 261,535 27,048 10.34% 3,022 1.16% 1994 3 262,650 22,580 8.60% 5,583 2.13% 1995 5 262,650 25,976 9.89% (3,396) -1.29% 1996 5 262,650 28,000 10.66% (2,024) -0.77% 1997 5 262,650 17,862 6.80% 10,138 3.86% - -------------------------------------------------------------------------------- West 1991 1 74,600 40,284 54.00% 81 0.11% 1992 1 74,600 57,500 77.08% (17,216) -23.08% 1993 0 0 0 0.00% 0 0.00% 1994 0 0 0 0.00% 0 0.00% 1995 0 0 0 0.00% 0 0.00% 1996 0 0 0 0.00% 0 0.00% 1997 0 0 0 0.00% 0 0.00% - -------------------------------------------------------------------------------- Total 1991 9 1,257,401 252,554 20.09% (16,065) -1.28% 1992 10 1,486,165 430,391 28.96% (7,408) -0.50% 1993 12 1,466,863 290,190 19.78% 111,616 7.61% 1994 12 1,467,978 351,897 23.97% (60,592) -4.13% 1995 11 1,382,310 358,677 25.95% (12,580) -0.91% 1996 11 1,382,380 313,500 22.68% 124,975 9.04% 1997 10 1,230,603 111,610 9.07% 56,890 4.62% - -------------------------------------------------------------------------------- SOURCE: TOWLE REAL ESTATE COMPANY - -------------------------------------------------------------------------------- In order to understand the condition of the specialty retail market it is necessary to look at the historical evolution of this product type. According to Towle Real Estate, there were 12 specialty center properties in the Twin Cities as of the First Quarter of 1988. Gaviidae I opened in 1989. A listing is as follows: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 153 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) Market Sector Property - -------------------------------------------------------- Minneapolis Conservatory IDS Crystal Court Calhoun Square St. Anthony Main (Phases I-IV) Riverplace Gaviidae I (subject property) Gaviidae II (subject property) St. Paul Galtier Plaza Bandanna Square Victoria Crossing (2 properties) Pavilion Place Southwest Galleria West Bonaventure A historic outline is offered below: 1988 - In 1988, the Conservatory opened with much anticipation. It was the highest quality and most upscale development in the Twin Cities. With the opening of the Conservatory, the specialty center market experienced approximately 75,000 square feet of positive absorption and an overall occupancy of 86%. This positive absorption was short-lived. Over the next four years, the specialty market experienced four years of negative absorption, totaling 155,000 square feet. 1989 - By 1989, construction of Gaviidae Common/Saks Fifth Avenue was well under way. At the time, Towle classified both Gaviidae I and II as Regional Centers given the anchor presence of Saks Fifth Avenue and Neiman Marcus. Although not classified as specialty centers, the in-line tenant mix was specialty, creating further competition in this market sector. Between 1988 and 1989, specialty center vacancy increased from 14.3% to 20.1%. 1990 - A fairly quiet year with no additions to the market. However, vacancy increased to 21.5%. 1991 - Although the specialty market was struggling enormously, not until this point did physical/conceptual changes occur like in 1991. Pavilion Place, in Roseville, was essentially demolished and incorporated into the Crossroads of Roseville community center. St. Anthony Main (Phases I, II, & III) was converted primarily to office space and was taken out of the study. Galleria, the one bright spot in the specialty market, completed a 175,000 square foot expansion. Towle classifies Galleria as a specialty center despite the fact that it is anchored by a flagship Gabberts furniture store. At 150,000 square feet, this is the largest retail furniture store in the Twin Cities, if not the region. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 154 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) Even with the removal of these centers from the Survey, vacancy improved only modestly, from 21.5% to 20.1%. This indicates that a significant portion of the vacant space is located in the surviving centers. 1992 - With the anticipated opening of the Mall of America, the regional and specialty markets were bracing for new competition. Nearly all of the regional malls had either undergone or were in the process of renovation. Gaviidae II opened and for the fourth consecutive year, the specialty center sector experienced negative absorption. As of the First Quarter of 1992, vacancy had reached an all-time high of 29.0%. 1993 - The Mall of America opened in August of 1992 adding 2,300,000 square feet to the existing market. Riverplace opened the night club concept dubbed "Mississippi Live" occupying nearly 65,000 square feet in the troubled center. At the Conservatory, all remaining retail tenants were moved to levels 1 and 2. LaSalle Plaza opened, adding 68,000 square feet to the specialty center market. The Palomino and The Rock Bottom Brewery restaurants were the only tenants in occupancy. Bonaventure, one of the Twin Cities' original specialty centers was purchased by CSM Corporation and converted to a neighborhood center anchored by two restaurants (Chammps and Leann Chin) and three discount retailers (Border's Book Shop, Filene's Basement and JoAnn Fabrics). In January of 1993, Carson Pirie Scott vacated their 275,000 square foot store at City Center. The space was reconfigured resulting in an additional 12,500 square feet of in-line tenant space. The additional in-line space added further competition to the market. 1994 - Specialty center vacancy rates rose from 19.8% to 24% from the First Quarters of 1993 to 1994. At the IDS Crystal Court, F.W. Woolworth closed its store to make way for The Gap, Gap Kids and Banana Republic. Both Saks Fifth Avenue and Neiman Marcus converted their upper floors for the sale of clearance items only. Mississippi Live at Riverplace closed and the center was removed from the Towle retail survey. 1995 - Leasing efforts at the Conservatory were halted and the property was removed from the Towle survey. The upper levels of Gaviidae I are vacated and renovated into office space for National City Bank. Brookfield reaches a multi-year settlement with the Minneapolis Assessor's Office to reduce the assessed value of Gaviidae I. For taxes payable in 1995, the value was reduced from $23,000,000 to $12,800,000. 1996 - Bandanna Square, a 148,000 square foot former specialty center in St. Paul sold for $1.9 million or $13 per square foot. Although the first floor is occupied by retailers and several restaurants, the second floor has been converted to office and banquet room space. Ryan Cos. and Irwin Jacobs enter into a purchase agreement on the Conservatory property. Demolition was planned in 1997. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 155 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) The specialty retail market was initially well received by both tenants and patrons. Bonaventure, St. Anthony Main, Riverplace, and Bandanna Square were well occupied and tenant sales in the $400+ per square foot range were fairly common. However, by 1987 the market began to suffer as consumer spending habits changed from upscale to discount oriented shopping. The results are clear. Between 1987 and 1989, all four phases of St. Anthony Main were taken back by their respective lenders. In 1989, the St. Paul Port Authority took back Bandanna Square. By 1990, the Conservatory, just completed three years earlier, began losing tenants (the most noteworthy being Orvis and Harolds). By 1992, the retail component was approximately 50% vacant. The downturn experienced in the specialty retail market resulted from a change in consumer spending and perhaps from a flawed concept. The movement from upscale to discount spending was evident by 1990. The "shop 'til you drop" mentality of the 1980's was over. The economy became recessionary following the Gulf war. A study completed in September of 1993 by the Urban Land Institute found that discounters accounted for 43% of total retail sales in 1992, up from 41% in 1991. The discounters' gain has come at the expense of smaller retailers. The concept also had shortcomings. Restaurants were not anchor tenants. They failed to attract retail customers. Regardless of the anchor tenant composite, leasing upper levels proved extremely difficult. Drawing suburban shoppers also proved difficult. Suburban shoppers were often unwilling to pay for parking. Some were not comfortable with congested urban settings where most specialty centers are located. These type of properties generally thrive in heavily populated urban areas like Chicago and Boston. However, cities like Minneapolis have a very small Downtown residential population. The concept of shopping as entertainment gave way to convenience shopping. Discounters continued to account for a greater percent of total retail sales. Property owners have responded by replacing upscale retailers with more value-oriented or discount players. For example, both Saks Fifth Avenue and Neiman Marcus have converted their upper floors to clearance areas. IDS Crystal Court added T. J. Maxx. Target has announced plans to open a Target store just two blocks south of Gaviidae I on the Nicollet Mall. At City Center, Montgomery Ward and the quintessential discounter, Filene's Basement, took occupancy after Carson Pirie Scott vacated in 1993. Following Filene's closure, Marshall's took occupancy. This trend has pressured down overall sales in the Downtown area. Between 1994 and 1996, total retail sales at Gaviidae I, Gaviidae II, City Center and the IDS Crystal Court have fallen 9% from $153 million to $139 million. This downward trend is not expected to continue at the subject Gaviidae Developments given the improving occupancy level of Gaviidae II and the conversion of the upper three floors of Gaviidae I to general office space. Furthermore, despite overall under-performing anchor tenant sales, Saks has experienced improved volume over the last two years as exhibited on the following page. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 156 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------- 1994 1995 1996 Department Store SF $ $/SF SF $ $/SF SF $ $/SF - -------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Neiman Marcus 119,271 $14,909,415 $125.00 119,271 $14,889,991 $124.84 119,271 $14,832,028 $124.36 Saks 118,338 $13,658,213 $115.42 118,338 $15,014,792 $126.88 118,338 $16,603,939 $140.31 - -------------------------------------------------------------------------------------------------------------- Subtotal 237,609 $28,567,628 $120.23 237,609 $29,904,783 $125.86 237,609 $31,435,967 $132.30 - -------------------------------------------------------------------------------------------------------------- </TABLE> Given the historical performance of the upscale market, it is unlikely that this market segment will experience further competition. In fact, the trend appears to be moving in the opposite direction; toward more value-oriented retailing. The announcement of the two-level Target on the Nicollet Mall is an example. Unlike most neighborhood or community centers, specialty centers appear to survive only under the most favorable circumstances. They require an excellent location, a prosperous economy with high levels of discretionary income, a strong tenant base and competent management. Take one or more of these characteristics out and the center usually fails. On the other hand, a neighborhood or community center may be poorly located with limited exposure or be located in a declining neighborhood. However, because these type of centers are predominantly occupied by tenants providing essential good and services (non-discretionary items) like groceries, fuel, drugs and dry cleaning, they are not affected, to the degree a specialty center is, by market influences. The Community Center market was clearly the benefactor of these changing market conditions. According to Towle, community center development grew from 7.55 million square feet in 1990 to 12.5 million square feet in 1996, a 66% increase. The development was fueled by the expansion of several larger national anchor tenants including Sportmart, Barnes & Noble Bookstore, Toys-R-Us, Office Max, Wal-Mart, Marshall's, T.J. Maxx, Kohls, Best Buy and Target. Also fueling development was the consolidation of the grocery industry. Locally based Super Valu, recently acquired the Red Owl Food store chain and merged with Wetterau, a Missouri based food supplier. Super Valu, with their Cub Foods stores and Gateway/Scrivner, with their Rainbow Foods stores, have become the major players in the marketplace. Many of the smaller stores in the metro have closed as a result of fierce competition. Both grocers have become desirable anchor tenants. There was also fierce competition among the discounters. The Twin Cities has experienced substantial anchor tenant fallout in the last several years. Closures include Highland Superstores, Carson Pirie Scott, Filene's Basement (with exception to the Mall of America store which has a continuous occupancy clause), Best, Children's Palace and most recently F&M Drug. Although not in the Twin Cities market, Phar-Mor has closed several stores in the Wisconsin market. As a result of increased competition, shopping center investors realize that the trend is likely to continue and many are factoring in either a vacancy or credit loss deduction against anchor income. Another factor that may explain the lack of demand are the high occupancy costs including not only rent, CAM and real estate taxes, but also worker's compensation and health insurance. Minnesota's worker's compensation and real estate taxes are among the highest in the nation. With increased competition and high operating costs, profit margins are pressured downward. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 157 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) The "sales mentality" is also pressuring profit margins down as customers are becoming less willing to pay full retail knowing full well that most items will go on sale within a short time frame. The large national tenants such as Target, Dayton's, Wal-Mart, Sears, and K-Mart have increased the frequency of such sales to the point where a customer may only have to wait one week or so before an item is clearance priced. This mentality has most negatively affected the small retail tenants who cannot make up lost revenue with increased volume. As of the appraisal date, there are essentially only six specialty retail centers operating in the Twin Cities; Gaviidae I and II, Galleria, Calhoun Square, IDS Crystal Court, and Victoria Crossings, a small development located on Grand Avenue is St. Paul. Bandanna Square is a hybrid office, banquet facility and restaurant location with no recognized retailers. Galtier Plaza in Downtown St. Paul has struggled since it was built and is generally considered a failure. The Conservatory, which is scheduled for demolition sometime in 1997, requires some additional commentary. This property was a 249,000 square foot, upscale retail center with office space on the fifth and sixth floors. Tenants originally included Mark Shale, Harold's, FAO Schwartz, Coach, Banana Republic, Williams Sonoma, Tejas Restaurant, Goodfellow's Restaurant, Orvis and a host of other upscale retailers. The property is skyway linked over South 8th Street to Dayton's in two places and also has a tunnel under South 8th Street connecting both lower levels of retail. The property, which opened in 1987, was developed for approximately $75,000,000 by a partnership of Bob Dayton, M.A. Mortensen Development Company and Northco, Ltd. In terms of construction quality the property was clearly one of the best in the Downtown area. The property never reached its potential due to the difficulty in floor to floor movement for patrons. The property also suffered from a retail standpoint in that it did not have an atrium to allow shoppers visual continuity between floors. These challenges were created by the mid-block position of the historically designated 800 Nicollet Mall office building which could not be razed during initial construction. Although the upscale retail market has softened considerably since the 1980's, it was not the primary reason for this property's failure. The property's design was the major problem. In 1992, the property was sold for $434,000 as part of a package of distressed properties offered by Mellon Bank. By that time, the retail portion was significantly vacant. The property was resold to a local investor in December of 1993 for $1,500,000. As of the appraisal date, the property is entirely vacant except for a three office tenants. Ryan Cos. has reportedly reached an agreement with Jacobs to demolish the property and build a 750,000 to 800,000 square foot office tower, preliminarily called the 800 Nicollet Mall Tower. Ryan has yet to announce an anchor tenant for the development. This most recent negotiated purchase agreement is referenced as a pending land sale in the Land Sales Comparison Approach Section of this report. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 158 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) A breakdown of individual tenants' sales volume since 1994 is included in the Addenda of this report. Given the relatively small size of the Downtown multi-tenant retail market and the property position at the upper end of the retail tenant profile, the subject's historical operating experience was considered to be the most relevant source of market data. The best indication of the subject's rent potential is available in reviewing the leases negotiated and signed in the last several years at both Gaviidae Developments. For perspective, a lease activity summary has been included as follows: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 159 - -------------------------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ 1995 ACTIVITY AVG FREE RENT EFF RENT/ AREA/ LEASE AVG ANNUAL FREE PER SF/YR SQ. FT. STATUS SUITE TERM YRS SQ.FT. RENTAL RATE RENT/SF STEP-UP RENT OF TERM BEFORE TI'S - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1 JESSICA McCLINTOCK NEW 251 11/95-1/06 10.00 2,104 $20.00 - $20.00 $20.00 0.0% $0 $0.00 $20.00 2 LA TORTILLARIA NEW FC3 11/95-1/05 10.00 551 $35.00 - $45.00 $40.55 2.9% $5,374 $0.98 $39.57 3 D'AMICO NEW 169 10/95-1/06 10.25 3,216 $0.00 - $0.00 $0.00 0.0% $0 $0.00 $0.00 4 TOTALLY ORGANIZED NEW 135 8/95-1/05 9.42 3,413 ($13.13) - ($10.69) ($13.13) -2.0% $0 $0.00 ($13.13) 5 ST. CROIX KNITS NEW 227 4/95-2/07 11.75 1,352 $18.00 - $30.00 $23.70 5.7% $0 $0.00 $23.70 - ----------------------------------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGES 10.11 10,636 $3.84 - $6.67 $4.86 4.19% $0.05 $4.81 x AVG. LEASE TERM 10.11 ----------------- ----- SUBTOTAL $0.51 - ----------------------------------------------------------------------------------------------------------------------------------- 1996 ACTIVITY 6 BETLACH JEWELERS NEW 297 8/96-4/07 10.67 1,592 $17.00 - $24,00 $21.00 3.9% $35,849 $2.11 $18.89 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 1997 ACTIVITY 7 LIN COMPANY NEW 291 5/97-1/02 4.75 350 $26.50 - $26.50 $26.50 0.0% $0 $0.00 $26.50 8 ANN TAYLOR NEW 279 11/97-1/08 10.25 4,768 $12.00 - $18.00 $14.63 4.9% $0 $0.00 $14.63 9 FRANKLIN QUEST NEW 207 6/97-1/04 6.42 1,655 $20.00 - $25.00 $21.56 3.9% $0 $0.00 $21.56 10 TRAIL MARK NEW 107 3/97-2/02 5.00 1,464 ($2.76) - ($2.76) ($2.76) 0.0% $0 $0.00 ($2.76) - ----------------------------------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGES 8.31 8,237 $11.60 - $16.08 $13.44 3.35% $0.00 $13.44 x AVG. LEASE TERM 8.31 ----------------- ----- SUBTOTAL $0.00 <CAPTION> - ---------------------------------------------------------------------------------------------- 1995 ACTIVITY EFF COMM'S EFF RENT/ T.I'S PER RENT/SF PER SF/ SF AFTER TOTAL SF PER YR BEFORE TOTAL YR OF TI'S & TI'S OF TERM CONM'S COMM TERM COMM'S - -------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> 1 JESSICA McCLINTOCK $170,614 $8.11 $11.89 $6,312 $0.30 $11.59 2 LA TORTILLARIA $31,156 $5.65 $33.92 $1,653 $0.30 $33.62 3 D'AMICO $24,662 $0.75 ($0.75) $9,648 $0.29 ($1.04) 4 TOTALLY ORGANIZED $139,020 $4.32 ($17.45) $10,239 $0.32 ($17.77) 5 ST. CROIX KNITS $85,870 $5.41 $18.29 $4,056 $0.26 $18.04 - -------------------------------------------------------------------------------------------- WEIGHTED AVERAGES $4.20 $0.61 0.30 $0.31 x AVG. LEASE TERM 10.11 10.11 ----------------- ------ ----- SUBTOTAL $42.45 $3.01 - -------------------------------------------------------------------------------------------- 1996 ACTIVITY 6 BETLACH JEWELERS $199,023 $11.72 $7.17 $4,776 $0.28 $6.89 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- 1997 ACTIVITY 7 LIN COMPANY $0 $0.00 $26.50 $1,050 $O.63 $25.87 8 ANN TAYLOR $476,800 $9.76 $4.87 $14,304 $0.29 $4.58 9 FRANKLIN QUEST $55,029 $5.18 $16.38 $4,965 $0.47 $15.91 10 TRAIL MARK $17,350 $2.37 ($5.13) $4,392 $0.60 ($5.73) - -------------------------------------------------------------------------------------------- WEIGHTED AVERAGES $7.11 $6.33 0.40 $5.93 x AVG. LEASE TERM $8.31 8.31 ----------------- ------ ----- SUBTOTAL $59.10 $3.30 </TABLE> <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) Since 1995, 20,465 square feet of new retail leasing activity has occurred at both properties. In addition, National City Bank leased 95,757 square feet of office and retail banking space at Gaviidae I. From review of the lease activity summary (retail only) several of the leases involve negative net rental rates. A negative net rate indicates that the tenant's gross rent (typically 10% of sales) does not cover the tenant's pro-rata share of operating costs and taxes. This is the case with Totally Organized and Trail Mark. For the most part, retail lease terms ranged from five to twelve years with an average near ten years. Although these leases provide an indication of the subject's rent potential, another method of determining rent involves review of the existing tenant's retail sales. More often than not, this provides a better picture of the retail environment. Retail sales are a barometer of the property's overall strength. Sales volumes among the retail tenants are very low compared with the median sales statistics reported by Dollars and Cents of Shopping Centers 1995. Furthermore, with operating expenses between $22 and $27 per square foot, gross occupancy costs are very high relative to sales. A gross occupancy cost comparison is included in the addenda of this report. The synopsis is as follows: Gaviidae I & II Gross Rent Comparison - -------------------------------------------------------------------------------- Gross Rent $ & Cents Disparity Area Per SF vs. Gross Rent % - -------------------------------------------------------------------------------- Anchors $10.13 vs. $3.56 64.9% First Floor $35.53 vs. $37.77 -6.3% Second Floor $45.48 vs. $31.65 30.4% Third Floor $15.63 vs. $16.50 -5.6% Food Court-4th Floor $44.18 vs. $43.79 0.9% - -------------------------------------------------------------------------------- From this comparison, it is apparent that, other than the food court tenants, the remaining tenants are generating sales well below the median figures reported by Dollars & Cents. Or put another way, these tenants are paying too much rent for the sales they are generating. The gross occupancy cost to sales ratio is very high at the subjects as exhibited below: Gaviidae I & II - Gross Rent to Sales Ratio - -------------------------------------------------------------------------------- Gross Divide Gross Rent/ Rent Sales Sales Ratio - -------------------------------------------------------------------------------- Anchors $2,408,065 $31,435,967 7.75% First Floor $1,270,654 $10,778,925 11.8% Second Floor $1,563,947 $7,649,391 20.4% Third Floor $181,788 $1,526,041 11.9% Fourth Floor $245,683 $1,897,991 12.9% - -------------------------------------------------------------------------------- Total Non-Anchor $3,262,071 $21,852,348 14.9% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 161 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) At the subject developments, gross occupancy costs have consistently been very high. Based on 1996 sales, the figures ranged from 11.8% to 20.4% with an average of 14.9%. For most tenants, an acceptable ratio is between 10% and 12% of gross sales. This is consistent with several recent deals which were based on a gross rent of 10% of sales. Because of this high ratio among nearly every tenant type, the subject is experiencing excessive turnover and declining net rents. The ratio exhibited by fourth floor food court tenants appears to be in line with the market. However, it should be noted that these tenants do not pay for additional food court expenses such as cleaning and trash removal, found at nearly every other food court in the Twin Cities. At City Center, this additional charge of $7.26 per square foot, is added to the base operating expense of $22.35 per square foot resulting in a total expense of $29.61 per square foot. Management/leasing does not charge the Gaviidae II food court tenants for these additional charges arguing that the entire retail development benefits from the number of people patronizing this area. This partially explains why the ratio is in line with the market. Operating expenses for 1997 are quoted as follows: Operating/sf Taxes/sf Total/sf - -------------------------------------------------------------------------------- Gaviidae I $17.41 $4.43 $21.84 Gaviidae II $19.82 $8.32 $28.14 Expenses at Gaviidae II are higher for several reasons. First, as noted in the office Parking Income Section, Gaviidae II has a promotional parking program 'We've got a Spot" whereby the validated costs of parking are allocated to retail CAM. Second, the additional cost of operating the food court are included in CAM. Gaviidae I does not have a food court. Third, taxes at Gaviidae II are higher given the value of the entire development, including the Dain Plaza office tower, are allocated on a per square foot basis. Arguably, the tower is worth more, on a per square foot basis, than the retail component. As such, the retail component is paying a proportionally larger share of the property's real estate taxes thereby subsidizing the office tower. Finally, Gaviidae II has much higher utility costs. Gaviidae II buys chilled water from the municipal energy center. At Gaviidae I, chilled water is provided by two on-site wells. The cost disparity equates to approximately $2.75 per square foot. Economies of scale also come into play. The in-line component of Gaviidae I measures 136,142 square feet versus 69,953 square feet at Gaviidae II, 95% larger. The above operating expenses are comparable to those found at suburban regional malls throughout the Twin Cities. On the surface, this expense level appears fairly reasonable when compared to other regionals. Keep in mind however, that the suburban malls are much larger than the subject, have several anchor tenants, and draw substantially more shoppers. In fact, suburban regionals should be more expensive to operate than the subject given the size of their exterior common area and parking lots. The subject should benefit from economies of scale realized in operating both developments. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 162 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) Expenses aren't the only challenge for the subject retail component. Over the last several years, sales volume has been hurt by the opening of the Mall of America as well as the continued expansion of community centers and big-box developments. According to Towle, community center development grew from 7.55 million square feet in 1990 to 12.5 million square feet in 1996, a 66% increase. Downtown retailers have historically missed out on the night and weekend business. Suburban shopping malls offer free parking, a less congested area of travel, and a 1/2% lower sales tax on all non-clothing purchases. The Mall of America continues to attract convention center attendees who previously visited the Downtown retail stores. Dayton's dominance in this market, and particularly Downtown, has also hurt other Downtown anchor department stores. Neiman Marcus and Saks also compete with Macy's and Nordstrom at the Mall of America. At the subject properties, management has offered rent relief, either through lease conversions to percentage rent only, or through rent write-offs to the following tenants: Gaviidae I - -------------------------------------------------------------------------------- ---- Revised Rent ---- Original Net or Gross Min. Tenant Area-sf Net Rent $/sf Gross Rent % Minimum $/sf - -------------------------------------------------------------------------------- Olds Pendelton 2,197 $37.00 $8.77 5% of sales $19,260 $8.77 Totally Organized 3,413 l2% of sales $0 $0.00 Eddie Bauer 5,443 $37.00 $25.00 $0 $0.00 Pretzel Time 508 $34.32 $25.20 $0 $0.00 Custom Shop 780 $50.00 $24.36 $0 $0.00 - -------------------------------------------------------------------------------- Gaviidae II - -------------------------------------------------------------------------------- ---- Revised Rent ---- Original Net or Gross Min. Tenant Area-sf Net Rent $/sf Gross Rent % Minimum $/sf - -------------------------------------------------------------------------------- Morton's 7,759 $23.00 $22.62 $0 $0.00 Villa Pizza 1,331 $22.00 15% of Sales $0 $0.00 - -------------------------------------------------------------------------------- Several leases have been written with a percentage rent provision only, whereby the tenant's gross rent is equal to a percent of sales. Tenants with this provision are exhibited below: Gaviidae I - -------------------------------------------------------------------------------- Gross Rent % of Tenant Area-sf Sales - -------------------------------------------------------------------------------- Totally Organized 3,413 10% St. Croix Knits 1,352 10% - -------------------------------------------------------------------------------- Total 4,765 - -------------------------------------------------------------------------------- Gaviidae II - -------------------------------------------------------------------------------- Gross Rent % of Tenant Area-sf Sales - -------------------------------------------------------------------------------- Talbot's 5,328 5% Aveda 1,600 10% Jone Vass 1,776 10% Horst Salon 4,300 10% Richard James 5,868 10% - -------------------------------------------------------------------------------- Total 18,872 - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 163 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) The first and second floors are the most desirable and command the highest per square foot rents (other than food court). The third and fourth floors, except for the food court, are the least desirable. At Gaviidae I, the entire fifth, fourth and a majority of the third floor was converted to office space for National City Bank. Retail Sales by floor are exhibited below: Gaviidae I & II - Retail Sales by Floor - -------------------------------------------------------------------------------- 1995 1996 Area $ $/SF % of Total $ $/SF % of Total - -------------------------------------------------------------------------------- Anchors $29,904,783 $125.86 54.3% $31,435,967 $132.30 59.0% First Floor $10,566,045 $257.43 19.2% $10,778,925 $301.44 20.2% Second Floor $8,486,183 $169.48 15.4% $7,649,391 $190.81 14.4% Third Floor $1,897,608 $80.79 3.4% $1,526,041 $109.07 2.9% Fourth Floor $2,687,288 $90.93 4.9% $1,897,991 $240.71 3.6% Fifth Floor $1,551,307 $89.08 2.8% $0 $0.00 0.0% - -------------------------------------------------------------------------------- Total $55,093,214 $124.27 100% $53,288,315 $120.20 100.0% - -------------------------------------------------------------------------------- Gaviidae I & II - Rent by Floor - -------------------------------------------------------------------------------- Gross Avg. Avg. = Avg. Area Rent/sf Cam/sf Tax/sf Net Rent/sf - -------------------------------------------------------------------------------- Anchors $10.13 $1.22 $5.21 $3.70 First Floor $35.53 $18.76 $6.61 $10.17 Second Floor $45.48 $18.51 $6.21 $20.76 Third Floor $15.63 $17.41 $4.43 -$6.21 Fourth Floor $44.18 $19.82 $8.32 $16.04 Fifth Floor Occupied by National city Bank - -------------------------------------------------------------------------------- A current vacancy summary by floor is offered below. The fourth and fifth floors at Gaviidae I were not included as they are entirely occupied by National City Bank. Leasing Activity ('95 - '97) First Second Third Food Court - -------------------------------------------------------------------------------- No. of Deals 3 6 0 1 Weighted Avg Net Rent ($6.04) $18.80 -- $40.55 Area Leased-sf 8,093 11,821 -- 551 Food Current Vacancy Summary First Second Third Court - -------------------------------------------------------------------------------- Vacant area-sf(1) 2,827 5,118 16,072 6,470 Divide GLA / 29,715 38,013 44,525 12,031 - -------------------------------------------------------------------------------- Vacancy 9.5% 13.5% 36.1% 53.8% (1) Vacant Area Calculation by Floor-1996 - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 164 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) Based on the most recent leasing activity and in consideration of the sales being generated at the property, market rent has been estimated below. Market Rent Estimate Gaviidae I Gaviidae II Term-yrs - -------------------------------------------------------------------------------- First Floor $10.00 Net $20.00 Gross 8.0 Second Floor $25.00 Net $20.00 Net 8.0 Food Court $20.00 Net 5.0 Third Floor Office (1) $8.00 Net $20.00 Gross 5.0 (1) Discussed below For the first and second floors, the rent estimate was generally based on projected tenant sales ranging from $250 to $350 per square foot and gross occupancy costs at 12.5% of sales. This results in a gross rental estimate of from $31.25 to $43.75 per square foot. Subtracting out approximately $25 per square foot in average operating costs results in a net rental range of from $6.25 to $18.75 per square foot. In general, retail sales and tenant performance is superior at Gaviidae I. This property is also more centrally located on the skyway system. As such, slightly higher rents were relied on. From discussions with other leasing agents and property managers familiar with the Downtown and regional center markets, gross occupancy costs, on average, typically do not exceed 11%-13% of gross sales without the tenant encountering financial strain. Several retailers including jewelers, fast food and home furnishings can pay more than this while others, such as shoes, electronics and men's wear pay less. Sales are not expected to increase substantially in the near future for several reasons. First, the Downtown market is fairly stable with respect to employment growth. Second, the Downtown residential market is very small and is not expected to grow much in the next five to ten years. Third, the renovation of the suburban regional malls, the presence of the Mall of America, and the growth in the community center/category killer shopping centers will hold down sales growth at the subject. Overall sales volume is up while profit margins are being pressured down. In addition, the night and weekend business is virtually non-existent in the Downtown market. These are two critical shopping periods where the Downtown properties are losing out to the suburban market. Lunch hour sales are the bread and butter for Downtown retailers. Fourth, the Downtown anchor tenants including Neiman Marcus, Saks Fifth Avenue and Montgomery Wards, are not providing the drawing power to increase small tenant sales. In developing a market rent estimate for the anchor tenant spaces, the appraisers interviewed the owner, several retail brokers, property managers, one asset manager, and several appraisers for their opinion as to a possible anchor candidate. Macy's and Nordstrom were the most frequently mentioned. According to Tom Clairmont, Vice President of Operations for Brookfield LePage, either tenant would be considered a viable tenant following base lease expiration. Mr. Clairmont indicated that they discussed a possible Downtown location for Nordstrom when Carson Pirie - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 165 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) Scott vacated City Center in 1993. At that time, Nordstrom expressed interest in a Downtown and west suburban location. In his opinion, the cost to fully convert either the Saks or Neiman space for a new anchor like Nordstrom, should not exceed $100 per square foot. Based on estimated sales of $20,000,000, the tenant should be willing to pay approximately $600,000 in the form of net rent. This is very similar to what Neiman Marcus is currently paying ($5.71 psf). It is Clairmont's opinion that a Nordstrom store would generate greater sales than Neiman Marcus. It is also his opinion that the anchor tenant rent is the "safest" rate relative to other alternative options. He speculated that conversion to office space would cost approximately $50 per square. However, net rents would most likely be in the $10 to $15 per square foot range. Although this is feasible option, the conversion would negatively impact the specialty retail component. Furthermore, it is his opinion that within the next five years the Power's Site and potentially the Ritz block, located directly north of Gaviidae II, will be developed. This will ultimately benefit the Gaviidae II and the anchor tenant component. Brookfield would consider other options including an entertainment theme with a multi-screen movie theater and restaurants. For this exercise, anchor tenant rent was estimated at $5.75 per square foot net (in 1997 dollars). Brookfield has considered converting portions of the Gaviidae II third floor retail space to office. However, such a conversion would have to be approved by Neiman Marcus. Similar approval was required by Saks when National City Bank took occupancy in Gaviidae I. As of the appraisal date, there is 10,934 square feet of vacant third floor space at Gaviidae II. A majority of this space has never been occupied. For this analysis it was assumed that Neiman Marcus would approve of an office application, similar to the National City Bank build-out, on this level. It is the appraisers' opinion that Neiman Marcus would desire greater traffic on this historically vacant level. For this exercise, a gross rent of $20.00 per square foot was relied on. City Center has considered converting portions of the third floor to office for the same reasons. According to David Johnson, the property manager, Target is interested in leasing up to 15,000 square feet of contiguous office space on the third level. They would not pay a base rent, but would cover the $22.35 per square foot in operating expenses. Given Target's growth, the property manager indicated that he was fairly confident that this deal would go through. Target is somewhat of a captive tenant at the Multifoods Tower and a higher rental rate would be expected. As such, the $20.00 per square foot estimate is considered reasonable. This was based on a five year lease term. Tenant improvement costs were projected at $15 per square foot for new deals and $5 per square foot for renewals. Considering that most of the third floor space has never been occupied, an initial shell improvement of $30 per square foot was relied on. Leasing commissions were projected at $3.00 per square foot for new deals and $1.50 per square foot for renewal. Renewal probability was estimated at 75% with four months downtime between leases. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 166 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - RETAIL (continued) For this exercise, it was assumed that the third floor space would be absorbed as follows: Gaviidae II Third Floor Absorption Schedule - -------------------------------------------------------------------------------- Projected Occupancy Date Suite Sept 1, Sept 1, Sept 1, Sept 1, Tenant No. Area-sf 1997 1998 1999 2000 - -------------------------------------------------------------------------------- To Be Leased 351 1,662 1,662 To Be Leased 359 594 594 To Be Leased 363 1,679 1,679 To Be Leased 367 1,326 1,326 To Be Leased 385 1,177 1,177 To Be Leased 391 1,504 1,504 To Be Leased 393 399 399 To Be Leased 397 2,602 2,602 - -------------------------------------------------------------------------------- Total 10,943 3,935 4,007 3,001 0 - -------------------------------------------------------------------------------- At Gaviidae I it was projected that National City Bank would exercise their option to lease the remaining 5,129 square feet of vacant third floor office space as of March, 1998. Per the terms of their lease, the net rent on this space will be $8.00 per square foot. The lease term was projected to be co-terminus with their base lease. VACANCY AND ABSORPTION ANALYSIS - RETAIL Outside of the third floor space previously addressed, there is very little vacant space. The first and second levels of Gaviidae I are entirely occupied. At Gaviidae II, there is 985 square feet of square feet of vacant space on the concourse level and 1,363 square feet on the first floor. The second floor has 5,118 square feet of vacant space committed to lease. Ann Taylor has leased 4,768 square feet with a scheduled November 1, 1997 commencement. The remaining 350 square feet has been leased to Lin Company with a scheduled May 1, 1997 commencement. For this exercise, the concourse or basement level space at Gaviidae II (which has never been occupied) was projected to remain vacant for the holding period. The first floor space was projected to be absorbed in September of 1998. The fourth floor food court has several vacancies. For this exercise, only food court Suite nos. 7 and 8 were considered in the absorption analysis. The remaining spaces are very large and are situated near the entrance to Neiman Marcus. Neiman Marcus operated Suite 475 as a cafe for several years before it closed due to poor sales in early 1996. Suite 7 (1,612 sf) was absorbed in March of 1999. Suite 8 (767 sf) was absorbed in March of 2001. These absorption estimates were considered reasonable given the popularity of the food court and increasing sales volume in the food category. Food related sales have increased 28% between 1994 and 1995 and 5.75% between 1995 and 1996. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 167 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- VACANCY AND ABSORPTION ANALYSIS - RETAIL (continued) For the discounted cash flow analysis, a vacancy factor has been applied to the property in the form of projected downtime between leases. This more accurately reflects the vacancy as it does not unduly penalize the subject's value by discounting existing tenant income. This practice is also the most widely accepted among investors/buyers for this property type. Because of the various types and desirability of space, several different downtime estimates were necessary. For this exercise, the following downtime estimates were considered reasonable. Term- -- Downtime (months) --- Area yrs Gaviidae I Gaviidae II - -------------------------------------------------------------------------------- First Floor 8.0 5.0 7.0 Second Floor 8.0 3.0 3.0 Third Floor Office 5.0 3.0 4.0 Food Court 5.0 3.0 Anchor Tenants 10.0 9.0 12.0 It was projected that the renewal probability would be 75%. This is higher than historical experience. However, with lower net rental rates, the subject should capture a greater number of renewals. Using the above downtime estimates and in consideration of the projected absorption of vacant space, an overall average occupancy of 99.4% was projected for Gaviidae I and 94.2% for Gaviidae II based on the following: Gaviidae Gaviidae Year I II - -------------------------------------------------------------------------------- 1998 97.8% 88.7% 1999 99.9% 93.0% 2000 99.7% 96.1% 2001 99.8% 96.8% 2002 100.0% 96.6% 2003 100.0% 96.7% 2004 99.8% 96.9% 2005 99.8% 96.5% 2006 100.0% 97.1% 2007 96.5% 81.0% 2008 100.0% 96.8% - -------------------------------------------------------------------------------- Average 99.4% 94.2% CREDIT LOSS FACTOR In addition to vacancy, a credit loss factor equal to 1% of effective gross income was also projected. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 168 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- RENTAL GROWTH - RETAIL Considering the state of the Downtown retail environment and the existing gross occupancy costs to sales ratio of 15.6% (existing in-line tenants only), rental growth is expected to be very modest. Net rents are very sensitive to the growth in sales and occupancy costs. For example, if sales were $300 per square foot in 1996 and the tenants' gross occupancy cost was $45.00 ($20.00 net + $25.00 in operating), the tenants' occupancy costs to sales ratio is 15%. If operating expenses increase 4% the following year and sales increase 7.5%, the ratio only falls to 14.3%. This slight movement is due to the fact that operating expenses represent such a significant portion of gross occupancy costs. Based on 1995 and 1996 sales and median gross occupancy cost caps reported by Dollars & Cents, it may take several years or more of 5% to 10% annual sales growth just to reach the point where the market rent estimates are achievable. As such, retail rental growth was expected to be very moderate at 0% for the first year, 2% for the next year, 3% for the next two years and 3.5% thereafter. PERCENTAGE RENT Percentage rent was not considered for either Gaviidae I or Gaviidae II. From discussions with other owners, the inclusion of percentage rent in the purchase of a retail property is rare and would be considered only under certain circumstances, most notably: 1. Tenant must have a substantial remaining lease term 2. Tenant must exhibit historically consistent sales growth 3. The potential for competition is low or remote 4. Contract rent plus percentage rent is close to market rent. It is believed that the percentage rent generated at either property would not be considered by a most probable buyer. If it were included, percentage rental income is always considered to bear greater risk than contract income. As such, higher discount rates are typically applied to this income stream. It should be noted percentage rental income is noted on the income and expense statements provided by the owner. However, this line item also includes income from tenants who, by virtue of poor sales, have renegotiated their gross rent to a percent of sales. Pure percentage rent should also moderate or decline over time given the fact that as rents increase, so do natural breakpoints. As such, percentage rent was not considered. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 169 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- TENANT IMPROVEMENTS - RETAIL Based on discussions with managers and leasing agents in the Downtown Minneapolis, and in consideration of the most recently signed leases, tenant improvements have been estimated on a per square foot basis as follows: ------- Gaviidae I ------- ------ Gaviidae II ------ New Renew Blended New Renew Blended - -------------------------------------------------------------------------------- Basement space $10 $5 $6.25 First floor $20 $10 $12.50 $10 $5 $6.25 Skyway $50 $25 $31.25 $50 $25 $31.25 Third floor office $15 $5 $7.50 $15 $5 $7.50 Food court $50 $25 $31.25 The blended amounts were based on a 75% renewal probability estimate. It should be noted that for those tenants paying percentage rent only, gross rent was stabilized over the base lease term based on the 1996 actual sales. For the anchor tenant area, a new tenant improvement allowance of $50 per square foot was considered reasonable. This is below the $100 conversion cost estimate mentioned by Mr. Clairmont in the discussion of possible alternative anchor tenants. However, as noted, the subject anchor spaces are new, suffer from little, if any, functional obsolescence and are in excellent condition in terms of operations and vertical transportation. As such, this lower estimate was considered reasonable. For renewals, a rate of $25 per square foot was relied on. New tenant leasing commissions for all space were estimated at $3.00 per square foot. Renewal commissions were estimated at $1.50 per square foot. Applying the 75% renewal probability estimate results in the following overall blended rate. - -------------------------------------------------------------------------------- New Tenancy $3.00/sf x 25% probability = $0.75/sf Renewal Tenancy $1.50/sf x 75% probability = $1.13/sf - -------------------------------------------------------------------------------- Overall Blended Rate/SF $2.88/sf - -------------------------------------------------------------------------------- This ends the retail market analysis section common to both Gaviidae I and Gaviidae II. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 170 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH - GAVIIDAE II/NEIMAN MARCUS - -------------------------------------------------------------------------------- RETAIL TENANT INCOME Income is generated from the rental of 69,593 square feet of in-line space and from 119,271 square feet of anchor tenant space. A rent roll is offered on the following pages. For the floor by floor location of a specific tenant please refer to the stacking plans included in the respective Description of Improvement Sections of this report. Major tenant lease summaries are included in the Addenda of this report. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 171 - -------------------------------------------------------------------------------- <PAGE> Software :ARGUS Ver. 7.0.01 Date :3/12/97 File :App_gv2 Time :1:49 pm Property Type :Office & Retail Ref# :BYI Portfolio : Page :1 GAVIIDAE COMMON II 60 South Sixth Street Minneapolis, MN 55402 PRESENTATION RENT ROLL & CURRENT TERM TENANT SUMMARY As of Mar-1997 for 188,864 Square Feet. <TABLE> <CAPTION> DESCRIPTION AREA BASE RENT RENT ADJUSTMENTS & CATEGORIES ABATEMENTS REIMBURSEMENT LEASING COSTS Tenant Name Floor Rate & Amount CPI & Current Months Pcnt Description of Imprvmnts Commssns Type & Suite Number SqFt per Year Changes Changes Porters' Wage to to Operating Expense Rate Rate Lease Dates & Term Bldg Share per Month on to Miscellaneous Abate Abate Reimbursements Amount Amount - ------------------- ----------- ------------- -------- ------- ------------- ------- ----- ----------------- --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> NEIMAN MARCUS $5.71 -- -- -- -- -- See method: -- -- Retail, Suite: 1 119,271 $680,940 Neiman Recovery Aug-1991 to Jul-2006 63.15% $0.48 reimbursement. 180 Months $56,745 MANAGEMENT OFFICE $0.00 -- -- -- -- -- Full Service: -- -- Retail, Suite: 51 2.872 $0 Pays no expense Nov-1996 to Oct-2006 1.52% $0.00 reimbursement. 120 Months $0 MORTON'S $22.62 -- -- -- -- -- See method: -- -- Retail, Suite: 52 7,759 $175,509 Typical Dec-1991 to Dec-2001 4.11% $1.89 reimbursement. 121 Months $14,626 TALBOTS $13.97 -- -- -- -- -- Full Service: -- -- Retail, Suite: 151 5,328 $74,432 Pays no expense Dec-1992 to Jan-2005 2.82% $1.16 reimbursement. 146 Months $6,203 AVEDA $31.43 -- -- -- -- -- Full Service: -- -- Retail, Suite: 161 1,600 $50,288 Pays no expense Sep~1994 to Jan-2004 0.85% $2.62 reimbursement. 113 Months $4,191 D'AMICO $0.00 -- -- -- -- -- See method: -- -- Retail, Suite: 169 3,216 $0 Typical Oct-1995 to Jan-2006 1.70% $0.00 reimbursement. 124 Months $0 CARIBOU COFFEE $38.46 -- -- -- -- -- See method: -- -- Retail, Suite: 183 649 $24,961 Typical Jan-1994 to Jan-2004 0.34% $3.21 reimbursement. 121 Months $2,080 JESSICA MCCLINTOCK $20.0O -- -- -- -- -- See method: -- -- Retail, Suite: 251 2,104 $42,080 Typical Nov-1995 to Jan-2006 1.11% $1.67 reimbursement. 123 Months $3,507 JOAN VASS $27.55 -- -- -- -- -- Full Service: -- -- Retail, Suite: 285 1.776 $48,929 Pays no expense May-1992 to Jun-2002 0.94% $2.30 reimbursement. 122 Months $4,077 SCARLET LETTER $27.65 -- -- -- -- -- Full Service: -- -- Retail, Suite: 289 1.025 $28,341 Pays no expense Aug-1994 to Jul-2000 0.54% $2.30 reimbursement. 72 Months $2,362 URBAN TRAVELER $28.20 -- -- -- -- -- See method: -- -- Retail, Suite: 295 1.064 $30,005 Typical Dec-1991 to Jan-2001 0.56% $2.35 reimbursement. 110 Months $2,500 BETLACH $17.00 Feb-1999 $20.00 -- 1-2 100% See method: -- -- Retail, Suite: 297 1,592 $27,064 Feb-2001 $22.00 Typical Apr-1997 to Apr-2007 0.84% $1.42 Feb-2003 $24.00 reimbursement. 121 Months $2,255 HORST $33.06 -- -- -- -- -- Full Service: -- -- Retail, Suite: 373 4,300 $142,158 Pays no expense Jan-1995 to Jan-2004 2.28% $2.76 reimbursement. 109 Months $11,847 </TABLE> (continued on next page) <PAGE> Software :ARGUS Ver. 7.0.01 Date :3/12/97 File :App_gv2 Time :1:49 pm Property Type :Office & Retail Ref# :BYI Portfolio : Page :2 GAVIIDAE COMMON II 60 South Sixth Street Minneapolis, MN 55402 PRESENTATION RENT ROLL & CURRENT TERM TENANT SUMMARY As of Mar-1997 for 188,864 Square Feet. (continued from previous page} <TABLE> <CAPTION> DESCRIPTION AREA BASE RENT RENT ADJUSTMENTS & CATEGORIES ABATEMENTS REIMBURSEMENT LEASING COSTS Tenant Name Floor Rate & Amount CPI & Current Months Pcnt Description of Imprvmnts Commssns Type & Suite Number SqFt per Year Changes Changes Porters' Wage to to Operating Expense Rate Rate Lease Dates & Term Bldg Share per Month on to Miscellaneous Abate Abate Reimbursements Amount Amount - ------------------- ----------- ------------- -------- ------- ------------- ------- ----- ---------------- --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> RICHARD JAMES $1.30 -- -- -- -- -- Full Service: -- -- Retail, Suite: 381 5,868 $7,628 Pays no expense Aug-1994 to Jan-2005 3.11% $0.11 reimbursement. 126 Months $636 LIMIT UP PASTA $15.60 -- -- -- -- -- See method: -- -- Retail, Suite: 463 681 $10,624 Typical Dec-l994 to Jan-2005 0.36% $1.30 reimbursement. 122 Months $885 MCDONALDS $23.52 Feb-1996 $26.46 -- -- -- See method: -- -- Retail, Suite: FC1 956 $22,485 Feb-1998 $28.42 Typical Apr-1992 to Jan-2003 0.51% $1.96 Feb-2000 $30.38 reimbursement. 130 Months $1,874 SUBWAY $23.92 -- -- -- -- -- See method: -- -- Retail, Suite: FC2 669 $16,002 Typical Nov-1992 to Jan-1998 0.35% $1.99 reimbursement. 63 Months $1,334 LA TORTILLARIA $0.00 Jan-1996 $35.00 -- -- -- See method: -- -- Retail, Suite: FC3 551 $0 Feb-1998 $40.00 Typical Nov-1995 to Jan-20O5 0.29% $0.00 Feb-2002 $45.00 reimbursement. 111 Months $0 MANCHU WOK $0.00 Mar-1995 $24.21 -- -- -- See method: -- -- Retail, Suite: FC4 614 $0 Mar-1999 $43.62 Typical Mar-1992 to Feb-2002 0.33% $0.00 reimbursement. 120 Months $0 CHICAGO STEAK $22.15 -- -- -- -- -- Full Service: -- -- Retail, Suite: FC5 759 $16,812 Pays no expense Oct-1992 to Jan-2001 0.40% $1.85 reimbursement. 100 Months $1,401 NALLA PIZZA $18.32 -- -- -- -- -- Full Service: -- -- Retail, Suite: FC6 1,331 $24,384 Pays no expense Jan-1996 to Dec-2002 0.70% $1.53 reimbursement. 84 Months $2,032 ANN TAYLOR $12.00 Feb-2001 $15.00 -- -- -- See method: $50.00 $3.00 Retail, Suite: 279 4,768 $57,216 Feb-2005 $18.00 Typical 1.96% Nov-1997 to Jan-2008 2.52% $1.00 reimbursement. $238,400 $14,304 123 Months $4,768 LIN COMPANY $26.50 -- -- -- -- -- See method: $50.00 $3.00 Retail, Suite: 291 350 $9,275 Typical 2.38% May- 1997 to Jan-2002 0.19% $2.21 reimbursement. $17,500 $1,050 57 Months $773 TO BE LEASED - 53 $0.00 -- -- -- -- -- Full Service: -- -- Excluded from analysis 985 $0 Pays no expense Mar-2015 to Feb-2020 0.52% $0.00 reimbursement. 60 Months $0 @ 100% of Mkt TO BE LEASED - 179 $20.40 -- -- -- -- -- Full Service: $51.00 $3.06 Retail, Suite: Yr 2 1,363 $27,805 Pays no expense 1.87% Sep-1998 to Aug-20O6 0.72% $1.70 reimbursement. $69,513 $4,171 96 Months $2,317 @ 100% of Mkt TO BE LEASED - 351 $20.00 -- -- -- -- -- Full Service: $30.00 $3.00 Office, Suite: Yr 1 1,662 $33,240 Pays no expense 3.00% Sep-1997 to Aug-2002 0.88% $1.67 reimbursement. $49,860 $4,986 60 Months $2,770 @ 100% of Mkt </TABLE> (continued on next page) <PAGE> Software :ARGUS Ver. 7.0.01 Date :3/12/97 File :App_gv2 Time :1:49 pm Property Type :Office & Retail Ref# :BYI Portfolio : Page :3 GAVIIDAE COMMON II 60 South Sixth Street Minneapolis, MN 55402 PRESENTATION RENT ROLL & CURRENT TERM TENANT SUMMARY As of Mar-1997 for 188,864 Square Feet. (continued from previous page} <TABLE> <CAPTION> DESCRIPTION AREA BASE RENT RENT ADJUSTMENTS & CATEGORIES ABATEMENTS REIMBURSEMENT LEASING COSTS Tenant Name Floor Rate & Amount CPI & Current Months Pcnt Description of Imprvmnts Commssns Type & Suite Number SqFt per Year Changes Changes Porters' Wage to to Operating Expense Rate Rate Lease Dates & Term Bldg Share per Month on to Miscellaneous Abate Abate Reimbursements Amount Amount - ------------------- ----------- ------------- -------- ------- ------------- ------- ----- ---------------- --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> TO BE LEASED 359 $20.00 -- -- -- -- -- Full Service: $30.00 $3.00 Office, Suite: Yr 1 594 $11,880 Pays no expense 3.00% Sep-1997 to Aug-2002 0.31% $1.67 reimbursement. $17,820 $1,782 60 Months $990 @ 100% of Mkt TO BE LEASED 363 $20.00 -- -- -- -- -- Full Service: $30.00 $3.00 Office, Suite: Yr 1 1,679 $33,580 Pays no expense 3.00% Sep-1997 to Aug-2002 0.89% $1.67 reimbursement. $50,370 $5,037 60 Months $2,798 @ 100% of Mkt TO BE LEASED 367 $20.40 -- -- -- -- -- Full Service: $30.60 $3.06 Office, Suite: Yr 2 1,326 $27.050 Pays no expense 3.00% Sep-1998 to Aug-2003 0.70% $1.70 reimbursement. $40,576 $4,058 60 Months $2,254 @ 100% of Mkt TO BE LEASED 395 $20.40 -- -- -- -- -- Full Service: $30.60 $3.06 Office, Suite: Yr 2 1.177 $24,011 Pays no expense 3.00% Sep-1998 to Aug-2003 0.62% $1.70 reimbursement. $36,016 $3,602 60 Months $2,001 @ 100% of Mkt TO BE LEASED 391 $20.40 -- -- -- -- -- Full Service: $30.60 $3.06 Office, Suite: Yr 2 1,504 $30,682 Pays no expense 3.0O% Sep-1998 to Aug-2003 0.80% $1.70 reimbursement. $46,022 $4,602 60 Months $2,557 @ 100% of Mkt TO BE LEASED 393 $21.01 -- -- -- -- -- Full Service: $31.52 $3.15 Office, Suite: Yr 3 399 $8,384 Pays no expense 3.00% Sep-1999 to Aug-2004 0.21% $1.75 reimbursement. $12,576 $1,258 60 Months $699 @ 100% of Mkt TO BE LEASED 455 $0.00 -- -- -- -- -- Full Service: Excluded from analysis 1,767 $0 Pays no expense Jan-2015 to Dec-2019 0.94% $0.00 reimbursement. 60 Months $0 @ 100% of Mkt TO BE LEASED 397 $21.01 -- -- -- -- -- Full Service: $31.52 $3.15 Office, Suite: Yr 3 2,602 $54,673 Pays no expense 3.00% Sep-1999 to Aug-2004 1.38% $1.75 reimbursement. $82,010 $8,201 60 Months $4,556 @ 100% of Mkt TO BE LEASED 475 $0.00 -- -- -- -- -- Full Service: Excluded from analysis 2,324 $0 Pays no expense Jan-2015 to Dec-2019 1.23% $0.00 reimbursement. 60 Months $0 @ 100% of Mkt TO BE LEASED FC7 $26.27 -- -- -- -- -- See method: $52.53 $3.15 Retail, Suite: Yr 3 1,612 $42,339 Typical 2.40% Mar-1999 to Feb-2004 0.85% $2.19 reimbursement. $84,678 $5,081 60 Months $3,528 @ 100% of Mkt TO BE LEASED FC8 $28.27 -- -- -- -- -- See method: $56.54 $3.39 Retail, Suite: Yr 5 767 $21,684 Typical 2.40% Mar-20O1 to Feb-2006 0.41% $2.36 reimbursement. $43,369 $2,602 60 Months $1,807 @ 100% of Mkt </TABLE> <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- GAVIIDAE II - PARKING INCOME Parking income is generated from the rental of 210 parking stalls in the lower Parking levels. According to the 1997 budget, 73 spaces will be rented on monthly contracts at $280 per month with the balance dedicated to transient. The monthly rate is up $20 over the 1996 rate of $260. It should be noted that both monthly and transient parking is valet only in Gaviidae II. Transient rates are exhibited below: 1996 1997 - -------------------------------------------------------------------------------- 0-1/2 Hour $3.00 0-1 Hour is $4.00 1/2-1 Hour $4.00 0-1 Hour is $4.00 1-2 Hours $5.00 $5.00 2-3 Hours $6.00 $6.00 3-4 Hours $7.00 $7.00 4-5 Hours $8.00 $8.00 5-6 Hours $9.00 $9.00 6-7 Hours $10.00 $10.00 7-8 Hours $12.00 $12.00 8-12 Hours $14.00 8-24 Hours is $15.00 12-24 Hours $15.00 The monthly and hourly rates charged at the subject are among the highest in the Downtown area as can be seen on the following rate analysis: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 175 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- PARKING INCOME (continued) <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------ 1994 1995 1996 95-'96 NAME SPACES RATE STRUCTURE RATES RATES RATES % CHANGE - ------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> LASALLE PLAZA RAMP 345 NON-RESERVED MONTHLY $175.00 $200.00 $230.00 15.0% 342-2888 MONTHLY RESERVED $250.00 $275.00 $285.00 3.6% FOR 8 HOURS $12.00 $11.00 $12.00 9.1% AFTER 4 P.M. ON CONTRACT $40.00 $50.00 $65.00 30.0% PER DAY AFTER 4 P.M. $5.00 $5.00 $5.00 0.0% - ------------------------------------------------------------------------------------------ CITY CENTER 687 MONTHLY RESERVED $240.00 $240.00 $250.00 4.2% 372-1234 RESERVED - TEMPERED $280.00 $280.00 $290.00 3.6% NON-RESERVED MONTHLY $200.00 $200.00 $210.00 5.0% 1ST HOUR $3.00 $3.00 $3.00 0.0% EA. ADD'L HOUR $1.00 $1.00 $1.00 0.0% M-TH AFTER 4 P.M. $2.00 $2.00 $2.00 0.0% F-SAT AFTER 4 P.M. $5.00 $5.00 $5.00 0.0% - ------------------------------------------------------------------------------------------ CONSERVATORY RAMP 850+ NON-RESERVED MONTHLY $139.10 $149.00 $149.00 0.0% 332-6468 ALL DAY $8.50 $9.00 $9.00 0.0% 1ST HOUR $3.00 $3.00 $3.25 8.3% EA. ADD'L HOUR $1.00 $1.25 - SECOND HOUR $1.25 EACH ADD'L HOUR $1.00 - ------------------------------------------------------------------------------------------ DAYTON RADISSON 800+ 0-3 HOURS $3.00 $5.25 - RAMP EA ADD'L HOUR $1.25 $1.00 - 332-8707 MAXIMUM $8.50 $9.00 $9.00 0.0% AFFER 4 P.M. $2.00 $2.00 $2.50 25.0% 1ST HOUR $3.25 SECOND HOUR $1.25 EACH ADD'L HOUR $1.00 - ------------------------------------------------------------------------------------------ IDS RAMP 625 NON-RESERVED MONTHLY $220.00 $225.00 $225.00 0.0% 338-7032 1ST 1/2 HOUR $3.00 $3.00 $3.00 0.0% EACH ADD'L HOUR $1.00 $1.00 $1.00 0.0% MAXIMUM $13.00 $13.00 $15.00 15.4% AFTER 4 PM - $2.75 $3.50 27.3% - ------------------------------------------------------------------------------------------ AVG MONTHLY-NON RESERVED $183.53 $193.50 $203.50 5.2% - ------------------------------------------------------------------------------------------ </TABLE> According to the property manager, the parking component is very small given the size of the subject development. As a result, demand is very high for on-site parking which drives up the overall rates. Gaviidae I, with a 490 stall ramp, benefits from this demand and is currently charging $260 for non-reserved and $320 per month for reserved parking. The validated parking program also insulates many paying customers from the real cost of on-site parking. Two promotional programs have been introduced to attract suburban shoppers to Downtown Minneapolis. "Do the Town" is the most widely recognized program. This program provides for free/validated evening parking in nearly every Downtown ramp with a purchase of $20 or more. Both Gaviidae Developments participate in this program. In addition, Brookfield also has a program designed to attract the suburban day shopper. The "We've got a Spot" program is essentially the same as the "Do the Town" program - three free hours of parking with a purchase of $20 or more. According to internal surveys, the average parking cost is about $6.00 per visit. The validated parking costs are allocated to the retail components and included in retail common - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 176 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- PARKING INCOME (continued) area costs. In 1996, the total costs from both programs amounted to $1.65 per square foot of retail area. Overall parking demand is increasing in the Downtown core. Most property owners experienced an exodus of monthly parkers following the completion of the two new Third Avenue Distributor (TAD) Ramps located west of the subject. Combined, these City owned Garages have capacity for over 4,500 vehicles. The City of Minneapolis is the largest single operator controlling over 20,000 parking spaces or roughly 38% of all Downtown parking. Through the Municipal Parking System, the City operates 5,000 parking meters and owns fifteen parking ramps and nine parking lots. Several of the largest ramps include the Third Avenue Distributor Ramps (TAD Ramps) on the west edge of the Downtown and the newly constructed Jerome Haaf Memorial Parking Ramp adjacent to the new Federal Courts Building which is under construction. For the most pant, the City owned ramps are located outside of the Downtown core and therefore, do not compete with the inner-core ramps. As of the appraisal date, there are plans for only one new parking ramp in Downtown Minneapolis. Reliance Real Estate plans on demolishing three small buildings located between the Rand Tower and the Soo Line Building, one block east of Gaviidae II. Plans call for a seven floor parking garage with capacity for 500 vehicles. Reliance owns the Rand Tower and it is clear that the ramp would benefit their leasing efforts. Although a rate structure has not been announced, industry observers believe monthly rates will be in the $250+ range. This ramp will compete with the subject Gaviidae garages. A historic income and expense statement is as follows: <TABLE> <CAPTION> Gaviidae II Parking Income & Expense History - --------------------------------------------------------------------------------------------------------------------- 1993 1994 1995 1996 Budget 1997 $ $/Stall $ $/Stall $ $/Stall $ $/Stall $ $/Stall - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> PARKING INCOME $513,877 $2,447 $607,315 $2,892 $701,920 $3,342 $736,175 $3,506 $774,098 $3,686 PARKING EXPENSE $356,900 $1,700 $474,808 $2,261 $529,337 $2,521 $503,512 $2,398 $561,987 $2,676 - --------------------------------------------------------------------------------------------------------------------- NET OPERATING INCOME $156,977 $748 $132,507 $631 $172,583 $822 $232,663 $1,108 $212,111 $1,010 - --------------------------------------------------------------------------------------------------------------------- </TABLE> The 1997 budgeted income of $774,000 represents a 5% increase over actual 1996 income which is in line with historical growth. Despite an improved office market, the potential for competition is greater with the announced Rand Ramp and future office development which will undoubtedly include a parking component. For this analysis, a figure of $775,000 was relied on. An income growth rate of 2.0% was projected in Year 2 and 3.0% growth rate thereafter. It should be noted that the Net Operating Income generated from the parking lot component is extremely high, as a percent of gross revenue, because no common area maintenance and real estate taxes are allocated to this component. This is not typical of the market. The parking component is typically operated as an independent profit center whereby its pro-rata share of expenses are absorbed. The current situation clearly benefits the owner as common area maintenance and tax charges typically paid by the parking ramp are allocated to the Dam Tower, - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 177 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- PARKING INCOME (continued) retail and anchor components, and thus recaptured. It is the owner's position that each component benefits from the ramp and therefore should pay for these expenses. For this analysis, as with the other income components, no re-allocation on a more typical market basis has been considered. Brookfield has hired Imperial Parking, Inc. (Impark) to operate the parking component. According to the manager, Imperial charges the property owner for the actual costs involved in operating the ramp. For 1997, these costs are budgeted at $470,000. This includes salaries, benefits and administrative charges and is referred to as Impark expenses. These costs are approved by the property manager. Overall, the cost to operate the ramp are very high given that it is operated exclusively as a valet ramp. Brookfield has studied the cost of converting the ramp to a self-park facility but it was not feasible. It is reported that roughly one-third of the parking capacity would be lost if this were done. Imperial is paid a management fee equal to 2.5% of effective gross income. Brookfield charges a second management fee equal to 4.0% times effective gross income less the Impark management fee. Brookfield is responsible for not only approving the Impark expenses but for the coordination of all other ramp related services. The management fee covers these services. Several other expenses are allocated to the parking ramp that require discussion. First, as with the office and retail components, insurance costs are below market. For this projection, a figure of $0.14 per square foot of gross area (138,987 square feet) or $19,500 was relied on. Budgeted costs for major repair, utilities, fire protection, and supplies total $75,000. Brookfield's management fee, based on revenues of $775,000 equates to $11,625. Together, these landlord related costs total $106,125. Adding the Impark expenses to this results in a total parking expense of $575,000, as rounded. GAVIIDAE II - NEIMAN MARCUS EXPENSES A stabilized expense estimate for the subject property has been developed based on a review of each portion's actual expense history and in some cases, by comparison to current market expenses for similar buildings. Historical income and operating expenses for the retail component for the period 1993 through 1996 has been included on the following page. Stabilized expense estimates are also included to the right of year-to-date activity. ------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 178 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH RETAIL EXPENSE ANALYSIS GAVIIDAE II HISTORICAL INCOME AND EXPENSE PROFILE <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------- GAVIIDAE II 1993 1994 1995 INCOME $ $/SF $ $/SF $ $/SF - --------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> NET RENT-RETAIL $648,534 $3.43 $1,127,258 $5.97 $1,074,335 $5.69 PERCENTAGE RENT $34,424 $0.18 $29,411 $0.16 $25,299 $0.13 OPERATING REIMB. $840,589 $4.45 $775,202 $4.10 $877,999 $4.65 PROPERTY TAX REIMB. $839,214 $4.44 $846,355 $4.48 $936,441 $4.96 PARKING INCOME $513,877 $2.72 $607,315 $3.22 $701,920 $3.72 STORAGE INCOME $2,729 $0.01 $6,745 $0.04 $7,090 $0.04 MISCELLANEOUS INCOME $177,885 $0.94 $126 $0.00 $76 $0.00 - --------------------------------------------------------------------------------------------- TOTAL INCOME $3,057,252 $16.19 $3,392,412 $17.96 $3,623,160 $19.18 RECOVERABLE EXPENSES CLEANING $188,595 $1.00 $184,736 $0.98 $240,077 $1.27 ELECTRICAL MAINTENANCE $136,752 $0.12 $10,663 $0.06 $9,793 $0.05 PLUMBING MAINTENANCE $3,110 $0.02 $16,558 $0.09 $8,790 $0.05 HVAC $424,148 $2.25 $38,707 $0.20 $37,908 $0.20 ELEV. & ESCALATORS $64,027 $0.34 $62,671 $0.33 $64,520 $0.34 SECURITY AND SAFETY $172,834 $0.92 $145,163 $0.77 $131,150 $0.69 LANDSCAPING & GROUNDS $0 $0.00 $0 $0.00 $0 $0.00 GENERAL BLDG COSTS $165,041 $0.87 $235,144 $1.25 $249,994 $1.32 COMMON AREA COSTS ($332,012) ($1.76) ($168,356) ($0.89) ($174,751) ($0.93) REPAIRS AND MAINT. $67,968 $0.36 $75,611 $0.40 $60,366 $0.32 LOADING DOCK $48,195 $0.26 $62,815 $0.33 $58,619 $0.31 COMM. CENTER $1,442 $0.01 $51,949 $0.28 $42,522 $0.23 ENERGY COSTS $855 $0.00 $484,482 $2.57 $434,425 $2.30 WATER AND SEWER $11,789 $0.06 $10,208 $0.05 $17,428 $0.09 ADMINISTRATION $233,056 $1.23 $147,125 $0.78 $123,466 $0.65 INSURANCE $14,381 $0.08 $18,024 $0.10 $18,943 $0.10 MANAGEMENT FEES $126,244 $0.67 $111,393 $0.59 $116,849 $0.62 REAL ESTATE TAXES/ASSMTS $1,255,213 $6.65 $1,068,614 $5.66 $1,122,948 $5.95 OTHER $92 $0.00 $0 $0.00 $0 $0.00 - --------------------------------------------------------------------------------------------- TOTAL RECOVERABLE EXPENSES $2,581,730 $13.67 $2,555,507 $13.53 $2,563,047 $13.57 NON-RECOVERABLE EXPENSES PROMOTIONAL FUND $253,431 $1.34 $264,590 $1.40 $167,309 $0.89 ADMINISTRATION $0 $0.00 $0 $0.00 $0 $0.00 INSURANCE $0 $0.00 $0 $0.00 $0 $0.00 MANAGEMENT FEE $0 $0.00 $0 $0.00 $0 $0.00 OTHER $0 $0.00 $2,071 $0.01 $21,801 $0.12 LEGAL FEES $0 $0.00 $34,962 $0.19 $3,331 $0.02 PARKING $356,900 $1.89 $474,808 $2.51 $529,337 $2.80 GROUND RENT $0 $0.00 $0 $0.00 $0 $0.00 BAD DEBT EXPENSE $0 $0.00 $275,199 $1.46 $41,651 $0.22 - --------------------------------------------------------------------------------------------- TOTAL NON-RECOVERABLE EXP. $610,331 $3.23 $1,051,630 $5.57 $763,429 $4.04 - --------------------------------------------------------------------------------------------- TOTAL EXPENSES $3,192,061 $16.90 $3,607,137 $19.10 $3,326,476 $17.61 - --------------------------------------------------------------------------------------------- NET OPERATING INCOME ($134,809) ($0.71) ($214,725) ($1.14) $296,684 $1.57 - --------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------ GAVIIDAE II 1996 Budget 1997 Stabilized INCOME $ $/SF $ $/SF $ $/SF - ------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> NET RENT-RETAIL $1,124,550 $5.95 $1,282,941 $6.79 PERCENTAGE RENT $25,525 $0.14 $43,318 $0.23 OPERATING REIMB. $960,730 $5.09 $1,240,536 $6.57 PROPERTY TAX REIMB. $994,797 $5.27 $1,179,890 $6.25 PARKING INCOME $736,175 $3.90 $774,098 $4.10 STORAGE INCOME $6,595 $0.03 $7,200 $0.04 MISCELLANEOUS INCOME $718 $0.00 $0 $0.00 - ------------------------------------------------------------------------------------------------ TOTAL INCOME $3,849,090 $20.38 $4,528,483 $23.98 RECOVERABLE EXPENSES CLEANING $209,160 $1.11 $233,856 $1.24 $230,000 $1.22 ELECTRICAL MAINTENANCE $18,548 $0.10 $23,080 $0.12 $20,000 $0.11 PLUMBING MAINTENANCE $5,648 $0.03 $9,600 $0.05 $7,500 $0.04 HVAC $40,499 $0.21 $45,348 $0.24 $42,500 $0.23 ELEV. & ESCALATORS $67,107 $0.36 $68,532 $0.36 $65,000 $0.34 SECURITY AND SAFETY $127,370 $0.67 $135,117 $0.72 $130,000 $0.69 LANDSCAPING & GROUNDS $0 $0.00 $0 $0.00 $0 $0.00 GENERAL BLDG COSTS $306,689 $1.62 $312,460 $1.65 $310,000 $1.64 COMMON AREA COSTS ($165,710) ($0.88) ($192,432) ($1.02) ($190,000) ($1.01) REPAIRS AND MAINT. $73,610 $0.39 $115,838 $0.61 $85,000 $0.45 LOADING DOCK $60,265 $0.32 $63,664 $0.34 $62,500 $0.33 COMM. CENTER $46,602 $0.25 $50,217 $0.27 $47,500 $0.25 ENERGY COSTS $470,790 $2.49 $522,790 $2.77 $500,000 $2.65 WATER AND SEWER $18,093 $0.10 $19,320 $0.10 $20,000 $0.11 ADMINISTRATION $131,704 $0.70 $142,675 $0.76 $140,000 $0.74 INSURANCE $16,107 $0.09 $17,331 $0.09 $20,200 $0.11 MANAGEMENT FEES $124,533 $0.66 $149,885 $0.79 $104,999 $0.56 REAL ESTATE TAXES/ASSMTS $1,362,795 $7.22 $1,395,900 $7.39 $1,347,681 $7.14 OTHER $0 $0.00 $0 $0.00 $0 $0.00 - ------------------------------------------------------------------------------------------------ TOTAL RECOVERABLE EXPENSES $2,913,900 $15.43 $3,113,181 $16.48 $2,942,880 $15.58 NON-RECOVERABLE EXPENSES PROMOTIONAL FUND $286,156 $1.52 $189,147 $1.00 $150,000 $0.79 ADMINISTRATION $0 $0.00 $0 $0.00 $0 $0.00 INSURANCE $0 $0.00 $0 $0.00 $0 $0.00 MANAGEMENT FEE $0 $0.00 $0 $0.00 $0 $0.00 OTHER $3,635 $0.02 $13,600 $0.07 $9,443 $0.05 LEGAL FEES $11,729 $0.06 $7,800 $0.04 $10,000 $0.05 PARKING $503,512 $2.67 $561,987 $2.98 $575,000 $3.04 GROUND RENT $0 $0.00 $0 $0.00 $0 $0.00 BAD DEBT EXPENSE $24,721 $0.13 $25,000 $0.13 $0 $0.00 - ------------------------------------------------------------------------------------------------ TOTAL NON-RECOVERABLE EXP. $829,753 $4.39 $797,534 $4.22 $744,443 $3.94 - ------------------------------------------------------------------------------------------------ TOTAL EXPENSES $3,743,653 $19.82 $3,910,715 $20.71 $3,687,323 $19.52 - ------------------------------------------------------------------------------------------------ NET OPERATING INCOME $105,437 $0.56 $617,768 $3.27 - ------------------------------------------------------------------------------------------------ </TABLE> <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- EXPENSES - RETAIL (continued) For the most part, expenses were stabilized based on historical operating history. Real Estate Taxes, General Common Area costs, and Loading Dock expenses were allocated based on the previous discussion found at the beginning of the Income Approach section of this report. EXPENSE RECOVERIES Expense recoveries for the in-line tenants and the Neiman Marcus Department store are outlined below: Neiman Marcus Neiman Marcus pays their pro-rata share of real estate taxes and assessments. In addition, they contribute to common area maintenance an amount equal to $1.00 per square foot for the first five years of their lease. After the fifth year, the rate shall be increased by the CPI. For this analysis, the 1997 budgeted figure of $146,000 or $1.22 per square foot of GLA was relied on. This common area contribution is applied to the general common area costs of the specialty retail center, thereby reducing the expense burden for the in-line tenants. Neiman Marcus does not pay a management fee. However, the landlord charges a management fee on their effective gross income, including recoveries, and allocates that to the in-line retail tenants for recovery. In-Line Tenants The standard recovery is outlined as follows: Over Gross Expense Recovery After Area Up to - -------------------------------------------------------------------------------- Operating Expenses: Pro-rata Anchor Contribution In-line 90% Office Contribution In-line 90% Real Estate Taxes: Pro-rata Total GLA Special Assessments: Pro-rata Total GLA For this exercise, no operating cost recoveries were grossed up. Given the number of tenants on percentage rent only deals, and the extraordinarily high operating costs at the property, any additional expense burden was considered counter-productive. Several expense items require additional attention including insurance, promotion and management fees. According to the property manager, Brookfield maintains a master insurance policy that includes both Gaviidae developments, the Dam Plaza, the City Center Development as well as other property they own. The premium rates are below market. For this exercise, retail insurance was estimated at $0.29 per square foot of leasable area based on the median costs reported by Dollars and Cents of Shopping Centers-1995. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 180 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- EXPENSE RECOVERIES (continued) A management fee equal to 4% of effective gross income was considered reasonable based on discussions with two firms specializing in retail property management. Both felt that a lower fee would generally be warranted if the properties were performing well. However, with a number of percentage rent only deals, total gross income will be lower. As such, a slightly higher management fee is projected. This fee structure assumes that all other costs (administrative and management) would be passed back to the property, not deducted from the management fee. Brookfield has budgeted $380,000 for promotion and marketing in 1997. Each property is allocated $190,000. This covers the landlord incurred costs of marketing, promotion and advertising. The costs equate to approximately $1.40 per square foot on Gaviidae I and $2.73 per square foot on Gaviidae II (in-line area only). In addition to advertising, television, and radio promotion, the costs also cover 2.5 on-site employees plus an allocation of the promotion manager's compensation. Historical costs are outlined below: - -------------------------------------------------------------------------------- 1994 1995 1996 Budget 1997 - -------------------------------------------------------------------------------- Gaviidae I $325,463 $327,415 $307,002 $l90,857 Gaviidae II $264,590 $167,309 $286,156 $189,147 - -------------------------------------------------------------------------------- Total Promotion $590,053 $494,724 $593,158 $380,004 Total Cost/sf $2.87 $2.40 $2.88 $1.85 - -------------------------------------------------------------------------------- It should be noted that very few tenants contribute to the promotional fund. From discussions with other retail owners and managers, this is becoming more commonplace. Many of the national or large regional tenants don't want to participate in the fund given that they already have their own advertising campaign. One person who is familiar with the property felt that a reasonable promotional budget should be in the $0.50 per square foot range. He speculated that with many tenants likely on percentage rent only deals, no amount of promotional spending will likely increase sales. This is particularly the case in Downtown Minneapolis where virtually all sales are generated during the weekdays. With essentially only two levels of retail space at Gaviidae I, promotional expenses were stabilized at $125,000. For Gaviidae II, a figure of $150,000 was relied on. YIELD CAPITALIZATION ANALYSIS In projecting the yield and terminal capitalization rate in this discounted cash flow analysis, several factors have been considered. Although we recognize that Gaviidae II is an integral component of the entire development, it is our opinion, based on discussions with numerous real estate professionals, that the retail component carries substantially greater risk than the office component. It is recognized that there is very little demand for this product type. These properties tend to be very unique. From our research, we could find no surveyed underwriting criteria. However, this component includes the parking ramp which is considered a relatively low risk element. Other real estate brokers, appraisers and owners, were interviewed as to an appropriate range of discount rates. Based on these discussions, and considering the lack of any relevant or - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 181 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- YIELD CAPITALIZATION ANALYSIS (continued) comparable market information, a base discount rate in the 15% range has been estimated. Because the retail component is physically part of the greater development, it is our opinion, that a higher IRR rate would be applicable if the retail component were separated from the office tower. Terminal Capitalization Rate - For this analysis a range of terminal capitalization rates of from 11.0% to 12.0% was relied on. The net operating income was capitalized by these parameters resulting in an estimated reversionary value. Gross sales proceeds are defined as expected selling price before all costs of sale and commissions. Since the seller typically pays all of the sales commissions, this amount will need to be deducted from the gross sales proceeds to arrive at the net sales proceeds. Sales Costs - A 1% sales commission was relied on which is consistent with the office tower. A copy of the ten year cash flow projection is located on the following pages. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 182 - -------------------------------------------------------------------------------- <PAGE> ================================================================================ GAVIIDAE I ================================================================================ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC PAGE 186 - -------------------------------------------------------------------------------- <PAGE> [GRAPHIC OMITTED] [INTERNAL PHOTO OF MALL] <PAGE> SUMMARY OF SALIENT FACTS AND CONCLUSIONS - -------------------------------------------------------------------------------- The Property: Gaviidae I/Saks Fifth Avenue Downtown Minneapolis, Minnesota Valuation Date: March 1, 1997 Dates of Inspection: February 18, 1997 as well as numerous times before and after Land Area: 65,635 square feet, or 1.51 acres Percent of Typical Downtown Block: 60.3% Floor Area Ratio: 8.46 to 1 (rentable area including gross parking ramp area/land area-square feet) Building Areas: -------------------------------------------------------- GBA-sf RA-sf GLA-sf -------------------------------------------------------- Saks Fifth Avenue 108,827 0 118,338 Gaviidae I 446,513 70,308 65,834 -------------------------------------------------------- Totals 555,340 70,308 184,172 -------------------------------------------------------- Flood Zone Designation: Zone C, Areas of Minimal Flooding Community Panel Number: 270172-0006 B Census Tract Number: 46 Zoning: B4-2, Central Retail District Tenant Composite: <TABLE> <CAPTION> GAVIIDAE I -------------------------------------------------------------------- % of Expiration Remaining Major Tenants Area-sf GLA Date Term-Yrs -------------------------------------------------------------------- <S> <C> <C> <C> <C> Saks Fifth Avenue 118,338 46.5% 1/31/15 17.90 National City Bank 95,757 37.6% 3/31/06 9.09 -------------------------------------------------------------------- Total Anchors 214,095 84.1% In-Line Retail 33,792 13.3% Vacant In-Line Retail 6,593 2.6% --------------------------------------------------------------------- Total GLA 254,480 100.0% --------------------------------------------------------------------- </TABLE> Year Built: 1987-1989 - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 188 - -------------------------------------------------------------------------------- <PAGE> SUMMARY OF SALIENT FACTS AND CONCLUSIONS (CONTINUED) - -------------------------------------------------------------------------------- Value Indications: Estimated Market Value of the Land: $13,000,000 ($200/sf, as rounded) Estimated Market Value of the Subject Property by the Cost Approach: $15,000,000 ($58.94/sf of GLA, as rounded) Estimated Market Value of the Subject Property by the Sales Comparison Approach: Not Developed Estimated Market Value of the Subject Property by the Income Approach: $12,000,000 ($39/sf of GLA, as rounded) ================================================================================ Final Value Estimate $12,000,000 ================================================================================ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 189 - -------------------------------------------------------------------------------- <PAGE> ================================================================================ PRESENTATION OF DATA ================================================================================ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 190 - -------------------------------------------------------------------------------- <PAGE> IDENTIFICATION OF THE PROPERTY - -------------------------------------------------------------------------------- The real estate being appraised is a five story specialty retail center anchored by a Saks Fifth Avenue Department store. The property is located in the Downtown core of Minneapolis, Minnesota. The property consists of a 118,338 square foot department store occupied by Saks Fifth Avenue, and a 136,142 square foot, four level, vertical retail mall which has been partially converted to general office space. Four subterranean levels provide for off street parking and a central loading dock serving both the anchor and specialty retail components. There is available parking for 490 vehicles. Outside of Saks Fifth Avenue, the largest single tenant in Gaviidae I is National City Bank with 97,757 square feet or roughly 38% of the property's GLA. The bank occupies a retail banking operation on the first and skyway levels. In addition, the bank's general office space is located on the entire fifth, fourth and a majority of the third levels. Their base lease expiration is March 31, 2006. The specialty retail portion is comprised in the first and second levels. There are 19 tenants in this high quality retail center. The Saks Fifth Avenue department store anchors the specialty retail component on the south end of the development. The development is situated on a 65,635 square foot land parcel in the Minneapolis Central Business District. The property is located at the intersection of South 7th Street and the Nicollet Mall, the 100% corner, Downtown's most central core intersection. The property was constructed between 1997 and 1999 with initial occupancy in the fall of 1989. The property is skyway linked on the second and fourth floors with the Gaviidae II/Dain Plaza development located immediately to the north, across South Sixth Street. Other skyways connect the subject with the Northwest Center Building, the IDS Building, and the City Center Development. The property is located immediately east of City Center and cater-corner to the Dayton's Department Store. Overall, this is one of the best locations in Downtown Minneapolis. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 191 - -------------------------------------------------------------------------------- <PAGE> LEGAL DESCRIPTION - -------------------------------------------------------------------------------- According to information provided by the owner, the subject property, which is located in Hennepin County, Minnesota, is legally identified as follows: Saks Parcel: That part of Lots 1, 2 and 3, Block 221, Brown and Jackins Addition to Minneapolis, and Lots 1, 2 and 3, Block 221, Town of Minneapolis, all lying Southwesterly of a line 140.00 feet Northeasterly of, as measured at right angles to and parallel with, the Southwesterly line of Block 221, Brown and Jackins Addition to Minneapolis, according to the recorded plat thereof, and situated in Hennepin County, Minnesota. Being registered land as is evidenced by Certificate of Title No.702994. North Parcel: Lots 8, 9 and 10, Block 221, Town of Minneapolis; that part of Lots 1, 2 and 3, Block 221, Town of Minneapolis, and that part of Lot 3, Block 221, Brown and Jackins Addition to Minneapolis, all lying Northeasterly of a line 140.00 feet Northeasterly of, as measured at right angles to and parallel with, the Southwesterly line of Block 221, Brown and Jackins Addition to Minneapolis, according to the recorded plat thereof, and situated in Hennepin County, Minnesota. Being registered land as is evidenced by Certificate of Title No. 704471. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 192 - -------------------------------------------------------------------------------- <PAGE> PLAT MAP - -------------------------------------------------------------------------------- The following plat map has been included for visual reference. ================================================================================ [GRAPHIC OMITTED] ================================================================================ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 193 - -------------------------------------------------------------------------------- <PAGE> REAL ESTATE TAXES - -------------------------------------------------------------------------------- The subject property's tax code identification numbers (PID's) are 22-029-24-44-0104 and 27-029-24-11-0126. The property is assessed by the Minneapolis Assessor in the name of Brookfield Market, Incorporated. The property is taxed on an ad valorem or property value basis. A historical outline of the subject property's assessed values and taxes payable are as follows: <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------- ASSESSOR'S ESTIMATED LAND BUILDING TOTAL VALUE/ SUBSEQUENT TAX/SF EFF.TAX MARKET VALUE AS OF VALUE+ VALUE= VALUE SF OF GLA YEAR'S TAX GLA RATE - ---------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> JANUARY 2, 1992 $34,450,000 $135.37 $2,166,295 $8.51 6.29% STIPULATED TO: $11,065,000 $9,935,000 $21,000,000 $82.52 $1,320,528 $5.19 6.29% JANUARY 2, 1993 $23,000,000 $90.38 $1,467,281 $5.77 6.38% STIPULATED TO: $9,315,000 $6,685,000 $16,000,000 $62.87 $1,020,717 $4.01 6.38% JANUARY 2,1994 $23,000,000 $90.38 $1,900,691 $7.47 8.26% STIPULATED TO: $9,315,000 $3,485,000 $12,800,000 $50.30 $1,057,776 $4.16 8.26% JANUARY 2, 1995 $9,315,000 $3,485,000 $12,800,000 $50.30 $859,569 $3.38 6.72% JANUARY 2, 1996 $9,315,000 $6,685,000 $16,000,000 $62.87 $1,044,814 $4.11 6.53% JANUARY 2, 1997(1) $10,970,000 $5,030,000 $16,000,000 $62.87 - ---------------------------------------------------------------------------------------------------- </TABLE> SOURCE: HENNEPIN COUNTY ASSESSOR'S OFFICE PID NOS.22-029-24-44-0104 & 27-029-24-11-0126 (1) AEMV Subject to change - final posting in March, 1997 - -------------------------------------------------------------------------------- As noted above, the owner was successful in negotiating a multiple year reduction in assessed value affecting 1992, 1993 and 1994. According to the assessor, the subject's value increased from $12,800,000 in 1995 to $16,000,000 in 1996 given National City Bank's tenancy. It should be noted that in Minnesota, real estate taxes are paid in the year following the assessment date. For example, the 1997 payable taxes are based on the Assessor's Estimated Market Value as of January 2, 1996. Real Estate Taxes will be discussed in greater detail in the Income Approach section of this report. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 194 - -------------------------------------------------------------------------------- <PAGE> SPECIAL ASSESSMENTS - -------------------------------------------------------------------------------- The two land parcels that comprise the subject property are each subject to five special assessments. Three of the assessments are for Nicollet Mall related capital improvements and two are for the maintenance of the Nicollet Mall. It should be noted that the Nicollet Mall Service Charge Assessment is not based on a declining principal payoff. Rather, the charge is based in part on the value of the commercial real estate in the Nicollet Mall area. According to the Minneapolis Department of Assessments, the charge is recalculated every year and allocated to all properties, on an ad valorem basis, within the Nicollet Mall benefit area. The Nicollet Mall Maintenance Fee represents the on-going cost to maintain the Nicollet Mall. The subject's 1997 assessment for both parcels is $60,552.22. This figure is calculated each year and allocated to all properties within the same benefit area. A breakdown of the special assessment payoff schedule is included in the Addenda of this report. A summary is offered below: ------------------------------------------------------------------ SAKS NORTH GRAND TOTAL TOTAL TOTAL SPECIAL SPECIAL SPECIAL ASSESSMENT ASSESSMENT ASSESSMENT YEAR PER YEAR YEAR PER YEAR YEAR PER YEAR ------------------------------------------------------------------ 1997 $54,385.56 1997 $49,374.82 1997 $103,760.38 1998 $54,605.16 1998 $49,536.71 1998 $104,141.86 1999 $42,681.65 1999 $32,757.80 1999 $75,439.45 2000 $42,929.23 2000 $32,940.31 2000 $75,869.54 2001 $43,180.36 2001 $33,125.43 2001 $76,305.80 2002 $43,435.09 2002 $33,313.21 2002 $76,748.29 2003 $43,693.44 2003 $33,503.65 2003 $77,197.09 2004 $43,955.46 2004 $33,696.80 2004 $77,652.26 2005 $44,221.18 2005 $33,892.67 2005 $78,113.85 2006 $44,490.64 2006 $34,091.29 2006 $78,581.93 2007 $44,763.87 2007 $34,292.70 2007 $79,056.57 2008 $45,040.91 2008 $34,496.92 2008 $79,537.83 2009 $45,321.81 2009 $34,703.97 2009 $80,025.79 2010 $41,221.57 2010 $30,372.66 2010 $71,594.22 2011 $40,074.58 2011 $29,528.64 2011 $69,603.22 ------------------------------------------------------------------ DESCRIPTION OF THE LAND - -------------------------------------------------------------------------------- The Gaviidae I site is a rectangular land parcel occupying the west/northwest most 60% of one of the clearly defined core blocks of Downtown Minneapolis. This places the subject land at the corners of South Sixth and Seventh Streets and Nicollet Mall. As most Downtown blocks are uniform at 330' x 330' (10 lots each at 165' x 66' = 108,900 square feet, or 2.5 acres), the Gaviidae I site comprises approximately 65,635 square feet, or 1.5 acres. According to a survey dated February 28, 1992, by John Coulter Peterson, Minnesota Registered Land Surveyor No.13792, the parcel has a frontage of 330.83 feet along Nicollet Mall running to depths of 198.31 feet and 198.38 feet respectively, east/northeastward along South Sixth and Seventh Streets. These measurements give the subject parcel a total street frontage of 727.52 lineal feet. Please reference the cited survey in the Addenda of this report for further detail. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 195 - -------------------------------------------------------------------------------- <PAGE> DESCRIPTION OF THE LAND (continued) - -------------------------------------------------------------------------------- This outstanding specific location places the subject tract cater-corner from the main entrance to Dayton's flagship Downtown department store at its South Seventh Street corner, directly north of the landmark IDS Center block, directly east across Nicollet Mall from the City Center complex, and directly south of Dain Plaza/Gaviidae II on its South Sixth Street side. The subject land is bordered mid-block on the east by the 57 story Norwest Center office tower. As such the subject ground benefits from the potential for direct skyway access on all four of its sides. This strategic position then is one of the most people intense points in the entire Downtown neighborhood. The Gaviidae I parcel is flat and at the grade of its border streets. The subject improvements cover virtually 100% of the land surface. The parcel is bounded by sidewalks on its three street sides. These sidewalks are partly overhung by canopies and awnings on the Gaviidae I building. Traffic flows by the site are one-way east bound on South Sixth Street, one-way west bound on South Seventh Street, and two-way north/south bound on Nicollet Mall. All vehicle access onto the subject land and its underground garage and loading facilities is by way of a wide, 26.5 foot curb cut off of South Sixth Street at the subject parcel's mid-block boundary with the Norwest Center site. Nicollet Mall follows a serpentine route through the Downtown core and is designed as a pedestrian promenade with motorized traffic restricted to public transportation and safety vehicles only. As Nicollet Mall passes by Gaviidae I, the curve of its two lanes is eastward resulting in the sidewalk space on the subject's side to be on the narrow side of the Mall. This means that for developments with street level retail spaces along Nicollet Mall that are on the wider side of the route, a better potential exists for a sidewalk cafe or other tenants that have a need for occasional outdoor retailing. Sidewalk widths on South Sixth and Seventh Streets are a uniform 15 feet. The most recent traffic flows (1995) past Gaviidae I on South Sixth and Seventh Streets are approximately 14,600 and 15,700 vehicles per day respectively. Nicollet Mall is one of Downtown's main bus routes with heated shelters and stops for passengers on almost every block. As part of the Nicollet Mall design plan, decorative street lights illuminate the way, fountains and sculpture exhibits are placed as reflection/rest points, and piped-in classical music is played throughout the day. Warm weather Mall activities include street vendors and musicians, Thursday farmers' markets, seasonal parades, and other special events. The Gaviidae I land parcel conforms very well as to shape, size and location/position for supporting a major landmark Downtown development. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 196 - -------------------------------------------------------------------------------- <PAGE> DESCRIPTION OF THE IMPROVEMENTS - -------------------------------------------------------------------------------- The subject property consists of a five story specialty center anchored by a four level Saks Fifth Avenue Department store. The property was constructed in 1989. The property is of Class A construction. The primary feature of a Class A building is the fireproofed structural steel frame. Floors, roof and exterior walls are typically reinforced concrete on a steel decking which is consistent with the subject. It should be noted that this descriptive section is intended to be a brief overview of the project specifics. The appraisers acknowledge that a more detailed description could be made. More specific information in the form of building plans and specifications are available from Brookfield LePage. Project Designer: Cesar Pelli & Associates, 1056 Chapel Street, New Haven Connecticut, 06510 Architect: Lohan Associates, 225 North Michigan Avenue, Suite 800, Chicago, 60601 General Contractor: Kraus Anderson/PCL (Joint venture) Height: The property is separated into two distinct areas; the five level specialty retail center is located on the north with the four level Saks Fifth Avenue Department Store on the south. Three levels of subterranean parking, including a loading dock, are located below the entire development. Gross Leasable Area: 254,488 square feet including anchor retail, in-line retail and National City Bank office and retail space. --------------------------------------------------- % of Area-sf Total --------------------------------------------------- Saks Fifth Avenue 118,338 46.5% Gaviidae I - Retail 40,375 15.9% National City Bank Office 70,874 27.9% National City Bank Retail 24,893 9.8% --------------------------------------------------- Total RA & GLA 254,480 100.0% --------------------------------------------------- - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 197 - -------------------------------------------------------------------------------- <PAGE> DESCRIPTION OF THE IMPR0VEMENTS (Continued) - -------------------------------------------------------------------------------- Gross Building Area: Approximately 555,340 square feet based on the following: ----------------------- Total Level Area-sf ----------------------- First floor 64,844 Second floor 64,873 Third floor 64,848 Fourth floor 64,676 Fifth floor 58,412 Loading Level 72,8OO Mezzanine Level 19,287 Concourse Level 72,800 Concourse Mezz 72,800 ------------------------ Totals 555,340 Foundation: Poured concrete foundation wall over concrete caissons and concrete spread footings. Frame: Structural steel frame which supports a poured in place concrete slab. The steel beams are supported by composite steel girders spanning between steel columns. Lateral load resistance is provided by a series of steel diagonal braces and concrete shear walls spaced throughout the building. Floor: 5-3/4" poured in place concrete slab over 1/4" ribbed metal decking supported by steel joists. According to the operations manager, floor loads are designed for a live load of 100 pounds per square. Ceilings: The retail common area ceilings are sheetrocked, taped and painted. Most of the retail stores, including Saks Fifth Avenue, have a similar ceiling finish. Lighting: Retail - Primarily incandescent lighting or track lighting. Parking - High pressure sodium vapor. HVAC: The property is improved with a heat pump system. Steam is purchased from the City of Minneapolis. Chilled water is provided by two on-site wells. Supply water from the wells is pumped the heat exchanger (closed loop system) and then distributed to individual tenant heat pumps. The well water also serves the two base building chillers located on P-4. In the summer months, the chillers cool the water which serves the main air handling units for air-conditioning in the mall (Unit # 1) and minimum air-conditioning (Unit # 2) and minimum air ventilation for tenant spaces. Individual heat pumps are Friedrich-Climate Master 814 series and range from 1 to 3 tons of capacity. Heat comes from a steam to a hot water exchanger which feeds perimeter radiation to tenant areas. The hot water - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 198 - -------------------------------------------------------------------------------- <PAGE> DESCRIPTION OF THE IMPR0VEMENTS (Continued) - -------------------------------------------------------------------------------- HVAC (cont'd): also serves the two main units for tempered air in the winter. Portions of the parking ramp entrance off South Sixth Street are heated for snow melt. Energy Management System: Automation, fire alarm and temperature control are provided by a Honeywell Excel Classic Controller. The system is housed at the IDS Central Operations Center. Life Safety System: The development is fully sprinkled for fire protection. Fire suppression elements include pressurized stairwell, smoke detection system, duct smoke detection, automated smoke evacuation, and automatic elevator recall. The underground parking garage and the loading dock area have a dry sprinkling system due to the potential for freezing. Emergency Power: The subject has a single, diesel powered Cummins (Model KTTA-38GS) generator. The generator is produces 1,340 horsepower and generates 1,000 Kilowatts of standby power. In case of a power failure or interruption, the generator will supply power to the smoke exhausts, emergency lighting. pressurization fans for stairwell fire control and fire pumps. Roof Structure: The roof consists a Firestone single ply rubber membrane water barrier with an aggregate ballast. The roof has a 10 year warranty which commenced in 1989. The retail roof is improved with a barrel-vault dome, reportedly the largest in the world. Elevator: The retail area is served by both escalators and elevators. There are two escalators per floor (one up, one down). A breakdown is as follows: <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------- Unit Floors Capacity Speed # Area Type Served/stops Make lbs FPM - ------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> 1-8 Retail 48" Escalators 1-5 Westinghouse -- 100 3 Parking Hydraulic Passenger P3-1 Westinghouse 3,500 125 4-5 Retail Service Electric Service P2-5 Westinghouse 5,000 350 6-7 Retail Electric Passenger P3-5 Westinghouse 3,500 350 8 National City Bank Electric Passenger 1-5 Dover 2,500 350 - ------------------------------------------------------------------------------------------------------- </TABLE> In addition, Saks Fifth Avenue has two escalators per floor, one passenger and one service elevator. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 199 - -------------------------------------------------------------------------------- <PAGE> DESCRIPTION OF THE IMPROVEMENTS (continued) - -------------------------------------------------------------------------------- Electrical: Siemens buss duct riser system provides power to all building areas. Northern States Power (NSP) services the property with a 480 volt power supply. This supply is converted to 120 volt service for tenant distribution. Restrooms: Public restrooms are located on the third floor. The men's restroom consists of two toilets, one urinal and three sinks. The women's restroom includes three toilets and three sinks. National City Bank also has men's and women's restrooms on levels three, four and five. Flooring: Floor finishes vary throughout the development. However, in the retail common area they are predominantly floor stone tile. The Tenant Design Criteria information provided by the owner indicates that the first and second floors consist of a field of "Membro Rosata" honed and sealed by Domestic Marble & Stone Corp. with inserts of "Rosso Rubino" and a border of "Quetzel Green" honed and sealed by Guatemala Marble, Inc. The third, fourth and fifth floors are carpeted with a border of the "Quetzel Green" stone tile. Walls: Sheetrocked, taped and painted or wallpapered. Hazardous: The building was completed in 1989 and no known hazardous substances are present in the building including asbestos. Special Features: The building has a central atrium extending from the first floor through the domed roof. An elaborate waterfall is also located on the south end of the retail atrium. The water feature begins on the fifth level with pools of lighted water cascading down two waterfalls framing the fourth floor entry to Saks Fifth Avenue. The water reappears on the third level in a trough over the atrium and free-falls to a ground floor fountain. Overview: The specialty retail or mall area is comprised of five above grade floors peripheral to a full central atrium. The Saks Fifth Avenue Department store anchors the development on the south side of the central atrium. The retail mall was initially designed for retail occupancy. However, after struggling with significant vacancy on the upper floors, the owner has since leased the fifth, fourth and majority of the third floors to National City Bank for office space. Access to the first floor or from floor to floor is provided by eight escalators positioned in the north end of the atrium retail area. The main skyway system, which connects with the neighboring buildings, is located on the second floor. In addition, the subject is skyway linked on the fourth floor to the Neiman Marcus/Gaviidae II development. For visual reference, the following reduced floor plans have been included: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 200 - -------------------------------------------------------------------------------- <PAGE> GAVIIDAE COMMON II 60 South Sixth Street Minneapolis, MN 55402 SCHEDULE OF PROSPECTIVE CASH FLOW In Inflated Dollars for the Fiscal Year beginning 3/1/1997 <TABLE> <CAPTION> Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 For the Years Ending Feb-1998 Feb-1999 Feb-2000 Feb-2001 Feb-2002 Feb-2003 Feb-2004 --------- --------- --------- --------- --------- --------- --------- <S> <C> <C> <C> <C> <C> <C> <C> POTENTIAL GROSS REVENUE Base Rental Revenue $1,790,974 $1,842,921 $1,862,539 $1,862,800 $1,881,692 $1,908,338 $1,936,875 Absorption & Turnover Vacancy (268,422) (177,268) (51,792) (26,640) (35,667) (18,526) (23,758) Base Rent Abatements (4,511) --------- --------- --------- --------- --------- --------- --------- Scheduled Base Rental Revenue 1,518,041 1,665,653 1,810,747 1,836,160 1,846,025 1,889,812 1,913,117 Expense Reimbursement Revenue cleaning clng after Office Cam 12,468 14,942 16,464 17,310 18,428 20,708 22,833 electrical maintenance 6,234 7,470 8,232 8,656 9,214 10,353 11,419 plumbing maintenance 2,338 2,801 3,087 3,246 3,455 3,885 4,282 HVAC 13,246 15,877 17,492 18,393 19,578 22,001 24,261 elevators & escalators 20,261 24,282 26,752 28,133 29,943 33,649 37,107 security & safety 40,519 48,565 53,510 56,265 59,884 67,299 74,213 general bldg. costs 197,395 211,442 222,623 231,633 242,354 258,100 273,414 Office Cam Credit repairs & maintenance 26,493 31,755 34,985 36,788 39,157 44,003 48,523 loading dock 19,481 23,348 25,726 27,049 28,790 32,354 35,680 comm. center 14,805 17,744 19,549 20,556 21,880 24,588 27,118 energy costs 155,845 186,784 205,801 216,403 230,331 258,837 285,436 water & sewer 6,234 7,470 8,232 8,656 9,214 10,353 11,419 administrative 43,635 52,298 57,625 60,593 64,492 72,473 79,924 insurance 6,295 7,548 8,314 8,742 9,303 10,456 11,531 real estate taxes 987,340 1,046,621 1,095,360 1,136,995 1,182,951 1,244,191 1,304,752 special assessments 23,409 23,447 20,729 21,640 22,642 23,950 25,264 Management Fee 32,535 38,998 42,968 45,181 48,089 54,041 59,595 --------- --------- --------- --------- --------- --------- --------- Total Reimbursement Revenue 1,608,533 1,761,392 1,867,449 1,946,239 2,039,705 2,191,241 2,336,771 storage 7,023 7,176 7,397 7,662 7,969 8,288 8,619 Parking 777,583 794,453 818,286 842,835 868,120 894,163 920,988 --------- --------- --------- --------- --------- --------- --------- TOTAL POTENTIAL GROSS REVENUE 3,911,180 4,228,674 4,503,879 4,632,896 4,761,819 4,983,504 5,179,495 Collection Loss (31,266) (34,270) (36,782) (37,824) (38,857) (40,811) (42,499) --------- --------- --------- --------- --------- --------- --------- EFFECTIVE GROSS REVENUE 3,879,914 4,194,404 4,467,097 4,595,072 4,722,962 4,942,693 5,136,996 OPERATING EXPENSES cleaning 231,342 239,439 247,819 256,493 265,470 274,761 284,378 electrical maintenance 20,117 20,821 21,549 22,304 23,084 23,892 24,729 plumbing maintenance 7,544 7,808 8,081 8,364 8,657 8,960 9,273 HVAC 42,748 44,244 45,793 47,395 49,054 50,771 52,548 elevators & escalators 65,379 67,667 70,036 72,487 75,024 77,650 80,368 security & safety 130,758 135,335 140,072 144,974 150,048 155,300 160,735 general bldg. costs 311,808 322,722 334,017 345,707 357,807 370,330 383,292 repairs & maintenance 85,496 88,488 91,585 94,791 98,108 101,542 105,096 loading dock 62,865 65,065 67,342 69,699 72,139 74,663 77,277 comm. center 47,777 49,449 51,180 52,971 54,825 56,744 58,730 energy costs 502,917 520,519 538,737 557,593 577,108 597,307 618,213 water & sewer 20,117 20,821 21,549 22,304 23,084 23,892 24,729 administrative 140,817 145,745 150,846 156,126 161,590 167,246 173,100 insurance 20,318 21,029 21,765 22,527 23,315 24,131 24,976 real estate taxes 1,324,040 1,370,381 1,418,345 1,467,987 1,519,366 1,572,544 1,627,583 special assessments 31,393 30,698 26,842 27,939 29,082 30,273 31,513 Management Fee 104,999 108,674 112,477 116,414 120,489 124,706 129,071 promotional fund 150,500 153,765 158,509 164,193 170,761 177,591 184,695 Parking 576,917 589,433 607,619 629,407 654,583 680,766 707,977 Vacant Utility Costs Occupied (168,221) (180,147) (191,827) (200,074) (207,670) (216,741) (225,127) Vacant 189,494 193,604 199,578 206,734 215,004 223,604 232,548 --------- --------- --------- --------- --------- --------- --------- Total 21,273 13,457 7,751 6,660 7,334 6,863 7,421 structural reserve 9,475 9,680 9,979 10,337 10,750 11,180 11,627 Landlord costs 10,033 10,251 10,567 10,946 11,384 11,839 12,313 --------- --------- --------- --------- --------- --------- --------- TOTAL OPERATING EXPENSES 3,918,633 4,035,491 4,162,460 4,307,618 4,463,062 4,622,951 4,789,664 --------- --------- --------- --------- --------- --------- --------- NET OPERATING INCOME (38,719) 158,913 304,637 287,454 259,900 319,742 347,332 --------- --------- --------- --------- --------- --------- --------- LEASING & CAPITAL COSTS Tenant Improvements 373,950 213,451 179,264 34,830 107,793 243,323 98,870 Leasing Commissions 27,159 17,712 14,540 2,090 6,467 34,883 12,915 --------- --------- --------- --------- --------- --------- --------- TOTAL LEASING & CAPITAL COSTS 401,109 231,163 193,804 36,920 114,260 278,206 111,785 --------- --------- --------- --------- --------- --------- --------- CASH FLOW BEFORE DEBT SERVICE ($439,828) ($72,250) $110,833 $250,534 $145,640 $41,536 $235,547 & INCOME TAX ========= ========= ========= ========= ========= ========= ========= <CAPTION> Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 For the Years Ending Feb-2005 Feb-2006 Feb-2007 Feb-2008 Feb-2009 Feb-2010 Feb-2011 --------- --------- --------- --------- --------- --------- --------- <S> <C> <C> <C> <C> <C> <C> <C> POTENTIAL GROSS REVENUE Base Rental Revenue $1,933,514 $2,163,176 $2,439,640 $2,605,060 $2,701,156 $2,767,666 $2,832,721 Absorption & Turnover Vacancy (43,485) (12,200) (260,483) (30,964) (17,518) (26,776) (25,577) Base Rent Abatements --------- --------- --------- --------- --------- --------- --------- Scheduled Base Rental Revenue 1,890,029 2,150,976 2,179,157 2,574,096 2,683,638 2,740,892 2,807,144 Expense Reimbursement Revenue cleaning clng after Office Cam 23,062 27,758 26,457 26,913 28,263 29,249 30,222 electrical maintenance 11,532 13,881 13,229 13,456 14,133 14,626 15,112 plumbing maintenance 4,326 5,206 4,960 5,046 5,299 5,487 5,666 HVAC 24,504 29,498 28,112 23,594 30,032 31,078 32,112 elevators & escalators 37,478 45,111 42,993 43,732 45,931 47,533 49,113 security & safety 74,954 90,221 85,990 87,463 91,857 95,067 98,227 general bldg. costs 281,116 307,397 283,535 318,781 332,139 344,324 356,757 Office Cam Credit repairs & maintenance 49,007 58,990 56,225 57,187 60,058 62,162 64,226 loading dock 36,036 43,375 41,340 42,050 44,164 45,706 47,223 comm. center 27,387 32,965 31,418 31,958 33,564 34,736 35,892 energy costs 288,282 347,007 330,726 336,396 353,300 365,641 377,800 water & sewer 11,532 13,881 13,229 13,456 14,133 14,626 15,112 administrative 80,719 97,162 92,603 94,189 98,925 102,379 105,785 insurance 11,646 14,021 13,359 13,589 14,275 14,769 15,265 real estate taxes 1,343,487 1,437,693 1,177,189 1,505,821 1,563,500 1,618,200 1,674,218 special assessments 26,162 28,157 23,196 29,836 31,163 32,409 33,533 Management Fee 60,187 72,447 69,050 70,231 73,764 76,339 78,880 --------- --------- --------- --------- --------- --------- --------- Total Reimbursement Revenue 2,391,417 2,664,770 2,333,611 2,718,698 2,834,500 2,934,331 3,035,143 storage 8,964 9,322 9,695 10,083 10,486 10,906 11,342 Parking 948,618 977,076 1,006,389 1,036,580 1,067,678 1,099,708 1,132,699 --------- --------- --------- --------- --------- --------- --------- TOTAL POTENTIAL GROSS REVENUE 5,239,028 5,802,144 5,528,852 6,339,457 6,596,302 6,785,837 6,986,328 Collection Loss (42,814) (48,157) (45,128) (52,928) (55,181) (56,752) (58,423) --------- --------- --------- --------- --------- --------- --------- EFFECTIVE GROSS REVENUE 5,196,214 5,753,987 5,483,724 6,286,529 6,541,121 6,729,085 6,927,905 --------- --------- --------- --------- --------- --------- --------- OPERATING EXPENSES cleaning 294,331 304,633 315,295 326,330 337,752 349,573 361,808 electrical maintenance 25,594 26,490 27,417 28,377 29,370 30,398 31,462 plumbing maintenance 9,598 9,934 10,281 10,641 11,014 11,399 11,798 HVAC 54,387 56,291 58,261 60,300 62,411 64,595 66,856 elevators & escalators 83,181 86,092 89,105 92,224 95,452 98,792 102,250 security & safety 166,361 172,184 178,210 184,448 190,903 197,585 204,500 general bldg. costs 396,707 410,592 424,963 439,836 455,231 471,164 487,655 repairs & maintenance 108,775 112,582 116,522 120,600 124,821 129,190 133,712 loading dock 79,981 82,781 85,678 88,677 91,780 94,993 98,317 comm. center 60,786 62,913 65,115 67,394 69,753 72,194 74,721 energy costs 639,850 662,245 685,424 709,414 734,243 759,942 786,540 water & sewer 25,594 26,490 27,417 28,377 29,370 30,398 31,462 administrative 179,158 185,429 191,919 198,636 205,588 212,784 220,231 insurance 25,850 26,755 27,691 28,660 29,663 30,702 31,776 real estate taxes 1,684,548 1,743,508 1,804,530 1,867,689 1,933,058 2,000,715 2,070,740 special assessments 32,804 34,149 35,550 37,009 38,530 40,072 41,475 Management Fee 133,588 138,264 143,103 148,111 153,295 158,661 164,214 promotional fund 192,083 199,766 207,757 216,067 224,709 233,698 243,046 Parking 736,317 765,769 796,400 828,256 861,386 895,842 931,675 Vacant Utility Costs Occupied (233,252) (244,154) (212,014) (263,248) (274,501) (285,052) (296,555) Vacant 241,850 251,524 261,585 272,048 282,930 294,247 306,017 --------- --------- --------- --------- --------- --------- --------- Total 8,598 7,370 49,571 8,800 8,429 9,195 9,462 structural reserve 12,092 12,576 13,079 13,602 14,147 14,712 15,301 Landlord costs 12,806 13,318 13,850 14,404 14,981 15,580 16,203 --------- --------- --------- --------- --------- --------- --------- TOTAL OPERATING EXPENSES 4,962,989 5,140,131 5,367,138 5,517,852 5,715,886 5,922,184 6,135,204 --------- --------- --------- --------- --------- --------- --------- NET OPERATING INCOME 233,225 613,856 116,586 768,677 825,235 806,901 792,701 --------- --------- --------- --------- --------- --------- --------- LEASING & CAPITAL COSTS Tenant Improvements 151,617 329,429 5,349,310 140,874 451,589 214,170 239,742 Leasing Commissions 26,623 30,828 336,573 16,476 35,593 28,953 27,843 --------- --------- --------- --------- --------- --------- --------- TOTAL LEASING & CAPITAL COSTS 178,240 360,257 5,685,883 157,350 487,182 243,123 267,585 --------- --------- --------- --------- --------- --------- --------- CASH FLOW BEFORE DEBT SERVICE $54,985 $253,599 ($5,569,297) $611,327 $338,053 $563,778 $525,116 & INCOME TAX ========= ========= ========= ========= ========= ========= ========= </TABLE> <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- YIELD CAPITALIZATION ANALYSIS (continued) - -------------------------------------------------------------------------------- GAVIIDAE II - NEIMAN MARCUS DISCOUNTED CASH FLOW ANALYSIS - -------------------------------------------------------------------------------- INDICATED VALUE: ($86,591) DIVIDE RENTABLE AREA-SF: 188,864 -------------------------------------------------------- INDICATED VALUE PER SQUARE FOOT: ($0.46) GOING IN CAPITALIZATION RATE: NA TERMINAL CAP RATE: 12.00% DISCOUNT RATE: 14.00% COSTS OF SALE: -l.0% PRESENT VALUE OF CASH FLOW: ($1,434,589) % OF NPV 1656.74% PRESENT VALUE OF RESIDUAL: $1,347,998 % OF NPV -1556.74% - -------------------------------------------------------------------------------- =CASH FLOW X = YEAR CASH FLOW +REVERSION (1) +REVERSION PV FACTOR SUBTOTAL - -------------------------------------------------------------------------------- 1 ($439,828) $0 ($439,828) 0.88 ($385,814) 2 ($72,250) $0 ($72,250) 0.77 ($55,594) 3 $110,833 $0 $110,833 0.67 $74,809 4 $250,534 $0 $250,534 0.59 $148,336 5 $145,640 $0 $145,640 0.52 $75,641 6 $41,536 $0 $41,536 0.46 $18,923 7 $235,547 $0 $235,547 0.40 $94,133 8 $54,985 $0 $54,985 0.35 $19,275 9 $253,599 $0 $253,599 0.31 $77,984 10 ($5,569,297) $4,997,328 ($571,969) 0.27 ($154,285) - ------------------------------------------------------------------------------- NET PRESENT VALUE ($86,591) (1) AVG. NET OPERATING INCOME-YR 9-13 $626.251 DIVIDE TERMINAL CAPITALIZATION RATE / 12.00% - ------------------------------------------------------------------------------- REVERSIONARY SALE PROCEEDS $5,218,758 LESS: 11TH YEAR TENANT IMPROVEMENTS ($140,874) LESS: 11TH YEAR COMMISSIONS/RESERVE ($30,078) - ------------------------------------------------------------------------------- SUBTOTAL $5,047,806 LESS: COSTS OF SALE ($50,478) - ------------------------------------------------------------------------------- NET REVERSIONARY PROCEEDS $4,997,328 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 184 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- YIELD CAPITALIZATION ANALYSIS (continued) The following pricing matrix has been calculated based on the discounted cash flow model found on the preceding page. The matrix displays the range of net present value as a function of both the yield rate or internal rate of return and the terminal capitalization rate. - -------------------------------------------------------------------------------- TERMINAL CAPITALIZATION RATES 11.00% 12.00% 13.00% 14.00% 15.00% - -------------------------------------------------------------------------------- I 13.00% $58,751 ($79,614) ($196,692) ($297,044) ($384,016) R R 13.00% $49,263 ($83,126) ($195,147) ($291,165) ($374,381) R 14.00% $40,104 ($86,591) ($193,795) ($285,684) ($365,321) A T 14.50% $31,263 ($90,008) ($192,621) ($280,576) ($356,803) E S 15.00% $22,726 ($93,374) ($191,612) ($275,817) ($348,794) - -------------------------------------------------------------------------------- ================================================================================ Estimated Market Value by Yield Capitalization, Nominal ================================================================================ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 185 - -------------------------------------------------------------------------------- <PAGE> [GRAPHIC OMITTED] [GAVIIDAE LEVEL 5] <PAGE> [GRAPHIC OMITTED] [GAVIIDAE LEVEL 4] <PAGE> [GRAPHIC OMITTED] [GAVIIDAE LEVEL 3] <PAGE> [GRAPHIC OMITTED] [GAVIIDAE SKYWAY LEVEL] <PAGE> [GRAPHIC OMITTED] [GAVIIDAE STREET LEVEL] <PAGE> [GRAPHIC OMITTED] [GAVIIDAE CONCOURSE MEZZANINE LEVEL P1] <PAGE> [GRAPHIC OMITTED] [GAVIIDAE CONCOURSE LEVEL P2] <PAGE> [GRAPHIC OMITTED] [GAVIIDAE MEZZANINE PARKING LEVEL P3] <PAGE> [GRAPHIC OMITTED] [GAVIIDAE LOADING DOCK LEVEL P4] <PAGE> UNDERGROUND PARKING & LOADING - -------------------------------------------------------------------------------- The subject development includes four levels used for off-street parking and loading. Ingress and egress is gained off South Sixth Street near the northeast corner of the site. Four levels of subterranean parking are available in levels P4 through P1. As with the retail component, the parking structure is also of Class A construction. The parking area is fully sprinkled (dry system) for fire protection. There is available parking for 490 vehicles. The loading dock area is located on the lowest level, P4. The are four docks serving the retail component and two docks serving Saks Fifth Avenue. All docks are improved with levelers and bumpers. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 210 - -------------------------------------------------------------------------------- <PAGE> HIGHEST AND BEST USE ANALYSIS - -------------------------------------------------------------------------------- This analysis identifies the most profitable use to which the property can be developed. The use of a property greatly influences value and all factors that influence and contribute to value must be considered. Highest and Best Use is defined in The Dictionary of Real Estate Appraisal, Third Edition, by the Appraisal Institute, copyright 1993, page 171 as follows: "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 is based on the application of four tests of the land as though vacant and of the property as improved. They are as follows: Legally Permissible Physically Possible, Financially feasible, and Maximally Productive These tests will now be applied to the subject as though vacant. Legally Permissible - Given the permitted uses in the B4-2, Central Retail District an office retail, or parking application or a complex integrating these three applications is allowed. Physically Possible - Given the range of legally permitted use and in consideration of the existing office, hotel and retail applications existing along the Nicollet Mall, it is believed that over the long term that an office, hotel and/or retail application would be the most appropriate applications for the site, if vacant. The subject land constitutes one of the prime commercial sites in Downtown Minneapolis. The property is located at the 100% corner of South Seventh Street and the Nicollet Mall. The physical and locational characteristics of the subject site are all suitable for such a development. The total site measures approximately 65,635 square feet in size and its topography is level and at grade with the bordering streets. Financially Feasible - This test relates to the financial feasibility of the legally permitted uses on the site. As of the appraisal date the office market is rebounding after three years of downturn. Class A occupancy is 96.1%, up from 95.5% in the Second Quarter of 1995 and 91.7% in the second quarter of 1994. Class A office rents are generally in the $12 to $16 per square foot range, compared with $10 to $13 per square foot last year. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 211 - -------------------------------------------------------------------------------- <PAGE> HIGHEST AND BEST USE ANALYSIS (continued) - -------------------------------------------------------------------------------- The office market has tightened considerably and several new developments are in process. New construction will likely commence on both the Target office building (400,900 sf) and the 800 Nicollet Mall Tower building (800,000 sf) in the Spring of 1997. As previously discussed, Target will own and occupy their new building. Anchor tenants have yet to be announced for the 800 Tower property. On February 24, 1997, Opus announced that it will build a 3O-story office for American Express Financial Advisors on the former Minnegasco building site at South 7th Street and Second Avenue South. On the other hand, the Downtown retail market continues to struggle. At the subject property, the third, fourth and fifth floors were converted to office after years of high vacancy. At Gaviidae II, the in-line retail component is 37% vacant with several tenants paying percentage rent only. The Conservatory, one of the highest quality specialty retail malls built in the Twin Cities, is scheduled for demolition in the Spring of 1997. For both Gaviidae Developments, total sales have fallen from $57,000,000 in 1994 to $53,000,000 in 1996. Other than the flagship Dayton's store, the remaining downtown anchor department stores are struggling. In 1991, Carson Pine Scott vacated City Center and the space was subsequently leased to Montgomery Ward. However, with Ward's most recent sales in the low to mid $60 per square foot range, it is not likely that this tenant will stay through lease end in 2004. According to the property manager, in 1995 this store was one of the ten poorest performing stores in the Montgomery Ward chain. Saks and Neiman Marcus are in a similar position. In the January 1997 issue of Corporate Report Minnesota, an article titled "Nicollet Mall-aise" described the disappointing performance experienced at these two upscale retailers. According to the article, an average Saks and Neiman store generates $327 and $380 per square foot in annual sales, respectively. This compares to actual 1996 sales of $140 per square foot at Saks and $124 per square foot at Neiman Marcus. A copy of the article is included in the Addenda of this report. The current rental income from the converted office and retail components (anchor and in-line) is below the level necessary to support the depreciated value of the improvements plus land. Maximally Productive - This test relates to that use which is financially feasible and most profitable based on dollars invested. If the site were vacant today, it would likely be considered for office development. However, several other sites, including the Conservatory site, the Physicians and Surgeons block, and the Minnegasco office building site (as noted above) are also available and would most likely be developed before the subject. The next step in the Highest and Best Use analysis involved applying these tests to the subject property as improved. In this step, the four tests of highest and best use are used to determine if the current improvements represent the highest and best use. If the property, in its current state, does not represent the highest and best use then other alternatives such as renovation, expansion, or demolition must be considered. These tests will now be applied to the subject property as improved. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 212 - -------------------------------------------------------------------------------- <PAGE> HIGHEST AND BEST USE ANALYSIS (continued) - -------------------------------------------------------------------------------- Legally Permissible - The subject property is legally permitted under the B4-2, Central Service District. The possible renovation or demolition of the property is also legally permissible with the proper municipal permits. However, subsequent sections of this report will prove that the subject property, as improved, is worth substantially more than the value of the land as vacant. Physically Possible - The subject property is physically possible as evidenced by its existence. The subject was physically designed as a specialty retail development. A property of equal construction, quality and style could be constructed today. However, it is likely that the subject would not be built if the site were vacant today. Or, if it was built, it would not resemble the existing improvements. More likely, a retail development would be incorporated into the first and second floors of a high-rise office tower. A third floor food court is a possibility. A fourth and fifth floor would not be built. Nearly every vertical or specialty mall in the region has experienced difficulty in upper floor leasing. According to the operations manager, an office building cannot be constructed over the retail mall. Reportedly, the subject improvements were not designed for future vertical expansion. The demolition of the property is a physical possibility, but is not financially feasible. Subsequent sections of this report will prove that the property as improved is worth substantially more than the site as vacant. Financially Feasible/Maximally Productive - For the subject property, the continued operation of the property as a multi-tenant mixed use development is financially feasible and maximally productive as the existing improvements do add significant value over and above the value of the land as vacant. It is the appraisers' opinion that the conversion of the upper three levels to general office space is financially feasible and maximally productive. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 213 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH - -------------------------------------------------------------------------------- The Cost Approach produces an indication of value derived by estimating the value of the subject land and adding to this the replacement or reproduction cost of the improvements less any accrued depreciation. Fundamental to this approach is the principal of substitution which states, on page 356 of The Dictionary of Real Estate Appraisal, Third Edition, that: "...when several similar or commensurate commodities, goods or services are available, the one with the lowest price will attract the greatest demand and widest distribution". In other words, a prudent and informed buyer would pay no more for an existing property than it would cost to purchase a site and construct a building of equal utility and desirability. This approach recognizes that the replacement or reproduction cost tends to set an upper limit of value particularly when the improvements represent the highest and best use of the land as vacant. As newly constructed properties tend to represent market standards, any deficiencies existing in the subject property must be quantified by comparison resulting in an indication of accrued depreciation. The Cost Approach involves four basic steps as outlined below: 1. Estimate the value of the land as if vacant and capable of being improved to its highest and best use. This was accomplished in the Land Sales Comparison Approach Section of the report. 2. Estimate the current cost to replace/reproduce the existing improvements. 3. Deduct accrued depreciation (which may be in the form of physical deterioration, functional obsolescence or economic obsolescence) from the replacement or reproduction cost new estimate. 4. Add the land value to the depreciated value of the improvements to arrive at the estimated market value by the Cost Approach. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 214 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH (continued) - -------------------------------------------------------------------------------- COST NEW ESTIMATE Given the substantial elements of functional obsolescence in the property and the degree of economic obsolescence occurring in the upscale retail market, it is recognized that the Cost Approach is not the most appropriate methodology for estimating market value. Arguably, the property would not be built if the site were vacant today. Or, if it was built, it would not resemble the existing improvements. More likely, a retail development would be incorporated into the first and second floors of a high-rise office tower. A third floor food court is a possibility. A fourth and fifth floor would not be built. Nearly every vertical or specialty mall in the region has experienced difficulty in upper floor leasing. At the subject property, the upper three levels were virtually vacant from the property's opening until January of 1993 when Room & Board leased 21,668 square feet. Their gross rent was 10% of sales. In 1994, their last full year of occupancy, sales totaled $2,015,378 indicating a gross rent of $201,538 or $9.30 per square foot. Subtracting out operating expenses of approximately $25.00 per square foot results in a negative net rent of ($15.70) per square foot. The tenant vacated in 1995. In 1995 the decision was made to essentially de-lease the upper three floors and sign a long term lease with National City Bank. National City Bank occupied 93,323 square feet in what is now referred to as the 510 Marquette Building. Their lease expired in March of 1996. Several tenants including Azur, Ficocello's, and the Card Shop were vacated and the space was converted to office. The terms of the National City Bank lease are summarized below. A complete Lease Summary is included in the Addenda of this report. Area - sf: 77,472 (includes first and second floor retail banking facilities) Rent: Period $/sf ----------------- 4/96 - 3/01 $1.10 4/01 - 3/06 $3.10 Area - sf: 18,285 (Suites 301 and 311) Rent: Period $/sf ----------------- 3/96 - 3/01 $4.98 4/01 - 3/06 $6.98 National City Bank had initially agreed to lease all space at a net rental rate of $4.98 per square foot for the first five years and $6.98 for the remaining five years of the base lease term. However, National City Bank made Brookfield a loan of $3,346,608 to finance the tenant improvements on the initially leased area of 77,472 square foot and as a result, the tenant receives a rent credit which results in an effective net rent of $1.10 per square foot for the first five years of the term and $3.10 per square foot for the remaining five years of the term. Subsequent to this, National City Bank leased suites 301 and 311 and Brookfield reportedly paid for all tenant improvements related to these suites. As this partial adjusted rent level circumstance relates primarily to the method of rent payment, and per the direction of the client, the rent credit on the initially leased area was not considered. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 215 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH (continued) - -------------------------------------------------------------------------------- COST NEW ESTIMATE (continued) Even at the $4.98/$6.98 per square foot levels, the above rents do not justify new construction or provide a sufficient return on the depreciated value of the improvements (or even land). In fact, the net operating income generated from these three levels is negative. As such, it is the appraisers' opinion that the upper three levels suffer from functional obsolescence. Because of this, little weight was placed on the actual costs reported below: Gaviidae I - Saks Fifth Avenue ------------------------------------------------------------------------------- $/SF of % of Actual Construction Costs $ GLA Total - -------------------------------------------------------------------------------- Hard costs Construction costs $29,707,025 $116.74 51% Tenant Improvements $ 5,867,817 $ 23.06 10% - -------------------------------------------------------------------------------- Total Hard costs $35,574,842 $139.79 61% Soft Costs Architect/Engineering $5,065,311 $19.90 9% Taxes & Insurance $2,101,132 $8.26 4% Leasing Commissions $129,476 $0.51 0% Marketing $1,162,787 $4.57 2% General & Accounting $1,462,480 $5.75 2% Development Fee $2,348,000 $9.23 4% Financing Costs $10,801,037 $42.44 18% ------------------------------------------------------------------------------ Total Soft Costs $23,070,223 $90.66 39% ================================================================================ Total Hard and Soft Costs $58,645,065 $230.45 100% ================================================================================ It should be noted that the above estimate does not consider the underlying land value. The costs were reported on draw request number 38. Brookfield has indicated that the final draw was number 42. However, they have certified that there were no material changes in the costs between draw numbers 38 and 42. REPLACEMENT COST NEW In applying the Cost Approach, the Marshall Valuation Service was relied on for estimating the current Replacement Cost New for an anchored retail center with just two levels of specialty retail. The underground parking garage was also considered. The construction of all components is classified as Class A by the Marshall Valuation Service. The primary features of a Class A structure is a fireproofed structural steel frame with a masonry or poured concrete support and overlay. Floors and roofs in Class A structures are typically reinforced concrete over a steel decking and are poured in such a manner that they become integral to the frame. Exterior walls are commonly walls of masonry, concrete or panels of metal and glass. This construction classification is consistent with that of the subject. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 216 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH (continued) - -------------------------------------------------------------------------------- REPLACEMENT COST NEW (continued) Replacement Cost New here is the cost of creating a structure of equal utility as the subject based on current prices for state-of-the-art construction materials. It is the price of constructing a true substitute building that may not be composed of identical materials or possess an identical design, but would provide an equal factor of usage. Reproduction cost would be used for estimating an identical building and would include any functional obsolescence that might be present in the existing building. The calculator cost method was relied on in arriving at a Replacement Cost new estimate by means of the Marshall Valuation Service. A copy of the estimate is included in the Addenda of this report. The cost estimates are as follows: --------------------------------------------- RCN Component Estimate --------------------------------------------- In-Line Retail & Parking $17,938,675 Anchor Dept. Store $11,071,586 --------------------------------------------- Total $29,01O,261 --------------------------------------------- In order to provide a sound value indication, an estimate for entrepreneurial profit should be added if attainable in the marketplace. For this analysis, a 10% entrepreneurial profit was applied to the parking component only. This estimate was applied to the in-line and parking hard and soft costs as follows: ------------------------------------------------------------------ Add: = RCN Entrep. Total Component Estimate Profit @ 10% RCN ------------------------------------------------------------------ ln-Line Retail & Parking $17,938,675 $621,290 $18,559,965 Anchor Dept. Store $11,071,586 $0 $11,071,586 ------------------------------------------------------------------ Total $29,010,261 $621,290 $29,631,551 ------------------------------------------------------------------ - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 217 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH (continued) - -------------------------------------------------------------------------------- DEPRECIATION ANALYSIS Three types of depreciation occur in real estate. They are: 1. Physical depreciation resulting from the wear and tear on the property. It includes both curable and incurable depreciation. 2. Functional obsolescence resulting from the inadequate or super-adequacies of design, style, or layout when compared to a new property serving the same purpose. and, 3. Economic or external obsolescence resulting in a loss of value from causes outside the property itself. All three forms of depreciation are present in the subject property. Functional Obsolescence - According to The Appraisal of Real Estate, Eleventh Edition, Functional obsolescence is caused by a flaw in the structure, materials, or design that diminishes the function, utility and value of the improvement. The result is a loss in value caused by either a deficiency or superadequacy. A superadequacy is a component or system in the property that exceeds market requirements and does not contribute to value an amount equal to its cost. The upper three floors of the specialty retail center are considered a superadequacy. Furthermore, the superadequacy is considered incurable given that the cost to cure the superadequacy (demolition or conversion) exceed the value created. As such, the cost to construct the upper three floors of the retail center were not considered in the Replacement Cost New Estimate. Added costs of ownership related to the operation of these three floors was considered modest given that National City Bank reimburses the landlord for their pro-rata share of operating costs. Physical Depreciation - Incurable - The average physical depreciation, incurable, from the physical wear and tear on the improvements is calculated by the age/life ratio. The Marshall Valuation Service reports that typically Class B buildings such as the subject have an economic life expectancy of 55 years. The appraisers believe an equal life expectancy exists for both the retail and parking components. Overall, the entirety of the subject improvements have been well maintained and are in excellent condition. In this analysis, a straight line depreciation method for the property based on its effective age and economic life expectancy was calculated as follows: <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------ Effective Divide % % = Component Age Econ. Life-yrs Depreciated RCN Depr. $ - ------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> In-Line Retail & Parking 8 55 14.55% $18,559,965 $2,699,631 Anchor Dept. Store 8 55 14.55% $11,071,586 $1,610,413 - ------------------------------------------------------------------------------------------------------ Total 14.55% $29,631,551 $4,310,044 - ------------------------------------------------------------------------------------------------------ </TABLE> - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 218 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH (continued) - -------------------------------------------------------------------------------- DEPRECIATION ANALYSIS (continued) Economic Obsolescence - External or economic obsolescence is generally caused by outside factors affecting property value, such as economic forces or environmental changes which affect the supply and demand relationship in the market. The retail environment is undergoing a fundamental change toward more value oriented retailing and entertainment. These changes have pushed overall sales volume down at both Gaviidae Developments as well as City Center. At City Center, gross sales fell from $62,000,0000 in 1991 to a projected $45,000,000 in 1996. At the Gaviidae properties, gross sales have fallen from $57,000,000 in 1994 to $53,000,000 in 1996. As of the appraisal date most of the Downtown retail developments are struggling. Downtown retailers have historically missed out on the night and weekend business. Suburban shopping malls offer free parking, a less congested area of travel, and a 1/2% lower sales tax on all non-clothing purchases. Overall sales volume at the subject is below the level necessary to provide the retailers with a sufficient profit to remain in business. At the subject property, gross occupancy costs have consistently been near 15% of sales on the best second floor space in the project. Based on 1996 sales and 1997 rent, the average figure was 14.9% as exhibited below: Gaviidae I & II - Gross Rent to Sales Ratio - -------------------------------------------------------- Gross Divide Gross Rent/ Rent Sales Sales Ratio - -------------------------------------------------------- Anchors $2,408,065 $31,435,967 7.7% First Floor $1,270,654 $10,778,925 11.8% Second Floor $1,563,947 $7,649,391 20.4% Third Floor $181,788 $1,526,04l 11.9% Fourth Floor $245,683 $1,897,991 l2.9% - ------------------------------------------------------- Total Non-Anchor $3,262,071 $21,852,348 14.9% - ------------------------------------------------------- This compares to the traditional 10% to 12% levels found at most regional malls in the Twin Cities. As a result, the subject's retail rental structure is lower than what would be required to achieve a competitive return on the depreciated replacement cost of the improvements plus land value. The physically depreciated cost is calculated as follows: - -------------------------------------------------- Replacement Cost New $29,631,551 Less: Physical Deterioration ($4,310,044) - -------------------------------------------------- ubtotal $25,321,507 Add: Land Value $13,000,000 - -------------------------------------------------- Indicated Value $38,321,507 - -------------------------------------------------- - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 219 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH (continued) - -------------------------------------------------------------------------------- DEPRECIATION ANALYSIS (continued) The total average depreciated value of the improvements plus land of approximately 538,000,000 would require a net income of approximately $3,800,000 to achieve a capitalization rate of 10.0%, an estimated market yield as of the appraisal date. This compares to a projected Year 1 Net Operating Income of $1,093,000 as calculated in the Income Approach. To measure economic obsolescence, the present value of the income shortfall was calculated. The shortfall is defined as the disparity between the net operating income necessary to support the depreciated value of the improvements including land value and the projected net operating income as calculated in the Income Approach. For this analysis, the required growth in NOI estimated was at 1.52% per annum. This growth rate is based on the improvement value increasing at 3.5% per year and the land value appreciating at 2.0% per year. However, because the improvements are depreciating each year, the total value does not increase correspondingly. The effective rate of NOI increase given the subject land and improvement composite is approximately 1.52% per year. Economic obsolescence is calculated as follows: - -------------------------------------------------------------------------------- RCN Add: Deprec. FY Estimate Less: Land Value Value of Imp. x Est. Year + 3.5% yr Physical Depr. +2.9% yr + Land Value Cap Rate - -------------------------------------------------------------------------------- 1998 $29,631,551 $4,310,044 $13,000,000 $38,321,507 10.0% 1999 $30,668,655 $5,018,507 $13,260,000 $38,910,148 10.0% 2000 $31,742,058 $5,771,283 $13,525,200 $39,495,975 10.0% 2001 $32,853,030 $6,570,606 $13,795,704 $40,078,128 10.0% 2002 $34,002,886 $7,418,812 $14,071,618 $40,655,693 10.0% 2003 $35,192,987 $8,318,342 $14,353,050 $41,227,695 10.0% 2004 $36,424,742 $9,271,752 $14,640,111 $41,793,101 10.0% 2005 $37,699,608 $10,281,711 $14,932,914 $42,350,810 10.0% 2006 $39,019,094 $11,351,009 $15,231,572 $42,899,657 10.0% 2007 $40,384,762 $12,482,563 $15,536,203 $43,438,403 10.0% 2008 $41,798,229 $13,679,420 $15,846,927 $43,965,736 10.0% 2009 $43,261,167 $14,158,200 $16,163,866 $45,266,833 10.0% 2010 $44,775,308 $14,653,737 $16,487,143 $46,608,714 10.0% 2011 $46,342,444 $15,166,618 $16,816,886 $47,992,712 10.0% 2012 $47,964,429 $15,697,450 $17,153,224 $49,420,204 10.0% - -------------------------------------------------------------------------------- Total - -------------------------------------------------------------------------------- Less: Total Income Req'd Net to Support Operating Depreciated Income Equals X Discount FY Improvements/ Per Income Income Factor Year Land Approach Shortfall @ 12.5% Subtotal - -------------------------------------------------------------------------------- 1998 $3,832,151 $1,330,912 $2,501,239 0.889 $2,223,323 1999 $3,891,015 $1,497,122 $2,393,893 0.790 $1,891,471 2000 $3,949,597 $1,489,998 $2,459,599 0.702 $1,727,455 2001 $4,007,813 $1,455,253 $2,552,560 0.624 $1,593,551 2002 $4,065,569 $1,628,331 $2,437,238 0.555 $1,352,494 2003 $4,122,770 $1,666,029 $2,456,741 0.493 $1,211,837 2004 $4,179,310 $1,629,589 $2,549,721 0.438 $1,117,957 2005 $4,235,081 $1,612,302 $2,622,779 0.390 $1,022,213 2006 $4,289,966 $1,633,126 $2,656,840 0.346 $920,434 2007 $4,343,840 $1,685,493 $2,658,347 0.308 $818,628 2008 $4,396,574 $1,974,201 $2,422,373 0.274 $663,076 2009 $4,526,683 $2,012,342 $2,514,341 0.243 $611,778 2010 $4,660,871 $2,062,170 $2,598,701 0.216 $562,048 2011 $4,799,271 $2,041,797 $2,757,474 0.192 $530,122 2012 $4,942,020 $1,941,603 $3,000,417 0.171 $512,736 - -------------------------------------------------------------------------------- $16,759,123 - -------------------------------------------------------------------------------- It should be noted that the economic obsolescence that exists in the reversion was not calculated. From the above exhibit it is apparent that the income shortfall exists beyond the holding period. In fact, the disparity increases over time. As such, the above estimate of economic obsolescence is understated. If the calculation were extended an additional twelve years and it were assumed that over this period the annual disparity would decline $100,000 per year, the additional indicated obsolescence is estimated at approximately $1,750,000. The annual shortfall indications are based on the disparity between feasibility NOI and projected NOI. In addition to the annual shortfall in rent, the landlord is also responsible for the tenant improvement and leasing commission expenditures necessary to maintain a stabilized occupancy. Based on the projections made in the Income Approach, these costs are estimated as follows: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 220 - -------------------------------------------------------------------------------- <PAGE> COST APPROACH (continued) - -------------------------------------------------------------------------------- DEPRECIATION ANALYSIS (continued) - -------------------------------------------------------------------------------- Add: Add: = Total x Discount FY Leasing Tenant Capital Factor Year Commissions Improvements Costs @ 12.5% Subtotal - -------------------------------------------------------------------------------- 1998 $0 $0 $0 0.889 $0 1999 $22,622 $212,730 $235,352 0.790 $185,957 2000 $2,484 $41,400 $43,884 0.702 $30,821 2001 $28,214 $449,560 $477,774 0.624 $298,272 2002 $1,654 $11,026 $12,680 0.555 $7,036 2003 $3,228 $21,523 $24,751 0.493 $12,209 2004 $1,752 $29,203 $30,955 0.438 $13,573 2005 $12,398 $147,624 $160,022 0.390 $62,368 2006 $17,252 $115,014 $132,266 0.346 $45,822 2007 $269,659 $1,254,676 $1,524,335 0.308 $469,413 2008 $7,010 $116,843 $123,853 0.274 $33,902 2009 $38,613 $615,255 $653,868 0.243 $159,096 2010 $2,263 $15,090 $17,353 0.216 $3,753 2011 $4,418 $29.455 $33,873 0.192 $6,512 2012 $296,559 $1,216,616 $1,513,175 0.171 $258,584 - -------------------------------------------------------------------------------- Total $1,587,319 - -------------------------------------------------------------------------------- For this exercise, economic obsolescence was estimated at $23,000,000. SUMMATION By incorporating the site valuation and replacement cost for the subject improvements, an indication of market value by the Cost Approach was determined as follows: ------------------------------------------- Replacement Cost New $29,631,551 Less: Physical Deterioration $4,310,044 ------------------------------------------- Subtotal $25,321,507 Less: Economic Obsolescence $23,000,000 ------------------------------------------- Subtotal $2,321,507 Add: Land Value $13,000,000 ------------------------------------------- Indicated Value $15,321,507 Rounded to. $15,000,000 ------------------------------------------- Given that the estimate of external obsolescence is based substantially on the assumptions and projections made in the Income Approach, the value estimate by the Cost Approach should be granted only minimal weight as a market value indication. One of the weaknesses of the Cost Approach is not a function of the methodology or resulting value indication, but rather in the fact that buyers and sellers do not typically rely on it, especially when analyzing multi-tenant income producing properties. Another weakness involves the measurement of accrued depreciation. Since buyers are not relying on the Cost Approach in their decision to purchase real estate, the measure of deterioration or obsolescence is oftentimes based on subjective reasoning. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 221 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH - -------------------------------------------------------------------------------- RETAIL TENANT INCOME Income is generated from the rental of in-line retail space, office space and anchor tenant space. A breakdown is as follows: Area Area-sf Tenant - -------------------------------------------------------------------------------- In-line Retail 65,834 Various (includes National City Bank 3rd floor office) Office 70,308 National City Bank-4th and 5th floors Anchor 1l8,338 Saks Fifth Avenue - -------------------------------------------------------------------------------- Total GLA 254,480 A rent roll is offered on the following pages. For the floor by floor location of a specific tenant please refer to the stacking plans included in the respective Description of Improvement Sections of this report. Major tenant lease summaries are included in the Addenda of this report. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 222 - -------------------------------------------------------------------------------- <PAGE> Software :ARGUS Ver. 7.0.01 Date :3/12/97 File :App_gav1 Time :1:51 pm Property Type :Office & Retail Ref# :BHX Portfolio : Page :1 Gaviidae Common Ph I Minneapolis, MN 55402 PRESENTATION RENT ROLL & CURRENT TERM TENANT SUMMARY As of Mar-1997 for 254,480 Square Feet <TABLE> <CAPTION> DESCRIPTION AREA BASE RENT RENT ADJUSTMENTS & CATEGORIES ABATEMENTS REIMBURSEMENT LEASING COSTS Tenant Name Floor Rate & Amount CPI & Current Months Pcnt Description of Imprvmnts Commssns Type & Suite Number SqFt per Year Changes Changes Porters' Wage to to Operating Expense Rate Rate Lease Dates & Term Bldg Share per Month on to Miscellaneous Abate Abate Reimbursements Amount Amount - ------------------- ----------- ------------- -------- ------- ------------- ------- ----- ---------------- --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> NCB Retail $4.98 Apr-2001 $6.98 -- -- -- See method: -- -- Retail, Suite: 101 3,710 $18,476 NCB Retail Apr-1996 to Mar-2006 1.46% $0.42 reimbursement. 120 Months $1,540 Cole Haan $0.00 Oct-1995 $20.0O -- -- -- See method: -- -- Retail, Suite: 105 3,542 $0 Oct-1996 $23.00 In Line Reimb Aug-1989 to Jan-2005 1.39% $0.00 Oct-1997 $27.00 reimbursement. 186 Months $0 Oct-1998 $29.00 Oct-2000 $32.00 Oct-2001 $34.00 Oct-2002 $36.00 Oct-2003 $39.00 Trail Mark $17.12 -- -- -- -- -- Full Service: -- -- Retail, Suite: 107 1,464 $25,064 Pays no expense Mar-1997 to Feb-2002 0.58% $1.43 reimbursement. 50 Months $2,089 S. Vincent Jewelers $30.00 Feb-1997 $35.00 -- -- -- See method: -- -- Retail, Suite: 113 958 $28,740 In Line Reimb Aug-1989 to Jan-1998 0.38% $2.50 reimbursement. 102 Months $2,395 Bostonian $45.00 Feb-1997 $50.00 -- -- -- See method: -- -- Retail, Suite: 119 1,015 $45,675 In Line Reimb Aug-1989 to Jan-2000 0.40% $3.75 reimbursement. 126 Months $3,806 Gaviidae Pendleton $20.36 -- -- -- -- -- Full Service: -- -- Retail, Suite: 125 2,197 $44,731 Pays no expense Aug-1989 to Feb-1998 0.86% $1.70 reimbursement. 103 Months $3,728 The Custom Shop $26.82 -- -- -- -- -- See method: -- -- Retail, Suite: 130 780 $20,920 In Line Reimb Aug-1989 to Jan-2001 0.31% $2.24 reimbursement. 138 Months $1,743 Totally Organized $6.76 -- -- -- -- -- Full Service: -- -- Retail, Suite: 135 3,413 $23,072 Pays no expense Aug-1995 to Jan-2005 1.34% $0.56 reimbursement. 114 Months $1,923 Bruegger's $40.42 -- -- -- -- -- Full Service: -- -- Retail, Suite: 139 2,474 $99,999 Pays no expense Apr-1994 to Jan-2004 0.97% $3.37 reimbursement. 118 Months $8,333 NCB Retail $4.98 Apr-2001 $6.98 -- -- -- See method: -- -- Retail, Suite: 201 3,454 $17,201 NCS Retail Apr-1996 to Mar-2006 1.36% $0.42 reimbursement. 120 Months $1,433 The Museum Company $0.00 Feb-1996 $39.00 -- -- -- Full Service: -- -- Retail, Suite: 203 2,666 $0 Jun-1997 $45.00 Pays no expense Mar-1990 to Jan-2000 1.05% $0.00 reimbursement. 119 Months $0 Franklin Quest $20.00 Feb-2002 $25.00 -- -- -- See method: -- -- Retail, Suite: 207 1,655 $33,100 In Line Reimb Jun-1997 to Jan-2004 0.65% $1.67 reimbursement. 80 Months $2,758 Mother's Work $40.00 Sep-1998 $50.00 -- -- -- See method: -- -- Retail, Suite: 209 764 $30,560 In Line Reimb Aug-1993 to Aug-2003 0.30% $3.33 reimbursement. 121 Months $2,547 </TABLE> (continued on next page) <PAGE> Software :ARGUS Ver. 7.0.01 Date :3/12/97 File :App_gav1 Time :1:51 pm Property Type :Office & Retail Ref# :BHX Portfolio : Page :2 Gaviidae Common Ph I Minneapolis, MN 55402 PRESENTATION RENT ROLL & CURRENT TERM TENANT SUMMARY As of Mar-1997 for 254,480 Square Feet (continued from previous page) <TABLE> <CAPTION> DESCRIPTION AREA BASE RENT RENT ADJUSTMENTS & CATEGORIES ABATEMENTS REIMBURSEMENT LEASING COSTS Tenant Name Floor Rate & Amount CPI & Current Months Pcnt Description of Imprvmnts Commssns Type & Suite Number SqFt per Year Changes Changes Porters' Wage to to Operating Expense Rate Rate Lease Dates & Term Bldg Share per Month on to Miscellaneous Abate Abate Reimbursements Amount Amount - ------------------- ----------- ------------- -------- ------- ------------- ------- ----- ---------------- --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Van Haveren's Flowers $33.07 -- -- -- -- -- See method: -- -- Retail, Suite: 213 488 $16,138 In Line Reimb Oct-1992 to Jan-1998 0.19% $2.76 reimbursement. Months $1,345 ribou Coffee $25.01 Oct-1996 $28.59 -- -- -- See method: -- -- Retail, Suite: 219 1,069 $26,736 Oct-2000 $32.16 In Line Reimb -1993 to Jan-2004 0.42% $2.08 reimbursement. 125 Months $2,228 arter Club $20.00 -- -- -- -- -- See method: -- -- Retail, Suite: 221 3,302 $66,040 In Line Reimb Aug-1989 to Feb-2000 1.30% $1.67 reimbursement. 127 Months $5,503 Croix Knits $0.00 Feb-1997 $18.00 -- -- -- See method: -- -- Retail, Suite: 227 1,352 $0 Feb-1999 $21.00 In Line Reimb Apr-1995 to Jan-2007 0.53% $0.00 Feb-2002 $26.00 reimbursement. Months $0 Feb-2005 $30.00 Ritz Camera $40.00 -- -- -- -- -- See method: -- -- Retail, Suite: 231 739 $29,560 In Line Reimb Aug-1989 to Jan-1999 0.29% $3.33 reimbursement. Months $2,463 Pretzeltime $21.68 -- -- -- -- -- Full Service: -- -- Retail, Suite: 237 508 $11,013 Pays no expense -1994 to Jan-2000 0.20% $1.81 reimbursement. Months $918 San Francisco Music Box $80.00 -- -- -- -- -- See method: -- -- Retail, Suite: 239 905 $72,400 In Line Reimb Aug-1989 to Jan-2000 0.36% $6.67 reimbursement. Months $6,033 Sunglass Hut $70.00 -- -- -- -- -- See method: -- -- Retail, Suite: 243 522 $36,540 In Line Reimb Aug-1989 to Jan-1999 0.21% $5.83 reimbursement. 114 Months $3,045 Eddie Bauer $30.00 -- -- -- -- -- See method: -- -- Retail, Suite: 247 5,443 $163,290 In Line Reimb Aug-1989 to Jan-2000 2.14% $2.50 reimbursement. 126 Months $13,608 NCB Retail $4.98 Apr-2001 $6.98 -- -- -- See method: -- -- Retail, Suite: 301 17,729 $88,290 NCB Retail Apr-1996 to Mar-2006 6.97% $0.42 reimbursement. 180 Months $7,358 NCB Retail $4.98 Apr-2001 $6.98 -- -- -- See method: -- -- Retail, Suite: 311 556 $2,769 NCB Retail Apr-1996 to Mar-2006 0.22% $0.42 reimbursement. Months $231 NCB Office $4.98 Apr-2001 $6.98 -- -- -- See method: -- -- Office, Suite: 400 22,306 $111,084 NCB Office -1996 to Mar-2006 8.77% $0.42 reimbursement. Months $9,257 NCB Office $4.98 Apr-2001 $6.98 -- -- -- See method: -- -- Office, Suite: 500 48,002 $239,050 NCB Office -1996 to Mar-2006 18.86% $0.42 reimbursement. Months $19,921 </TABLE> (continued on next page) <PAGE> Software :ARGUS Ver. 7.0.01 Date :3/12/97 File :App_gav1 Time :1:51 pm Property Type :Office & Retail Ref# :BHX Portfolio : Page :3 Gaviidae Common Ph I Minneapolis, Mn 55402 PRESENTATION RENT ROLL & CURRENT TERM TENANT SUMMARY As of Mar-1997 for 254,480 Square Feet (continued from previous page) <TABLE> <CAPTION> DESCRIPTION AREA BASE RENT RENT ADJUSTMENTS & CATEGORIES ABATEMENTS REIMBURSEMENT LEASING COSTS Tenant Name Floor Rate & Amount CPI & Current Months Pcnt Description of Imprvmnts Commssns Type & Suite Number SqFt per Year Changes Changes Porters' Wage to to Operating Expense Rate Rate Lease Dates & Term Bldg Share per Month on to Miscellaneous Abate Abate Reimbursements Amount Amount - ------------------- ----------- ------------- -------- ------- ------------- ------- ----- ----------------- --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Saks Fifth Avenue $1.69 -- -- -- -- -- See method: -- -- Retail, Suite 1 118,338 $200,000 Saks Reimbursment Aug-1989 to Jan-2015 46.50% $0.14 reimbursement. - -06 Months $16,667 11 Office $8.00 -- -- -- -- -- See method: $30.60 $3.06 Retail, Suite: Mo 13 2,001 $16,008 In Line Reimb 4.73% Mar-1998 to Mar-2006 0.79% $0.67 reimbursement. $61,231 $6,123 97 Months $1,334 30 Office $8.00 -- -- -- -- -- See method: $30.60 $3.06 Retail, Suite: Mo 13 3,128 $25.024 In Line Reimb 4.73% Mar-1998 to Mar-2006 1.23% $0.67 reimbursement. $95,717 $9,572 97 Months $2,085 </TABLE> <PAGE> INCOME APPROACH - -------------------------------------------------------------------------------- PARKING INCOME Parking income is generated from the rental of 490 parking stalls in the lower Parking levels. According to the 1997 budget, 217 spaces will be rented on monthly contracts at $280 per month and five space will be rented at $340 per month. The balance is dedicated to transient parking. The monthly rate is up $20 over the 1996 rate of $260. It should be noted that both monthly and transient parking is valet only in Gaviidae II. Transient rates are exhibited below: 1996 1997 ---------------------------------- 0-1/2 Hour $3.00 0-1 Hour is $4.00 1/2-1 Hour $4.00 0-1 Hour is $4.00 1-2 Hours $5.00 $5.00 2-3 Hours $6.00 $6.00 3-4 Hours $7.00 $7.00 4-5 Hours $8.00 $8.00 5-6 Hours $9.00 $9.00 6-7 Hours $10.00 $10.00 7-8 Hours $12.00 $12.00 8-12 Hours $14.00 8-24 Hours is $15.00 12-24 Hours $15.00 The monthly and hourly rates charged at the subject are among the highest in the Downtown area as can be seen on the following rate analysis: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 226 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH - -------------------------------------------------------------------------------- PARKING INCOME (continued) <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------- 1994 1995 1996 95-'96 NAME SPACES RATE STRUCTURE RATES RATES RATES % CHANGE - ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> LASALLE PLAZA RAMP 345 NON-RESERVED MONTHLY $175.00 $200.00 $230.00 15.0% 342-2888 MONTHLY RESERVED $250.00 $275.00 $285.00 3.6% FOR 8 HOURS $12.00 $11.00 $12.00 9.1% AFTER 4 P.M. ON CONTRACT $40.00 $50.00 $65.00 30.0% PER DAY AFTER 4 P.M. $5.00 $5.00 $5.00 0.0% - ----------------------------------------------------------------------------------------------- CITY CENTER 687 MONTHLY RESERVED $240.00 $240.00 $250.00 4.2% 372-1234 RESERVED - TEMPERED $280.00 $280.00 $290.00 3.6% NON-RESERVED MONTHLY $200.00 $200.00 $210.00 5.0% 1ST HOUR $3.00 $3.00 $3.00 0.0% EA. ADD'L HOUR $1.00 $1.00 $1.00 0.0% M-TH AFTER 4 P.M. $2.00 $2.00 $2.00 0.0% F-SAT AFTER 4 P.M. $5.00 $5.00 $5.00 0.0% - ----------------------------------------------------------------------------------------------- CONSERVATORY RAMP 850+ NON-RESERVED MONTHLY $139.10 $149.00 $149.00 0.0% 332-6468 ALL DAY $8.50 $9.00 $9.00 0.0% 1ST HOUR $3.00 $3.00 $3.25 8.3% EA. ADD'L HOUR $1.00 $1.25 --- SECOND HOUR $1.25 EA. ADD'L HOUR $1.00 - ----------------------------------------------------------------------------------------------- DAYTON RADISSON RAMP 800+ 0-3 HOURS $3.00 $5.25 --- 332-8707 EA. ADD'L HOUR $1.25 $1.00 --- MAXIMUM $8.50 $9.00 $9.00 0.0% AFTER 4 P.M. $2.00 $2.00 $2.50 25.0% 1ST HOUR $3.25 SECOND HOUR $1.25 EACH ADD'L HOUR $1.00 - ------------------------------------------------------------------------------------------------ IDS RAMP 625 NON-RESERVED MONTHLY $220.00 $225.00 $225.00 0.0% 338-7032 1ST 1/2 HOUR $3.00 $3.00 $3.00 0.0% EACH ADD'L HOUR $1.00 $1.00 $1.00 0.0% MAXIMUM $13.00 $13.00 $15.00 15.4% AFTER 4 PM --- $2.75 $3.50 27.3% - ------------------------------------------------------------------------------------------------ AVG MONTHLY NON RESERVED $183.53 $193.50 $203.50 5.2% - ------------------------------------------------------------------------------------------------ </TABLE> According to the property manager, the Gaviidae I ramp benefits from its strong location and also from the relatively small size of the Gaviidae II ramp. With the Dam Plaza office tower nearly 95% occupied, the Gaviidae II ramp (210 stalls) is usually full. Because of strong transient business, the budget indicates that no additional monthly parkers are anticipated at Gaviidae I. Overall parking demand is increasing in the Downtown core. Most property owners experienced an exodus of monthly parkers following the completion of the two new Third Avenue Distributor (TAD) Ramps located west of the subject. Combined, these City owned Garages have capacity for over 4,500 vehicles. The City of Minneapolis is the largest single operator controlling over 20,000 parking spaces or roughly 38% of all Downtown parking. Through the Municipal Parking System, the City operates 5,000 parking meters and owns fifteen parking ramps and nine parking lots. Several of the largest ramps include the Third Avenue Distributor Ramps (TAD Ramps) on the west edge of the Downtown and the newly constructed Jerome Haaf Memorial Parking Ramp adjacent to the new Federal Courts Building which is under constructIon. For the most part, the - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 227 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- PARKING INCOME (continued) City owned ramps are located more on the perimeter of Downtown and therefore, do not compete with the inner-core ramps. As of the appraisal date, there are plans for only one new parking ramp in Downtown Minneapolis. Reliance Real Estate plans on demolishing three small buildings located between the Rand Tower and the Soo Line Building, one block east of Gaviidae II. Plans call for a seven floor parking garage with capacity for 500 vehicles. Reliance owns the Rand Tower and it is clear that the ramp would benefit their leasing efforts. Although a rate structure has not been announced, industry observers believe monthly rates will be in the $250+ range. This ramp will compete with the subject Gaviidae garages. A historic income and expense statement is as follows: Gaviidae I Parking Income & Expense History <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------------- 1993 1994 1995 1996 Budget 1997 $ $/Stall $ $/Stall $ $/Stall $ $/Stall $ $/Stall - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> PARKING INCOME $1,077,387 $2,199 $1,l81,800 $2,412 $1,183,336 $2,415 $1,332,847 $2,720 $1,419,362 $2,897 PARKING EXPENSE $861,477 $1,758 $993,046 $2,027 $999,891 $2,041 $1,059,273 $2,162 $1,101,597 $2,248 NET OPERATING INCOME $215,910 $441 $l88,754 $385 $183,445 $374 $273,574 $558 $317,765 $649 </TABLE> The 1997 budgeted income of $1,419,362 represents a 6.5% increase over actual 1996 income which is in line with average historical growth from 1993 to 1995. Despite an improved office market, the potential for competition is greater with the announced Rand Ramp and future office development which will undoubtedly include a parking component. For this analysis, a figure of $1,425,000 was relied on. An income growth rate of 2.0% was projected in Year 2 and 3.0% growth rate thereafter. Brookfield has hired Imperial Parking, Inc. (Impark) to operate the parking component. According to the manager, Imperial charges the property owner for the actual costs involved in operating the ramp. For 1997, these costs are budgeted at $655,000. This includes salaries, benefits and administrative charges and is referred to as Impark expenses. These costs are approved by the property manager. Imperial is paid a management fee equal to 2.5% of effective gross income. Brookfield charges a second management fee equal to 4.0% times effective gross income less the Impark management fee. Brookfield is responsible for not only approving the Impark expenses but for the coordination of all other ramp related services. The management fee covers these services. Several other expenses are allocated to the parking ramp that require discussion. First, as with the office and retail components, insurance costs are below market. For this projection, a figure of $0.14 per square foot of gross area (237,687 sf) or $33,277 was relied on. Budgeted costs for major repair, utilities, fire protection, and supplies total $203,000. Adding the Impark expenses to this results in total parking expenses of $890,000, as rounded. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 228 - -------------------------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> DAIN BOSWORTH PLAZA COMPARABLE BUILDING SALES - --------------------------------------------------------------------------------------- COMP NO. 1 2 3 4 5 - --------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> NAME: FIRST BANK LASALLE ITT ITT LIFE NORWEST PLACE PLAZA FINANCE BUILDING FINANCIAL BUILDING CENTER ADDRESS: 601 2ND 800 LASALLE 605 505 7900 XERXES AVENUE S AVENUE WATERFORD WATERFORD AVENUE S MINNEAPOLIS MINNEAPOLIS PLYMOUTH PLYMOUTH BLOOMINGTON SALE DATE: Aug-95 Nov-94 Jun-95 Jun-96 Sep-96 NO. OF MONTHS OLD 19 28 21 9 4 LAND AREA - SQ. FT. 72,676 99,048 271,380 543,064 731,371 ACRES 1.67 2.27 6.23 12.47 16.79 GROSS BUILDING AREA 1,877,032 845,381 233,398 271,864 457,688 NET RENTABLE AREA 1,415,554 588,878 207,243 251,015 434,746 BUILDING EFFICIENCY % 75.4% 69.7% 89% 92% 95% LAND/BUILDING RATIO 0.04 0.12 1.16 2.00 1.60 % OCCUPIED AT SALE 92.0% 92.0% 94% 94% 100% YEAR BUILT 1992 1991 1989 1987 1972/93,95 STORIES 53 30 13 13 3 & 24 SALE PRICE $215,000,000 $73,000,000 $23,400,000 $29,800,000 $43,000,000 PRICE/SQ. FT. OF RA $151.88 $123.96 $112.91 $118.72 $98.91 BUYER TYPE Pension Investor Pension Pension Investor Fund Fund Fund % ANCHOR SPACE 65% 70% 89% 36% 50% CAP RATE - Ro 8.90% 8.90% 12.61% 7.97% 9.00% - --------------------------------------------------------------------------------------- <CAPTION> DAIN BOSWORTH PLAZA COMPARABLE BUILDING SALES - ------------------------------------------------------------------------ COMP NO. 6 7 AVG'S SUBJECT - ------------------------------------------------------------------------ <S> <C> <C> <C> <C> NAME: 701 FIFTH STREET DAIN BUILDING TOWERS BOSWORTH PLAZA ADDRESS: 701 FOURTH l00 & 150 S. AVENUE S FIFTH STREET DOWNTOWN MINNEAPOLIS MINNEAPOLIS MINNEAPOLIS SALE DATE: Mar-97 Dec-96 SUBJECT NO. OF MONTHS OLD 0 2 12 LAND AREA - SQ. FT. 25,601 51,941 224,385 207,468 ACRES 0.59 1.19 5.72 4.76 GROSS BUILDING AREA 331,337 1,282,120 756,974 683,807 NET RENTABLE AREA 279,608 1,022,292 599,905 592,593 BUILDING EFFICIENCY % 84% 80% 79% 87% LAND/BUILDING RATIO 0.08 0.04 0.30 0.30 % OCCUPIED AT SALE 100% 90% 71% 94% YEAR BUILT 1984 1984/1988 1992 STORIES 18 25/36 40 SALE PRICE $26,700,000 $140,895,000 PRICE/SQ. FT. OF RA $95.49 $137.82 $119.96 BUYER TYPE Investor Investor % ANCHOR SPACE 25% 58% CAP RATE - Ro 5.74% 9.58% 8.96 - ------------------------------------------------------------------------ </TABLE> <PAGE> SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- SUMMARY- OFFICE BUILDING SALES The Sales Comparison Approach typically contains an adjustment analysis whereby the comparable sales are adjusted for characteristic differences with the subject. This approach is most applicable to properties which are fairly similar, such as vacant land or houses. Adjustments can often be abstracted through a paired sales analysis as there are often many sales to rely on. For office properties, like the subject, the market is much smaller. The ability to adjust for differences between the comparable and the subject is often undermined by the sheer number of differences between the properties. Age, location, size, vacancy, tenant mix, credit risk, turnover, and the strength of the market are just a few of the characteristics that differ from property to property. Lease lengths also have a major impact on value. As such, a formal adjustment process was not undertaken. Rather, a probable range in value was developed. All of the sales were considered to be cash equivalent. The sales occurred between November of 1994 and December of 1996. One of the properties is scheduled to close by March of 1997. Four of the properties are located in Downtown Minneap9lis. Sale Comparable Nos. 1 and 2, First Bank Place and LaSalle Plaza, are newer Class A trophy properties. Sale Comparable No. 7 is also a Class A development, but is slightly older. Comparable No. 6 is a Class B building located on the east end of the Downtown. The remaining three sales are located in the southwest and western suburbs. All of the properties were purchased by institutional buyers. Prices per square foot ranged widely based on building classification and location. Downtown Suburban Property Class A Class B Property Class A Class B - -------------------------------------------------------------------------------- First Bank Place $151.88 ITT Finance $112.91 701 Building $95.49 ITT Life $118.72 LaSalle Plaza $123.96 NFC $98.91 Fifth Street Towers $137.82 - -------------------------------------------------------------------------------- Average $137.88 $95.49 $115.82 $98.91 Average Ro 9.1% NA 10.3% 9.0% The Dain Plaza office building would most likely fit into the upper end of the Downtown Class A property value range for several reasons. First, the subject was completed in 1991 and is one of the newest office developments in Downtown Minneapolis. As such, it compares well with the age, quality and location of First Bank Place and LaSalle Plaza. Second, Inter-Regional Financial (Dain Bosworth), occupies over 200,000 square feet, or 35% of rentable area as their headquarter offices through December of 2006. Several other credit tenants occupy another 150,000 square feet of office area. Third, the Downtown office market, and in particular, the Class A market is in a period of strong recovery. According to Towle Real Estate, which conducts annual surveys of the office market, overall vacancy, as of the Second Quarter of 1996 was 9.4%, its lowest point since Towle began tracking the office market in 1983. For the same period, Class A vacancy was 3.9%, down from 4.5% one year earlier. Fourth, the subject and the most recent sale comparables are, for the most part, commanding net rents in the same general range. Based on these factors, a range in market value of from $140 to $150 per square foot of rentable area is considered - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 116 - -------------------------------------------------------------------------------- <PAGE> SALES COMPARISON APPROACH (continued) - -------------------------------------------------------------------------------- reasonable for the subject property. Applying this to the subject's rentable area results in a value range of from $83,000,000 to $89,000,000, as rounded. For this exercise, a figure of $85,000,000 was relied on. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 117 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH - -------------------------------------------------------------------------------- The Income Approach to value is most applicable to types of real estate that are owned for investment purposes. The Principle of Anticipation is fundamental to this approach. According to The Appraisal of Real Estate, 10th Edition, on page 33, ..."Anticipation is the perception that value is created by the expectation of benefits to be derived in the future." The Income Approach to value consists of analyzing a property's ability to generate income and to convert such income into an indication of present value. The market value of a particular property can usually be derived from the quantity, quality, and durability of the income stream the property produces. The following steps have been employed to arrive at a market value indication by the Income Approach: 1) Potential Gross Income has been estimated based on current market rentals being charged and/or offered in the marketplace on properties comparable to the subject. Potential Gross Income is most often comprised of rent and reimbursable operating expenses. 2) A deduction for vacancy is applied to the Potential Gross Income estimate to arrive at an Effective Gross Income figure. 3) Next, expenses for the operation of the property including fixed expenses such as taxes and insurance and variable expenses such as utilities, management, and replacement reserves are estimated, totaled and then deducted from Effective Gross Income to arrive at a Net Operating Income Estimate. 4) An appropriate capitalization rate, based on market data, is then applied to the Net Operating Income resulting in an indication of value. For this analysis, a discounted cash flow or yield capitalization technique was relied on. This technique involves forecasting income flows and expenses for the property based on the specific rental of each tenancy. Most buyers and sellers rely on a discounted cash flow technique which involves projecting income, vacancy, expenses, and turnover costs such as leasing and tenant improvements over their anticipated holding period. The annual cash flows and projected future reversion of the property at the end of the holding period are then discounted to a present value by applying the buyers anticipated of desired yield rate. This technique is most common in the purchase of multi-tenant properties with many leases or tenant spaces. The technique is also common when valuing properties which have stepped leased rates. These properties commonly have irregular cash flow patterns resulting from tenant turnover or absorption activity. Given the number of tenants at the subject property, the various components of the mixed use development, and the on-going turnover and absorption of vacant space, this method was considered the most appropriate. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 118 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- INTRODUCTION For this analysis, the office and retail components have been valued separately. This was necessary given the existing expense allocations and expense recovery formulas. Expense Allocations Although the majority of reimbursable expenses are specific to the office or retail components and recovered directly, there are several common expenses that are shared differently. These reimbursable operating expenses have been, and continue to be, allocated to the various components based on several formulas. A brief discussion of each common expense is as follows: General Common Area Costs: This category includes those maintenance related charges for the retail common area including security, cleaning, elevator and escalator R&M, insurance and a portion of the project's employee wages. The office tower is allocated 20% of general common area maintenance with the retail component picking up the remainder. Retail operating expenses included 80% of the general CAM costs, 100% of the direct retail operating costs (less anchor contribution) and 30% of the loading dock costs. For the most part, real estate taxes and assessments are allocated on a pro-rata share basis. Loading Dock: The office tower is allocated 70% of all loading dock costs. The in-line retail component is allocated the remaining 30%. Neiman Marcus has their own loading dock and is therefore not charged for this expense. It is management's position that the parking ramp benefits the entire development and therefore no operating costs are allocated to this component. Given the fact that the various income components are allocated expenses, it is very difficult to compare overall costs with other retail centers, parking ramps and office buildings. For this reason, historical and budgeted expense activity was generally relied on. OFFICE TOWER Income is generated from the rental of 592,593 square feet of office space and the operation of a 210 stall (valet only) parking ramp. As noted below, four anchor tenants occupy over 58% of the subject's rentable area. DAIN BOSWORTH PLAZA - -------------------------------------------------------------------------------- Expiration Term Major Tenants Area-sf % of RA Date Remaining-Yrs - -------------------------------------------------------------------------------- Inter-Regional Financial 207,262 35.0% 12/01/06 9.75 Decision Systems,Inc. 38,518 6.5% 12/15/00 3.79 Martin Williams 57,653 9.7% 11/30/04 7.75 Marquette Bancshares 43,064 7.3% 05/06/02 5.18 - -------------------------------------------------------------------------------- Total Anchor Tenants 346,497 58.4% Other non-anchor tenants 208,753 35.2% Vacant Area 37,703 6.4% - -------------------------------------------------------------------------------- Total Rentable 592,953 100.0% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 119 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- OFFICE TOWER (continued) Inter-Regional Financial (Dain Bosworth), exclusively occupies floors 10-19 and portions of floors 9 and 20. There is no 13th floor. Decision Systems occupies the floors 22-23. Martin Williams exclusively occupies floors 26-29. Marquette Bancshares exclusively occupies floors 38-40 and portions of floor 37. In addition to these large tenants, there are 27 smaller tenants in the project. For the most part leases are written on a net basis with the tenant paying their pro-rata share of operating expenses and real estate taxes. A tenant register and stacking plan are located on the following pages. Major tenant lease summaries are included in the Addenda of this report. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 120 - -------------------------------------------------------------------------------- <PAGE> Software :ARGUS Ver. 7.0.01 Date :3/12/97 File :App_offcomp Time :1:32 pm Property Type :Office & Retail Ref# :AEF Portfolio : Page :1 DAIN PLAZA OFFICE 60 South Sixth Street Minneapolis, MN PRESENTATION RENT ROLL & CURRENT TERM TENANT SUMMARY As of Mar-1997 for 592,953 Square Feet <TABLE> <CAPTION> DESCRIPTION AREA BASE RENT RENT ADJUSTMENTS & CATEGORIES ABATEMENTS REIMBURSEMENT LEASING COSTS Tenant Name Floor Rate & Amount CPI & Current Months Pcnt Description of Imprvmnts Commssns Type & Suite Number SqFt per Year Changes Changes Porters' Wage to to Operating Expense Rate Rate Lease Dates & Term Bldg Share per Month on to Miscellaneous Abate Abate Reimbursements Amount Amount - ------------------- ----------- ------------- -------- ------- ------------- ------- ----- ----------------- --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> ADMIN RESOURCE OPT $3.15 Dec-1996 $4.85 -- -- -- See method: -- -- Office, Suite: 710 2,474 $7,793 Dec-1997 $6.90 Typical Recover Nov-1995 to Nov-1998 0.42% $0.26 reimbursement. 37 Months $649 IMPARK $3.00 -- -- -- -- -- See method: -- -- Office, Suite: 715 3,048 $9,144 Typical Recover Sep-1992 to Jan-1998 0.51% $0.25 reimbursement. 65 Months $762 IFG $16.75 Dec-2001 $19.75 -- -- See method: -- -- Office, Suite: 730 13,737 $230,095 Dain Recovery Dec-1996 to Dec-2006 2.32% $1.40 reimbursement. 121 Months $19,175 Dain Mgmt Fee IFG $7.50 Jan-2000 $12.00 -- -- See method: -- -- Office, Suite: 800 19,259 $144,443 Jan-2003 $14.00 Dain Recovery Jan-1995 to Dec-2006 3.25% $0.63 reimbursement. 144 Months $12,037 Dain Mgmt Fee RADIO 100 $10.35 Jan-2002 $13.79 -- -- -- See method: -- -- Office, Suite: 910 2,318 $23,991 Typical Recover Jan-1996 to Sep-2003 0.39% $0.86 reimbursement. 93 Months $1,999 RADIO 100 $5.79 Oct-1995 $7.79 -- -- -- See method: -- -- Office, Suite: 930 11,647 $67.436 Oct-1997 $9.79 Typical Recover Jan-1994 to Sep-2003 1.96% $0.48 Oct-1999 $11.79 reimbursement. 117 Months $5,620 IFG $2.50 -- -- -- -- See method: -- -- Office, Suite: 950 4,731 $11,828 Dain Recovery Sep-1994 to Aug-1997 0.80% $0.21 reimbursement. 36 Months $986 Dain Mgmt Fee IFG $6.75 Oct-1999 $10.50 -- -- See method: -- -- Office, Suite: 1000 19,259 $129,998 Dain Recovery Feb-1994 to Dec-2006 3.25% $0.56 reimbursement. 155 Months $10.833 Dain Mgmt Fee IFG $16.00 Dec-1996 $18.00 -- -- See method: -- -- Office, Suite: 1100 154,072 $2,465,152 Dec-2001 $22.00 Dain Recovery Dec-1991 to Dec-2006 25.98% $1.33 reimbursement. 181 Months $205,429 Dain Mgmt Fee FIRSTAFF $4.85 -- -- -- -- -- See method: -- -- Office, Suite: 2020 3,387 $16,427 Typical Recover Jan-1994 to Dec-2000 0.57% $0.40 reimbursement. 84 Months $1,369 FIRSTAFF $10.60 -- -- -- -- -- See method: -- -- Office, Suite: 2021 963 $10,208 Typical Recover Feb-1995 to Dec-2000 0.16% $0.88 reimbursement. 71 Months $851 IFG $6.75 Oct-1999 $10.50 -- -- See method: -- -- Office, Suite: 2050 5,000 $33,750 Dain Recovery Feb-1994 to Dec-2006 0.84% $0.56 reimbursement. 155 Months $2,813 Dain Mgmt Fee IFG $6.75 Jun-1999 $10.50 -- -- See method: -- -- Office, Suite: 2055 9,672 $65,286 Dain Recovery Feb-1994 to Dec-2006 1.63% $0.56 reimbursement. 155 Months $5,441 Dain Mgmt Fee </TABLE> <PAGE> Software :ARGUS Ver. 7.0.01 Date :3/12/97 File :App_offcomp Time :1:32 pm Property Type :Office & Retail Ref# :AEF Portfolio : Page :2 DAIN PLAZA OFFICE 60 South Sixth Street Minneapolis, MN PRESENTATION RENT ROLL & CURRENT TERM TENANT SUMMARY As of Mar-1997 for 592,953 Square Feet (continued from previous page) <TABLE> <CAPTION> DESCRIPTION AREA BASE RENT RENT ADJUSTMENTS & CATEGORIES ABATEMENTS REIMBURSEMENT LEASING COSTS Tenant Name Floor Rate & Amount CPI & Current Months Pcnt Description of Imprvmnts Commssns Type & Suite Number SqFt per Year Changes Changes Porters' Wage to to Operating Expense Rate Rate Lease Dates & Term Bldg Share per Month on to Miscellaneous Abate Abate Reimbursements Amount Amount - ------------------- ----------- ------------- -------- ------- ------------- ------- ----- ----------------- --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> KORRIDOR CAPITAL $6.16 -- -- -- -- -- See method: -- -- Office, Suite: 2110 1,610 $9,918 Typical Recover Nov-1991 to Oct-1997 0.27% $0.51 reimbursement. 72 Months $826 JAMES SELMER $5.15 Mar-1996 $5.65 See method: -- -- Office, Suite: 2120 2,540 $13,081 Mar-1997 $6.40 Typical Recover Mar-1993 to Sep-1998 0.43% $0.43 Mar-1998 $6.35 reimbursement. 67 Months $1,090 INFORMATION RES. $4.19 -- -- -- -- -- See method: -- -- Office. Suite: 2140 4,329 $18,139 Typical Recover Feb-1994 to Dec-1998 0.73% $0.35 reimbursement. 59 Months $1,512 DAHLEN, BERG & CO. $5.50 -- -- -- -- -- See method: -- -- Office, Suite: 2150 4,973 $27,352 Typical Recover Jun-1992 to Apr-1998 0.84% $0.46 reimbursement. 71 Months $2,279 Dahlen Storage $10.00 -- -- -- -- -- Full Service: -- -- Office, Suite: 2190 342 $3,420 Pays no expense Jul-1994 to Apr-1998 0.06% $0.83 reimbursement. 46 Months $285 Martin Williams Storage $10.00 -- -- -- -- -- Full Service: -- -- Office, Suite: 2195 967 $9,670 Pays no expense Nov-1993 to Nov-2004 0.16% $0.83 reimbursement. 133 Months 806 DECISION SYSTEMS $2.00 -- -- -- -- -- See method: -- -- Office, Suite: 2200 6,394 $12,768 Typical Recover Oct-1993 to Dec-20OO 1.08% $0.17 reimbursement. 87 Months $1,064 DECISION SYSTEMS $0.00 Dec-1996 $2.50 -- -- -- See method: -- -- Office, Suite: 2200 32,134 $0 Dec-1997 $3.50 Typical Recover Dec-1992 to Dec-2000 5.42% $0.00 Dec-1998 $4.00 reimbursement. 97 Months $0 Dec-1999 $4.25 AMER INTL COMP. $5.00 Sep-1994 $7.00 -- -- -- See method: -- -- Office, Suite: 2410 3,348 $16,740 Sep-1995 $7.50 Typical Recover Oct-1992 to May-1998 0.56% $0.42 reimbursement. 68 Months $1,395 PATRICK REILLY $4.50 -- -- -- -- -- See method: -- -- Office, Suite: 2420 5,778 $26,001 Typical Recover Feb-1993 to Jan-1999 0.97% $0.38 reimbursement. 72 Months $2,167 BERNARD JACOBS $2.40 Oct-1994 $3.40 -- -- -- See method: -- -- Office, Suite: 2445 720 $1,728 Oct-1995 $4.40 Typical Recover Oct-1992 to Sep-1998 0.12% $0.20 Oct-1996 $5.40 reimbursement. 72 Months $144 Oct-1997 $6.40 JOHN BLAIR $9.00 -- -- -- -- -- See method: -- -- Office, Suite: 2450 3,442 $30,978 Typical Recover Dec-1992 to Jan-1999 0.58% $0.75 reimbursement. 74 Months $2,582 WHITECLIFF $4.35 -- -- -- -- -- See method: -- -- Office Suite: 2510 4,658 $20,262 Typical Recover Apr-1994 to Mar-2000 0.79% $0.36 reimbursement. 72 Months $1,689 </TABLE> <PAGE> Software :ARGUS Ver. 7.0.01 Date :3/12/97 File :App_offcomp Time :1:32 pm Property Type :Office & Retail Ref# :AEF Portfolio : Page :3 DAIN PLAZA OFFICE 60 South Sixth Street Minneapolis, MN PRESENTATION RENT ROLL & CURRENT TERM TENANT SUMMARY As of Mar-1997 for 592,953 Square Feet (continued from previous page) <TABLE> <CAPTION> DESCRIPTION AREA BASE RENT RENT ADJUSTMENTS & CATEGORIES ABATEMENTS REIMBURSEMENT LEASING COSTS Tenant Name Floor Rate & Amount CPI & Current Months Pcnt Description of Imprvmnts Commssns Type & Suite Number SqFt per Year Changes Changes Porters' Wage to to Operating Expense Rate Rate Lease Dates & Term Bldg Share per Month on to Miscellaneous Abate Abate Reimbursements Amount Amount - ------------------- ----------- ------------- -------- ------- ------------- ------- ----- ----------------- --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> MITCHELL HUTCHINS $9.00 Feb-1995 $10.00 -- -- -- See method: -- -- Office, Suite: 2530 7,542 $67,878 Feb-1998 $11.00 Typical Recover Sep-1994 to Jan-2003 1.27% $0.75 reimbursement. 101 Months $5,657 ATI $7.00 -- -- -- -- -- See method: -- -- Office, Suits: 2550 2,844 $19,908 Typical Recover Mar-1994 to Feb-1999 0.48% $0.58 reimbursement. 60 Months $1,659 MARTIN WILLIAMS $8.90 Jul-1997 $10.00 -- -- See method: -- -- Office, Suite: 2600 66,042 $587,774 Jul-2000 $12.00 Mod Rec - Mgmt Nov-1993 to Nov-2004 11.14% $0.74 Jul-2002 $13.00 reimbursement. 133 Months $48,981 Martin mgmt fee MARTIN WILLIAMS $4.00 Jan-1999 $9.50 -- -- See method: -- -- Office, Suite: 2900 6,139 $24,556 Jan-2002 $11.50 Mod Rec - Mgmt Jan-1994 to Nov-2004 1.04% $0.33 reimbursement. 131 Months $2,046 Martin mgmt fee MARTIN WILLIAMS $14.75 Feb-2000 $16.25 -- -- See method: -- -- Office, Suite: 2950 4,688 $69,148 Mod Rec - Mgmt Feb-1996 to Nov-2004 0.79% $1.23 reimbursement. 106 Months $5,762 Martin mgmt fee WINTHROP $11.47 -- -- -- -- -- See method: -- -- Office. Suite: 3000 17,989 $206,334 Typical Recover Oct-1993 to Jul-2003 3.03% $0.96 reimbursement. 118 Months $17,194 WINTHROP $14.75 Feb-2000 $16.25 -- -- -- See method: -- -- Office, Suite: 3100 4,970 $73,308 Typical Recover Feb-1996 to Jul-2003 0.84% $1.23 reimbursement. 90 Months $6,109 INTEREP $9.75 -- -- -- -- -- See method: -- -- Office, Suite: 3110 1,384 $13,494 Typical Recover Aug-1995 to Aug-2001 0.23% $0.81 reimbursement. 73 Months $1,125 DR JOEL BROWN $15.60 -- -- -- -- -- See method: -- -- Office, Suite: 3115 534 $8,330 Typical Recover Dec-1994 to Jul-2000 0.09% $1.30 reimbursement. 68 Months $694 NORWEST $6.70 -- -- -- -- -- See method: -- -- Office, Suite: 3120 6,179 $41,399 Typical Recover Nov-1993 to Nov-1998 1.04% $0.56 reimbursement. 61 Months $3,450 STORAGE TEK $8.50 -- -- -- -- -- See method: -- -- Office, Suits: 3210 5,539 $47,082 Typical Recover Jun-1994 to Jun-1999 0.93% $0.71 reimbursement. 61 Months $3,923 SAS INSTITUTE $7.91 -- -- -- -- -- See method: -- -- Office, Suite: 3250 6,650 $52,602 Typical Recover Dec-1994 to Dec-2000 1.12% $0.66 reimbursement. 73 Months $4,383 FISH & RICHARDSON $15.75 Aug-1999 $16.75 -- -- -- See method: -- -- Office, Suite: 3300 16,114 $253,796 Aug-2000 $17.75 Typical Recover Aug-1995 to Jul-2002 2.72% $1.31 Aug-2001 $18.75 reimbursement. 84 Months $21,150 </TABLE> <PAGE> Software :ARGUS Ver. 7.0.01 Date :3/12/97 File :App_offcomp Time :1:32 pm Property Type :Office & Retail Ref# :AEF Portfolio : Page :4 DAIN PLAZA OFFICE 60 South Sixth Street Minneapolis, MN PRESENTATION RENT ROLL & CURRENT TERM TENANT SUMMARY As of Mar-1997 for 592,953 Square Feet (continued from previous page) <TABLE> <CAPTION> DESCRIPTION AREA BASE RENT RENT ADJUSTMENTS & CATEGORIES ABATEMENTS REIMBURSEMENT LEASING COSTS Tenant Name Floor Rate & Amount CPI & Current Months Pcnt Description of Imprvmnts Commssns Type & Suite Number SqFt per Year Changes Changes Porters' Wage to to Operating Expense Rate Rate Lease Dates & Term Bldg Share per Month on to Miscellaneous Abate Abate Reimbursements Amount Amount - ------------------- ----------- ------------- -------- ------- ------------- ------- ----- ----------------- --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> REDEN & ANDERS $8.85 -- -- -- -- -- See method: -- -- Office, Suite: 3430 10,585 $93,677 Typical Recover Feb-1995 to Apr-2001 1.79% $0.74 reimbursement. 75 Months $7,806 REDEN & ANDERS $16.00 -- -- -- -- -- See method: -- -- Office, Suds: 3440 2,367 $37,872 Typical Recover Jun-1996 to Apr-2001 0.40% $1.33 reimbursement. 59 Months $3,156 CORAL GROUP $7.37 May-1997 $10.07 -- -- -- See method: -- -- Office, Suite: 3510 4,353 $32,082 Typical Recover May-1994 to Apr-2004 0.73% $0.61 reimbursement. 120 Months $2,673 SAP AMERICA $8.50 -- -- -- -- -- See method: -- -- Office, Suite: 3530 7,444 $63,274 Typical Recover Nov-1994 to Apr-2000 1.26% $0.71 reimbursement. 66 Months $5,273 SAP AMERICA $1.38 -- -- -- -- -- See method: -- -- Office, Suite: 3540 2,521 $3,479 Typical Recover Jan-1995 to Apr-2000 0.43% $0.12 reimbursement. 64 Months $290 @ 9% of Mkt EXECUTIVE SPEAKING $6.75 Jul-1998 $9.00 -- -- -- See method: -- -- Office, Suite: 3610 2,087 $14,087 Jul-2001 $11.75 Typical Recover Jul-1994 to Jun-2004 0.35% $0.56 reimbursement. 120 Months $1,174 Wilshire Assoc $16.00 -- -- -- -- -- See method: -- -- Office, Suite: 3620 2,533 $40,528 Typical Recover Jun-1996 to Mar-2001 0.43% $1.33 reimbursement. 58 Months $3,377 GOLDSTEIN $5.72 Aug-1996 $6.22 -- -- -- See method: -- -- Office, Suite: 3650 4,124 $23,589 Aug-1998 $10.26 Typical Recover Aug-1993 to Jul-2003 0.70% $0.48 reimbursement. 120 Months $1,966 MARQUETTE BANK $3.00 -- -- -- -- -- See method: -- -- Office, Suite: 3700 1,033 $3,099 Marquette Bank Oct-1994 to Apr-2002 0.17% $0.25 reimbursement. 91 Months $258 MARQ, BANCSHARES $0.00 -- -- -- -- -- See method: -- -- Office, Suite: 3700 42,031 $0 Marquette Bank May-1992 to Apr-2002 7.09% $0.00 reimbursement. 120 Months $0 ONYX COMPANIES $15.00 -- -- -- -- -- See method: -- -- Office, Suite: 3740 1,028 $15,420 Typical Recover Sep-1996 to May-2000 0.17% $1.25 reimbursement. 45 Months $1,285 WOODLAND $15.00 -- -- -- -- -- See method: -- -- Office, Suite: 3750 1,864 $27,960 Typical Recover May-1996 to May-2000 0.31% $1.25 reimbursement. 49 Months $2,330 MARQ. CAPITAL $2.94 -- -- -- -- -- See method: -- -- Office, Suite: 4000 6,209 $18,254 Typical Recover Jun-1993 to May-2002 1.05% $0.25 reimbursement. 108 Months $1,521 </TABLE> <PAGE> Software :ARGUS Ver. 7.0.01 Date :3/12/97 File :App_offcomp Time :1:32 pm Property Type :Office & Retail Ref# :AEF Portfolio : Page :5 DAIN PLAZA OFFICE 60 South Sixth Street Minneapolis, MN PRESENTATION RENT ROLL & CURRENT TERM TENANT SUMMARY As of Mar-1997 for 592,953 Square Feet <TABLE> <CAPTION> DESCRIPTION AREA BASE RENT RENT ADJUSTMENTS & CATEGORIES ABATEMENTS REIMBURSEMENT LEASING COSTS Tenant Name Floor Rate & Amount CPI & Current Months Pcnt Description of Imprvmnts Commssns Type & Suite Number SqFt per Year Changes Changes Porters' Wage to to Operating Expense Rate Rate Lease Dates & Term Bldg Share per Month on to Miscellaneous Abate Abate Reimbursements Amount Amount - ------------------- ----------- ------------- -------- ------- ------------- ------- ----- ----------------- --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> To be leased - 37th flo $15.00 Sep-1998 $15.25 -- -- -- See method: $30.00 $3.00 Office, Suite: Mo 7 4,772 $71,580 Sep-1999 $15.50 Typical Recover 3.23% Sep-1997 to Aug-2003 0.80% $1.25 Sep-2000 $15.00 reimbursement. $143,160 $14,316 72 Months $5,965 Sep-2001 $16.00 @ 100% of Mkt Sep-2002 $16.25 To be leased - 36th flo $15.00 Sep-1998 $15.25 -- -- -- See method: $30.00 $3.00 Office, Suite: Yr 1 6,044 $90,660 Sep-1999 $15.50 Typical Recover 3.23% Sep-1997 to Aug-2003 1.02% $1.25 Sep-2000 $15.00 reimbursement. $181,320 $18,132 72 Months $7,555 Sep-2001 $16.00 @ 100% of Mkt Sep-2002 $16.25 To be leased - 34th flo $16.00 Sep-2000 $16.25 -- -- -- See method: $32.14 $3.21 Office. Suite: Yr 3 1,836 $29,376 Sep-2001 $16.50 Typical Recover 3.25% Sep-1999 to Aug-2005 0.31% $1.33 Sep-2002 $16.00 reimbursement. $59,003 $5,900 72 Months $2.448 Sep-2003 $17.00 @ 100% of Mkt Sep-2004 $17.25 To be leased - 32nd flo $16.00 Sep-1999 $16.25 -- -- -- See method: $31.05 $3.10 Office, Suite: Yr 2 3,925 $62,800 Sep-2000 $16.50 Typical Recover 3.14% Sep-1998 to Aug-2004 0.66% $1.33 Sep-2001 $16.00 reimbursement. $121,871 $12,187 72 Months $5,233 Sep-2002 $17.00 @ 100% of Mkt Sep-2003 $17.25 To be leased - 31st flo $16.00 Sep-1999 $16.25 -- -- -- See method: $31.05 $3.11 Office, Suite: Yr 2 4,922 $78,752 Sep-2000 $16.50 Typical Recover 3.14% Sep-1998 to Aug-2004 0.83% $1.33 Sep-2001 $16.00 reimbursement. $152,828 $15,283 72 Months $6,563 Sep-2002 $17.00 @ 100% of Mkt Sep-2003 $17.25 To be leased - 25th flo $16.00 Sep-2000 $16.25 -- -- -- See method: $32.14 $3.21 Office, Suite: Yr 3 4,172 $66,752 Sep-2001 $16.50 Typical Recover 3.25% Sep-1999 to Aug-2005 0.70% $1.33 Sep-2002 $16.00 reimbursement. $134,075 $13,407 72 Months $5,563 Sep-2003 $17.00 @ 100% of Mkt Sep-2004 $17.25 To be leased - 24th flo $16.00 Sep-2000 $16.25 -- -- -- See method: $32.14 $3.21 Office. Suite: Yr 3 5,928 $94,848 Sep-2001 $16.50 Typical Recover 3.25% Sep-1999 to Aug-2005 1.00% $1.33 Sep-2002 $16.00 reimbursement. $190,507 $19.051 72 Months $7,904 Sep-2003 $17.00 @ 100% of Mkt Sep-2004 $17.25 To be leased - 21st flo $17.00 Sep-2001 $17.25 -- -- -- See method: $33.26 $3.33 Office, Suite: Yr 4 3,535 $60,095 Sep-2002 $17.50 Typical Recover 3.17% Sep-2000 to Aug-2006 0.60% $1.42 Sep-2003 $17.00 reimbursement. $117,580 $11,758 72 Months $5,008 Sep-2004 $18.00 @ 100% of Mkt Sep-2005 $18.25 To be leased 20th floor $16.00 Sep-1999 $16.25 -- -- -- See method: $31.05 $3.11 Office, Suite: Yr 2 1,200 $19,200 Sep-2000 $16.50 Typical Recover 3.14% Sep-1998 to Aug-2004 0.20% $1.33 Sep-2001 $16.00 reimbursement. $37,260 $3,726 72 Months $1,600 Sep-2002 $17.00 @ 100% of Mkt Sep-2003 $17.25 To be leased - 9th flo $16.00 Sep-1999 $16.25 -- -- -- See method: $31.05 $3.10 Office, Suite: Yr 2 563 $9,008 Sep-2000 $16.50 Typical Recover 3.14% Sep-1998 to Aug-2004 0.09% $1.33 Sep-2001 $16.00 reimbursement. $17,481 $1,748 72 Months $751 Sep-2002 $17.00 @ 100% of Mkt Sep-2003 $17.25 To be leased - 35th flo $16.00 Sep-1999 $16.25 -- -- -- See method: $31.05 $3.10 Office, Suite: Yr 2 471 $7,536 Sep-2000 $16.50 Typical Recover 3.14% Sep-1998 to Aug-2004 0.08% $1.33 Sep-2001 $16.00 reimbursement. $14,625 $1,462 72 Months $628 Sep-2002 $17.00 @ 100% of Mkt Sep-2003 $17.25 </TABLE> <PAGE> DAIN BOSWORTH PLAZA STACKING PLAN TENANTS AND OPTIONS <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------- LEASE LEASE EXPANSION FLOOR TENANT TERM LEASED VACANT COMMENCEMENT RIGHTS - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> 40 MARQUETTE BANK 10 Years 13,681 0 05/07/92 - ---------------------------------------------------------------------------------------------------------------- 39 MARQUETTE BANK 10 Years 13,681 0 05/07/92 - ---------------------------------------------------------------------------------------------------------------- 38 MARQUETTE BANK 10 Years 14,788 0 05/07/92 - ---------------------------------------------------------------------------------------------------------------- 37 WOODLAND PARTNERS 4 Years 1,864 05/01/96 - ---------------------------------------------------------------------------------------------------------------- MARQUETTE BANK 9 Years 7,123 05/07/92 * - ---------------------------------------------------------------------------------------------------------------- ONYX COMPANIES 3 Years 9 Months 1,029 4,772 - ---------------------------------------------------------------------------------------------------------------- 36 GOLDSTEIN 10 Years 4,124 08/01/93 * - ---------------------------------------------------------------------------------------------------------------- EXECUTIVE SPEAKING 10 Years 2,087 07/01/94 - ---------------------------------------------------------------------------------------------------------------- WILSHIRE ASSOCIATES 4 yr 10 mos 2,533 6,044 06/01/96 - ---------------------------------------------------------------------------------------------------------------- 35 CORAL GROUP 10 Years 4,353 05/05/94 * - ---------------------------------------------------------------------------------------------------------------- SAP AMERICA 5 Years 6 Months 9,965 0 11/01/94 (1) - ---------------------------------------------------------------------------------------------------------------- 34 REDEN & ANDERS 6 Years 4 Months 12,952 1,836 12/15/94 * - ---------------------------------------------------------------------------------------------------------------- 33 FISH & RICHARDSON 7 Years 16,114 0 08/01/95 - ---------------------------------------------------------------------------------------------------------------- 32 STORAGE TECHNOLOGY 5 Years 5,539 05/01/94 * - ---------------------------------------------------------------------------------------------------------------- SAS INSTITUTE 6 Years 6,650 3,925 12/01/94 - ---------------------------------------------------------------------------------------------------------------- 31 NPMB 2 Years 6,179 11/06/93 * - ---------------------------------------------------------------------------------------------------------------- DE JOEL BROWN 5 Years 6 Months 534 12/15/94 - ---------------------------------------------------------------------------------------------------------------- INTEREP 6 Years 6 Months 1,384 02/01/95 - ---------------------------------------------------------------------------------------------------------------- WINTHROP & WEINSTINE 7 Years 8 Months 4,970 4,922 02/01/96 - ---------------------------------------------------------------------------------------------------------------- 30 WINTHROP & WEINSTINE 10 Years 17,989 0 10/01/93 * - ---------------------------------------------------------------------------------------------------------------- 29 MARTIN/WILLIAMS 11 Years 17,989 0 10/01/93 * - ---------------------------------------------------------------------------------------------------------------- 28 MARTIN/WILLIAMS 11 Years 19,832 0 - ---------------------------------------------------------------------------------------------------------------- 27 MARTIN/WILLIAMS 11 Years 19,832 0 - ---------------------------------------------------------------------------------------------------------------- 26 MARTIN/WILLIAMS 11 Years 19,216 0 - ---------------------------------------------------------------------------------------------------------------- 25 ATI TITLE COMPANY 5 Years 2,844 02/01/94 - ---------------------------------------------------------------------------------------------------------------- MITCHELL HUTCHINS 10 Years 7,542 * - ---------------------------------------------------------------------------------------------------------------- WHITECLIFF GROUP 6 Years 4,658 4,172 03/01/94 * - ---------------------------------------------------------------------------------------------------------------- 24 AIG 5 Years 9 Months 3,348 09/01/92 - ---------------------------------------------------------------------------------------------------------------- AIG COUNSEL 5 Years 6 Months 5,778 02/01/93 - ---------------------------------------------------------------------------------------------------------------- BERNARD JACOBS 6 Years 720 10/01/92 - ---------------------------------------------------------------------------------------------------------------- BLAIR TELEVISION 6 Years 2 Months 3,442 5,928 12/01/92 - ---------------------------------------------------------------------------------------------------------------- 23 DSI 8 Years 19,259 0 12/15/92 * - ---------------------------------------------------------------------------------------------------------------- 22 DSI 8 Years 19,259 0 12/15/92 - ---------------------------------------------------------------------------------------------------------------- 21 KORRIDOR CAPITAL 6 Years 1,610 11/01/92 - ---------------------------------------------------------------------------------------------------------------- DAHLEN, BERG & CO. 5 Years 11 Months 4,973 06/01/92 - ---------------------------------------------------------------------------------------------------------------- JAMES SELMER LAW 5 Years 7 Months 2,540 03/01/93 - ---------------------------------------------------------------------------------------------------------------- IRI 5 Years 4,329 02/01/94 - ---------------------------------------------------------------------------------------------------------------- MARTIN WILLIAMS STORAGE 967 - ---------------------------------------------------------------------------------------------------------------- DAHLEN BERG STORAGE 342 3,292 - ---------------------------------------------------------------------------------------------------------------- 20 DAIN/IGC 13 Years 14,909 06/01/94 * - ---------------------------------------------------------------------------------------------------------------- FIRSTAFF 7 Years 3,387 01/01/94 - ---------------------------------------------------------------------------------------------------------------- FIRSTAFF COMPUTER 5 Years 9 Months 963 0 04/01/95 - ---------------------------------------------------------------------------------------------------------------- 19 DAIN/IFG 15 Years 19,259 0 - ---------------------------------------------------------------------------------------------------------------- 18 DAIN/IFG 15 Years 19,259 0 - ---------------------------------------------------------------------------------------------------------------- 17 DAIN/IFG 15 Years 19,259 0 - ---------------------------------------------------------------------------------------------------------------- 16 DAIN/IFG 15 Years 19,259 0 - ---------------------------------------------------------------------------------------------------------------- 15 DAIN/IFG 15 Years 19,259 0 - ---------------------------------------------------------------------------------------------------------------- 14 DAIN/IFG 15 Years 19,259 0 - ---------------------------------------------------------------------------------------------------------------- 12 DAIN/IFG 15 Years 19,259 0 - ---------------------------------------------------------------------------------------------------------------- 11 DAIN/IFG 15 Years 19,259 0 - ---------------------------------------------------------------------------------------------------------------- 10 DAIN/IFG 13 Years 4 Months 19,259 0 01/01/94 - ---------------------------------------------------------------------------------------------------------------- 9 RADIO 100 10 Years 13,965 10/01/93 - ---------------------------------------------------------------------------------------------------------------- DAIN/IFG 3 Years 4,731 0 09/01/94 - ---------------------------------------------------------------------------------------------------------------- 8 DAIN/IFG 12 Years 19,259 0 01/01/95 - ---------------------------------------------------------------------------------------------------------------- 7 IMPARK 3 Years 3,048 11/01/91 - ---------------------------------------------------------------------------------------------------------------- ARO 3 Years 2,474 11/01/95 - ---------------------------------------------------------------------------------------------------------------- IFG 10 Years 13,737 0 12/01/96 - ---------------------------------------------------------------------------------------------------------------- TOTAL 555,823 34,891 </TABLE> Updated 2/4/97 *See Tenant options in Expansion Rights section. <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - OFFICE The subject property is located in the Minneapolis Central Business District office sector. The sector is comprised of approximately 21 million square feet of office space in 79 buildings which include Class A, B, C and Renovated office space. According to the Towle Real Estate Company's Towle Report '96, the various markets are defined as follows: - -------------------------------------------------------------------------------- CENTRAL BUSINESS DISTRICT (CBD) OFFICE CLASSIFICATIONS Class A Newer buildings in first class condition, design and decor. Large and/or tall in size with mostly multiple skyway linkage. Class B Seasoned buildings in good condition generally over ten years old. Mid-rise in size and may include skyway linkage. Class C Older buildings of any size in average to poor condition. They may or may not have skyway linkage. Renovated Buildings which have had a complete renovation, including all mechanical systems and exterior treatment. Many of these buildings have been readapted to office usage from multistory industrial designs. - -------------------------------------------------------------------------------- The subject office tower is classified as a Class A property. A historical survey of the eighteen competitive Class A rent comparables in the Minneapolis Central Business District has been conducted and the findings are presented on the following page: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 127 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - OFFICE (continued) <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------- RENT NET TOTAL BLDG AREA RENT TAXES EXP/ NAME/ADDRESS CLASS AGE SF PSF PSF SQ. FT ============================================================================================= <S> <C> <C> <C> <C> <C> <C> 1 FIFTH STREET TOWER A 1985 415,421 $15.00 $6.05 $11.46 100 SOUTH 5TH STREET 2 100 WASHINGTON SQUARE A 1981 500,582 $12.00 $4.02 $11.00 100 WASHINGTON AVENUE SOUTH 3 IDS CENTER A 1972 1,234,767 $16.00 $6.28 $12.92 77 SOUTH 7TH STREET 4 INTERNATIONAL CENTRE A 1984 341,000 $11.00 - $9.50 900 SECOND AVENUE SOUTH 5 KINNARD FINANCIAL CENTRE A 1986 270,067 $11.00 $4.89 $9.83 920 SECOND AVENUE SOUTH 6 LUTHERAN BROTHERHOOD A 1982 438,660 $15.00 $4.79 $12.01 623 FOURTH AVENUE SOUTH 7 MULTIFOODS TOWER A 1983 1,081,974 $16.00 $6.59 $12.41 44 SOUTH 7TH STREET 8 PIPER JAFFRAY TOWER A 1985 724,734 $15.00 $6.28 $12.50 222 SOUTH 9Th STREET 9 PLAZA VII A 1987 315,783 $18.00 $4.49 $10.72 43 SOUTH 7TH STREET 10 FIFTH STREET TOWERS II A 1988 607,711 $15.00 $5.86 $11.75 150 SOUTH 5TH STREET 11 METROPOLITAN CENTRE A 1987 627,324 $13.50 $5.19 $11.04 333 SOUTH 7TH STREET 12 NORWEST CENTER A 1988 1,105,105 $17.00 $6.95 $11.60 90 SOUTH TTH STREET 13 111 WASHINGTON SQUARE A 1987 360,960 $11.00 $4.56 $9.95 111 WASHINGTON AVENUE SOUTH 14 LASALLE PLAZA A 1991 520,356 $15.00 $7.20 $13.50 800 LASALLE AVENUE 15 DAIN BOSWORTH PLAZA A 1991 592,953 $18.00 $6.19 $12.57 60 SOUTH 6TH STREET 16 FIRST BANK PLACE A 1992 1,337,780 $17.00 $6.77 $11.77 SIXTH STREET/SECOND AVENUE 17 AT&T TOWER A 1991 607,300 $12.00 $5.93 $10.87 901 MARQUETTE AVENUE 18 701 FOURTH AVENUE SOUTH A 1984 279,608 $10.00 $4.37 $10.72 701 FOURTH AVENUE SOUTH 19 PILLSBURY CENTER A 1981 1,319,057 $14.00 $6.32 $11.70 220 SOUTH 6TH STREET - --------------------------------------------------------------------------------------------- TOTALS/AVERAGES 12,681,142 $14.29 $6.04 $11.46 ============================================================================================= <CAPTION> - ------------------------------------------------------------------------------------------------------- VACANT AREA % -------------------------------------------------------------------- Nov-91 Nov-92 Nov-93 Nov-94 Nov-95 Nov-96 ======================================================================================================= <S> <C> <C> <C> <C> <C> <C> 1 FIFTH STREET TOWER 96,251 52,000 9,192 25,764 111,000 52,079 100 SOUTH 5TH STREET 23% 13% 2% 6% 27% 13% 2 100 WASHINGTON SQUARE 62,000 210,000 61,297 33,734 45,428 40,797 100 WASHINGTON AVENUE SOUTH 12% 42% 12% 7% 9% 8% 3 IDS CENTER 120,000 106,000 111,000 60,000 66,624 72,000 77 SOUTH 7TH STREET 10% 9% 9% 5% 5% 6% 4 INTERNATIONAL CENTRE 50,000 66,083 49,625 57,000 43,000 26,900 900 SECOND AVENUE SOUTH 15% 19% 15% 17% 13% 8% 5 KINNARD FINANCIAL CENTRE 160,000 117,500 29,000 4,100 9,000 5,830 920 SECOND AVENUE SOUTH 59% 44% 11% 2% 3% 2% 6 LUTHERAN BROTHERHOOD 0 9,230 0 0 0 0 623 FOURTH AVENUE SOUTH 0% 2% 0% 0% 0% 0% 7 MULTIFOODS TOWER 80,000 86,833 94,000 31,483 0 0 44 SOUTH 7TH STREET 7% 9% 9% 3% 0% 0% 8 PIPER JAFFRAY TOWER 50,584 51,344 13,970 8,837 15,000 15,000 222 SOUTH 9Th STREET 7% 7% 2% 1% 2% 2% 9 PLAZA VII 22,683 30,200 25,053 20,038 17,700 25,000 43 SOUTH 7TH STREET 7% 10% 8% 6% 6% 8% 10 FIFTH STREET TOWERS II 89,000 49,000 99,628 25,764 50,809 65,451 150 SOUTH 5TH STREET 15% 8% 16% 4% 8% 11% 11 METROPOLITAN CENTRE 363,800 306,720 95,000 50,000 49,688 50,000 333 SOUTH 7TH STREET 58% 49% 15% 8% 8% 8% 12 NORWEST CENTER 6,000 6,621 0 2,300 6,000 0 90 SOUTH TTH STREET 1% 1% 0% 0% 1% 0% 13 111 WASHINGTON SQUARE 18,000 63,000 13,324 11,893 0 0 111 WASHINGTON AVENUE SOUTH 5% 17% 4% 3% 0% 0% 14 LASALLE PLAZA 250,000 220,000 197,000 0 7,053 9,500 800 LASALLE AVENUE 48% 42% 38% 0% 1% 2% 15 DAIN BOSWORTH PLAZA 420,000 338,000 180,000 81,971 40,547 36,000 60 SOUTH 6TH STREET 71% 57% 30% 14% 7% 6% 16 FIRST BANK PLACE $502,000 430,200 80,000 101,723 101,723 36,000 SIXTH STREET/SECOND AVENUE 38% 32% 6% 8% 8% 5% 17 AT&T TOWER 267,000 264,700 66,803 63,000 37,300 37,300 901 MARQUETTE AVENUE 44% 44% 11% 10% 6% 6% 18 701 FOURTH AVENUE SOUTH 47,000 33,138 52,329 26,905 2,600 0 701 FOURTH AVENUE SOUTH 17% 12% 19% 10% 1% 0% 19 PILLSBURY CENTER 23,314 43,730 65,884 19,000 11,467 21,586 220 SOUTH 6TH STREET 2% 3% 5% 1% 1% 2% - ------------------------------------------------------------------------------------------------------- TOTALS/AVERAGES 2,627,632 2,484,299 1,243,105 623,512 614,939 521,443 20.7% 19.6% 9.8% 4.9% 4.8% 4.1% ======================================================================================================= </TABLE> Class A occupancy levels have rebounded from their low in 1991. However, despite an improving office environment, the Class B market continues to struggle. A breakdown of each classification's historical vacancy experience is presented on the following page: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 128 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- DOWNTOWN MINNEAPOLIS HISTORICAL VACANCY & ABSORPTION SECOND QUARTER 1987-SECOND QUARTER 1996 <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------- TOTAL TOTAL STUDY #OF RENTABLE AMOUNT PERCENT NET % DATE BLDGS AREA-SF VACANT VACANT ABSORPTION ABSORBED - -------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> CLASS A 1987 12 7,172,807 488,132 6.81% 714,995 9.97% 1988 14 8,152,748 960,073 11.78% 508,000 6.23% 1989 15 9,609,529 1,171,069 12.19% 1,245,785 12.96% 1990 15 9,613,468 1,200,147 12.48% (25,139) -0.26% 1991 17 10,756,324 1,737,688 16.16% 605,315 5.63% 1992 19 12,700,388 2,874,122 22.63% 807,630 6.36% 1993 19 12,701,697 2,005,132 15.79% 870,299 6.85% 1994 19 12,701,697 1,056,999 8.32% 948,133 7.46% 1995 19 12,676,319 574,050 4.53% 481,574 3.80% 1996 19 12,676,319 490,710 3.87% 83,340 0.66% - -------------------------------------------------------------------------------------------- CLASS B 1987 23 4,105,958 532,028 12.96% (84,583) -2.06% 1988 25 4,249,814 655,169 15.42% 20,715 0.49% 1989 25 4,468,235 1,060,905 23.74% (416,736) -9.33% 1990 26 4,562,370 1,009,092 22.12% 145,948 3.20% 1991 26 5,607,537 838,059 14.95% 171,898 3.07% 1992 26 4,595,326 1,186,830 25.83% (360,982) -7.86% 1993 26 4,571,793 1,050,713 22.98% 112,584 2.46% 1994 26 4,533,988 912,135 20.12% 100,773 2.22% 1995 26 4,562,710 916,062 20.08% 4,764 0.10% 1996 26 4,570,898 933,440 20.42% (17,378) -0.38% - -------------------------------------------------------------------------------------------- CLASS C 1987 10 954,469 173,505 18.18% (63,784) -6.68% 1988 9 913,566 163,335 17.88% (30,733) -3.36% 1989 9 917,556 169,736 18.50% (2,401) -0.26% 1990 9 909,366 155,974 17.15% 5,562 0.61% 1991 9 946,652 206,577 21.82% (13,317) -1.41% 1992 9 941,268 221,282 23.51% (20,089) -2.13% 1993 9 938,277 189,966 20.25% 28,325 3.02% 1994 9 938,277 198,076 21.11% (8,110) -0.86% 1995 9 938,277 224,373 23.91% (26,297) -2.80% 1996 9 938,277 237,084 25.27% (12,711) -0.35% - -------------------------------------------------------------------------------------------- RENOVATED 1987 23 2,614,345 762,915 29.18% 61,162 2.34% 1988 25 2,840,456 796,963 28.06% 192,063 6.76% 1989 26 2,885,456 740,040 25.65% 67,923 2.35% 1990 25 2,805,243 848,155 30.23% 45,672 1.63% 1991 25 2,849,187 521,130 18.29% 170,969 6.00% 1992 25 2,783,483 425,615 15.29% 29,811 1.07% 1993 25 2,770,352 428,266 15.46% (15,782) 0.57% 1994 25 3,164,059 440,816 13.93% 109,242 3.45% 1995 25 3,047,092 338,726 11.12% 146,818 4.82% 1996 25 3,005,092 340,504 11.33% (1,177) -0.04% - -------------------------------------------------------------------------------------------- TOTALS 1987 68 14,847,579 1,956,580 13.18% 627,790 4.23% 1988 73 16,156,584 2,575,540 15.94% 690,045 4.27% 1989 75 17,880,776 3,141,750 17.57% 894,571 5.00% 1990 75 17,890,447 3,213,368 17.96% 172,043 0.96% 1991 77 20,159,700 3,303,454 16.39% 934,865 4.64% 1992 79 21,020,465 4,707,849 22.40% 456,370 2.17% 1993 79 20,982,119 3,674,077 17.51% 995,426 4.74% 1994 79 21,338,021 2,608,026 12.22% 1,150,038 5.39% 1995 79 21,224,398 2,053,211 9.67% 606,859 2.86% 1996 79 21,190,586 2,001,738 9.45% 52,074 0.25% - -------------------------------------------------------------------------------------------- SOURCE: TOWLE REAL ESTATE COMPANY - -------------------------------------------------------------------------------------------- </TABLE> - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 129 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - OFFICE (continued) Since 1991 the Downtown office market has absorbed over 2.6 million square feet of office space bringing overall vacancy down to approximately 9.45%. Nearly all of the improvement occurred in the Class A market. With the completion of the subject property, LaSalle Plaza, IBM/First Bank Place and the AT&T tower Class A vacancy rates soared to an all-time high of 22.6% in the second quarter of 1992. Between 1990 and 1992, the Class A universe increased 32% from 9,600,000 to 12,700,000 square feet. However, since that time over 1,900,000 square feet of Class A space has been absorbed. According to the most recent Towle Real Estate Company office survey, Class A vacancy was down to 3.87% as of the second quarter of 1996. As of the appraisal date, the Class A market is enjoying one of its highest occupancy rates ever. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 130 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - OFFICE (continued) Class A absorption was primarily fueled by seven anchor tenants who now occupy the four new office towers. These tenants either expanded in the Downtown market or moved from the suburbs. They are as follows: <TABLE> <CAPTION> Area-sf Into Out of Into Out of From Building/Anchor Tenant Class A Class A Class B Class B Suburbs - ---------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Lasalle Plaza Robins, Kaplan, Miller Cerisi Law Firm from Int'l Centre I 150,000 110,000 Ellerbe Becket from Souttltwest Suburbs 80,000 95,000 Norwest from Midwest Plaza 90,000 90,000 Minnegasco from Minnegasco Building 105,000 105,000 Dain Plaza Dain Bosworth from Dain Rand 150,000 150,000 Tower Marquette Bank Expansion 30,000 First Bank Place First Bank from First Bank West (One Financial) 210,000 First Bank from Pillsbury Ctr 650,000 257,638 IBM from 100 Washington 275,000 100,000 Square IBM from Southwest Suburbs 100,000 AT&T Tower AT&T from Suburbs 230,000 200,000 Aetna from Suburbs 175,000 150,000 Fallon from 701 Building IDS from Multifoods to IDS Center Baker Building to Norihstar Block 75,000 200,000 25,000 - ---------------------------------------------------------------------------------- Total-sf 1,935,000 542,638 200,000 580,000 545,000 Net A Absorption-sf 1,392,362 Net B Absorption-sf (380,000) - -------------------------------------------------------------------------------- Overall Absorption-sf 1,012,362 - -------------------------------------------------------------------------------- </TABLE> - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 131 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - OFFICE (continued) With the tightening of the Class A office market, rents have been pressured upward. Class A rents have risen as much as $5.00 to $7.00 per square foot over the last 24 months. According to Towle, average quoted net rents for Class A space are $14.21 per square foot, up 25% from $11.37 in 1995. As a result of both increased occupancy and rental costs, Class A absorption is slowing. At the subject property where occupancy is 94%, only 42,363 square feet of office deals occurred in 1996 compared to an average of 86,000 square feet in the three previous years. Historical Class A absorption and vacancy are exhibited below: ------------------------------ Vacancy Absorption Year % SF ------------------------------ 1992 22.63% 807,630 1993 15.79% 870,299 1994 8.32% 948,133 1995 4.53% 481,574 1996 3.87% 83,340 ------------------------------ Source: Towle Real Estate Many of the property managers and leasing agents interviewed for this assignment believe that in the future, absorption will moderate in the 250,000 square foot per year range. Net rents at the newer Class A buildings are expected to plateau in the $15.00 to $18.00 per square foot range by 1998. Future rent growth is expected to be modest as operating costs, particularly taxes, increase. As discussed in the Real Estate Tax section of this report, the top 15 Class A properties experienced an average 27% assessed value increase for taxes payable in 1997. At these properties, real estate taxes are expected to average nearly $7.15 per square foot in 1997, up from $5.96 per square foot in 1996. Gross occupancy costs are compared as follows: <TABLE> <CAPTION> |---------------Towle--------------| |--------LMRD----------| Class A Office 1993 1994 1995 1996 1997 Comment - ------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Avg. Quoted Net Rent/sf $8.41 $10.26 $12.51 $14.21 $14.50 Estimated Avg. Operating Cost/sf $5.40 $5.66 $5.74 $5.88 $6.09 3.5% over 1996 Avg Real Estate Tax/sf $5.70 $4.94 $5.02 $5.40 $7.15 Estimated - ------------------------------------------------------------------------------------------- Total Cost/sf $19.51 $20.86 $23.27 $25.49 $27.74 % Change -- +6.9 +11.6% +9.5% +8.8% </TABLE> This comparison is somewhat skewed as many of the 1993 and 1994 leases included rental concessions which reduced the average net rental rate over the lease term. For example, at a neighboring Class A property, over 117,000 square feet of leasing occurred at the subject property in 1993. The weighted average net rent was $3.99 per square foot. Assuming that operating costs were in the $10.50 per square foot range, gross occupancy costs were approximately $14.50 per square foot. This was not atypical. Many of the Class A properties were doing zero net deals during this period. A significant amount of absorption occurred as a result of these bargain basement rental rates. However, as of the Fourth Quarter of 1996, concessions have been phased out and net rents are in the $13 to $18 per square foot range. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 132 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET ANALYSIS - OFFICE (continued) Compared to 1993, gross occupancy costs have nearly doubled. This should suppress absorption which, in turn, should moderate rental growth. The Class B market is expected to benefit from the tight Class A market. MARKET RENT ANALYSIS - OFFICE At the subject property nearly 165,000 square feet of space, or roughly 30% of the rentable office area, has been leased in the form of new leases, and/or expansions between 1994 and 1996. A historical occupancy analysis is offered below: Historical Occupancy Analysis ----------------------------------------- Dain Bosworth, Neiman & Year Quarter Plaza Gaviidae II ----------------------------------------- 1991 4th Qtr. -- 67.3% ----------------------------------------- 1992 1st Qtr. -- 68.8% 2nd Qtr. 35.6% 71.0% 3rd Qtr. 36.2% 71.0% 4th Qrt. 44.1% 82.9% ----------------------------------------- 1993 1st Qtr. 45.5% 82.9% 2nd Qtr. 45.5% 82.0% 3rd Qtr. 46.2% 82.0% 4th Qrt. 65.6% 83.5% ----------------------------------------- 1994 1st Qtr. 71.8% 83.5% 2nd Qtr. 76.0% 85.3% 3rd Qtr. 79.0% 86.0% 4th Qrt. 84.1% 87.2% ----------------------------------------- 1995 1st Qtr. 87.6% 84.1% 2nd Qtr. 87.7% 84.3% 3rd Qtr. 90.0% 84.3% 4th Qrt. 91.7% 87.4% ----------------------------------------- 1996 1st Qtr. 92.6% 86.4% 2nd Qtr. 92.1% 86.4% 3rd Qtr. 91.2% 85.3% 4th Qrt. 93.7% 90.1% ----------------------------------------- Given the condition of the market, 1994 leasing activity was not considered in arriving at a market rent estimate. By 1995, the market had turned the corner and rents had increased substantially. At the subject property, nearly 63,000 square feet of office space was absorbed in 1995 and 1996 providing an excellent indication of the subject's achievable market rent. The lease activity summary is offered on the following page. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 133 - -------------------------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ 1995 ACTIVITY AVG FREE RENT EFF RENT/ AREA/ LEASE AVG ANNUAL FREE PER SF/YR SQ. FT. STATUS SUITE TERM YRS SQ.FT. RENTAL RATE RENT/SF STEP-UP RENT 0F TERM BEF0RE TI'S - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1 ADMIN. RES0URCES NEW 7 11/95-11/98 3.00 2,474 $3.15 - $6.90 $4.97 39.7% $0 $0.00 $4.97 2 FIRSTAFF EXPANSI0N EXP 20 2/95-12/00 4.00 963 $10.60 - $10.60 $10.60 0.0% $0 $0.00 $10.60 3 INTEREP NEW 31 2/95-8/01 6.50 1,384 $9.75 - $9.75 $9.75 0.0% $0 $0.00 $9.75 4 FISH & RICHARDS0N NEW 31 8/95-7/02 7.00 16,114 $15.75 - $18.75 $16.61 2.7% $0 $0.00 $16.61 - ------------------------------------------------------------------------------------------------------------------------------------ WEIGHTED AVERAGES 6.36 20,935 13.63 - 16.38 $14.50 2.64% $0.00 $14.50 X AVG. LEASE 6.36 --------------------- ------- SUBT0TAL $0.00 - ------------------------------------------------------------------------------------------------------------------------------------ 1996 ACTIVITY 5 IFG EXPANSI0N EXP 7 12/96-12/06 10.00 13,737 $16.75 - $19.75 $18.25 1.8% $0 $0.00 $18.25 6 IFG EXPANSI0N EXP 8 1/96-12/06 11.00 19,259 $7.50 - $14.00 $11.09 7.9% $0 $0.00 $11.09 7 WINTHR0P & WEINSTINE EXP 31 2/96-7/03 7.42 4,970 $14.75 - $16.25 $15.44 1.4% $0 $0,00 $15.44 8 WILSHIRE ASS0CIATES NEW 36 6/96-3/01 4.75 2,533 $16,00 - $16.00 $16.00 0.0% $0 $0.00 $16.00 9 W00DLAND PARTNERS NEW 37 5/96-5/00 4.00 1,864 $15.00 - $15.00 $15.00 0.0% $0 $0,00 $15.00 - ------------------------------------------------------------------------------------------------------------------------------------ WEIGHTED AVERAGES 9.57 42,363 $14.00 - $16.20 $14.39 1.42% $0.00 $14.39 x AVG. LEASE TERM 9.57 --------------------- ------- SUBT0TAL $0.00 <CAPTION> - ------------------------------------------------------------------------------------ 1995 ACTIVITY EFF C0MM'S EFF RENT/ T.I'S PER RENT/SF PER SF/ SF AFTER T0TAL SF PER YR BEF0RE T0TAL YR 0F TI'S & TI'S 0F TERM C0MM'S C0MM TERM C0MM'S - ------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> 1 ADMIN. RES0URCES $7,838 $1.06 $3.91 $7,422 $1.00 $2.91 2 FIRSTAFF EXPANSI0N $27,012 $7.01 $3.59 $2,889 $0.75 $2.84 3 INTEREP $53,481 $5.94 $3.81 $4,152 $0.46 $3.34 4 FISH & RICHARDS0N $548,430 $4.86 $11.75 $48,342 $0.43 $11.32 WEIGHTED AVERAGES $4.58 $9.92 $0.51 $9.41 X AVG. LEASE $6.36 $6.36 ---------------- ------ ------ SUBT0TAL $29.13 $3.26 - ------------------------------------------------------------------------------------ 1996 ACTIVITY 5 IFG EXPANSI0N $549,480 $4.00 $14.25 $41,211 $0.30 $13.95 6 IFG EXPANI0N $770,360 $3.64 $7.45 $57,777 $0.27 $7.18 7 WINTHR0P & WEINSTINE $142,007 $3.85 $11.59 $14,910 $0.40 $11.18 8 WILSHIRE ASS0CIATES $81,398 $6.77 $9.23 $7,599 $0.63 $8.60 9 W00DLAND PARTNERS $63,341 $8.50 $6.30 $5,592 $0.75 $5.75 WEIGHTED AVERAGES $4.18 $10.21 $0.34 $9.87 x AVG. LEASE TERM 9.57 9.57 --------------------- ------ ----- SUBT0TAL $40.02 $3.25 </TABLE> <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- MARKET RENT ANALYSIS - OFFICE (continued) Historical leasing activity at the subject office tower is summarized below: ------------Weighted Average/sf/yr---------------- Effective Year Area Leased-sf Net Rent Free Rent T.I's Commsn's Net Rent - ------------------------------------------------------------------------ 1992 261,443 1993 127,444 1994 109,635 1995 20,935 $14.50 $0.00 $4.58 $0.51 $9.41 1996 42,363 $14.39 $0.00 $4.18 $0.34 $9.87 In arriving at a market rent figure, the most recently signed deals at the subject property were accorded the greatest weight. The 1996 weighted average market rent figure is somewhat low given that Inter-Regional Financial leased 19,259 square feet in January of 1996 at an average rate of $11.09 per square foot. Excluding this single deal results in an adjusted average net rent of $17.14 per square foot with a range of from $15.63 to $16.75 per square foot. The appraisers are also aware of recent leasing activity at several other Class A office properties. For the most part, average net rents have ranged from $12 to $16 per square foot with an average near $15. Annual rent increases of from $0.25 to $1.00 per square foot are common. Lease terms range from three to six years with an average near 4.5 years. For this exercise a market rental rate of $15.00 per square foot was considered reasonable. Annual rent adjustments of $0.25 per square foot were also considered. This rental estimate is based on an average lease term of six years and includes a standard tenant improvement allowance. This rate is considered an average rate for average sized office spaces. VACANCY AND ABSORPTION ANALYSIS - OFFICE The appraisers generally recognize that smaller spaces command higher per square foot rents than full floor or multiple floor spaces. As previously mentioned, Class A vacancy is currently estimated at 3.87% with approximately 490,000 square feet of vacant space. Based on the most recent absorption (1995 & 1996), the vacant space could be absorbed in as little as two years. However, as previously mentioned, absorption will likely moderate as gross occupancy costs increase. As a result of increased cost, space is used more efficiently. Growth in administrative or back office functions is usually pushed into Class B or C buildings to avoid additional costs. Because of these factors, average annual Class A absorption is expected to moderate in the 250,000 square feet per year range. Another method of forecasting absorption involves relying on projected employment growth. In the past, the fastest gain in employment in the Minneapolis-St. Paul area was in the services sector, followed by finance, insurance and real estate. Based on employment statistics compiled by the Metropolitan Council and the City of Minneapolis Planning Department, an average of - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 135 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- VACANCY AND ABSORPTION ANALYSIS - OFFICE (continued) approximately 2,000 jobs will be created per year between 1990 and 2000. In order to estimate the amount of office space these jobs will require, an analysis was made of the ratio of jobs to office workers. According to Towle, there was approximately 18,200,000 square feet of occupied office space in Downtown Minneapolis as of the second quarter of 1996 (multi-tenant buildings over 30,000 square feet in size). Dividing this number by an estimated average amount of office space per worker of 225 square feet results in approximately 80,839 workers in this market in multi-tenant, non-owner occupied buildings. According to the Metropolitan Council estimate, there was a total of approximately 130,000 employees in this area in 1990. Dividing the estimated number of office workers by the total employees results in a 62.2% office worker coefficient (80,839/130,000). Applying this figure to the annual number of new jobs projected for Downtown Minneapolis for ten years between 1990 and 2000 results in an approximate total number of new office workers estimated per year that will demand office space. Multiplying this by the average 225 square feet per worker results in an estimate of the office space required per year to support this demand. Adding a 5.0% vacancy allowance and a 5% factor to reflect office demand resulting from upgrading Class B to Class A space results in an estimate of total annual office space demand of approximately 300,000 square feet per year. The calculation is as follows: Downtown Minneapolis Projected Annual Employment Growth 2,000 x Office Worker Co-efficient x 0.622 - -------------------------------------------------------------------------------- Total Number of New Office Workers Per Year 1,244 x Average Square Feet of Office Space Per Worker 225 - -------------------------------------------------------------------------------- Subtotal - Sf 279,900 Add: 5% Vacancy Allowance - Sf 13,995 Add: 5.0% Upgrading Factor - Sf 13,995 - -------------------------------------------------------------------------------- Total Estimated Office Space Demand Per Year - Sf 307,890 However, market absorption is inter-related to rent. The Class A market has captured the lion's share of total Downtown absorption. Since 1987, the Class A market has captured 5,500,000 square feet of absorption, or 87% of total Downtown absorption. In comparison, the Class B market captured only 72,000 square feet during the same time period. Assuming that Class A absorption will moderate for the previously mentioned reasons, a Class A market capture rate of 75% was considered reasonable. Applying this figure to the projected space demand figure results in Class A's share of total absorption of 230,000 square feet, as rounded. This is consistent with other industry expert opinions. This estimated figure also supports the notion that new office construction will return in 1998 and 1999. This could modestly pressure down Class A rents depending on the size of each development and the degree of pre-leasing. Given that the subject office tower is 94% occupied, it was necessary to formulate an absorption schedule for the remaining vacant space. Based on an average annual absorption of 230,000 square feet of Class A space, the subject property should capture approximately 11,000 square - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 136 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- VACANCY AND ABSORPTION ANALYSIS - OFFICE (continued) feet of absorption per year based on its percent of total Class A space (592,593 sf-: 12,676,000 sf = 4.67%). Dividing this by the subject's vacant area of 37,000 square feet results in a 3+ year absorption schedule. Absorption of the specific spaces has been projected as follows: Absorption Schedule - -------------------------------------------------------------------------------- Projected Occupancy Date Suite Sept 1, Sept 1, Sept 1, Sept 1, Tenant No. Area-sf 1997 1998 1999 2000 - -------------------------------------------------------------------------------- To Be Leased 3799 4,772 4,772 To Be Leased 3699 6,044 6,044 To Be Leased 3550 471 471 To Be Leased 3499 1,836 1,836 To Be Leased 3299 3,925 3,925 To Be Leased 3199 4,922 4,922 Optioned after 8/06 2520 4,172 4,172 Optioned after 12/04 2430 5,928 5,928 Optioned after 12/98 2130 3,535 3,535 To Be Leased 2060 1,200 1,200 To Be Leased 940 563 563 - -------------------------------------------------------------------------------- Total 37,368 10,816 11,081 11,936 3,535 - -------------------------------------------------------------------------------- Perhaps the greatest unknown facing the Downtown office market is the future of American Express Financial Advisors (AMEX), formerly IDS. AMEX collectively occupies approximately 1.45 million square feet in several Downtown locations including the IDS Center and the Baker Block. Their leases are co-terminus in 2002. Though AMEX has recently elected to build on the Opus Minnegasco site, the timing of the development is yet to be known. The potential consolidation of their space could seriously affect the Downtown Office market. The DS Center is particularly vulnerable. AMEX occupies 465,000 square feet, or 38% of this property's rentable area. As previously indicated, Dayton Hudson/Target recently announced that they will build their own 450,000 square foot office tower on the Nicollet Mall, five blocks south of the subject. This new building reportedly can be expanded by as much as 400,000 square feet. Construction of the 12 to 15 story office building is expected to begin in the Spring of 1997 with initial occupancy projected for late 1998 or early 1999. It should be noted that Target occupies approximately 675,000 square feet of space at the neighboring Multifoods Tower in City Center. Although the majority of Target's space is under a long-term lease, nearly 200,000 square feet expires in December, 2002. In addition, Target has subleased nearly 100,000 square feet in the same building from International Multifoods with a 2003 expiration. As such, nearly 300,000 square feet of space at City Center could be vacated by mid-year 2003. Because of this uncertainty, many property represented leasing agents and managers are trying to sign leases that extend beyond 2003 or 2004. For the discounted cash flow analysis, a vacancy factor has been applied to the property in the form of projected downtime between leases. This more accurately reflects the vacancy as it does not unduly penalize the subject's value by penalizing existing tenant income. This practice is also - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 137 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- VACANCY AND ABSORPTION ANALYSIS - OFFICE (continued) the most widely accepted among investors/buyers for this property type. From discussions with Downtown leasing agents and property managers, and in consideration of the current and forecasted vacancy in the market, it was projected that there would be an effective four months of vacancy between each lease based on a 25% vacation and 75% renewal probability on a total downtime estimate of 12 months. This renewal probability estimate is higher than the surveyed average of 63.8% for CBD Office reported by Real Estate Research Corporation in their Third Quarter 1996 Real Estate Investment Survey. However, the Class A market is less than 4% vacant and a higher probability of renewal is considered reasonable. The downtime calculation is as follows: - -------------------------------------------------------------------------------- New Tenancy 12 Months Downtime x 25% probability = 3.0 Months Renewal Tenancy 0 Months Downtime x 75% probability = 0.0 Months --------------------------------------------------------------------- Overall Blended Downtime Estimate 3.0 Months - -------------------------------------------------------------------------------- On a stabilized basis, this downtime estimate equates to a vacancy of 4.0% based on a downtime period of 3 months and an average lease length of 75 months (72 month lease + 4 months downtime). At the subject property, lease terms have averaged approximately six years for both 1995 and 1996. At IDS Center, lease terms for new deals negotiated in 1996 ranged from two to six years with an average just over 4.3 years. For renewals, lease terms ranged from one to five years with an average of 3.5 years. At Multifoods, lease terms on new and renewal deals, averaged 6.38 and 6.32 years in 1995 and 1996, respectively. Using this weighted vacancy for the speculative renewals, and in consideration of the estimated absorption schedule, an overall average occupancy of 98.1% was projected for the property based on the following: Year Occupied -------------------- 1998 94.6% 1999 96.0% 2000 98.3% 2001 98.8% 2002 99.8% 2003 99.0% 2004 99.2% 2005 98.3% 2006 99.7% 2007 95.9% 2008 99.8% ------------------ Overall Avg. 98.1% - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 138 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- RENTAL GROWTH - OFFICE Market rent for the subject office tower was previously estimated at $15.00 per square foot. Rental growth is expected to moderate with absorption. As previously mentioned, the construction of one or two speculative office towers is also likely to hold down office rental growth. For this analysis, office rental growth was projected to increase modestly from the most current estimate of $15.00 per square foot. The growth rate was expected to flatten in 1999 with the anticipated opening of at least one new speculative office tower. For this analysis, office rental growth was projected as follows: Year Net Rent/SF % Change ---------------------------------------- 1997 $15.00 -- 1998 $16.00 +6.66% 1999 $16.00 -- 2000 $17.00 +6.25% 2001 $18.00 +5.88% Thereafter, +3.5% STORAGE INCOME - OFFICE Storage income was stabilized at $30,000 based on historical experience. EXPENSES - OFFICE The fixed expenses for the subject office tower include real estate taxes and insurance. Variable operating expenses include such costs as utilities, management, building maintenance and janitorial services. These expense items are all considered to be typical for office buildings and are reimbursable by the tenant. A stabilized expense estimate for the subject property has been developed based on a review of the subject's actual expense history and in some cases, by comparison to current market expenses for similar buildings. Competitive Class A properties in the Downtown area revealed Fourth Quarter 1996 expenses generally in the range of $9.50 to $13.50 per square foot with an average of $11.46 per square foot. This compares with an average $10.84 per square foot in 1995. Historical expense experience at the subject is offered as follows: 1994 1995 1996 ------------------------------------------------------ Operating Costs/sf $ 5.23 $ 5.48 $ 5.86 Real Estate Tax/sf $ 5.66 $ 5.90 $ 7.16 ------------------------------------------------------ Total/sf $10.89 $11.38 $13.02 Change % -- 4.5% 14.4% Historical income and operating expenses for the subject, including budget year 1997 were obtained from the property owner and are summarized on the following page. Stabilized expense estimates are also included to the right of year-to date activity. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 139 - -------------------------------------------------------------------------------- <PAGE> INC0ME APPR0ACH 0FFICE EXPENSE ANALYSIS DAIN PLAZA 0FFICE DEVEL0PMENT HIST0RICAL INC0ME AND EXPENSE PR0FILE <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ 0FFICE T0WER 1993 1994 1995 INC0ME $ $/SF $ $/SF $ $/SF - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> NET RENT-0FFICE $2,187,890 $3.69 $4,461,445 $7.52 $5,127,981 $8.65 0PERATING REIMB $1,327,635 $2.24 $2,081,565 $3.51 $3,020,862 $5.09 PR0PERTY TAX REIMB $1,101,559 $1.86 $1,958,116 $3.30 $3,027,292 $5.11 PARKING INC0ME $0 $0.00 $0 $0.00 $0 $0.00 ST0RAGE INC0ME $0 $0.00 $7,530 $0.01 $29,560 $0.05 MISCELLANE0US INC0ME $1,398 $0.00 $3,452 $0.01 $8,686 $0.01 0THER REVENUE ACC0UNTS $0 $0.00 $833,296 $1.41 $8,477 $0.01 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL INC0ME $4,618,482 $7.79 $9,345,404 $15.76 $11,222,858 $18.93 REC0VERABLE EXPENSES CLEANING $307,553 $0.52 $506,667 $0.85 $573,889 $0.97 ELECTRICAL MAINTENANCE $8,712 $0.01 $16,292 $0.03 $17,498 $0.03 PLUMBING MAINTENANCE $2,835 $0.00 $4,353 $0.01 $3,088 $0.0l HVAC $139,419 $0.24 $123,258 $0.21 $122,272 $0.21 ELEV. & ESCALAT0RS $93,324 $0.16 $103,621 $0.17 $92,575 $0.16 SECURITY AND SAFETY $121,229 $0.20 $138,753 $0.23 $168,410 $0.28 GENERAL BLDG C0STS $238,896 $0.40 $110,065 $0.19 $118,792 $0.20 C0MM0N AREA C0STS $0 $0.00 $168,356 $0.28 $174,751 $0.29 REPAIRS AND MAINT $41,638 $0.07 $74,914 $0.13 $86,958 $0.15 L0ADING D0CK $16,238 $0.03 $20,939 $0.04 $19,394 $0.03 C0MM. CENTER $161,132 $0.27 $201,073 $0.34 $183,080 $0.31 ENERGY C0STS $887,971 $1.50 $1,065,469 $1.80 $1,057,830 $1.78 WATER AND SEWER $14,361 $0.02 $22,592 $0.04 $28,421 $0.05 ADMIINISTRATI0N $243,010 $0.41 $252,503 $0.43 $172,573 $0.29 INSURANCE $31,400 $0.05 $34,866 $0.06 $36,245 $0.06 MANAGEMENT FEES $120,665 $0.20 $259,979 $0.44 $392,800 $0.66 REAL ESTATE TAXES/ASSMTS $3,609,740 $6.09 $3,354,129 $5.66 $3,496,337 $5.90 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL REC0VERABLE EXPENSES $6,038,123 $10.18 $6,457,828 $10.89 $6,744,913 $11.38 N0N-REC0VERABLE EXPENSES ADMINISTRATI0N $0 $0.00 $0 $0.00 $0 $0,00 INSURANCE $0 $0.00 $0 $0.00 $0 $0.00 MANAGEMENT FEE $0 $0.00 $0 $0.00 $0 $0.00 0THER $0 $0.00 $230,421 $0.39 $35,606 $0.06 LEGAL FEES $0 $0.00 $22,299 $0.04 $1,132 $0.00 PARKING $0 $0.00 $0 $0.00 $0 $0,00 BAD DEBT EXPENSE $0 $0.00 $2 $0.00 $2 $0.00 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL N0N-REC0VERABLE EXP $0 $0.00 $252,722 $0.43 $36,740 $0.06 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL EXPENSES $6,038,123 $10.18 $6,710,550 $11.32 $6,781,653 $11.44 - ------------------------------------------------------------------------------------------------------------------------------------ NET 0PERATING INC0ME ($1,419,641) ($2.39) $2,634,854 $4.44 $4,441,205 $7.49 - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ OFFICE TOWER 1996 Budget I997 Stabilized INCOME $ $/SF $ $/SF $ $/$F - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> NET RENT-0FFICE $5,645,788 $9.52 $5,801,828 $9.78 0PERATING REIMB $3,273,607 $5.52 $3,514,233 $5.93 PR0PERTY TAX REIMB $3,410,432 $5.75 $3,848,165 $6.49 PARKING INC0ME $0 $0.00 $0 $0.00 ST0RAGE INC0ME $29,560 $0.05 $29,560 $0.05 MISCELLANE0US INC0ME $1,106 $0.00 $7,164 $0.01 0THER REVENUE ACC0UNTS $0 $0.00 $0 $0.00 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL INC0ME $12,360,493 $20.85 $13,200,950 $22.26 REC0VERABLE EXPENSES CLEANING $640,578 $1.08 $667,638 $1.13 $650.0D0 $1.10 ELECTRICAL MAINTENANCE $19,873 $0.03 $19,440 $0.03 $20,000 $0.03 PLUMBING MAINTENANCE $2,032 $0.00 $4,800 $0.01 $4,000 $0.01 HVAC $135,581 $0.23 $138,096 $0.23 $137,500 $0.23 ELEV. & ESCALAT0RS $104,603 $0.18 $103,380 $0.17 $105,0D0 $0.18 SECURITY AND SAFETY $176,231 $0.30 $173,690 $0.29 $175,000 $0.30 GENERAL BLDG C0STS $131,871 $0.22 $156,892 $0.26 $150,000 $0.25 C0MM0N AREA C0STS $165,710 $0.28 $192,432 $0.32 $190,000 $0.32 REPAIRS AND MAINT $89,591 $0.15 $121,376 $0.20 $100,000 $0.17 L0ADING D0CK $20,087 $0.03 $22,018 $0.04 $20,000 $0.03 C0MM. CENTER $209,110 $0.35 $214,182 $0.36 $210,000 $0.35 ENERGY C0STS $1,106,582 $1.87 $1,183,555 $2.00 $1,150,000 $1.94 WATER AND SEWER $25,089 $0.04 $29,280 $0.05 $30,000 $0.05 ADMIINISTRATI0N $191,222 $0.32 $207,160 $0.35 $200,000 $0.34 INSURANCE $29,214 $0.05 $31,175 $0.05 $83,013 $0.14 MANAGEMENT FEES $432,617 $0.73 $478,072 $0.81 $393,219 $0.66 REAL ESTATE TAXES/ASSMTS $4,243,107 $7.16 $4,340,820 $7.32 $4,207,154 $7.10 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL REC0VERABLE EXPENSES $7,723,098 $13.02 $8,094,006 $13.63 $7,824,885 $13.20 N0N-REC0VERABLE EXPENSES ADMINISTRATI0N $0 $0.00 $0 $0.00 $0 $0.00 INSURANCE $0 $0.00 $0 $0.00 $0 $0.00 MANAGEMENT FEE $0 $0.00 $0 $0.00 $0 $0.00 0THER $11,912 $0.02 $17,200 $0.03 $29,630 $0.05 LEGAL FEES $27,876 $0.05 $12,000 $0.02 $25,000 $0.04 PARKING $0 $0.00 $0 $0.00 $0 $0.00 BAD DEBT EXPENSE $74,561 $0.13 $0 $0.00 $0 $0.00 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL N0N-REC0VERABLE EXP $114,349 $0.19 $29,200 $0.05 $54,630 $0.09 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL EXPENSES $7,837,447 $13.22 $8,113,206 $13.68 $7,879,515 $13.29 - ------------------------------------------------------------------------------------------------------------------------------------ NET 0PERATING INC0ME $4,523,046 $7.63 $5,087,744 $8.58 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- EXPENSES - OFFICE (continued) For the most part, expenses were stabilized based on historical operating history. General Common Area costs and Loading Dock expenses were allocated based on the discussion found at the beginning of the Income Approach section of this report. However, several expense items require additional attention including real estate taxes, insurance, administrative costs and management fees. As a result of an improving market, real estate taxes on Downtown Class A office properties are projected to dramatically increase in 1997 as exhibited below: <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------------------- '95 to '96 '95 to '96 Tax/sf Rentable 1/2/95 1/2/96 VALUE % 1996 1997 Est. Rank Building Area-sf AEMV AEMV +/- +/- Taxes/sf Taxes/sf(1) - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 1 Norwest Center 1,105,105 $119,500,000 $162,000,000 $42,500,000 36% $7.29 $9.64 2 LaSalle Plaza 522,679 $54,500,000 $72,000,000 $17,500,000 32% $7.03 $9.06 3 IBM/First Bank Place 1,422,961 $140,000,000 $192,000,000 $52,000,000 37% $6.64 $8.87 4 Dain Plaza 781,817 $67,800,000 $82,500,000 $14,700.000 22% $5.84 $6.94 5 Metropolitan Centre 560,354 $48,200,000 $64,900,000 $16,700,000 35% $5.80 $7.62 6 Piper Jaffray 757,321 $70,500,000 $87,600,000 $17,100,000 24% $6.28 $7.61 7 100 S. Fifth 414,357 $36,800,000 $45,800,000 $9,000,000 24% $5.99 $7.27 8 Pillsbury Center 1,350,757 $127,600,000 $149,000,000 $21,400,000 17% $6.37 $7.25 9 150 S. Fith 606,661 $52,300,000 $66,400,000 $14,100,000 27% $5.81 $7.20 10 IDS Center 1,451,738 $122,200,000 $157,100,000 $34,900,000 29% $5.68 $7.12 11 AT&T Tower 607,297 $51,000,000 $64,100,000 $13,100,000 26% $5.66 $6.94 12 Kinnard Center 272,291 $21,100,000 $28,900,000 $7,800,000 37% $5.22 $6.98 13 City Center 1,436,954 $126,000,000 $146,500,000 $20,500,000 16% $5.91 $6.70 14 Lutheran Brotherhood 434,084 $30,000,000 $40,300,000 $10,300,000 34% $4.66 $6.11 15 NWNL 351,464 $23,800,000 $31,900,000 $8,100,000 34% $4.56 $5.97 - --------------------------------------------------------------------------------------------------------------------------- Totals/average 12,075,840 $1,091,300,000 $1,391,000,000 $299,700,000 27% $5.92 $7.42 % Change - --------------------------------------------------------------------------------------------------------------------------- </TABLE> Source: Minneapolis BOMA in cooperation with the Minneapolis Assessor's Office Per square foot figures based on BOMA area measurements. (1) Estimated Effective Tax Rate of 6.5% relied on for calculating 1997 Taxes. For Class A office properties, this represents the greatest single year assessment increase in Downtown Minneapolis. Although the subject's preliminary assessment for January 1, 1997 remains $82,500,000, the assessor does not post the final figures until mid-March of 1997. Further increases in assessed value are expected, considering that the market has continued to improve throughout 1996. As such, the overall assessed value of the Class A market as of January 2, 1997 should be higher than the overall 1996 AEMV. On the other hand, market rents have increased only modestly in the last year and vacancy is nearly unchanged. As such, future market expectations are for a return to more inflationary indexed value increases. The market value estimate evolved in the Income Approach of this appraisal is $86,000,000 as outlined below: Indicated Market Value Component by the Income Approach ----------------------------------------------------- Dain Plaza $86,000,000 Gaviidae II Nominal ----------------------------------------------------- Total Market Value Estimate $86,000,000 - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 141 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- EXPENSES (continued) The Income Approach value estimate, for both Gaviidae II and the office tower, is within 4% of the assessed value estimate of $82,500,000 established as of January 2, 1997. As such, an adjustment to value has not been considered. Brookfield maintains a master insurance policy that includes both Gaviidae developments, Dain Plaza, the City Center Development as well as other property they own. The premium rates are below market. For this exercise, office insurance was estimated at $0.14 per square foot of rentable area based on the median costs reported by the Institute of Real Estate Management (IREM). Administrative costs, which are allocated between the Gaviidae I and II developments include all expenses related to the physical management of the properties. This includes all salaries/benefits for the property manager, assistant controller, retail manager, property administrator, secretary and receptionist. This line item does not include the fourteen employees whose costs are allocated to building operation expenses including General Building, HVAC, Communications and Repair. From collected receipts, Brookfield LePage charges a management fee equal to 3.5% of effective gross income. Considering that all accounting, office costs and on-site salaries are passed back to the tenants under the Administrative line item, this fee essentially covers the accounting function and provides a profit to the management firm. In arriving at a market based management fee, the appraisers contacted three property management firms in the Twin Cities market; Madison Marquette, United Properties and Welsh Companies. All firms have extensive experience in office and retail property management. Quoted management fees ranged from 2.0% to 3.0% of effective gross income with all administrative costs allocated to the property, not deducted from the gross management fee. Furthermore, the fee would not cover any costs related to leasing. For this exercise, a management fee equal to 3.0% of effective gross income was considered reasonable. A lower management fee may result if the property were bid against both local and national firms. Expense Recoveries - For the most part, tenant's pay their pro-rata share of operating costs and real estate taxes. However, several tenants have specified recoveries. Marquette Bancshares and Inter-Regional Financial have atypical reimbursements for real estate taxes and assessments. The calculations are as follows: - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 142 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- EXPENSES (continued) Marquette Bank 1997 Tax and Assessment Calculation - -------------------------------------------------------------------------------- Assessed Value $82,500,000 Less: Improvement value $75,280,000 - -------------------------------------------------------------------------------- Land Value $7,220,000 x Effective Tax Rate 6.58% - -------------------------------------------------------------------------------- Estimated Land Tax $474,789 X office allocation (1) 36.954% - -------------------------------------------------------------------------------- Land Taxes attributable to office $175,455 Total Taxes $5,425,226 Less: Estimated Land Tax $474,789 - -------------------------------------------------------------------------------- Building Taxes $4,950,437 Add: Land taxes attributable to office $l75,455 - -------------------------------------------------------------------------------- Total Adjusted Taxes $5,125,891 x Office Pro-rata of GBA per lease 77.78% - -------------------------------------------------------------------------------- Estimated Office Tax $3,986,918 / Office rentable area-sf 592,593 - -------------------------------------------------------------------------------- Dain's Tax per square foot $6.73 Vs. Pure Pro-rata share tax/sf $6.94 % of Total 96.9% (1) Office footprint - Total land Area 36.95% - -------------------------------------------------------------------------------- Inter-Regional Financial 1997 Tax and Assessment Calculation - -------------------------------------------------------------------------------- Assessed Value $82,500,000 x Effective Tax Rate 6.58% - -------------------------------------------------------------------------------- Total Taxes $5,425,226 Add: Specials $129,609 - -------------------------------------------------------------------------------- Total Tax and Assessments $5,554,835 Less: Parking allocation at 4.4% $244,413 - -------------------------------------------------------------------------------- Subtotal $5,310,422 x Office Pro-rata per lease 72.21% - -------------------------------------------------------------------------------- Allocated Office portion $3,834,656 / Office rentable area-sf 592,593 - -------------------------------------------------------------------------------- Dain's Tax per square foot $6.47 Vs Pure Pro-rata share per sf $7.11 - -------------------------------------------------------------------------------- % of Total 91.0% - -------------------------------------------------------------------------------- Per their lease, Inter-Regional Financial's management fee is set at 2.5% of their base rent and recoveries. Martin Williams pays a management fee of 3.25%. All operating expenses, including real estate taxes, were projected to increase at +3.5% per year. TENANT IMPROVEMENTS - OFFICE Based on discussions with managers and leasing agents in the Downtown Minneapolis, and in consideration of actual leases, tenant improvements have been estimated at $20 per square foot for a new tenancy. For renewals a figure of $5 per square foot was relied on. This figure should cover minor upgrading charges such as carpet replacement and painting. Upon speculative renewal it was projected that 75% of the leases would be renewed while the remaining 25% would vacate and a new tenancy secured. Applying these budgeted figures to the renewal/vacation probability estimates results in the following overall blended rate. - -------------------------------------------------------------------------------- New Tenancy $20.00/sf x 25% probability = $5.00/sf Renewal Tenancy $ 5.00/sf x 75% probability = $3.75/sf ------------------------------------------------------------------- Overall Blended Rate/SF $8.75/sf - -------------------------------------------------------------------------------- For those spaces that have not been previously occupied (virgin space), a $30 shell improvement rate was projected upon initial occupancy. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 143 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- LEASING COMMISSIONS - OFFICE Leasing commissions have been projected as follows: - -------------------------------------------------------------------------------- New Tenancy $3.00/sf x 25% probability = $0.75/sf Renewal Tenancy $1.50/sf x 75% probability = $1.13/sf ------------------------------------------------------------------- Overall Blended Rate/SF $1.88/sf - -------------------------------------------------------------------------------- YIELD CAPITALIZATION ANALYSIS In projecting the yield and terminal capitalization rate in this discounted cash flow analysis, several factors have been considered. First, the demand for CBD Office properties must be compared with the demand for other types of real estate. As of the Third Quarter of 1996, the most recent survey date, demand for this property type has been increasing as exhibited below: CURRENT INVESTMENT CONDITIONS BY PROPERTY TYPE ----------------------------------------------------------- 3RD QTR 3RD QTR 3RD QTR PROPERTY TYPE 1996 1995 1994 ----------------------------------------------------------- 1 Industrial - Warehouse 7.7 7.0 6.7 2 Office - Suburban 7.2 6.9 5.6 3 Apartment 7.0 7.1 6.4 4 Industrial - R&D 6.5 5.6 4.5 5 Hotel 6.2 6.4 5.2 6 Retail - neighborhood 5.8 6.4 6.0 7 Office - CBD 5.6 5.1 4.2 8 Retail - Regional 5.3 5.6 6.2 9 Retail - Power Center 4.6 6.5 6.3 ----------------------------------------------------------- Rated on a scale of 1 (very bad) to 10 (very good) ----------------------------------------------------------- Source: Real Estate Research Corporation ----------------------------------------------------------- Real Estate Research Corporation also conducts quarterly investment surveys of major institutional investors. Their survey includes the investors' objectives with respect to Internal Rates of Return (IRR's), "going-in' and terminal capitalization rates, income and expense growth projections, and demand by property type. The survey findings are as follows: <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE INVESTMENT CRITERIA INDUSTRIAL RETAIL OFFICE APARTMENT HOTEL BY PROPERTY TYPE Regional Power Neighborhood/ THIRD QUARTER 1996* Warehouse R&D Mall Center Community CBD Suburban Apartment Hotel - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Pre-Tax Yield (IRR)(%) Range** 10.5-13.0 11.0-13.8 10.0-12.0 10.0-12.0 10.5-13.3 10.5-13.0 10.5-14.0 10.5-12.0 11.5-14.0 Average 11.3 11.8 11.0 11.3 11.5 11.8 11.9 11.2 12.8 - ------------------------------------------------------------------------------------------------------------------------------------ Going-In Cap Rate(%) Range** 8.5-10.0 9.0-10.8 7.8-9.3 8.5-10.0 8.5-10.0 8.0-10.0 8.5-10.0 8.5-11.8 10.0-12.0 Average 9.1 9.6 8.3 9.5 9.5 9.2 9.2 9.1 10.6 - ------------------------------------------------------------------------------------------------------------------------------------ Terminal Cap Rate (%) Range** 9.0-11.0 9.5-10.5 8.0-9.8 9.0-10.5 9.3-10.5 8.5-10.5 9.0-10.5 8.8-10.0 10.0-11.5 Average 9.3 9.8 9.0 9.9 9.7 9.7 9.6 9.3 10.9 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> * The survey was conducted in July, August and September of 1996 and reflects expected returns for Third quarter 1996 investments. ** Ranges and other data reflect the central tendencies of respondents; high and low responses have been eliminated. - -------------------------------------------------------------------------------- Source: Real Estate Research Corporation - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 144 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- YIELD CAPITALIZATION ANALYSIS (continued) Based on the Third Quarter 1996 survey, yield rates for CBD Office properties ranged from 10.5.0% to 13.0% with an average of 11.8%. Terminal capitalization rates ranged from 8.5% to 10.5% with an average of 9.8%. Going-in capitalization rates ranged from 8.5% to 10.0% with an average of 9.3%. Appropriate Discount Rate - A discount rate is a rate of return on capital used to convert future payments of receipts into present value. The rate of return used to convert income into property value should represent the annual rate of return necessary to attract investment capital. This rate needs to take into account the relative risks associated with owning real estate versus other investment options. This rate is influenced by many micro and macro economic factors, but because the rate represents prospective and not historical rates, the market's perception of risk and changes in purchasing power are particularly important. Investors' surveys are one source for what buyers and sellers are accepting in the current marketplace. A search of the marketplace was conducted for recent sales. Several sales were considered relevant and are outlined below: <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------- Year Sale Going-in Sale No Property Built Class RA-sf Date Price/sf Rate Yield Rate - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 1 First Bank Place 1992 A 1,415,554 8/95 $151.88 8.90% 11.00% 2 LaSalle Plaza 1991 A 588,878 11/94 $123.96 8.90% 11.00% 3 ITT Finance 1989 A 207,243 6/95 $112.91 12.61% N/A 4 ITT Life 1987 A 251,015 6/96 $118.72 7.97% N/A 5 NFC Tower 1972/93,95 B 434,746 9/96 $98.91 9.00% N/A 7 Fifth Street Towers 1984/1988 A 1,022,292 12/96 $137.82 9.58% 11% to 11.25% Interchange Complex 1971/1982 B 932,867 12/96 $78.38 9.71% 11.00% - ------------------------------------------------------------------------------------------------------------- </TABLE> All of the above transactions are included in the Sales Comparison Approach. With exception to Sale No.5, these sales represent newer, high quality Class A CBD or Suburban office buildings. The Interchange office complex sale was included given its recent sale date. This property is located approximately five miles west of Downtown Minneapolis. The property sold for $73,120,000 in December of 1996. All of the properties exhibited were at or near 100% occupancy which is consistent with the subject. Sale Comparable Nos. 1, 2, and 7 were accorded the most consideration given their Downtown location, age and size. Yield rates for these three properties were consistently in the 11% range. For this analysis, a range of from 10.75% to 11.25% was relied on. Terminal Capitalization Rate - For this analysis a range of terminal capitalization rates of from 9.0% to 9.5% was relied on. This range is consistent with several recent sales as well as the most recent investor survey data. The net operating income was capitalized by this range resulting in an estimated reversionary value. - -------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 145 - -------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - ------------------------------------------------------------------------------- YIELD CAPITALIZATION ANALYSIS (continued) Gross sales proceeds are defined as expected selling price before all costs of sale and commissions. Since the seller typically pays all of the sales commissions, this amount will need to be deducted from the gross sales proceeds to arrive at the net sales proceeds. Sales Costs - An appropriate sales commissions rate for a property like the subject would be approximately 1%. A copy of the ten year cash flow projection is located on the following pages. - ------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 146 - ------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - ------------------------------------------------------------------------------- GAVIIDAE I - SAKS FIFTH AVENUE A stabilized expense estimate for the subject property has been developed based on a review of each portion's actual expense history and in some cases, by comparison to current market expenses for similar buildings. Historical income and operating expenses for the retail component for the period 1993 through 1996 has been included on the following page. Stabilized expense estimates are also included to the right of year-to-date activity. - ------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 229 - ------------------------------------------------------------------------------- <PAGE> INC0ME APPR0ACH RETAIL EXPENSE ANALYSIS GAVIIDAE I - SAKS FIFTH AVENUE HIST0RICAL INC0ME AND EXPENSE PR0FILE <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ GAVIIDAE 1 1993 1994 1995 INC0ME $ $/SF $ $/SF $ $/SF - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> NET RENT- 0FFICE $0 $0.00 $0 $0.00 $0 $0.00 NET RENT- RETAIL $1,734,461 $6.82 $1,590,387 $6.25 $1,001,925 $3.94 PERCENTAGE RENT $12,135 $0.05 $15,387 $0.06 $39,838 $0.16 0PERATING REIMB $1,075,660 $4.23 $1,298,933 $5.10 $919,772 $3.61 PR0PERTY TAX REIMB $762,943 $3.00 $860,488 $3.38 $513,195 $2.02 PARKING INC0ME $1,077,387 $4.23 $1,181,800 $4.64 $1,183,336 $4.65 $T0RAGE INC0ME $13,958 $0.05 $11,991 $0.05 $11,012 $0.04 MISCELLANE0US INC0ME $500,875 $1.97 $354,536 $1.39 $668 $0.00 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL INC0ME $5,177,419 $20.35 $5,313,522 $20.88 $3,669,746 $14.42 REC0VERABLE EXPENSES CLEANING $247,619 $0.97 $179,567 $0.71 $180,347 $0.71 ELECTRICAL MAINTENANCE $859 $0.00 $11,957 $0.05 $9,275 $0.04 PLUMBING MAINTENANCE $0 $0.00 $1,094 $0.00 $8,949 $0.04 HVAC $205,047 $0.81 $109,915 $0.43 $113,950 $0.45 ELEV. & ESCALAT0RS $96,671 $0.38 $60,041 $0.24 $67,597 $0.27 SECURITY AND SAFETY $269,412 $1.06 $216,276 $0.85 $192,168 $0.76 LANDSCAPING & GR0UNDS $11,495 $0.05 $0 $0.00 $0 $0.00 GENERAL BLDG C0STS $340,453 $1.34 $400,054 $1.57 $463,683 $1.82 C0MM0N AREA C0STS $0 $0.00 $0 $0.00 $0 $0.00 REPAIRS AND MAINT $76,633 $0.30 $105,887 $0.42 $85,537 $0.34 L0ADING D0CK $5,254 $0.02 $21,407 $0.08 $4,044 $0.02 C0MM. CENTER $884 $0.00 $62,503 $0.25 $54,769 $0.22 ENERGY C0STS $230,272 $0.90 $197,555 $0.78 $230,949 $0.91 WATER AND SEWER $38,021 $0.15 $20,793 $0.08 $20,984 $0.08 ADMINISTRATI0N $566,816 $2.23 $224,667 $0.88 $178,591 $0.70 INSURANCE $16,308 $0.06 $16,146 $0.06 $55,149 $0.22 MANAGEMENT FEES $250,197 $0.98 $165,269 $0.65 $99,403 $0.39 REAL ESTATE TAXES/ASSMTS $308,262 $1.21 $859,066 $3.38 $527,104 $2.07 0THER $5,208 $0.02 $0 $0.00 $0 $0.00 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL REC0VERABLE EXPENSES $2,669,411 $10.49 $2,652,197 $10.42 $2,292,499 $9.01 N0N-REC0VERABLE EXPENSES PR0M0TI0NAL FUND $424,426 $1.67 $325,463 $1.28 $327,415 $1.29 ADMINISTRATI0N $0 $0.00 $0 $0.00 $0 $0.00 INSURANCE $0 $0.00 $0 $0.00 $0 $0.00 MANAGMENT FEE $0 $0.00 $0 $0.00 $0 $0.00 0THER $0 $0.00 $96,759 $0.38 $22,029 $0.09 LEGAL FEES $0 $0.00 $49,580 $0.19 $6,744 $0.03 PARKING $861,477 $3.39 $993,046 $3.90 $999,891 $3.93 GR0UND RENT $0 $0.00 $0 $0.00 $0 $0.00 BAD DEBT EXPENSE $0 $0.00 $123,369 $0.48 $0 $0.00 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL N0N-REC0VERABLE $1,285,903 $5.05 $1,588,217 $6.24 $1,356,079 $5.33 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL EXPENSES $3,955,314 $15.54 $4,240,414 $16.66 $3,648,578 $14.34 - ------------------------------------------------------------------------------------------------------------------------------------ NET 0PERATING INC0ME $1,222,105 $4.80 $1.073,108 $4.22 $21,168 $0.08 - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ GAVIIDAE I 1996 Budget 1997 Stabilized INCOME $ $/SF $ $/SF $ $/SF - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> NET RENT- 0FFICE $60,816 $0.24 $77,339 $0.30 NET RENT- RETAIL $992,689 $3.90 $1,010,161 $3.97 PERCENTAGE RENT $17,746 $0.07 $41,878 $0.16 0PERATING REIMB $1,547,504 $6.08 $1,888,528 $7.42 PR0PERTY TAX REIMB $808,033 $3.18 $924,529 $3.63 PARKING INC0ME $1,332,847 $5.24 $1,419,362 $5.58 $T0RAGE INC0ME $11,639 $0.05 $12,000 $0.05 MISCELLANE0US INC0ME $14,106 $0.06 $6,000 $0.02 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL INC0ME $4,785,380 $18.80 $5,379,797 $21.14 REC0VERABLE EXPENSES CLEANING $251,185 $0.99 $316,228 $1.24 See breakdown of ELECTRICAL MAINTENANCE $12,889 $0.05 $13,800 $0.05 expense allocation PLUMBING MAINTENANCE $3,582 $0.01 $5,400 $0.02 between office and HVAC $108,977 $0.43 $118,368 $0.47 retail components ELEV. & ESCALAT0RS $78,023 $0.31 $84,246 $0.33 SECURITY AND SAFETY $132,531 $0.52 $140,218 $0.55 LANDSCAPING & GR0UNDS $0 $0.00 $0 $0.00 GENERAL BLDG C0STS $335,993 $1.32 $343,551 $1.35 C0MM0N AREA C0STS $0 $0.00 $0 $0.00 REPAIRS AND MAINT $145,718 $0.57 $190,520 $0.75 L0ADING D0CK $52,985 $0.21 $58,056 $0.23 C0MM. CENTER $58,715 $0.23 $61,740 $0.24 ENERGY C0STS $224,955 $0.88 $246,654 $0.97 WATER AND SEWER $16,208 $0.06 $17,760 $0.07 ADMINISTRATI0N $161,599 $0.64 $10,406 $0.70 INSURANCE $17,124 $0.07 $17,297 $0.07 MANAGEMENT FEES $137,157 $0.54 $157,254 $0.62 $99,080 $0.39 REAL ESTATE TAXES/ASSMTS $939,025 $3.69 $966,638 $3.80 $1,148,574 $4.51 0THER $30,876 $0.12 $31,295 $0.12 $0 $0.00 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL REC0VERABLE EXPENSES $2,707,542 $10.64 $2,946,431 $11.58 $1,247,654 $4.90 N0N-REC0VERABLE EXPENSES PR0M0TI0NAL FUND $307,002 $1.21 $190,857 $0.75 $125,000 $0.49 ADMINISTRATI0N $0 $0.00 $0 $0.00 $0 $0.00 INSURANCE $0 $0.00 $0 $0.00 $0 $0.00 MANAGMENT FEE $0 $0.00 $0 $0.00 $0 $0.00 0THER $14,082 $0.06 $8,600 $0.03 $12,724 $0.05 LEGAL FEES $3,917 $0.02 $7,200 $0.03 $10,000 $0.04 PARKING $1,059,273 $4.16 $1,101,597 $4.33 $890,000 $3.50 GR0UND RENT $0 $0.00 $0 $0.00 $0 $0.00 BAD DEBT EXPENSE $0 $0.00 $25,000 $0.10 $0 $0.00 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL N0N-REC0VERABLE $1,384,274 $5.44 $1,333,254 $5.24 $1,037,724 $4.08 - ------------------------------------------------------------------------------------------------------------------------------------ T0TAL EXPENSES $4,091,816 $16.08 $4,279,685 $16.82 - ------------------------------------------------------------------------------------------------------------------------------------ NET 0PERATING INC0ME $693,564 $2.73 $1,100,112 $4.32 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <PAGE> INCOME APPROACH (continued) - ------------------------------------------------------------------------------- EXPENSES - RETAIL For the most part, expenses were stabilized based on historical operating history. However, following National City Bank's occupancy in early 1996, operating costs and recoveries have changed significantly. Costs are allocated to five major components; Parking Ramp, Saks Fifth Avenue (anchor), National City Bank office (levels 4 and 5), in-line retail (levels 1-3), and National City Bank retail (levels 1-3). Given the size of the parking ramp (490 vehicles), a percent of the property's tax and assessment is first allocated to the ramp with the remainder allocated to the remaining four components. The size of each component is presented below: Component GLA-sf ------------------------------------- Saks 118,338 NCB Office 70,308 NCB Retail 25,449 Other retail 40,385 ------------------------------ In-line Retail 136,142 ------------------------------------- Total GLA 254,480 EXPENSE RECOVERIES A brief discussion of the various recoveries are outlined below: Saks Fifth Avenue In addition to a base rent of $200,000 per year or $1.69 per square foot, Saks contributes to common area maintenance an amount equal to $1.00 per square foot for the first live years of their lease. After the fifth year, the rate shall be increased by the CPI. For this analysis. the 1997 budgeted figure of $158,172 or $1.34 per square foot of GLA was relied on. This common area contribution is applied to the general common area costs of the in-line retail component (levels 1-3), thereby reducing the expense burden for the in-line tenants. Saks does not pay a management fee or assessments. They pay approximately 41% of the development's tax based on the following formula: - ------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 231 - ------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- EXPENSE RECOVERIES (continued) <TABLE> <CAPTION> 1997 Tax and Assessment Calculation ------------------------------------------------------------------------------------- Ramp Saks Retail Total ------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Allocated Improvement Value (1) $3,000,000 $1,166,310 $863,690 $5,030,000 Add: Allocated Land Value (2) $0 $5,400,729 $5,569,271 $l0,970,000 ------------------------------------------------------------------------------------- Total $3,000,000 $6,567,039 $6,432,96l $l6,000,000 x Effective Tax Rate 6.530% 6.530% 6.530% 6.530% ------------------------------------------------------------------------------------- Allocated Taxes $195,903 $428,833 $420,078 $1,044,814 Add Special Assessments (3) $19,455 $84,305 $103,760 ------------------------------------------------------------------------------------- Total Taxes and Assessments $215,358 $428,833 $504,383 $l,148,574 ------------------------------------------------------------------------------------- (1) Value Allocation ------------------------------------------------------------------------------------- Total Assessed Value $16,003,000 Less: Land Value $10,970,000 -------------------------------------------------------- Improvement Value $5,430,000 Less: Ramp Value per Assessor - Est. $3,000,000 -------------------------------------------------------- Remainder Improvement Value (a) $2,030,000 ------------------------------------------------------------------------------------- Original % of x Remainder =Allocated Cost Total Value (a) Imp. Value ------------------------------------------------------------------------------------- Saks $6,569,010 57.5% $2,030,000 $1,166,310 Retail $4,864,563 42.5% $2,030,000 $863,690 ------------------------------------------------------------------------------------- Total $11,433,573 100.0% $2,030,000 </TABLE> <TABLE> <CAPTION> (2) Land Value Allocation ---------------------------------------------------------------------------------------------------- x Assessed = Allocated GLA Total GLA =Percent Land Value Land Value ---------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Saks 118,338 240,369 49.2% $10,970,000 $5,400,729 Retail 122,031 240,369 50.8% $10,970,000 $5,569,271 ---------------------------------------------------------------------------------------------------- Totals (GLA prior to NCB) 240,369 100.0% $10,970,000 ---------------------------------------------------------------------------------------------------- </TABLE> (3) Special Assessments -------------------------------------------------------------------------- Total Assessments $103,760 Less: Ramp Share of Tax (a) 18.8% -------------------------------------------------------------------------- Ramp Assessment $19,455 Remainder to Retail $84,305 (a) -------------------------------------------------------------------------- Ramp Value $3,000,000 / Total Value $16,000,000 -------------------------------------------------------------------------- Percent of Total 18.8% -------------------------------------------------------------------------- In-Line Tenants The standard recovery is outlined as follows: In-Line Tenants Over Gross Expense Recovery After Area Up to --------------------------------------------------------------------- Operating Expenses: Pro-rata Anchor Contribution In-line 90% NCB Contribution In-line 90% Real Estate Taxes: see below In-line Special Assessments: see below In-line Management Fee: 4% of in-line & Sak's EGI In-line - ------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 232 - ------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- EXPENSE RECOVERIES (continued) Saks CAM contribution ($158,000) and National City Bank's share of the common area costs ($127,000) are credited to the In-line common area expense prior to recovery. Real Estate Taxes and Assessments to the in-line area are based on the following formula. In-Line Tax & Assessment Calculation - -------------------------------------------------------------------------------- Total Property Tax and Assessment $1,148,574 Less. Parking Ramp Allocation $215,358 - -------------------------------------------------------------------------------- Subtotal $933,216 / Area (Adj. Saks + Retail) 244,696 - -------------------------------------------------------------------------------- In-line tax per square foot $3.81 x In-Line area 65,834 - -------------------------------------------------------------------------------- In-line tax/assessment allocation $251,076 % of Total 21.9% - -------------------------------------------------------------------------------- According to management, the adjusted GLA of 244,696 square feet does not include 9,784 square feet of Saks' mezzanine space. National City Bank - Office National City Bank pays their pro-rata share of office related expenses. Since they occupy 100% of the office floors, these expenses are fully recovered. They pay a management fee of $0.60 per square foot growing at CPI and office allocated real estate taxes and assessments based on the following formula: NCB's Tax Allocation calculation -------------------------------------------------------------------------- $ % of Total -------------------------------------------------------------------------- Total Tax $1,044,814 100.0% Less: Ramp Tax $195,903 18.75% -------------------------------------------------------------------------- Subtotal $848,911 81.25% /Adjusted GLA 244,696 -------------------------------------------------------------------------- Office Rate/sf (floors 4-5) 3.47 23.35% Retail Rate/sf (floors 1-3) 3.47 23.35% -------------------------------------------------------------------------- NCB's Assessment Allocation -------------------------------------------------------------------------- $ % of Total -------------------------------------------------------------------------- Total Assessment $103,760 100.0% Less: Ramp Assessment $19,455 18.75% -------------------------------------------------------------------------- Subtotal $84,305 81.25% Divide GLA 244,696 -------------------------------------------------------------------------- Office Rate/sf (floors 4-5) 0.34 23.35% Retail Rate/sf (floors 1-3) 0.34 23.35% -------------------------------------------------------------------------- National City Bank - Retail This recovery is identical to the in-line recovery except that the management fee is $0.60 per square foot and the taxes and assessments are based on the National City Bank formula. The owner can gross up the operating expenses by the greater of 95% or the occupied area. A breakdown of the stabilized expense estimates by component is offered on the following page: - ------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 233 - ------------------------------------------------------------------------------- <PAGE> - -------------------------------------------------------------------------------- INCOME APPROACH (continued) - -------------------------------------------------------------------------------- EXPENSE RECOVERIES (continued) <TABLE> <CAPTION> 1997 PROJECTED EXPENSES - ------------------------------------------------------------------------------------------------------------------------------------ NCB NCB In-Line EXPENSE Office Retail Retail Saks Notes - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> CLEANING $106,596 IN-LINE RECOVERY $156,592 ELECTRICAL MAINTENANCE $0 IN-LINE RECOVERY $13,800 PLUMBING MAINTENANCE $2,400 IN-LINE RECOVERY $3,000 HVAC $44,076 IN-LINE RECOVERY $64,572 ELEV. & ESCALATORS $42,462 IN-LINE RECOVERY $41,784 SECURITY AND SAFETY $15,540 IN-LINE RECOVERY $124,678 LANDSCAPING & GROUNDS $0 IN-LINE RECOVERY $0 GENERAL BLDG COSTS $25,956 IN-LINE RECOVERY $316,095 COMMON AREA COSTS $127,578 IN-LINE RECOVERY Saks Contribution to retail ($158,172) $158,172 Saks CAM Contribution is $158,172 for 1997 NCB Office Contribution to retail ($127,578) NCB's 15% share of CAM is credited to in-line retail REPAIRS AND MAINT. $48,568 IN-LINE RECOVERY $141,934 LOADING DOCK $30,192 IN-LINE RECOVERY $27,864 COMM. CENTER $29,028 IN-LINE RECOVERY $32,712 ENERGY COSTS $75,080 IN-LINE RECOVERY $139,377 WATER AND SEWER $3,000 IN-LINE RECOVERY $3,600 ADMINISTRATION $42,170 IN-LINE RECOVERY $135,236 INSURANCE $9,843 IN-LINE RECOVERY $19,092 MANAGEMENT FEES $42,185 $15,269 4% on all GLA NCB pays mgmt fee of $0.60/sf growing at CPI REAL ESTATE TAXES $213,033 $77,110 $365,211 $375,627 See Calculation SPECIAL ASSESSMENTS $23,905 $8,653 $84,305 $0 See Calculation - ------------------------------------------------------------------------------------------------------------------------------------ AFFECTED AREA-SF 70,308 25,449 65,834 118,338 Floors 4-5 Floors 1-3 Floors 1-3 Saks - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> For this exercise, no operating cost recoveries were grossed up. Given the number of tenants on percentage rent only deals, and the extraordinarily high operating costs at the property, any additional expense burden was considered counter-productive. Several expense items require additional attention including insurance, promotion, taxes and management fees. According to the property manager, Brookfield maintains a master insurance policy that includes both Gaviidae developments, the Dain Bosworth Office tower, the City Center Development as well as other property they own. The premium rates are below market. For this exercise, the in-line retail insurance premium was estimated at $0.29 per square foot of leasable area based on the median costs reported by Dollars and Cents of Shopping Centers-1995. The office premium was estimated at $0.14 per square foot based on the median costs reported by IREM. - ------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 234 - ------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- EXPENSE RECOVERIES (continued) A management fee equal to 4% of effective gross income was considered reasonable based on discussions with two firms specializing in retail property management. Both felt that a lower fee would generally be warranted if the properties were performing well. However, with a number of percentage rent only deals, total gross income will be lower. As such, a slightly higher management fee is projected. This fee structure assumes that all other costs (administrative and management) would be passed back to the property, not deducted from the management fee. Due to the complicated recovery structure, a management fee (based on a percent of EGI) could not be applied using the Argus Financial Software program for the discounted cash flow model. According to Argus technical support staff, a percent based management fee is applied to all revenues and recoveries. Certain tenants or groups of tenants cannot be omitted. As such, the inline management fee cannot be calculated in this manner or it would include a management fee on National City Bank revenue. For this exercise, a management fee of $1.50 per square foot was relied on. This represents approximately 4% of effective gross income (not including National City Bank). This was applied only to the in-line tenant area. Brookfield has budgeted $380,000 for promotion and marketing in 1997. Each Gaviidae property is allocated approximately $190,000. This covers the landlord incurred costs of marketing, promotion and advertising. The costs equate to approximately $1.40 per square foot on Gaviidae I and $2.73 per square foot on Gaviidae II (in-line area only). In addition to advertising, television, and radio promotion, the costs also cover 2.5 on-site employees plus an allocation of the promotion manager's compensation. Historical costs are outlined below: 1994 1995 1996 Budget 1997 -------------------------------------------------------------------- Gaviidae I $325,463 $327,415 $307,002 $190,857 Gaviidae II $264,590 $167,309 $286,156 $189,147 -------------------------------------------------------------------- Total Promotion $590,053 $494,724 $593,158 $380,004 Total Cost/sf $2.87 $2.40 $2.88 $1.85 -------------------------------------------------------------------- It should be noted that very few tenants contribute to the promotional fund. From discussions with other retail owners and managers, this is becoming more commonplace. Many of the national or large regional tenants don't want to participate in the fund given that they already have their own advertising campaign. One person who is familiar with the property felt that a reasonable promotional budget should be in the $0.50 per square foot range. He speculated that with many tenants likely on percentage rent only deals, no amount of promotional spending will likely increase sales. This is particularly the case in Downtown Minneapolis where virtually all sales are generated during the weekdays. With essentially only two levels of retail space at Gaviidae I, promotional expenses were stabilized at $125,000. For Gaviidae II, a figure of $15O,000 was relied on. Based on the Income Approach to value estimate of $12,000,000, the subject's assessed value is considered above market. As of January 2, 1996 and January 2, 1997, the subject's assessed value has remained at S16,000,000. According to Brookfield, a protest will be filed on the January 2, 1996 assessment by March 15, 1997. - ------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 235 - ------------------------------------------------------------------------------- <PAGE> - -------------------------------------------------------------------------------- INCOME APPROACH (continued) - -------------------------------------------------------------------------------- EXPENSE RECOVERIES (continued) Because the Final Market Value Estimate of the subject property, as arrived at in this report, is lower than the assessed market value, an adjustment to the value and subsequent tax payments must be made. A prospective buyer would anticipate a value and tax decrease somewhere between the assessed market value and the purchase price. Assuming a market value indication from the Income Approach of $12,000,000, the subject property is over valued for tax purposes as of the January 2, 1997 assessor's value estimate. The market value estimate presumes a sale as of March 1, 1997. If this were to occur, the buyer or seller would be required to file a Certificate of Real Estate Value divulging the sales price and terms of the transaction. This information is public data and is used by the assessor in tracking values. It is very likely that the assessor would react to the sale by increasing the assessed value to a point near the sale price. This would most likely establish the value as of January 2, 1998. Over the last several years, local assessors have come under pressure to keep assessed values between 90% and 100% of market value. This is due in part to the state sales ratio guideline which requires overall values to be in line with the market and the fact that most urban municipalities have an eroding commercial/industrial base. For this analysis, a stabilized assessed value of $12,500,000 was relied on. This is slightly above the Income Approach value estimate and slightly below the last negotiated settlement of $12,800,000 for taxes payable in 1996. For this exercise, the 1997 estimated tax of $1,044,814 was relied on for taxes payable in 1997. For taxes payable in 1998, this figure was increased by 3.5%. Based on the revised assessed value estimate in 1998, taxes payable in 1999 were estimated at $874,399. YIELD CAPITALIZATION ANALYSIS Several factors were considered in arriving at an appropriate range in yield rates. First, the subject property is one of the best located developments in the market. The property is positioned at the 100% corner of South 7th Street and the Nicollet Mall. Second, the property is improved with a 490 stall subterranean parking ramp with a projected 1997 NOI of approximately $720,000 (70% of total lst year NOI). The ramp is well occupied and commands some of the highest monthly and transient rates in the Downtown market. Third, National City Bank, a strong local credit tenant, occupies over 95,000 square feet of office and retail space through March, 2006. The tenant's contract rate is below market and the overall risk in subsequent turnover is considered very low. Fourth, despite under-performance relative to other Saks locations, the tenant has experienced several years of increasing sales. On an overall basis, the possibility of future upside exists should the retail market rebound. Given these factors, a discount rate in the 12% to 14% range is considered reasonable. Terminal Capitalization Rate - For this analysis a range of terminal capitalization rates of from 11.0% to 12.0% was relied on. The net operating income was capitalized by this range resulting in an estimated reversionary value. - ------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 236 - ------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- YlELD CAPITALIZATION ANALYSIS (continued) Gross sales proceeds are defined as expected selling price before all costs of sale and commissions. Since the seller typically pays all of the sales commissions, this amount will need to be deducted from the gross sales proceeds to arrive at the net sales proceeds. Sales Costs - A 1% sales commission was relied on which is consistent with the office tower. A copy of the ten year cash flow projection is located on the following pages. - ------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 237 - ------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- YIELD CAPITALIZATION ANALYSIS (Continued) - -------------------------------------------------------------------------------- GAVIIDAE I - SAKS FIFTH AVENUE DISCOUNTED CASH FLOW ANALYSIS - -------------------------------------------------------------------------------- INDICATED VALUE: $12,131,239 DIVIDE RENTABLE AREA-SF 254,480 - -------------------------------------------------------------------------------- INDICATED VALUE PER SQUARE FOOT: $47.67 GOING IN CAPITALIZATION RATE: 9.02% TERMINAL CAP RATE: 11.00% DISCOUNT RATE: 13.00% COSTS OF SALE: -1.0% PRESENT VALUE OF CASH FLOW: $7,205,593 % OF NPV 59.40% PRESENT VALUE OF RESIDENTIAL: $4,925,646 % OF NPV 40.60% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- =CASH FLOW X = YEAR CASH FLOW REVERSION(1) REVERSION PV FACTOR SUBTOTAL 1 $1,330,912 $0 $1,330,912 0.88 $1,177,798 2 $1,261,730 $0 $1,261,730 0.78 $988,120 3 $1,446,114 $0 $1,446,114 0.69 $1,002,230 4 $977,479 $0 $977,479 0.61 $599,506 5 $1,615,278 $0 $1,615,278 0.54 $876,708 6 $1,641,278 $0 $1,641,278 0.45 $788,336 7 $1,598,634 $0 $1,598,634 0.43 $679,516 8 $1,452,280 $O $1,452,280 0.38 $546,289 9 $1,500,860 $0 $1,500,860 0.33 $499,614 10 $161,155 $16,720,438 $16,881,596 0.29 $4,973,122 - -------------------------------------------------------------------------------- NET PRESENT VALUE $12,131,239 (1) AVG. NET OPERATING INCOME-YR 9-13 $1,873,466 DIVIDE TERMINAL CAPITALIZATION RATE / 11.00% - -------------------------------------------------------------------------------- REVERSIONARY SALE PROCEEDS $17,031,513 LESS: 11TH YEAR TENANT IMPROVEMENTS ($116,843) LESS: 11TH YEAR COMMISSIONS/RESERVE ($25,338) - -------------------------------------------------------------------------------- SUBTOTAL $16,889,332 LESS: COSTS OF SALE ($168,893) - -------------------------------------------------------------------------------- NET REVERSIONARY PROCEEDS $16,720,438 - ------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 239 - ------------------------------------------------------------------------------- <PAGE> INCOME APPROACH (continued) - -------------------------------------------------------------------------------- YIELD CAPITALIZATION ANALYSIS (continued) The following pricing matrix has been calculated based on the discounted cash flow model found on the preceding page. The matrix displays the range of net present value as a function of both the yield rate or internal rate of return and the terminal capitalization rate. <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------- TERMINAL CAPITALIZATION RATES 10.00% 10.50% 11.00% 11.50% 12.00% - ---------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> I 12.00% $13,421,979 $13,137,610 $12,879,093 $12,643,056 $12,426,689 R R 12.50% $13,016,573 $12,744,594 $12,497,339 $12,271,585 $12,064,644 R 13.00% $12,627,950 $12,367,768 $12,131,239 $11,915,278 $11,717,313 A T 13.50% $12,255,302 $12,O06,357 $11,780,044 $11,573,409 $11,383,995 E S 14.00% $11,897,864 $11,659,625 $11,443,044 $11,245,296 $11,064,027 - ---------------------------------------------------------------------------------------- </TABLE> ================================================================================ Estimated Market Value by Yield Capitalization, $12,000,000 ================================================================================ - ------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 240 - ------------------------------------------------------------------------------- <PAGE> SUMMARY AND CONCLUSIONS - -------------------------------------------------------------------------------- The appraisers are aware of Standard Rule 1-4E of the Uniform Standards of Professional Appraisal Practice which states, ". . . an appraiser must consider and analyze the effect on value, if any, of the assemblage of various estates or component parts of a property and refrain from estimating the value of the whole solely by adding together the individual values of the various estates or component parts". It should be noted that the sum of the parts does not necessarily equal the whole. However, both portions of the subject properties are owned and controlled by Brookfield interests, and it is believed that prudent ownership would most probably dictate they be marketed as one conjoined property. Most buyers would therefore also probably add the separate component values or prices together in formulating a purchase decision and offer. Individual valuations of the two Gaviidae segments were necessary given the physical separation and the established expense reimbursement formulas. Despite the fact that Gaviidae I and Gaviidae II/Dain Plaza are separate properties, they operate synergistically with each other from both a management and leasing standpoint. Following the National City Bank build-out, several Gaviidae I tenants moved or were relocated to Gaviidae II. The department stores also serve as the anchors to both in-line retail components. As such, it is our opinion that individual market values should be added together to arrive at a total property value. Given the degree of obsolescence present in each development, the Cost Approach value estimates were given very little weight in arriving at an individual property value estimate. The Office Sales Comparison Approach value estimate of S85,O0O,OOO supports the $87,OOO,0OO value estimate arrived at in the Income Approach. For the subject properties, the Income Approach to value was given the greatest consideration. The Income Approach considers each property as a capital investment from which a desired return of money in the form of both capital recapture and interest, or profit, is expected. It is the basis upon which investors place greatest emphasis as they make deliberate decisions to buy or sell real estate in the everyday marketplace. It is the property's ability to generate and return a specific desired income level that is more often than not the critical factor in determining its value in the open market. Based on the Final Value Estimates arrived at in the Income Approach sections of this report, a total market value of $98,000,000 has been estimated for both developments based on the following allocations: Component $ - -------------------------------------------------------------------------------- Dain Plaza - Gaviidae II $86,000,000 Gaviidae I - Saks $12,000,000 - -------------------------------------------------------------------------------- Total Estimated Market Value $98,000,000 From this evidence and reasoning then, it is the appraisers' opinion that the market evidence best substantiates a Market Value for the Gaviidae I and Gaviidae II/Dain Plaza developments as of March 1, 1997 of: NINETY EIGHT MILLION DOLLARS $98,000,000 =========== - ------------------------------------------------------------------------------- GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC. PAGE 241 - ------------------------------------------------------------------------------- COMPLETE APPRAISAL TRANSMITTED IN A SELF-CONTAINED APPRAISAL REPORT C97-604 OF THE NOB HILL APARTMENTS LOCATED AT 5410 NORTH BRAESWOOD HOUSTON, HARRIS COUNTY, TEXAS FOR MR. ERNIE IRIARTE VICE PRESIDENT L. J. MELODY & CO. 4675 MACARTHUR COURT, SUITE 1425 NEWPORT BEACH, CALIFORNIA 92660 BY PATRICK O'CONNOR AND ASSOCIATES, INCORPORATED D.B.A. O'CONNOR AND ASSOCIATES 2000 NORTH LOOP WEST, SUITE 110 HOUSTON, TEXAS 77018 (713) 686-9955 EFFECTIVE DATE OF THE APPRAISAL AUGUST 7, 1997 <PAGE> Letter of Transmittal Executive Summary Table of Contents <PAGE> [O'Connor & Associates Letterhead] August 12, 1997 Mr. Ernie Iriarte Vice President L. J. Melody & Company 4675 MacArthur Court, Suite 1425 Newport Beach, California 92660 Reference: The Nob Hill Apartments, encompassing a total of +/-38.1796 acres (+/-1,663,103 square feet) of land and 1,326 apartment units located at the intersection of North Braeswood Boulevard and Burdine Drive. The subject property has a primary physical address of 5410 North Braeswood, Houston, Harris County, Texas. (Key Map: 531-T) Dear Mr. Iriarte: At your request, we have prepared a complete appraisal for the purpose of estimating the "As Is" Market Value of the Fee Simple Estate (subject to short term leases) in the above referenced property. The value estimate concluded to herein is subject to the assumptions and contingent and limiting conditions contained within both the body of this self-contained appraisal report and the addenda. The effective date of this appraisal is August 7, 1997, which is the date of our final physical inspection of the property. Inspection of the property, and the analyses that form the basis for our value conclusions were made by the undersigned. This report has been prepared in compliance with the Code of Professional Ethics of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP). <PAGE> Mr. Ernie Iriarte August 12, 1997 Page 2 O'Connor and Associates is a professional real estate appraisal and consulting firm, providing service to a variety of corporate, institutional, governmental and private clientele. In the past twelve (12) months our firm has completed numerous valuation assignments involving similarly improved properties. We are not qualified to detect or identify hazardous substances which may, or may not be present on, in, or near this property. The presence of hazardous materials may negatively affect value. We have valued the subject property as though free of hazardous materials. We urge the user of this report to obtain the services of a specialist for the purpose of conducting an environmental audit to ensure that the subject property is free of hazardous materials. Based on our investigation of the available market data, including sales of similar properties (see Sales Comparison Approach-Improved) and conversations with brokers and individuals active in the local area, the time that would be required to effectively expose the subject property to the market is estimated to be twelve (12) months. Attached is our self-contained appraisal report which describes the investigation and analyses undertaken in arriving at our value estimate. As such, the "As Is" Market Value of the subject property, as of August 7, 1997, is as follows: FORTY-FIVE MILLION THREE HUNDRED THOUSAND DOLLARS $45,300,000 Respectfully submitted, O'CONNOR & ASSOCIATES /s/ Ross P. Welshimer /s/ Patrick C. O'Connor - -------------------------- ------------------------------- Ross P. Welshimer Patrick C. O'Connor, MAI State Certified Real Estate Appraiser State Certified Real Estate Appraiser TX-1324328-G TX-1321378-G /s/ W. F. Trotter, Jr. - -------------------------- W. F. Trotter, Jr. State Certified Real Estate Appraiser TX-1322606-G Associate Member of the Appraisal Institute <PAGE> TABLE OF CONTENTS I. PREFACE Title Page I Letter of Transmittal II Table of Contents IV Certification of Appraisal VI Assumptions and Limiting Conditions VIII Summarization of Important Data and Conclusions XII II. METHODOLOGY AND PROCEDURES IN THE APPRAISAL PROCESS The Appraisal Process 1 III. DESCRIPTIONS, ANALYSES, & CONCLUSIONS 11 Definitions of Value 11 Purpose of Appraisal 14 Use of Appraisal 14 Effective Date of Appraisal 15 Appraisal Development and Reporting Process 15 Legal Description 16 Ownership History 16 Houston Area Data 17 Neighborhood Data 36 Site Data 46 Improvement Data 53 Property Taxes 63 Zoning and Restrictions 65 Apartment Market Analysis 66 Highest and Best Use Analysis 81 C97-604 O'Connor & Associates IV <PAGE> TABLE OF CONTENTS B. SALES COMPARISON APPROACH-LAND VALUATION 88 Comparable Land Sales 89 Analysis of Comparable Land Sales 94 Land Grid Analysis 98 Final Estimate of Land Value 99 COST APPROACH TO VALUE 100 Estimate of Replacement Cost New 103 Depreciation 104 Final Estimate of Value via the Cost Approach to Value 108 SALES COMPARISON APPROACH 109 Comparable Improved Sales 110 Analysis of Improved Sales 125 Final Estimate of Value via the Sales Comparison Approach 133 INCOME APPROACH TO VALUE 134 Rent Comparables 138 Estimate of Market Rent 153 Expense Analysis 169 Net Operating Income 174 Direct Capitalization 175 Effective Gross Income Multiplier Analysis 180 Discounted Cash Flow Analysis 182 Final Estimate of Value via the Income Approach 191 RECONCILIATION AND FINAL VALUE ESTIMATE 192 EXHIBITS C97-604 O'Connor & Associates V <PAGE> CERTIFICATION OF APPRAISAL We certify that, to the best of our knowledge and belief, ... (1) The statements of fact contained in this report, upon which the analysis, opinions and conclusions expressed herein are based, 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, unbiased professional analyses, opinions and conclusions. (3) We have no present or prospective interest in the property that is the subject of this appraisal report, and we have no personal interest or bias with respect to the parties involved. (4) Our compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or use of, this report; our compensation is not contingent upon a predetermined value, or direction in value, or finding that favors the cause of the client, the amount of value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. (5) Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice as promulgated by the Appraisal Institute, and the Code of Professional Ethics of the Appraisal Institute. (6) The use of this report is subject to the requirements of the Appraisal Institute relating to review by their duly authorized representatives. (7) Ross P. Welshimer has performed an interior and exterior inspection of the subject property. W. F. Trotter, Jr. and Patrick C. O'Connor, MAI have performed exterior inspections of the subject property. (8) No one provided significant professional assistance to the persons signing this report. (9) This assignment was not based upon a requested minimum value, a specific valuation, or the approval of a loan. (10) Patrick O'Connor is an MAI Member of the Appraisal Institute. Ross P. Welshimer and W. F. Trotter, Jr. are Associate Members of the Appraisal Institute. The bylaws and regulations of the Institute require each member to control the use and distribution of each report signed by such member. C97-604 O'Connor & Associates VI <PAGE> (11) The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. (12) As of the date of appraisal, Patrick C. O'Connor, MAI has completed the requirements under the continuing education program of the Appraisal Institute. Based on the preceding investigations and the analyses of the subject property, and subject to the attached definitions, assumptions, and limiting conditions, it is our opinion that as of the effective date of this appraisal, the "As Is" Market Value of the subject property, as of August 7, 1997 is as follows: FORTY-FIVE MILLION THREE HUNDRED THOUSAND DOLLARS $45,300,000 Respectfully submitted, O'CONNOR & ASSOCIATES /s/ Ross P. Welshimer /s/ Patrick C. O'Connor - -------------------------- ------------------------------- Ross P. Welshimer Patrick C. O'Connor, MAI State Certified Real Estate Appraiser State Certified Real Estate Appraiser TX-1324328-G TX-1321378-G /s/ W. F. Trotter, Jr. - -------------------------- W. F. Trotter, Jr. State Certified Real Estate Appraiser TX-1322606-G Associate Member of the Appraisal Institute C97-604 O'Connor & Associates VII <PAGE> ASSUMPTIONS AND LIMITING CONDITIONS This appraisal is subject to the following assumptions and limiting conditions: 1) No survey of the subject property was undertaken and the appraiser(s) assume no responsibility associated with such matters. 2) The value estimate assumes responsible ownership and competent management. The subject property is assumed to be free and clear of all liens, except as may be otherwise herein described. No responsibility is assumed by the appraiser(s) for matters legal in character, nor is any opinion on the title rendered, which is assumed to be good and marketable. 3) The information contained herein has been gathered from sources deemed to be reliable, but the appraiser(s) assume no responsibility for its accuracy. Correctness of estimates, opinions, dimensions, sketches and other exhibits which have been furnished and have been used in this report are not guaranteed. 4) The value estimate rendered herein is considered reliable and valid only as of the date of the appraisal, due to rapid changes in the external factors that can significantly affect the property value. The final estimate of market value is expressed in terms of the current purchasing power of the dollar. 5) Any leases, agreements or other written or verbal representations and/or communications and information received by the appraiser(s) have been reasonably relied upon in good faith but have not been analyzed for their legal implications. We urge and caution the user of this report to obtain legal counsel of his/her own choice to review the legal and factual matters, and to verify and analyze the underlying facts and merits of any investment decision in a reasonably prudent manner. 6) Appraiser(s) assume no responsibility for any hidden agreements known as "side letters", which may or may not exist relative to this property, which have not been made known to us, unless specifically acknowledged within this report. 7) This report is to be used in whole, and not in part. Any separate valuation for land and improvements shall not be used in conjunction with any other appraisal and is invalid if so used. Possession of this report or any copy thereof does not carry with it the right of publication nor may the same be used for any purpose by anyone but the client without the previous written consent of the appraiser(s), and in any event, only in it entirety. 8) The appraiser(s), by reason of this report, are not required to give testimony in court with reference to the property appraised unless notice and proper arrangements have been previously made therefore. C97-604 O'Connor & Associates VIII <PAGE> Assumptions and Limiting Conditions - Continued 9) Neither all nor any part of the contents of this report shall be conveyed to the public through advertising, public relations, news, sales or other media without prior written consent and approval of the author. 10) No subsoil data or analysis based on engineering core borings or other tests were furnished to us. We have assumed that there are no subsoil defects present that would impair development of the land to its maximum permitted use, or would render it more or less valuable. No responsibility is assumed for engineering which might be required to discover such factors. 11) The construction and physical condition of the improvements described herein are based on visual inspection. No liability is assumed by the appraiser(s) for the soundness of structural members since no engineering tests were conducted. No liability is assumed for the condition or adequacy of mechanical equipment, plumbing or electrical components. No responsibility is assumed for engineering which might be required to discover such factors. We urge the user of this report to retain an expert in this field. 12) Unless otherwise stated in this report, the existence of hazardous substances, including without limitation asbestos, polychlorinated byphenyls, petroleum leakage, or agricultural chemicals, which may or may not be present in or on the property, or other environmental conditions were not called to the attention of the appraiser(s) nor did the appraiser(s) become aware of such during the appraiser(s) inspection. The appraiser(s) have no knowledge of the existence of such materials on or in the property unless otherwise stated. The appraiser(s), however, are not qualified to test such substances or conditions. If the presence of such substances as asbestos, urea formaldehyde, foam insulation or other hazardous substance or environmental conditions may affect the value of the property, the value estimate is predicated on the assumption that there is no such condition on or in the property or in such proximity thereto as to cause a loss in value. No responsibility is assumed for any such conditions, nor for any expertise or engineering knowledge required to detect or discover them. We urge the user of this report to retain an expert in the field of environmental impacts on real estate if so desired. 13) The projections of income, expenses, terminal values or future sales prices are not predictions of the future, rather, they are the best estimate of current market thinking of what future trends will be. No warranty or representation is made that these projections will materialize. The real estate market is constantly changing. It is not the task of the appraiser(s) to estimate the conditions of a future real estate market, but rather to reflect what the investment community envisions for the future, and upon what assumptions of the future investment decisions are based. C97-604 O'Connor & Associates IX <PAGE> Assumptions and Limiting Conditions - Continued 14) The client or user of this report agrees to notify the appraiser(s) of any error, omission or inaccurate date contained in the report within 15 days of receipt, and return the report and all copies thereof to the appraiser(s) for correction prior to any use. 15) The acceptance of this report, and its subsequent use by the client or any other party in any manner whatsoever for any purpose, is acknowledgement by the user that the report has been read and understood, and specifically agrees that the data and analyses, to their knowledge, are correct and acceptable. 16) The appraisal assignment was not based upon a requested minimum valuation, a specific valuation, or the approval of a loan. 17) We have not made a specific compliance survey to determine if the subject property is in compliance with the American Disabilities Act (ADA). It is possible that compliance survey of the subject property, together with a detailed analysis of the requirements of the ADA could reveal that the subject property is not in compliance with the Act. If so, this could have a negative effect upon the value of the subject property. Since we do not have any direct evidence relating to this issue, we did not consider possible noncompliance with the requirements of the ADA in estimating the value of the subject property. C97-604 O'Connor & Associates X <PAGE> ENVIRONMENTAL ASSUMPTIONS This appraisal is subject to the following environmental assumptions: 1) There is a safe, lead-free, adequate supply of drinking water. 2) The subject property is free of soil contamination. 3) There is no uncontaminated friable asbestos or other hazardous asbestos material on the property. 4) There are no uncontaminated PCB's on or near the property. 5) The radon level is at or below EPA recommended levels. 6) Any functioning underground storage tanks (UST's) are not leaking and are properly registered; any abandoned UST's are free from contamination and were properly drained, filled and sealed. 7) There are no hazardous waste sites on or near the subject property that negatively affect the value and/or safety of the property. 8) There is no significant UREA formaldehyde (UFFI) insulation or other UREA formaldehyde material on the property. 9) There is no flaking or peeling of lead-based paint on the property. 10) The property is free of air pollution. 11) There are no wetlands/flood plains on the property. 12) There are no other miscellaneous hazardous substances and/or detrimental environmental conditions on or in the area of the site (excess noise, radiation, light pollution, magnetic radiation, acid mine drainage, agricultural pollution, waste heat, miscellaneous chemical, infectious medical wastes, pesticides, herbicides, and the like). C97-604 O'Connor & Associates XI <PAGE> SUMMARY OF SALIENT FACTS AND CONCLUSIONS Property Name: Nob Hill Apartments Tax I.D. #'s: 041-088-000-0003; 041-088-000-0004; 041-088-000-0005; 041-088-000-0010; 041-088-000-0016; 041-088-000-0017; 041-088-000-0019 Key Map: 531-T Location: The subject property is located at the intersection of North Braeswood Boulevard and Burdine Drive. The subject property has a primary physical address of 5410 North Braeswood, Houston, Harris County, Texas. Additionally, the property fronts Braesvalley Drive and Braesmont Drive. Purpose of Appraisal: To estimate the "As Is" Market Value of the Fee Simple Estate, subject to assumptions and limiting conditions listed herein. Property Rights Appraised: Fee Simple Estate, subject to short term leases. Land Size: Three irregularly shaped tracts containing a total of +/-38.1796 acres (+/-1,663,103 square feet) of land. The tracts are effectively contiguous, separated only by roadway (see plat). Improvement Description: The subject property's improvements consist of a Class "B" apartment complex and supporting site improvements. The facility consists of two-story buildings, with a total net rentable area of 1,188,324 square feet (according to the rent roll provided). The project contains 1,326 master-metered units. Average Unit Size: 896 Square Feet Stabilized Occupancy: 93% (5% vacancy & collection loss + 2% employee/model units) C97-604 O'Connor & Associates XII <PAGE> SUMMARY OF SALIENT FACTS AND CONCLUSIONS - Continued Year of Construction: 1967-1970 Zoning: The City of Houston does not utilize zoning to regulate development. Utilities: All available Effective Date of the Appraisal: August 7, 1997 Flood Plain: According to FIRM map panel no. 48201C0865-J, published for Harris County and dated November 6, 1996, the large majority of the subject property is located in Zone AE, an area within the 100-Year Floodplain. Improvements located within the flood plain must be properly elevated. The north boundary appears to be in shaded Zone X, an area between the 100- and 500-Year Floodplains. A copy of this map is included in the Site Data section of this report. Highest and Best Use: As Vacant: Future multifamily development. As Improved: Its present multifamily use. Value Estimates: Land Value (As Vacant) $5,820,000 Cost Approach: $43,980,000 Sales Comparison Approach: $45,350,000 Income Approach: $45,250,000 Concluded Market Value: $45,300,000 Insurable Value: $47,640,000 Exposure Time/Marketing Time: Assuming adequate exposure and normal marketing efforts, the estimated exposure time (i.e. the length of time the subject property would have been exposed for sale in the market had it sold at the market value concluded to in this analysis as of the date of this valuation) would have been within about twelve (12) months; the estimated marketing time (i.e. the amount of time it would probably take to sell the subject property if exposed in the market beginning on the date of this valuation) is estimated to be within about twelve (12) months. C97-604 O'Connor & Associates XIII <PAGE> METHODOLOGY AND PROCEDURES USED IN THE APPRAISAL PROCESS An appraisal is defined as "the act or process of estimating value." (Appraisal of Real Estate, Eleventh Edition, Appraisal Institute). Real estate appraisal involves selective research into appropriate market areas; the assemblage of pertinent data; the use of appropriate analytical techniques; and the application of knowledge, experience, and professional judgement to develop an appropriate solution to an appraisal problem. The underlying principles in the appraisal process are supply/demand, anticipation, change, competition, substitution, opportunity cost, balance, contribution, surplus productivity, conformity, and externalities. As found in the Appraisal of Real Estate, Eleventh Edition, these principles are defined as follows: Supply and Demand "In economic theory, the principle of supply and demand states that the price of a commodity, good, or service varies inversely, but not necessarily proportionately, with demand, and directly, but not necessarily proportionately, with supply. In a real estate context, the appraisal principle of supply and demand states that the price of real property varies inversely, but not necessarily proportionately, with demand, and directly, but not necessarily proportionately, with supply. Thus, an increase in the supply of an item or a decrease in the demand for an item tends to reduce the equilibrium price; the opposite conditions produce an opposite effect. The relationship between supply and demand may not be directly proportional, but the interaction of these forces is fundamental to economic theory. The interaction of suppliers and demanders, or sellers and buyers, constitutes a market. "Usually, property values vary directly with changes in supply. If properties for a particular use become more abundant than they were in the past, their equilibrium value declines; by contrast, if properties become more scarce and supply declines relative to demand, the equilibrium price of the properties increases. The supply of and demand for commodities always tend toward equilibrium. At this theoretical point (which virtually never occurs), market value, price, and cost are equal." C97-604 O'Connor & Associates Page 1 <PAGE> Anticipation "Value is created by the anticipation of benefits to be derived in the future. In the real estate market, the current value of a property is usually not based on its historical prices or the cost of its creation; rather, value is based on market participants' perceptions of the future benefits of acquisition. "The value of owner-occupied residential property is based primarily on the expected future advantages, amenities, and pleasures of ownership and occupancy. The value of income-producing real estate is based on the income it will produce in the future. Therefore, real property appraisers must be aware of local, regional and national real estate trends that affect the perceptions of buyers and sellers and their anticipations of the future. Historical data on a property or the market are relevant only insofar as they help interpret current market anticipations." Change "The dynamic nature of the social, economic, governmental, and environmental forces that influence real property value accounts for change. Although change is inevitable and continuous, the process may be gradual and not easily discernible. In active markets, change may occur rapidly, with new properties put up for sale and others sold on a daily basis. Abrupt changes may be precipitated by plant or military base closures, tax law revisions, or the start of new construction. The pervasiveness of change is evident in the real estate market, where the social, economic, governmental, and environmental forces that affect real estate are in constant transition. Changes in these forces influence the demand for and supply of realty and, therefore, individual property values. Appraisers attempt to identify current and anticipated changes in the market that could affect current property values, but because change is not always predictable, value estimates may be valid only for a relatively brief period after the date specified in the appraisal report." Competition "Competition between buyers or tenants represents the interactive efforts of two or more potential purchasers or tenants to make a purchase or secure a lease. Between sellers or landlords, competition represents the interactive efforts of two or more potential sellers or landlords to effect a sale or lease. Competition is fundamental to the dynamics of supply and demand in a free enterprise, profit-maximizing, economic system. "Buyers and sellers of real property operate in a competitive market setting; in essence, each property competes with all other properties suitable for the same use in the particular market segment and often with properties from other market segments." Substitution "The principle of substitution states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price attracts the greatest demand and widest distribution. This principle assumes rational, prudent market behavior with no undue cost to delay. According to the principle of substitution, a buyer would not pay more for one property than for another that was equally desirable. C97-604 O'Connor & Associates Page 2 <PAGE> "Property values tend to be set by the cost of acquiring an equally desirable substitute property. The principle of substitution recognizes that buyers and sellers of real property have options, i.e., other properties are available for similar uses. The substitution of one property for another may be considered in terms of use, structural design, or earnings. The cost of acquisition may be the cost to purchase a similar site and construct a building of equivalent utility, assuming no undue cost due to delay; this is the basis of the cost approach. On the other hand, the cost of acquisition may be the price of acquiring an existing property of equal utility, again assuming no undue cost due to delay; this is the basis of the sales comparison approach. "The principle of substitution is equally applicable to properties such as houses, which are purchased for their amenity-producing attributes, and properties purchased for their income-producing capabilities. The amenity-producing attributes of residential properties include excellence of design, quality of workmanship, or superior construction materials. In regard to income-producing property, an equally desirable substitute might be an alternative investment property that produces equivalent investment returns with equivalent risk. The limits of property prices, rents, and rates tend to be set by the prevailing prices, rents and rates of equally desirable substitutes. The principle of substitution is fundamental to all three traditional approaches to value - sales comparison, cost, and income capitalization." Opportunity Cost "Opportunity cost is the net cost of opportunities not chosen or options foregone, denied, or lost. An investor who selects one investment forgoes the opportunity to invest in other available investments. An investor will select the investment that best meets his or her investment objectives. Some investors look for the highest rate of return at the lowest risk, while others seek the assurance of long-term growth at a more conservative rate of return. In addition to the illiquidity the investor endures over the term of the investment, there is a potential for opportunity cost if alternative investments at comparable levels of risk outperform the investment chosen." Balance "The principle of balance holds that real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium. This principle applies to relationships among various property components as well as the relationship between the costs of production and the property's productivity. Land, labor, capital, and entrepreneurship are the agents of production, but for most real property the critical combination is the land and the improvements. Economic balance is achieved when the combination of land and improvements is optimal -- i.e., when no marginal benefit or utility is achieved by adding another unit of capital. The law of increasing returns holds that increments in the agents of production added to a parcel of property produce greater net income up to a certain point. At this point, the point of decreasing or diminishing returns, the maximum value is achieved. Any additional expenditures will not produce a return commensurate with the additional investment, according to the law of decreasing returns. At the point of decreasing returns, further C97-604 O'Connor & Associates Page 3 <PAGE> increments in the agents of production will cause productivity to decline proportionately. This principle is also known as the principle of diminishing marginal productivity or law of diminishing returns." Contribution "The concept of contribution states that the value of a particular component is measured in terms of its contribution to the value of the whole property, or as the amount that its absence would detract from the value of the whole. The cost of an item does not necessarily equal its value. "In some cases, a property's market value may not increase even though the real estate has undergone alteration, modification, or rehabilitation. "The contribution of existing improvements may not be in proper balance with the total property. Especially in areas of rapid transition, a property's present use may underutilize the land. Nevertheless, an existing, less-than optimal use, called an interim use, will continue until it is economically feasible for a developer to absorb the costs of converting the property by either razing and replacing or rehabilitating the existing improvements." Surplus Productivity "Surplus productivity is the net income that remains after the costs of various agents of production have been paid. The classical economists identified the surplus with land rent, which they understood to account for land value. Traditionally, the principle of surplus productivity has provided the basis for the residual concept of land returns and residual valuation techniques. The principles of surplus productivity and residual returns to the land are useful in establishing the highest and best use of land and in analyzing which option among alternative land use options will yield the highest value. Some twentieth-century economists argue that surplus productivity should be ascribed to a different agent of production, i.e., the entrepreneurship required to combine the land, labor, and capital into a complete real estate product." Conformity "Conformity holds that real property value is created and sustained when the characteristics of a property conform to the demands of the market. The styles and uses of the properties in a given area may conform for several reasons, including economic pressures and the shared preferences of owners for certain types of structures, amenities, and services. The imposition and enforcement of zoning ordinances and plans by local governments to regulate land use may also contribute to conformity. Standards of conformity set by the market are subject to change. Zoning codes which tend to establish conformity in basic property characteristics such as size, style and design, are often difficult to change and may hasten the pace of obsolescence." C97-604 O'Connor & Associates Page 4 <PAGE> Externalities "The principle of externalities states that factors external to a property can have a positive effect on its value or a negative effect on its value. When an essential product or service affects a great number of people, it is often provided by government. "Real estate is affected by externalities perhaps more strongly than any other economic good, service or commodity. Because it is physically immobile, real estate is subject to many types of external influences. Externalities may refer to the use or physical attributes of properties located near the subject property or to the economic conditions that affect the market in which the subject property competes." C97-604 O'Connor & Associates Page 5 <PAGE> In arriving at a final value estimate for real property, an arduous and systematic process is undertaken. This process, as detailed in The Appraisal of Real Estate, Eleventh Edition, is set forth below. "The valuation process begins when an appraiser identifies the appraisal problem and ends when he or she reports a conclusion to the client. "Each real property is unique, and many different types of value can be estimated for a single property. The most common appraisal assignment is performed to estimate market value; the valuation process contains all the steps appropriate to this type of assignment. The model also provides the framework for estimating any other defined value. Consulting assignments often call for value estimates which are derived through application of the valuation process. "The valuation process is accomplished through specific steps; the number of steps followed depends on the nature of the appraisal assignment and the data available. The model indicates a pattern that can be used in any appraisal assignment to perform market research and data analysis, to apply appraisal techniques, and to integrate the results of these activities into an estimate of defined value. "Research begins after the appraisal problem has been defined. The analysis of data relevant to the problem starts with an investigation of trends observed at all market levels - international, national, regional, community, and neighborhood. This examination helps the appraiser understand the interrelationships among the principles, forces, and factors that affect real property value in the specific area. It also provides raw data from which to extract quantitative information and other evidence of market trends such as positive or negative percentage changes in property value over a number of years, the population movement into an area, and the number of employment opportunities available and their effect on the purchasing power of potential property users. These data can be analyzed and employed to estimate a defined value. "Traditionally, appraisal techniques are the specific procedures within the three approaches that are applied to derive indications of real property value. Other procedures, such as the use of inferential statistics and economic models also contribute to appraisals. One or more approaches to value may be used depending on their applicability to the particular appraisal assignment." C97-604 O'Connor & Associates Page 6 <PAGE> 1. The Cost Approach is based on the understanding that market participants relate value to cost. In the cost approach the value of a property is derived by adding the estimated value of the land to the current cost of constructing a reproduction or replacement for the improvements and then subtracting the amount of depreciation (i.e., deterioration and obsolescence) in the structures from all causes. Entrepreneurial profit may be included in the value indication. This approach is particularly useful in valuing new or nearly new improvements and properties that are not frequently exchanged in the market. Cost approach techniques can also be employed to derive information needed in the sales comparison and income capitalization approaches to value, such as the costs to cure items of deferred maintenance. 2. The Sales Comparison Approach is the process in which a market value estimate is derived by analyzing the market for similar properties and comparing these properties to the subject property. Estimates of market rent, cost, depreciation, and other value parameters may be derived in the other approaches to value using comparative techniques. Often these elements are also analyzed in the sales comparison approach to determine the adjustments to be made to the sales prices of comparable properties. The comparative techniques of analysis applied in the sales comparison approach are fundamental to the valuation process. In the sales comparison approach, market value is estimated by comparing the subject property to similar properties that have recently sold, are listed for sale, or are under contract (i.e., recently drawn up purchase offers accompanied by a cash or equivalent deposit). A major premise of the sales comparison approach is that the market value of a property is directly related to the prices of comparable, competitive properties. 3. In the Income Capitalization Approach, the present value of future benefits of property ownership is measured. A property's income streams and its resale value upon reversion may be capitalized into a present, lump-sum value. "In assignments to estimate market value, the ultimate goal of the valuation process is a well-supported conclusion that reflects all the factors that influence the market value of the property being appraised. To achieve this goal, the appraiser studies the property from three different viewpoints, which correspond to the three traditional approaches to value. "The three approaches are interrelated; each requires the gathering and analysis of sales, cost, and income data that pertain to the property being appraised...From the approaches applied, the appraiser derives separate indications of value for the property being appraised. One or more approaches may not be applicable to a specific assignment or may be less reliable due to the nature of the property, the needs of the client, or the data available." C97-604 O'Connor & Associates Page 7 <PAGE> The final step in the appraisal process involves the reconciliation of the values indicated by each of the applicable approaches into a final value conclusion. In this process the reliability of the value indications and the applicability of the approaches are explained. Reconciliation also provides an opportunity to resolve variations and inconsistencies among the value indications and the methods with which they were derived. The appraiser weighs the relative significant applicability and defensibility of the indication of value derived from each approach and places most weight and reliance on the one which in his professional judgment best approximates the value of the property. The facts are reconciled and their probable validity and reliability are reconciled to a final value estimate. "To complete the valuation process, the appraiser integrates the information drawn from market research and data analysis and from the application of approaches to form a value conclusion. This conclusion may be presented as a single point estimate of value or as a range within which the value may fall. An effective integration of all the elements in the process depends on an appraiser's skill, experience, and judgment." C97-604 O'Connor & Associates Page 8 <PAGE> An outline of the valuation process is presented below. I. Definition of the Problem A. Identification of real estate B. Identification of property rights to be valued C. Use of appraisal D. Definition of Value E. Date of Value Estimate F. Description of Scope of Appraisal G. Other limiting conditions II. Preliminary Analysis and Data Selection and Collection A. General 1. Social 2. Economic 3. Government 4. Environmental B. Specific (Subject and Comparables) 1. Site and improvements 2. Cost and Depreciation 3. Income/expense and capitalization rate 4. History of ownership and use of property C Competitive Supply and Demand (The subject market) 1. Inventory of competitive properties 2. Sales and listings 3. Vacancies and offerings 4. Absorption rates 5. Demand studies III. Highest and Best Use Analysis A. Land as though vacant B. Property as improved IV. Land Value Estimate V. Application of the Three Approaches A. Cost B. Sales Comparison C. Income Capitalization VI. Reconciliation of Value Indications and Final Value Estimate VII. Report of Defined Value C97-604 O'Connor & Associates Page 9 <PAGE> Approaches applicable to this appraisal In the following pages, the report will be segregated into six major categories. The first section covers general considerations, such as Region, City and Neighborhood Data, description of site and improvements, and the Highest and Best Use. The Second Section will deal with the land analysis and arrives at an estimate of land value. This section is then followed by the three (3) approaches to value, the Cost Approach, Sales Comparison Approach, and the Income Approach. In the last section, the estimates of value are then correlated and reconciled in the Final Reconciliation Section at the end of the report, just preceding the Final Value Estimate Competency of the Appraisers Ross P. Welshimer, W. F. Trotter, Jr., and Patrick C. O'Connor, MAI are Certified Real Estate Appraisers with the State of Texas, and have appraised numerous properties similar to the subject. Your attention is invited to the following descriptions and analyses that form, in part, our opinion of value for the subject property. C97-604 O'Connor & Associates Page 10 <PAGE> DESCRIPTIONS, ANALYSES, AND CONCLUSIONS GENERAL CONSIDERATIONS Definitions of Value and Ownership The following are definitions of Value and Ownership rights that will be referred to in the following analyses. Complete Appraisal As defined by the Appraisal Standards Board of the Appraisal Foundation, a Complete Appraisal is defined as follows; "The act or process of estimating value or an estimate of value performed without invoking the Departure Provision." Self-Contained Appraisal Report As defined by the Appraisal Standards Board of the Appraisal Foundation, a Self Contained Appraisal Report is defined as follows: "A written report prepared under standards Rule 2-2(a) of a Complete or Limited Appraisal performed under Standard 1." C97-604 O'Connor & Associates Page 11 <PAGE> Market Value Market Value is defined by the OCC, Regulation 12 CFR, part 34 as being "the most probable price which a property will bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, 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 each acting in what he considered his own best interest; 3. A reasonable time is allowed for exposure in the open market; 4. Payment is made in terms of cash in U. S. 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." The value conclusions in this report are expressed in terms of cash. Exposure Time/Marketing Time Assuming adequate exposure and normal marketing efforts, the estimated exposure time (i.e. the length of time the subject property would have been exposed for sale in the market had it sold at the market value concluded to in this analysis as of the date of this valuation) would have been within about twelve (12) months; the estimated marketing time (i.e. the amount of time it would probably take to sell the subject property if exposed in the market beginning on the date of this valuation) is estimated to be within about twelve (12) months. C97-604 O'Connor & Associates Page 12 <PAGE> Market Rent Market Rent is defined by The Dictionary of Real Estate Appraisal as "the rental income that a property would most probably command in the open market." Ownership Rights The holding of rights or interest in real estate is referred to as ownership rights. As defined by The Appraisal of Real Estate, Eleventh Edition, the following are definitions of ownership interest applicable to our investigation. Fee Simple Estate This bundle of ownership rights refer to the "absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by governmental powers of taxation, eminent domain, police power, and escheat." Leased Fee Estate The leased fee interest refers to "an ownership interest held by a landlord with specified rights that include the right of use and occupancy conveyed by lease to others; the rights of lessor (the leased fee owner) and lessee (leaseholder) are specified by contract terms contained within the lease." Property Rights Appraised The property rights appraised in this assignment are the Fee Simple Estate (subject to short-term leases) in the subject property. C97-604 O'Connor & Associates Page 13 <PAGE> Assets Appraised The assets appraised in this appraisal assignment include land, buildings, and ancillary site improvements. No moveable equipment or personal property, other than appliances typically provided by the landlord in a multifamily setting, was included in the valuation process. No title policy was submitted to the appraiser and reservations, if any, are unknown. If property rights differ from the above definitions, the value may be affected. We reserve the right to modify our value conclusions should a current title policy or survey indicate adverse easements or encroachments not visible during our inspection. Purpose of Appraisal The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate, subject to short term leases. Use of the Appraisal The use of this appraisal is understood to be for loan decisions in association with the re-financing of the property. The development of this appraisal entailed the use of the complete appraisal process as defined by the Uniform Standards of Professional Appraisal Practice. This means that no departures from Standard 1 were invoked. Date of the Appraisal Report The writing of this appraisal report was completed on August 12, 1997. C97-604 O'Connor & Associates Page 14 <PAGE> Effective Date of the Appraisal The descriptions, analyses, and conclusions of this report for the subject property are applicable as of August 7, 1997. The appraisers inspected the site on August 7, 1997. Appraisal Development and Reporting Process This report has been prepared in compliance with the following: Uniform Standards of Professional Appraisal Practice, promulgated by the Appraisal Standards Board of the Appraisal Foundation, as set forth in 12 C.F.R. Part 1608; The Code of Professional Ethics of the Appraisal Institute. The value set forth herein was estimated after application and analysis by all three approaches to value, i.e.; Cost Approach, Income Approach, Sales Comparison Approach - Land Only, for an estimate of land as though vacant (to be used in conjunction with the Cost Approach) and Sales Comparison Approach - Improved Property. This appraisal included an inspection of the subject of this report and comparable sales, and an analysis of the surrounding neighborhood with recognition of existing and future trends. Market data, including sales and lease information on comparable properties, were obtained from sources considered to be reliable. Personal property, other than appliances typically provided by the landlord in a multifamily setting, was not included in the value estimate. This appraisal report details all pertinent data, descriptions, and discussions germane to the appraisal of the subject of this report. The development of this appraisal entailed the use of the complete appraisal process, as defined by the Uniform Standards of Professional Appraisal Practice (USPAP). This C97-604 O'Connor & Associates Page 15 <PAGE> means that no departures from Standard 1 were invoked. A copy of this report and the data included herein have been retained in our files. Legal Description The legal description for the subject property was provided the Harris County Appraisal District, as follows: Tracts 3, 3A, 3B, 3C, 3G, 3H, 6F, W. J. Brown Survey, Abstract 132, Houston, Harris County, Texas. Neither a metes and bounds legal description nor a site survey was provided to the appraisers. Ownership History of Subject Property According to information provided by the client, title to the subject property is currently vested in Harold Farb Investments (or its assigns), which built the property in 1969-72. Therefore, no sales activity involving the subject property has taken place over the past three years. The subject property is not currently listed for sale and no offers are pending. C97-604 O'Connor & Associates Page 16 <PAGE> Subject Area/ Property Analyses <PAGE> HOUSTON AREA ANALYSIS The subject is located within the Houston Consolidated Metropolitan Statistical Area (CMSA), which is composed of a seven-county area consisting of Harris, Montgomery, Galveston, Fort Bend, Brazoria, Waller, and Liberty Counties. Houston is the nation's fourth largest city with a metropolitan area population of over three million people. Houston emerged as a major corporate center during the 1960's and 1970's when more than 200 corporations moved their headquarters here. Thirty-four of the thirty-five major energy and petroleum corporations are headquartered in the city of Houston. As a result, the city has emerged as the "energy capital" of the world. Population According to the 1990 census, the Houston CMSA had a population of roughly 3.6 million, and Houston was the fourth largest city in the nation. From 1970 to 1980, the population growth of Houston averaged 3.6 percent per year, which was more than triple the national average. From 1980 to 1990, growth slowed due to poor economic conditions of the mid-1980's. Despite the economic downturn of the mid-1980's, Houston's seven-county Consolidated Statistical Metropolitan Area is projected to increase by an additional 1.48 million people through the year 2010, according to a task force working for the Houston-Galveston Area Council (HGAC). Employment in the area encompassing Harris, Fort Bend, Brazoria, C97-604 O'Connor & Associates Page 17 <PAGE> Galveston, Liberty, Montgomery, and Waller Counties, is projected to increase from 1.5 million employed in 1980 to 2.4 million in 2010, an increase of more than 60%. This latest projection recognized that the pace of growth for the seven-county area has lessened recently, and as a result, overall growth from 1980-1990 was moderate. The study projects greater increases in population and employment in the years after the 1980's. Population growth in the 1990 to 2010 time period is expected to be moderate, approximately 2% per year for population. Employment growth is expected to be slightly higher. The HGAC population projections are shown in the following table. ====================================================================== POPULATION PROJECTIONS ====================================================================== Forecast % Increase County Actual 1990 2000 2010 1990 - 2010 Brazoria 198,178 235,821 282,384 42.5% Fort Bend 206,120 281,270 346,214 68.0% Galveston 224,169 264,120 313,533 40.0% Harris 2,712,765 3,160,005 3,716,947 37.0% Liberty 61,186 72,890 86,809 41.9% Montgomery 166,051 218,671 290,043 74.7% Waller 25,269 30,442 40,851 61.7% CMSA Total 3,593,738 4,263,219 5,076,781 41.3% ====================================================================== Transportation Networks The principal thoroughfares servicing the Houston metropolitan area include the Sam Houston Tollway/Beltway 8, the 610 Loop, U.S. Highway 59, Interstate Highway 45, Interstate Highway 10, and the Hardy Toll Road. C97-604 O'Connor & Associates Page 18 <PAGE> The Sam Houston Tollway consists of 6 main lanes separated by a concrete barrier, with an additional 3 lane frontage road (Beltway 8) system. The first phase of construction began in early 1985 at U.S. 59 and the Tollway was completed to Interstate Highway 10. Phase 2, completed in July 1989, extended the Tollway to the Northwest Freeway. In May, 1997, the final phase of the Tollway, extending from Highway 288 to Interstate 45, was completed. The Sam Houston Tollway/Beltway 8 now encircles the city limits of Houston and provides an outer loop for the suburban areas of Houston. This tollway/freeway system and its intersections has been the site of some of the most important development corridors in the Harris County area, and experienced a significant amount of development in the form of office, retail, light industrial, and apartment development during the early 1980's. The 610 Loop completely encircles Houston's Central Business District at a radius of 5 to 6 miles. The 610 South Loop West which extends in a north/south direction on the western portion of the city is one of Houston's most established areas for office, retail, and hotel development, second only to the Houston Central Business District. U.S. Highway 59, southwest of Loop 610, is known as the Southwest Freeway. This section was recently widened and improved. The Southwest Freeway is 8 to 10 lanes wide with a High Occupancy Vehicle center lane. Widening of the section of the Southwest Freeway from Loop 610 to Beltway 8 was completed in 1992. The section from Beltway 8 to West Airport is currently underway. Northeast of the Loop 610, C97-604 O'Connor & Associates Page 19 <PAGE> Highway 59 is known as the Eastex Freeway. This section of freeway, from Loop 610 out to Beltway 8 is currently under construction for similar widening and improving. Interstate Highway 45 is a 6- to 8-lane controlled access freeway that principally serves to connect the Houston Central Business District with areas to the north (i.e. Conroe, Huntsville, Dallas, etc) and south (i.e. Clear Lake, Galveston). Due to its proximity to Houston's Intercontinental Airport and its terminus in the City of Galveston, as well as its intersection with most major east/west thoroughfares, Interstate Highway 45 is considered one of Houston's principal highways. Interstate Highway 10 is a 6- to 8-lane controlled access freeway which extends east and west from just north of the Houston Central Business District. East of its intersection with Interstate Highway 45, the development trend is toward manufacturing and petroleum production. This freeway extends east in proximity to the Houston Ship Channel, which connects to Galveston Bay and allows shipping access to inland areas. Interstate Highway 10 continues east to Beaumont and further east to Florida. West of the Loop 610 intersection, development has tended toward primarily retail, until west of the Sam Houston Tollway, where office development becomes the primary land use. Interstate Highway 10, between the Sam Houston Tollway and Highway 6, has become known as the "energy corridor", as most major oil companies have located their main offices in this location. This freeway continues to the west, connecting with San Antonio before continuing out of the state. C97-604 O'Connor & Associates Page 20 <PAGE> The Hardy Toll Road is a controlled access thoroughfare which provides access to the northern portion of the city of Houston. It is a 6-lane concrete paved, lighted, thoroughfare that begins at the Loop 610 and continues north to the Harris County line where it merges with Interstate Highway 45. The Hardy Toll Road was planned as a reliever highway for Interstate Highway 45 between the growing communities north of the Houston Central Business District. The Hardy Toll Road improves accessibility to Houston Intercontinental Airport, which is located on the east side of this roadway. Manufacturing Manufacturing accounts for one of every ten employees in the Houston-Galveston area, with the majority involved in the energy industry. The majority of the factories located in the Houston area are related to off-load equipment, refined petroleum products, or petrochemicals. Houston ranks first in the nation in petroleum refining, and is typically known as the world's petroleum refining capital. Houston is also the center of a continually expanding network of product pipelines which connects some 200 chemical plants and refineries. It is anticipated that Houston will continue to be the nation's energy capital into the foreseeable future. The mid 1980's collapse of the petroleum and drilling industries was due primarily to a sharp decline in the price of oil. C97-604 O'Connor & Associates Page 21 <PAGE> Oil Drilling rig activity is an important leading economic indicator for the energy dependent Houston area. The rise or fall in the number of active exploratory drilling rigs tends to indicate trends in near term future employment in the energy industry. According to a recent survey of active drilling rigs by Baker Hughes, U.S. drilling rig activity for the month of May 1997 included 913 active rotary rigs, up 7% from the 853 active rigs reported in October 1996. West Texas Intermediate (the benchmark of U.S. Crude), has recently been selling in the $18 to $24 per barrel range, below the 1985 levels of $32 per barrel, but up significantly from the 1986 low of $12 per barrel. C97-604 O'Connor & Associates Page 22 <PAGE> Employment Houston's job growth has been strong, producing approximately 40,100 new jobs in 1996 (as compared 50,000 jobs in 1995, 18,800 jobs in 1993 and 37,400 jobs in 1994). According to the June 1997 report by the Texas Employment Commission, the Houston PMSA non-agricultural employed for June 1997 numbered 1,852,600, up from 1,820,500 in February 1997, and up from 1,809,700 in August 1996. Because of the high concentration of energy related industries in the Houston PMSA, the distribution of employment varies from national percentages primarily in the areas of manufacturing, services and mining (oil industry). Government employment and manufacturing are well below national averages. ============================================================== June 1997 Non-Agricultural Employed in (000's) - -------------------------------------------------------------- Industry Houston PMSA Percent - -------------------------------------------------------------- Manufacturing 202.5 10.93% Mining 66.4 3.58% Construction 132.0 7.13% Trans., Comm., Utilities 126.6 6.83% Trade 432.1 23.32% Fin., Ins., Real Estate 97.6 5.27% Services & Miscellaneous 548.8 29.62% Government 246.6 13.31% ----- ------ Total 1,852.6 100.00% ============================================================== C97-604 O'Connor & Associates Page 23 <PAGE> Unemployment According to Texas Employment Commission statistics, the Texas unemployment rate was 6.1% in June 1997, down from 6.4% in June 1996. The Houston metropolitan area unemployment rate for June 1997 was 5.9%, down from 6.1% in June 1996. The national unemployment rate was 5.2% for June 1997. The national unemployment rate was 4.7% for May 1997, the lowest rate in 24 years. Other Categories Houston also has numerous businesses involved in international trade and business, retail sales, marine sciences, and research and development. The city has several major universities including the University of Houston and Rice University. Houston is the location of the world famous Texas Medical Center (TMC) which was conceived as a means to coordinate health education, health research, and patient care. The Johnson Space Center is located southeast of downtown Houston and is responsible for the flight operations of the space shuttle. Texas Medical Center As the largest employer in Houston (approximately 52,000 employees), and the largest medical center in the world, the Texas Medical Center has an annual operating budget of $4.25 billion. The medical center has a daily population of 110,000, including employees, patients and students. The complex consists of 85 buildings and 41 nonprofit institutions, including more than a dozen hospitals. C97-604 O'Connor & Associates Page 24 <PAGE> Biotechnology The commercialization of the research discoveries made at the center's medical schools and hospitals has led to the emergence of biotechnology utilizing the life sciences for business results, which could result in producing food as well as medicine. It ranges from the manufacture of artificial hearts, drugs, and diagnostic medical tests to the splitting and recombining of genetic material. The combined resources of Baylor, the University of Texas Health Science Center, and the M. D. Anderson Hospital and Tumor Institute have made the city a scientific and economic leader in the field of biotechnology. According to a local Houston newspaper, a survey conducted by Sommers & Associates projected that Houston's biomedical technology industry will double in size during the next three years, growing to more than $1.1 billion in total revenues. Lyndon B. Johnson Space Center and Related Developments The Johnson Space Center is located southeast of downtown Houston and employs approximately 16,000 people. There are only eleven NASA space centers in the United States, and the Johnson Space Center has been selected to develop the majority of the $8 billion Space Station project. JSC is the flight control center and the training center for NASA Space Shuttle astronauts which gives the Houston area an advantage for space commercialization development. In an effort to reduce the national deficit, the federal government in 1995 decreased NASA's annual budget. Additionally, future downsizing appears possible for the complex. Space Center Houston, located adjacent to JSC, is a tourist attraction developed in conjunction with theme park designers from Walt Disney. C97-604 O'Connor & Associates Page 25 <PAGE> This attraction, which opened to the public in October, 1992, has experienced attendance figures substantially below initial projections. Although below expectations, the park has added jobs and revenue to the area. 1995 attendance was reported to be +450,000 persons. The owners of the attraction recently made an effort to reorganize the project's debt structure. Port of Houston The Port of Houston is a 25-mile-long complex of facilities just a few hours' sailing time from the Gulf of Mexico. Houston's location makes it an ideal gateway between interior U.S. markets and foreign countries throughout the world. Four major railroads and more than 120 trucking lines connect the port to the continental United States, Canada and Mexico. Air service is also easily accessible through two major public airports and dozens of private terminals. More than 2,000 import/export companies operate in the city. Over 50 governments maintain consulates in Houston. According to the Port of Houston Magazine, tankers reported loading and discharging a total of +/-53.57 million tons of petroleum, petroleum products, industrial chemicals, and other cargo at the Port of Houston in 1996. 1997 figures were unavailable as of the date of appraisal. C97-604 O'Connor & Associates Page 26 <PAGE> Foreclosures According to the Houston Economic News, a publication of the Greater Houston Partnership's Research Department, foreclosures during 1996 totalled 3,985, down from 5,023 in 1995, and down 22% compared to 1994. The number of foreclosures has declined significantly since reaching over 30,000 in 1987. In the following chart, we have presented a summary of the total number of actual foreclosures since 1985: ====================================== Foreclosures ====================================== 1985........................16,571 1986........................25,602 1987........................31,015 1988........................19,996 1989........................13,054 1990.........................9,083 1991.........................6,685 1992.........................5,747 1993.........................5,454 1994.........................5,113 1995.........................5,023 1996.........................3,985 ====================================== C97-604 O'Connor & Associates Page 27 <PAGE> General Real Estate Market Houston is currently experiencing an imbalance of supply and demand factors, as a result of the 1982 oil glut and downturn in the petrochemical industry. The economic base of Houston had a considerable amount of dependence on oil exploration, refining, and related activities, which slowed in the 1980's. According to researchers at the University of Texas, as much as 35% of Houston's Gross Regional Product is in the oil industry, or related services such as pipe manufacturing, refining, engineering, geology, and other support services such as legal, accounting, and marketing. According to research compiled by the Center for Public Policy, 59.1% of Houston's base employment is energy related. Construction during the late 1970's and early 1980's, within all segments of the real estate market, continued on the assumption that the local economy was immune to recession, based on the favorable experience of the preceding ten years, including the 1974 oil embargo. At that time, the Houston market boomed with new construction to meet the demands of the expanding petrochemical industry. The 1982 downturn stymied the absorption of office space, retail, apartments, and industrial and manufacturing facilities, as well as decreasing average annual occupancy in the Houston hotel industry. However, construction continued unabated until 1984. As a result, the supply of virtually all types of real estate in the Houston area exceeded the demand until recently. However, as absorption of this overbuilding has been occurring for ten plus years, the level of the excess supply of area real estate has decreased substantially. Since 1994, significant levels of new construction and absorption have occurred in many area market segments. C97-604 O'Connor & Associates Page 28 <PAGE> Office Market Houston's office market is continuing to improve. For the third consecutive survey period of O'Connor & Associates' Houston Area Office Ownership Guide, April, 1997, more than 1.5 million square feet of space was absorbed, which is a solid sign of a recovering, stabilizing office market. The April, 1997 survey period shows absorption at 2,532,705 square feet. Citywide occupancy for all building types and classes combined has been climbing steadily and has been over the 80 percent mark since the January, 1995 survey. Occupancy at that time was 80.2 percent. Current statistics reflect an occupancy rate of 84.7 percent, a 3.7 point increase over the same period a year ago. Currently, average rental rates for all building classes and types is $13.53 per square foot. By class, rates have jumped an average of $0.68 per square foot in Class A and $0.21 per square foot in Class B from the same period a year ago. However, some of the submarkets experienced slight dips in the Class C/D rates and occupancy. New construction completed in 1996 was limited to one 36,000 square foot building near Loop 610 at El Rio, built by Sueba. The future, however, indicates numerous under-construction projects, as well as proposed. Based on dwindling amounts of large blocks of contiguous space, increasing rental rates and the number of projects proposed and under construction, 1997 should be an active year for the Houston office market. C97-604 O'Connor & Associates Page 29 <PAGE> Apartment Market According to the June 1997 Houston Area Apartment Ownership Guide, published by O'Connor and Associates, there are 2,342 apartment projects with 385,297 units in the Harris County market (for which rental data is available). The rental apartment market is currently experiencing an overall occupancy rate of approximately 92.09%. Separately metered projects reflect 92.46% occupancy and have remained relatively stable in the last two years. Master-metered projects average 89.74% occupancy. Rental rates have been increasing gradually for the past three years, for both resident-paid and owner-paid utility projects. Rental concessions have virtually disappeared. Rental rates for resident-paid units, which comprise the majority of the market are at the highest level since Spring 1983. These units average $0.599 per square foot per month and have experienced steady increases in the last two years from $0.55 per square foot in March 1994. Owner-paid units average $0.628 per square foot per month, up from $0.54 in March 1994. C97-604 O'Connor & Associates Page 30 <PAGE> Retail Market The Houston Area Retail Market Survey, prepared by O'Connor & Associates, May, 1997, reports substantial increases in the construction of retail centers over the last two years. The following chart lists recent construction: ======================== Year Square Feet 1990 1,205,447 1991 2,175,271 1992 1,406,319 1993 3,296,975 1994 4,307,731 1995 4,803,459 1996 4,611,031 1997 384,350 ======================== Presently, 35 centers (6,920,420) are proposed. The current overall occupancy for existing shopping centers was 86.41%. The lowest occupancy rates for retail centers are being reported in the Inner Loop, South, and Far Southeast areas of Harris County. By contrast, the highest occupancy rates were reported in the Near West, Near North, and Near Southwest market areas. Based on existing vacancy, the Houston market is slightly overbuilt with shopping centers to the extent that, depending upon the submarket, there is a 2 to 4 year supply. Grocery-anchored retail centers average 84% occupancy. Much of the excess vacant space is in ill-conceived strip and neighborhood centers which are unlikely to be fully utilized for their intended purpose (retail). However, some of this space is being used for alternative uses including churches, service, schools and offices. C97-604 O'Connor & Associates Page 31 <PAGE> The average annual rental rate for retail centers as of May 1997 indicated $14.64 per square foot. Regional malls reflected an average asking rental rate of $31.20 per square foot, community shopping centers $13.20, neighborhood centers $10.56, and strip centers $9.24 per square foot. Average rental rates have been increasing at a relatively slow and steady rate (2.5% per year) since 1991. Industrial Market According to The Houston Area Industrial Ownership Guide, prepared by O'Connor & Associates, dated April 1997, there is a total of 260,414,977 square feet of existing service center, warehouse, and heavy manufacturing facility space in 5,283 buildings in the Houston market. The current overall occupancy of 88.35% is higher than the occupancy in April 1996 of 87.79%. Rental rates for industrial space average $0.328 per square foot per month. C97-604 O'Connor & Associates Page 32 <PAGE> Hotel / Motel Market According to the December 1996, Year End Trends in the Hotel Industry, published by Pannell-Kerr-Foster PKF Consulting, the overall Houston market reflected a relatively stable occupancy level from 1995 to 1996, reflecting occupancy levels of 64.6% in 1995 and 64.5% in 1996. The average daily rate (ADR) for the Houston area increased 6.0%, and overall revenues per available room (REVPAR) have increased 5.8% during the same time period. The following table depicts how this market fared in 1995 and 1996. <TABLE> <CAPTION> ========================================================================================================== Occupancy ADR REVPAR Market Area 1995 1996 Pt. 1995 1996 % 1995 1996 % Change Change Change - ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Galleria/Post Oak 70.3% 71.4% 1.1 $92.48 $97.38 5.3% $65.06 $69.52 6.9% Astrodome/South Main 52.5% 51.5% -1.0 $61.70 $65.58 6.3% $32.39 $33.78 4.3% Texas Medical Center 71.1% 73.7% 2.6 $66.70 $68.52 2.7% $47.41 $50.51 6.5% Intercontinental Airport 65.2% 64.9% -0.3 $58.92 $61.69 4.7% $38.43 $40.02 4.1% Hobby Airport 68.4% 64.3% -4.1 $59.09 $57.45 -2.8% $40.39 $36.96 -8.5% Clear Lake 63.6% 58.9% -4.7 $67.45 $70.93 5.2% $42.91 $41.81 -2.6% Southwest 58.0% 60.3% 2.3 $59.02 $60.55 2.6% $34.22 $36.53 6.8% Westchase/Katy 64.4% 65.6% 1.2 $67.84 $71.52 5.4% $43.70 $46.93 7.4% Freeway Northwest 64.8% 62.1% -2.7 $55.61 $58.12 4.5% $36.02 $36.12 0.3% Houston CBD 63.0% 63.9% 0.9 $94.46 $102.71 8.7% $59.46 $65.60 10.3% East/Baytown 71.1% 67.0% -4.1 $46.16 $47.15 2.1% $32.84 $31.59 -3.8% - ---------------------------------------------------------------------------------------------------------- Total Houston Area 64.6% 64.5% -0.1 $70.12 $74.33 6.0% $45.32 $47.97 5.8% ========================================================================================================== </TABLE> C97-604 O'Connor & Associates Page 33 <PAGE> AREA ANALYSIS - Conclusion According to a daily Houston newspaper, DRI/McGraw Hill ranked Houston as the third highest city in the country for projected job growth through 1996. The city continues to diversify away from the oil business. It is our opinion that the current economic trend is toward recovery. As the Houston economy continues to become more diversified, and less dependent on the oil and gas industry, it will remain a viable and dominant factor in the national economy, and particularly in the south central United States. It is our opinion that Houston now has a fundamentally healthy, viable economic base, with only normal, typically expected unemployment, following the downturn of the energy industry. Employment growth was 90,700 jobs in 1990, 26,500 in 1991, -400 in 1992, 18,800 in 1993, 37,100 in 1994, 50,000 in 1995, and 40,100 in 1996 according to the Texas Employment Commission. Over the past several years, Houston real estate has suffered from the severe over-building in the early 1980's, rather than from a weak economic base. However, after a decade of absorption, the level of oversupply of all types of Houston real estate has decreased substantially. In 1994 and 1995, significant levels of new construction occurred in several market segments. It is our opinion that the market is recovering from population declines and employment losses of the past, but there still remains an imbalance of supply and demand factors for real estate. It is our opinion that the local real estate economy bottomed out in 1987 and has experienced a gradual recovery during the 1990's. Additionally, area economists are predicting a continued gradual recovery for the economy as well as the real estate market in the foreseeable future. However, it may C97-604 O'Connor & Associates Page 35 <PAGE> take another decade for all submarkets to recover. Retail, multifamily and industrial have improved drastically over the last decade. The office market is still the weakest, as this sector experienced the greatest overbuilding during the 1980's. Even during the boom, it took as many as seven to eight years for employment to reach their record highs following the oil embargo of 1974. While the overall market is still suffering from overbuilding, not all submarkets are suffering equally. There are prosperous submarkets and certain areas will recover faster than others. Certain sectors of the market in some submarkets indicate strength sufficient to warrant additional construction immediately, while others could remain depressed for as long as five or more years. Our review and analysis of the above information indicates that the city of Houston and surrounding counties are, for the first time in recent history, becoming a diversified economy and exhibit favorable trends for long-term economic stability. Houston's population and economy are expected to recover and continue to grow over the next decade, but at a much slower rate than during the boom years of the late 1970's and early 1980's. C97-604 O'Connor & Associates Page 35 <PAGE> - -------------------------------------------------------------------------------- HOUSTON AREA MAP - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] <PAGE> NEIGHBORHOOD DATA Definition: A neighborhood is defined in The Dictionary of Real Estate Appraisal, Third Edition, copyright 1993, page 242, by the Appraisal Institute as: "a group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises" A neighborhood can be a portion of a larger community, or an entire community in which there is a homogeneous group of inhabitants, buildings, and business enterprises in which inhabitants have a more than casual community interest and a similarity of economic levels or cultural backgrounds. Neighborhood boundaries may consist of well defined natural or man made barriers or they may be more or less well defined such as by distinct change in land uses. Neighborhoods may be devoted to such uses as residential, commercial, industrial, agricultural, cultural and civic activities, or a mixture of uses. Analysis of the neighborhood in which a particular property is located is important due to the fact that the various economic, social, political, and physical forces which affect that neighborhood also directly includes the individual properties within it. An analysis of the various factors as they affect the value of the subject property is presented in the following discussion. C97-604 O'Connor & Associates Page 36 <PAGE> Subject Neighborhood Defined The subject property is located at the intersection of North Braeswood Boulevard and Burdine Drive. The subject property has a primary physical address of 5410 North Braeswood, Houston, Harris County, Texas. For the purposes of this analysis, the subject neighborhood is generally defined as being bound by the Southwest Freeway to the north, West Loop South and South Post Oak to the east, West Bellfort to the south, and Gessner Road to the west. These boundaries have been defined because the properties within them tend to exhibit similar characteristics, physical features, price desirability, and they are affected by similar physical, economic, governmental and social forces. Accessibility The subject neighborhood is most easily accessible from downtown Houston by traveling west on the Southwest Freeway to Chimney Rock, Hillcroft, or Fondren, all of which extend through the middle portion of the neighborhood. Streets Major east/west thoroughfares in the neighborhood include the Southwest Freeway (which extends in a northeast/southwest direction), Bellaire Boulevard, Bissonnet, Beechnut, North and South Braeswood, Willowbend, and West Bellfort. Major north/south streets include Gessner, Fondren, Hillcroft, Chimney Rock, South Post Oak Boulevard, and West Loop South. C97-604 O'Connor & Associates Page 37 <PAGE> Land Use Patterns The neighborhood is a viable, heterogeneous area in the westerly portion of Harris county. Land uses in the neighborhood consist of a variety of commercial, and residential land uses, including, but not limited to, single-family residential subdivisions, multifamily, retail, and service. Residential development is located in various upper-income subdivisions throughout the neighborhood, with commercial development located along the aforementioned thoroughfares. Single-family use within the immediate area includes established residential subdivisions with home prices typically ranging from the $125,000's to $250,000's, and higher. Homes in the area are typically fifteen to twenty-five years old and are well-maintained. Other development in the immediate subject area includes dense retail development along the major thoroughfares (Chimney Rock, Hillcroft, Bellaire Boulevard, etc.) and multifamily properties along the secondary roadways. Prevalent forms of commercial uses include neighborhood shopping centers, free-standing retail facilities, restaurants, and office buildings. The most predominant influence in the area is the Galleria Mall, which is located just north of the subject neighborhood. The Galleria Mall is located on the south line of Westheimer, between Sage and Post Oak. This up-scale regional mall contains 1,610,000 square feet of space and was built in stages from 1970 to 1986. This mall is reportedly +98% occupied and is anchored by Neiman-Marcus, Lord & Taylor, Marshall Field's, and Macy's. This mall is one of the area's largest employment centers. Additionally, the Meyerland Plaza, recently completely renovated, is located at Beechnut and the West Loop South, as well as C97-604 O'Connor & Associates Page 38 <PAGE> Sharpstown Mall, which is located at the Southwest Freeway and Bellaire Boulevard. Public Services Police and fire protection and other services are provided by the City of Houston as well as Harris County. Public water and sanitary sewer services for the area are provided by the city systems. The neighborhood is also served by the Houston Independent School District with schools of all levels located throughout the area. Hospital facilities are located nearby, with the Sharpstown General Hospital situated on Bellaire Boulevard near the Southwest Freeway. Real Estate Market The following are summaries of surveys of the various real estate submarkets for areas which include the subject neighborhood. C97-604 O'Connor & Associates Page 39 <PAGE> Multifamily Development Sector: 8A - Bellaire/Southwest, as defined by the Houston Area Apartment Ownership Guide, published by O'Connor & Associates. Boundaries: North: Bissonnet and Bellaire Boulevard South: South Loop and South Main (Highway 90A) West: Hillcroft East: Almeda Road Survey Period: June 1997 Separately Metered Master Metered ------------------ -------------- Projects: 109 34 Units: 15,629 4,764 Occupancy: 92.07% 96.53% Rent PSF: $0.672 $0.682 Rent/Unit: $538 $578 C97-604 O'Connor & Associates Page 40 <PAGE> Office Development Sector: Southwest, as defined by the Houston Area Office Building Survey, published by O'Connor & Associates. Boundaries: North: West Park South: Harris County Line East: West Loop South and Almeda Road West: Harris County Line Survey Period: April 1997 All Classes Buildings: 181 Net Rentable SF: 18,133,643 Occupancy: 83.8% Rent PSF/Yr: $11.44 C97-604 O'Connor & Associates Page 41 <PAGE> Retail Development Sector: Near Southwest as defined by Houston Area Retail Building Survey, published by O'Connor & Associates. Boundaries: North: West Park South: Beltway 8 East: Loop 610 and Almeda Road West: Beltway 8 Survey Period: May 1997 Buildings: 170 Net Rentable SF: 11,671,959 Occupancy: 86.33% ===================================================================== Regional Community Neighborhood Strip Center - --------------------------------------------------------------------- Buildings 3 11 102 54 - --------------------------------------------------------------------- Net Rentable SF 2,942,000 2,155,652 5,730,894 843,413 - --------------------------------------------------------------------- Occupied SF 2,593,160 1,680,312 5,055,053 747,916 - --------------------------------------------------------------------- Occupancy 88.14% 77.95% 88.21% 88.68% - --------------------------------------------------------------------- Rent PSF/Mo $2.33 $0.87 $0.86 $0.73 ===================================================================== C97-604 O'Connor & Associates Page 42 <PAGE> Industrial Development Sector: Near Southwest, as defined by the Houston Area Industrial Ownership Guide, published by O'Connor & Associates. Boundaries: North: Buffalo Bayou South: Brays Bayou East: South Main West: Hillcroft Survey Period: April 1997 Buildings: 277 Net Rentable SF: 11,787,068 Occupancy: 90.56% Rental Rate: $0.372 C97-604 O'Connor & Associates Page 43 <PAGE> Trends The neighborhood is considered to be heterogeneous in nature and experienced an increase in commercial/retail construction activity in recent years. Recent development in and around the subject neighborhood includes Class A apartments in 1994 and early 1995, 11 retail developments between 1990 and year-to-date (most concentrated near the West Loop and the Southwest Freeway), four (4) new office buildings constructed in 1992 through 1996, and one (1) industrial building between 1991 and 1996. Included in these developments is the redevelopment of the Meyerland Plaza, an 887,000 square foot center completely renovated within the past three (3) years. Major tenants of this center include J.C. Penney's, Venture, Bed, Bath & Beyond, Marshall's, and Service Merchandise. Several pad sites adjacent to this center have also been developed with fast-food restaurants in the last two years. Several motels have been constructed along the West Loop within the past year. C97-604 O'Connor & Associates Page 44 <PAGE> Summary In conclusion, the neighborhood is well located with good accessibility to area developments, major thoroughfares, and surrounding communities. The overall land area is approximately 95% built up allowing limited opportunity for future growth. Therefore, as vacant land sites become more scarce, older properties will be purchased and razed for new construction. Commercial properties should have continued improvement as the recovery proceeds. Additionally, well maintained and well managed properties are expected to have stable, if not increasing occupancy rates. The subject neighborhood is considered to have a stable and positive influence on the subject property being appraised. C97-604 O'Connor & Associates Page 45 <PAGE> - -------------------------------------------------------------------------------- NEIGHBORHOOD MAP - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] <PAGE> SITE DATA The following description of the subject's characteristics are based on review of a plat map obtained from Harris County, and our physical inspection of the site. No survey of the subject was provided for review. Please refer to copies of the plat map and photographs for a visual perspective of the subject's physical characteristics. Location The subject property is located at the intersection of North Braeswood Boulevard and Burdine Drive. The subject property has a primary physical address of 5410 North Braeswood, Houston, Harris County, Texas. Additionally the subject fronts Braesvalley and Braesmont Drive. Physical Attributes The subject property consists of a total of +/-38.1796 acres (+/-1,663,103 square feet) of land area, and is irregular in shape. As indicated by the plat map, the subject is separated into three parcels by Braesvalley Drive and Burdine Drive. Based on the plat map, the subject property has +/-1,033 feet of frontage along the north line of North Braeswood Boulevard, +/-776 feet of frontage along the west line of Burdine Drive, +/-758 feet of frontage along the east line of Burdine Drive, +/-1,415 feet of frontage along the south line of Braesvalley Drive, +/-1,462 feet of frontage along the north line of C97-604 O'Connor & Associates Page 46 <PAGE> Braesvalley Drive, and +/-778 feet of frontage along the west line of Braesmont Drive. The property has a frontage to acreage ratio of 162.97:1. Accessibility The subject property is accessible from downtown Houston by traveling west on the Southwest Freeway to the West Loop South, then south to North Braeswood Boulevard, then west to the subject property. The subject property is located at the intersection of North Braeswood Boulevard and Burdine Drive. The subject property has a primary physical address of 5410 North Braeswood, Houston, Harris County, Texas. Accessibility and visibility are considered to be good. Streets In the subject neighborhood, North Braeswood Boulevard is a 4-lane, 2-way, esplanade- divided primary area thoroughfare which handles heavy daily traffic flows. Burdine, Braesvalley, and Braesmont Drives are two-lane, two-way concrete-paved roadways with curb and gutter drainage. Burdine Drive extends between North Braeswood Boulevard and Braesvalley Drive. Braesmont Drive extends north from North Braeswood Boulevard, and Braesvalley Drive extends west from Braesmont Drive. Topography The topography of the site is generally level. Based on our inspection, the site has adequate slope and drainage to remove ground water. C97-604 O'Connor & Associates Page 47 <PAGE> Zoning and Restrictions Neither the City of Houston nor Harris County utilizes zoning to regulate development. Individual subdivisions often use deed restrictions to regulate development. The appraisers were not provided a copy of any applicable deed restrictions, and reserve the right to modify our value conclusions should any deed restrictions be present that are detrimental to the subject site. Utilities Water and sewer service are provided by the City of Houston. Local telephone service is provided by Southwestern Bell, and natural gas is available via Entex. Electricity is provided by Houston Lighting & Power. Easements/Encroachments A survey was not provided to the appraisers for review. No easements or encroachments that would have a negative effect on property value were visibly apparent during our inspection. We reserve the right to modify our value conclusions should a title policy reveal that any adverse easements or encroachments are present. Soil and Sub-soil Conditions No soil engineer's report was available to us and no recent soil tests were performed. Based on our inspection of surrounding development in the immediate area and lack of further evidence to the contrary we have assumed a stable soil condition that would ensure the structural integrity of any improvement which may be constructed. We C97-604 O'Connor & Associates Page 48 <PAGE> reserve our right to modify our value conclusions should these assumptions prove incorrect. We caution and advise the user of this report to obtain engineering studies which may be required to ascertain any structural integrity. Environmental Conditions No environmental report was available to us, nor did we observe any signs of possible conditions during our physical inspection. Because we have no evidence to the contrary, we have assumed that the properties are free of any material which would adversely affect the value, including, but not limited to, asbestos and toxic waste. We reserve our right to modify our value conclusions should these assumptions prove incorrect. We caution and advise the user of this report to obtain environmental studies which may be required to ascertain status of the property with regard to asbestos and other hazardous materials. Surrounding Development Land use adjacent to the subject site includes Brays Bayou to the south across North Braeswood Boulevard, a drainage easement to the west, single-family residences to the north, and a retail shopping center to the east across Braesmont Drive. C97-604 O'Connor & Associates Page 49 <PAGE> Flood Zone According to FIRM map panel no. 48201C0865-J, published for Harris County and dated November 6, 1996, the large majority of the subject property is located in Zone AE, an area within the 100-Year Floodplain. Improvements located within the flood plain must be properly elevated. The north boundary appears to be in shaded Zone X, an area between the 100- and 500-Year Floodplains. A portion of the flood map is included at the end of this section of the report. C97-604 O'Connor & Associates Page 50 <PAGE> ================================================================================ [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- PLAT MAP ================================================================================ C97-604 O'Connor & Associates Page 51 <PAGE> ================================================================================ [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- FLOOD PLAIN MAP ================================================================================ C97-604 O'Connor & Associates Page 52 <PAGE> DESCRIPTION OF THE IMPROVEMENTS The subject property is improved with a 1,326-unit multifamily project which is master-metered for electricity. The units are contained in two-story, garden-style apartment buildings, constructed in 1967-70. Our final inspection of the subject site was performed on August 7, 1997. The property manager (Sue) was present during our interior inspection. The following chart exhibits the unit mix for the project. ==================================================== SUBJECT UNIT MIX - ---------------------------------------------------- Unit Type Number of Unit Rentable Units Size Area 1 BR / 1 BA 320 670 214,400 1 BR / 1 BA 84 756 63,504 1 BR / 1 BA 37 798 29,526 2 BR / 1 BA 183 850 155,550 2 BR / 1 BA 100 900 90,000 2 BR / 1 BA 120 930 111,600 2 BR / 1 BA 20 936 18,720 2 BR / 1.3 BA 60 942 56,520 2 BR / 2 BA 110 1,050 115,500 2 BR / 2 BA 66 1,054 69,564 2 BR / 2 BA 92 1,066 98,072 2 BR / 2 BA 22 1,120 24,640 2 BR / 2 BA 28 1,210 33,880 2 BR / 2 BA 74 1,240 91,760 3 BR / 2 BA 4 1,282 5,128 3 BR / 2 BA 2 1,440 2,880 3 BR / 3 BA 4 1,770 7,080 - Total # Units 1,326 Avg Unit Size 896 Net Rentable Area 1,188,324 ==================================================== C97-604 O'Connor & Associates Page 53 <PAGE> The above net rentable area and unit mix was provided by the client; however, we were not provided building plans. Our value conclusion is subject to revision if a subsequent survey indicates building area significantly varying from the above NRA. The total net rentable area of the subject project is indicated to be 1,188,324 SF. The office/clubhouse, storage, and laundry rooms bring the gross building area to an estimated +/-1,196,250 square feet. Based on our inspection, the following is a description of the various improvement construction components: Foundation: Reinforced concrete slab at grade level Building Type: Two-story garden style apartments Net Rentable Area: +/-1,188,324 square feet of net rentable building area Exterior Walls: Brick, wood trim Roofing: Flat built-up, tar and gravel and pitched composition shingle Unit Finish: Partitions between units are wood studs with painted sheetrock panels. Floor coverings are carpet and vinyl tile. Ceilings are textured sheetrock. Kitchen packages include refrigerators, oven/ranges with exhaust fans, dishwasher and disposal in a metal sink. Unit Amenities: Units include ceiling fans, full kitchen packages, private patios/balconies, walk-in closets, built-in shelving (in some floorplans) and cable television hook-ups. Fixtures: Plumbing and light fixtures are average for an apartment complex in the area. Hot water is provided by central boiler systems. Insulation: Adequacy not known; assumed adequate Heating/Cooling: Four pipe chilled water system with individually controlled thermostats Parking: Covered parking (metal canopies) is provided for 1,806 spaces. On street parking is available as well. Including sidewalks, the C97-604 O'Connor & Associates Page 54 <PAGE> paving is estimated to total +/-500,000 SF of asphalt and concrete paving. Landscaping: Above average with courtyards, mature trees and shrubs Pool: Nine fenced pools (in central locations). Fence: Brick and iron rail fencing surround perimeter. Limited access gates regulate pedestrian and auto traffic through the property. Stairs/landings: Access to the upstairs units is by metal stairways with light-weight concrete risers. Second level landings are similar construction. Laundry: Sixteen laundry rooms with coin-operated washers and dryers Leasing Office: Four units are currently utilized as leasing offices, one located in each of the sections. Clubhouse: The subject property has a clubhouse which is open for use by the residents. The complex offers a "movie night" and plays videos on a large-screen television. This clubhouse is also where bingo is played, as well as being available for wedding receptions and general parties. An entertainment director is in charge of the clubhouse and organizes the events. Fireplaces: None Occupancy: +/-95%, as of the provided June rent roll, 99% leased as of the effective date of this appraisal (only one (1) unit was available for lease). Year Built: 1967-70 Condition: The property has been well-maintained by the owners, with many updates over the years. One portion of Nob Hill West burned in 1985 and was rebuilt. The complex is considered to be in good condition and is estimated to have an effective age of 17 years, with a remaining estimated economic life of 33 years (50 years total). No significant deferred maintenance was noted during our physical inspection nor during conversations with the on-site manager. Some roofs on small pool buildings are in need of replacement, lint-traps are being installed near the laundry rooms, as well as electronic gate C97-604 O'Connor & Associates Page 55 <PAGE> equipment for one of the phases and several balconies needing repair. The total cost of these repairs are considered as part of the on-going maintenance. Functional Utility: The subject improvements are considered to be adequately functional when compared with competing properties in the neighborhood. Conclusions: The property is considered to have good curb appeal and should maintain a competitive position in the market. The effective age of the subject property is estimated at 17 years based on its observed condition. The apartment units (all floorplans) have adequate functional utility with no items of functional obsolescence noted, based on our personal inspection and discussions with the manager. To the best of our knowledge, there are no actual or suspect code violations and/or health and safety issues, based upon our physical inspection. The subject property suffers from external obsolescence (see Cost Approach). It is our conclusion that the subject property should remain competitive in its sub-market area into the foreseeable future. C97-604 O'Connor & Associates Page 56 <PAGE> SUBJECT PHOTOGRAPHS TAKEN ON AUGUST 7, 1997 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Subject property as seen from Braesvalley Drive ================================================================================ [GRAPHIC OMITTED] ================================================================================ Exterior view of subject property and typical courtyard C97-604 O'Connor & Associates Page 57 <PAGE> SUBJECT PHOTOGRAPHS TAKEN ON AUGUST 7, 1997 ================================================================================ [GRAPHIC OMITTED] ================================================================================ View of building exterior and parking lot ================================================================================ [GRAPHIC OMITTED] ================================================================================ View of covered parking area C97-604 O'Connor & Associates Page 58 <PAGE> SUBJECT PHOTOGRAPHS TAKEN ON AUGUST 7, 1997 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Typical kitchen ================================================================================ [GRAPHIC OMITTED] ================================================================================ Typical bedroom C97-604 O'Connor & Associates Page 59 <PAGE> SUBJECT PHOTOGRAPHS TAKEN ON AUGUST 7, 1997 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Typical bathroom ================================================================================ [GRAPHIC OMITTED] ================================================================================ Typical living room C97-604 O'Connor & Associates Page 60 <PAGE> SUBJECT PHOTOGRAPHS TAKEN ON AUGUST 7, 1997 ================================================================================ [GRAPHIC OMITTED] ================================================================================ Interior view of clubhouse ================================================================================ [GRAPHIC OMITTED] ================================================================================ View of typical swimming pool C97-604 O'Connor & Associates Page 61 <PAGE> SUBJECT PHOTOGRAPHS TAKEN ON AUGUST 7, 1997 ================================================================================ [GRAPHIC OMITTED] ================================================================================ View looking west on North Braeswood Boulevard ================================================================================ [GRAPHIC OMITTED] ================================================================================ View looking east on North Braeswood Boulevard C97-604 O'Connor & Associates Page 62 <PAGE> PROPERTY TAXES The Harris County Appraisal District maintains the following account numbers for the subject property: 041-088-000-0003; 041-088-000-0004; 041-088-000-0005; 041-088-000-0010; 041-088-000-0016; 041-088-000-0017; 041-088-000-0019. Following are the 1996 overall tax rates for the taxing jurisdictions involved. ========================================================================= Jurisdiction 1996 Tax Rate - ------------ ------------- Harris County $0.647350 City of Houston $0.665000 Houston I.S.D. $1.384000 Houston Community College $0.063170 --------- Total Tax Rates $2.759520 ========================================================================= The 1997 preliminary assessed value of the land and improvements for the subject property for the above mentioned jurisdictions, is as follows. ========================================================================= Assessed Land Value Assessed Improvement Value Total Assessed Value ------------------- -------------------------- -------------------- $4,989,340 $26,850,590 $31,839,930 ========================================================================= Based on the 1996 tax rates and preliminary 1997 assessment, the subject property's tax liability is estimated to be +/-$878,629. The 1997 assessment remains the same as the 1996 assessment. C97-604 O'Connor & Associates Page 63 <PAGE> The subject property's assessed value and overall tax liability was compared to those of other properties with similar improvements. The following are the preliminary 1997 assessed values for the rent comparables and the subject property on a per unit basis. =================================================== Comparable Tax Properties - 1997 Preliminary =================================================== Rental No. No. Age A.V./ Units (Years) Unit =================================================== 1 226 25 $14,256 - --------------------------------------------------- 2 218 32 $18,158 - --------------------------------------------------- 3 246 30 $18,891 - --------------------------------------------------- 4 250 30 $17,806 - --------------------------------------------------- 5 152 31 $23,995 - --------------------------------------------------- Subject Property 1,326 26 $24,012 =================================================== With the exception of Rental 5, the subject's preliminary 1997 assessed value per unit is much higher than all the tax comparables. However, the current assessed value is below our estimate of market value. Therefore, we cannot assume a tax reduction for the subject property. A stabilized tax assessment of +/-$24,012/unit is considered reasonable. According to the office of Carl S. Smith, Tax Assessor, as well as the Houston Independent School District, there are no delinquent taxes owed on the subject property. C97-604 O'Connor & Associates Page 64 <PAGE> ZONING AND RESTRICTIONS Neither the City of Houston nor Harris County utilizes zoning to regulate development. Individual subdivisions often use deed restrictions to regulate development. The appraisers were not provided a copy of any applicable deed restrictions, and reserve the right to modify our value conclusions should any deed restrictions be present that are detrimental to the subject site. C97-604 O'Connor & Associates Page 65 <PAGE> APARTMENT MARKET ANALYSIS The sources of information used in this analysis are O'Connor and Associates' Houston Area Apartment Ownership Guide, June 1997, and Apartment Data Services' Apartment Market TRAC, April, 1997. According to the June 1997 Houston Area Apartment Ownership Guide, the average rental rate for the overall Houston market for separately metered (electricity) was $495 per unit or $0.599 per square foot per month, with the overall average occupancy rate being 92.46%. This is based on a sample of 1,961 projects and 333,328 rental units in the greater Houston area. According to the April, 1997 Apartment Market TRAC, published by Apartment Data Services, the average occupancy rate for the overall Houston market for all apartment units was 90.3%, with an average rental rate of approximately $0.571 per square foot of net rentable area. This survey encompassed a total of 2,264 projects, or 400,111 units, with an average monthly rental of $474 and average unit size of 831 square feet of net rentable area. Separately metered units involved a total sample of 1,962 projects, or 354,146 units, with an average monthly rental payment of $482 ($0.579 PSF/NRA) and average size of 832 square feet. Historically, apartment construction in Harris County has been periodic, ensuing whenever occupancies achieve 90%+ levels. During the early 1980's, the oil embargo generated unprecedented gains in employment, and together with the Economic Recovery Tax Act of 1981 (ERTA), which allowed taxpayers C97-604 O'Connor & Associates Page 66 <PAGE> favorable treatment for investment in residential properties, the construction of new apartments boomed. The apartment market in Harris County experienced a much longer construction cycle than was typical or justified during this period. The table on the following page depicts new apartment construction activity in Greater Houston through the Spring of 1997. C97-604 O'Connor & Associates Page 67 <PAGE> ==================================================== HISTORICAL METROPOLITAN AREA APARTMENT CONSTRUCTION Year Number of Units Built ---- --------------------- Prior to 1970 74,074 1970 14,649 1971 18,561 1972 19,377 1973 14,640 1974 10,069 1975 10,797 1976 13,267 1977 18,860 1978 34,708 1979 28,163 1980 15,134 1981 14,027 1982 28,147 1983 36,671 1984 15,673 1985 3,731 1986 1,371 1987 609 1988 0 1989 978 1990 1,845 1991 3,554 1992 3,977 1993 1,495 1994 5,789 1995 5,180 1996 4,765 1997 0 ==================================================== C97-604 O'Connor & Associates Page 68 <PAGE> During the early 1980's, a tremendous number of people moved into the area, as employment in the energy industry expanded as a result of the 1973 oil embargo. This fact probably had as much to do with the apartment glut as the 1981 tax law. The oil embargo was a boon to the Houston area economy because of the economic dependence on oil and gas, whereas the nation at large suffered from the effects of the oil embargo. The Houston area experienced rapid new growth due to increased oil production. Because manufacturing was declining in the northeasterly portions of the nation, many people moved to this area for employment. Occupancy, Vacancy, and Absorption According to the June 1997 Houston Area Apartment Ownership Guide, published by O'Connor & Associates, the occupancy level for separately metered projects was 92.46% in June 1997 and 91.59% in June 1996. This represents a decrease of 0.94% in the vacancy rate of operating units for the Harris County Metropolitan Area. According to the April, 1997 Apartment Market TRAC, published by Apartment Data Services, occupancy levels in Harris County have remained in the 89%+ range over the past several years. The table on the following page depicts a history of physical vacancy during the past several years for both separately metered and master metered apartment projects in the Harris County area. C97-604 O'Connor & Associates Page 69 <PAGE> ============================================= HISTORICAL METROPOLITAN AREA OCCUPANCY LEVELS Period Occupancy Level ------ --------------- March 1989 81.90% June 1989 83.50% September 1989 84.30% December 1989 84.50% March 1990 84.90% June 1990 85.90% September 1990 86.80% December 1990 87.20% March 1991 87.40% June 1991 87.30% September 1991 87.60% December 1991 87.40% March 1992 86.90% June 1992 87.90% September 1992 88.10% December 1992 87.50% March 1993 87.40% June 1993 88.00% September 1993 88.20% December 1993 88.10% March 1994 87.90% June 1994 88.50% September 1994 89.10% December 1994 88.50% March 1995 88.30% June 1995 89.00% September 1995 89.60% December 1995 89.50% March 1996 89.50% June 1996 90.00% September 1996 90.40% December 1996 90.00% March 1997 90.30% ============================================= C97-604 O'Connor & Associates Page 70 <PAGE> Net unit absorption can be described as being the sum of the net new units absorbed plus the older units absorbed. If the net units absorbed is a plus, it indicates positive growth and demand for new units. However, a number contained within parenthesis indicates a decrease in demand or negative growth. The following chart illustrates a recent history of Harris County net unit absorption. ========================================= METROPOLITAN AREA NET UNIT ABSORPTION Period Units Absorbed ------ -------------- First Quarter 1991 (1,086) Second Quarter 1991 662 Third Quarter 1991 2,818 Fourth Quarter 1991 (209) First Quarter 1992 (1,230) Second Quarter 1992 4,853 Third Quarter 1992 798 Fourth Quarter 1992 (504) First Quarter 1992 85 Second Quarter 1993 2,285 Third Quarter 1993 1,219 Fourth Quarter 1993 (624) First Quarter 1994 462 Second Quarter 1994 3,036 Third Quarter 1994 2,769 Fourth Quarter 1994 224 First Quarter 1995 452 Second Quarter 1995 3,605 Third Quarter 1995 3,344 Fourth Quarter 1995 122 First Quarter 1996 1,654 Second Quarter 1996 3,503 Third Quarter 1996 2,035 Fourth Quarter 1996 (463) First Quarter 1997 1,170 ========================================= C97-604 O'Connor & Associates Page 71 <PAGE> Concessions Rental concessions have become less of a consideration during the past several years. During 1984 and 1985, as an incentive to entice renters into a project, apartment owners offered trips to exotic places, cash, microwave ovens, free rent during some portion of the lease, as well as other promotions. However, those concessions were offered at a time when the quoted rental rates remained high. This practice has abated to a great extent. According to the April, 1997 Apartment Market TRAC, of the 2,264 projects operating in Greater Houston, only 641 projects are offering some sort of rent concession. It has become apparent that project owners are now quoting "effective" rental rates, while offering fewer rental concessions. The following chart itemizes the types of rental concessions offered in the Greater Houston market: ========================================================== Rental Concessions ========================================================== Type of Rental Concession # of Projects - ---------------------------------------------------------- Move-in special 147 - ---------------------------------------------------------- Months free special 112 - ---------------------------------------------------------- Floorplan special 382 ========================================================== Total 641 ========================================================== C97-604 O'Connor & Associates Page 72 <PAGE> Rental Rates As mentioned previously, apartment owners are now quoting on an effective rental rate basis. The following table (as taken from the Apartment Market TRAC) illustrates the improving Greater Houston apartment market. The average rental rate increased steadily during the past five years. ========================================= HISTORICAL METROPOLITAN AREA AVERAGE MONTHLY RENTAL RATES Period Rental Rate ($/PSF) ------ ------------------- September 1991 $0.488 December 1991 $0.491 March 1992 $0.498 June 1992 $0.503 September 1992 $0.507 December 1992 $0.508 March 1993 $0.513 June 1993 $0.516 September 1993 $0.520 December 1993 $0.522 March 1994 $0.526 June 1994 $0.530 September 1994 $0.534 December 1994 $0.535 March 1995 $0.538 June 1995 $0.544 September 1995 $0.548 December 1995 $0.549 March 1996 $0.552 June 1996 $0.556 September 1996 $0.563 December 1996 $0.565 March 1997 $0.571 ========================================= C97-604 O'Connor & Associates Page 73 <PAGE> General Market Conclusions The Harris County apartment market experienced drastic declines in occupancies and rental rates in the mid- and late 1980's. However, these factors were the result of extreme overbuilding, which was intensified by OPEC's supply and pricing of oil, which in effect, caused severe layoffs in the energy industry. The apartment market is recovering, as evidenced by the continuing trend of positive net unit absorption, improved occupancy rates, and increases in rental rates. Subject Market Area Apartment Data Services segments the Harris County market into 39 individual submarkets within Harris County, and delineates between apartment complexes where the "resident pays the utilities" (separately metered) and the "owner pays the utilities" (master metered). The subject property is located in the Braeswood/Fondren Southwest Market Area (Southwest 8) by Apartment Data Services. This area's general boundaries are U.S. Highway 59, Bissonnet, and Beechnut to the north, South Gessner Road, West Bellfort, and Beltway 8 to the west, Beltway 8 to the south, and Hillcroft, and Loop 610 to the east. As all of the units at the subject property are master-metered; therefore this analysis will concentrate on this type of project. According to the April, 1997 Apartment Market TRAC, there were 7 master-metered projects in this market area, which contained a total of 3,395 units. Master-metered projects comprise only 8% of the total number of apartment projects in this market area. C97-604 O'Connor & Associates Page 74 <PAGE> The overall occupancy rate for master-metered projects in this market area was 90.90%. The average rental rate for projects in this market area was $0.654 per square foot, with the average monthly rent being $544 per month. The following chart depicts recent trends in this market. ===================================================== MARKET AREA TREND ANALYSIS ===================================================== Time Period Occupancy Rental Rate - ----------------------------------------------------- Last 3 Months 4.00% 7.00% Last 6 Months (1.50)% 4.40% Last 12 Months (0.70)% 3.40% Last 18 Months 2.00% 0.30% ===================================================== The trend analysis indicates that occupancy rate increases are greater than those of the Greater Houston area, as well as rent increases also being greater. The chart below depicts trends of the Greater Houston area for comparison purposes. ===================================================== GREATER HOUSTON AREA TREND ANALYSIS ===================================================== Time Period Occupancy Rental Rate - ----------------------------------------------------- Last 3 Months 1.50% 4.00% Last 6 Months (0.60)% 2.40% Last 12 Months 0.50% 3.20% Last 18 Months 0.70% 2.90% ===================================================== Construction & Building Permits From 1992 to March, 1997, no new units were built in the subject submarket (Apartment Market TRAC). Approximately 2,895 units have been renovated since 1992 in the subject submarket. Presently, there are no projects under construction. The following chart illustrates new construction activity within the subject submarket. C97-604 O'Connor & Associates Page 75 <PAGE> ========================================= MARKET AREA APARTMENT CONSTRUCTION ========================================= Number Number of Units of Units Year Built Renovated ---- ----- --------- Prior to 1970 3,685 0 1970 169 0 1971 0 0 1972 574 0 1973 290 0 1974 107 0 1975 521 0 1976 1,290 0 1977 3,347 0 1978 3,514 0 1979 1,822 0 1980 844 0 1981 1,216 0 1982 940 0 1983 1,372 0 1984 573 323 1985 119 1,322 1986 64 1,597 1987 0 0 1988 0 195 1989 0 681 1990 0 436 1991 0 0 1992 0 1,021 1993 0 130 1994 0 341 1995 0 179 1996 0 1,224 1997 0 0 ========================================= C97-604 O'Connor & Associates Page 76 <PAGE> Absorption, Occupancy, and Vacancy According to Apartment Data Services, during the four (4) quarters ending March, 1997, a positive 253 apartment units were absorbed in the subject submarket. The following depicts the net unit absorption for this market area from March, 1992 to March, 1997. ========================================= MARKET AREA NET UNIT ABSORPTION Period Units Absorbed ------ -------------- First Quarter 1992 61 Second Quarter 1992 108 Third Quarter 1992 (130) Fourth Quarter 1992 (135) First Quarter 1993 (61) Second Quarter 1993 (20) Third Quarter 1993 255 Fourth Quarter 1993 (26) First Quarter 1994 (127) Second Quarter 1994 67 Third Quarter 1994 (33) Fourth Quarter 1994 8 First Quarter 1995 (155) Second Quarter 1995 301 Third Quarter 1995 367 Fourth Quarter 1995 29 First Quarter 1996 345 Second Quarter 1996 402 Third Quarter 1996 (33) Fourth Quarter 1996 (291) First Quarter 1997 175 ========================================= C97-604 O'Connor & Associates Page 77 <PAGE> According to Apartment Data Services, the overall occupancy rate for the subject market has increased from 84.4% to the current occupancy of 91.20% within the past five years (March, 1992 through March, 1997). The following chart depicts historical occupancy levels within the subject's market area. ========================================= HISTORICAL OCCUPANCY LEVELS ========================================= Period Occupancy Level ------ --------------- March 1992 84.40% June 1992 84.90% September 1992 84.40% December 1992 83.70% March 1993 83.40% June 1993 84.00% September 1993 85.20% December 1993 85.10% March 1994 84.50% June 1994 84.80% September 1994 84.60% December 1994 84.60% March 1995 83.90% June 1995 84.70% September 1995 88.30% December 1995 88.50% March 1996 90.20% June 1996 92.00% September 1996 91.80% December 1996 90.30% March 1997 91.20% ========================================= C97-604 O'Connor & Associates Page 78 <PAGE> Rental Rates As in the Greater Houston area, the subject's market area has enjoyed steadily increasing overall rental rates. The chart below details rental rates in this area over the past few years. ========================================= MARKET AREA AVERAGE MONTHLY RENTAL RATES ========================================= Period Rental Rate ($/PSF) ------ ------------------- March 1992 $0.469 June 1992 $0.474 September 1992 $0.472 December 1992 $0.470 March 1993 $0.474 June 1993 $0.475 September 1993 $0.479 December 1993 $0.477 March 1994 $0.485 June 1994 $0.488 September 1994 $0.487 December 1994 $0.484 March 1995 $0.486 June 1995 $0.492 September 1995 $0.498 December 1995 $0.497 March 1996 $0.489 June 1996 $0.489 September 1996 $0.491 December 1996 $0.495 March 1997 $0.504 ========================================= C97-604 O'Connor & Associates Page 79 <PAGE> Apartment Market Area Conclusions Many apartment facilities in the area are similar in age and are experiencing similar rental rates and occupancy levels. It is our opinion that rental rates will experience steady moderate increases over the next few years, as vacancy levels continue to decline. Demand is reducing the oversupply and rental rates have increased significantly such that additional construction is feasible for some apartment types. However, there are indications of limited external economic obsolescence in the market. Subject's Micro-Market Area The subject property and the identified comparable rentals are thoroughly discussed in the Income Approach section of this report. C97-604 O'Connor & Associates Page 80 <PAGE> Highest and Best Use <PAGE> HIGHEST AND BEST USE ANALYSIS The highest and best use may be 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," according to The Appraisal of Real Estate, Eleventh Edition. The opinion of such use may be based on the highest and most profitable continuous use to which the property is adapted and needed, or likely to be in demand in the reasonably near future. However, elements affecting value which depend upon events, or a combination of occurrences which, while within the realm of possibility, are not fairly shown to be reasonably probable, should be excluded from consideration. Also, if the intended use is dependent on an uncertain act of another person, the intention cannot be considered. It may be further defined as that use of land which may reasonably be expected to produce the greatest net return to land over a given period of time - that use which will yield to the land the highest present value. This is sometimes referred to as the optimum use. C97-604 O'Connor & Associates Page 81 <PAGE> Alternatively, that use, from among reasonably probable and legal alternative uses, is found to be: a. Physically Possible b. Legally Permissible c. Financially Feasible d. Maximally Productive The definition, immediately preceding, applies specifically to the highest and best use of land. It is to be recognized that in cases where a site has existing improvements on it, the highest and best use may very well be determined to be different from the existing use. The existing use will continue however, unless and until land value in its highest and best use exceeds the total value of the property in its existing use, plus the cost of demolition. Implied within these definitions is recognition of the contribution of that specific use to community environment or to community development goals in addition to wealth maximization of individual property owners. In appraisal practice, the concept of highest and best use represents the premise upon which value is based. In the context of the most probable selling price (market value) C97-604 O'Connor & Associates Page 82 <PAGE> another appropriate term to reflect highest and best use would be most probable use. In the context of investment value, an alternative term would be most profitable use. "Also Implied in these definitions is that the determination of highest and best use takes into account the contribution of a specific use to the community and community development goals as well as the benefits of that use to individual property owners. Hence, in certain situations the highest and best use of the land may be for parks, greenbelt, preservation, conservation, wildlife habitats and the like." There are two distinct types of highest and best use, that being the highest and best use as if the site were vacant, and the highest and best use as if the site were improved. Both use determinations require consideration of the physical, legal, financial feasibility and maximal productivity for the site and improvements. A neighborhood and site analysis is essential in estimating the highest and best use of the site as if vacant. The improvement analysis contributes to the highest and best use as improved. The subject site will first be analyzed as if vacant, and then an analysis of the property as improved will follow. C97-604 O'Connor & Associates Page 83 <PAGE> Highest and Best Use Analysis - "As Vacant" Physically Possible The site is irregular in shape, and contains a total of +/-38.1796 acres (+/-1,663,103 square feet) of land. Further, the subject property is located at the intersection of North Braeswood Boulevard and Burdine Drive. The subject property has a primary physical address of 5410 North Braeswood, Houston, Harris County, Texas. All public utilities are available to the tract. The topography of the site is generally level. As stated previously, no soil engineer's report was available to us and no recent soil tests were performed. As a result, we have assumed a stable soil condition with sufficient load bearing capacity. Once again, we caution and advise the user of this report to obtain engineering studies which may be required to ascertain structural integrity and reserve the right to modify our value conclusions should these assumptions prove incorrect. The physical characteristics of the tract would allow potential development of the site to a wide range of large-scale uses. As such, virtually all large-scale uses are physically possible. Legally Permissible The City of Houston does not utilize zoning to regulate development. Individual subdivisions often use deed restrictions to regulate development. The appraisers were C97-604 O'Connor & Associates Page 84 <PAGE> not provided a copy of any applicable deed restrictions, and reserve the right to modify our value conclusions should any deed restrictions be present that are detrimental to the subject site. As such, Legally Permissible uses would include virtually all physically possible uses. Financial Feasibility and Maximal Productivity In order to be financially feasible, the improvements should conform with the surrounding land uses. To meet the test of being financially feasible, the project must provide a net return over a reasonable period of time. Current market rents do not justify development of a new, Class-B, 1,300+ unit multifamily complex, office building, retail building, or industrial development. Considering the trends and conditions that prevail in this market area, development of the site for a use other than owner-occupancy is not financially feasible. However, rent levels and occupancies are increasing in some areas, and are approaching feasible levels for some types of properties. Single-family lot development is financially feasible but is not the maximally productive use of the site, since subdivision developers typically pay approximately $5,000 to $10,000 per acre for land. C97-604 O'Connor & Associates Page 85 <PAGE> Conclusion - "As Vacant" Commercial utilization of the subject site is physically possible and legally permissible; however, most types of commercial properties are experiencing an oversupply, as well as low demand for new speculative multi-tenant construction. However, in the current subject market and given the subject's location and immediate surrounding development, it is considered that neither new apartment development nor new speculative retail development will be undertaken. As such, the Highest and Best Use for the subject site is for future multifamily development at a time when market rents approach feasible rent levels and occupancies of Class A properties warrant additional supply. C97-604 O'Connor & Associates Page 86 <PAGE> Highest and Best Use Analysis - "As Improved" The subject site is improved with a 1,326-unit apartment project with a net rentable area of +/-1,188,324 square feet. The improvements are of good quality construction and are in good condition. Such improvements are Physically Possible and Legally Permissible. Financially Feasible and Maximally Productive: Our analysis of market rent (Income Approach) and feasible rent (Cost Approach) indicate that presently, the subject property, as improved, would not be feasible to build new. Further, based on the current trends and conditions, this would be true for a significant number of property types in this market. The improvements, which are considered to be in good condition, are functionally adequate for their intended use and contribute value to the site. As such, and in the absence of any higher use, the existing improvements are considered the highest productive use at the present time. Highest and Best Use Conclusion: In consideration of all of the above, and no other apparent higher use for the site in the foreseeable future, it is our opinion that the Highest and Best Use for the subject property is its present multifamily use. C97-604 O'Connor & Associates Page 87 <PAGE> Cost Approach <PAGE> SALES COMPARISON APPROACH - LAND In reaching the land value estimate of the subject property by the sales comparison approach, Harris County Deed Records were searched for recent sales of comparable properties within this area. Additionally, real estate brokers and appraisers active in the area were consulted as to their knowledge of properties currently offered on the market for sale which would be in competition with the subject property, if it were offered for sale on the open market. The available market data was investigated, analyzed and compared to the subject property, taking into prime consideration the various similar and dissimilar characteristics, including terms of sale, and adjustments were applied accordingly in reaching the value estimate of the subject property by the market approach. No sales which were known to have occurred were arbitrarily disregarded. Only sales which were deemed not comparable, or could not be confirmed, or involved conditions not considered to represent fair market conditions, were deliberately omitted. The following is a listing of sales considered in our analysis of the subject property. C97-604 O'Connor and Associates Page 88 <PAGE> ================================================================================ LAND SALE NUMBER ONE - -------------------------------------------------------------------------------- Location: +/-350 ft N of Westheimer & +/-1000 ft W of Stoney Brook Date of Sale: 05/08/96 Key Map Reference: 490-V Recording Data: Film Code 508-29-0767 Grantor: Ronald E. Lee Grantee: TCR South Central 1995 Legal Description: Part of 3rd Tract, Camille G. Pillot Survey, Abstract 72, Harris County, Texas Land Area: 15.500 Acres 675,180 Square Feet Consideration: $7,427,000 Price Per Square Foot: $11.00 Terms: Cash to seller Property Characteristics: Property Use: Vacant at time of sale Utilities: All available Topography: Basically level Flood Plain: None Frontage: N/A Remarks: This site was purchased for expansion of an existing apartment complex. It appears as though the buyer was willing to pay a premium to acquire this particular tract located adjacent to his existing project. Based on the market data, a downward adjustment is necessary for conditions of sale. ================================================================================ C97-604 O'Connor and Associates Page 89 <PAGE> ================================================================================ LAND SALE NUMBER TWO - -------------------------------------------------------------------------------- Location: Southeast corner of Loop 610 and Glenmont Date of Sale: 10/31/94 Key Map Reference: 531-D Recording Data: ###-##-#### Grantor: Pin Oak Partners, Ltd. Grantee: Houston ISD Legal Description: Part of Lots 1, 2 Block 3, Westmoreland Farms 1, James Blessing Survey, Abstract 162, Harris County, Texas Land Area: 18.150 Acres 790,614 Square Feet Consideration: $5,534,298 Price Per Square Foot: $7.00 Terms: Cash to seller Property Characteristics: Property Use: Vacant at time of sale Utilities: All available Topography: Basically level Flood Plain: None Frontage: 630 FF - Loop 610 1,254 FF - Glenmont 630 FF - Avenue B ================================================================================ C97-604 O'Connor and Associates Page 90 <PAGE> ================================================================================ LAND SALE NUMBER THREE - -------------------------------------------------------------------------------- Location: North side of Club Creek, +/-350' northwest of Highway 59 Date of Sale: 10/27/94 Key Map Reference: 530-N Recording Data: ###-##-#### Grantor: Charles W. Austin, Tr. Grantee: Equitable Life Legal Description: 22.19 acres out of the H.T.& B.R.R. Co. Survey, Abstract 398, Harris County, Texas Land Area: 22.190 Acres 966,596 Square Feet Consideration: $3,363,944 Price Per Square Foot: $3.48 Terms: Cash to Seller Property Characteristics: Property Use: Vacant at time of sale Utilities: All available Topography: Basically level Flood Plain: None Frontage: 1,439 FF - Club Creek ================================================================================ C97-604 O'Connor and Associates Page 91 <PAGE> ================================================================================ LAND SALE NUMBER FOUR - -------------------------------------------------------------------------------- Location: Adjacent to the southwest corner of West Bellfort and South Post Oak Date of Sale: 04/12/93 Key Map Reference: 531-U Recording Data: ###-##-#### Grantor: Southmark Corp. Grantee: SCC Development Corp. Legal Description: 9.78 acres out of the J.D. Owen Survey, Abstract 612, Harris County, Texas Land Area: 9.7800 Acres 426,017 Square Feet Consideration: $1,848,500 Price Per Square Foot: $4.34 Terms: Cash to seller Property Characteristics: Property Use: Vacant at time of sale Utilities: All available Topography: Basically level Flood Plain: None Frontage: 607 FF - West Bellfort 744 FF - South Post Oak ================================================================================ C97-604 O'Connor and Associates Page 92 <PAGE> ================================================================================ LAND SALE NUMBER FIVE - -------------------------------------------------------------------------------- Location: Adjacent to the southwest corner of West Bellfort and South Post Oak Date of Sale: 04/12/93 Key Map Reference: 531-U Recording Data: ###-##-#### Grantor: SCC Development Corp. Grantee: Kroger Company Legal Description: 5.60 acres out of the J.D. Owen Survey, Abstract 612, Harris County, Texas Land Area: 5.6000 Acres 243,936 Square Feet Consideration: $1,848,500 Price Per Square Foot: $7.58 Terms: Cash to seller Property Characteristics: Property Use: Vacant at time of sale Utilities: All available Topography: Basically level Flood Plain: None Frontage: 607 FF - West Bellfort 55 FF - South Post Oak Remarks: This tract was purchased for construction of a Kroger store. ================================================================================ C97-604 O'Connor and Associates Page 93 <PAGE> LAND SALES MAP [GRAPHIC OMITTED] <PAGE> Analysis of the Sales The value for the subject tract was based on consideration of the previously mentioned comparable land sales. This estimate was based on an analysis of these sales in relation to the subject site after adjustments were applied for conditions of sale, availability of utilities, location, size, corner influence, and shape. The following is a summary of the sales used in our analysis. We will compare the sales on the basis of sales price per square foot, which is the most common unit of comparison for commercial tracts. <TABLE> <CAPTION> ================================================================================================ Sale Location Sale Sale Size Price No. Date Price (Acres) Per SF ================================================================================================ <S> <C> <C> <C> <C> <C> 1 +/-350 ft N of Westheimer & +/-1000 ft 05/08/96 $7,427,000 15.500 $11.00 W of Stoney Brook - ------------------------------------------------------------------------------------------------ 2 Southeast corner of Loop 610 and 10/31/94 $5,534,298 18.150 $7.00 Glenmont - ------------------------------------------------------------------------------------------------ 3 North side of Club Creek, +/-350' 10/27/94 $3,363,944 22.190 $3.48 northwest of Highway 59 - ------------------------------------------------------------------------------------------------ 4 Adjacent to the southwest corner of 04/12/93 $1,848,500 9.780 $4.34 West Bellfort and South Post Oak - ------------------------------------------------------------------------------------------------ 5 Adjacent to the southwest corner of 04/12/93 $1,848,500 5.600 $7.58 West Bellfort and South Post Oak ================================================================================================ </TABLE> The land sales incorporated in this analysis occurred from 1993 through 1996. Despite intense research efforts, no comparable 1997 land sales were found. Due to the large size of the subject site, and the built-up nature of the area, few large acreage tracts were available for analysis. Data on each of the sales, including sales price, was confirmed with sources considered to be reliable. Based on analysis of this data and other pertinent information obtained in our research, the following is a discussion of the factors which were found to exhibit significant influence on property values in this market. C97-604 O'Connor and Associates Page 94 <PAGE> FACTORS TO BE CONSIDERED AND SUMMARY OF ADJUSTMENTS Property Rights Conveyed This adjustment considers the difference in sales price of properties sold in fee simple estate or in leased fee estate and the affect of any existing leases on the sales price of the property. All the sales were fee simple with no adjustments applicable. Cash Equivalency Typical land investment property terms are considered to be 20-30% cash down with a 10-15 year note, with varying interest on payments. All sales were cash or equivalent, thus an adjustment for this item was not necessary. Conditions of Sale This adjustment reflects the motivations of the buyer and seller, i.e., assemblage, distress sale, reduced prices from family purchase, or purchase by adjacent land owners. With the exception of Sale 1, all of the sales were considered arms-length transactions with no conditions perceived which warranted a condition of sale adjustment. Sale 1, however, was purchased by an adjoining land owner who was willing to pay a premium to acquire this particular tract to expand his project. Thus, based on the market data, a 25% downward adjustment was considered applicable to Sale 1 for conditions of sale. Changing Market Conditions Since about 1992, land prices in the Houston area and the subject neighborhood have generally stabilized. This stabilized trend is consistent with today's market; therefore, no adjustments were indicated for Sales 1 through 5 (which occurred from 1993 to 1996). Location The type and density of surrounding development was examined for each sale. In addition, locations with proximity to business and retail centers were also considered. Properties which are located in densely developed areas, leading to higher visibility and traffic passage, tend to sell for higher prices than properties which are in less developed locations. Additionally, properties located on major C97-604 O'Connor and Associates Page 95 <PAGE> thoroughfares are generally considered superior to those located on secondary streets and typically command premium sales prices. The subject is located at the intersection of North Braeswood Boulevard and Burdine Drive, with additional frontage on Braesvalley and Braesmont Drives (see plat - Site Description section). Primarily due to its frontage on North Braeswood Boulevard, the subject property enjoys good exposure, access, and commercial appeal. Sale 1 is located on Westheimer Road, which is the most heavily travelled non-highway road in Houston. This sale is considered superior to the subject in location and is adjusted downward 25%. Sale 2 is located along the West Loop South, just within the city limits of Bellaire. This sale is also considered superior to the subject and is adjusted downward 20%. Sale 3 is located west of the Southwest Freeway along a secondary traffic carrier. This location is considered inferior to the subject and this sale is adjusted upward 15%. Sales 4 and 5 are located in close proximity to the subject along South Post Oak and West Bellfort Streets. No location adjustment is considered necessary for these sales. Size Typically, the larger the tract the lower the unit price. The converse also tends to be true. Land sales analyzed on a regional basis indicates a 5% to 10% price premium for each halving (or doubling) of size. A 10% adjustment appears reasonable for the subject area and has been utilized in our analysis. All sales are smaller than the subject and were adjusted downward 10% to 50%. Shape Properties which are irregular in shape, therefore making development more difficult, usually sell for less than a tract which is of a more normal configuration. The streets dividing the subject do not affect the utility of the tract for its highest and best use. Similar to the subject, all of the sales are reasonably shaped for development purposes and required no adjustment for shape. C97-604 O'Connor and Associates Page 96 <PAGE> Utilities The availability of utilities is a major factor in the development of any property. If a site has no utility service or cannot acquire access, it is virtually impossible to develop. The subject has access to all public utilities. All of the sales have similar access and warranted no adjustments for utilities. Corner Properties that have corner influences, or those that have access from two or more thoroughfares are typically superior than interior tracts, due to access and exposure characteristics. Although valued as one tract, Burdine and Braesvalley Drives separate the subject into three parcels with multiple corners. Sales 1, 3, 4, and 5 are all inferior to the subject in corner influence and required upward adjustments of 5% to 10%. Sale 2 is considered similar and is not adjusted. Topography The subject site appears basically level and well drained, and is located within the 100-Year Flood Plain (Zone AE and Shaded Zone X). Sales 1 through 3 are located outside of the 100-Year Flood Plain and were adjusted downward 10% for this superior feature. Sales 4 and 5 are located within a similar flood plain and are not adjusted. Each of the sales was analyzed and compared to the subject, with adjustments applied for differences in the factors discussed above. Insufficient data was available to utilize the matched pair analysis. Adjustments were applied based on general comparisons of empirical data and the personal observation and judgement of the appraiser. The grid on the following page illustrates the procedure used in arriving at an estimate of value for the subject site. C97-604 O'Connor and Associates Page 97 <PAGE> ================================================================================ LAND SALES ADJUSTMENT GRID ================================================================================ SALE 1 SALE 2 SALE 3 SALE 4 SALE 5 - -------------------------------------------------------------------------------- Sale Price Per Square Foot $11.00 $7.00 $3.48 $4.34 $7.58 - -------------------------------------------------------------------------------- Property Rights Conveyed 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Adjusted Sales Price $11.00 $7.00 $3.48 $4.34 $7.58 - -------------------------------------------------------------------------------- Cash Equivalency 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Adjusted Sales Price $11.00 $7.00 $3.48 $4.34 $7.58 - -------------------------------------------------------------------------------- Conditions of Sale -25% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Adjusted Sales Price $8.25 $7.00 $3.48 $4.34 $7.58 - -------------------------------------------------------------------------------- Changing Market Conditions 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Adjusted Sales Price $8.25 $7.00 $3.48 $4.34 $7.58 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Location -25% -20% 15% 0% 0% - -------------------------------------------------------------------------------- Size -20% -20% -10% -30% -50% - -------------------------------------------------------------------------------- Shape 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Utilities 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Corner 10% 0% 10% 5% 5% - -------------------------------------------------------------------------------- Topography -10% -10% -10% 0% 0% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Overall Adjustment (%) -45% -50% 5% -25% -45% - -------------------------------------------------------------------------------- Indicated Value Per Sq. Ft. $4.54 $3.50 $3.65 $3.25 $4.17 ================================================================================ Summary of Indicated Land Values Indicated Value Range: $3.25 to $4.54 Indicated Mid-Point Value: $3.90 Indicated Mean Value: $3.82 Estimated Value Per SF: $3.50 C97-604 O'Connor and Associates Page 98 <PAGE> Reconciliation and Land Value Estimate After adjustment, the land sales indicate values for the subject ranging from $3.25 to $4.54 per square foot. The mean indicated value is $3.82 per square foot, and the midpoint of the indicated values is $3.90 per square foot. Sales 3 and 4 received the least net adjustments, indicating a value range of $3.25 to $3.65 per square foot. It is our opinion that the value of subject site, land only, is estimated at $3.50 per square foot. The total value of the site is estimated as follows: ================================================================================ INDICATED LAND VALUE - -------------------------------------------------------------------------------- Land Area / SF Indicated Value PSF Indicated Land Value - -------------------------------------------------------------------------------- 1,663,103 $3.50 $5,820,861 - -------------------------------------------------------------------------------- VALUE OF SUBJECT SITE: $5,820,000 ================================================================================ C97-604 O'Connor and Associates Page 99 <PAGE> THE COST APPROACH The cost approach is the process of estimating the current cost (new) of reproducing a property's improvements, subtracting estimated depreciation from all sources and adding the estimated value of the land to arrive at an estimate of value for the property as a whole. Reproduction cost is the present cost of duplicating the improvements with one which is an exact replica. It is often difficult to estimate reproduction cost because details and methods of original construction are not available, identical materials are unavailable and/or methods of construction have changed. Replacement cost is the current cost of replacing the improvement with one having equal utility or able to perform the same economic function: 1. It could be the cost of acquiring an equally desirable substitute, or 2. The cost to replace, with a property having an equivalent utility, which may or may not be a replica, or 3. The replacing or remodeling of parts of a structure to maintain it in its highest and best use and operating condition. In practice, the terms have tended to be used interchangeably and have more commonly come to mean: The present cost of replacing the improvements with improvements of equivalent utility, considering modern materials and construction methods. C97-604 O'Connor and Associates Page 100 <PAGE> Depreciation: defined as loss in capital value from any cause. It is employed in this report in estimating the difference in the present day value of the improvements and the cost of new replacement. The three major types of accrued depreciation are: Physical Deterioration This is loss in value from actual physical causes and measured either as curable or incurable. The curable items are measured by the actual cost to replace or repair the component parts. The incurable portion is estimated by virtue of an observed condition or ascertaining the used portion by the best estimate of the appraiser. Curable physical deterioration, also referred to as deferred maintenance, is caused by normal wear and tear that should be corrected immediately, or is necessary to keep rents at market levels. The cost of curing the condition, and bringing the property to a satisfactory and functioning condition, is generally the measure of deferred maintenance. Functional Obsolescence This is loss in value from conditions existing within the property which make the property inadequate of less desirable to the typical prudent purchases. It, too, may be curable or incurable. Incurable obsolescence is normally measured by the loss in income which may accrue to the property by reason thereof. External Obsolescence This is defined as "the impairment of desirability or useful life arising from factors external to the property, such as economic forces or environmental changes which affect supply-demand relationships in the market." Loss in the use and value of a property arising from the factors of external obsolescence is to be distinguished from loss in value from physical deterioration and functional obsolescence, both of which are inherent in a property. C97-604 O'Connor and Associates Page 101 <PAGE> As indicated earlier, it is our opinion that the existing improvements do represent the current Highest and Best Use of the site "as improved". As such, the following is a discussion of land value, cost and depreciation components used in arriving at a value estimate for the subject via the Cost Approach. Replacement Cost Estimate Cost factors are estimated from data in our files and from Marshall Valuation Service, Section 12, Page 14, Category D, dated December 1995, adjusted for local and current factors. Results of these calculations are indicated in the following schedules: C97-604 O'Connor and Associates Page 102 <PAGE> <TABLE> <CAPTION> =================================================================================================== ESTIMATE OF REPLACEMENT COST =================================================================================================== <S> <C> <C> <C> <C> I. DIRECT COSTS Apartment Area (SF): 1,196,250 Base Cost PSF: $48.00 Multipliers (Sec. 99): Area: 85.00% Current Cost: 103.00% Times Local: 93.00% ------ Total Factor: 81.42% Adj. Base Cost PSF: $39.08 TOTAL BASE BUILDING COST: $46,749,450 Plus Segregated Cost: Built Ins Number Unit Cost Total Cost ------ --------- ---------- Oven/Range 1,326 $300 $397,800 Refrigerator 1,326 $325 $430,950 Disposal 1,326 $75 $99,450 Dishwashers 1,326 $200 $265,200 Total Built Ins $1,193,400 Swimming Pools $300,000 Fences, Gates $500,000 Parking/Drives/Walkways (500,000 SF - asphalt and concrete) $1,037,000 Landscaping $750,000 Carports $1,140,000 ---------- Total Direct Cost $51,669,850 II. INDIRECT COST Entrepreneurial Profit: 10.00% $5,166,985 ------ Real Estate Taxes during construction: $240,906 Financing Fees: Average Balance: 70.00% $36,168,895 Origination Fees: Construction: 1.00% Permanent: 1.00% ----- Total: 2.00% $723,378 Appraisal and Other Fees/Permits: $50,000 Title and Misc. Cost: $129,175 -------- Total Indirect Cost: $6,310,444 TOTAL COST NEW, INCLUDING PROFIT: $57,980,294 =================================================================================================== </TABLE> C97-604 O'Connor and Associates Page 103 <PAGE> Entrepreneurial profit is the amount which the developer expects to receive for his time and effort in the construction process. This has been estimated at 10% of the base direct costs, based upon discussions with local developers. Short-Life Physical Deterioration The depreciation estimate for short-life items can be divided into two categories; "Curable" and "Incurable". The following is a discussion of each. Short-life curable physical deterioration, also referred to as deferred maintenance, is caused by normal wear and tear that should be corrected immediately, or is necessary to keep rents at market levels. The cost of curing the condition, and bringing the property to a satisfactory and functioning condition, is generally the measure of deferred maintenance. Based on observations of the appraiser, the subject improvements do not suffer from any significant items of deferred maintenance. Incurable Short-Life deterioration is also attributable to normal wear and tear, but is generally unfeasible or uneconomical to repair. Age of short-life items is based on observed condition. Typically this charge is estimated on an age/life method. The following chart exhibits the calculations used. C97-604 O'Connor and Associates Page 104 <PAGE> <TABLE> <CAPTION> ================================================================================================== Physical Deterioration; Incurable Short Life ================================================================================================== Item Area (SF) Unit Cost Cost New Eff. Age / Eco. Life Depreciation - -------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> HVAC 1,196,250 $1.75 $2,093,438 5 / 15 $697,813 Flooring 1,196,250 $1.00 $1,196,250 4 / 10 $478,500 Built Ins $1,193,400 4 / 12 $397,800 Roof Cover 629,605 $1.50 $944,408 8 / 20 $377,763 -------- -------- Totals $5,427,495 $1,951,876 % of Replacement Cost New, including profit $57,980,294 3.37% ================================================================================================== </TABLE> Physical Deterioration: Incurable Long-Life The improvements are constructed with good quality materials and are considered to be in good condition. The effective age of the project is considered to be 17 years, with a remaining life of +/-33 years. Prior to calculating incurable long-life depreciation, the replacement cost new of short-life items is subtracted. <TABLE> <CAPTION> ========================================================================================= Physical Deterioration; Incurable Long Life ========================================================================================= Item Description Cost New Eff. Age / Eco. Life Depreciation <S> <C> <C> <C> <C> RCN (Incl. Profit) $57,980,294 17 / 50 34.00% Less: Deferred Maintenance $0 RCN Short Life Items $5,427,495 ----------- RCN Bone Structure Items $52,552,799 34.00% $17,867,952 30.82% ========================================================================================= </TABLE> C97-604 O'Connor and Associates Page 105 <PAGE> External Obsolescence- Due to Rent Loss is typically the result of contracted rental rates below market rental rates and is influenced by the property's ownership and management. Given the subject's present physical and financial occupancies, a deduction for rent loss due to below market rents is not considered necessary. External Obsolescence- Due to Below Feasible Market Rents is typically calculated by first estimating the feasible net operating income and then calculating the difference between market net operating income and the feasible net operating income. The net operating income loss, if any, is capitalized using the rate developed in the Income Approach. The building to property ratio is then applied to arrive at the amount of obsolescence attributable to the improvements. These calculations are illustrated in the table on the following page: C97-604 O'Connor and Associates Page 106 <PAGE> <TABLE> <CAPTION> ================================================================================================ Calculation of External Obsolescence ================================================================================================ <S> <C> <C> RCN, Including Profit $57,980,294 Less Physical Deterioration Short Life 3.37% Long Life 30.82% Deferred Maintenance 0.00% ----- Total 34.19% ($19,823,463) ------------- RCN Less Physical Deterioration $38,156,831 Plus Land $5,820,000 ---------- RCN Less Physical Deterioration Plus Land $43,976,831 Times Feasible Overall Rate (Ro) 9.25% ----- Feasible Net Operating Income (NOI) $4,067,857 RCN Less Physical Deterioration $38,156,831 Divided by RCN Less Physical Deterioration Plus Land $43,976,831 Equals Building to Property Ratio (%) 86.77% Feasible Net Operating Income $4,067,857 Market Net Operating Income $4,187,850 ---------- Loss in Net Operating Income ($119,993) Divided by Ro 9.25% Capitalized Net Operating Income Loss $0 Multiplied by Building to Property Ratio 86.77% ------ Estimate of External Obsolescence $0 Rounded: $0 External Obsolescence Expressed as a Percentage of Replacement Cost New 0.00% ================================================================================================ </TABLE> Based on the foregoing analysis, the following chart recaps and illustrates the calculations used in arriving at the final value estimate via the Cost Approach. C97-604 O'Connor and Associates Page 107 <PAGE> <TABLE> <CAPTION> ================================================================================================ COST SCHEDULE ================================================================================================ <S> <C> <C> Replacement Cost New I. Direct Cost Building Cost $46,749,450 Built Ins $1,193,400 Carports $300,000 Fences $500,000 Parking/Drives/Walkways $1,037,000 Landscaping $750,000 Carports $1,140,000 ---------- Total Direct Cost $51,669,850 II. Indirect Cost Entrepreneurial Profit $5,166,985 Real Estate Taxes During Construction $240,906 Financing Fees $723,378 Appraisal and Legal Cost $50,000 Title and Misc. Cost $129,175 -------- Total Indirect Cost $6,310,444 ----------- TOTAL COST NEW, INCLUDING PROFIT $57,980,294 Less Depreciation From All Causes: Type Depreciation Deferred Maintenance $0 Physical Incurable Short Life $1,951,876 Physical Incurable Long Life $17,867,952 External Obsolescence $0 Functional Obsolescence $0 -- Total Depreciation $19,819,828 DEPRECIATED VALUE OF IMPROVEMENTS $38,160,466 Plus Land Value Estimate $5,820,000 ---------- Final Value Estimate $43,980,466 FINAL VALUE ESTIMATE (ROUNDED) $43,980,000 ================================================================================================ </TABLE> C97-604 O'Connor and Associates Page 108 <PAGE> Sales Comparison Approach <PAGE> SALES COMPARISON APPROACH - IMPROVED General In this independent approach to value, the value estimate is predicated upon prices paid in actual market transactions. The methodology involved is a process of analyzing similarly improved properties and comparing them to the subject. In some instances a comparison analysis is utilized, with adjustments being made for differences in financing, location and physical characteristics. Based on our research, investors in the market area apartment market typically rely heavily on the following methodology: 1. Sales Price Per Unit - This denominator is obtained by dividing the sale price by the total number of units in the project. The Harris County Deed Records were searched for recent sales of similarly improved apartment projects. Owners, property managers and other professionals active in the area were consulted as to their knowledge of current trends and conditions that prevail within the apartment market. The sale transactions considered most comparable to the subject are detailed on the following pages. (The reported and proforma operating expenses include reserves for replacements.) C97-604 O'Connor and Associates Page 109 <PAGE> ================================================================================ COMPARABLE IMPROVED SALE NUMBER ONE - -------------------------------------------------------------------------------- Key Map: 532-K Project Name: Brompton Court Apartments Location: 7510 Brompton Legal Description: 18.78 acres being Brompton Court Apartments, P.W. Rose Survey, Abstract 645, Houston, Harris County Texas Grantor: 7510 Brompton Grantee: PTR Holding Sale Price: $26,739,000 Sale Date: July 28, 1994 Recording Data: Film Code 500-38-0975 Financing: Cash to seller Size/Acres: 18.7800 Year Built: 1972 Net Rentable Area (Square Feet): 692,125 Number of Units: 794 Land to Building Ratio: 1.18 Units Per Acre: 42.28 Average Unit Size (Square Feet): 872 Actual Occupancy: 98% Stabilized Occupancy: 93% PSF ---- Gross Potential Income: $5,813,850 $8.40 Less Vacancy: $406,970 $0.59 -------- Effective Gross Income: $5,406,881 $7.81 Less Expenses: $2,941,531 $4.25 ---------- Net Operating Income: $2,465,349 $3.56 Sales Price/SF of Building Area: $38.63 Sales Price/Unit $33,676 EGIM: 4.95 Overall Rate (Ro): 9.22% Expense Ratio: 54.40% ================================================================================ C97-604 O'Connor and Associates Page 110 <PAGE> ================================================================================ APARTMENT SALE NUMBER ONE ================================================================================ Unit Mix -------- # of Units Unit Type Unit Size Total Area 112 1 Bedroom / 1 Bath 600 67,200 39 1 Bedroom / 1 Bath 606 23,634 165 1 Bedroom / 1 Bath 698 115,170 29 1 Bedroom / 1 Bath 745 21,605 142 2 Bedroom / 2 Bath 793 112,606 100 2 Bedroom / 2 Bath 1,020 102,000 70 2 Bedroom / 2 Bath 1,051 73,570 51 2 Bedroom / 2 Bath 1,250 63,750 76 2 Bedroom / 2 Bath 1,300 98,800 10 2 Bedroom / 2 Bath 1,379 13,790 --- -------- 794 692,125 Project Amenities: This project's amenities include access gates, four swimming pools, a jacuzzi, an exercise room, a clubhouse, and on-site laundry. Unit amenities include cable television access, washer/dryer connections in some units, ceiling fans, mini-blinds, and private patios/ balconies. Utilities: This is a separately-metered project. ================================================================================ C97-604 O'Connor and Associates Page 111 <PAGE> ================================================================================ COMPARABLE IMPROVED SALE NUMBER TWO - -------------------------------------------------------------------------------- Key Map: 491-U Project Name: York Townhouse Apartments Location: 2530 Yorktown Legal Description: 17.73 acres being the York Townhouse Apartments, C. Sage Survey, Abstract 697, Houston, Harris County, Texas Grantor: Weingarten Realty Grantee: Intercapital Yorktown Ltd. Sale Price: $18,000,000 Sale Date: August 6, 1996 Recording Data: Film Code 509-51-3222 Financing: Cash sale Size/Acres: 17.7300 Year Built: 1971 Net Rentable Area (Square Feet): 480,734 Number of Units: 564 Land to Building Ratio: 1.61 Units Per Acre: 31.81 Average Unit Size (Square Feet): 852 Actual Occupancy: 93% Stabilized Occupancy: 93% PSF ---- Gross Potential Income: $4,038,166 $8.40 Less Vacancy: $282,672 -------- Effective Gross Income: $3,755,494 $7.81 Less Expenses: $2,043,120 $4.25 ---------- Net Operating Income: $1,712,375 $3.56 Sales Price/SF of Building Area: $37.44 Sales Price/Unit $31,915 EGIM: 4.79 Overall Rate (Ro): 9.51% Expense Ratio: 54.40% ================================================================================ C97-604 O'Connor and Associates Page 113 <PAGE> ================================================================================ APARTMENT SALE NUMBER TWO ================================================================================ Unit Mix -------- # of Units Unit Type Unit Size Total Area 62 0 Bedroom / 1 Bath 550 34,100 171 1 Bedroom / 1 Bath 680 116,280 29 1 Bedroom / 1 Bath 680 19,720 72 1 Bedroom / 1 Bath 750 54,000 4 1 Bedroom / 1 Bath 805 3,220 50 1 Bedroom / 1 Bath 850 42,500 90 2 Bedroom / 2 Bath 1,090 98,100 2 2 Bedroom / 2 Bath 1,115 2,230 44 2 Bedroom / 2 Bath 1,126 49,544 4 2 Bedroom / 2 Bath 1,285 5,140 16 3 Bedroom / 2.5 Bath 1,350 21,600 20 2 Bedroom / 2 Bath 1,715 34,300 --- -------------------- ----- ------- 564 852 480,734 Project Amenities: This project offers two swimming pools, limited access gates, clubhouse, tennis courts, an exercise room, covered parking, and laundry rooms. Unit amenities include cable television access, microwaves, some fireplaces, some washer/dryer connections, ceiling fans and miniblinds. Utilities: This is a separately-metered project. ================================================================================ C97-604 O'Connor and Associates Page 114 <PAGE> PHOTOGRAPH OF IMPROVED SALE NUMBER TWO ================================================================================ [GRAPHIC OMITTED] ================================================================================ C97-604 O'Connor and Associates Page 115 <PAGE> ================================================================================ COMPARABLE IMPROVED SALE NUMBER THREE - -------------------------------------------------------------------------------- Key Map: 533-N Project Name: Scotland Yard Apartments Location: 2250 Holly Hall Legal Description: Reserve A, Plaza Del Oro Section 4, P.W. Rose Survey, Abstract 645, Houston, Harris County, Texas Grantor: Carlyle Real Estate LP Grantee: Almo Properties LLC. Sale Price: $25,515,000 Sale Date: October 31, 1996 Recording Data: Film Code 510-62-0041 Financing: Cash to seller Size/Acres: 18.0600 Year Built: 1982 Net Rentable Area (Square Feet): 481,816 Number of Units: 678 Land to Building Ratio: 1.63 Units Per Acre: 37.54 Average Unit Size (Square Feet): 711 Actual Occupancy: 96% Stabilized Occupancy: 93% PSF ----- Gross Potential Income: $4,509,798 $9.36 Less Vacancy: $315,686 -------- Effective Gross Income: $4,194,112 $8.70 Less Expenses: $1,854,992 $3.85 ---------- Net Operating Income: $2,339,120 $4.85 Sales Price/SF of Building Area: $52.96 Sales Price/Unit $37,633 EGIM: 6.08 Overall Rate (Ro): 9.17% Expense Ratio: 44.23% ================================================================================ C97-604 O'Connor and Associates Page 116 <PAGE> ================================================================================ APARTMENT SALE NUMBER THREE ================================================================================ Unit Mix -------- # of Units Unit Type Unit Size Total Area 72 1 Bedroom / 1 Bath 566 40,752 48 1 Bedroom / 1 Bath 567 27,216 72 1 Bedroom / 1 Bath 622 44,784 72 1 Bedroom / 1 Bath 630 45,360 72 1 Bedroom / 1 Bath 656 47,232 72 1 Bedroom / 1 Bath 676 48,672 90 1 Bedroom / 1 Bath 706 63,540 32 2 Bedroom / 1 Bath 830 26,560 8 2 Bedroom / 1 Bath 881 7,048 16 2 Bedroom / 1 Bath 924 14,784 56 2 Bedroom / 2 Bath 892 49,952 8 2 Bedroom / 2 Bath 925 7,400 16 2 Bedroom / 2 Bath 965 15,440 44 2 Bedroom / 2 Bath 979 43,076 --- ------------------ --- ------ 678 711 481,816 Project Amenities: This project offers 6 swimming pools, limited access gates, an exercise room, a clubhouse, and on-site laundry rooms. Unit amenities include free basic cable television, some washer/ dryer connections, some fireplaces, alarm systems, ceiling fans, mini-blinds and private patios and balconies. Utilities: This is a separately-metered project. ================================================================================ C97-604 O'Connor and Associates Page 117 <PAGE> PHOTOGRAPH OF IMPROVED SALE NUMBER THREE ================================================================================ [GRAPHIC OMITTED] =============================================================================== C97-604 O'Connor and Associates Page 118 <PAGE> ================================================================================ COMPARABLE IMPROVED SALE NUMBER FOUR - -------------------------------------------------------------------------------- Key Map: 490-V Project Name: 7979 Westheimer Apartments Location: 7979 Westheimer Legal Description: Part of Tract 2, Westover Square Apartments, A-72, J.D. Taylor Survey, Houston, Harris County, Texas Grantor: Copley/Finger Venture 2 Grantee: EOR-Lincoln Village I Vista Sale Price: $13,800,000 Sale Date: February 7, 1996 Recording Data: Film Code 507-09-1549 Financing: Cash sale Size/Acres: 15.4000 Year Built: 1970 Net Rentable Area (Square Feet): 401,571 Number of Units: 459 Land to Building Ratio: 1.67 Units Per Acre: 29.81 Average Unit Size (Square Feet): 875 Actual Occupancy: 95% Stabilized Occupancy: 93% PSF ----- Gross Potential Income: $3,180,442 $7.92 Less Vacancy: $222,631 -------- Effective Gross Income: $2,957,811 $7.37 Less Expenses: $1,485,813 $3.70 ---------- Net Operating Income: $1,471,999 $3.67 Sales Price/SF of Building Area: $34.37 Sales Price/Unit $30,065 EGIM: 4.67 Overall Rate (Ro): 10.67% Expense Ratio: 50.23% ================================================================================ C97-604 O'Connor and Associates Page 119 <PAGE> ================================================================================ APARTMENT SALE NUMBER FOUR ================================================================================ Unit Mix -------- # of Units Unit Type Unit Size Total Area 206 1 Bedroom / 1 Bath 614 126,484 48 1 Bedroom / 1 Bath 748 35,904 12 2 Bedroom / 1.5 Bath 914 10,968 24 2 Bedroom / 1 Bath 923 22,152 12 2 Bedroom / 2 Bath 928 11,136 21 2 Bedroom / 2 Bath 1,075 22,575 120 2 Bedroom / 2 Bath 1,212 145,440 16 3 Bedroom / 3 Bath 1,682 26,912 --- ------------------ ----- ------ 459 875 401,571 Project Amenities: This project offers swimming pools, limited access gates, an exercise room, and on-site laundry rooms. Unit amenities include cable television access, alarms systems, some fireplaces, ceiling fans, mini-blinds and private patios/balconies. Utilities: This is a separately-metered project. ================================================================================ C97-604 O'Connor and Associates Page 120 <PAGE> PHOTOGRAPH OF IMPROVED SALE NUMBER FOUR ================================================================================ [GRAPHIC OMITTED] ================================================================================ C97-604 O'Connor and Associates Page 121 <PAGE> ================================================================================ COMPARABLE IMPROVED SALE NUMBER FIVE - -------------------------------------------------------------------------------- Key Map: 491-R Project Name: Tree Top Apartments Location: 4510 Briar Hollow Place Legal Description: Tracts 1 and 2, Briar Hollow Place, R/P, Houston, Harris County, Texas Grantor: Fon Associates, LP Grantee: KC Venture Group, LLC Sale Price: $5,650,000 Sale Date: February 1, 1996 Recording Data: Film Code Not Available Financing: Cash sale Size/Acres: 3.7600 Year Built: 1968 Net Rentable Area (Square Feet): 131,325 Number of Units: 179 Land to Building Ratio: 1.25 Units Per Acre: 47.61 Average Unit Size (Square Feet): 734 Actual Occupancy: 91% Stabilized Occupancy: 93% PSF ---- Gross Potential Income: $1,260,720 $9.60 Less Vacancy: $88,250 ------- Effective Gross Income: $1,172,470 $8.93 Less Expenses: $630,360 $4.80 -------- Net Operating Income: $542,110 $4.13 Sales Price/SF of Building Area: $43.02 Sales Price/Unit $31,564 EGIM: 4.82 Overall Rate (Ro): 9.59% Expense Ratio: 53.76% ================================================================================ C97-604 O'Connor and Associates Page 122 <PAGE> ================================================================================ APARTMENT SALE NUMBER FIVE ================================================================================ Unit Type Unit Size 1 Bedroom / 1 Bath 586 1 Bedroom / 1 Bath 636 1 Bedroom / 1 Bath 663 1 Bedroom / 1 Bath 679 1 Bedroom / 1 Bath 695 1 Bedroom / 1 Bath 723 1 Bedroom / 1 Bath 756 2 Bedroom / 2 Bath 976 2 Bedroom / 2 Bath 1,027 ------------------ ----- 734 Project Amenities: This project offers two swimming pools, an exercise room, limited access gates, covered parking, and on-site laundry room. Unit amenities include cable television, microwaves, miniblinds, and ceiling fans. Utilities: This is a master-metered project. ================================================================================ C97-604 O'Connor and Associates Page 123 <PAGE> PHOTOGRAPH OF IMPROVED SALE NUMBER FIVE ================================================================================ [GRAPHIC OMITTED] ================================================================================ C97-604 O'Connor and Associates Page 124 <PAGE> ANALYSIS OF IMPROVED SALES <TABLE> <CAPTION> ============================================================================================== SUMMARY OF IMPROVED SALES - ---------------------------------------------------------------------------------------------- Sale No. Size Sales Price No. Project Name Units SF NRA Price Per Unit Ro - ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> 1 Brompton Court 794 692,125 $26,739,000 $33,676 9.22% 2 York Townhouse 564 480,734 $18,000,000 $31,915 9.51% 3 Scotland Yard 678 481,816 $25,515,000 $37,633 9.17% 4 7979 Westheimer 459 401,571 $13,800,000 $30,065 10.67% 5 Tree Top 179 131,325 $5,650,000 $31,564 9.59% ============================================================================================== </TABLE> The improved sales incorporated in this analysis occurred between July 1994 and October 1996. We were unable to confirm any sales of properties of similar age and size in the subject's market area which occurred in 1997. All of the sales are of older properties (constructed between 1968 and 1982) similar to the subject property. Data on each of the sales, including sales price and income and expense data, was confirmed with sources considered to be reliable. The subject property contains master-metered units. Sale 5 is a master-metered project while Sales 1 through 4 are separately-metered. As discussed later in the income approach section of this report, in and around the subject's market area there is little difference between the market rental rates for separately versus master metered properties. Although these sales are not as close in proximity to the subject as the ensuing comparable rental properties, it is evident through analyzing the overall rates and EGIMs that investors, in this area, are not showing preference for one metering over another. The reasoning for this, based on the sales analysis, lies in the average net C97-604 O'Connor and Associates Page 125 <PAGE> operating income per square foot and overall expense ratios. In short, cash flows are indicated to be more of a concern to investors than the metering type. Based on our analysis of this data and other pertinent information obtained in my research, the following is a discussion of the factors which were found to exhibit significant influence on property values in this market. C97-604 O'Connor and Associates Page 126 <PAGE> FACTORS TO BE CONSIDERED AND SUMMARY OF ADJUSTMENTS Property Rights Conveyed The comparable sales were subject to short term leases, typically six months. The fee simple estate for the subject property is the interest appraised. Area apartment investors do not differentiate between the leased fee estate and the fee simple estate for apartments subject to short term leases. Further, buyers and sellers contacted when confirming sales indicated they recognized no difference between the leased fee estate and the fee simple estate. Therefore, no adjustment was necessary for this item. Terms of Financing The transaction price of one property may differ from that of an identical property due to different financing arrangements. For example, the purchaser of a comparable property may have assumed an existing mortgage at a favorable interest rate. In another case, a seller may have arranged a buydown, paying cash to the lender so that a mortgage with a below-market interest rate could be offered. Interest rates at above-market levels often result in lower sales prices. All sales were cash or considered cash equivalent; thus an adjustment for this item was not necessary. C97-604 O'Connor and Associates Page 127 <PAGE> Conditions of Sale This adjustment reflects the motivations of the buyer and seller, i.e., assemblage, distress sale, reduced prices from family purchase and purchase by adjacent land owners. All of the sales are considered to represent arms-length market sales, and no price differences are noted which are attributable to conditions of sale. Therefore, no adjustments are applied to the sales for this factor. Market Conditions Adjustments are often necessary to correct for changes in value over time due to market factors such as supply and demand, and economic factors such as inflation. Discussions with apartment brokers have indicated that values declined during 1982-1988, but have since increased. However, prices have been relatively stable for this market since about early 1994 and, despite rental increases, have not demonstrated quantifiable value increases. Therefore, no market adjustments were justified for the transactions used in this analysis. C97-604 O'Connor and Associates Page 128 <PAGE> Location Adjustments occur when the comparable sale is located in an area that is either more or less desirable than the subject, in relationship to absorption and new construction starts. Also, surrounding development and property use trends are given consideration. All sales are considered to have similar locations when compared to the subject with regard to access, visibility, surrounding development, and property use trends. Consequently, no location adjustments are considered necessary for these sales. Quality/Appeal Quality adjustments are warranted when the construction quality of the comparable sales (including the level of amenities offered) are either inferior or superior to the subject property and the "curb appeal" of the comparable sales differ from the subject property. Overall, the subject property is superior in quality and appeal to Sales 2 and 4 and reasonably similar to Sales 1, 3 and 5. Sales 2 and 4 were adjusted upward 5% for inferior quality/appeal in comparison to the subject. C97-604 O'Connor and Associates Page 129 <PAGE> Age/Condition This factor adjusts for differences due to incurable physical deterioration. Newer properties, when compared to the subject property, have accrued less physical incurable deterioration, while older properties have accrued more incurable physical deterioration. Discussions with brokers indicated that a property's physical condition is of utmost importance with investors. A property may recapture some of its incurable physical deterioration if it has been renovated, thus altering its effective age. Properties that are inferior in this respect receive upward adjustments, while properties that are superior receive downward adjustments. The subject property was constructed in 1967-70, appears to be well-maintained, and is considered to be in good condition with an effective age of 17 years. The sales were all built between 1968 and 1982. With the exception of Sale 3, all of the sales are reasonably similar to the subject in age and condition and warranted no adjustments. Sale 3, however, was constructed in 1982 and is considered to have a superior effective age compared to the subject. This sales was adjusted downward 10% for this superior feature. Average Unit Size Generally, projects with a larger average unit size are found to bring a higher per unit price than projects with smaller average unit size. The assumption is that larger units cost more, and generally lease for more on a per unit basis. The subject property has an average unit size of +/-896 SF. Sales 3 through 5 have smaller average unit sizes in C97-604 O'Connor and Associates Page 130 <PAGE> comparison to the subject property. Thus, upward adjustments of 5% each were applied to Sales 3 through 5 for this factor. Sales 1 and 2 are similar to the subject in average unit size and were not adjusted. Project Size This would reflect market differences for projects with a varying number of units. According to area apartment investors, they are relatively indifferent with respect to project size for properties over 100 units. The subject property contains 1,326 units, more than any of the sales. However, insufficient data was available to substantiate any difference in price per unit due to a larger number of units. Sale 1 contains the most units and has a price per unit near the middle of the range. Sale 5 has the least number of units and has a price per unit near the bottom of the range. Consequently, as no definitive evidence was present which would indicate an adjustment to price for a large number of units, no adjustment was applied to the sales. The grid on the following page details our adjustment process for the comparable sales. C97-604 O'Connor and Associates Page 131 <PAGE> <TABLE> <CAPTION> ========================================================================================= Improved Sales Adjustment Grid ========================================================================================= <S> <C> <C> <C> <C> <C> 1 2 3 4 5 - ----------------------------------------------------------------------------------------- Sales Price Per Unit $33,676 $31,915 $37,633 $30,065 $31,564 - ----------------------------------------------------------------------------------------- Property Rights Conveyed 0% 0% 0% 0% 0% - ----------------------------------------------------------------------------------------- Terms of Financing 0% 0% 0% 0% 0% - ----------------------------------------------------------------------------------------- Condition of Sale 0% 0% 0% 0% 0% - ----------------------------------------------------------------------------------------- Market Condition 0% 0% 0% 0% 0% - ----------------------------------------------------------------------------------------- Adjusted Price Per Unit $33,676 $31,915 $37,633 $30,065 $31,564 - ----------------------------------------------------------------------------------------- Location 0% 0% 0% 0% 0% - ----------------------------------------------------------------------------------------- Quality/Appeal 0% 5% 0% 5% 0% - ----------------------------------------------------------------------------------------- Age/Condition 0% 0% -10% 0% 0% - ----------------------------------------------------------------------------------------- Average Unit Size 0% 0% 5% 5% 5% - ----------------------------------------------------------------------------------------- Project Size 0% 0% 0% 0% 0% ========================================================================================= Overall Adjustment (%) 0% 5% -5% 10% 5% ========================================================================================= Indicated Value Per Unit $33,676 $33,511 $35,751 $33,072 $33,142 ========================================================================================= </TABLE> - -------------------------------------------------------------------------------- SUMMARY OF INDICATED VALUES AFTER ADJUSTMENTS - -------------------------------------------------------------------------------- Indicated Value Range: $33,072 to $35,751 Median Indicated Value: $34,412 Mean Indicated Value: $33,830 Estimated Value: $34,200 ================================================================================ C97-604 O'Connor and Associates Page 132 <PAGE> VALUE ESTIMATE - SALES COMPARISON APPROACH - IMPROVED After adjustment, the sales indicate values ranging from $33,072 to $35,751 per unit. The mean indicated value is $33,830 per unit and the median value is $34,412 per unit. The overall value of the subject property is considered to be near the mean and median indicated values. Thus, we have concluded that the subject property has an indicated value of $34,200 per unit. The total value indication for the subject property is estimated as follows: ================================================================================ "AS IS" VALUE ESTIMATE - PER UNIT METHOD ================================================================================ Number of Units 1,326 Multiply by indicated Value Per Unit $34,200 ------- Indicated "As Is" Value $45,349,200 Rounded $45,350,000 ================================================================================ C97-604 O'Connor and Associates Page 133 <PAGE> Income Approach <PAGE> INCOME CAPITALIZATION APPROACH The Income Approach to value is predicated on the assumption that there is a definite relationship between the amount of income a property will earn and its value. The theory of the Income Approach is that the value of a property is the present worth of the net income it will produce during its remaining economic or productive life. An investor generally would not be justified in paying more for an investment property (versus speculation) than the value that the net earning power will support based on an appropriate capitalization of the net income. In conformity with the principle of substitution, a prudent investor will not pay more for the right to receive income from a specified property than he would have to pay for another available investment which would produce income stream of similar quantity and quality. The first step in the Income Approach is to estimate the gross income of the property which is the total income produced by the property if 100 percent occupied in its current highest and best use. To arrive at this figure an estimate is made of the "market" rent for the particular property being appraised. Market rent is that rent which is established from the market. Estimated gross annual income is not necessarily past or current annual income or existing rental rates or contract rental. The appraiser must determine current market rent and compare it with a property's existing rental, leases, tenant's ability to pay and competitive or comparative space. C97-604 O'Connor and Associates Page 134 <PAGE> Current economic, social, and political trends likely to affect the property or rentals must be considered, all in order to arrive at probable future earnings. In other words, past and present income are useful and significant only as an indication in determining expected future income. The income must be considered and weighted as to the expected quantity, quality and durability. The factors affecting the quantity of income have been mentioned above. A charge for potential loss from vacancy and/or collection problems typically must be considered in arriving at estimated effective annual income. The quality and durability of income are also weighted in the selection of the proper interest and capitalization rates and method of converting net income to value. The next step in the Income Approach is the estimate of expenses to be deducted from the effective annual income to arrive at estimated net income (before depreciation). As in analyzing the income, the historical and present expenses are used only as a tool to arrive at the probable future expenses. Operating and maintenance expenses of similar properties as well as trends in expenses must be considered. The final step in the approach is to establish the technique for conversion of income to value which is done by establishing a holding period, identifying all future cash flows, their patterns and relationships to present, selecting an appropriate interest (discount) rate and capitalization rate for conversion of future benefits to value by discounting each future annual benefit to present value. C97-604 O'Connor and Associates Page 135 <PAGE> The most important consideration is the risk and comparable rates on other real estate properties and alternative investments which investors are willing to accept. Therefore, in the valuation of the subject property by the Income Approach, the following procedures were followed in order to estimate the value of the property being appraised: Estimate Market Rent: Based on an analysis of similar projects with similar location, amenity and environmental characteristics. Estimate Total Gross Income Potential: Based on estimated market rents supported in the market, plus any ancillary income. Estimate Vacancy and Rent Loss: Based on present occupancy trends for competing properties with similar location, amenity and environmental influences. Estimate Annual Operating Expenses: These costs were based on an analysis of expenses typical of the industry for similar projects. Capitalization of Net Income: Based on capitalization rates typical of the current market (i.e., based on the overall capitalization rates of recent sales of comparable properties). The Income Approach to value provides a good estimate when income and expenses can be reasonably determined in addition to interest and recapture rates. It applies most reliably when the property is an investment type, when the investor is purchasing for the income rather than speculation, where the highest and best use is stable rather than speculative, and where the highest and best use does not involve an area or property that is in a state of transition. C97-604 O'Connor and Associates Page 136 <PAGE> Since the subject property improvements are considered an acceptable use as improved, and since they are operating at (or above) stabilized rent and occupancy levels, a direct capitalization approach will be utilized in estimating the value of the stabilized income stream. Additionally, we have included a discounted cash flow analysis utilizing a 10- year projection. Following are detailed sheets of rent comparables within the vicinity of the subject, utilized in estimating market rent. Their size, lease rates, and amenities support the viability of the cash flow we have projected for the holding period. As the subject property contains master-metered units, rentals of this type of apartment in the area are included in the following pages. C97-604 O'Connor and Associates Page 137 <PAGE> <TABLE> <CAPTION> ============================================================================================== APARTMENT RENTAL COMPARABLE NUMBER ONE ============================================================================================== <S> <C> Key Map: 531-R Name: Meyer Grove Plaza Apartments Location: 4605 North Braeswood Boulevard Year Built: 1972 (Renovated 1984) Construction: Two-story, wood frame, brick veneer, pitched shingle roofs Date Surveyed: August 1997 Contact: Management Office 713-666-6262 Total No. of Units: 226 Avg. Unit Size (SF): 902 Avg. Mo. Rent (PSF): $0.77 Occupancy: 86% <CAPTION> Units Type Size (SF) Monthly Rent Rent PSF Pot. Rent Tot. SF ----- ------ --------- ------------ -------- --------- -------- <S> <C> <C> <C> <C> <C> <C> 4 0 BR, 1 BA 420 $450 $1.07 $1,800 1,680 14 1 BR, 1 BA 665 $550 $0.83 $7,700 9,310 20 1 BR, 1 BA 680 $610 $0.90 $12,200 13,600 70 1 BR, 1 BA 772 $610 $0.79 $42,700 54,040 12 2 BR, 1 BA 845 $680 $0.80 $8,160 10,140 12 2 BR, 1 BA 908 $680 $0.75 $8,160 10,896 8 2 BR, 1 BA 928 $680 $0.73 $5,440 7,424 67 2 BR, 2 BA 1,075 $810 $0.75 $54,270 72,025 2 2 BR, 2 BA 1,113 $810 $0.73 $1,620 2,226 8 3 BR, 2 BA 1,173 $900 $0.77 $7,200 9,384 8 3 BR, 2 BA 1,400 $930 $0.66 $7,440 11,200 1 3 BR, 2 BA 1,900 $1,100 $0.58 $1,100 1,900 - ----- ------ ----- ------ ----- 226 902 $698 $0.77 $157,790 203,825 ============================================================================================== </TABLE> C97-604 O'Connor and Associates Page 138 <PAGE> ================================================================================ RENT COMPARABLE NUMBER ONE: AMENITIES, FEATURES, COMMENTS ================================================================================ Recreation Unit Features ---------- ------------- 3 Pools X W/D Connections Hot Tub W/D in Unit Sauna Fireplaces Gazebo Wet Bars Club House X Ceiling Fans Weight/Recreation Room Self Cleaning Ovens Playground X Frost Free Refrigerators Picnic Areas X Mini Blinds X Smoke Alarms Security X Private Patios/Balconies -------- Access Gates X Unit Alarms Project Courtesy Patrols ------- X Covered Parking Utilities Storage --------- X On-Site Laundry X Master Metered Individual Metered X Cable TV ================================================================================ C97-604 O'Connor and Associates Page 139 <PAGE> PHOTOGRAPH OF RENT COMPARABLE ONE ================================================================================ [GRAPHIC OMITTED] ================================================================================ C97-604 O'Connor and Associates Page 140 <PAGE> <TABLE> <CAPTION> ============================================================================================== APARTMENT RENTAL COMPARABLE NUMBER TWO ============================================================================================== <S> <C> Key Map: 531-P Name: Governor's House Apartments Location: 8850 Chimney Rock Year Built: 1965 Construction: 2-story, wood frame, brick exterior, pitched and flat built-up roofs Date Surveyed: August 1997 Contact: Management Office - 713-666-2904 Total No. of Units: 218 Avg. Unit Size (SF): 803 Avg. Mo. Rent (PSF): $0.71 Occupancy: 99% <CAPTION> Units Type Size (SF) Monthly Rent Rent PSF Pot. Rent Tot. SF ----- ------ --------- ------------ -------- --------- -------- <S> <C> <C> <C> <C> <C> <C> 44 1 BR, 1 BA 668 $500 $0.75 $22,000 29,392 44 1 BR, 1 BA 697 $510 $0.73 $22,440 30,668 51 2 BR, 1 BA 862 $600 $0.70 $30,600 43,962 51 2 BR, 1 BA 864 $585 $0.68 $29,835 44,064 28 2 BR, 2 BA 960 $680 $0.71 $19,040 26,880 -- --- ---- ----- ------- ------ 218 803 $568 $0.71 $123,915 174,966 ============================================================================================== </TABLE> C97-604 O'Connor and Associates Page 141 <PAGE> ================================================================================ RENT COMPARABLE NUMBER TWO: AMENITIES, FEATURES, COMMENTS ================================================================================ Recreation Unit Features ---------- ------------- 2 Pools W/D Connections Hot Tub W/D in Unit Sauna Fireplaces Gazebo Wet Bars X Club House Ceiling Fans Weight/Recreation Room Self Cleaning Ovens Playground X Frost Free Refrigerators Picnic Areas X Mini Blinds Tennis Courts X Smoke Alarms X Private Patios/Balconies Security -------- Access Gates X Unit Alarms Project Courtesy Patrols ------- X Covered Parking Utilities Storage --------- X On-Site Laundry X Master Metered Individual Metered X Cable TV ================================================================================ C97-604 O'Connor and Associates Page 142 <PAGE> <TABLE> <CAPTION> ============================================================================================== APARTMENT RENTAL COMPARABLE NUMBER THREE ============================================================================================== <S> <C> Key Map: 531-P Name: British Inn Apartments Location: 8900 Chimney Rock Year Built: 1966 Construction: Two-story, wood frame, brick and wood veneer, pitched roofs Date Surveyed: August 1997 Contact: Management Office - 713-666-2904 Total No. of Units: 246 Avg. Unit Size (SF): 717 Avg. Mo. Rent (PSF): $0.71 Occupancy: 99% <CAPTION> Units Type Size (SF) Monthly Rent Rent PSF Pot. Rent Tot. SF ----- ------ --------- ------------ -------- --------- -------- <S> <C> <C> <C> <C> <C> <C> 164 1 BR, 1 BA 640 $470 $0.73 $77,080 104,960 6 1 BR, 1 BA 704 $510 $0.72 $3,060 4,224 60 2 BR, 1 BA 864 $585 $0.68 $35,100 51,840 16 2 BR, 2 BA 960 $660 $0.69 $10,560 15,360 -- --- ---- ----- ------- ------ 246 717 $511 $0.71 $125,800 176,384 ============================================================================================== </TABLE> C97-604 O'Connor and Associates Page 144 <PAGE> ================================================================================ RENT COMPARABLE NUMBER THREE: AMENITIES, FEATURES, COMMENTS ================================================================================ Recreation Unit Features ---------- ------------- 2 Pools W/D Connections Hot Tub W/D in Unit Sauna Fireplaces Gazebo Wet Bars X Club House X Ceiling Fans Weight/Recreation Room Self Cleaning Ovens Playground X Frost Free Refrigerators Picnic Areas X Mini Blinds X Smoke Alarms Security X Private Patios/Balconies -------- Access Gates X Unit Alarms Project Courtesy Patrols ------- X Covered Parking Storage Utilities X On-Site Laundry --------- X Master Metered Individual Metered X Cable TV ================================================================================ C97-604 O'Connor and Associates Page 145 <PAGE> <TABLE> <CAPTION> ============================================================================================== APARTMENT RENTAL COMPARABLE NUMBER FOUR ============================================================================================== <S> <C> Key Map: 531-P Name: Hampton House Apartments Location: 8950 Chimney Rock Year Built: 1967 Construction: Two-story, wood frame, brick veneer, pitched roofs Date Surveyed: August 1997 Contact: Management Office - 713-666-2904 Total No. of Units: 250 Avg. Unit Size (SF): 660 Avg. Mo. Rent (PSF): $0.73 Occupancy: 99% Units Type Size (SF) Monthly Rent Rent PSF Pot. Rent Tot. SF ----- ------ --------- ------------ -------- --------- ------- <S> <C> <C> <C> <C> <C> <C> 44 1 BR, 1 BA 600 $450 $0.75 $19,800 26,400 156 1 BR, 1 BA 630 $460 $0.73 $71,760 98,280 2 1 BR, 1 BA 677 $480 $0.71 $960 1,354 48 2 BR, 1 BA 810 $570 $0.70 $27,360 38,880 -- --- ---- ----- ------- ------ 250 660 $480 $0.73 $119,880 164,914 ============================================================================================== </TABLE> C97-604 O'Connor and Associates Page 147 <PAGE> ================================================================================ RENT COMPARABLE NUMBER FOUR: AMENITIES, FEATURES, COMMENTS ================================================================================ Recreation Unit Features ---------- ------------- 2 Pools W/D Connections Hot Tub W/D in Unit Sauna Fireplaces Gazebo Wet Bars Club House Ceiling Fans Exercise Room Self Cleaning Ovens Playground X Frost Free Refrigerators Picnic Areas X Mini Blinds Tennis Courts X Smoke Alarms Private Patios/Balconies Security -------- Access Gates X Unit Alarms Project Courtesy Patrols ------- X Covered Parking Storage Utilities X On-Site Laundry --------- X Master Metered Individual Metered X Cable TV ================================================================================ C97-604 O'Connor and Associates Page 148 <PAGE> <TABLE> <CAPTION> =========================================================================================== APARTMENT RENTAL COMPARABLE NUMBER FIVE =========================================================================================== <S> <C> Key Map: 531-R Name: Meyer Oaks Apartments Location: 4600 Beechnut Year Built: 1966 (Substantially renovated in 1984) Construction: 2-story, wood frame, brick and wood veneer, pitched roofs Date Surveyed: August 1997 Contact: Management Office - 713-668-6555 Total No. of Units: 152 Avg. Unit Size (SF): 903 Avg. Mo. Rent (PSF): $0.76 Occupancy: 93% <CAPTION> Units Type Size (SF) Monthly Rent Rent PSF Pot. Rent Tot. SF ----- ------ --------- ------------- -------- --------- -------- <S> <C> <C> <C> <C> <C> <C> 16 1 BR, 1 BA 660 $550 $0.83 $8,800 10,560 56 1 BR, 1 BA 781 $610 $0.78 $34,160 43,736 6 1 BR, 1 BA 800 $610 $0.76 $3,660 4,800 12 2 BR, 1 BA 908 $680 $0.75 $8,160 10,896 8 2 BR, 1 BA 960 $680 $0.71 $5,440 7,680 4 2 BR, 2 BA 980 $610 $0.62 $2,440 3,920 20 2 BR, 2 BA 1,065 $810 $0.76 $16,200 21,300 12 2 BR, 2 BA 1,100 $810 $0.74 $9,720 13,200 6 2 BR, 2 BA 1,100 $810 $0.74 $4,860 6,600 6 2 BR, 2 BA 1,150 $810 $0.70 $4,860 6,900 4 3 BR, 2 BA 1,200 $930 $0.78 $3,720 4,800 2 3 BR, 2 BA 1,420 $1,100 $0.77 $2,200 2,840 - ----- ------ ----- ------ ----- 152 903 $686 $0.76 $104,220 137,232 =========================================================================================== </TABLE> C97-604 O'Connor and Associates Page 150 <PAGE> ================================================================================ RENT COMPARABLE NUMBER FIVE: AMENITIES, FEATURES, COMMENTS ================================================================================ Recreation Unit Features ---------- ------------- 3 Pools W/D Connections Hot Tub W/D in Unit Sauna Fireplaces Gazebo Wet Bars Club House X Ceiling Fans Weight/Recreation Room Self Cleaning Ovens Playground X Frost Free Refrigerators, with icemaker Picnic Areas X Mini Blinds X Smoke Alarms Security X Private Patios/Balconies -------- Access Gates X Unit Alarms Project Courtesy Patrols ------- X Covered Parking Utilities Storage --------- X On-Site Laundry X Master Metered Individual Metered X Cable TV ================================================================================ C97-604 O'Connor and Associates Page 151 <PAGE> PHOTOGRAPH OF RENT COMPARABLE FIVE ================================================================================ [GRAPHIC OMITTED) ================================================================================ C97-604 O'Connor and Associates Page 152 <PAGE> ESTIMATE OF MARKET RENT Summary and Analysis of Rent Comparables In order to estimate market rent for the subject, it was necessary to examine and analyze current rents from projects with which the subject will be in competition. All of the projects surveyed are in the immediate area of the subject, and are considered representative of the subject's competition within this market area. The following chart summarizes the rent comparables: <TABLE> <CAPTION> ============================================================================================== SUMMARY OF RENT COMPARABLES ============================================================================================== No. Total Avg. Unit Avg. Mo No. Project Name Units SF NRA Size SF Occ. Rent PSF - ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> 1 Meyer Grove Plaza Apartments 226 203,825 902 97% $0.77 - ---------------------------------------------------------------------------------------------- 2 Governor's House Apartments 218 174,966 803 99% $0.71 - ---------------------------------------------------------------------------------------------- 3 British Inn Apartments 246 176,384 717 99% $0.71 - ---------------------------------------------------------------------------------------------- 4 Hampton House Apartments 250 164,914 660 99% $0.73 - ---------------------------------------------------------------------------------------------- 5 Meyer Oaks Apartments 152 137,232 903 98% $0.76 ============================================================================================== </TABLE> The comparable apartment projects surveyed range in size from 152 units to 250 units, with average rents ranging from $0.70 PSF/month to $0.77 PSF/month for master-metered projects. The average unit sizes range from 660 square feet to 903 square feet. The subject property has an average unit size of +/-896 square feet. All of the rentals are considered direct competitors for the subject property. The subject and the comparable rentals are considered to be Class "B" properties, all of reasonably comparable age, curb appeal, and tenant mixes. All of these properties have similar tenant mixes, being of no particular employer concentration with the many of the tenants C97-604 O'Connor and Associates Page 153 <PAGE> working in the Galleria area or at the medical center. The subject property is considered superior to all of the comparable rentals in level of amenities. In addition to the amenities found at the majority of the competition such as pools, access gates, cable TV availability, ceiling fans, covered parking, private balcony\patio, and laundry facilities, the subject property offers a large clubhouse with an activities director, mini-theatre, games night, etc. Each of the projects surveyed was inspected and the reported rents analyzed in an effort to determine prevalent trends and tenant preferences. Factors considered to exhibit significant influence on rent levels in this market are discussed as follows: Location: Generally the multifamily projects located along or in close proximity to major roadways were found to receive higher unit rents than those situated along lesser secondary roads. Ease of access appears to be a major tenant concern. Project Style/Design: Conversations with owners and on-site managers indicate that "curb appeal" is a major marketing feature. Although all of the projects included in our survey are garden style developments, differences in building design, site layout and landscaped areas are judged to influence potential tenants. C97-604 O'Connor and Associates Page 154 <PAGE> Age/Condition: Tenant motivation in regard to these factors are often directed at the attractiveness of a project. As a result newer projects, which have experienced less deterioration due to time, tend to bring a higher rent level than older projects. It should be noted, however, that the influence of age can be mitigated somewhat by long term maintenance and/or renovation. Therefore, while age is an important factor, it is our opinion that tenants place greater emphasis on condition. Project Amenities: The amenities offered by the various projects surveyed varied. Swimming pools, laundry rooms and adequate parking are considered to be typical for this market. Projects offering more amenities generally utilize them as incentives in their marketing program and generally have higher rent levels. Examples of these type amenities include additional recreational features, fitness/weight rooms, covered carport parking and clubhouses. Unit Size/Type: The square footage of the individual units was found to generate some influence on per unit rent levels in this market, due primarily to the economy of size (higher per unit rent; lower per square foot rent). However, it was generally found that tenants appear to place greater emphasis on the type of unit (number of bedrooms and baths). One, two, and three bedrooms are typical throughout the market. Typically the greater the number of bedrooms, the higher the per unit rent. C97-604 O'Connor and Associates Page 155 <PAGE> Unit Amenities: Unit finish was found to have significant influence on rent levels. Generally projects offering modern kitchen packages, energy efficient items (ceiling fans, etc.), fireplaces, and washer dryer connections can realize higher rent levels than those with lesser finish. Cable television service is often used as a promotional marketing tool, although we could not quantify a direct positive influence of this factor in regard to rent levels. Utilities: The subject property contains master-metered (for electricity) units. In consideration of these factors, a comparison of each of the subject unit types was made to comparable units in the apartment projects surveyed. This analysis was useful in arriving at an estimate of monthly market rent for each unit type. In June, 1997, street rents at the subject property were increased. Given the subject's 99% occupancy (leased), level of amenities offered, and strong occupancies at comparable properties, an increase in rents for new tenants is considered justified and sustainable. The procedure used in this analysis is illustrated on the following pages. C97-604 O'Connor and Associates Page 156 <PAGE> SUBJECT - Small 1BR/1BA Units (670 square feet) The subject has 320 one bedroom/ one bath units, containing 670 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF SMALL ONE BEDROOM RENT COMPARABLES ================================================================================ Comparable Unit Size(SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 1 665 $550 $0.83 ------------------------------------------------------------------------------- 2 668 $500 $0.75 ------------------------------------------------------------------------------- 3 640 $470 $0.73 ------------------------------------------------------------------------------- 4 677 $480 $0.71 ------------------------------------------------------------------------------- 5 660 $550 $0.83 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Subject 670 $550 - $570 $0.82 - $0.85 ================================================================================ The current asking rental rate for the subject property is within the upper end of the range indicated by its competitors. These subject units range from $550 to $570, depending on location within the property. However, as previously indicated, the subject property offers an amenity package which is superior to the comparable rentals. Therefore, a rental rate on the upper end of the range appears reasonable. Based on a review of the most recent actual leases at the subject property (see rent roll in addenda), actual rent range from $495 to $595, with an average rent of +/-$535 per month being achieved. The most recent lease signings have been between $565 and $570 per month. Based upon a comparison to the above comparable rentals, with consideration given for age, location, appeal, condition and amenities, $565 per month ($0.84 per square foot) for the market rent of the 670 square foot unit appears appropriate and has been utilized in our analysis. C97-604 O'Connor and Associates Page 157 <PAGE> SUBJECT - Large 1BR/1BA Units (756 - 798 square feet) The subject contains 84 units containing 756 square feet and 37 units containing 798 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF LARGE 1BR/1BA COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot ------------------------------------------------------------------------------- 1 772 $610 $0.79 ------------------------------------------------------------------------------- 2 697 $510 $0.73 ------------------------------------------------------------------------------- 3 704 $510 $0.72 ------------------------------------------------------------------------------- 4 677 $480 $0.71 ------------------------------------------------------------------------------- 5 781 $610 $0.78 ------------------------------------------------------------------------------- 5 800 $610 $0.76 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Subject 756 $595 - $615 $0.79 - $0.81 ------------------------------------------------------------------------------- Subject 798 $630 $0.79 ================================================================================ The current asking rental rates for the subject units are on the upper end of the rental range. Based on location within the subject, rates range from $595 to $615 for the 756 square foot unit. However, as previously indicated, the subject property offers an amenity package which is superior to the comparable rentals. Therefore, a rental rate on the upper end of the range appears reasonable. Based on a review of the most recent actual leases at the subject property (see rent roll in addenda), rents of $545 - $605 per month are being achieved on the 756 SF units (most recent near $595), and $535 - $620 on the 798 SF units (average of $610). Based upon a comparison to the above comparable rental units, with consideration given for unit size, age, location, appeal, condition and amenities, $595 per month ($0.79 PSF) market rent for the 756 SF units, and $610 per month ($0.76 PSF) market rent for the 798 SF units appear appropriate and have been utilized in our analysis. C97-604 O'Connor and Associates Page 158 <PAGE> SUBJECT - 2BR/1BA Units (850 - 936 square feet) The subject has 183 units containing 850 square feet, 100 units containing 900 square feet, 120 units containing 930 square feet, 20 units containing 936 square feet, and 60 units containing 942 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF SMALL 2BR/1BA COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 1 845 $680 $0.80 - -------------------------------------------------------------------------------- 1 908 $680 $0.75 - -------------------------------------------------------------------------------- 1 928 $680 $0.73 - -------------------------------------------------------------------------------- 2 862 $600 $0.70 - -------------------------------------------------------------------------------- 2 864 $585 $0.68 - -------------------------------------------------------------------------------- 3 864 $585 $0.68 - -------------------------------------------------------------------------------- 4 810 $570 $0.70 - -------------------------------------------------------------------------------- 5 908 $680 $0.75 - -------------------------------------------------------------------------------- 5 960 $680 $0.71 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject 850 $630 $0.74 - -------------------------------------------------------------------------------- Subject 900 $685 $0.76 - -------------------------------------------------------------------------------- Subject 930 $680 $0.73 - -------------------------------------------------------------------------------- Subject 936 $680 $0.73 - -------------------------------------------------------------------------------- Subject 942 $680 $0.72 ================================================================================ The above 942 SF unit is a 2BR/1.3 BA floorplan The current asking rental rates for the subject units are on the upper end of the rental range. As before, rental rates vary depending on unit location, with a premium location adding up to $25 per month. However, as previously indicated, the subject property offers an amenity package which is superior to the comparable rentals. Therefore, a rental rate on the upper end of the range appears reasonable. Based on a review of the C97-604 O'Connor and Associates Page 159 <PAGE> most recent actual leases at the subject property (see rent roll in addenda), rents of $580 - $710 per month for the 850 SF units (average of $600), $600 - $675 per month for the 900 SF units (average of $635), $600 - $695 per month for the 930 SF units (average of $655), $620 - $695 per month for the 936 SF units (average of $655), and $635 - $705 per month for the 942 SF units (average of $660) are being achieved. Based upon a comparison to the above comparable rentals, with consideration given for age, location, appeal, condition and amenities, $620 per month ($0.73 per square foot) for the market rent of the 850 SF units, $645 per month ($0.72 per square foot) for the market rent of the 900 SF units, $670 per month ($0.72 per square foot) for the market rent of the 930 SF units, $660 per month ($0.71 per square foot) for the market rent of the 936 SF units, and $665 per month ($0.71 per square foot) market rent for the 942 SF units appear appropriate and have been utilized in our analysis. C97-604 O'Connor and Associates Page 160 <PAGE> SUBJECT - Small 2BR/2BA Units (1,050 - 1,120 square feet) The subject has 110 units containing 1,050 square feet, 66 units containing 1,054 square feet, 92 units containing 1,066 square feet, and 22 units containing 1,120 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF 2BR/2BA COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 1 1,075 $810 $0.75 - -------------------------------------------------------------------------------- 1 1,113 $810 $0.73 - -------------------------------------------------------------------------------- 2 960 $680 $0.71 - -------------------------------------------------------------------------------- 3 960 $660 $0.69 - -------------------------------------------------------------------------------- 5 1,065 $810 $0.76 - -------------------------------------------------------------------------------- 5 1,100 $810 $0.74 - -------------------------------------------------------------------------------- 5 1,150 $810 $0.70 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject 1050 $780 $0.74 - -------------------------------------------------------------------------------- Subject 1054 $760 $0.72 - -------------------------------------------------------------------------------- Subject 1066 $780 $0.73 - -------------------------------------------------------------------------------- Subject 1,120 $860 $0.77 ================================================================================ The current asking rental rates for the subject units are on the upper end of the rental range. As before, rental rates vary depending on unit location, with a premium location adding up to $25 per month. However, as previously indicated, the subject property offers an amenity package which is superior to the comparable rentals. Therefore, a rental rate on the upper end of the range appears reasonable. Based on a review of the most recent actual leases at the subject property (see rent roll in addenda), rents of $685 C97-604 O'Connor and Associates Page 161 <PAGE> - - $795 per month for the 1,050 SF units (average $740), $670 - $750 per month for the 1,054 SF units (average $695), $670 - $795 per month for the 1,066 SF units (average $725), and $750 - $850 per month for the 1,120 SF units (average $810) are being achieved. Based upon a comparison to the above comparable rentals, with consideration given for age, location, appeal, condition and amenities, $760 per month ($0.72 per square foot) for the market rent of the 1,050 SF units, $705 per month ($0.67 per square foot) for the market rent of the 1,054 SF units, $750 per month ($0.70 per square foot) for the market rent of the 1,066 SF units, and $815 per month ($0.73 per square foot) market rent for the 1,120 SF units appear appropriate and have been utilized in our analysis. C97-604 O'Connor and Associates Page 162 <PAGE> SUBJECT - Large 2BR/2BA Units (1,210 - 1,240 square feet) The subject has 28 units containing 1,210 square feet and 74 units containing 1,240 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF LARGE 2BR/2BA COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 1 1,075 $810 $0.75 - -------------------------------------------------------------------------------- 1 1,113 $810 $0.73 - -------------------------------------------------------------------------------- 5 1,100 $810 $0.74 - -------------------------------------------------------------------------------- 5 1,150 $810 $0.70 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject 1,210 $880 $0.73 - -------------------------------------------------------------------------------- Subject 1,240 $915 $0.74 ================================================================================ The current asking rental rates for the subject units are on the upper end of the rental range. As before, rental rates vary depending on unit location, with a premium location adding up to $25 per month. However, as previously indicated, the subject property offers an amenity package which is superior to the comparable rentals. Therefore, a rental rate on the upper end of the range appears reasonable. Based on a review of the most recent actual leases at the subject property (see rent roll in addenda), rents of $790 - $895 per month (average $850) for the 1,210 SF units and $795 - $905 per month (average $870) for the 1,240 SF units are being achieved. Based upon a comparison to the above comparable rentals, with consideration given for age, location, appeal, condition and amenities, $875 per month ($0.72 per square foot) for the market rent of the 1,210 SF units, and $895 per month ($0.72 per square foot) market rent for the 1,240 SF units appear appropriate and have been utilized in our analysis. C97-604 O'Connor and Associates Page 163 <PAGE> SUBJECT - 3BR/2BA and 3BA Units (1,282 - 1,770 square feet) The subject has 4 units containing 1,282 square feet, 2 units containing 1,440 square feet, and 4 units containing 1,770 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF 3BR COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 1 1,173 $900 $0.77 - -------------------------------------------------------------------------------- 1 1,400 $930 $0.66 - -------------------------------------------------------------------------------- 1 1,900 $1,100 $0.58 - -------------------------------------------------------------------------------- 5 1,200 $930 $0.78 - -------------------------------------------------------------------------------- 5 1,420 $1,100 $0.77 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject 1,282 $1,060 $0.83 - -------------------------------------------------------------------------------- Subject 1,440 $1,260 $0.88 Subject 1,770 $1,460 $0.82 ================================================================================ The current asking rental rates for the subject units are above the upper end of the rental range. However, as previously indicated, the subject property offers an amenity package which is superior to the comparable rentals. Therefore, a rental rate above the upper end of the range appears reasonable. Based on a review of the most recent actual leases at the subject property (see rent roll in addenda), rents of $1,025 per month for the 1,282 SF units, $1,200 - $1,225 per month (average $1,215) for the 1,440 square foot units, and $1,345 - $1,400 per month (average $1,365) for the 1,770 SF units are being achieved. Based upon a comparison to the above comparable rentals, with consideration given for age, location, appeal, condition and amenities, $1,025 per month ($0.80 per C97-604 O'Connor and Associates Page 164 <PAGE> square foot) for the market rent of the 1,282 SF units, $1,215 per month ($0.84 per square foot) for the market rent of the 1,440 SF units, and $1,365 per month ($0.77 per square foot) market rent for the 1,770 SF units appear appropriate and have been utilized in our analysis. Ancillary Income Miscellaneous income generated $190,999 for the subject property in 1996 and $181,611 in 1995, according to the income statements provided. Additionally, miscellaneous income through June 1997, plus 1997 budget numbers total $174,727. These receipts indicate totals of $12.00, $11.41, and $10.98 per unit per month, respectively, on an "as occupied" basis (effective gross income). The 1996 Institute of Real Estate Management publication, Income/Expense Analysis: Conventional Apartments, reported the average ancillary income per unit per month for garden style apartments in the Houston area to be $13.66. Based on the subject's historical levels, a stabilized gross miscellaneous income of $11.00 per month per unit, or $14,586 per month, say $175,032 per year, is considered reasonable. This estimate is the gross ancillary income before deduction for vacancy and collection loss. Typically, a third party provides the laundry equipment and splits the revenue with the subject project, and this is considered the primary source of this income along with security deposit forfeitures and application fees. C97-604 O'Connor and Associates Page 165 <PAGE> POTENTIAL GROSS INCOME Based on the comparable rentals, stabilized potential gross income for the subject project is estimated as follows: <TABLE> <CAPTION> ========================================================================================== CALCULATION OF ANNUAL POTENTIAL GROSS INCOME - ------------------------------------------------------------------------------------------ Unit Type Number Unit Rentable Monthly Rent/SF Pot Rent of Units Size Area Rent <S> <C> <C> <C> <C> <C> <C> 1 BR / 1 BA 320 670 214,400 $565 $0.84 $180,800 1 BR / 1 BA 84 756 63,504 $595 $0.79 $49,980 1 BR / 1 BA 37 798 29,526 $610 $0.76 $22,570 2 BR / 1 BA 183 850 155,550 $620 $0.73 $113,460 2 BR / 1 BA 100 900 90,000 $645 $0.72 $64,500 2 BR / 1 BA 120 930 111,600 $670 $0.72 $80,400 2 BR / 1 BA 20 936 18,720 $660 $0.71 $13,200 2 BR / 1.3 BA 60 942 56,520 $665 $0.71 $39,900 2 BR / 2 BA 110 1,050 115,500 $760 $0.72 $83,600 2 BR / 2 BA 66 1,054 69,564 $705 $0.67 $46,530 2 BR / 2 BA 92 1,066 98,072 $750 $0.70 $69,000 2 BR / 2 BA 22 1,120 24,640 $815 $0.73 $17,930 2 BR / 2 BA 28 1,210 33,880 $875 $0.72 $24,500 2 BR / 2 BA 74 1,240 91,760 $895 $0.72 $66,230 3 BR / 2 BA 4 1,282 5,128 $1,025 $0.80 $4,100 3 BR / 2 BA 2 1,440 2,880 $1,215 $0.84 $2,430 3 BR / 3 BA 4 1,770 7,080 $1,365 $0.77 $5,460 - ----- ----- ------ ----- ------ 1,326 896 1,188,324 $667 $0.74 $884,590 MONTHLY POTENTIAL RENTAL INCOME $884,590 Ancillary Income 1,326 units @ $11.00 per unit $14,586 ------- MONTHLY POTENTIAL GROSS INCOME: $899,176 Multiplied By: 12 Months --------- ANNUAL POTENTIAL GROSS INCOME: $10,790,112 ========================================================================================== </TABLE> C97-604 O'Connor and Associates Page 166 <PAGE> Therefore, the annual potential rental income is estimated to be $10,615,080, plus $175,032 in ancillary income for a total potential gross income of $10,790,112. Vacancy/Collection Loss: In the previous discussion of the subject's market area, the occupancy levels for master-metered complexes averaged 90.90% (Apartment Market TRAC). The overall occupancy of the market area was 91.20%. This occupancy level is at the upper end of the range of the previous recent years, ranging from 84.50% to 91.20%, over a four year period. The occupancy levels exhibited by the rent comparables range from 93% to 99%. As of the date of inspection, the subject property was +/-99% occupied (leased). Historical occupancy for the subject property has ranged from 93.08% in 1994 to 95.35% in 1995 to 93.85% in 1996 (according the income statements provided). Occupancy and rental rates have increased consistently at the subject property (as well as the sub-market) over the past few years. Considering the subject's current occupancy, the occupancies reported by nearby competing properties, and the overall appeal of the subject, a stabilized vacancy and collection loss rate of 5% for the subject property. Employee/Model Units This category provids for a deduction for rent loss on employee, administrative, and model units. The financial statements provided indicate a rent loss due to employee/model units ranging from 2.11% to 3.0% of potential gross rental income from 1994 to 1996. The June 1997 statement indicates a rent loss estimate for this category C97-604 O'Connor and Associates Page 167 <PAGE> of 2.10%. Therefore, based on the historical levels, a stabilized annual rent loss due to employee/model units of 2% of potential gross rental income. No move-in specials are being offered at the subject apartments. While multifamily housing trends in this area are not expected to change significantly in the near future, it is reasonable to assume that over a typical investor holding period of eight to ten years, there will be losses of income during tenant turnover and/or collection problems. In the subject property type, stability of tenant base is of primary concern, and is a function of management through proper maintenance and attention to tenants' concerns. As such, a total stabilized occupancy level of 93% (including employee/model vacancy), or an annual loss of 7% of gross income is considered reasonable for this charge. Effective Gross Income Based on the foregoing analysis of potential gross income and vacancy /collection loss, the effective annual gross income for the project can be calculated as follows: ================================================================================ EFFECTIVE GROSS INCOME - -------------------------------------------------------------------------------- Potential Gross Less: Vacancy/Collection Effective Gross Income Income Allowance (7%) - -------------------------------------------------------------------------------- $10,790,112 $755,308 $10,034,804 ================================================================================ C97-604 O'Connor and Associates Page 168 <PAGE> ANALYSIS OF OPERATING EXPENSES: Estimates of expenses associated with the operation of the subject property are based on surveys of similar properties in the area compared to reported data on the subject project. 1994, 1995, and 1996 operating statements for the subject were provided by the client. In addition to reviewing the subject's historical data, we have utilized income/expense data published by the Institute of Real Estate Management (IREM) as independent support for the forthcoming expense projections for the subject property. While it is recognized that expenses such as maintenance and utilities will vary over time, our estimates are based on stabilized annual charges over a typical investor holding period. The following is a discussion of each major expense item for the subject project. Property Taxes: The subject is within the taxing jurisdiction of the Houston Independent School District, Harris County, Houston Community College, and the City of Houston. The preliminary 1997 assessed value is $31,839,930, which is the same as the 1996 assessment. Considering on the tax comparable assessments, an increase in the subject assessment of 10% per year is anticipated in Year 2 and 3 of the holding period. In Year 1 of the discounted cash flow, taxes are calculated based on the preliminary 1997 assessment. This results in a 1997 tax expense for the subject property of $878,629. C97-604 O'Connor and Associates Page 169 <PAGE> Insurance: The subject reflected an insurance expense per square foot of $0.31 in 1994, $0.35 per square foot in 1995, and $0.29 per square foot in 1996. IREM reported this expense to range from $0.12 to $0.21 per square foot, with a median cost of $0.15 per square foot. We have utilized an expense of $0.25 per square foot of NRA ($297,081) as the proforma insurance expense, based upon the subject's historical information. Utilities (natural gas, electric, water, sewer, and basic cable) The subject project's owner pays all utility costs for the complex. The subject's historical operating expenses indicated a per square foot expense of $1.53 in 1994, $1.41 in 1995, and $1.47 in 1996. IREM data estimate this expense to be between $0.52 and $1.38 per square foot. The subject is slightly above the IREM range due to the superior level of amenities offered at this project. We have estimated the proforma expense to be $1.50 per square foot or $1,782,486 annually. Management: Typical cost for general management and accounting for multifamily properties typically range from 3% to 6% of the effective gross income. IREM data reflected management fees of between 3.4% and 4.6%. The subject's historical expense was indicated to be 4.00% in 1996, 1995, and 1994. The actual historical subject expense appears consistent with the supporting market data. Thus, an annual stabilized management fee for the subject of 4.00% of the projected effective gross income has been utilized in Year 1. C97-604 O'Connor and Associates Page 170 <PAGE> Maintenance: This expense item covers structural maintenance, maintenance of mechanical equipment, appliances, parking areas, grounds maintenance, and cleaning and redecorating of vacant units, including supplies. These items are necessary to insure the quality of both the appearance and functional utility of the apartment complex in order to retain the highest possible occupancy level. Maintenance charges for apartment complexes of this quality typically range from $0.38 to $0.77 per square foot/year, according to IREM data. This charge should include cleaning and supplies, painting, landscaping, floor and wall coverings, mechanical repair, exterior repairs, roof repairs, pool chemicals, trash removal, pest control, etc. The subject reported historical expenses of $0.52 per square foot in 1994; $0.66 per square foot in 1995; and $0.63 per square foot in 1996. Based upon analysis of this and competing projects, the stabilized charge for maintenance was estimated at $0.64 per square foot, or $760,527. Payroll/Salaries: The subject reflected a total salaries expense of $0.85 PSF in 1994, $0.85 PSF in 1995, and $0.92 PSF in 1996. Typical payroll expense ranges between $0.78 and $0.98 per square foot, according to IREM. Overall payroll expense can include other costs in addition to base salary expenses: manager salaries, other employee's salaries, payroll taxes, group insurance, workman's compensation, and/or additional employee benefits. C97-604 O'Connor and Associates Page 171 <PAGE> Based on the above expense levels, we have utilized $0.95 PSF or $1,128,908, as the salary expense. Administrative & Advertising This expense item includes the cost for apartment guide and newspaper advertisements, promotional specials (i.e. referral fees), as well as those office and administrative costs involved in the day to day operations (excluding maintenance and management). These include office supplies, uniform service, rental furniture, legal fees, bookkeeping and other miscellaneous leasing expenses. Typical cost for this item ranges from $0.25-$0.75 per square foot. Actual historical expenditures for the subject property approximate $0.15 PSF in 1994, $0.24 PSF in 1995, and $0.29 PSF in 1996. For a stabilized expense, we have utilized $0.28 per square foot, or $332,731, in this category. Reserves for Replacement: This expense charge allows for the replacement of building component items whose physical useful life expectancy is less than the building, but longer than the typical investor holding period (replacement of shorter life items would be considered maintenance). The theory is that prudent management would allocate an annual charge sufficient for the periodic replacement of these items. The short life building component items with life expectancies greater than the typical holding period were identified in the cost approach. Additionally, unit remodeling expenses are included in this category. Typically, these costs are estimated at $200 to $250 per unit, based on the age/condition, C97-604 O'Connor and Associates Page 172 <PAGE> location, and the average unit size of the property, and external factors such as interest rates. Brokers, investors, structural engineers, estimators, and other professionals considered knowledgeable in this area confirm these estimates. We have estimated this expense for the subject property at $200 per unit, or $265,200 on a stabilized basis. Total Expenses Expenses for the total project are $5,846,954, or +/-$4.92 per square foot of net rentable area. This expense is considered reasonable, based on data from similar complexes and given the subject property's master-metered status and maintenance requirements. The expense ratio (expenses/ effective gross income) for the subject is estimated to be 58.27%. The identified comparable sales indicated expense ratios between 44.23% and 54.40%. The subject is slightly above this range due to the subject being a master-metered project compared to the sales, which were predominantly separately-metered. The higher utility expense for a master-metered property would indicate a slightly higher expense ratio. C97-604 O'Connor and Associates Page 173 <PAGE> NET OPERATING INCOME (NOI) Based on the foregoing analysis, the following schedule illustrates the calculations used in arriving at the Net Operating Income Estimate for the subject project. <TABLE> <CAPTION> ========================================================================================== INCOME SCHEDULE - STABILIZED - ------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Rental Income $884,590 Mo x 12 = $10,615,080 SF NRA and Ave. Rent PSF 1,188,324 SF @ $8.93 Plus Other Income $175,032 ---------- Potential Gross Income $9.08 $10,790,112 Less Vacancy/Collection Loss 7% ($755,308) ---------- Effective Gross Income Estimate $10,034,804 Less Expenses Amount % EGI PSF ------ ----- --- Property Taxes $878,629 8.76% $0.74 Insurance $297,081 2.96% $0.25 Utilities $1,782,486 17.76% $1.50 Management $401,392 4.00% $0.34 -------- ----- ----- Total Fixed Expenses $3,359,588 33.48% $2.83 Maintenance and Repairs $760,527 7.58% $0.64 Payroll/Salaries $1,128,908 11.25% $0.95 Administrative/Adver. $332,731 3.32% $0.28 Reserves $265,200 2.64% $0.22 -------- ----- ----- Total Variable Expenses $2,487,366 24.79% $2.09 ---------- ------ ----- Total Expenses $5,846,954 58.27% $4.92 ($5,846,954) ------------ Net Operating Income $4,187,850 ========================================================================================== </TABLE> C97-604 O'Connor and Associates Page 174 <PAGE> NOI DEFICIENCY Net Operating Income Deficiency is the total of the loss of market rent and expense recovery (rent loss) due to vacancy during the forecasted absorption period, together with costs and expenses associated with achieving that occupancy, such as tenant improvements and leasing commissions, offset by expense savings during the period that the building, or portions of the building, is not occupied. As the subject property is projected to maintain stabilized levels throughout a typical investor holding period, this procedure is not applicable to this analysis. DIRECT CAPITALIZATION: Direct Capitalization is a process whereby net operating income is converted into value utilizing an overall capitalization rate (Ro). There are several methods of deriving capitalization rates in order to adequately account for risk associated with the quantity, quality and durability of the income stream. Based upon the defined appraisal problem and in consideration of the available data, it is the appraisers' position to determine which of these techniques is the most indicative of current investor's attitudes. As such, two methods for developing a capitalization rate were considered applicable in this appraisal. The following is a discussion of each. C97-604 O'Connor and Associates Page 175 <PAGE> Market Extraction Method In this case, we have developed an overall rate from an analysis of the market sales considered in the Sales Comparison Approach-Improved Properties Section of this report. An overall rate was derived for each sale by dividing the net operating income of the sale property by its sale price. This technique involves constant dollars and stabilized operating ratios. The overall rates extracted from the sales are based on net operating incomes resulting from estimated expenses typical of comparable projects in the marketplace, including reserves. Expenses for comparable projects are retained in our files. Therefore, the Ro's reflect estimated economic indicators, but are considered to be reflective of market conditions. The following is a summary of the rates developed from the market data. ==================================== Sale # Indicated Ro ------------------------------------ 1 9.22% ------------------------------------ 2 9.51% ------------------------------------ 3 9.17% ------------------------------------ 4 10.67% ------------------------------------ 5 9.59% ------------------------------------ Avg. 9.63% ==================================== C97-604 O'Connor and Associates Page 176 <PAGE> Market Extraction Method - Continued The overall capitalization rates calculated for the comparable sales range from 9.17% to 10.67%. The mean capitalization rate of the sales is 9.63% and the median is 9.51%. Sales of Class "B" apartments in Greater Houston area are currently reporting capitalization rates between 9% and 10%. In addition to the above sales, the Telegragh Hill Apartments sold in June 1997 with a capitalization rate (based on current NOI/Sale Price) of 9.17%. Although this sale was not included in the Sales Comparison Approach, it does provide an indication of current capitalization rates for apartments in Houston. Due to the unusually large size of the subject property, and the high overall value for the project (in relation to other Houston area apartments), the subject is considered to be attractive to an institutional investor. There are very few other investment opportunities in a single apartment project in the Houston area which would provide a similar size contribution to a portfolio. Additionally, the subject facility has been operated by Harold Farb for several years. Harold Farb is well-known in the Houston market and has a reputation for offering good quality projects complemented by attentive management staff. Therefore, given the capitalization rates reported by the sales, and considering the size, name recognition, occupancy, tenant mix, and overall appeal of the subject property, a "going-in" rate of 9.25% was considered applicable. C97-604 O'Connor and Associates Page 177 <PAGE> Band of Investment Method: This technique of developing a capitalization rate basically involves a synthesis between a mortgage constant and an equity dividend rate, each weighted by its percentage of contribution. The mortgage portion of this rate includes an allowance for both interest on and amortization of the mortgage component. Our research, including reviews of various publications and conversations with local lenders, revealed that mortgage terms for this type property are being quoted to a credit worthy customer in the range of 8.00% to 10.00%. The typical amortization period is 20 years. Additionally, the typical loan to value ratio is 70%. Assuming a 9% interest rate, the annual mortgage constant is calculated to be 0.107967. The remainder of the total value (i.e., 30%) is attributable to the equity contribution. The equity portion is below the mortgage portion due to negative leverage in some property types in the current market. The calculations used to develop a capitalization rate via the Band of Investment technique is illustrated as follows: Calculation of Ro Mortgage Portion 0.70 x 0.107967 = 0.075577 Equity Portion 0.30 x 0.070000 = 0.021000 ---- Indicated Overall Rate 1.00 0.096577 SAY 9.65% C97-604 O'Connor and Associates Page 178 <PAGE> Reconciliation of Overall "Going-In" Capitalization Rates 1. Market Extraction: 9.25% 2. Band of Investment: 9.65% Emphasis is placed on the Market Extraction Method as this method is more often relied upon by investors in the current market. Based on the foregoing, it is our opinion that the appropriate capitalization rate for the subject is 9.25%, which is the rate generated by the Market Extraction Method and generally supported by the Band of Investment Method. VALUE VIA DIRECT CAPITALIZATION This calculation is illustrated as follows: ================================================================================ DIRECT CAPITALIZATION ================================================================================ Net Operating Income Divided By Capitalization Rate Equals Indicated Value - -------------------------------------------------------------------------------- $4,187,850 9.25% $45,274,054 - -------------------------------------------------------------------------------- VALUE VIA DIRECT CAPITALIZATION $45,274,054 - -------------------------------------------------------------------------------- ROUNDED: $45,270,000 ================================================================================ C97-604 O'Connor and Associates Page 179 <PAGE> Effective Gross Income Multiplier Analysis The second unit of comparison abstracted is the effective gross income multiplier (EGIM). The EGIM expresses the relationship between the effective gross income attributable to a property and the overall sale price. The Effective Gross Income Multipliers extracted from the sales are listed as follows. ===================================== Sale # Indicated Expense EGIM Ratio ------------------------------------- 1 4.95 54.40% ------------------------------------- 2 4.79 54.40% ------------------------------------- 3 6.08 44.23% ------------------------------------- 4 4.67 50.23% ------------------------------------- 5 4.87 53.76% ------------------------------------- Avg. 5.07 51.40% ===================================== Typically, there is an inverse relationship between the effective expense ratio and the effective gross income multiplier. Generally, the lower the expense ratio, the higher the EGIM. Based on the subject's characteristics, including its 58.27% expense ratio in comparison to the sales, an EGIM below the average of the range of EGIMs indicated by the sales is considered applicable. Based on this data and in consideration of the subject's location, age and physical characteristics, a multiplier of 4.50 is judged to be an applicable indicator of value for the subject property via this method. Utilizing the C97-604 O'Connor and Associates Page 180 <PAGE> Effective Gross Income Multiplier Analysis - Continued annual stabilized effective gross income for the subject estimated in this report, the following calculation indicates the total value for the property via this method. ================================================================================ Effective Gross Income Effective Gross Income Multiplier Indicated Value - -------------------------------------------------------------------------------- $10,034,804 4.50 $45,156,618 - -------------------------------------------------------------------------------- VALUE VIA EGIM METHOD, ROUNDED: $45,160,000 ================================================================================ C97-604 O'Connor and Associates Page 181 <PAGE> DISCOUNTED CASH FLOW ANALYSIS The appraiser performed a discounted cash flow analysis on the subject property to analyze the income stream over a typical holding period. The cash flow was performed on the Argus discounted cash flow computer program. The following is a list of the assumptions applicable to this analysis, A method of capitalization often used for income producing properties is the discounted cash flow method. In this method, the value estimate for the subject is considered to be the sum of the annual income, discounted to present worth, that the property will generate over a projected period of ownership plus the present worth of the value of the property at the end of the ownership period (reversion value). The following projections and assumptions, based on market research, were used in setting up the DCF model. Projections and Assumptions for DCF Model: Ownership Period: For the purpose of this analysis, we have assumed a 10 year investor holding period. The length of the cash flow and holding period is a function of the liquidity of a capital investment and the average holding period present in the Greater Houston Market. Leases/Rental: As earlier estimated, we have utilized the market rental rates for the subject property. Additionally, we utilized the actual physical occupancy (99%), adjusted for vacancy and collection losses. C97-604 O'Connor and Associates Page 182 <PAGE> Based on current trends with rental rates increasing every year for the past two years in the market area and with the subject property exhibiting rental increases of between 1% and 5% over the past two years, we are projecting annual rate increases of 3.50% Occupancy: Vacancy/credit and collection allowance of 5.0% and employee/model units of 2.0% (totalling 7%) was applied in the cash flow. Expenses: For the purpose of this analysis operating expenses for the first year are generally similar to those used in the direct capitalization, and grown at a rate of 3.5% per year. Renewals: We have estimated that approximately 75% of the tenants will renew their leases, rather than vacating the subject property. The basis for this assumption lies in the relative stability of the subject area apartment market and the low turnover reported by property management. C97-604 O'Connor and Associates Page 183 <PAGE> Discount Rates To develop an appropriate discount rate, the appraiser must start with utilization of what is considered to be a safe rate in the market, and build a gross discount rate by adding for additional risks attendant with ownership of the property. The safe rate for a typical investor is considered to be similar to 3-Month treasury securities, which according to the Federal Reserve Bank of St. Louis were averaging a yield of approximately 5.00% as of the most recent date bids were available, which was June 26, 1997. The current safe rate used for development of the discount rate is estimated to be 5.50% as of the appraisal date. As of June 26, 1997, yields on alternative security investments are as follows: ======================================================== Type of Investment Current Yield Corporate AAA Bonds 7.33% Corporate BAA Bonds 7.94% 3-Month Treasury Bills 5.08% 1-Year Treasury Bills 5.42% Long-Term Treasury Bonds 6.03% ======================================================== Yields on these securities have been fluctuating over the past 3 months. Anticipated risk was estimated to be approximately 2.00%. The burden of management is estimated to require approximately 2.00%, and the illiquidity of invested capital required an additional 2.00% increment. The total discount rate is therefore summarized as follows: C97-604 O'Connor and Associates Page 184 <PAGE> ======================================================== Safe Rate 5.50% Risk 2.00% Management 2.00% Illiquidity of Funds 2.00% ------ Total Discount Rate 11.50% ======================================================== Real Estate Research Corporation conducts a survey that provides information from national investors as to their accepted growth and discount rate assumptions. Peter F. Korpacz & Associates also conducts a similar survey. These surveys indicate acceptable Internal Rates of Return for all property types ranging from 9.0% to 15.0%. The lowest range of yield rates for alternative investments was indicated by Korpacz Survey for the Manhattan, New York office market of 9.0% to 11.5% and the highest yield rate to be 11.0% to 15.0% for oversupplied office markets such as the Houston market. According to the Korpacz Survey, the average anticipatory yield rate for oversupplied office markets was 13.11%. According to the Real Estate Research Corporation Report, hotels and industrial properties have the highest average Internal Rates of Return requirements of 11.0% to 13.5%. Yield rates for regional malls had the lowest yield requirements which range from 10.0% to 11.5%. Office yield rates ranged from 10.5% to 13.5%, with central business district offices at the low end of the range. Yields for apartment projects and C97-604 O'Connor and Associates Page 185 <PAGE> industrial buildings in Houston have ranged from 8.0% to 15.0%, depending on condition, occupancy, rental rate and location. In selecting an appropriate rate, consideration must be given not only to available yields on alternative investments, but also to the property's location, age and condition. Income growth rate assumptions for the Houston Metropolitan Area market are typical of the national market. Commensurately, internal rates of return are increased to account for increased risks associated with buying property primarily for future potential value, rather than annual cash flow. Based on the above analysis of yield rates and other characteristics of the subject property, it is our opinion that the 10.50% discount rate (annually pre-tax and before debt) developed by the Build-Up Method earlier in this discussion, is an appropriate yield rate to attract equity capital to the subject property. Reversion Value: Based on recent improved sales a "going-in rate" of 9.25% was utilized in the direct capitalization. Therefore, a terminal rate of 10.25% will be used to convert the net income projected for the conversion year into an indication of value. A sale expense of 5.0% is applied in year 11. Based on these assumptions, the final cash flow summary and value estimate are presented on the following pages. The discounted cash flow worksheets, tenant summaries, and supporting schedules are presented in the Addenda of this report. C97-604 O'Connor and Associates Page 186 <PAGE> Value Estimate - Discounted Cash Flow Method Base on the discounted cash flow prepared on the Argus program, the value is indicated to be between $42,750,000 and $45,471,000, with discount rates ranging from 11.25% to 12.25%. Given the characteristics of the subject, a value of $45,250,000 was considered appropriate via the Discounted Cash Flow Method. C97-604 O'Connor and Associates Page 187 <PAGE> NOB HILL 5410 N. BRAESWOOD HOU, TX SCHEDULE OF PROSPECTIVE CASH FLOW In Inflated Dollars for the Fiscal Year beginning 8/1/1997 <TABLE> <CAPTION> Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 For the Years Ending Jul-1998 Jul-1999 Jul-2000 Jul-2001 Jul-2002 Jul-2003 ----------- ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> POTENTIAL GROSS REVENUE Potential Rental Revenue $10,615,080 $10,857,687 $11,237,707 $11,631,025 $12,038,110 $12,459,445 ----------- ----------- ----------- ----------- ----------- ----------- Scheduled Base Rental Revenue 10,615,080 10,857,687 11,237,707 11,631,025 12,038,110 12,459,445 OTHER INCOME 175,032 178,533 182,103 185,745 189,460 193,249 ----------- ----------- ----------- ----------- ----------- ----------- TOTAL POTENTIAL GROSS REVENUE 10,790,112 11,036,220 11,419,810 11,816,770 12,227,570 12,652,694 General Vacancy (743,056) (760,038) (786,639) (814,172) (842,668) (872,161) ----------- ----------- ----------- ----------- ----------- ----------- EFFECTIVE GROSS REVENUE 10,047,056 10,276,182 10,633,171 11,002,598 11,384,902 11,780,533 ----------- ----------- ----------- ----------- ----------- ----------- OPERATING EXPENSES TAXES 878,629 909,381 941,209 974,152 1,008,247 1,043,536 INSURANCE 297,081 307,479 318,241 329,379 340,907 352,839 UTILITIES 1,782,486 1,844,873 1,909,444 1,976,274 2,045,444 2,117,034 MANAGEMENT 401,882 411,047 425,327 440,104 455,396 471,221 MAINTENANCE 760,527 787,145 814,696 843,210 872,722 903,268 PAYROLL 1,128,908 1,168,420 1,209,314 1,251,640 1,295,448 1,340,789 ADMINISTRATIVE 332,731 344,377 356,430 368,905 381,816 395,180 RESERVES 265,200 274,482 284,089 294,032 304,323 314,974 ----------- ----------- ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES 5,847,444 6,047,204 6,258,750 6,477,696 6,704,303 6,938,841 ----------- ----------- ----------- ----------- ----------- ----------- NET OPERATING INCOME 4,199,612 4,228,978 4,374,421 4,524,902 4,680,599 4,841,692 ----------- ----------- ----------- ----------- ----------- ----------- CASH FLOW BEFORE DEBT SERVICE & INCOME TAX $4,199,612 $4,228,978 $4,374,421 $4,524,002 $4,680,599 $4,841,692 =========== =========== =========== =========== =========== =========== <CAPTION> Year 7 Year 8 Year 9 Year 10 Year 11 For the Years Ending Jul-2004 Jul-2005 Jul-2006 Jul-2007 Jul-2008 ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> POTENTIAL GROSS REVENUE Potential Rental Revenue $12,895,525 $13,346,869 $13,814,011 $14,297,499 $14,797,915 ----------- ----------- ----------- ----------- ----------- Scheduled Base Rental Revenue 12,895,525 13,346,869 13,814,011 14,297,499 14,797,915 OTHER INCOME 197,114 201,057 205,078 209,179 213,363 ----------- ----------- ----------- ----------- ----------- TOTAL POTENTIAL GROSS REVENUE 13,092,639 13,547,926 14,019,089 14,506,678 15,011,278 General Vacancy (902,687) (934,281) (966,981 (1,000,825) (1,035,854) ----------- ----------- ----------- ----------- ----------- EFFECTIVE GROSS REVENUE 12,189,952 12,613,645 13,052,108 13,505,853 13,975,424 ----------- ----------- ----------- ----------- ----------- OPERATING EXPENSES TAXES 1,080,059 1,117,861 1,156,987 1,197,481 1,239,393 INSURANCE 365,188 377,970 391,199 404,891 419,062 UTILITIES 2,191,130 2,267,820 2,347,194 2,429,345 2,514,373 MANAGEMENT 487,598 504,546 522,084 540,234 559,017 MAINTENANCE 934,882 967,603 1,001,469 1,036,520 1,072,798 PAYROLL 1,387,716 1,436,286 1,486,556 1,538,586 1,592,436 ADMINISTRATIVE 409,011 423,327 438,143 453,478 469,350 RESERVES 325,999 337,408 349,218 361,440 374,091 ----------- ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES 7,181,583 7,432,821 7,692,850 7,961,975 8,240,520 ----------- ----------- ----------- ----------- ----------- NET OPERATING INCOME 5,008,369 5,180,824 5,359,258 5,543,878 5,734,904 ----------- ----------- ----------- ----------- ----------- CASH FLOW BEFORE DEBT SERVICE & INCOME TAX $5,008,369 $5,180,824 $5,359,258 $5,543,878 $5,734,904 =========== =========== =========== =========== =========== </TABLE> <PAGE> File :DCF Date: 8/22/97 Property Type :Apartment Time: 3:28 pm Portfolio :ML Ref#: AIN Pag: 2 PR0SPECTIVE PRESENT VALUE Cash Flow Before Debt Service plus Property Resale Discounted Annually (Endpoint 0n Cash Flow & Resale) 0ver a 10-Year Period For the P.V. of P.V. of P.V. of Analysis Year Annual Cash Flow Ca$h Flow Cash Flow Period Ending Cash Flow @ 11.25% @ 11.75% @ 12.25% - ------ ------ --------- -------- -------- -------- Year 1 Jul-1998 $4,199,612 $3,774,932 $3,758,042 $3,741,302 Year 2 Jul-1999 4,228,978 3,416,925 3,386,416 3,356,316 Year 3 Jul-2000 4,374,421 3,177,024 3,134,571 3,092,869 Year 4 Jul-2001 4,524,902 2,953,990 2,901,476 2,850,124 Year 5 Jul-2002 4,680,599 2,746,638 2,685,739 2,626,453 Year 6 Jul-2003 4,841,692 2,553,860 2,486,062 2,420,355 Year 7 Jul-2004 5,008,369 2,374,631 2,301,249 2,230,447 Year 8 Jul-2005 5,180,824 2,207,998 2,130,191 2,055,455 Year 9 Jul-2006 5,359,258 2,053,073 1,971,864 1,894,207 Year 10 Jul-2007 5,543,878 1,909,033 1,825,317 1,745,622 --------- --------- --------- --------- Total Cash Flow 47,942,533 27,168,104 26,580,927 26,013,150 Property Resale @ 10.25% Cap 53,152,769 18,303,144 17,500,505 16,736,414 ---------- ---------- ---------- Total Property Present Value $45,471,248 $44,081,432 $42,749,564 Rounded to Thousands $45,471,000 $44,081,000 $42,750,000 =========== =========== =========== Per Unit 38 37 36 PERCENTAGE VALUE DISTRIBUTION Prospective Income 59.75% 60.30% 60.85% Prospective Property Resale 40.25% 39.70% 39.15% ======== ======= ======== 100.00% 100.00% 100.00% <PAGE> File :DCF Date :8/22/97 Property Type :Apartment Time :3:28 pm Portfolio :ML Ref# :AIN Page : 3 NOB HILL 5410 N. BRAESWOOD HOU, TX PR0PERTY SUMMARY REPORT TIMING & INFLATI0N Analysis Period: August 1, 1997 to July 31, 2007; 10 year Inflation Method: Fiscal General Inflation Rate: 3.50% PR0PERTY SIZE & 0CCUPANCY Property Size: 1, 188,324 units Alternate Size: I Square Foot Number of unit types: 17 Toal 0ccupied Area: 1,326 individual units, 0.11%, during first month of analysis GENERAL VACANCY Method: Percent 0f All Rental Revenue Amount: 7.00% PR0PERTY PURCHASE & RESALE Purchase Price: - Resale Method: Capitalize Net 0perating Income Cap Rate: 10.25% Cap Year: Year 11 C0mmission/Closing Cost: 5.00% Net Cash Flow from Sale: $53,152,769 PRESENT VALUE DISC0UNTING Discount Method: Annually (Endpoint on Cash Flow & Resale) Unleveraged Discount Rate: 11.25% t0 12.25%, 0.50% increments Unleveraged Present Value: $42,749,564 at 12.25% <PAGE> Annual Cash Flow before Debt [GRAPHIC OMITTED] <PAGE> Distribution of PV [GRAPHIC OMITTED] <PAGE> Income Approach - Conclusion A value of $45,270,000 is indicated for the subject property by the direct capitalization method, $45,160,000 is indicated by the EGIM method, and $45,250,000 is indicated via the discounted cash flow analysis. The strengths and weaknesses of each technique were considered. The direct capitalization method is considered to be the valuation methodology most often utilized by investors in this market, and a value nearer to the value conclusion of the direct capitalization method is appropriate. The Effective Gross Income Multiplier technique and the Discounted Cash Flow both generally support the value indicated by the Direct Capitalization. As such, the final estimate of value for the subject property via the Income Approach was estimated to be $45,250,000. C97-604 O'Connor and Associates Page 191 <PAGE> Reconciliation and Final Value Conclusion <PAGE> RECONCILIATION AND FINAL VALUE ESTIMATE The Appraisal of Real Estate, 11th Edition, copyright 1996, pages 601-603, published by the Appraisal Institute, states, "Reconciliation is the analysis of alternative conclusions to arrive at a final estimate." ..."Reconciliation requires appraisal judgement and a careful, logical analysis of the procedures that lead to each value indication. Appropriateness, accuracy, and quantity of evidence are the criteria with which an appraiser forms a meaningful, defensible final value estimate. These criteria are used to analyze multiple value indications within each approach and to reconcile the indications produced by the different approaches into a final estimate of defined value." Each of the three approaches to value generally recognized in the appraisal profession (Cost, Sales Comparison, and Income Approaches) were given consideration in the appraisal. Following is a brief discussion of each approach and the value estimate yielded. The Cost Approach The Cost Approach was utilized to estimate the sum total value of the subject property by providing an estimate of depreciated replacement costs of the improvements, which is then added to the land value to yield a total value estimate. Cost figures have been substantiated by local construction cost data and by comparison of similar properties being constructed by local builders. This approach has been applied by estimating the value of the entire land site and the construction cost of the improvements less depreciation to yield a composite value estimate. As previously indicated, an informed seller would be very reluctant to sell at a price lower than his cost, including a reasonable profit. The corollary to this is also true by the theory of substitution whereby a buyer will not pay more for a building than it would cost to duplicate in today's market. This approach is particularly useful in the valuation of relatively new construction. The value estimate via the Cost Approach is: $43,980,000 C97-604 O'Connor and Associates Page 192 <PAGE> Sales Comparison Approach In the sales comparison approach, market value is estimated by comparing the subject property to similar properties that have been sold recently. This approach reflects the desires and aspirations of buyers and sellers through the market activity of comparable properties. A major premise of the sales comparison approach is that the market value of a property is directly related to the prices of comparable, competitive properties. The comparative analysis in the sales comparison approach focuses on differences in the characteristics of the sales, in relation to the subject, which can account for variation in prices. Extreme care must be exercised in the selection of the comparable sales as there tends to be an inverse relationship between the degree of adjustment and degree of reliability that exists in the adjusted sale price. In other words, the greater the adjustment the less the reliability. The importance of this requirement is underscored because the Sales Comparison Approach is predicated on the process of correlation and analysis between the cited examples and the property being appraised. The indication of value from the Sales Comparison Approach-Improved Property for the subject is: $45,350,000 C97-604 O'Connor and Associates Page 193 <PAGE> The Income Approach Income-producing real estate is typically purchased as an investment, and from the investor's point of view, earning power is the critical element affecting property value. An investor who purchases income-producing real estate is essentially trading present dollars for the right to receive future dollars. The income approach to value consists of methods, techniques, and mathematical procedures that an appraiser uses to analyze a property's capacity to generate benefits (i.e. usually the monetary benefits of income and reversion) and convert these benefits into an indication of present value. As indicated previously, a fully informed investor is, to a great degree, guided by the present worth of his position in the future potential benefits of the income stream generated by an income-producing property. As such, our estimate of market rent, used in calculating the potential gross income for the subject, was based on a comparison of rents currently received on similarly improved properties. Further, data concerning expenses normally incurred by owners was obtained from conversations with owner/operators active in this market. Utilizing this information we were able to arrive at an estimate of net operating income for the property. Finally, the net income is capitalized to arrive at a value estimate via the Direct Capitalization Method, Discounted Cash Flow Method, and EGIM Method. The Direct Capitalization Method is considered to be the valuation methodology most often utilized by investors in this market, and a value nearer to the value conclusion of the Direct Capitalization Method is appropriate. The Effective Gross Income Multiplier technique and the Discounted Cash Flow both generally support the value indicated by the Direct Capitalization. As such, the final estimate of value for the subject property via the Income Approach was estimated to be $45,250,000. C97-604 O'Connor and Associates Page 194 <PAGE> Final Conclusion Summary As a result of our investigations, studies and analysis of the sale, cost, income, and expense data, interpreted within the context of all the factors in the market place which affect value, the three approaches indicated a range of values for the subject from $43,980,000 to $45,350,000. The Income Approach reflects the income potential of the subject. The Sales Comparison Approach reflects the attitudes of buyers and sellers that are currently active in the market. According to brokers/professionals active in the area, the Income and Sales Comparison Approaches are typically relied on more heavily by investors in this market. For multitenant apartment complexes (income-producing properties) such as the subject, preference is generally given to the Income Approach. The quality of the data gathered for analysis in the Income Approach was considered good due to the availability of expense information from the subject and similar properties, as well as an adequate number of comparable rentals. Income streams are often capitalized by rates abstracted from comparable sales to arrive at an estimate of value. Hence, the Sales Comparison Approach is closely tied to the Income Approach. The quality of the data available for analysis in the Sales Comparison Approach was also considered to be good as an adequate number of recent arm's length sales of properties similar to the subject was available for analysis. Due to the inherent difficulty in precisely calculating all forms of depreciation, the Cost Approach is accorded the least weight of the three approaches. Therefore, giving greater weight to the Income and Sales Comparison Approaches, the "As Is" Market Value of the Fee Simple Estate of the subject property, as of August 7, 1997, is concluded as follows: $45,300,000 C97-604 O'Connor and Associates Page 195 <PAGE> Exposure to the Market/Marketing Time Assuming adequate exposure and normal marketing efforts, the estimated exposure time (i.e. the length of time the subject property would have been exposed for sale in the market had it sold at the market value concluded to in this analysis as of the date of this valuation) would have been within about twelve months; the estimated marketing time (i.e. the amount of time it would probably take to sell the subject property if exposed in the market beginning on the date of this valuation) is estimated to be within about twelve months. Based upon the general market for good quality office properties in the Greater Houston area, a marketing period equal to or less than one year for the subject property is considered appropriate. C97-604 O'Connor and Associates Page 196 <PAGE> Addenda <PAGE> <TABLE> <CAPTION> =================================================================================================== ESTIMATE OF INSURABLE VALUE =================================================================================================== <S> <C> <C> <C> <C> I. DIRECT COSTS Apartment Area (SF): 1,196,250 Base Cost PSF: $48.00 Multipliers (Sec. 99): Area: 85.00% Current Cost: 103.00% Times Local: 93.00% ------ Total Factor: 81.42% Adj. Base Cost PSF: $39.08 TOTAL BASE BUILDING COST: $46,749,450 Plus Segregated Cost: Built Ins Number Unit Cost Total Cost ------ --------- ---------- Oven/Range 1,326 $300 $397,800 Refrigerator 1,326 $325 $430,950 Disposal 1,326 $75 $99,450 Dishwashers 1,326 $200 $265,200 Total Built Ins $1,193,400 Swimming Pools $300,000 Fences, Gates $500,000 Parking/Drives/Walkways (500,000 SF - asphalt and concrete) $1,037,000 Landscaping $750,000 Carports $1,140,000 ---------- Total Direct Cost $51,669,850 II. Exclusions Foundation: 598,125 $1.50 ($897,188) Site Work: ($1,033,397) Below Ground Piping & Mechanicals ($258,349) Swimming Pools: ($300,000) Fences, Gates: ($500,000) Parking/Drives/etc.: ($1,037,000) Total Exclusions: ($4,025,934) ------------ INSURABLE VALUE: $47,643,916 ROUNDED: $47,640,000 =================================================================================================== </TABLE> C97-604 O'Connor and Associates Page 197 <PAGE> ENGAGEMENT LETTER <PAGE> July 9, 1997 VIA FAX & U.S. MAIL Mr. Pat O'Connor, MAI O'Connor & Associates 2000 N. Loop West, Suite 110 Houston, TX 77018 RE: Nob Hill Apartments Dear Mr. O'Connor: This letter and the attached Rider (the "Rider") which is incorporated herein confirm our agreement that your firm will provide L.J. Melody & Company ("L.J. Melody") with an Appraisal Report that meets the requirements of the Uniform Standards of Professional Appraisal Practice as adopted by the Appraisal Institute (the "Report") on the commercial real estate (the "Property") identified below: Nob Hill Apartments 5410 N. Braeswood Houston, TX 77096 The Report will cover the matters set forth in the attached Instructions, in accordance with the terms of those instructions. You expect to deliver the full narrative Report to us on or before August 11, 1997 (the "Delivery Date"), but in any event you will deliver the Report before August 12, 1997. For your services, we agree to pay a fee of $4,000 within 14 days of the receipt of the final Report. Should the Report not be received in our office by the Delivery Date, said fee shall be reduced by $100 for each business day beyond the Delivery Date until the Report is received. You will act as an independent contractor, and not as an employee or agent of the undersigned. It is further agreed that the completion of this Report and the inspection of the subject property and the comparables may not be subcontracted. It is understood that all persons providing significant professional assistance in the preparation of this Report will be identified and their qualifications presented in the Report. The person or persons who have physically inspected the subject Property and the comparables must sign the final Report. An appraiser with an MAI designation must sign the Report and indicate if he or she has personally inspected die subject Property. Within the standards required by USPAP, L.J. Melody is particularly interested in seeing a high level of attention focused on the following: o Actual contractual rents per the lease at comparable properties vs asking rents o The cost approach to value where the circumstances of the property suggest it o The inclusion of an insurable value replacement cost grid in every case <PAGE> Mr. Pat O'Connor, MAI Page Two July 9, 1997 o The inclusion of a land value in every case o Lease provisions that effect value o Anchor tenants and leases o Market trends that may impact the subject's net cash flows in the future o Historical sales and economic trends which may affect the property's tenants o Market vacancy rates and projected down time for in-line and anchor tenants The Report should be addressed to L.J. Melody & Company, such other persons as may be designated by L.J. Melody & Company, and their respective successors and assigns. The Report should include a statement that (i) the Report may be relied upon by L.J. Melody & Company in determining whether to make a loan evidenced by a note (the "Property Note") secured by the Property, (ii) the Report may be relied upon by any purchaser in determining whether to purchase the Property Note from the undersigned and by any rating agency rating securities issued by or representing an interest in the Mortgage Note, (iii) the Report may be referred to in and included with materials offering for sale the Property Note or an interest in the Property Note, (iv) persons who acquire the Property Note or an interest in the Property Note may rely on the Report, and (v) the Report speaks only as of its date in the absence of a specific written update of the Report signed and delivered by you. The Report shall remain the sole property of L.J. Melody & Company and shall not be assigned. without written permission, to any other entity. Please forward 3 original "hard" copies of the Report and a copy on a 3 1/2" computer disk together with an unbound set of the photographs of the properties which are contained in the report by the date stated above to my attention at the following address: L.J. Melody & Company 4675 MacArthur Court, Suite 1425 Newport Beach, CA 92660 Also, please forward one original copy of the report to Merrill Lynch. <PAGE> Mr. Pat O'Connor, MAI Page Three July 9, 1997 Your signature below and on the attached Rider reflect your agreement with the terms and conditions of this engagement. Please sign and return this Engagement Letter and Rider to the address below and keep a copy for your files: L.J. Melody & Company 4675 MacArthur Court, Suite 1425 Newport Beach, CA 92660 Sincerely, Sincerely, /s/ Ernie Iriarte Ernie Iriarte Vice President Accepted and Agreed: By: /s/ [Illegible] ------------------------ Title: President ------------------------ Date: 7/10/97 ------------------------ Attachment: Rider to Engagement Letter <PAGE> RIDER TO ENGAGEMENT LETTER Rider to Engagement Letter, dated as of July 9, 1997, by and between L.J. Melody & Company and O'Connor & Associates, (the "Consultant") (collectively, the "Engagement Letter"). NOW, THEREFORE, in consideration of the covenants and agreements set forth in the Engagement Letter and set forth herein, the parties hereto agree as follows: 1. Termination for Cause. This Engagement Letter may be terminated by L.J. Melody for cause at any time upon 10 days advance notice from L.J. Melody to the Consultant. Upon any such termination, the Consultant shall be entitled to all arrearages of amounts to be paid pursuant to this Engagement Letter, but shall not be entitled to any further compensation. 2. Covenant Not to Disclose. The Consultant covenants and agrees that it will not, to the detriment of L.J. Melody, at any time during or after the termination of its association with L.J. Melody, whether under this Engagement Letter or otherwise, reveal, divulge or make known to any person (other than L.J. Melody or its affiliates) or use for its own account any confidential or proprietary records, data, trade secrets or any other confidential or proprietary information whatever (the "Confidential Information") previously used by L.J. Melody to date or during the engagement and made known (whether or not with the knowledge and permission of L.J. Melody, and whether or not developed, devised or otherwise created in whole or in part by the efforts of the Consultant) to the Consultant by reason of its association with L.J. Melody. The Consultant further covenants and agrees that it shall retain all such knowledge and information which it shall acquire or develop respecting such Confidential Information in trust for the sole benefit of L.J. Melody and its successors and assigns. 3. Business Materials, Covenant to Report. All written materials, records and documents made by the Consultant or coming into its possession concerning the business or affairs of L.J. Melody shall be the sole property of L.J. Melody and, upon the termination of its association with L.J. Melody or upon the request of L.J. Melody at any time, the Consultant shall promptly deliver the same to L.J. Melody and shall retain no copies thereof. The Consultant agrees to render to L.J. Melody such reports of the activities undertaken by the Consultant or conducted under the Consultant's direction pursuant hereto during the Consulting Period as L.J. Melody may request. 4. Specific Performance. Without intending to limit the remedies available to L.J. Melody, the Consultant further agrees that damages at law will be an insufficient remedy to L.J. Melody in the event that the Consultant violates the terms of Sections 2. or 3. of this Rider, and that L.J. Melody may apply for and obtain injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of, or otherwise to specifically enforce, any of the covenants of such Sections. The parties hereto understand that each of the covenants of the Consultant contained in Section 2. And 3. of this Rider is an essential element of the Engagement Letter. 5. Entire Agreement. This Engagement Letter contains the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof. 6. Amendments and Waivers. This Engagement Letter may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment is sought. Either party hereto may, by an instrument in writing, waive <PAGE> compliance by the other party with any term or provision of this Engagement Letter on the part of such other party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision of this Engagement Letter shall not be construed as waiver of any subsequent breach. 7. Section Headings. The section headings contained in this Engagement Letter are for reference purposes only and shall not be deemed to be part of this Engagement Letter or to control or affect the meaning or construction of any provision of this Engagement Letter. 8. Severability. If any term or provision of this Engagement Letter is held or deemed to be invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, this Engagement Letter shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Engagement Letter. 9. Governing Law. This Engagement Letter shall be governed by and construed in accordance with the laws of California. IN WITNESS WHEREOF, the parties hereto have duly executed this Rider to Engagement Letter as of the date first above written. L.J. Melody & Company By: /s/ [Illegible] -------------------- Title: Vice President ------------------ CONSULTANT: By: /s/ [Illegible] -------------------- Title: President ------------------ <PAGE> DCF ASSUMPTIONS <PAGE> File : Dcf Property Type : Apartment Portfolio : ML Page: 1 NOB HILL 5410 N. BRAESWOOD HOU, TX Input Assumptions PROPERTY DESCRIPTION PROPERTY TIMING Name: NOB HILL Analysis Start Date: 8/97 Address: 5410 N. BRAESWOOD First Year Ends: 7/98 City: HOU Years of Analysis: 10 State: TX Zip: Portfolio: ML Property Type: Apartment AREA MEASURES Label Area - ------------------------------------------------------- Property Size 1,188,324 Units Alt. Prop. Size 1 SqFt GENERAL INFLATION Inflation Method: Fiscal Inflation Rate: 3.5 MISCELLANEOUS REVENUES <TABLE> <CAPTION> Name Acct Code Amount Units Area Frequency % Fixed ------------------------ --------- ------ ----- ---- --------- ------- <S> <C> <C> <C> <C> <C> <C> OTHER INCOME 175,032 $Amount /Year 100 APARTMENT OPERATING EXPENSES <CAPTION> Name Acct Code Amount Units Area Frequency % Fixed ------------------------ --------- ------ ----- ---- --------- ------- TAXES 878,629 $Amount /Year 100 INSURANCE 297,081 $Amount /Year 100 UTILITIES 1,782,486 $Amount /Year 100 MANAGEMENT 4 %ofEGR MAINTENANCE 760,527 $Amount /Year 100 PAYROLL 1,128,908 $Amount /Year 100 ADMINISTRATIVE 332,731 $Amount /Year 100 RESERVES 265,200 $Amount /Year 100 </TABLE> GENERAL VACANCY Option: Percent of All Rental Revenue Percent Based on Revenue Minus Absorption and Turnover Vacancy: No Reduce General Vacancy Result by Absorption & Turnover Vacancy: Yes Rate: 7 Apartment Rent Schedule <TABLE> <CAPTION> Unit Type Unit Total Current Current Current Market Maximum Mos to No. Description Size Units Rent Term Occup. Leasing Occup. Absorb --- ----------- ---- ----- ---- ---- ------ ------- ------ ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 1 l/l 670 320 565 6 M670 2 1/1 756 84 595 6 M756 3 1/1 798 37 610 6 M798 4 2/1 850 183 620 6 M850 5 2/1 900 100 645 6 M900 6 2/1 930 120 670 6 M930 7 2/1 936 20 660 6 M936 8 2/1.3 942 60 665 6 M942 9 2/2 1,050 110 760 6 MiOSO 10 2/2 1,054 66 705 6 M1054 11 2/2 1,066 92 750 6 M1066 12 2/2 1,120 22 815 6 M1120 13 2/2 1,210 28 875 6 M1210 14 2/2 1,240 74 895 6 M1240 15 3/2 1,282 4 1,025 6 M1282 16 3/2 1,440 2 1,215 6 M1440 17 3/3 1,770 4 1,365 6 M1770 </TABLE> (continued on next page) <PAGE> File : Dcf Property Type :Apartment Portfolio : ML Page: 2 NOB HILL 5410 N. BRAESWOOD HOU, TX Input Assumptions (continued from previous page) <TABLE> <CAPTION> MARKET LEASING ASSUMPTIONS Leasing Assumptions Category: M670 New Market Renewal Mkt Term 2 Term 3 Term 4 <S> <C> <C> <C> <C> <C> Renewal Probability 75 Market Rent 565.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 6 Leasing Assumptions Category: M756 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 595.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 6 Leasing Assumptions Category: M850 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 620.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: M798 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 610.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: M900 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 645.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 </TABLE> (continued on next page) <PAGE> File : Dcf Property Type : Apartment Portfolio ML Page :3 NOB HILL 5410 N. BRAESWOOD HOU, TX Input Assumptions (continued from previous page) <TABLE> <CAPTION> Leasing Assumptions Category: M930 New Market Renewal Mkt Term 2 Term 3 Term 4 <S> <C> <C> <C> <C> <C> Renewal Probability 75 Market Rent 670.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: M936 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 660.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: M942 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 665.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 6 Leasing Assumptions Category: Ml054 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 705.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS TermLengths 12 Leasing Assumptions Category: Ml050 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 760.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: Ml120 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 MarketRent 815.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 </TABLE> (continued on next page) <PAGE> File : Dcf Property Type : Apartment Portfolio : ML Page 4 NOB HILL 5410 N. BRAESWOOD HOU, TX Input Assumptions (continued from previous page) <TABLE> <CAPTION> Leasing Assumptions Category: Ml240 New Market Renewal Mkt Term2 Term 3 Term 4 <S> <C> <C> <C> <C> <C> Renewal Probability 75 Market Rent 895.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: M1210 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 875.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS TermLengths 12 Leasing Assumptions Category: Ml282 New Market Renewal Mkt Term2 Term3 Term4 Renewal Probability 75 Market Rent 1,025.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: Ml440 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 1,215.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: Ml770 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 1,365.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: S885 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 575.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 </TABLE> (continued on next page) <PAGE> File : Dcf Property Type : Apartment Portfolio : ML Page 5 NOB HILL 5410 N. BRAESWOOD HOU, TX Input Assumptions (continued from previous page) <TABLE> <CAPTION> Leasing Assumptions Category: S890 New Market Renewal Mkt Term2 Term3 Term4 <S> <C> <C> <C> <C> <C> Renewal Probability 75 Market Rent 625.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS TermLengths 12 Leasing Assumptions Category: S1000 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 700.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: S1008 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 680.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: S1108 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 775.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: S1168 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 775.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: Ml066 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 750.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 </TABLE> (continued on next page) <PAGE> File : Dcf Property Type : Apartment Portfolio : ML Page 6 NOB HILL 5410 N. BRAESWOOD HOU, TX Input Assumptions (continued from previous page) PROPERTY RESALE Initial Purchase Price: 0 Option: Capitalize Net Operating Income Cap Rate: 10.25 Resale Commission (%): 5 Apply Rate to following year income: Yes Calculate Resale for All Years: Yes PRESENT VALUE DISCOUNTING Unleveraged Discount Range Low Discount Rate: 11.25 High Discount Rate: 12.25 Increment: 0.5 Discount Method: Annually (Endpoint on Cash Flow & Resale) <PAGE> RENT ROLL <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 1 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:17:54 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 001 01 A COOPER FOR ANDREWS C 670 565.00 540.00 01 05/03/96 12M 05/31/97 100.00 40.00 06/97 1B1B 0.00 40.00 01 002 01 A LIONG, ELAINE C 670 565.00 565.00 01 02/21/96 12M 02/28/97 110.00 0.00 04/97 1B1B 0.00 20.00 01 003 01 B-L SUUIUN SHARON C 756 585.00 560.00 01 10/21/94 M-M 10/31/95 300.00 0.00 11/96 1B1B 0.00 0.00 01 004 01 B-L DARNEILLE, KATHY C 756 5B5.00 560.00 01 01/13/96 12M 01/31/98 150.00 0.00 1B1B 0.00 0.00 01 005 01 B BANDEMIER CYNTHIA C 756 605.00 595.00 01 05/22/96 06M 11/30/97 100.00 0.00 06/97 1B1B 0.00 10.00 01 006 01 B HUME, MARY J. C 756 605.00 555.00 01 09/03/94 12M 02/28/98 300.00 0.00 03/97 1B1B 0.00 25.00 01 007 01 G-P ***MCBRIDE, SUE C 1210 895.00 895.00 01 07/20/96 M-M 08/31/96 0.00 0.00 2B2B 0.00 0.00 01 008 01 G-U RANKEY, EUGENE/KELLY C 1210 870.00 795.00 01 07/22/96 12M 07/31/97 300.00 0.00 2B2B 0.00 0.00 01 009 01 G-P MUELLER KEN & MIRIAM C 1210 895.00 875.00 01 03/30/95 12M 03/31/98 210.00 0.00 04/97 2B2B 0.00 15.00 01 010 01 G-U HILL / JOHNSON C 1210 870.00 835.00 01 10/24/94 12M 02/28/97 210.00 0.00 03/97 2B2B 0.00 10.00 01 011 01 A CAVASOS ELIZABETH C 670 565.00 550.00 01 04/30/96 12M 04/30/98 110.00 0.00 05/97 1B1B 0.00 25.00 01 012 01 A VELASCO, MORAIMA C 670 565.00 535.00 01 07/27/96 06M 07/31/97 100.00 0.00 1B1B 0.00 0.00 01 013 01 G-P BERGER IRENE S. C 1210 895.00 860.00 01 08/09/94 12M 10/31/97 110.00 0.00 11/96 2B2B 0.00 0.00 01 014 01 G-U HOLMES, DOROTHY ANN C 1210 870.00 795.00 01 11/01/93 12M 09/30/97 410.00 0.00 11/95 2B2B 0.00 0.00 01 015 01 G-P GALLEY/JONES C 1210 895.00 860.00 01 08/01/96 12M 07/31/97 100.00 0.00 2B2B 0.00 0.00 01 016 01 G-U KOSINA, KIM/CHAD C 1210 870.00 870.00 01 06/20/97 12M 06/30/98 120.00 0.00 2B2B 0.00 0.00 01 017 01 A CHAMBERS, MARK L. 0 670 565.00 525.00 01 06/13/87 M-M 06/30/96 05/14/97 70.00 262.50 07/96 1B1B 06/15/97 200.00 15.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 2 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:18:32 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 017 A VACANT 670 565.00 1B1B 01 018 01 A DALY SEAN C 670 565.00 525.00 01 06/30/95 M-M 06/30/96 100.00 0.00 07/96 1B1B 0.00 5.00 01 019 01 G P URQUHART, THOMAS C 1210 895.00 875.00 01 06/01/94 012 05/31/95 210.00 0.00 04/97 2B2B 0.00 15.00 01 020 01 G-U OTTO, DOROTHY C 1210 870.00 850.00 01 07/15/90 12M 02/28/97 210.00 0.00 04/97 2B2B 0.00 15.00 01 021 01 G-P KUGLER, W. J./MARY C 1210 895.00 860.00 01 09/04/96 12M 09/30/97 110.00 0.00 2B2B 0.00 0.00 01 022 01 G-U JONES, LAMONT/FERN C 121 870.00 820.00 01 07/01/96 M-M 06/30/97 300.00 0.00 07/97 2B2B 0.00 25.00 01 023 01 B BECHDOL, SHILA C 756 605.00 595.00 01 04/01/97 06M 09/30/97 310.00 0.00 1B1B 0.00 0.00 01 024 01 B FROHLICH, JANET C 756 605.00 575.00 01 5/14/93 12M 04/30/98 300.00 0.00 11/96 1B1B 0.00 0.00 01 025 01 B-L MCDANIEL, ANDREW G. C 756 585.00 560.00 01 10/30/95 12M 10/31/97 100.00 0.00 11/96 1B1B 0.00 0.00 01 026 01 B-L TERRY, SUZANNE C 756 585.00 575.00 01 11/30/88 12M 03/31/98 200.00 0.00 04/97 1B1B 0.00 25.00 01 027 01 A SCHERKENBACH, JOHN L C 670 565.00 565.00 01 02/10/97 06M 08/31/97 100.00 0.00 1B1B 0.00 0.00 01 028 01 A GRAVEL, DIANE C 670 565.00 565.00 01 05/31/86 M-M 02/31/95 275.00 0.00 04/97 1B1B 0.00 20.00 01 029 01 E ROTSTEIN, ANNA C 942 695.00 655.00 01 03/11/78 12M 02/28/97 0.00 0.00 03/97 2B1B 0.00 25.00 01 030 01 E HALE, ELTON C 942 695.00 660.00 01 07/15/78 M-M 01/31/79 110.00 0.00 11/96 2B1B 0.00 0.00 01 031 01 E DAVIS, CECIL C 942 695.00 660.00 01 03/06/92 12M 02/28/98 10.00 0.00 03/97 2B1B 0.00 20.00 01 032 01 E CHOUDHURY, ANIRUDDHA C 942 695.00 660.00 01 08/30/96 12M 08/31/97 110.00 0.00 2B1B 0.00 0.00 01 033 01 A-L RATHGERBER, JUDY C 670 540.00 520.00 01 06/01/95 06M 11/30/95 160.00 20.00- 03/97 1B1B 0.00 20.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 3 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:19:1 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 034 01 A-L GRAYSON, JOANN C 670 540.00 525.00 01 02/05/93 M-M 09/31/93 270.00 0.00 05/97 1B1B 0.00 5.00 01 035 02 C-L GARDNER, NIKKI C 850 620.00 590.00 01 05/10/97 12M 05/30/98 100.00 0.00 2B1B 0.00 0.00 01 036 01 C-L DEREVYANSKI (RYSIN) C 850 620.00 570.00 01 06/15/96 12M 07/31/97 100.00 0.00 2B1B 0.00 0.00 01 037 01 C AHMAD ANWAR C 850 645.00 620.00 01 06/29/95 09M 05/31/97 110.00 0.00 06/97 2B1B 0.00 25.00 01 038 01 C KONIECZNY/COLCA C 850 645.00 595.00 01 02/22/97 06M 08/31/97 100.00 0.00 2B1B 0.00 0.00 01 039 01 A SKOBEL HELEN C 670 565.00 565.00 01 03/27/96 06M 09/30/96 110.00 0.00 04/97 1B1B 0.00 20.00 01 040 01 A HARP, STEPHEN R. C 670 565.00 535.00 01 05/01/94 M-M 08/31/96 150.00 0.00 09/96 1B1B 0.00 0.00 01 041 01 A VARTERSSIAN, V C 670 565.00 95.00 01 08/20/95 12M 02/28/98 60.00 0.00 03/97 1B1B 0.00 25.00 01 042 01 A HAWKINS, JANE C 670 565.00 565.00 01 12/15/95 12M 12/31/96 510.00 0.00 04/97 1B1B 0.00 20.00 01 043 01 C DORAN, BRETT/SHAWNA C 850 645.00 620.00 01 08/19/96 09M 05/31/98 400.00 0.00 06/97 2B1B 0.00 25.00 01 044 01 C ZHENG, JI/CHU-FENG C 850 645.00 595.00 01 03/28/96 06M 09/30/97 110.00 0.00 2B1B 0.00 0.00 01 045 01 C-L MOORING, ANNIE/CHARL C 850 620.00 610.00 01 02/03/96 M-M 02/28/97 100.00 0.00 07/97 2B1B 0.00 5.00 01 046 01 C-L ANDRADE, MELANIE C 850 620.00 570.00 01 01/26/97 06M 07/31/97 400.00 0.00 2B1B 0.00 0.00 01 047 01 A-L DECANDITIS, GERARD C 670 540.00 525.00 01 02/15/97 06M 08/31/97 150.00 0.00 1B1B 0.00 0.00 01 048 01 A-L BARRON, ANNA MARIE C 670 540.00 500.00 01 07/28/88 12M 08/31/97 120.00 0.00 09/95 1B1B 0.00 0.00 01 049 01 E THOMAS/HENSON 0 942 695.00 660.00 01 11/21/96 06M 05/31/97 04/15/97 100.00 0.00 2B1B 05/31/97 0.00 0.00 01 049 02 E COOLEY / WOOD N 942 695.00 695.00 01 07/01/99 0.00 0.00 2B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 4 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:19:50 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 049 E VACANT C 942 695.00 2B1B 01 050 01 E BLYTH, TINA C 942 695.00 640.00 01 08/10/96 12M 08/31/97 210.00 0.00 2B1B 0.00 0.00 01 051 01 E ASELIN, CLAIRE C 942 695.00 665.00 01 05/24/91 012 05/31/98 210.00 0.00 06/97 2B1B 0.00 25.00 01 052 01 E LEWIS JO DEYCE C 942 695.00 635.00 01 04/01/95 12M 03/31/98 90.00 0.00 04/97 2B1B 0.00 25.00 01 053 02 A-L SANDERS, LEROY C 670 540.00 525.00 01 06/07/97 12M 06/30/98 110.00 0.00 1B1B 0.00 0.00 01 054 01 A-L SERICE, JANET C 670 540.00 495.00 01 09/14/96 12M 09/30/97 110.00 0.00 1B1B 0.00 0.00 01 055 02 A-L HARWOOD, WENDY C 670 540.00 525.00 01 04/12/97 09M 01/31/98 410.00 0.00 1B1B 0.00 0.00 01 056 01 A-L SIMON, SARA C 670 540.00 540.00 01 06/07/97 12M 06/30/98 100.00 108.00- 1B1B 0.00 0.00 01 057 01 A NEWELL, VERA H. C 670 565.00 525.00 01 0/12/92 12M 07/31/97 110.00 0.00 08/96 1B1B 0.00 0.00 01 058 01 A GOODMAN, JOHN C 670 565.00 545.00 01 06/26/91 012 02/28/97 150.00 0.00 03/97 1B1B 0.00 25.00 01 059 01 A YORK, JEAN C 670 565.00 565.00 01 09/15/95 06M 02/28/97 110.00 0.00 04/97 1B1B 0.00 20.00 01 060 01 A AZAD ABUL SABERA C 670 565.00 545.00 01 06/03/95 12M 05/30/98 110.00 0.00 06/97 1B1B 0.00 25.00 01 061 01 A WISEMAN, TERRY/LENA C 670 565.00 545.00 01 09/01/95 12M 08/31/97 100.00 0.00 1B1B 0.00 0.00 01 062 01 A WERDENE, CARMEN C 670 565.00 525.00 01 06/12/96 12M 06/30/98 110.00 0.00 1B1B 0.00 0.00 01 063 01 A KAY, ESTER C 670 565.00 545.00 01 08/15/97 12M 08/31/97 0.00 0.00 01/96 1B1B 0.00 0.00 01 064 01 A BOND, LAURENA C 670 565.00 545.00 01 05/01/93 M-M 03/01/96 250.00 0.00 04/97 1B1B 0.00 25.00 01 065 01 A OWEN, TOM C 670 565.00 535.00 01 08/14/96 06M 08/31/97 100.00 0.00 1B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 5 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:20:28 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 066 02 A ABU-HASAN, MUTASIM N 670 565.00 565.00 01 07/01/99 100.00 0.00 1B1B 0.00 0.00 01 066 A VACANT 670 565.00 1B1B 01 067 01 A LEDER, IRVIN C 670 565.00 565.00 01 09/06/67 M-M 12/30/89 10.00 0.00 05/97 1B1B 0.00 20.00 01 068 01 A SKILLAS MARIA C 670 565.00 545.00 01 08/11/95 12M 08/31/97 110.00 0.00 1B1B 0.00 0.00 01 069 01 A-L LOSS, IRENE C 670 540.00 495.00 01 09/07/96 12M 09/30/97 110.00 0.00 1B1B 0.00 0.00 01 070 01 A-L ELLIS, CHARLES C 670 540.00 525.00 01 12/01/93 06M 08/31/96 100.00 0.00 04/97 1B1B 0.00 5.00 01 071 01 A-L SIMPSON,THOMAS C 670 540.00 495.00 01 08/10/96 12M 08/31/97 110.00 0.00 1B1B 0.00 0.00 01 072 A-L VACANT 670 540.00 1B1B 01 073 01 A AIELLO, JOSEPH C 670 565.00 520.00 01 05/01/89 12M 08/31/97 160.00 0.00 02/96 1B1B 0.00 0.00 01 074 01 A BELLIS, DEBORAH C 670 565.00 545.00 01 06/20/95 12M 12/31/96 210.00 0.00 03/97 1B1B 0.00 15.00 01 075 01 D FLOYD, EVELYN C 930 695.00 660.00 01 06/15/96 M-M 06/30/98 100.00 0.00 07/97 2B1B 0.00 25.00 01 076 01 D NETHERLAND, SHARON C 930 695.00 650.00 01 07/01/95 M-M 06/30/97 110.00 0.00 07/97 2B1B 0.00 25.00 01 077 01 D BRENNER, ARLIENE C 930 695.00 670.00 01 05/08/71 M-M 11/31/84 10.00 0.00 05/97 2B1B 0.00 10.00 01 078 01 D BARTLETT, SANDRA C 930 695.00 650.00 01 05/01/84 12M 08/31/97 410.00 0.00 09/96 2B1B 0.00 0.00 01 079 01 D MARZAN, KATHERINE C 930 695.00 650.00 01 06/25/93 M-M 10/31/96 320.00 0.00 11/96 2B1B 0.00 0.00 01 080 01 D LILLEY, HESTER JANE C 930 695.00 650.00 01 08/18/79 12M 08/31/97 210.00 0.00 09/96 2B1B 0.00 0.00 01 081 01 D BILLINGSLEY, CAROLE C 930 695.00 650.00 01 06/25/94 M-M 06/30/97 110.00 0.00 07/97 2B1B 0.00 25.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 6 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:21:0? =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 082 01 D FARLEY, ELEANOR C 930 695.00 650.00 01 12/30/96 06M 06/30/97 210.00 0.00 2B1B 0.00 0.00 01 083 01 C WILMOTH KELLY A. C 850 645.00 615.00 01 09/17/94 M-M 04/30/95 110.00 0.00 05/97 2B1B 0.00 20.00 01 084 01 C SADER, KENNETH C 850 645.00 595.00 01 02/01/97 12M 01/31/98 110.00 0.00 2B1B 0.00 0.00 01 085 01 C-L GOFF, GEORGE W. C 850 620.00 575.00 01 06/08/85 12M 08/31/97 60.00 0.00 08/94 2B1B 0.00 20.00 01 086 01 C-L KNEPSHIELD JUDITH/ED C 850 620.00 595.00 01 05/01/95 12M 04/30/98 210.00 0.00 05/96 2B1B 0.00 0.00 01 087 01 C CHERMACK/KOSTAKA C 850 645.00 595.00 01 11/22/96 12M 11/22/96 500.00 0.00 2B1B 0.00 0.00 01 088 01 C DIAZ, WILLIAM, JENNIF C 850 645.00 595.00 01 06/07/95 12M 06/30/97 100.00 1,190.00 2B1B 0.00 0.00 01 089 01 F SACHER, EVELYN C 1054 750.00 695.00 01 06/15/89 12M 02/28/98 230.00 0.00 03/97 2B2B 0.00 20.00 01 090 01 F WILLIFORD, RONALD C 1054 750.00 715.00 01 09/01/84 M-M 03/31/85 200.00 0.00 05/97 2B2B 0.00 20.00 01 091 01 B HIEDEMAN TIMOTHY C 756 605.00 585.00 01 07/01/96 06M 11/30/97 10.00 0.00 1B1B 0.00 0.00 01 092 02 B LOU, ROSE ANN C 756 605.00 595.00 01 04/05/97 12M 04/30/98 110.00 0.00 1B1B 0.00 0.00 01 093 01 B YOUNG MARTHA C 756 605.00 550.00 01 09/17/94 12M 08/31/97 360.00 0.00 09/96 1B1B 0.00 0.00 01 094 01 B NANCE, GLYNN 0 756 605.00 585.00 01 07/09/96 06M 01/31/97 05/19/97 100.00 195.00 1B1B 06/20/97 0.00 0.00 01 094 02 B SCHWIND PL N 756 605.00 595.00 01 08/01/99 0.00 0.00 1B1B 0.00 0.00 01 094 B VACANT 756 605.00 1B1B 01 095 01 F ROSEMAN, VERA C 1054 750.00 695.00 01 01/18/92 12M 08/31/97 160.00 0.00 03/97 2B2B 0.00 15.00 01 096 01 F HAMRA, MARY C 1054 750.00 695.00 01 05/29/90 M-M 08/31/95 450.00 0.00 03/97 2B2B 0.00 5.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 7 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:21:45 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 097 01 C DISNEY JACKIE C 850 645.00 595.00 01 02/01/95 06M 0B/31/97 210.00 0.00 03/97 2B1B 0.00 20.00 01 098 01 C PENG JINCHAO/LIN OR C 850 645.00 595.00 01 11/16/96 09M 08/31/97 210.00 0.00 2B1B 0.00 0.00 01 099 01 C-L BROCK / SMITH SONYIA C 850 620.00 570.00 01 07/27/96 06M 07/31/98 315.00 10.00- 2B1B 0.00 0.00 01 100 01 C-L QIU SHAN JING LUI C 850 620.00 595.00 01 12/25/94 1YR 12/31/95 110.00 0.00 5/97 2B1B 0.00 10.00 01 101 01 C ELISOR VICTOR C 850 645.00 590.00 01 03/11/95 12M 03/31/98 210.00 0.00 04/97 2B1B 0.00 25.00 01 102 01 C DELAROSA, ADRIAN 0 850 645.00 595.00 01 04/27/96 06M 05/31/97 04/29/97 110.00 340.00 06/97 2B1B C 10.00 06/15/97 0.00 25.00 605.00 01 102 02 C NUNEZ N 850 645.00 635.00 01 06/25/99 0.00 0.00 2B1B 0.00 0.00 01 102 C VACANT 850 645.00 2B1B 01 103 01 D DIAZ, CHOM SON C 930 695.00 670.00 01 07/30/92 M-M 08/31/93 210.00 0.00 05/97 2B1B 0.00 10.00 01 104 01 D KOLOBOV/DODOUKH C 930 695.00 670.00 01 09/01/95 12M 02/28/98 100.00 0.00 04/97 2B1B 0.00 10.00 01 105 01 D RICH JANICE C 930 695.00 645.00 01 03/01/95 12M 02/28/98 110.00 0.00 03/97 2B1B 0.00 25.00 01 106 01 D BRIERY ISABEL, IRENE C 930 695.00 650.00 01 06/28/95 M-M 06/30/97 110.00 0.00 07/97 2B1B 0.00 25.00 01 107 01 D LAVALLEE, VICTOR C 930 695.00 650.00 01 11/03/70 12M 09/30/97 50.00 0.00 10/96 2B1B C 10.00 0.00 0.00 660.00 01 108 01 D GRUVER, PHYLLIS V. C 930 695.00 635.00 01 10/22/94 12M 08/31/97 310.00 0.00 11/95 2B1B 0.00 0.00 01 109 01 D ROY LEONARD C 930 695.00 670.00 01 10/01/94 06M 05/31/97 120.00 0.00 06/97 2B1B 0.00 10.00 01 110 01 D ACZEL STEPHEN C 930 695.00 670.00 01 11/13/94 06M 08/31/96 100.00 0.00 04/97 2B1B 0.00 20.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 8 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:22:23 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 111 01 A GWYNNE KENNETH C 670 565.00 525.00 01 05/08/96 09M 02/28/98 310.00 0.00 06/97 1B1B 0.00 25.00 01 112 01 A LEMOINE, REBECCA C 670 565.00 545.00 01 09/14/96 06M 09/30/97 100.00 0.00 1B1B 0.00 0.00 01 113 01 E FRAZIER, KAREN C 942 695.00 660.00 01 04/23/94 M-M 08/31/96 310.00 0.00 09/96 2B1B 0.00 0.00 01 114 01 E MARKS, JANET C 942 695.00 660.00 01 11/12/96 12M 11/30/97 100.00 0.00 2B1B 0.00 0.00 01 115 01 E VANDERGRIFT, NORMA J C 942 695.00 660.00 01 07/26/96 12M 07/31/97 500.00 0.00 2B1B 0.00 0.00 01 116 01 E MROUE, MOUSSA ALI 0 942 695.00 660.00 01 08/10/96 06M 02/28/97 02/25/97 100.00 0.00 2B1B 06/08/97 0.00 0.00 01 116 02 E DO, N 942 695.00 695.00 01 06/27/99 0.00 0.00 2B1B 0.00 0.00 01 116 E VACANT 942 695.00 2B1B 01 117 01 A-L MCILVAIN, NICK C 670 540.00 495.00 01 08/26/94 06M 02/28/97 110.00 0.00 09/96 1B1B 0.00 0.00 01 118 01 A-L LEGLER, MIKE C 670 540.00 495.00 01 07/30/92 12M 08/31/97 160.00 0.00 08/95 1B1B 0.00 0.00 01 10 01 C-L NEWTON & THACKABERRY C 850 620.00 570.00 01 06/28/96 06M 09/30/97 100.00 0.00 2B1B 0.00 0.00 01 120 01 C-L NORRIS, DORIS C 850 620.00 610.00 01 06/16/90 M-M 02/28/97 210.00 0.00 07/97 2B1B 0.00 5.00 01 121 01 C BOLZ, JEAN C 850 645.00 595.00 01 07/15/96 12M 07/31/97 110.00 0.00 2B1B 0.00 0.00 01 122 01 C BROWN, MELVIN N C 850 645.00 615.00 01 05/30/92 12M 09/30/97 06/04/97 310.00 0.00 04/97 2B1B 07/04/99 0.00 20.00 01 122 02 C XU PL N 850 645.00 645.00 01 08/01/99 0.00 0.00 2B1B 0.00 0.00 01 123 01 A FRANKLIN, MRS. H C 670 565.00 545.00 01 01/18/92 12M 03/31/98 150.00 0.00 04/97 1B1B 0.00 25.00 01 124 01 A KRISHNAN, V. C 670 565.00 525.00 01 07/03/96 12M 03/31/98 100.00 0.00 1B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 9 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:23:01 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C><C> <C> <C> <C> 01 125 01 A CACIR, MOLLIE C 670 565.00 545.00 01 10/20/92 12M 02/28/98 0.00 0.00 03/97 1B1B 0.00 25.00 01 126 01 A DEDMAN, MELISSA/STRA C 670 565.00 565.00 01 02/10/96 12M 02/28/97 350.00 0.00 04/97 1B1B 0.00 20.00 01 127 01 C KIM, SARAH C 850 645.00 595.00 01 12/28/96 09M 09/30/97 100.00 0.00 2B1B 0.00 0.00 01 128 01 C THORNTON MARIANN C 850 645.00 635.00 01 04/01/87 M-M 02/28/97 150.00 0.00 07/97 2B1B 200.00 5.00 01 129 01 C-L BURNS, MATTHEW 0 850 620.00 595.00 01 03/01/97 06M 08/31/97 05/15/97 100.00 362.17 2B1B 06/14/97 0.00 0.00 01 129 02 C-L GLENN VL N 850 620.00 710.00 01 06/28/99 100.00 0.00 2B1B 0.00 0.00 01 129 C-L VACANT 850 620.00 2B1B 01 130 01 C-L BRADLEY, DARREN C 850 620.00 595.00 01 06/30/96 M-M 12/31/96 100.00 0.00 07/97 2B1B 0.00 25.00 01 131 01 A-L HOLMES JAMES C 670 540.00 520.00 01 04/10/95 12M 04/28/98 150.00 0.00 03/97 1B1B 0.00 20.00 01 132 01 AA HUANG, SHIU N C 670 540.00 520.00 01 05/02/90 06M 10/31/96 05/01/97 150.00 0.00 03/97 1B1B 06/30/99 0.00 25.00 01 133 01 E RIOS, LAURA C 942 695.00 660.00 01 01/18/97 06M 07/31/97 100.00 1.00- 261B 0.00 0.00 01 134 01 E MAGENHEIM, CRAIG C 942 695.00 660.00 01 05/08/96 12M 05/31/97 100.00 0.00 06/97 2B1B 0.00 25.00 01 135 01 E SHIPMAN, TINA C 942 695.00 660.00 01 10/31/96 12M 10/31/97 310.00 0.00 2B1B 0.00 0.00 01 136 01 E HARNESS, CATHERINE C 942 695.00 655.00 01 03/01/79 12M 02/28/98 220.00 0.00 03/97 2B1B 0.00 25.00 01 137 01 A-L BARNHART, MICHAEL C 670 540.00 495.00 01 06/01/96 06M 11/30/96 100.00 0.00 06/97 1B1B 0.00 25.00 01 138 01 A-L ROY, OLLIE B. C 670 540.00 525.00 01 11/30/85 M-M 12/31/91 60.00 5.00- 05/97 1B1B C 10.00 0.00 5.00 535.00 01 139 02 A-L HERTTENBERGER, N 670 540.00 525.00 01 06/28/99 0.00 0.00 1B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 10 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:23:39 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 139 A-L VACANT 670 540.00 1B1B 01 140 01 A-L RUBIN LEONARD C 670 540.00 495.00 01 04/20/96 12M 04/30/98 100.00 0.00 05/97 1B1B 0.00 25.00 01 141 A VACANT 670 565.00 1B1B 01 142 01 A OWENS, SHIRLEY C 670 565.00 540.00 01 06/19/95 M-M 06/30/97 110.00 0.00 07/97 1B1B 0.00 25.00 01 143 01 A MILES, YVETTE C 670 565.00 545.00 01 08/15/91 12M 02/28/97 150.00 0.00 03/97 1B1B 0.00 25.00 01 144 01 A FERGUSON, N 670 565.00 565.00 01 06/28/99 0.00 0.00 1B1B 0.00 0.00 01 144 A VACANT 670 565.00 1B1B 01 145 01 A HART, LOUISE C 670 565.00 545.00 01 10/01/93 12M 10/31/97 10.00 0.00 11/96 1B1B 0.00 0.00 01 146 01 A ROUKE, TERESA C 670 565.00 565.00 01 12/01/94 M-M 06/30/95 310.00 0.00 04/97 1B1B 0.00 20.00 01 147 01 A ALSOBROOK, M. JASON C 670 565.00 535.00 01 07/20/96 06M 01/31/97 100.00 0.00 1B1B 0.00 0.00 01 148 01 A WOODSIDE, DARREN C 670 565.00 565.00 01 08/19/93 06M 09/30/97 100.00 0.00 04/97 1B1B 0.00 20.00 01 149 01 A CAREY W.E C 670 565.00 565.00 01 05/15/95 113 11/30/95 160.00 0.00 04/97 1B1B 0.00 20.00 01 150 01 A SABLATURA, GRETCHEN C 670 565.00 545.00 01 08/30/96 12M 08/31/97 110.00 0.00 1B1B 0.00 0.00 01 151 01 A FILARDO, ANTHONY C 670 565.00 515.00 01 03/13/92 06M 09/30/97 200.00 0.00 03/96 1B1B 0.00 25.00 01 152 01 A KYI AYE AYE C 670 565.00 545.00 01 08/12/95 12M 08/31/97 150.00 0.00 1B1B 0.00 0.00 01 153 01 A-L FADEN, MRS. DAVID C 670 540.00 520.00 01 10/15/67 12M 02/28/97 10.00 0.00 03/97 1B1B 0.00 20.00 01 154 01 A-L HAMMOND, JENNIFER C 670 540.00 520.00 01 11/30/96 06M 05/31/97 110.00 0.00 1B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 11 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:24:14 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 155 01 A-L AYALA, ANNA L. C 670 540.00 495.00 01 10/19/96 09M 07/31/97 110.00 0.00 03/97 1B1B 0.00 0.00 01 156 01 A-L MOSLEY DONNA C 670 540.00 515.00 01 06/01/95 06M 08/31/97 100.00 0.00 03/97 1B1B 0.00 15.00 01 157 02 A BRIGGS, NELDA C 670 565.90 565.00 01 04/14/97 12M 04/30/98 250.00 0.00 1B1B 0.00 0.00 01 158 01 4 MAGYAR ATTILA/TOTH J C 670 565.00 550.00 01 05/01/96 06M 10/31/97 110.00 0.00 05/97 1B1B 0.00 25.00 01 159 01 D MCCAULEY, LOUIS C 930 695.00 670.00 01 03/16/92 M-M 10/30/93 10.00 0.00 05/97 2B1B 0.00 01 160 01 D HOUGH, PAUL, ANDREA C 930 695.00 670.00 01 02/14/97 06M 08/31/97 400.00 0.00 2B1B 0.00 0.00 01 161 01 D MILLER, LANA C 930 695.00 670.00 01 11/01/95 12M 10/31/96 100.00 0.00 04/97 2B1B 0.00 10.00 01 162 01 D JOHNSON CURT / LAURA C 930 695.00 655.00 01 04/14/95 12M 03/31/98 400.00 0.00 04/97 2B1B 0.00 25.00 01 163 01 D BURNS, ELLEN C 930 695.00 670.00 01 07/24/92 M-M 02/31/95 110.00 0.00 04/97 2B1B 0.00 10.00 01 164 02 D HOUSSIAU, LAURENT C 930 695.00 670.00 01 04/11/97 06M 10/31/97 100.00 0.00 2B1B 0.00 0.00 01 165 01 D MORGAN. ANNIE M. N C 930 695.00 650.00 01 11/28/96 12M 11/30/97 06/01/97 100.00 0.00 2B1B 07/09/99 0.00 0.00 01 166 01 D CORTES, JOSE/ERNESTI C 930 695.00 650.00 01 08/13/96 06M 02/28/97 100.00 0.00 2B1B 0.00 0.00 01 167 01 C WALKER, LISA C 850 645.00 595.00 01 12/29/96 12M 12/31/97 350.00 0.00 2B1B C 10.00 0.00 0.00 605.00 01 168 01 C SCHIGEL, ALEKSANDR C 850 645.00 595.00 01 09/27/96 09M 06/30/97 100.00 0.00 2B1B 0.00 0.00 01 169 01 C-L MILLER / GILBERT C 850 620.00 610.00 01 03/04/95 M-M 02/28/97 600.00 0.00 07/97 2B1B 0.00 10.00 01 170 01 C-L VAYNSHTEYN, BORIS/M C 850 620.00 570.00 01 10/15/96 06M 10/31/97 100.00 0.00 2B1B 0.00 0.00 01 171 01 C JOHNSON. RUTH C 850 645.00 625.00 01 08/15/91 12M 04/30/98 210.00 0.00 03/96 2B1B 0.00 20.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 12 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:24:54 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 172 01 C YOUNT SHEILA C 850 645.00 620.00 01 07/01/95 M-M 06/30/97 110.00 0.00 07/97 2B1B 0.00 25.00 01 173 02 F OFFICER N 1054 750.00 750.00 01 07/11/99 0.00 0.00 2B2B 0.00 0.00 01 173 F VACANT 1054 750.00 2B2B 01 174 01 F MANGUM CAROL & DONAL C 1054 750.00 715.00 01 08/12/95 12M 03/31/98 110.00 0.00 04/97 2B2B 0.00 20.00 01 175 01 B WAGNER LUCY M. C 756 605.00 585.00 01 11/30/94 12M 02/28/98 160.00 0.00 03/97 1B1B 0.00 10.00 01 176 01 B HUANG, CHIU JUNG C 756 605.00 585.00 01 10/09/96 12M 10/31/97 110.00 0.00 1B1B 0.00 0.00 01 177 01 B SHAFTEL, FREDERICA C 756 605.00 585.00 01 12/20/87 12M 01/31/97 50.00 0.00 03/97 1B1B 0.00 10.00 01 178 01 B JHONSA, PARAG C 756 605.00 595.00 01 05/03/97 06M 11/30/97 110.00 0.00 1B1B 0.00 0.00 01 179 01 F RODRIOUEZ, BERTHA C 1054 750.00 700.00 01 03/15/95 12M 03/31/98 120.00 0.00 04/97 2B2B 0.00 25.00 01 180 01 F DELEON, REFUGIO/ERLI C 1054 750.00 695.00 01 08/03/96 06M 02/28/97 100.00 0.00 2B2B 0.00 0.00 01 181 02 C HAMIDI,GHALIB,ROSITA C 850 645.00 615.00 01 03/27/97 06M 09/30/97 100.00 0.00 2B1B 0.00 0.00 01 182 01 C ZHANG YIHONG C 850 645.00 635.00 01 10/01/94 M-M 04/31/95 110.00 0.00 07/97 2B1B 0.00 5.00 01 183 01 C-L ABELLA VERONICA C 850 620.00 610.00 01 11/28/94 M-M 12/31/96 110.00 0.00 07/97 2B1B 0.00 10.00 01 184 01 C-L GELMAN, MIKAIL/IRINA C 850 620.00 570.00 01 10/26/96 06M 10/30/97 100.00 0.00 2B1B 0.00 0.00 01 185 01 C RAMIREZ, STEVEN/CYNT C 850 645.00 595.00 01 09/17/96 12M 09/30/97 100.00 0.00 2B1B 0.00 0.00 01 186 01 C CHU, LUZHEN/LI OUN S C 850 645.00 595.00 01 11/27/96 12M 11/30/97 210.00 0.00 2B1B 0.00 0.00 01 187 01 D BEDER, JEAN C 930 695.00 670.00 01 01/02/96 12M 01/31/97 100.00 0.00 04/97 2B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 13 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:25:33 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 188 01 D MERRILL,JUDITH, JON C 930 695.00 650.00 01 01/18/96 06M 07/31/97 100.00 0.00 2B1B 0.00 0.00 01 189 01 D CARTER,BERTINA C 930 695.00 695.00 01 06/09/97 12M 06/30/98 210.00 138.33 2B1B 0.00 0.00 01 190 01 D JONES, YUKARI C 930 695.00 650.00 01 06129/96 M-M 06/30/97 100.00 0.00 07/97 2B1B 0.00 25.00 01 191 01 D FLORA, BETTY C 930 695.00 650.00 01 01/15/97 06M 07/31/97 110.00 0.00 2B1B 0.00 0.00 01 192 01 D DANCY, MARILYN C 930 695.00 665.00 01 01/08/93 012 05/31/97 210.00 0.00 06/97 2B1B 0.00 40.00 01 193 01 D BROWN, KATHRYN C 930 695.00 625.00 01 03/18/97 12M 03/31/98 210.00 0.00 2B1B 0.00 0.00 01 194 01 D KLEYPAS, ANDREW C 930 695.00 670.00 01 10/26/88 M-M 11/31/90 170.00 0.00 05/97 2B1B 0.00 10.00 01 195 01 A CURRY DR. MARY C 670 565.00 545.00 01 07/18/95 12M 08/31/97 110.00 0.00 1B1B 0.00 0.00 01 196 01 A GREENSTEIN, IDA C 670 565.00 525.00 01 07/04/80 12M 04/30/98 10.00 0.00 05/97 1B1B 0.00 25.00 01 197 01 E HERNANDEZ, GLORIA. C 942 695.00 645.00 01 10/01/96 09M 06/30/97 100.00 0.00 2B1B 0.00 0.00 01 198 01 E ECHOLS FRANK C 942 695.00 660.00 01 12/26/96 06M 06/30/97 210.00 0.00 2B1B 0.00 0.00 01 199 01 H HANSEN, REX C 1282 1050.00 1025.00 01 06/01/91 M-M 02/28/97 20.00 0.00 07/97 3B2B 0.00 25.00 01 200 01 H KIROKOSIAN/MANOUKIAN C 1282 1050.00 1025.00 01 04/01/95 M-M 03/31/96 100.00 0.00 3B2B 0.00 25.00 01 201 01 P.-L RAWLINGS, JENNIFER C 670 540.00 495.00 01 08/08/96 12M 08/31/97 110.00 0.00 1B1B 0.00 0.00 0! 202 01 A-L DEDEUEUX RUBYE V. C 670 540.00 525.00 01 08/13/94 M-M 09/30/95 150.00 0.00 04/97 1B1B 0.00 5.00 01 203 01 C-L BAZAIN/NELSON C 850 620.00 570.00 01 07/13/96 06M 01/31/97 300.00 0.00 2B1B C 10.00 0.00 0.00 580.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 14 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:26:10 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 204 01 C-L TRAN DAVID, CHRISTI C 850 620.00 600.00 01 08/01/94 12M 01/31/97 300.00 0.00 03/96 2B1B 0.00 25.00 01 205 01 C MORGAN, KENYETTA D. C 850 645.00 595.00 01 11/28/96 12M 11/30/97 100.00 0.00 2B1B 0.00 0.00 01 206 01 C NORRIS, CYNTHIA C 850 645.00 635.00 01 05/21/94 M-M 12/30/94 150.00 0.00 07/97 2B1B 0.00 5.00 01 207 01 A LICHTENSTEIN, A. C 670 565.00 525.00 01 06/13/92 12M 08/31/97 10.00 0.00 08/96 1B1B 0.00 0.00 01 208 01 A SKLAR, LOUISE C 670 565.00 545.00 01 08/15/95 12M 08/31/97 130.00 0.00 1B1B 0 00 0.00 01 209 01 A **OFFICE C 670 565.00 565.00 01 01/01/76 M/M 01/31/76 0.00 0.00 09/95 1B1B 0.00 15.00 01 210 01 A MITRANI, EDUARDO C 670 565.00 545.00 01 07/03/84 M-M 10/31/96 160.00 0.00 11/96 1B1B 0 00 0.00 01 211 01 C AHDOOT, RABIE C 850 645.00 590.00 01 05/29/90 12M 08/31/97 200.00 0.00 09/96 2B1B 0.00 25.00 01 212 01 C SUNDAR, H. G. K. C 850 645.00 635.00 01 09/10/95 M-M 09/30/96 100.00 0.00 07/97 2B1B 0.00 15.00 01 213 01 C-L BLACKWELL. RUTH P. C 850 620.00 570.00 01 09/21/96 06M 03/31/97 100.00 0.00 2B1B 0 00 0.00 01 214 01 C-L BROUSSARD, DONOVAN C 850 620.00 570.00 01 08/17/96 12M 05/31/98 110.00 0.00 2B1B 0.00 0.00 01 215 01 A-L LENDEN, PRUDIE S. C 670 540.00 510.00 01 06/01/96 06M 11/30/97 100.00 0.00 06/97 1B1B 0.00 40.00 01 216 01 A-L BRUNDAGE, ELLEN C 670 540.00 495.00 01 05/16/94 12M 08/31/97 427.50 0.00 09/95 1B1B 0.00 0.00 01 217 02 H WEISSMAN N 1282 1050.00 1025.00 01 07/15/99 100.00 0.00 3B2B 0.00 0.00 01 217 H VACANT 1282 1050.00 3B2B 01 218 01 H MCGOWAN, MR. & MRS. C 1282 1050.00 1025.00 01 11/01167 M-M 02/28/97 20.00 0.00 07/97 3B2B 0.00 25.00 01 219 01 E MARTIN, SEWELL C 942 695.00 650.00 01 05/02/91 12M 07/31/97 200.00 0.00 08/96 2B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 15 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:26:49 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 220 01 E BEHRINGER/RYAN C 942 695.00 675.00 01 05/01/94 012 02/28/97 300.00 0.00 04/97 2B1B 0.00 15.00 01 221 01 A-L HOWARD, DOLORES C 670 540.00 520.00 01 11/07/90 M-M 06/30/97 160.00 0.00 07/97 1B1B 0.00 25.00 01 222 01 A-L ITZHAKI, SHOSHAN C 670 540.00 520.00 01 06/19/79 12M 04/30/97 160.00 0.00 05/97 1B1B 0.00 25.00 01 223 01 A-L WALKER, TRELETA C 670 540.00 495.00 01 06/01/90 12M 07/31/97 360.00 0.00 08/95 1B1B 0.00 01 224 A-L VACANT 670 540.00 1B1B 01 225 01 A HOUGHTON, MELISSA C 670 565.00 545.00 01 09/01/95 12M 08/31/97 110.00 0.00 0.00 1B1B 0.00 01 226 01 A LIPPMAN, MILTON L. C 670 565.00 565.00 01 03/28/97 12M 03/31/98 100.00 0.00 0.00 1B1B 0.00 01 227 01 A TAXMAN, PAULINE C 670 565.00 525.00 01 06/08/96 12M 06/30/98 100.00 0.00 07/97 1B1B 0.00 25.00 01 228 01 A RUIZ MARIA & DELMY C 670 565.00 545.00 01 07/01/95 M-M 06/30/97 160.00 0.00 07/97 1B1B 0.00 25.00 01 229 01 A KOSSACK VL N 670 565.00 565.00- 01 07/15/99 0.00 0.00 1B1B 0.00 0.00 01 229 A VACANT 670 565.00 1B1B 01 230 01 A JOE, EDISON C 670 565.00 565.00 01 08/12/77 06M 07/31/96 155.00 0.00 04/97 1B1B C 10.00 0.00 20.00 575.00 01 231 01 A ERICKSON, KIMBERLY C 670 565.00 535.00 01 08/15/96 06M 09/30/97 100.00 0.00 1B1B 0.00 0.00 01 232 01 A STAFFORD, HEATHER C 670 565.00 560.00 01 03/14/96 09M 12/31/96 100.00 0.00 04/97 1B1B 0.00 25.00 01 233 01 A SAHASRABUDDHE,AVINAS C 670 565.00 565.00 01 06/14/97 06M 12/31/97 110.00 20.00 1B1B 0.00 0.00 01 234 01 A LANE JEFFREY & GINNY C 670 565.00 525.00 01 07/21/95 06M 02/28/97 200.00 0.00 08/96 1B1B 0.00 0 00 01 235 01 A DAVIS, VIRGINIA C 670 565.00 540.00 01 04/24/93 12M 04/30/98 100.00 0.00 05/97 1B1B 0.00 25.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 16 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:27:24 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 236 01 A SHEPPARD, TRACY C 670 565.00 540.00 01 05/10/96 12M 11!30/97 100.00 0.00 06/97 1B1B 0.00 40.00 01 237 01 A-L CHILDERS. JOHN R. C 670 54O.00 525.00 01 04/12/91 12M 04|30/98 150.00 0.00 05/97 1B1B 0.00 5.00 01 238 01 A-L ROCH/SCHWABLE, LESLI C 670 540.00 520.00 01 03/02/96 12M 03/31/97 100.00 5.00 04/97 1B1B 0.00 25.00 01 239 01 A-L GARDENER NIKKI 0 670 540.00 520.00 01 05/18/95 06M 11/30/95 04/08/97 100.00 0.00 03/97 1B1B 05/09/97 0.00 20.00 01 239 01 A-L VACANT 670 540.00 1B1B 01 240 0 A-L VACANT 670 540.00 1B1B 01 241 01 A SCHULTZ SYLVIA C 670 565.00 545.00 01 11/15/94 12M 12/31/97 150.00 0.00 01/96 191B 0.00 0 00 01 242 01 A DENTON, DON C 670 565.00 550.00 01 08/29/90 12M 04/30/98 160.00 0.00 05/97 1B1B 0.00 25.00 01 243 01 D FRUSH, JAMES C 930 695.00 670.00 01 12/19/90 M-M 07/30/91 105.00 0.00 05/97 2B1B 0.00 10.00 01 244 01 D MANLEY MEL/JONE DWAY C 930 695.00 670.00 01 03/01/97 12M 02/28/98 300.00 0.00 2B1B C 10.00 0.00 0.00 680.09 01 245 01 D BAXTER, ELIZABETH C 930 695.00 650.00 01 02/06/93 12M 08/31/97 110.00 0.00 09/96 2B1B 0.00 0.00 01 246 01 D JENNINGS, PEARSON C 930 695.00 640.00 01 09/18/94 12M 09/30/97 110.00 0.00 10/96 2B1B 0.00 0 00 01 247 01 D ANGELLE, SIMON/SONIA C 930 695.00 695.00 01 05/31/97 06M 11/30/97 250.00 0.00 2B1B 0.00 0.00 01 248 01 D KASNER, SCOTT N C 930 695.00 685.00 01 06/15/96 M-M 06/30/97 05/20/97 110.00 0.00 07/97 2B1B 06/30/99 0.00 25.00 01 249 02 D WALKER, SHERRY/ROBERT C 930 695.00 695.00 01 06/07/97 06M 12/31/97 100.00 0.00 2B1B 0.00 0.00 01 250 01 D COHEN, HARRY C 930 695.00 660.00 01 01/01/71 12M 12/31/97 20.00 0.00 01/96 2B1B 0.00 0.00 01 251 01 C SHANOFF, SUZANNE C 850 645.00 605.00 01 03/26/96 12M 03/31/98 210.00 30.00- 04/97 2B1B 0.00 20.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 17 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:28:01 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 252 02 C NICACIO, JAIME/MARIA C 850 645.00 635.00 01 06/05/97 06M 12/31/97 100.00 0.00 2B1B 0.00 0.00 01 253 01 C-L GIBSON - ABBT JEFF C 850 620.00 595.00 01 02/15/97 06M 08/31/97 110.000 0.00 2B1B C 10.00 0.00 0.00 01 254 01 C-L MILLER, DARLENE C 850 620.00 610.00 01 07/30/88 M-M 06/30/90 120.00 0.00 07/97 2B1B 0.00 5.00 01 255 03 C TESCH, PATRICIA C 850 645.00 615.00 01 04/04/97 06M 10/31/97 110.00 0.00 2B1B 0.00 0.00 01 256 01 C GROSS, DAVID L. N C 850 645.00 635.00 01 03/26/88 M-M 10/30/88 06/04/97 50.00 0.00 07/97 2B1B 07/04/99 0.00 5.00 01 257 01 F BLONDELL CAROL, BONN C 1054 750.00 715.00 01 02/10/96 12M 02/28/97 05/11/96 100.00 0.00 04/97 2B2B 07/01/99 0.00 20.00 01 257 02 F BLADO N 1054 750.00 750.00 01 07/20/99 0.00 0.00 2B2B 0.00 0.00 01 258 01 F HU YING-SHENG C 1054 750.00 690.00 01 01/07/95 12M 10/31/97 100.00 0.00 11/96 2B2B 0.00 25.00 01 259 01 B STANISLAV, ZABOLOTSK C 756 605.00 585.00 01 09/18/96 12M 09/30/97 110.00 0.00 1B1B 0.00 0.00 01 260 01 B LEWIS, ELISA C 756 605.00 585.00 01 09/18/96 06M 03/31/97 100.00 0.00 1B1B 0.00 0.00 01 261 01 B JOLISSANT DENA C 756 605.00 595.00 01 08/19/95 09M 05/31/97 100 00 0.00 06/97 1B1B 0.00 10.00 01 262 01 B BRANNAN, PATTY C 756 605.00 585.00 01 08/10/79 12M 03/31/98 150.00 0.00 05/97 1B1B 0.00 10.00 01 263 01 F KAPNER, ROSE C 1054 750.00 715.00 01 11/02/67 12M 02/28/97 20.00 0.00 04/97 2B2B 0.00 25.00 01 264 01 F MENDOZA, RACHEL C 1054 750.00 695.00 01 12/10/91 M-M 07/30/92 150.00 1.00- 03/97 2B2B 0.00 5.00 01 265 01 C GLOSSMAN, DAISY C 850 645.00 615.00 01 05/12/71 12M 04/30/98 30.00 0.00 04/97 2B1B C 10.00 0.00 5.00 625.00 01 266 01 C DUNBAR, DOW & CYNTHI C 850 645.00 620.00 01 06/29/96 12M 06/30/98 300 00 0.00 07/97 2B1B 0.00 25.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 18 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:28:40 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 267 02 C-L MARTINEZ/PEREZOUS C 850 620.00 595.00 01 04/26/97 06M 10/31/97 100.00 0.00 2B1B 0.00 0.00 01 268 02 C-L QUESADA CANCELLED O 8S0 620.00 595.50 01 100.00 0.00 2B1B 09/1/96 0.00 0.00 01 268 03 C-L AGUILAR VL N 850 620.00 620.00 01 07/12/99 0.00 0.00 2B1B 0.00 0.00 01 268 C-L VACANT 850 620.00 2B1B 01 269 01 C VEGDER, MARIAN C 850 645.00 630.00 01 01/15/86 12M 04/30/9B 50.00 0.00 01/96 2B1B 0.00 0.00 01 270 01 C HENKE, LARRY/JESSICA C 850 645.00 595.00 01 09/14/96 06M 09/30/97 100.00 0.00 2B1B 0.00 0.00 01 271 01 D HUNT,RITA V. C 930 695.00 670.00 01 11/22/89 12M 04/28/98 400.00 0.00 04/97 2B1B 0.00 10.00 01 272 01 D ABU-HASAN, MUTASI N C 930 695.00 650.00 01 06/26/96 M-M 06/30/97 06/03/97 100.00 0.00 07/97 2B1B 06/30/99 0.00 25.00 01 272 02 D MORGAN PL N 930 69S.00 695.00 01 07/15/99 0.00 0.00 2B1B 0.00 0.00 01 273 01 D FISHER, KAREN C 930 695.00 600.00 01 03/31/95 12M 07/31/97 210.00 0.00 04/96 2B1B 0.00 0.00 G1 274 01 D SPRATLING, B. LEE C 930 695.00 650.00 01 01/21/96 06M 03/31/97 210.00 0.00 2B1B 0.00 0.00 01 275 01 D VASLUSKI,ADELINE C 930 695.00 670.00 01 08/22/93 12M 04/30/9B 110.00 0.00 04/97 2B1B 0.00 20.00 01 276 01 D BLATT, TAMMY C 930 695.00 625.00 01 08/23/96 12M 08/31/97 100.00 0.00 2B1B 0.00 0.00 01 277 01 D KLAFF, MURRAY C 930 695.00 650.00 01 07/26/92 M-M 06/30/97 110.00 0.00 07/97 2B1B 0.00 25.00 01 278 01 D BURGENER, DOONE/RHET C 930 695.00 650.00 01 09/30/95 12M 09/30/97 110.00 0.00 2B1B 0.00 0.00 01 279 01 A MCLAUGHLIN, DORIS C 670 565.00 535.00 01 08/06/96 06M 08/30/97 310 00 0.00 1B1B 0.00 0.00 01 280 01 A DAVIS, MARCIA S. C 670 565.00 545.00 01 12/10/94 12M 03/31/98 100.00 0.00 03/97 1B1B 0.00 2S.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 20 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:29:54 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 281 01 A CASTRO, PEDRO C 670 565.00 545.00 55 10/25/95 M-M 10/31/96 150.00 0.00 11/96 1B1B 0.00 0.00 01 282 01 R ODOM, TAMMY O 670 565.00 545.00 01 10/19/96 06M 04/30/97 05/16/97 100.00 295.00 1B1B 06/16/97 0.00 0.00 01 282 02 A SHANTI N 670 565.00 565.00 01 07/05/99 0.00 0.00 1B1B 0.00 01 282 A VACANT 670 565.00 1B1B 01 283 A-L VACANT 670 540.00 1B1B 01 284 01 A-L ROBINSON, AYESHA C 670 540.00 520.00 01 11/22/96 12M 05/31/98 100.00 0.00 1B1B 0.00 0.00 01 285 01 C-L CAVANAUGH, M/M C 850 620.00 610.00 01 07/11/85 M-M 11/30/92 10.00 0.00 07/97 2E1B 0.00 5 00 01 286 01 C-L MAGIDIN/DELARA C 850 620.00 570.00 01 08/15/96 12M 08/31/97 100.00 0.00 2B1B 0.00 0.00 01 287 01 C HERNANDEZ, GERALD C 850 645.00 635.00 01 11/01/95 M-M 10/31/96 300.00 0.00 07/97 2B1B 0.00 15.00 01 288 01 C WAIN, ROBERT C 850 645.00 630.00 01 07/09/88 12M 10/31/97 10.00 0.00 03/96 2B1B 0.00 20.00 01 289 01 A FISCHER, TERESA C 670 565.00 555.00 01 08/16/95 06M 09/30/97 310.00 0.00 1B1B 0.00 0.00 01 290 01 A WALSH, BARBARA C 670 565.00 500.00 01 04/06/96 12M 10/31/97 100.00 0.00 1B1B 0.00 0.00 01 291 01 A LEVINE, ADAM C 670 565.00 550.00 01 06/15/96 M-M 06/30/97 06/06/97 100.00 0.00 07/97 1B1B 06/30/99 0.00 25.00 01 291 02 A STROUD PL N 670 565.00 565.00 01 07/19/99 0.00 0.00 1B1B 0.00 0.00 01 292 01 A ALLEN, VERA C 670 565.00 545.00 01 09/19/72 12M 03/31/97 0.00 0.00 04/97 1B1B 0.00 25.00 01 293 01 C AMIN DR. AND MRS. C B50 645.00 595 00 01 06/05/96 06M 12/31/97 100.00 0.00 2B1B 0.00 0.00 01 294 01 C SHIVAKUMAR, CARMEN C 850 645.00 595.00 01 09/10/96 12M 09/30/97 500.00 0.00 2B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 19 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:29:17 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 295 01 C SLEEZER, KAREN C 350 645.00 620.00 01 01/10/93 06M 08/31/97 100.00 0.00 02/96 2B1B 0.00 0.00 01 296 01 C MYER, ANITA C 850 645.00 5?5.00 01 09/28/96 12M 09/30/97 300.00 0.00 2B1B 0.00 0.00 01 297 01 A GRAHAM LUTHER C 670 565.00 550.00 01 04/22/95 12M 04/30/98 100.00 0.00 05/97 1B1B 0.00 25.00 01 298 02 A HUNT,K./COLLINS,G C 670 565.00 525.00 01 04/12/97 06M 10/31/97 160.00 0.00 1B1B C 10.00 0.00 0.00 535.00 01 299 01 A-L HUDSON, DAVID C 670 540.00 520.00 01 10/04/92 M-M 01/31/96 06/09/97 100.00 0.00 03/97 1B1B 07/08/99 0.00 20.00 01 300 01 A-L BELYI, MOISEY & LUBO C 670 540.00 525.00 01 02/13/96 12M 03/31/98 100.00 0.00 04/97 1B1B 0.00 S.00 01 301 Q1 A-L RIGGS, ALFRED C 670 540.00 525.00 01 01/13/94 12M 02/28/97 150.00 0.00 04/97 1B1B 0.00 S.00 01 302 01 R-L UNSELL, LISA C 670 540.00 520.00 01 07/31/91 12M 04/30/97 550.00 0.00 05/97 1B1B 0.00 25.00 01 303 A VACANT 670 565.00 1B1B 01 304 01 A BAILLEY, STEVE C 670 565.00 565.00 01 06/20/97 12M 06/30/98 100.00 0.00 1B1B 0.00 0.00 01 305 01 R RANEY, ELIZABETH C 670 565.00 525.00 01 08/08/96 06M 02/28/97 110.00 0.00 1B1B 0.00 0.00 01 306 A VACANT 670 565.00 1B1B 01 307 A VACANT 670 565.00 1B1B 01 308 01 A SMITHA ELISA C 670 565.00 525.00 01 04/17/96 06M 10/31/96 100.00 0.00 05/97 1B1B 0.00 25.00 01 309 01 A KAISER LORI/BENAC C 670 565.00 550.00 01 06/21/94 M-M 12/31/96 100.00 0.00 07/97 1B1B 0.00 25.00 01 310 01 A TREVINO, SANDRA C 670 565.00 550.00 01 06/26/92 12M 04/30/98 160.00 0.00 05/97 1B1B 0.00 25.00 01 311 01 A WENDEL, GREGORY C 670 565.00 550.00 01 04/30/94 12M 04/30/97 150.00 0.00 05/97 191B 0.00 25.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 21 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:30:30 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 312 01 A GRISSOM, JANICE C 670 565.00 495.00 01 10/12/96 09M 07/31/97 100.00 0.00 1B1B 0.00 0.00 01 313 01 A CORBETT, RICHARD C 670 560.00 565.09 01 07/09/94 M-M 02/28/97 150.00 0.00 04/97 1B1B 0.00 20.00 01 314 01 A MCMAIN, SANDRA C 670 565.00 525.00 01 05/13/96 12M 05/31/98 210.00 0.00 06/97 1B1B 0.00 40.00 01 315 01 A-L RIGGS, JEAN/AMY C 670 540.00 495.00 01 08/17/96 12M 08/31/97 100.00 0.00 1B1B 0.00 0.00 01 316 01 A-L MARX. MARTIN C 670 540.00 525.00 01 02/25/86 M-M 01/31/91 150.00 0.00 05/97 1B1B 0.00 5.00 01 317 01 A-L JANDA, LADISLAV N C 670 540.00 520.00 01 04/24/93 12M 04/30/97 06/06/97 100.00 0.00 05/97 1B1B 07/07/99 0.00 25.00 01 317 02 A-L LAVERGNE PL N 670 540.00 540.00 01 0B/01/99 0.00 0.00 1B1B 0.00 0.00 01 318 01 A-L CHAFRANIK, INGA N C 670 540.00 520.00 01 12/07/96 06M 06/30/97 05/23/97 20.00 0.00 1B1B 06/30/99 0.00 0.00 01 318 02 A-L BREWER, MICHELLE PL N 670 540.00 595.00 01 08/08/99 100.00 0.00 1B1B 0.00 0.00 01 319 01 A FRANK, HILDRED C 670 565.00 545.00 01 08/10/96 12M 08/31/97 100.00 0.00 1B1B 01 320 01 A SMITH/HERTTENBERGER C 670 565.00 545.00 01 09/13/96 06M 09/30/97 100.00 0.00 1B1B 0.00 0.00 01 321 01 D PELAYO LILIA MARIA C 930 695.00 670.00 01 05/17/95 06M 11/30/95 100.00 0.00 04/97 2B1B 0.00 10.00 01 322 01 D BARBERO WILLY & RUTH C 930 695.00 600.00 01 03/01/95 12M 08/31/97 200.00 0.00 03/96 2B1B 0.00 25.00 01 323 01 D GRAY, WANDA P. C 930 695.00 650.00 01 10/12/96 12M 10/31/97 200.00 0.00 2B1B 0.00 0.00 01 324 01 D GULER, KEMAL C 930 695.00 670.00 01 01/16/92 M-M 05/30/94 0.00 0.00 05/97 2B1B 0.00 10.00 01 325 01 D OSTROW, ADA C 930 695.00 650.00 01 09/19/95 12M 01/31/98 100.00 0.00 2B1B 0.00 0.00 01 326 02 D GONG B./ZHOU L. C 930 695.00 695.00 01 06/07/97 06M 12/31/97 100.00 0.00 2B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 22 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:31:10 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ================================================================================================================================= <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 327 01 D KAGAN, DAVID/VICTORI C 530 655.00 650.00 01 11/11/96 12M 11/30/97 200.00 0.00 2B1B 0.00 0.00 01 328 01 D BROWN, GRETCHEN C 930 695.00 650.00 01 08/09/90 12M 08/31/97 200.00 0.00 09/96 2B1B 0.00 0.00 01 329 01 C MELTON, JAMES B. C 850 645.00 595.00 01 07/20/96 06M 01/31/97 100.00 0.00 2B1B 0.00 0.00 01 330 01 C SMITH, ARTHUR C 850 645.00 635.00 01 12/12/86 M-M 01/31/95 50.00 5.00~ 07/97 2B1B C 10.00 0.00 5.00 645.00 01 331 01 C-L GARCIA/CLIFTON C 850 620.00 570.00 01 08/17/96 12M 02/28/98 200.00 0.00 2B1B 0.00 0.00 01 332 02 C-L PEREG, ZEEV & RINA C 850 620.00 595.00 01 06/12/97 12M 06/30/98 210.00 0.00 2B1B 0.00 0.00 01 333 01 C AHMED,DEDRICK/ANNMAR C 850 645.00 595.00 01 08/01/96 12M 08/31/97 100.00 0.00 2B1B 0.00 0.00 01 334 01 C QUESADA, RICKY/LORRI C 850 645.00 570.00 01 09/14/96 06M 09/30/97 100.00 0.00 2B1B C 10.00 0.00 0.00 580.00 01 335 01 F TAYLOR, RITA/DON C 1054 750.00 695.00 01 11/18/95 12M 08/31/97 120.00 0.00 2B2B 0.00 0.00 01 336 01 E MACIASZEK, VIRGINIA C 1054 750.00 695.00 01 11/05/93 011 10/31/94 410.00 0.00 03/97 2B2B 0.00 15.00 01 337 01 B BAILEY, LULA MAY D 756 605.00 575.00 01 06/17/90 12M 04/30/98 05/14/97 170.00 350.83 08/96 1B1B 06/13/97 0.00 0.00 01 337 B VACANT 756 605.00 1B1B 01 338 01 B ITO VL N 756 605.00 595.00 01 07/01/99 0.00 0.00 1B1B 0.00 0.00 01 338 B VACANT 756 605.00 1B1B 01 339 01 B HONEYCUTT, FREDETT N C 756 605.00 595.00 01 01/12/96 06M 05/31/97 06/01/97 225.00 0.00 06/97 1B1B 07/06/99 0.00 10.00 01 340 01 B LUNTZ, HELEN C 756 605.00 575.00 01 11/01/90 012 04/30/98 170.00 0.00 03/97 1B1B 0.00 25.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 23 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 MOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:31:46 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 341 01 F KRUTE, PAT MRS. C 1054 750.00 695.00 01 04/01/91 12M 02/28/98 0.00 0.00 03/97 2B2B 0.00 20.00 01 342 01 F DIGIOVANNI, DOMENICO C 1054 750.00 680.00 01 02/12/94 12M 08/31/97 100.00 0.00 03/96 2B2B 0.00 25.00 01 343 01 C JOHNSTON, MARLEEN C 850 645.00 615.00 01 01/07/95 12M 02/28/97 200.00 0.00 04/97 2B1B 0.00 5.00 01 344 01 C KING, MARLEEN C 850 645.00 595.00 01 04/08/95 06M 10/31/95 110.00 0.00 03/97 2B1B 0.00 10.00 01 345 01 C-L DAVIS CASSANDRA C 850 620.00 595.00 01 05/13/95 12M 05/31/98 110.00 0.00 06/96 2B1B 0.00 20.00 01 346 01 C-L REED, KIM/PAUL C 850 620.00 585.00 01 08/11/94 12M 10/31/97 110.00 0.00 10/95 2B1B C 10.00 0.00 0.00 595.00 01 347 04 C LINDNER, RUTH C 850 645.00 595.00 01 09/19/95 12M 01/31/98 100.00 0.00 2B1B 0.00 0.00 01 348 02 C GUANGXIAO, LI/YU LIU C 850 645.00 615.00 01 03/22/97 06M 09/30/97 110.00 0.00 2B1B 0.00 0.00 01 349 01 D ROSS/ESQUEDA C 930 695.00 670.00 01 08/18/95 09M 05/31/97 150.00 0.00 06/97 2B1B C 10.00 0.00 10.00 680.00 01 350 01 D GOSSAGE, BRENDA C 930 695.00 650.00 01 08/31/90 06M 12/31/96 210.00 0.00 03/97 2B1B 0.00 25.00 01 351 01 D GALAN ROBIN/CLOUD S C 930 695.00 670.00 01 05/19/95 12M 05/31/98 210.00 0.00 06/97 2B1B 0.00 20.00 01 352 01 D NAJERA,RAQUEL,RICAR C 930 695.00 670.00 01 10/25/95 2M 04/30/98 100.00 0.00 05/97 2B1B 0.00 20.00 G1 353 01 D COHEN, HELEN C 930 695.00 670.00 01 03/01/96 12M 04/30/98 100.00 10.00- 04/97 2B1B 0.00 10.00 01 354 01 D SCHNEIDER/ALGUESEVA C 930 695.00 670.00 01 01/28/93 M-M 08/31/94 400.00 0.00 05/97 2B1B 0.00 10.00 01 355 01 D MOIR, MARY A. C 930 695.00 670.00 01 03/01/97 06M 08/31/97 100.00 0.00 2B1B 0.00 0.00 01 356 01 D KOPELEV, SEMION&IV C 930 695.00 650.00 01 06/05/96 M-M 12/31/96 100.00 0.00 07/97 2B1B 0.00 25.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 24 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 MOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:32:30 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 357 01 R LAMB, MOSEY C 670 565.00 565.00 01 06/07/97 06M 12/31/97 150.00 0.00 1B1B 0.00 0.00 01 358 01 Q MERKEL, KAREN C 670 565.00 545.00 01 08/15/92 12M 12/31/96 100.00 0.00 03/97 1B1B 0.00 25.00 01 359 01 A WILLIFORD,NINA DIANE C 670 565.00 545.00 01 09/08/90 06M 02/28/97 275.00 0.00 03/97 1B1B 0.00 10.00 01 360 01 A TAYLOR DEAN C 670 565.00 550.00 01 05/20/95 06M 11/30/97 160.00 0.00 06/97 1B1B 0.00 25.00 01 361 01 A-L MCPHERSON, ARLENE C 670 540.00 495.00 01 07/10/96 06M 01/31/97 100.00 0.00 1B1B 0.00 0.00 01 362 01 A-L KRAMER RON & JASON C 670 540.00 520.00 01 05/11/96 06M 11/30/96 100.00 0.00 06/97 1B1B 0.00 25.00 01 363 01 A-L THOMAS, EDITH BANKS C 670 540.00 530.00 01 12/07/95 12M 12/31/96 100.00 555.00 1B1B 0.00 0.00 01 364 01 A-L GRAUBARD, EVA LIA C 670 540.00 525.00 01 06/01/97 12M 05/31/98 110.00 0.00 1B1B 0.00 0.00 01 365 01 A LANDEN, DIANE C 670 565.00 545.00 01 02/01/97 12M 01/31/98 500.00 0.00 1B19 0.00 0.00 01 366 01 A MCDONALD, PATRICK C 670 565.00 545.00 01 07/06/90 12M 11/30/97 150.00 0.00 11/96 1B1B 0.00 0.00 01 367 01 A HAFNER, ANGELA C 670 565.00 545.00 01 10/19/96 12M 10/31/97 350.00 0.00 1B1B 0.00 0.00 01 368 01 A RUPKEY, JOSEPH/JENNI C 670 565.00 535.00 01 08/13/96 12M 08/31/97 110.00 0.00 1B1B 0.00 0.00 01 369 01 A SCHNEPS BERNARD C 670 565.00 545.00 01 12/09/94 12M 02/28/98 110.00 0.00 03/97 1B1B 0.00 25.00 01 370 01 A SHIN, SANG IN/SNE EU C 670 565.00 545.00 01 12/21/96 06M 06/30/97 110.00 0.00 1B1B 0.00 0.00 01 371 01 4 VALENTINE N 670 565.00 565.00 01 07/18/99 0.00 0.00 1B1B 0.00 0.00 01 371 A VACANT 670 565.00 1B1B 01 372 02 A SCALZO-PRELEASE N 670 565.00 565.00 01 06/26/99 100.00 0.00 1B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 25 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:33:04 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 372 A VACANT 670 565.00 1B1B 01 373 01 A BENNETT, JASON C 670 565.00 545.00 01 11/06/96 06M 05/31/97 150.00 0.00 1B1B 0.00 0.00 01 374 01 A JACKSON, CLAUDE/GRAC C 670 565.00 535.00 01 08/31/96 12M 08/31/97 100.00 0.00 1B1B 0.00 0.00 01 375 01 A CHMELNIK, MAURICIO C 670 565.00 535.00 01 08/05/96 09M 05/31/97 150.00 0.00 1B1B 0.00 0.00 01 376 01 A GUITIERREZ/FINDLEY C 670 565.00 495.00 01 07/06/96 12M 07/31/97 100.00 0.00 1B1B 0.00 0.00 01 377 01 A-L LOSS, GARY C 670 540.00 495.00 01 09/07/96 06M 03/31/98 310.00 0.00 1B1B 0.00 0.00 01 378 A-L VACANT 670 540.00 1B1B 01 379 01 A-1 NGUYEN, DUNG VAN C 670 540.00 495.00 01 10/15/96 12M 10/31/97 110.00 0.00 1B1B 0.00 0.00 01 380 01 A-L DU FRANE, NANCY C 670 540.00 495.00 01 04/06/96 12M 10/31/97 450.00 0.00 1B1B 0.00 0.00 01 381 01 A JONES, RHYNDA C 670 565.00 565.00 01 04/01/97 12M 03/31/98 150.00 0.00 1B1B 0.00 0.00 01 382 01 A FOSTER, CECILIA C 670 565.00 545.00 01 02/01/85 12M 02/28/98 50.00 0.00 03/97 1B1B 0.00 25.00 01 383 01 A LRURENCE, TRACY C 670 565.00 545.00 01 11/23/96 06M 11/30/97 110.00 0.00 1B1B 0.00 0.00 01 384 01 A GUERRERO ANDREW/PENA C 670 565.00 540.00 01 06/01/96 12M 05/31/98 110.00 0.00 06/97 1B1B 0.00 40.00 01 385 01 D MESCHKAT, IONE C 930 695.00 650.00 01 08/14/96 06M 08/31/97 100.00 0.00 2B1B 0.00 0.00 01 386 01 D POWELL, STEPHANIE C 930 695.00 650.00 01 09/06/96 12M 09/30/97 100.00 0.00 2B1B 0.00 0.00 01 387 02 D HONG, MARIA/JOHNNY C 930 695.00 695.00 01 06/15/97 100.00 0.00 2B1B 0.00 0.00 01 388 01 D MITCHELL, MICHAEL/CA C 930 695.00 625.00 01 09/21/96 12M 09/30/97 100.00 0.00 2B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 26 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:33:3 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 389 01 D ADAMS, LORETTA & GEO C 930 695.00 670.00 01 02/15/97 12M 02/28/98 200.00 0.00 2B1B 0.00 0.00 01 390 01 D ODELL M. / SABALA T. C 930 695.00 650.00 01 07/01/96 M-M 03/31/97 100.00 0.00 07/97 2B1B C 10.00 0.00 25.00 660.00 01 391 01 D MORGANSTERN KATHERIN C 930 695.00 670.00 01 01/27/96 12M 01/31/97 130.00 10.00- 04/97 2B1B 0.00 10.00 01 392 02 D NGUYEN, THUY C 930 695.00 670.00 01 04/28/97 12M 04/30/98 100.00 0.00 2B1B 0.00 0.00 01 393 01 C CORTIMIGLIA, K. C 850 645.00 595.00 01 01/01/87 12M 08/31/97 50.00 0.00 08/95 2B1B 0.00 0.00 01 394 01 C GOLDMAN, VIRGINIA C 850 645.00 595.00 01 10/22/96 12M 10/31/97 110.00 45.00 2B1B 0.00 0.00 01 395 01 C-L FISCHER, JULIE C 850 620.00 595.00 01 03/17/97 06M 09/30/97 210.00 0.00 2B1B 0.00 0.00 01 396 01 C-L VALDEZ/ALONSO C 850 620.00 595.00 01 09/26/95 06M 09/30/97 200.00 0.00 2B1B C 10.00 0.00 0.00 605.00 01 397 01 C SEROTA, HARRY C 850 645.00 595.00 01 07/06/89 12M 09/30/97 250.00 0.00 10/95 2B1B 0.00 10.00 01 398 01 C HOLT, DAWN C 850 645.00 595.00 01 06/13/96 M-M 06/30/97 310.00 0.00 07/97 2B1B 0.00 25.00 01 399 01 F BROWN, ROBERT,CHERYL C 1054 750.00 695.00 01 02/01/97 12M 01/31/98 200.00 0.00 2B2B 0.00 0.00 01 400 01 F BELYI, BORIS/ELIZABE C 1054 750.00 675.00 01 09/23/95 12M 10/31/97 100.00 0.00 11/96 2B2B 0.00 0.00 01 401 01 B OWEN, KAREN C 756 605.00 575.00 01 08/14/93 12M 08/31/97 310.00 0.00 09/96 1B1B 0.00 0.00 01 402 01 B STEWERT MARY C 756 605.00 S85.00 01 03/26/95 M-M 08/31/96 160.00 0.00 09/96 1B1B 0.00 20.00 01 403 02 B CARLETON/CANCELLED O 756 605.00 595.00 01 03/21/97 100.00 0.00 1B1B 03/21/97 0.00 0.00 01 403 03 B MODICA, CHRISTOPHER C 756 605.00 595.00 01 05/26/97 12M 05/31/98 100.00 0.00 1B1B 0.00 0.00 01 404 01 B JOHNSON, BRIAN C 756 605.00 585.00 01 09/01/92 006 08/31/94 150.00 0.00 03/97 1B1B 0.00 10.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 27 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:34:22 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 405 01 F KAISER CARY ROY C 1054 750.00 695.00 01 10/01/94 12M 08/31/97 100.00 0.00 03/97 2B2B 0.00 5.00 01 406 01 F WEBER, JOHN/MARGARET C 1054 750.00 735.00 01 05/30/97 06M 11/30/S7 200.00 0.00 2B2B 0.00 0.00 01 407 01 C MUNOZ,ROMAN, VU, HAI C 850 645.00 595.00 01 05/01/96 06M 07/31/97 100.00 0.00 2B1B 0.0O 0.00 01 408 01 C USAKOVSKAYA, DINA C 850 645.00 580.00 01 04/06/96 12M 04/30/97 200.00 0.00 05/97 2B1B 0.00 20.00 01 409 01 C-L SINCLAIR VERONICA C 850 620.00 595.00 01 05/11/96 06M 05/30/97 200.00 0.00 06/97 2B1B 0.00 25.00 01 410 01 C-L BOYD, SAUNDRA C 850 620.00 610.00 01 08/13/91 M-M 03/28/92 100.00 605.00- 07/97 2B1B 0.00 5.0 01 411 01 C GORDON MICHAEL, DO N C 850 645.00 615.00 01 04/01/69 06M 03/31/98 06/16/97 130.00 0.00 04/97 2B1B 06/30/99 0.00 20.00 01 412 01 C CARLOCK, EMILIO/SUSA C 850 645.00 595.00 01 12/20/96 06M 06/30/97 100.00 10.00- 2B1B 0.00 0.00 C1 413 01 D NIMRI, REUBEN C 930 695.00 640.00 01 07/18/92 12M 08/31/97 100.00 0.00 09/96 2B1B 0.00 0.00 01 414 01 D VARJAS,PHILIP HOPKIN C 930 695.00 670.00 01 05/29/93 M-M 12/30/93 100.00 10.00 05/97 2B1B C 10.00 0.00 10.00 680.00 01 415 01 D YU SUEJIN / YU, SON C 930 695.00 650.00 01 06/29/95 18M 06/30/98 100.00 0.00 01/96 2B1B 0.00 0.00 01 416 01 D CORRIGAN, MADGE C 930 695.00 650.00 01 08/29/93 12M 12/31/96 100.00 0.00 03/97 2B1B 0.00 5.0 61 417 01 D **HAYES, ANNETTE C 930 695.00 695.00 01 03/01/90 M-M 03/31/90 50.00 0.00 11/89 2B1B 0.00 10 00 01 418 01 D CAMPBELL,HARRISON C 930 695.00 695.00 01 11/26/96 06M 11/30/97 260.00 0.00 2B1B 0.00 0.00 01 419 01 D PUTNAM KAREN C 930 695.00 650.00 01 10/14/94 M-M 10/31/97 210.00 0.00 11/96 2B1B 0.00 0.00 G1 420 01 D KING, VON C 930 695.00 650.00 01 06/25/96 M-M 06/30/97 310.00 0.00 07/97 2B1B 0.00 25.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 28 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL NORTH SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:34:5 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 421 01 A NOWICKI, RICHARD C 670 565.00 565.00 01 04/19/97 06M 10/31/97 150.00 0.00 1B1B 0.00 0.00 01 422 01 A LABER, DAMIAN ABEL N 670 565.00 565.00 01 06/27/99 100.00 0.00 1B1B 0.00 0.00 01 422 A VACANT 670 565.00 1B1B 01 423 01 A CAMP CECILE (PERRY) C 670 565.00 520.00 01 06/01/96 06M 11/30/97 160.00 2,600.00- 06/97 1B1B 0.00 25.00 01 424 01 A NASH, SIRPA C 670 565.00 545.00 01 09/07/89 12M 10/31/97 150.00 0.00 11/9 1B1B 0.00 25.00 01 425 01 G-P MUNCRIEF/CARTER C 210 895.00 B60.00 01 08/24/96 06M 08/30/97 110.00 0.00 2B2B 0.00 0.00 01 426 01 6-U VANDERWORM N/TERRY K C 1210 870.00 870.00 01 06/01/97 06M 11/30/97 200.00 0.00 2B2B 0.00 0.00 01 427 02 G-P IRELAND, DAWN C 1210 895.00 875.00 01 04/27/97 12M 04/30/98 200.00 0.00 2B2B 0.00 0.00 01 428 01 G-U **MCGRIFF, CALVIN C 1210 870.00 870.00 01 12/04/81 M/M 01/31/82 0.00 0.00 09/9 2B2B 0.00 25.00 01 429 01 E SOEHNGE, FRANK C 942 695.00 660.00 01 08/1B/90 M-M 03/28/91 245.00 0.00 03/9 2B1B 0.00 5.0 01 430 01 E-NBD LLOYD, KEITH B. C 942 670.00 645.00 01 02/08/96 12M 02/28/98 200.00 0.00 2B1B 0.00 0.00 01 431 02 E SPORT PRODUCTION C 942 695.00 695.00 01 06/18/97 06M 12/31/97 200.00 0.00 2B1B 0.00 0.00 01 432 01 E-NBD ORR MICHAEL & BEAT N C 942 670.00 640.00 01 10/01/94 06M 05/31/97 110.00 5.00- 10/9 2B1B 0.00 0.00 01 433 01 E WILLIAMS, CHARLES C 942 695.00 660.00 01 09/1B/92 12M 02/28/97 160.00 0.00 03/9 2B1B 0.00 25.00 01 434 01 E-NBD MILLER, ADRIENNE C 942 670.00 645.00 01 04/14/76 12M 02/28/98 100.00 0.00 03/9 2B1B 0.00 15.00 01 435 01 E LOMONTE, LAURA LEE C 942 695.00 675.00 01 08/20/88 012 04/30/98 160.00 0.00 05/9 2B1B 0.00 25.00 01 436 01 E-NBD ENGLAND, DAVID/KATHR C 942 670.00 645.00 01 08/17/96 09M 05/31/98 100.00 0.00 2B1B 0.00 0.0 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 1 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL WEST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:32:37 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 441 01 E/F/B ENEMAN, EVELYN C 942 695.00 660.00 01 07/01/74 12M 02/28/98 10.00 0.00 03/97 2B1B 0.00 10.00 01 442 02 E/F/B HIPP, ROBERT C 942 695.00 660.00 01 09/08/89 M-M 12/31/95 200.00 0.00 03/97 2B1B 0.00 0.00 01 443 02 E/F/B GALKA/GAMEZ C 942 695.00 675.00 01 05/15/97 12M 05/31/98 200.00 0.00 2B1B 0.00 0.00 01 444 01 E/F/B RUSSELL, BILL/STACY C 942 695.00 660.00 01 01/01/96 06M 06/30/97 05/30/97 100.00 0.00 2B1B 06/30/99 0.00 0.00 01 444 02 E/F/B RITCHIE 5-3-97 PL N 942 695.00 695.00 01 07/29/99 100.00 0.00 2B1B 0.00 0.00 01 445 01 AL BROWN, MICHAEL C 670 540.00 530.00 01 06/09/94 06M 07/31/97 160.00 0.00 03/96 1B1B 0.00 20.00 01 446 05 AL PAVLOCK, CYNTHIA C 670 540.00 520.00 01 05/12/95 12M 01/31/98 150.00 0.00 01/96 1B1B 0.00 25.00 01 447 04 CL MANNING 5-10-97 VL N 850 620.00 610.00 01 07/01/99 100.00 0.00 2B1B 0.00 0.00 01 447 CL VACANT 850 620.00 2B1B 01 448 03 CL GREENWELL, MARK C 850 620.00 570.00 01 08/12/95 12M 08/31/97 300.00 0.00 2B1B 0.00 0.00 01 449 03 C YAP,JERRY/GLENDA C 850 645.00 630.00 01 02/27/94 M-M 01/31/97 110.00 0.00 02/96 2B1B 0.00 10.00 01 450 01 C GE/SHEN C 850 645.00 595.00 01 07/13/96 06M 07/31/97 100.00 0.00 2B1B 0.00 0.00 01 451 09 4 GONZALEZ, RENO H C 670 565.00 545.00 01 08/09/96 M/M 05/31/97 100.00 0.00 1B1B 0.00 0.00 01 452 02 A NETTLETON PEGGY C 670 565.00 550.00 01 08/08/92 12M 04/30/98 110.00 0.00 05/97 1B1B 0.00 25.00 71 453 A VACANT 670 565.00 1B1B 01 454 01 A NESTERGREN, TAMRA C 670 565.00 550.00 01 06/01/96 M-M 11/30/96 05/31/97 150.00 60.00 06/97 1B1B 06/30/99 0.00 25.00 01 455 07 C FREY, MARK C 850 645.Q0 615.00 01 06/01/92 06M 11/30/97 310.00 0.00 06/97 2B1B 0.00 20.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 2 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 07 NOB HILL WEST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:33:04 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 456 02 C MCCORD, GLORIA C 850 645.00 615.00 01 07/15/96 06M 10/31/97 310.00 0.00 05/97 2B1B 0.00 20.00 01 457 02 C BURDETTE, THOMAS C 850 645.00 595.00 01 02/01/97 06M 07/31/97 150.00 0.00 2B1B 0.00 0.00 01 458 06 C DELTZ, TROY L NICOLE C 850 645.00 570.00 01 08/14/96 M-M 02/28/97 100.00 0.00 2B1B 0.00 0.00 01 459 01 AL RITCHEY, IRENE D. C 670 540.00 495.00 01 09/14/85 12M 09/30/97 60.00 0.00 06/96 1B1B 200.00 20.00 01 460 05 AL OCHOA, WYNN M. C 670 540.00 495.00 01 06/27/96 M-M 12/31/96 110.00 0.00 1B1B 0.00 0.00 01 461 01 A ECBY/FUQUA C 670 565.00 545.00 01 03/01/96 M-M 02|28/97 06/19/97 160.00 0.00 03/97 1B1B 06/30/99 0.00 10.00 01 462 04 A ROBERTS, MARY K C 670 565.00 565.00 01 06/14/97 06M 12/31/98 200.00 0.00 1B1B 0.00 0.00 01 463 04 AL SATTER, HAROLD C 670 540.00 520.00 01 05/09/91 12M 03/31/98 160.00 0.00 04/97 1B1B 0.00 25.00 01 464 07 AL SINGH, SANDIP C 670 540.00 520.00 01 07/10/93 M-M 06/30/94 110.00 0.00 01/96 1B1B 0.00 25.00 01 465 01 AL LEVINE, JAN BARI C 670 540.00 495.00 01 10/01/88 12M 04/30/98 10.00 0.00 05/97 1B1B 0.00 0.00 01 466 02 AL QUINCY, ROCHELLE C 670 540.00 495.00 01 10/05/96 M-M 04/30/97 05/21/97 100.00 82.50 1B1B 06/25/99 0.00 0.00 01 467 02 A LIM, SEONG L MYUNG C 670 565.00 545.00 01 12/02/96 06M 06/30/97 160.00 0.00 1B1B 0.00 0.00 01 468 08 A BEATY, STEVE C 670 565.00 525.00 01 06/27/96 12M 06/30/97 06/16/97 110.00 0.00 1B1B 06/30/99 0.00 0.00 01 469 03 A POWELL, DEBRA C 670 565.00 545.00 01 05/09/92 M-M 02/28/97 360.00 0.00 03/97 1B1B 0.00 25.00 01 470 02 A SHARAH,SHYAM C 670 565.00 545.00 01 11/01/94 12M 10/31/97 100.00 0.00 11/96 1B1B 0.00 25.00 01 471 04 A STEINFELD. FRED C 670 565.00 565.00 01 11/13/92 M-M 01/31/97 110.00 0.00 04/97 1B1B 0.00 20.00 01 472 06 A INGLAT, MARIE C 670 565.00 525.00 01 01/17/95 12M 03/31/98 110.00 0.00 04/97 1B1B 0.00 25.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 3 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 11 NOB HILL WEST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:33:49 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 473 04 A WATSON, MARILYN C 670 565.00 510.00 01 11/09/91 12M 02/28/98 210.00 0.00 02/96 1B1B 0.00 25.00 01 474 01 A BASS/RIPKA C 670 565.00 525.00 01 05/18/96 12M 05/31/98 310.00 0.00 06/97 1B1B 0.00 25.00 01 475 01 A SHERMAN, SELMA C 670 565.00 550.00 01 02/06/88 12M 04/30/98 50.00 0.00 05/97 1B1B 0.00 25.00 01 476 01 A GHAFOURI 6-23-97 VL N 670 565.00 565.00 01 07/01/99 0.00 0.00 1B1B 0.00 0.00 01 476 A VACANT 670 565.00 1B1B 01 477 02 A MILLER, DEBBIE C 670 565.00 545.00 01 07/18/91 12M 02/28/98 160.00 0.00 03/97 1B1B 0.00 25.00 01 478 01 A STERLING, DEBDRAH C 670 565.00 545.00 01 10/23/88 12M 02/28/98 100.00 0.00 03/97 1B1B 0.00 10.00 01 479 05 AL KLEIN,LILLIAN C 670 540.00 525.00 10 8/06/94 12M 04/30/98 100.00 0.00 03/96 1B1B 0.00 25.00 01 480 07 AL ROSE, SCOTT C 670 540.00 525.00 01 03/10/95 06M 09/30/97 300.00 0.00 04/97 1B1B 0.00 25.00 01 481 06 AL KHAN,IMRAN C 670 540.00 525.00 01 12/08/94 06M 07/31/97 100.00 0.00 03/96 1B1B 0.00 25.00 01 482 02 AL ENRIOUEZ, LOUDELIZA C 670 540.00 520.00 01 09/07/91 12M 04/30/98 110.00 0.00 05/97 1B1B 0.00 25.00 01 483 01 A SINGER, MURRAY C 670 565.00 665.00 01 05/09/97 03M 08/31/97 150.00 0.00 1B1B 0.00 0.00 01 484 08 A MACNAUGHTON, MELINDA C 670 565.00 535.00 01 08/09/96 M-M 02/28/97 300.00 0.00 1B1B 0.00 0.00 01 485 02 D HAMID. ASIM C 930 695.00 660.00 01 09/01/92 12M 06/30/97 200.00 0.00 07/96 2B1B 0.00 10.00 01 486 01 D SIMPSON, ROBERT C 930 695.00 625.00 01 06/13/96 12M 06/30/97 200.00 0.00 2B1B 0.00 0.00 01 487 03 D GOLUB, RACHEL C 930 695.00 650.00 01 02/07/91 12M 02/28/98 200.00 0.00 03/97 2B1B 0.00 10.00 01 488 02 D WELSH, RITA C 930 695.00 670.00 01 11/01/89 M-M 01/31/97 210.00 0.00 04/97 2B1B 0.00 20.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 4 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 11 NOB HILL WEST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:34:27 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 489 01 D MOONEY, JOHN K. C 930 695.00 660.00 01 04/15/96 06M 10/31/97 110.00 0.00 05/97 2B1B 0.00 25.00 01 490 01 D BENDER/LONG C 930 695.00 650.00 01 05/25/96 12M 05/31/98 100.00 0.00 06/97 2B1B 0.00 25.00 01 491 01 D GROVEMAN, JACK/FANNI C 930 695.00 670.00 01 01/14/89 M-M 01/31/97 100.00 0.00 04/97 2B1B 200.00 20.00 01 492 02 D BASTIDAS, DEBORAH C 930 695.00 670.00 01 10/01/89 M-M 01/31/97 200.00 0.00 04/97 2B1B 0.00 20.00 01 493 04 C PEREZ 5-30-97 VL N 850 645.00 645.00 01 06/28/99 100.00 0.00 2B1B 0.00 0.00 01 493 C VACANT 850 645.00 2B1B 01 494 02 C HALL, RANDAL C 850 645.00 575.00 01 01/12/95 12M 07/31/97 300.00 0.00 2B1B 0.00 0.00 01 495 03 CL DUCHE, JANE C. C 850 620.00 595.00 01 03/17/95 12M 01/31/98 100.00 0.00 04/96 2B1B 0.00 10.00 01 496 01 CL LIU/CHEN C 850 620.00 570.00 01 06/15/96 06M 06/30/97 100.00 0.00 2B1B 0.00 0.00 01 497 01 C ANDERSON, JAMES C 850 645.00 615.00 01 04/06/96 M-M 04/30/97 100.00 0.00 05/97 2B1B 0.00 20.00 01 498 03 C JORDAN, CHERYL C 850 645.00 615.00 01 06/16/95 M-M 06/30/96 400.00 0.00 04/97 2B1B 0.00 20.00 01 499 03 F SOMAN, KIZHAKE C 1054 750.00 695.00 01 06/23/92 M-M 12/31/95 110.00 0.00 03/97 2B2B 0.00 20.00 01 500 09 F ALMAGOR/MULLA MULLA C 1054 750.00 695.00 01 09/01/96 M-M 02/28/97 100.00 0.00 2B2B 0.00 0.00 01 501 01 B VEGA, JUAN C 756 605.00 595.00 01 04/05/97 12M 04/30/98 110.00 0.00 1B1B 0.00 0.00 01 502 05 B MCPHERSON. EILEEN C 756 605.00 585.00 01 01/29/94 M-M 02/28/97 110. 00 0.00 03/97 1B1B 0.00 10.00 01 503 05 B LIMPUS, DOROTHY C 756 605.00 585.00 01 11/13/95 12M 01/31/98 110.00 0.00 1B1B 0.00 0.00 01 504 03 B FOWLER 6-19-97 VL N 756 605.00 605.00 01 06/28/97 12M 0.00 0.00 1B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 5 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 11 NOB HILL WEST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:35:05 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 504 01 B VACANT 756 605.00 1B1B 01 505 01 F OFFHAN, MORRIS C 1054 750.00 695.00 01 11/15/B4 12M 03/31/98 20.00 0.00 03/97 2B2B 0.00 20.00 01 506 01 F KUPERBERG, SHIRLEY C 1054 750.00 675.00 01 08/05/74 12M 09/30/97 60.00 0.00 08/96 2B2B 0.00 25.00 01 507 01 C NEUMAN, LILLIAN C 850 645.00 575.00 01 04/01/74 12M 01/31t98 10.00 0.00 02/96 2B1B 0.00 25.00 01 508 04 C HUBAND, MICHAEL LINN C 850 645.00 595.00 01 06/28/96 06M 06/30/97 05/30/97 110.00 0.00 2BIB 07/11/99 0.00 0.00 01 508 05 C SERICE 6-3-97 PL N 850 645.00 645.00 01 07/26/99 100.00 0.00 2B1B 0.00 0.00 01 509 01 CL TIPTON, STEPHEN S. C 850 620.00 605.00 01 01/01/96 M-M 12/31/96 110.00 610.00- 2B1B 0.00 O.00 01 510 02 CL CLARK,SARAH C 850 620.00 600.00 01 11/06/93 12M 01/31/98 320.00 0.00 01/96 2BIB 0.00 25.00 01 511 01 C MURRAY, TIMOTHY C 850 645.00 595.00 01 05/25/96 06M 11/30/97 500.00 0.00 06/97 2B1B 0.00 25.00 01 512 01 C LAROCHE, CLARA C 850 645.00 620.00 01 03/03/84 06M 07/31/97 10.00 01/96 2B1B 0.00 25.00 01 513 02 D COOPER, CHARISSE C 930 695.00 650.00 01 02/15/97 12M 02/28/98 100.00 0.00 2B1B 0.00 0.00 01 514 02 D MAHAN, MICHAEL C 930 695.00 650.00 01 10/05/96 M-M 04/30/97 110.00 0.00 2B1B 0.00 0.00 01 515 01 D VALDES, BARBARA C 930 695.00 660.00 01 12/12/95 12M 01/31/98 110.00 0.00 2B1B 0.00 0.00 01 516 02 D RUST, MARK C 930 695.00 650.00 01 07/27/94 06M 07/31/97 05/14/97 160.00 0.00 11/96 2B1B 06/30/99 0.00 10.00 01 516 04 D KUREK 6-6-97 PL N 930 695.00 695.00 01 07/09/99 0.00 0.00 2B1B 0.00 0.00 01 517 07 D TURNER, LAWANDA C 930 695.00 650.00 01 12/26/96 06M 06/30/97 100.00 0.00 2B1B 0.00 0.00 01 518 02 D LUMAN,BETTY C 930 695.00 650.00 01 11/03/94 M-M 04/30/95 410.00 0.00 03/97 2B1B 0.00 25.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 6 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 11 NOB HILL WEST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:35:43 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 519 01 D ROBINS. GERARD C 930 695.00 650.00 01 07/12/89 06M 12/31/97 200.00 11/96 2B1B 0.00 10.00 01 520 01 D BERNSTEIN, INA C 930 695.00 650.00 01 06/01/79 M/M 05/31/97 10.00 0.00 2B1B 0.00 0.00 01 521 01 A TREVINO/GUARDIOLA C 670 565.00 565.00 01 03/30/97 06M 09/30/97 150.00 0.00 1B1B 0.00 0.00 01 522 03 A NINO, JAIME & LUZ C 670 565.00 565.00 01 10/07/95 06M 10/31/97 110.00 0.00 04/97 1B1B 0.00 20.00 01 523 01 A MORROW, ALAN C 670 565.00 525.00 01 05/02/96 06M 07/31/97 110.00 0.00 1B1B 0.00 0.00 01 524 07 A FRAMPTON, JOANN C 670 565.00 665.00 01 04/04/97 03M 07/31/97 100.00 0.00 1B1B 0.00 0.00 01 525 03 F ROSENBERG, HANA C 1054 750.00 695.00 01 07/24/95 12M 09/30/97 100.00 0.00 08/96 2B2B 0.00 20.00 01 526 04 F ISLAM, NAZRUL C 1054 750.00 710.00 01 06/26/92 M-M 04/30/97 120.00 0.00 05/97 2B2B 0.00 25.00 01 527 03 A WATTS, SALLIE C 670 565.00 525.00 01 06/29/96 12M 06/30/97 100.00 0.00 1B1B 0.00 0.00 01 528 03 A MORTON, ELIZABETH C 670 565.00 545.00 01 04/13/93 12M 10/31/97 400.00 0.00 11/96 1B1B 0.00 10.00 01 529 01 A CORTES, JOSE C. C 670 565.00 550.00 01 05/01/96 12M 04/30/98 160.00 0.00 05/97 1B1B 0.00 25.00 01 530 02 A SCHWARTZ, RUSSELL M. C 670 565.00 545.00 01 01/29/96 12M 01/31/98 110.00 1,090.00- 1B1B 0.00 0.00 01 531 02 GP KING, SARA C 1210 895.00 860.00 01 12/14/96 09M 09/30/97 110.00 0.00 2B2B 0.00 0.00 01 532 01 GL THERAPIST UNLIMIT C 1210 870.00 860.00 01 07/01/96 M-M 07/31/96 10.00 0.00 2B2B 0.00 0.00 01 533 04 GP LEVY, DOROTHY C 1210 895.00 875.00 01 05/01/97 12M 04/30/98 120.00 0.00 2B2B 0.00 0.00 01 534 02 GL TAYLOR, DANIEL C 1210 870.00 835.00 01 01/02/97 12M 01/31/98 310.00 835.00- 2B2B 0.00 0.00 01 535 01 A **OFFICE C 670 565.00 565.00 01 04/01/85 M-M 04/30/85 0.00 0.00 07/96 1B1B </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 7 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 11 NOB HILL WEST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:36:23 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 536 04 A WU, NORMAN C 670 565.00 525.00 01 08/05/96 12M 08/31/97 100.00 0.00 1B1B 0.00 0.00 01 537 07 B STEVENS, MILDRED C 756 605.00 595.00 01 04/01/93 12M 03/31/98 60.00 0.00 04/97 1B1B 0.00 20.00 01 538 03 B GUIDRY,GENEVA C 756 605.00 550.00 01 11/01/94 06M 06/30/97 675.00 20.00 11/95 1B1B 0.00 25.00 01 539 04 B HOLLIDAY MAUDE C 756 605.00 550.00 01 06/01/93 12M 08/31/97 110.00 0.00 06/96 IB1B 0.00 25.00 01 540 01 B FAIGEN, VALERIE C 756 605.00 575.00 01 02/15/89 M-M 08/31/96 150.00 0.00 09/96 1B1B 0.00 25.00 01 541 01 B FLOYD, JEWEL C 756 605.00 575.00 01 01/28/89 12M 09/30/97 110.00 0.00 09/96 1B1B 0.00 25.00 01 542 03 B FUCHS, EDWARD C 756 605.00 585.00 01 08/15/92 06M 08/31/97 170.00 0.00 03/97 1B1B 0.00 10.00 01 543 01 B PERKINS, MARY ALENA C 756 605.00 585.00 01 06/13/89 M-M 12/31/89 160.00 0.00 03/97 1B1B 0.00 10.00 01 544 08 B MCANALLY, MARGARET C 756 605.00 575.00 01 08/01/92 12M 08/31/97 60.00 0.00 09/96 1B1B 0.00 25.00 01 545 01 A WHITCOMB/MCELVEEN C 670 565.00 565.00 01 04/10/97 06M 10/31/97 160.00 0.00 1B1B 0.00 0.00 01 546 04 A TRAN/LIEN C 670 565.00 545.00 01 08/23/95 12M 08/31/97 500.00 0.00 1B1B 0.00 0.00 01 547 05 E-P GHANI 6-9-97 VL N 942 705.00 705.00 01 07/11/99 0.00 0.00 2B1B 0.00 0.00 01 547 E-P VACANT 942 705.00 2B1B 01 548 01 E-W THOMPSON,JAMES C 942 670.00 640.00 01 07/07/94 12M 07/31/97 100.00 0.00 08/96 2B1B 0.00 25.00 01 545 01 E-P FRANKFORT, ABE C 942 705.00 670.00 01 05/05/80 12M 02/28/98 0.00 0.00 03/97 2B1B 0.00 10.00 01 550 03 E-N KARPAY, BONNIE C 942 670.00 645.00 01 12/21/92 12M 02/28/98 200.00 0.00 03/97 2B1B 0.00 15.00 01 551 11 E-P CAMP, KENNETH & DANA C 942 705.00 685.00 01 04/12/97 06M 10/31/97 100.00 0.00 2B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 8 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 11 NOB HILL WEST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:37:01 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 552 03 E-W ELLIS, JACQUELINE C 942 670.00 645.00 01 12/10/94 12M 02/28/98 100.00 0.00 03/97 2B1B 0.00 15.00 01 553 04 E-P THOMPSON/MOEHLE C 942 705.00 670.00 01 12/21/96 06M 06/30/97 200.00 0.00 2B1B 0.00 0.00 01 554 04 E-W SELLE, TYLER/STACEY C 942 670.00 635.00 01 01/27/96 12M 07/31/97 110.00 0.00 2B1B 0.00 0.00 01 555 04 AL ALFANO, BRENDA C 670 540.00 520.00 01 09/16/95 06M 07/31/97 100.00 0.00 1B1B 0.00 0.00 01 556 03 AL SHOWN, RITA C 670 540.00 520.00 01 12/01/96 12M 11/30/97 100.00 0.00 1B1B 0.00 0.00 01 557 02 AL WALT, GREGORY C 670 540.00 495.00 01 01/30/93 12M 08/31/97 150.00 0.00 09/95 1BIB 0.00 25.00 01 558 01 AL VAUGHAN, TAMMY C 670 540.00 565.00 01 06/07/97 12M 06/30/98 100.00 0.00 1B1B 0.0O 0.00 01 559 02 A MUSTACHIO, ROSALIE C 670 565.00 520.00 01 07/09/90 12M 08/31/97 160.00 0.00 03/96 1B1B 0.00 25.00 01 560 05 A GREEN, PATRICIA C 670 565.00 565.00 01 10/07/95 M-M 04/30/96 160.00 0.00 04/97 1BIB 0.00 20.00 01 561 01 A SERICE, VALERIE C 670 565.00 525.00 01 06/29/96 06M 09/30/97 110.00 0.00 1B1B 0.00 0.00 01 562 04 A FOWLER,DEBRA C 670 565.00 545.00 01 11/11/94 12M 04/30/98 300.00 0.00 03/97 1B1B 0.00 25.00 01 563 06 A LABIT, RENICE/ANNA C 670 565.00 565.00 01 05/23/97 06M 11/30/97 100.00 0.00 1B1B 0.00 0.00 01 564 04 A BUCEK, TINA C 670 565.00 545.00 01 10/05/96 M-M 04/30/97 100.00 0.00 1B1B 0.00 0.00 01 565 07 A **MODEL APT. C 670 565.00 565.00 01 05/16/95 M-M 05/31/95 0.00 0.00 07/96 1B1B 0.00 10.00 1 566 02 A KLITSAS, GEORGE C 670 565.00 545.00 01 11/09/96 12M 05/31/98 100.00 0.00 1B1B 0.00 0.00 1 567 01 A DAVIS, BETTIE C 670 565.00 565.00 01 05/31/97 12M 05/31/98 100.00 0.00 1B1B 0.00 0.00 1 568 02 A FINGER, JENNIFER C 670 565.00 545.00 01 10/28/95 12M 10/31/97 110.00 0.00 1B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 9 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 11 NOB HILL WEST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:37:40 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 569 02 A RAHMIN, AREZOO C 670 565.00 545.00 01 02/04/95 M-M 02/28/97 310.00 0.00 03/97 1B1B 0.00 25.00 01 570 02 A GIMBLE, JEFF C 670 565.00 545.00 01 12/31/96 06M 06/30/97 100.00 0.00 1B1B 0.00 0.00 01 571 AL VACANT 670 540.00 1B1B 01 572 02 AL WILLIAMS, DAVID C. C 670 540.00 520.00 01 12/23/96 06M 12/31/97 150.00 0.00 1B1B 0.00 0.00 01 573 04 AL BERR, JONATHAN C 670 540.00 520.00 01 11/10/96 12M 11/30/97 255.00 0.00 1B1B 0.00 0.00 01 574 04 AL MCMAHON,JULIANNE C 670 540.00 495.00 01 09/29/96 06M 09/30/97 110.00 0.00 1B1B 0.00 0.00 01 575 08 A MIDDLEMAN, BESSIE C 670 565.00 555.00 0 08/13/95 12M 03/31/98 110.00 0.00 04/97 1B1B 0.00 0.00 01 576 06 A MORRISON, TANYA C 670 565.00 545.00 01 03/01/97 12M 02/28/98 320.00 0.00 1B1B 0.00 0.00 01 577 01 A LEVY 6-18-97 VL N 670 565.00 565.00 01 07/01/99 0.00 0.00 1B1B 0.00 0.00 01 577 A VACANT 670 565.00 1B1B 01 578 05 A WEBB,LEE C 670 565.00 550.00 01 05/20/94 M-M 04/30/97 110.00 1650.00- 06/97 1B1B 0.00 25.00 01 579 07 F WILLMON, LISA/PAUL C 1054 750.00 695.00 01 08/09/96 12M 08/31/97 300.00 0.00 2B2B 0.00 0.00 01 580 02 F KATZ, HOWARD/PAULINE C 1054 750.00 670.00 01 04/24/93 12M 04/30/98 120.00 0.00 05/97 2B2B 0.00 0.00 01 581 01 AL SCOTT, OCIE ELLA C 670 540.00 525.00 01 06/01/85 12M 04/30/98 50.00 0.00 05/97 1B1B 0.00 25.00 01 582 04 AL COOPER, BRENDA C 670 540.00 495.00 01 09/15/96 12M 09/30/97 110.00 0.00 1B1B 0.00 0.00 01 583 02 F DOCTOR'S HOSPITAL C 1054 750.00 715.00 01 05/01/96 12M 04/30/98 100.00 0.00 05/97 2B2B 0.00 20.00 01 584 11 F MARQUINES/GUEVARA C 1054 750.00 695.00 01 11/01/96 M-M 04/30/97 200.00 0.00 2B2B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 10 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 11 NOB HILL WEST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:38:18 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 585 02 B LARY, SHIRLEY C 756 605.00 575.00 01 05/20/90 12M 12/31/97 160.00 0.00 10/96 1B1B 0.00 25.00 01 586 01 B FLUSSER, GIDEON C 756 605.00 5B5.00 01 06/27/96 12M 06/30/97 06/21/97 100.00 0.00 1B1B 06/30/99 0.00 0.00 01 587 04 8 PINCKARD, NADYNE H. C 756 605.00 565.00 01 12/02/92 12M 02/28/98 110.00 0.00 03/96 1B1B 0.00 25.00 01 588 01 B MARGOSH, RACHELLE C 756 605.00 565.00 01 07/01/85 12M 02/28/98 10.00 0.00 03/97 1B1B 0.00 20.00 01 589 04 C GELDART, EDWARD K. C 850 645.00 615.00 01 08/24/91 12M 03/31/98 210.00 0.00 04/97 2B1B 0.00 15.00 01 590 04 C ROBUCK, DAVID C 850 645.00 595.00 01 07/12/96 12M 04/30/98 100.00 0.00 05/97 2B1B 0.00 25.00 01 591 01 C SCHAPIRO, TIMOTHY C 850 645.00 625.00 01 04/01/96 12M 03/31/98 210.00 0.00 2B1B 0.00 0.00 01 592 05 C DOROCHENKO, ALLA C 850 645.00 595.00 01 09/03/96 12M 09/30/97 110.00 0.00 2B1B 0.00 0.00 01 593 01 C PEREIRA, EDITH C 850 645.00 620.00 01 06/25/85 12M 12/31/97 50.00 0.00 01/96 2B1B 200.00 25.00 01 594 10 C MILLER, BARBARA C 850 645.00 595.00 01 06/27/96 12M 06/30/97 100.00 0.00 2B1B 0.00 0.00 01 595 02 C MCGILVRAY, DOROTHY C 850 645.00 610.00 01 07/01/90 12M 01/31/98 210.00 0.00 09/95 2B1B 0.00 30.00 01 596 03 C GOODMAN,STEVEN C 850 645.00 595.00 01 08/06/92 09M 08/31/97 100.00 0.00 09/94 2B1B 0.00 20.00 01 597 11 A GIBBS, JOHNATHAN C 670 565.00 545.00 01 03/01/97 06M 08/31/97 100.00 0.00 1B1B 0.00 0.00 01 598 04 A JOINER,REBECCA C 670 565.00 535.00 01 02/03/94 12M 08/31/97 160.00 0.00 09/96 1B1B 0.00 15.00 01 559 08 A GLENN, ALLISON C 670 565.00 545.00 01 04/15/95 12M 09/30/97 310.00 0.00 10/96 1B1B 0.00 25.00 01 600 02 A GROVER, LAUREN C 670 565.00 550.00 01 07/12/96 M-M 04/30/97 300.00 0.00 05/97 1B1B 0.00 25.00 01 601 01 F FISHER, MR. AND MRS. C 1054 750.00 695.00 01 07/20/85 12M 02/28/9B 60.00 0.00 03/97 2B2B 0.00 20.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 11 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 11 NOB HILL WEST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:38:57 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 602 04 F ROSSUM, VIVIAN C 1054 750.00 695.00 01 09/11/93 12M 10/31/97 100.00 0.00 11/96 2B2B 0.00 20.00 01 603 05 B KAUFMAN 6-23-97 VL N 756 605.00 605.00 01 07/01/99 0.00 0.00 1B1B 0.00 0.00 01 603 B VACANT 756 605.00 1B1B 01 604 01 B THOMPSON, TINISHA C 756 605.00 595.00 01 03/01/97 06M 08/31/97 110.00 5.00- 1B1B 0.00 0.00 01 605 08 B IMADUDDIN, SYED C 756 605.00 585.00 01 01/15/97 06M 07/31/97 110.00 0.00 1B1B 0.00 0.00 01 606 04 B DEAN, JANICE C 756 605.00 575.00 01 07/08/94 M-M 07/31/96 100.00 0.00 08/96 1B1B 0.00 25.00 01 607 01 C BURCHFIELD/BRINER C 850 645.00 600.00 01 05/20/95 12M 05/31/98 300.00 0.00 06/97 2B1B 0.00 25.00 01 608 03 C LUEG/STEINHOFF C 850 645.00 595.00 01 05/01/97 06M 10/31/97 100.00 0.00 2B1B 0.00 0.00 01 609 05 C MCMAHAN, HARRY/NELLIE C 850 645.00 595.00 01 01/04/97 12M 01/31/98 100.00 0.00 2B1B 0.00 0.00 01 610 01 C DAGUE, MICHAEL C 850 645.00 630.00 01 08/30/85 M-M 03/31/86 50.00 0.00 03/96 2B1B 0.00 20.00 01 611 04 C KIBBE, RYAN & KAREN C 850 645.00 595.00 01 01/01/97 06M 06/30/97 150.00 0.00 2B1B 0.00 0.00 01 612 06 C CHELLIAH, KANNAN C 850 645.00 630.00 01 04/26/93 12M 04/30/98 110.00 0.00 03/96 2B1B 0.00 20.00 01 613 02 C SCHRYNEMEECKERS, LOU C 850 645.00 615.00 01 03/14/91 12M 03/31/98 210.00 0.00 04/97 2B1B 0.00 0.00 01 614 02 C MAUGANS/BOTTORF C 850 645.00 595.00 01 05/30/97 12M 05/31/98 100.00 0.00 2B1B 0.00 0.00 01 615 06 A BUTLER, MARY FRANCES C 670 565.00 535.00 01 03/01/92 12M 03/31/98 50.00 0.00 04/97 1B1B 0.00 15.00 01 616 05 A BURDIN, JOHN C 670 565.00 545.00 01 01/28/94 06M 08/31/97 300.00 0.00 03/97 1B1B 0.00 25.00 01 617 01 E GAMMAGE, DAVID C 1054 750.00 715.00 01 04/04/96 06M 10/31/97 200.00 0.00 05/97 2B2B 0.00 20.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 12 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 11 NOB HILL WEST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:39:35 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 618 04 F ANDERSON, HAGAR C 1054 750.00 715.00 01 11/25/95 M-M 11/30/96 290.00 0.00 04/97 2B2B 0.00 20.00 01 619 02 A HELMKE, CHRISTOPHER C 670 565.00 565.00 01 08/08/95 12M 03/31/98 100.00 0.00 04/97 1B1B 0.00 20.00 01 620 01 A BAUMGARTNER, LYNN C 670 565.00 545.00 01 05/01/85 M-M 05/31/89 50.00 0.00 02/96 1B1B 0.00 25.00 01 621 01 F MARTIN, J. L. C 1054 750.00 715.00 01 03/01/98 M-M 06/30/90 10.00 15.00- 04/97 2B2B 0.00 20.00 01 622 03 F MOORE/BABB C 1054 750.00 695.00 01 02/01/97 12M 01/31/9B 110.00 0.00 2B2B 0.00 0.00 01 623 03 A BRADBURN, DOROTHY S. C 670 565.00 565.00 01 08/14/95 12M 03/31/98 100.00 0.00 04/97 1B1B 0.00 20.00 01 624 03 A COOPER,TOBIN C 670 565.00 545.00 01 01/15/95 06M 10/31/97 100.00 0.00 03/97 1B1B 0.00 25.00 01 625 02 CL GUILLORY, DONALD C 850 620.00 595.00 01 03/29/97 06M 09/30/97 100.00 5.33 2B1B 0.00 0.00 01 626 02 CL MOSQUEDA, STEVEN C 850 620.00 570.00 01 06/11/96 12M 06/30/98 110.00 0.00 2B1B 0.00 0.00 01 627 03 C CANJI, MIRKO/MARTHA C 850 645.00 595.00 01 08/10/96 M/M 05/31/97 100.00 620.00 2B1B 0.00 0.00 01 62B 02 C MORRIS/AXTELL C 850 645.00 595.00 01 06/17/95 12M 08/31/97 100.00 0.00 2B1B 0.00 0.00 01 629 04 C KIRSHBAUM, DANIEL C 850 645.00 620.00 01 05/15/93 M-M 11/30/93 100.00 0.00 01/96 2B1B 0.00 25.00 01 630 07 C DE OLIVEIRA, MAURO C 850 645.00 595.00 01 08/17/96 12M 08/31/97 110.00 0.00 2B1B 0.00 0.00 01 631 02 CL MATHEWS, RAJY C 850 620.00 570.00 01 06/15/96 12M 06/30/97 05/30/97 110.00 0.00 2B1B 07/03/99 0.00 0.00 01 631 04 CL HUNTER 6-16-97 PL N 850 620.00 620.00 01 08/01/99 0.00 0.00 2B1B 0.00 0.00 01 632 02 CL FAULKNER/KERNE C 850 620.00 570.00 01 07/01/96 06M 06/30/97 100.00 0.00 2B1B 0.00 0.00 01 633 05 B FAIGEN, LINDA C 756 605.00 585.00 01 09/27/95 12M 09/30/97 100.00 0.00 10/96 1B1B 0.00 10.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 13 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL WEST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 634 01 B HYATT, MATTHEW C 756 605.00 585.00 01 12/15/96 12M 12/31/97 310.00 0.00 1B1B 0.00 0.00 01 635 07 8 WALTERS,CRAIG C 756 605.00 595.00 01 04/23/94 06M 10/31/97 150.00 0.00 05/97 1B1B 0.00 20.00 01 636 03 B PERKINSON, JANINE R. C 756 605.00 595.00 01 02/22/97 12M 02/28/98 100.00 0.00 1B1B 0.00 0.00 01 637 07 F JOHNSON, DARCIE C 1054 750.00 695.00 01 08/01/94 M-M 07/31/96 100.00 0.00 11/96 2B2B 0.00 20.00 01 638 02 E GELMONT, HENRY S. C 1054 750.00 695.00 01 12/29/90 12M 02/28/98 200.00 0.00 03/97 2B2B 0.00 20.00 01 639 06 A KITCHENS, PATRICIA C 670 565.00 550.00 01 09/23/95 12M 03/31/9B 110.00 0.00 04/97 1B1B 0.00 25.00 01 640 03 A RICHARDS, ELIZABETH C 670 565.00 545.00 01 10/17/92 12M 04/30/9B 300.00 0.00 11/96 181B 0.00 25.00 01 641 02 DL EBEL, JENNIFER C 930 670.00 600.00 01 07/12/96 12M 07/31/97 110.00 0.00 2B1B 0.00 0.00 01 642 01 DL VASIREDDY, SRIDHAR C 930 670.00 600.00 01 06/29/96 12M 12/31/97 110.00 0.00 2B1B 0.00 0.00 01 643 03 D GOETTMAN/FUHRMAN C 930 695.00 665.00 01 11/11/90 M-M 04/30/97 200.00 0.00 05/97 2B1B 0.00 25.00 01 644 03 D MCCORQUODALE, GLORIA C 930 695.00 660.00 01 12/02/95 12M 12/31/97 110.00 0.00 2B1B 0.00 0.00 01 645 02 F GU, JIANJUN C 1054 750.00 695.00 01 02/14/97 12M 02/28/98 110.00 0.00 2B2B 0.00 0.00 01 646 02 E CRAWFORD,JANEANA C 1054 750.00 695.00 01 05/18/94 12M 03/31/98 100.00 0.00 05/96 2B2B 0.00 0.00 01 647 02 F HOPKINS, SHIRLEY C 1054 750.00 695.00 01 10/15/96 M-M 04/30/97 120.00 0.00 2B2B 0.00 0.00 01 648 05 F ZUBCEVIC,SALIH/LINDA C 1054 750.00 715.00 01 02/24/96 12M 05/31/98 110.00 20.00- 04/97 1B1B 0.00 20.00 01 649 02 D SMITH O 930 695.00 695.00 01 06/10/97 06/10/97 100.00 0.00 2B1B 06/10/97 0.00 0.00 01 649 03 D TEADWELL 6-13-97 VL N 930 695.00 695.00 01 06/28/99 0.00 0.00 2B1B 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 14 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 11 NOB HILL WEST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 13:17:54 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 649 D VACANT 930 695.00 2B1B 01 650 02 D **HEARD, EDWARD C 930 695.00 695.00 01 02/01/97 M-M 02/01/97 0.00 0.00 2B1B 0.00 0.00 01 651 01 DL BENGAL, PEARL/HEIM C 930 670.00 645.00 01 03/05/96 M-M 03/31/97 110.00 0.00 04/97 2B1B 0.00 10.00 01 652 07 DL BRICE, JOSEFA C 930 670.00 645.00 01 03/01/97 12M 02/28/98 400.00 0.00 2B18 0.00 0.00 01 653 04 A RODRIGUEZ,SANDY C 670 565.00 535.00 01 07/14/93 12M 08/31/97 100.00 0.00 09/96 1818 0.00 15.00 01 654 06 A MARTIN, MARISA C 670 565.00 555.00 01 12/20/95 06M 07/31/97 160.00 0.00 1B1B 0.00 0.00 TOTAL CURRENT RESIDENTS 30,220.00 3,447.83- 600.00 TOTAL PREVIOUS RESIDENTS 100.00 0.00 0.00 TOTAL PROJECT 173,476 122,205.00 30,320.00 3,477.83- 134,450.00 600.00 TOTAL #UNIT 214 GROSS POSSIBLE INCOME 128,315.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 1 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 08:59 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0655 09 A MARICHAL/WEAD C 670 565.00 565.00 04/14/95 M-M 10/31/95 110.00 0.00 04/97 1-1 0.00 20.00 01 0656 01 A CARTER, JAMES C. C 670 565.00 565.00 01 05/23/97 12M 05/31/98 110.00 0.00 1-1 0.00 0.00 01 0657 03 DL SCHATZ, JOESPH C 930 670.00 645.00 01 12/07/90 M-M 04/31/91 210.00 0.00 04/97 2-1 0.00 10.00 01 0658 03 DL BARREDA, EDIE C 930 670.00 625.00 01 08/03/96 12M 08/31/97 100.00 0.00 2-1 0.00 0.00 01 0659 03 D GOLDMAN, SYLVIA C 930 695.00 650.00 01 02/03/90 M-M 02/28/97 210.00 0.00 03/97 2-1 0.00 10.00 01 0660 01 D MULLINS,ROBERT C 930 695.00 650.00 01 02/01/97 12M 01/31/98 200.00 0.00 2-1 0.00 0.00 01 0661 01 F BENIRETTO, ROSIE C 1054 750.00 695.00 01 03/11/89 12M 10/31/97 60.00 0.00 10/96 2-2 0.00 20.00 01 0662 04 E MENSCH,TOM & HEATHER C 1054 750.0 695.00 01 08/16/96 12M 05/31/98 110.00 0.00 2-2 0.00 0.00 01 0663 01 F SILVERSTEIN, KATIE C 1054 750.00 345.00 01 08/02/74 M-M 06/30/96 10.00 0.00 02/93 2-2 0.00 35.00 01 0664 03 F ARANGO, NELSON/LI C 1054 750.00 695.00 01 01/11/97 06M 07/31/97 100.00 0.00 2-2 0.00 0.00 01 0665 02 D DUNCAN, GRADY F. C 930 695.00 650.00 01 06/01/95 M-M 05/31/97 100.00 0.00 06/97 2-1 0.00 25.00 01 0666 03 D TUDOR, ELIZABETH C 930 695.00 670.00 01 03/15/94 12M 03/31/98 110.00 0.00 04/97 2-1 0.00 20.00 01 0667 01 DL JOHNSON/SUDDUTH C 930 670.00 600.00 01 08/01/96 12M 07/31/97 100.00 0.00 2-1 0.00 0.00 01 0668 02 DL GUO/ZHANG C 930 670.00 625.00 01 11/28/96 M-M 05/31/97 110.00 0.00 2-1 0.00 0.00 01 0669 01 A WATKINS, GARLANDEAN C 670 565.00 535.00 01 11/01/87 12M 10/31/97 150.00 0.00 11/96 1-1 0.00 25.00 01 0670 03 A GONLALEZ, MATT C 670 565.00 565.00 01 02/21/97 06M 08/31/97 100.00 0.00 1-1 0.00 0.00 01 0671 01 E-DN MAGEE, CAROLYN C 942 705.00 660.00 01 06/05/87 12M 02/28/98 60.00 0.00 03/96 2-1 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 2 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 08:59 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0672 01 E-UP DAVIDSOHN, MARIE C 942 670.00 640.00 01 02/13/74 12M 10/31/97 0.00 0.00 08/96 2-1 0.00 25.00 01 0673 06 E-DN ADAMS, RAY & PATSY C 942 705.00 650.00 01 03/01/95 12M 02/28/98 310.00 0.00 03/96 2-1 0.00 2S.00 01 0674 04 E-UP SPRAGG/CUNNINGHAM C 942 670.00 650.00 01 09/20/95 M-M 03/31/97 100.00 0.00 04/97 2-1 0.00 5 00 01 0675 05 E-DN WALTON, JOSEPH E. C 942 705.00 670.00 01 09/20/96 12M 09/30/97 100.00 0.00 2-1 0.00 0.00 01 0676 01 E-UP WATSON, BECKY & BARRY C 942 670.00 645.00 01 06/09/96 12N 06/30/97 100.00 0.00 2-1 0.00 0.00 01 0677 02 E-DN WARD, CALLA C 942 705.00 68S.00 01 05/01/95 24M 04/30/99 100.00 685.00- 05/97 2-1 0.00 25.00 01 0678 06 E-UP YEARGIN/MABRY C 942 670.00 650.00 01 03/01/97 12M 02/28/98 210.00 0.00 2-1 0.00 0.00 01 0679 01 A ENLOE, JACK C 670 565.00 525.00 01 03/28/69 12M 07/31/97 10.00 0.00 08/96 1-1 0.00 5.00 01 0680 03 A JOHNSON, SUSIE R. C 670 565.00 525.00 01 07/08/91 12M 07/31/97 160.00 0.00 08/96 1-1 0.00 01 0681 01 B SCHWARTZ, CLAIRE C 756 605.00 545.00 01 02/01/87 12M 08/31/97 0.00 0.00 09/96 1-1 0.00 10.00 01 0682 01 B ERSKINE, GAIL C 756 605.00 595.00 01 06/01/97 24M 05/31/99 250.00 0.00 1-1 0.00 0.00 01 0683 03 B LISS, SALLY C 756 605.00 595.00 01 05/04/97 12M 05/31/98 100.00 0.00 1-1 0.00 0.00 01 0684 06 B JACKSON, ELIJAH C 756 605.00 595.00 01 08/15/92 M-M 09/30/95 150.00 0.00 04/97 1-1 0.00 20.00 01 0685 01 B NOVY,FRANCIS C 756 605.00 595.00 01 03/24/97 12M 03/31/98 100.00 0.00 1-1 0.00 0.00 01 0686 04 B BOCCHECIAMP,CARMEN C 756 605.00 585.00 01 02/05/96 6M 08/31/97 100.00 0.00 1-1 0.00 0.00 01 0687 03 B BLUESTEIN, LILLY C 756 605.00 565.00 01 11/01/94 12M 10/31/97 100.00 0.00 11/96 1-1 0.00 10.00 01 0688 02 B WILLIAMS, SCOTT C 756 605.00 585.00 01 11/01/94 M-M 10/31/95 300.00 0.00 11/96 1-1 0.00 20.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 3 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 08:59 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0689 04 A SHEKHTER,FELIX C 670 565.00 545.00 01 11/09/96 M-M 05/31/97 110.00 0.00 1-1 0.00 0.00 01 0690 01 A GREENBLATT, BERNICE C 670 565.00 545.00 01 07/07/86 12M 08/31/97 50 00 0.00 10/96 1-1 0.00 25.00 01 0691 02 G-DN WIZIG,MIRIAM C 1210 895.00 860.00 01 10/01/90 12M 10/31/97 200.00 0.00 11/96 2-2 0.00 20.00 01 0692 02 G-UP SHARAFKHANEH 5/30 C 1210 870.00 870.00 01 06/20/97 12M 06/30/98 100.00 0.00 2-2 0.00 0.00 01 0693 01 G-DN BRACKMAN, DOROTHY C 1210 895.00 790.00 01 01/10/86 M-M 02/28/97 20.00 0.00 03/95 2-2 0.00 25.00 01 0694 01 G-UP SCOTT,BARBARA C 1210 870.00 835.00 01 09/29/95 M-M 09/30/96 10 00 0.00 03/97 2-2 0.00 10.00 01 0695 05 AL LLOYD, ARTHUR C 670 540.00 520.00 01 11/01/93 12M 03/31/98 150.00 0.00 03/97 1-1 0.00 20.00 01 0696 01 AL SIMPSON, BILL C 670 540.00 520.00 01 06/24/94 M-M 12/31/94 150.00 0.00 03/97 1-1 0.00 10.00 01 0697 10 AL CRABTREE,MICHAEL C 670 540.00 520.00 01 04/01/96 12M 03/31/98 110.00 0.00 04/97 1-1 0.00 25.00 01 0698 05 AL CARPENTER,R0GER C 670 540.00 520.00 01 11/13/96 M-M 05/31/97 100.00 0.00 1 1 0.00 0.00 01 0699 05 A HOWARD, ELIZABETH C 670 565.00 525.00 01 11/06/93 12M 02/28/98 100.00 0.00 03/97 1-1 0.00 25.00 01 0700 A VACANT 670 565.00 1-1 01 0701 A VACANT 670 565.00 1-1 01 0702 05 A ZWEIFEL,DAVID C 670 565.00 535.00 01 07/20/96 6M 07/31/97 300.00 0.00 1-1 0.00 0.00 01 0703 04 A GAMBRELL, CR4I6 C 670 565.00 545.00 01 02/11/95 12M 02/28/98 100.00 0.00 03/97 1-1 0.00 25.00 01 0704 02 A LAU,SIMON C 670 565.00 525.00 01 07/27/96 6K 08/31/97 110.00 0.00 1-1 0.00 0.00 01 0705 02 4 MERENDA,PETER/GRETCH C 670 565.00 545.00 01 07/30/95 12M 07/31/97 100.00 0.00 1-1 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 4 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 08:59 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0706 A VACANT 670 565.00 1-1 01 0707 02 A R1GGS, EDNA C 670 565.00 545.00 01 02/15/92 12M 02/28/98 160.00 0.00 03/97 1-1 0.00 0.00 01 0708 A VACANT 670 565.00 1-1 01 0709 01 A SHARPE, EDNA C 670 565.00 545.00 01 11/21/88 12M 10/31/97 100.00 0.00 11/96 1-1 0.00 25.00 01 0710 01 A BROUILLETTE,JO C 670 565.00 525.00 01 05/01/79 12M 02/28/98 0.00 0.00 03/97 1-1 0.00 25.00 01 0711 01 AL RIVERA,SUSAN C 670 540.00 525.00 01 05/19/97 6M 11/30/97 150.00 0.00 1-1 0.00 0.00 01 0712 01 AL GUZELGUNLER,YILCAN C 670 540.00 625.00 01 06/01/97 3M 08/31/97 100.00 0.00 1-1 0.00 0.00 01 0713 05 AL KENNEDY, PEGGY C 670 540.00 530.00 04 07/30/94 M-M 07/31/95 110.00 0.00 03/96 1-1 0.00 20.00 01 0714 01 AL REDDY,RAVINDRA C 670 540.00 525.00 01 06/01/97 6M 11/30/97 100.00 0.00 1-1 0.00 0.00 01 0715 04 FL LEVINE, PAUL C 1054 750.00 700.00 01 12/28/91 12M 03/31/98 210.00 0.00 04/97 2-2 0.00 25.00 01 0716 01 FL DANELS/LONG C 1054 750.00 690.00 01 08/01/89 M-M 09/30/96 200.00 0.00 10/96 2-2 0.00 25.00 01 0717 02 B BUITENKANT, RACHEL C 756 605.00 565.00 01 10/14/89 12M 10/31/97 360.00 0.00 11/96 1-1 0.00 15.00 01 0718 01 B MATOS 5/30/97 N 756 605.00 595.00 01 06/30/99 06M 100.00 0.00 1-1 0.00 0.00 01 0718 0 VACANT 756 605.00 1-1 01 0719 02 B SMITH, STEVE C 756 605.00 585.00 01 01/27/90 M-M 01/31/91 275.00 0.00 03/97 1-1 0.00 10.00 01 0720 B VACANT 756 605.00 1-1 01 0721 01 CL JACKSON MR. & MRS. C 850 620.00 605.00 01 05/21/94 M-M 02/28/96 200.00 5.00- 04/96 2-1 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 5 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 08:59 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0722 03 CL MEHAFFEY, JOE T. C 850 620.00 595.00 01 06/29/91 12M 03/31/98 210.00 0.00 04/97 2-1 0.00 10.00 01 0723 01 C WEST, LISA C 850 645.00 615.00 01 06/01/94 M-M 04L30L97 300.00 0.00 05/97 2-1 0.00 20.00 01 0724 03 C TERRY,PAMELA C 850 645.00 595.00 01 08/24/96 M-M 02/28/97 100.00 0.00 2-1 0.00 0.00 01 0725 02 C HAAS/VIDAD RHON&SARA C 850 645.00 595.00 01 12/01/96 12M 11/30/97 110.00 0.00 2-1 0.00 0.00 01 0726 05 C OSHER/TARLOW C 850 645.00 625.00 01 05/l0/97 6M 11/30/97 150.00 0.00 2-1 0.00 0.00 01 0727 01 CL MELTON, ANDREW C 850 620.00 605.00 01 04/01/88 M-M 03/31/95 0.00 0.00 03/96 2-1 0.00 20.00 01 0728 02 CL PERRY/SLATTEN C 850 620.00 570.00 01 06/29/96 12M 07/31/98 110.00 0.00 2-1 0.00 0.00 01 0729 01 A DANIELLS, ANN C 670 565.00 545.00 01 03/27/80 12M 03/31/98 165.00 0.00 03/97 1-1 0.00 25.00 01 0730 01 A KRAVITZ, JOEL C 670 565.00 525.00 01 05/17/97 06M 11/30/97 160.00 0.00 1-1 0.00 0.00 01 0731 01 FL HENLEY, BETTY C 1054 750.00 675.00 01 03/30/89 12M 07/31/97 220.00 0.00 08/96 2-2 0.00 25.00 01 0732 02 FL WOLSKI/NUTER C 1054 750.00 695.00 01 04/13/96 12M 03/31/98 300.00 0.00 2-2 0.00 0.00 01 0733 01 A SMITH, LILLIAN C 670 565.00 540.00 01 01/07/75 12M 09/30/97 10.00 0.00 10/96 1-1 0.00 25.00 01 0734 04 A GHANI, MOHAMAD&MEGHAN C 670 565.00 545.00 01 01/18/97 6M 07/31/97 100.00 0.00 0.00 1-1 0.00 0.00 01 0735 06 FL BLIGHT/LOYD C 1054 750.00 695.00 01 08/31/95 M-M 08/31/96 500.00 0.00 09/96 2-2 0.00 20.00 01 0736 03 FL CHENG/LEE C 1054 750.00 735.00 01 06/21/97 06M 12/31/97 100.00 0.00 2-2 0.00 0.00 01 0737 01 A THOMAS, PATRICIA A. C 670 565.00 545.00 01 06/10/95 12M 02/28/98 110.00 0.00 03/97 1-1 0.00 25.00 01 0738 03 A SANDLER, YAKOV C 670 565.00 525.00 01 07/27/96 M-M 01/31/97 06/23/97 100.00 0.00 1-1 07/25/99 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 6 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0739 02 CL WALKER ,JESSIE C 850 620.00 605.00 01 11/01/95 12M 10/31/97 200.00 0.00 2-1 0.00 10.00 01 0740 01 CL LANGSETH, COTIE C 850 620.00 585.00 01 0B/29/86 12M 10/31/97 70.00 0.00 11/95 2-1 0.00 10.00 01 0741 01 C IJAZ,TAHIR/SADAF C 850 645.00 570.00 01 07/06/96 M-M 01/31/97 06/05/97 100.00 0.00 2-1 07/20/99 0.00 0.00 01 0742 04 C KRAUS, IRIS/ELI C 850 645.00 600.00 01 07/31/93 12M 02/28/98 100.00 0.00 02/96 2-1 0.00 25.00 01 0743 02 C COLE, JAMES/JANET C 850 645.00 615.00 01 07/03/95 M-M 07/31/96 05/28/96 100.00 0.00 04/97 2-1 06/30/99 0.00 20.00 01 0743 03 C DRUCKNAN/ARONSTEIN 850 645.00 645.00 01 08/01/99 100.00 0.00 2-1 0.00 0.00 01 0744 01 C WEED, CAROL C 850 645.00 615.00 01 04/12/96 12M 05/31/98 310.00 0.00 05/97 2-1 0.00 20.00 01 0745 01 CL NGUYEN,TU/HONG C 850 620.00 570.00 01 09/14/96 09M 06/30/97 100.00 0.00 2-1 0.00 0.00 01 0746 03 CL SMITH, TIFFANY C 850 620.00 595.00 01 09/14/91 12M 03/31/98 110.00 0.00 04/97 2-1 0.00 25.00 01 0747 05 B MANDEL, SUZANNE C 756 605.00 575.00 01 07/20/94 12M 07/31/97 110.00 0.00 08/96 1-1 0.00 25.00 01 0748 01 B ROWLAND,JENNY C 756 605.00 595.00 01 03/21/97 12M 03/31/98 410.00 0.00 1-1 0.00 0.00 01 0749 02 B SKAINS,RICHARD/SHARL C 756 605.00 585.00 01 07/26/96 12M 07/31/97 110.00 0.00 1-1 0.00 0.00 01 0750 03 B COWAN, DOMINIC C 756 605.00 575.00 01 10/06/90 12M 10/31/97 150.00 0.00 11/96 1-1 0.00 25.00 01 0751 04 FL SIMMONS/BELL C 1054 750.00 695.00 01 10/04/96 12M 10/31/97 200.00 0.00 2-2 0.00 0.00 01 0752 01 FL FLEMING/WILLIAMS C 1054 750.00 695.00 01 05/01/96 12M 04/30/98 100.00 0.00 2-2 0.00 0.00 01 0753 04 G-DN HOLTZMAN, DORA C 1210 895.00 860.00 01 05/01/93 M-M 08/31/96 10.00 0.00 09/96 2-2 0.00 20.00 01 0754 02 G-UP SMITH, RICHARD/MARIO C 1210 870.00 835.00 01 10/16/93 M-M 10/31/96 100.00 0.00 03/97 2-2 0.00 20.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 7 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0755 03 G-DN SACHS, DENA L. C 1210 895.00 845.00 01 08/01/92 M-M 02/28/97 60.96 0.00 03/97 2-2 0.00 25.00 01 0756 01 G-UP KATZ, BEN C 1210 870.00 840.00 01 02/05/69 M-N 10/31/96 10.00 2,940.00- 05/97 2-2 0.00 25.00 01 0757 03 A GLENN,PAUL & NANCY C 670 565.00 545.00 01 08/26/96 12M 08/31/97 06/19/97 100.00 0.00 1-1 06/28/99 0.00 0.00 01 0758 01 A FERNANDEZ, CERILA C 670 565.00 535.00 01 01/23/88 12M 07/31/97 60.00 0.00 08/96 1-1 0.00 25.00 01 0759 07 B FINKELSTEIN,SOPHIE C 756 605.00 595.00 01 06/01/97 12M 05/21/98 100.00 0.00 1-1 0.00 0.00 01 0760 02 B MARINI, NANCY C 756 605.00 575.00 01 06/01/90 12M 09/30/97 150.00 0.00 10/96 1-1 0.00 25.00 01 0761 01 B MAGEE, GARRY C 756 605.00 565.00 01 08/12/89 12M 02/28/98 170.00 0.00 03/97 1-1 0.00 25.00 01 0762 01 B SELTZER, CARL C 756 605.00 565.00 01 12/06/83 M-M 03/31/96 10.00 0.00 04/97 1-1 0.00 25.00 01 0763 05 B APPEL, RAYE C 756 605.00 595.00 01 09/08/93 M-M 09/30/94 100.00 0.00 04/97 1-1 0.00 20.00 01 0764 02 B ANDERSON, DAVID C 756 605.00 585.00 01 11/02/96 M-M 05/31/97 350.00 0.00 1-1 0.00 0.00 01 0765 01 B EMERICK, FERDINANDA C 756 605.00 565.00 01 03/01/88 12M 03/31/98 10.00 0.00 04/97 1 1 0.00 15.00 01 0766 05 B KINDLE, PETER A. C 756 605.00 595.00 01 04/19/97 06M 10/31/97 150.00 0.00 1-1 0.00 0.00 01 0767 02 A GOLDBERG, SAM C 670 565.00 545.00 01 01/06/95 12M 07/31/97 110.00 0.00 02/96 1-1 0.00 25.00 01 0768 01 A BRATE/ECHIVERI C 670 565.00 565.00 01 06/07/97 6M 12/31/97 100.00 0.00 1-1 0.00 0.00 01 0769 01 E-DN FENTON, ROBIN & MARK C 942 705.00 670.00 01 06/15/96 M-M 12/31/96 05/15/97 100.00 0.00 2-1 06/30/99 0.00 0.00 01 0769 02 E-DN ROJAS 6/16/97 N 942 705.00 705.00 01 07/19/99 0.00 0.00 2-1 0.00 0.00 01 0770 01 E-UP NI/TANG C 942 670.00 645.00 01 06/29/96 M-M 12/30/96 110.00 0.00 2-1 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 8 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0771 01 E-DN SCHMIDT,KATHLEEN C 942 705.00 670.00 01 01/01/97 9M 09/30/97 100.00 0.00 2-1 0.00 0.00 01 0772 01 E-UP HENRY, LEE ANN C 942 670.00 650.00 01 03/20/94 M-M 03/31/96 110.00 0.00 04/97 2-1 0.00 20.00 01 0773 04 E-DN VASQUEZ/SOTELO C 942 705.00 670.00 01 10/08/96 12M 10/31/97 100.00 0.00 2-1 0.00 0.00 01 0774 02 E-UP SCALES,WAYNE C 942 670.00 645.00 01 07/27/96 H-M 01/31/97 100.00 0.00 2-1 0.00 0.00 01 0775 04 E-DN CLARKE,DOROTHY C 942 705.00 650.00 01 11/09/93 12M 09/30/97 120.00 0.00 10/96 2-1 0.00 15.00 01 0776 04 E-UP HALL, STEVEN C 942 670.00 660.00 01 03/10/97 06M 09/30/97 100.00 0.00 2-1 0.00 0.00 01 0777 02 AL SPARKS 6/18/97 N 670 540.00 540.00 01 07/03/99 0.00 0.00 1-1 0.00 0.00 01 0777 AL VACANT 670 540.00 1-1 01 0778 01 AL BAILEY, TERRI C 670 540.00 520.00 01 04/27/96 M-M 04/30/97 100.00 0.00 05/97 1-1 0.00 25.00 01 0779 03 AL RUCKER/GATES C 670 540.00 520.00 01 11/04/95 12M 11/30/97 110.00 0.00 1-1 0.00 0.00 01 0780 01 AL AFANRSYEVA/PATALAKH C 670 540.00 520.00 01 03/05/96 M-M 03/31/97 150.00 0.00 05/97 1-1 0.00 25.00 01 0781 A VACANT 670 565.00 1-1 01 0782 05 A CHAISSON, ANDREA C 670 565.00 545.00 01 12/01/96 06M 12/31/97 100.00 0.00 1 1 0.00 0.00 01 0783 A VACANT 670 565.00 1-1 01 0784 01 A GOODEY,JOANNA C 670 565.00 525.00 01 07/21/96 12M 07/31/97 110.00 0.00 1-1 0.00 0,00 01 0785 03 A MORELAND,ELIIABETH C 670 565.00 565.00 01 09/29/95 M-M 09/30/96 310.00 0.00 04/97 1-1 0.00 20.00 01 0786 01 R KAMENKOVICH, IKE C 670 565.00 550.00 01 04/04/88 12M 04/30/98 0.00 0.00 05/97 1-1 0.00 25.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 9 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 9:00:08 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0787 02 A **JOHNSON, ALVIN C 670 565.00 565.00 01 08/15/96 M-M 09/30/96 0.00 0.00 1-1 0.00 0.00 01 0788 09 A HALE, TONYA R. C 670 565.00 545.00 01 08/03/96 12M 08/31/97 110.00 0.00 1-1 0.00 0.00 01 0789 05 A BRUSSUARD,CHRISTOPHE C 670 565.00 565.00 01 04/02/97 12M 03/31/98 150.00 0.00 1-1 0.00 0.00 01 0790 02 A WRIGHT, LINDA F. C 670 565.00 550.00 01 04/28/90 12M 04/30/98 150.00 0.00 05/97 1-1 0.00 25.00 01 0791 01 A KELLY, AIMEE C 670 565.00 545.00 01 02/01/97 6M 07/31/97 450.00 0.00 1-1 0.00 0.00 01 0792 01 A KAUZLARIC, EDWARD C 670 565.00 560.00 01 11/11/76 12M 03/31/98 100.00 0.00 04/97 1-1 0.00 25.00 01 0793 07 AL VOGEL, RICHARD S. C 670 540.00 520.00 01 11/18/94 M-M 06/30/96 160.00 0.00 03/97 1-1 0.00 20.00 01 0794 01 AL JARMON, JENNIE R. C 670 540.00 520.00 01 03/04/95 12M 02/28/98 160.00 0.00 03/97 1-1 0.00 20.00 01 0795 04 AL DECOSTA, JOSEPH C 670 540.00 470.00 01 07/01/96 12M 06/30/97 100.00 0.00 1-1 0.00 0.00 01 0796 02 AL MARLOW,ANNE C 670 540.00 495.00 01 08/14/96 6M 08/31/97 310.00 0.00 1-1 0.00 0.00 01 0797 FL VACANT 1054 750.00 2-2 01 0798 03 FL SIMPSON, SHANNON C 1054 750.00 695.00 01 06/29/96 6M 08/31/97 100.00 0.00 2-2 0.00 0.00 01 0799 02 B MELLIS,MIKE C 756 605.00 585.00 01 06/01/96 M-M 05/31/97 06/12/97 160.00 0.00 06/97 1-1 07/12/99 0.00 25.00 01 0800 08 B SNEAD/MONTE C 756 605.00 585.00 01 09/09/95 12M 09/30/97 100.00 0.00 10/96 1-1 0.00 10.00 01 0801 01 B SMITH, MABEL C 756 605.00 565.00 01 09/01/85 M-M 03/31/97 60.00 0.00 04/97 1-1 0.00 25.00 01 0802 02 B ALLISON,TERESA C 756 605.00 595.00 01 06/18/97 12M 06/30/98 100.00 0.00 1-1 0.00 0.00 01 0803 01 CL HATTER, PEARL C 850 620.00 570.00 01 06/03/86 12M 09/30/97 60.00 0.00 08/95 2-1 0.00 25.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 10 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0804 03 CL HSIEH, VICTOR C 850 620.00 570.00 01 12/07/96 6M 06/30/97 200.00 0.00 2-1 0.00 0.00 01 0805 01 C HEYMAN,LANRENCE C 850 645.00 615.00 01 04/01/96 M-M 07/31/94 10.00 0.00 04/97 2-1 5.00 0.00 01 0806 01 C GOTTHELF,BRADLEY C 850 645.00 610.00 01 03/26/88 12M 10/31/97 15.00 0.00 11/95 2-1 0.00 15.00 01 0807 02 C ARAVJO/GUAHDIOUE C 850 645.00 625.00 01 06/01/97 6M 11/30/97 100.00 0.00 2-1 0.00 0.00 01 0808 05 C CANTONI, TAMMY C 850 645.00 635.00 01 05/22/97 12M 05/31/98 100.00 0.00 2-1 0.00 0.00 01 0809 01 CL MASON, HERSCHEL C 850 620.00 600.00 01 04/01/81 M-M 01/31/97 210.00 0.00 01/96 2-1 0.00 25.00 01 0810 01 CL WILEY, KEVIN J. C 850 620.00 575.00 01 12/20/94 12M 12/31/97 100.00 0.00 09/95 2-1 0.00 25.00 01 0811 01 A KRESE,JUDITH C 670 565.00 535.00 01 08/11/96 12M 08/31/97 100.00 0.00 1-1 0.00 0.00 01 0812 01 A HOOVER, FRANCIS C 670 565.00 520.00 01 11/04/83 12M 08/31/97 160.00 0.00 09/95 1-1 0.00 25.00 01 0813 01 FL CARLSI, ANGELINE C 1054 750.00 690.00 01 10/08/88 12M 10/31/97 190.00 0.00 11/96 2-2 0.00 25.00 01 0814 09 FL MIKSITS,DAVID C 1054 750.00 735.00 01 06/19/97 12M 06/30/98 100.00 0.00 2-2 0.00 0.00 01 0815 04 A HEASLEY, NILLIAM E. C 670 565.00 535.00 01 08/01/90 12 02/28/98 160.00 0.00 03/97 1-1 01 0816 01 A PERRONE,LISA C 670 565.00 565.00 01 06/01/97 6M 11/30/97 300.00 0.00 1-1 0.00 0.00 01 0817 03 FL CHESHER, MORRIS D. C 1054 750.00 715.00 01 05/09/92 M-M 05/31/93 200.00 0.00 04/97 2-2 0.00 25.00 01 0818 01 FL KAPLAN, MANNY C 1054 750.00 690.00 01 02/04/78 12M 02/28/98 205.00 0.00 03/97 2-2 0.00 25.00 01 0819 03 A STOUT, GEORGE C 670 565.00 545.00 01 07/06/93 M-M 01/31/94 100.00 0.00 03/97 1-1 0.00 10.00 01 0820 07 A YANASAK, ELISIA C 670 565.00 545.00 01 08/01/95 06M 07/31/97 310.00 0.00 03/97 1-1 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 11 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00:1 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0821 05 CL LANDRY, HENRY M/M C 850 620.00 600.00 01 11/01/90 M-M 03/31/97 210.00 0.00 01/96 2-1 0.00 25.00 01 0822 03 CL KELLY, ALICE P C 850 620.00 605.00 01 01/15/91 M-M 07/31/92 200.00 0.00 03/96 2-1 0.00 20.00 01 0823 01 C CHESS, ROSALIND C 850 645.00 575.00 01 05/06/87 12M 02/28/98 10.00 0.00 11/96 2-1 0.00 35.00 01 0824 04 C CASSAVANT, MICHAEL C 850 645.00 595.00 01 08/04/96 06M 11/30/97 110.00 0.00 2-1 0.00 0.00 01 0825 02 C GREEN,LISA C 850 645.00 595.00 01 07/11/96 12M 07/31/97 310.00 0.00 2-1 0.00 0.00 01 0826 01 C FRADKIN,MARI & FLORA C 850 645.00 615.00 01 04/04/96 M-M 04/30/98 200.00 0.00 05/97 2-1 0.00 20.00 01 0827 01 CL BLANCAS, GLORIA C 850 620.00 595.00 01 09/01/88 12M 03/31/98 160.00 0.00 04/97 2-1 0.00 10.00 01 0828 02 CL GUIMBELLOT, MILTON C 850 620.00 570.00 01 07/05/96 12M 08/31/97 100.00 0.00 2-1 0.00 0.00 01 0829 01 B POLLACI, BERTHA C 756 605.00 555.00 01 10/06/79 12M 08/31/97 10.00 0.00 09/96 1-1 0.00 25.00 01 0830 05 B JOUDAH,FADY C 756 605.00 560.00 01 06/12/96 M-M 12/31/96 100.00 0.00 1-1 0.00 0.00 01 0831 B VACANT 756 605.00 1-1 01 0832 8 VACANT 756 605.00 1-1 01 0833 01 FL GRIFFITH,GEORGE/SHIR C 1054 750.00 680.00 01 11/02/96 M-M 05/31/97 200.00 0.00 06/97 2-2 0.00 15.00 01 0834 02 EL JOHNSON,BRIAN/LETICI C 1054 750.00 715.00 01 05/24/96 12M 05/31/98 110.00 0.00 06/97 2-2 0.00 20.00 01 0835 04 A CARRIER, MOLLY C 670 565.00 545.00 01 12/14/93 M-M 01/31/97 100.00 0.00 03/97 1-1 0.00 10.00 01 0836 06 A CABELLO,EZMEE C 670 565.00 56;.00 01 05/23/97 06M 11/30/97 300.00 3.50 1-1 0.00 0.00 1 0837 01 DL GUEST APT. C 930 670.00 670.00 01 02/01/95 M-M 02/28/95 0.00 0.00 03/97 2-1 0.00 20.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 12 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0838 02 DL JENKINS , MR. L MRS. C 930 670.00 645.00 01 08/18/95 M-M 02/28/96 310.00 0.00 04/97 2-1 0.00 10.00 01 0839 01 D MEYER, BECKY C 930 695.00 640.00 01 04/05/76 12M 10/31/97 0.00 0.00 11/96 2-1 0.00 25.00 01 0B40 02 D COHEN, MELVIN C 930 695.00 625.00 01 03/15/91 12M 02/28/98 210.00 0.00 02/94 2-1 0.00 0.00 01 0841 04 F CAPUTO,ROBERT/HARRIE C 1054 750.00 695.00 01 10/09/96 M-M 04/30/97 200.00 0.00 2-2 0.00 0.00 01 0842 04 E NGUYEN, TRACY C 1054 750.00 715.00 01 06/07/93 M-M 12/31/93 100.00 0.00 04/97 2-2 0.00 20.00 01 0843 02 E LEVY,JOSEPH C 1054 750.00 715.00 01 03/16/97 9M 12/31/97 100.00 0.00 2-2 0.00 0.00 01 0844 02 F ALEXANDROV,MR.L MRS. C 1054 750.00 675.00 01 10/01/94 M-M 02/28/97 300.00 0.00 03/97 2-2 0.00 25.00 01 0845 01 D SCHNEIDER, CELE C 930 695.00 635.00 01 12/15/80 12M 02/28/98 10.00 0.00 03/97 2-1 0.00 25.00 01 0846 02 D SCHROEDER,JAMES C 930 695.00 670.00 01 01/19/96 M-M 07/31/96 210.00 0.00 04/97 2-1 0.00 10.00 01 0847 04 DL THAEMAR, ELLEN C 930 670.00 615.00 01 12/10/94 12M 12/31/97 300.00 0.00 03/97 2-1 0.00 10.00 01 0848 01 DL YOUNG, NANCY D. C 930 670.00 615.00 01 04/28/95 M-M 04/30/97 300.00 0.00 05/97 2-1 0.00 25.00 01 0849 A VACANT 670 565.00 1-1 01 0850 02 A GREENMAN, JEFFREY C 670 565.00 565.00 01 03/27/97 12M 03/31/98 450.00 0.00 1-1 0.00 0.00 01 0851 01 J1L GERBER, ESTHER C 936 670.00 635.00 01 04/15/70 M-M 11/30/96 10.00 0.00 03/97 2-1 0.00 20.00 01 0852 02 J1L JOSHI 5/8/97 N 936 670.00 695.00 01 07/05/99 12M 100.00 0.00 2-1 0.00 0.00 01 0852 J1L VACANT 936 670.00 2-1 01 0853 01 J1L MAZOW, HILDA C 936 670.00 635.00 01 02/18/85 12M 02/28/98 20.00 0.00 03/97 2-1 0.00 10.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 13 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0854 02 J1L BAUMGARTNER,KAREN C 936 670.00 650.00 01 10/14/95 M-M 10/31/96 06/03/97 100.00 0.00 2-1 07/02/99 0.00 0.00 01 0855 03 B1 SANDELMAN, REGINA C 798 620.00 600.00 01 03/01/95 12M 02/28/98 160.00 0.00 03/97 1-1 0.00 0.00 1 0856 03 81 SMITH, MARGARET C 798 620.00 600.00 01 10/01/94 M-M 09/30/95 110.00 0.00 10/96 1-1 0.00 25.00 1 0857 02 B1 ADAMS, JACKIE C 798 620.00 610.00 01 05/15/90 12M 02/28/98 170.00 0.00 03/97 1-1 0.00 20.00 1 0858 07 81 BOLDUC,ELIZABETH C 798 620.00 610.00 01 08/04/95 M-M 07/31/96 110.00 0.00 08/96 1-1 0.00 10.00 1 0859 01 J1 ALLMAN, GAYLE C 936 695.00 650.00 01 04/22/87 12M 03/31/98 60.00 0.00 08/96 2-1 0.00 25.00 1 0860 05 J1 LARKIN, A. W., JR. C 936 695.00 640.00 01 10/27/92 12M 02/28/98 200.00 0.00 11/95 2-1 0.00 20.00 1 0861 06 J1L SISCO, BARBARA A. C 936 670.00 650.00 01 01/04/91 M-M 06/30/95 355.00 0.00 04/97 2-1 0.00 15.00 1 0862 03 J1L ROSS, GARRY C 936 670.00 650.00 01 04/28/90 12M 03/31/98 400.00 0.00 04/97 2-1 0.00 15.00 1 0863 01 M1 SODERS LINDA/MELTON C 1240 905.00 810.00 03/11/95 M-M 09/30/96 200.00 0.00 10/96 2-2 0.00 25.00 1 0864 04 M1 REA, HAYNE L. C 1240 905.00 895.00 01 02/10/95 M-M 08/31/95 400.00 0.00 04/97 2-2 0.00 20.00 1 0865 02 M1 ZIGELMAN, LOLA C 1240 905.00 825.00 01 03/11/95 12M 03/31/98 100.00 0.00 04/97 2-2 0.00 15.00 1 0866 05 M1 JONES, DUANA L. C 1240 905.00 850.00 01 08/01/92 12M 07/31/97 210.00 0.00 08/95 2-2 0.00 25.00 1 0867 02 M1 BARRY,VELINDA/JACKIE C 1240 905.00 895.00 01 10/07/89 M-M 05/31/94 210.00 0.00 04/97 2-2 0.00 20.00 01 0868 01 M1 GATZ, DAVID C 1240 905.00 875.00 01 10/28/74 12M 02/28/98 10.00 0.00 03/97 2-2 0.00 0.00 01 0869 02 M1 ESLINGER, ANNE D. C 1240 905.00 875.00 01 09/15/93 12M 02/28/99 110.00 0.00 03/97 2-2 0.00 20.00 01 0870 01 H1 MARKESICH/HAMBLET C 1240 905.00 875.00 02/02/96 12M 02/28/98 110.00 0.00 2-2 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 14 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00:2 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0871 02 B1 BATES, DARDANELLA C 798 620.00 600.00 01 11/09/91 12M 02/28/98 100.00 0.00 03/97 1-1 0.00 25.00 01 0872 03 B1 HOLLINGSWORTH,MICHEL C 798 620.00 610.00 01 07/06/96 12M 07/31/97 300.00 0.00 1-1 0.00 0.00 01 0873 10 B1 SOLOMON,SARAH C 798 620.00 575.00 01 06/15/96 12M 06/30/97 150.00 0.00 1-1 0.00 0.00 01 0874 02 B1 SMITH, GLEN C 798 620.00 600.00 01 04/01/91 12M 09/30/97 150.00 0.00 10/96 1-1 0.00 25.00 01 087S 04 81 HERNDON, FRANCES B. C 79B 620.00 600.00 01 05/24/91 12M 02/28/98 150.00 0.00 03/97 1-1 0.00 25.00 01 0876 06 81 HILDAGO, MANUEL/MARY C 79B 620.00 600.00 01 07/01/95 M-M 06/30/96 110.00 0.00 07/96 1-1 0.00 25.00 01 0877 05 81 ELSTON, MR. & MRS. C 798 620.00 600.00 01 08/06/93 12M 08/31/97 06/01/97 310.00 0.00 10/96 1-1 06/28/99 0.00 25.00 01 0877 06 B1 TESTYON, 6/4/97 N 798 620.00 610.00 01 08/01/99 100.00 0.00 1-1 0.00 0.00 01 0878 01 B1 CARROSQUILLA,MR &MRS C 798 620.00 595.00 01 03/01/97 9M 11/30/97 120.00 0.00 1-1 0.00 0.00 01 0879 04 R1 WARNER,HILDA C 1050 795.00 750.00 01 11/13/95 M-M 11/30/96 110.00 0.00 2-2 0.00 0.00 01 0880 05 R1 KATS,YELENA C 1050 795.00 750.00 01 07/10/93 M-M 07/31/95 110.00 0.00 02/96 2-2 0.00 15.00 01 0881 02 R1 DOSHER, ROYCE A. C 1050 795.00 750.00 01 05/05/90 12M 12/31/97 200.00 0.00 01/96 2-2 0.00 15.00 01 0882 03 R1 CUNDIFF/WHITE N 1050 795.00 775.00 01 07/18/99 12M 150.00 0.00 2-2 0.00 0.00 01 0882 01 VACANT 1050 795.00 2-2 01 0883 02 R1 LEWIS, ABE C 1050 795.00 750.00 01 02/15/90 M-M 03/28/91 210.00 0.00 04/97 2-2 0.00 10.00 01 0884 02 R1 MIRA, ANGELO/MARGORI C 1050 795.00 725.00 01 06/22/96 06M 08/31/97 120.00 0.00 2-2 0.00 0.00 01 0885 01 R1 SAMPSON, EUGENE; M/M C 1050 795.00 725.00 01 05/12/78 12M 09/30/97 40.00 0.00 10/96 2-2 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 15 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0886 01 R1 CORKRAN,STEPHEN/TINA C 1050 795.00 750.00 01 02/11/95 M-M 01/31/98 300.00 0.00 03/96 2-2 0.00 15.00 01 0887 03 R1 VALENZUELA, MR.; MRS C 1050 795.00 750.00 01 04/12/96 0M 10/31/97 110.00 0.00 2-2 0.00 0.00 01 0888 04 R1 OLIVER/DENNIS C 1050 795.00 750.00 01 05/10/97 12M 05/31/98 210.00 0.00 2-2 0.00 0.00 01 0889 02 R1 REED,DANA & ROBERT C 1050 795.00 725.00 01 01/01/97 6M 06/30/97 200.00 0.00 2-2 0.00 0.00 01 0890 02 R1 COLEY/HORTON C 1050 795.00 750.00 01 02/08/97 12M 02/28/98 110.00 0.00 2-2 0.00 0.00 01 0891 02 R1 **BRANDT/JACOBS C 1050 795.00 775.00 01 08/17/95 H-M 09/30/95 0.00 0.00 2-2 0.00 0.00 01 0892 01 R1 XIAMMIN,ZHOU C 1050 795.00 725.00 01 08/10/96 6M 08/31/97 100.00 0.00 2-2 0.00 0.00 01 0893 02 C1 MORAN/HOFSETH C 850 645.00 595.00 01 01/11/97 6M 07/31/97 110.00 0.00 2-1 0.00 0.00 01 0894 06 C1 ACAC ,ROXANNE P. c 850 645.00 615.00 01 05/07/96 M-M 05/31/97 110.00 0.00 06/97 2-1 0.00 20.00 01 0895 01 C1L MCKINNEY,CATHERINE C 850 620.00 595.00 01 03/08/96 M-M 03/31L97 310.00 0.00 2-1 0.00 0.00 01 0896 03 C1L HIOTT, EUNICE C 850 620.00 570.00 01 09/30/96 06M 09/30/97 110.00 0.00 2-1 0.00 0.00 01 0897 03 C1L **MODEL-2-1 C 850 620.00 635.00 01 06/01/92 M-M 06/30/92 00.00 0.00 2-1 0.00 0.00 01 0898 03 C1L LAM, TONY C 850 620.00 585.00 01 08/24/91 M-M 08/31/92 110.00 0.00 03/97 2-1 0.00 5 00 01 0899 02 R1 LEVA, ROSE C 1050 795.00 750.00 01 04/19/91 12M 12/31/97 210.00 0.00 01/96 2-2 0.00 15.00 01 0900 01 R1 HERNANDEZ,RUDY C 1050 795.00 725.00 01 08/10/96 12M 08/31/97 120.00 0.00 2-2 0.00 0.00 01 0901 01 R1 LANGHAM, EARL C 1050 795.00 750.00 01 06/17/72 M-M 04/30/97 0.00 775.00- 01/96 2-2 0.00 15.00 01 0902 02 R1 GUTLERREZ 5/31/97 N 1050 795.00 795.00 01 06/28/99 0.00 0.00 2-2 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 16 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0902 R1 VACANT 1050 795.00 2-2 01 0903 01 R1 WHITE, MARTISHIA C 1050 795.00 750.00 01 05/04/73 12M 03/31/99 10.00 0.00 04/97 2-2 0.00 15.00 01 0904 02 R1 **ZAMORA,MANNY C 1050 795.00 775.00 01 04/01/97 M-M 04/30/97 0.00 0.00 2-2 0.00 0.00 01 0905 05 R1 SOMMA,KAREN& RICHARD C 1050 795.00 725.00 01 01/10/97 12M 01/31/98 100.00 0.00 2-2 0.00 0.00 01 0906 02 R1 CLARK,ELIZABETH C 1050 795.00 750.00 01 05/03/97 12M 05/31/98 260.00 0.00 2-2 0.00 0.00 01 0907 03 R1 KURANOFF, EVELYN C 1050 795.00 750.00 01 01/10/93 12M 01|31/98 0.00 0.00 02/96 2-2 0.00 0.00 15.00 01 0908 02 R1 BROWN 6/20/97 N 1050 795.00 795.00 01 07/11/99 12M 0.00 0.00 2-2 0.00 0.00 01 0908 R1 VACANT 1050 795.00 2-2 01 0909 01 R1 HAWKINS, EZELLE C 1050 795.00 725.00 01 12/11/74 12M 02/28/98 10.00 0.00 03/96 2-2 0.00 25.00 01 0910 01 R1 COTLAR-LEVY,CHERI C 1050 795.00 725.00 01 07/30/96 12M 07/31/97 100.00 0.00 2-2 0.00 0.00 01 0911 04 H1 **HANEY,JOHN & CAROL C 1440 1250.00 1225.00 01 01/17/97 M-M 02/28/97 0.00 0.00 3-2 0.00 0.00 01 0912 04 H1 MCKELROY, WM. G/JOY C 1440 1250.00 1200.00 01 05/25/91 12M 09/30/97 470.00 0.00 06/94 3-2 0.00 100.00 01 0913 01 K WALKER, MARGARET C 1120 850.00 795.00 01 08/22/70 12M 09/30/97 10.00 0.00 10/96 2-2 0.00 10.00 01 0914 02 K1 EDWARDS, JACQUELYN C 1120 850.00 815.00 01 03/02/90 M-M 07/31/96 210.00 0.00 04/97 2-2 0.00 15.00 01 0915 04 K1 DAVIS, MYRA (SUNNY) C 1120 850.00 795.00 01 07/29/93 12M 10/31/97 210.00 0.00 09/96 2-2 0.00 10.00 01 0916 07 K1 MULVANEY,CLIFF/JUDY C 1120 850.00 815.00 01 03/2B/97 9M 12/31/97 350 00 0.00 2-2 0.00 0.00 01 0917 02 K1 ABRAHAMS, SUE C 1120 850.00 795.00 01 07/07/95 12M 07/31/97 110.00 0.00 08/96 2-2 0.00 10.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 17 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0918 05 K1 WAGNER, LISA C 1120 850.00 795.00 01 10/05/96 12M 10/31/97 100.00 0.00 2-2 0.00 0.00 01 0919 01 K1 EISEN, LOUIS; M/M C 1120 850.00 815.00 01 04/10/73 12M 03/31/99 10.00 0.00 04/97 2-2 0.00 15.00 01 0920 03 [1 SMITH, Z 6/10/97 N 1120 850.00 850.00 01 07/01/99 0.00 0.00 2-2 0.00 0.00 01 0920 K1 VACANT 1120 850.00 2-2 01 0921 01 K1 GREENE, LUCILLE C 1120 850.00 815.00 01 11/26/85 12M 03/31/98 60.00 0.00 04/97 2-2 0.00 15.00 01 0922 02 K1 SMITH, LEE & LYNNE C 1120 850.00 815.00 01 08/17/91 12M 03/31/98 420.00 0.00 04/97 2-2 0.00 15.00 01 0923 01 K1 **NOB HILL SO/EA DFF C 1120 850.00 835.00 01 05/01/78 M-M 05/31/78 0.00 0.00 05/92 2-2 0.00 20.00 01 0924 01 K1 FELDHUSAN, MARGARET C 1120 850.00 795.00 01 06/22/96 12M 06/30/97 110.00 0.00 2-2 0.00 0.00 01 0925 01 K1 JONES/ROSS C 1120 850.00 750.00 01 02/08/95 M-M 02/28/96 0.00 0.00 03/97 2-2 0.00 25.00 01 0926 02 K1 WU,SCOT & XUE,JANE C 1120 850.00 815.00 01 02/24/96 M-M 02/28/97 200.00 0.00 04/97 2-2 0.00 0.00 01 0927 02 J1 CHEN, PATRICK/CHENG C 936 695.00 695.00 01 06/14/97 06M 12/31/97 110.00 0.00 2-1 0.00 0.00 01 0928 05 J1 COGAN,SALLY C 936 695.00 650.00 01 10/07/95 12M 10/31/97 110.00 0.00 2-1 0.00 0.00 01 0929 01 81 FRIEDERMAN, IRENE C 798 620.00 600.00 01 08/06/83 12M 02/28/98 10.00 0.00 03/97 1-1 0.00 25.00 01 0930 07 81 CARTER,LARRY C 798 620.00 595.00 01 02/15/97 12M 02/28/98 160.00 0.00 1-1 0.00 0.00 01 0931 02 B1 WEINZEL,DAISY C 798 620.00 610.00 01 05/15/97 12M 05/31/98 100.00 0.00 1-1 0.00 0.00 01 0932 01 B1 KOGEN, FRED C 798 620.00 610.00 01 08/01/82 M-M 02/28/91 160.00 0.00 03/97 1-1 200.00 10.00 01 0933 03 91 BAILEY,LULA MAY C 798 620.00 610.00 01 06/14/97 12M 06/30/98 100.00 0.00 1-1 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 18 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0934 01 C1 STEINMAN, DIANA C 850 645.00 620.00 01 06/03/82 M-M 02/28/97 210.00 0.00 03/96 2-1 0.00 25.00 01 0935 01 B1 GOLDFARB, ROSE C 798 620.00 600.00 01 03/01/78 12M 10/31/97 10.00 0.00 11/96 1-1 0.00 25.00 01 0936 02 B1 SHAFFER, TINA C 798 620.00 610.00 01 09/01/94 M-M 11/30/96 110.00 0.00 03/97 1-1 0.00 10.00 01 0937 01 B1 RUDIN, ZELDA C 798 620.00 575.00 01 06/15185 12M 02/28/98 60.00 0.00 03/97 1-1 0.00 25.00 01 0938 01 B1 SHAPIRO, LILLY C 798 620.00 535.00 01 07/15/71 12M 07/31/97 0.00 0.00 08/96 1-1 0.00 25.00 01 0939 03 81 TATE,BETH C 798 620.00 595.00 01 03/08/97 12M 03/31/98 110.00 0.00 1-1 0.00 0.00 01 0940 02 B1 STEINBERGER, SALLY C 798 620.00 610.00 01 12/16/91 12M 02/28/98 110.00 0.00 03/97 1-1 0.00 10.00 01 0941 06 J1 JOHNSON,MIRNA&KEITH C 936 695.00 675.00 01 04/01/97 12M 03/31/98 100.00 0.00 2-1 0.00 0.00 01 0942 02 J1 OSTERLOH, BEVERLY C 936 695.00 660.00 01 01/18/92 12M 02/28/98 110.00 0.00 03/97 2-1 0.00 10.00 01 0943 05 R1 MROUE,MOUSSA C 1050 795.00 750.00 01 06/06/97 12M 06/30/98 110.00 750.00 2-2 0.00 0.00 01 0944 02 R1 WESTERGREN/JONES N 1050 795.00 775.00 01 06/28/99 12M 100.00 0.00 2-2 0.00 0.00 01 0944 R1 VACANT 1050 795.00 2-2 01 0945 03 R1 KOROT, BELLE C 1050 795.00 725.00 01 12/22/90 12M 08/31/97 200.00 0.00 09/95 2-2 0.00 30.00 01 0946 04 R1 KRUGLIAK, ZINOVY C 1050 795.00 725.00 01 10/14/96 06M 10/31/97 100.00 0.00 2-2 0.00 0.00 01 0947 09 R1 NIEDERMAN,DAVID&TWEE C 1050 795.00 725.00 01 08/10/96 06M 08/31/97 100.00 0.00 2-2 0.00 0.00 01 0948 01 R1 NANAN,DAVE&DONNA C 1050 795.00 750.00 01 01/25/97 9M 10/31/97 110.00 0.00 2-2 0.00 0.00 01 0949 01 R1 COPLAND, LESTER; M/M C 1050 795.00 640.00 01 11/05/76 M-M 11/30/96 10.00 0.00 03/95 2-2 0.00 25.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 19 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTH/EAST SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0950 01 R1 SATRE,STANLEY/BEV C 1050 795.00 725.00 01 09/01/96 M-M 02/28/97 310.00 0.00 2-2 0.00 0.00 01 0951 01 R1 FROMBERG MR./MRS. C 1050 795.00 750.00 01 09/07/89 12M 03/31/98 210.00 0.00 04/97 2-2 0.00 10.00 01 0952 04 R1 SANDLER/STEWART N 1050 795.00 775.00 01 07/25/99 100.00 0.00 2-2 0.00 0.00 01 0952 R1 VACANT 1050 795.00 2-2 01 0953 06 R1 PAIS, MR. & MRS. C 1050 795.00 750.00 01 09/10/94 12M 03/31/98 110.00 0.00 04/97 2-2 0.00 20.00 01 0954 01 R1 HOFFMAN, CARY C 1050 795.00 750.00 01 11/18/77 M-M 06/30/98 220.00 0.00 03/96 2-2 0.00 10.00 01 0955 05 R1 TREVINO/MELENDEZ C 1050 795.00 750.00 01 04/04/97 9M 01/31/98 110.00 0.00 2-2 0.00 0.00 01 0956 01 R1 RUSSELL, MARJORIE C 1050 795.00 725.00 01 07/01/96 12M 06/30/97 110.00 0.00 2-2 0.00 0.00 01 0957 01 R1 COOK, LAJANIE C 1050 795.00 750.00 01 05/04/96 M-M 05/31/97 300.00 0.00 2-2 0.00 0.00 01 0958 01 R1 GAREY/NAVIN C 1050 795.00 735.00 01 07/01/95 12M 07/31/97 120.00 0.00 2-2 0.00 0.00 01 0959 01 J1L TYSER, ERED/EVELYN C 936 670.00 620.00 01 08/02/88 12M 09/30/97 60.00 0.00 10/96 2-1 0.00 15.00 01 0960 01 J1L LECLAIR/MCGRAW C 936 670.00 635.00 01 06/21/96 M-M 03/31/97 110.00 0.00 2-1 0.00 0.00 01 0961 07 J1L STALAROW, GLORIA C 936 670.00 635.00 01 03/01/96 12M 02/28/98 110.00 0.00 2-1 0.00 0.00 01 0962 04 J1L FRANKLIN/SIMON,JOANN C 936 670.00 660.00 01 10/04/96 12M 10/31/97 110.00 0.00 2-1 0.00 0.00 01 0963 02 R1 EICHEM, R0BERT M/M C 1050 795.00 750.00 01 04/29/91 12M 04/30/98 400.00 0.00 05/96 2-2 0.00 15.00 01 0964 02 R1 GARRETT,LAURA C 1050 795.00 750.00 01 02/22/97 12M 02/28/98 210.00 0.00 2-2 0.00 0.00 01 0965 01 R1 ARNOLD, NANCY C 1050 795.00 750.00 01 04/08/81 M-M 02/28/97 210.00 0.00 03/96 2-2 0.00 10.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 20 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00:37 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C><C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0966 03 R1 MILLS,MELVYN&BOBBIE C 1050 795.00 725.00 01 11/08/96 12M 11/30/97 210.00 0.00 2-2 0.00 0.00 01 0967 01 J1 KELSO, EDITH C 936 695.00 660.00 01 12/21/87 12M 02/28/98 60.00 0.00 03/97 2-1 0.00 20.00 01 0968 02 J1 SELF, RACHEL C 936 695.00 660.00 01 07/05/96 M-M 01/31/97 500.00 0.00 2-1 0.00 0.00 01 0969 01 J1 BROWN, MARY C 936 695.00 635.00 01 04/15/83 12M 06/30/97 210.00 0.00 07/96 2-1 0.00 10.00 01 0970 03 J1 GORELIK,SVETLANA C 936 695.00 695.00 01 05/30/97 6M 11/30/97 200.00 0.00 2-1 0.00 0.00 01 0971 02 R1 EPTING, H. W. C 1050 795.00 750.00 01 07/01/90 12M 03/31/98 210.00 0.00 04/97 2-2 0.00 10.00 01 0972 01 R1 YANDELL, GALE J. C 1050 795.00 745.00 01 03/03/95 M-M 03/31/96 510.00 0.00 04/97 2-2 0.00 25.00 01 0973 01 C1 MASSEY, FLORINNE C 850 645.00 615.00 01 09/20/88 24M 03/31/99 170.00 0.00 04/97 2-1 0.00 0.00 01 0974 02 C1 DELEON / SCHMIDT C 850 645.00 615.00 01 10/09/94 M-M 05/31/97 100.00 0.00 06/97 2-1 0.00 5.00 01 0975 03 C1 SHILOW/BOYCE C 850 645.00 595.00 01 11/02/96 M-M 05/31/97 200.00 0.00 2-1 0.00 0.00 01 0976 03 C1 CHOW, CHRISTINE C 850 645.00 595.00 01 08/03/96 12M 08/31/97 110.00 0.00 2-1 0.00 0.00 01 0977 01 C1 GROTSKY, ROSE C 850 645.00 615.00 01 03/31/77 12M 05/31/98 100.00 0.00 06/97 2-1 0.00 0.00 01 0978 03 C1 SHAFRANIK/STOVBUN N 850 645.00 635.00 01 07/01/99 06M 0.00 0.00 2-1 0.00 0.00 01 0978 C1 VACANT 850 645.00 2-1 01 0979 01 C1 MONTY, CLAIRE C 850 645.00 595.00 01 11/23/85 12M 02/28/98 60.00 0.00 03/97 2-1 0.00 10.00 01 0980 02 C1 ELHENNAWY ADEL/SALLY C 850 645.00 615.00 01 04/07/95 12M 03/31/98 110.00 0.00 04/97 2-1 0.00 20.00 01 0981 03 R1 MITCHELL, PAULA C 1050 795.00 725.00 01 09/14/96 M-M 03/31/97 300.00 0.00 2-2 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 21 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00:40 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0982 02 R1 LAI,ALBERT & EMILY C 1050 795.00 725.00 01 08/13/96 6M 08/31/97 100.00 0.00 2-2 0.00 0.00 01 0983 01 B1 HEARD, MABEL C 798 620.00 590.00 01 07/15/89 12M 02/28/98 10.00 0.00 03/97 1-1 0.00 25.00 01 0984 04 B1 TAYLOR,JANET C 798 620.00 610.00 01 10/11/96 12M 10/31/97 110.00 0.00 1-1 0.00 0.00 01 0985 02 B1 **SALAMON,BILL&MRS. C 798 620.00 610.00 01 08/17/90 M-M 11/30/96 160.00 0.00 10/96 1-1 0.00 0.00 01 0986 04 81 HUFF, MICHAEL C 798 620.00 600.00 01 10/30/93 12M 02/28/98 150.00 0.00 03/97 1-1 0.00 25.00 01 0987 03 B1 BURNSIDE,ROBBIE C 798 620.00 620.00 01 06/11/97 6M 12/31/97 460.00 0.00 1-1 0.00 0.00 01 0988 01 B1 TATE, HOWARD; M/M C 798 620.00 610.00 01 04/11/87 M-M 02/28/97 100.00 0.00 03/97 1-1 0.00 10.00 01 0989 02 B1 FABIAN, JEAN C 798 620.00 600.00 01 08/15/90 12M 08/31/97 160.00 0.00 10/96 1-1 0.00 25.00 01 0990 01 B1 DWYER, SHANNON C 798 620.00 595.00 01 03/01/97 12M 02/28/98 110.00 0.00 1-1 0.00 0.00 01 0991 06 B1 LEVIT, ABRAHAM C 798 620.00 610.00 01 06/27/93 M-M 12/31/93 100.00 0.00 03/97 1-1 0.00 10.00 01 0992 02 B1 KAPLAN,RANDY C 798 620.00 600.00 01 09/01/95 M-M 05/31/97 150.00 0.00 1-1 0.00 0.00 01 0993 01 B1 POEN/BENIVIDES C 798 620.00 595.00 01 03/29/97 9M 12/31/97 100.00 0.00 1-1 0.00 0.00 01 0994 05 B1 PUDWILL, MARK C 798 620.00 610.00 01 06/15/97 12M 06/30/97 100.00 0.00 1-1 0.00 0.00 01 0995 02 B1 BRUSEGAARD,KATE C 798 620.00 595.00 01 11/14/90 12M 02/28/98 180.00 0.00 03/97 1-1 0.00 25.00 01 0996 01 B1 SCHLOSSBERG, AL C 798 620.00 590.00 01 07/21/82 12M 02/28/98 150.00 0.00 03/97 1-1 0.00 0.00 01 0997 01 B1 HOROWITZ, LILLIE C 1120 850.00 805.00 01 06/01/86 12M 03/31/98 0.00 0.00 04/97 2-2 0.00 5.00 01 0998 05 K1 BEARD/STEPHENS C 1120 850.00 815.00 01 03/27/97 12M 03/31/98 100.00 0.00 2-2 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 22 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 12 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00:43 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 0999 02 K1 MILLER, MR. & MRS. C 1120 850.00 795.00 01 06/15/92 12M 09/30/97 10.00 0.00 10/96 2-2 0.00 0.00 01 1000 02 K1 MANNING, ROBERT J. C 1120 850.00 815.00 01 03/15/97 06M 09/30/97 210.00 0.00 2-2 0.00 0.00 01 1001 02 K1 **SCHAMBERGER,SUE/JO C 1120 850.00 835.00 01 02/15/93 M-M 03/31/93 10.00 0.00 2-2 0.00 0.00 01 1002 01 K1 URBINA,TERRI & JAMES C 1120 850.00 795.00 01 07/15/96 12M 07/31/97 210.00 422.50 2-2 0.00 0.00 01 1003 02 K1 REQUENES,CIELO,ALMA C 1120 850.00 815.00 01 12/18/90 M-M 03/31/98 210.00 815.00- 04/97 2-2 0.00 15.00 01 1004 01 K1 BENTLEY, MARION E. C 1120 850.00 795.00 01 12/10/94 M-M 12/31/95 100.00 0.00 03/97 2-2 0.00 20.00 01 1005 04 M1 SCHILLING, MR. & MRS C 1240 905.00 875.00 01 04/09/92 M-M 04/30/94 120.00 0.00 03/96 2-2 0.00 10.00 01 1006 04 M1 ROMOFF, MERILYN C 1240 905.00 895.00 01 04/15/97 12M 04/30/98 210.00 0.00 2-2 0.00 0.00 01 1007 06 M1 CARSCH, KURT/MARILYN C 1240 905.00 875.00 01 10/22/93 12M 02/28/99 110.00 0.00 03/97 2-2 0.00 10.00 01 1008 01 M1 FRIEDMAN, FAYE C 1240 905.00 875.00 01 09/16/69 M-M 11/30/96 10.00 0.00 04/97 2-2 0.00 25.00 01 1009 03 M1 MANN,JERRY & MARILYN C 1240 905.00 895.00 01 05/01/97 12M 04/30/98 100.00 0.00 2-2 0.00 0.00 01 1010 04 M1 RUFF, SUSAN C 1240 905.00 875.00 01 11/01/96 12M 10/31/97 220.00 0.00 2-2 0.00 0.00 01 1011 03 M1 **NAIZER, TIM/CARRIE C 1240 905.00 905.00 01 06/15/96 M-M 07/31/96 20.00 0.00 2-2 0.00 0.00 01 1012 04 M1 COX/WESTFALL,LORI C 1240 905.00 895.00 01 10/13/95 12M 03/31/98 220.00 0.00 04/97 2-2 0.00 20.00 01 1013 01 M1 BENDER, LIBBY C 1240 905.00 845.00 01 09/01/69 126 09/30/97 10.00 2,112.50- 10/96 2-2 0.00 25.00 01 1014 09 M1 BEATY/ZISKROUT C 1240 905.00 905.00 01 06/19/97 06M 12/31/97 100.00 0.00 2-2 0.00 0.00 01 1015 01 M1 BADASH, HERMAN; M/M C 1240 905.00 875.00 01 10/06/78 12M 02/28/98 195.00 0.00 03/97 2-2 0.00 10.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 23 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 09:00:46 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 1016 04 M1 COLACITO,GENE/BEVERL C 1240 905.00 875.00 01 09/20/92 M-M 10/31/96 310.00 0.00 11/96 2-2 0.00 10.00 01 1017 01 M1 MERSON, PEARL C 1240 905.00 850.00 01 06/25/71 12M 06/30/97 10.00 425.00- 07/94 2-2 01 1018 04 M1 **PHILLIPS, SUSAN C 1240 905.00 905.00 01 12/15/92 M-M 01/31/93 10.00 0.00 2-2 0.00 0.00 01 1019 02 M1 MILLS, JOHN A. C 1240 905.00 895.00 01 03/24/97 12M 03/31/98 110.00 0.00 2-2 0.00 0.00 01 1020 03 M1 **BATSON,PEGGY/BOYCE C 1240 905.00 905.00 01 03/25/95 M-M 04/30/95 10.00 0.00 08/95 2-2 0.00 25.00 01 1021 07 M1 WILLIS, JOHN/JANET C 1240 905.00 875.00 01 06/21/96 12M 06/30/97 120.00 0.00 2-2 0.00 0.00 01 1022 01 M1 SANTANA/RIOS C 1240 905.00 895.00 01 06/01/94 M-H 06/30/95 06/05/97 120.00 0.00 04/97 2-2 07/05/99 0.00 20.00 01 1022 02 M1 EFRAT 6/16/97 N 1240 905.00 905.00 01 08/05/99 200.00 0.00 2-2 0.00 0.00 01 1023 01 M1 **BARRON, BARBARA C 1240 905.00 905.00 01 12/12/97 M-M 01/31/88 0.00 0.00 05/92 2-2 0.00 20.40 01 1024 07 M1 GREENBERG-MAERSCH C 1240 905.00 895.00 01 06/06/97 12M 06/30/98 110.00 0.00 2-2 0.00 0.00 TOTAL CURRENT RESIDENTS 49, 570.96 8,933.50- 200.00 TOTAL PREVIOUS RESIDENTS 0.00 0.00 0.00 TOTAL PROJECT 337,616 231,165.00 49, 570.96 8,933.50- 257,055.00 200.00 TOTAL #UNIT 370 GROSS POSSIBLE INCOME 244,970.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 1 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 00:48:58 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 101 03 D **MATHIS. EVA C 1240 905.00 905.00 01 04/01/94 M-M 04/30/94 0.00 0.00 2/2 01 102 04 D CUCCIA/CANTU L N 1240 905.00 895.00 01 07/01/99 200.00 0.00 2/2 0.00 0.00 Q1 102 D VACANT 1240 905.00 2/2 0.00 0.00 01 103 01 D SINTON, WALTER C 1240 905.00 875.00 01 11/15/83 12M 10/31/97 10.00 0.00 11/95 2/2 0.00 0.00 Q1 104 01 D VAN TRAIN, ELEANOR C 1240 905.00 875.00 01 06/15/85 1YR 03/31/98 60.00 7,900.00- 04/96 2/2 0.00 0.00 01 105 01 D HARDEN, ROBERT C 1240 905.00 850.00 01 08/01/94 M-M 08/31/97 320.00 0.00 09/95 2/2 0.00 0.00 01 106 01 D VERMA, AVINSH C 1240 905.00 850.00 01 08/17/96 9M0 05/31/98 100.00 0.00 2/2 0.00 0.00 01 107 01 D ROSS, JULES C 1240 905.00 815.00 01 07/03/89 M-M 11/30/97 210.00 0.00 01/96 2/2 0.00 25.00 01 108 01 D FOUX, ANGELA N C 1240 905.00 850.00 01 06/02/95 12M 06/30/96 06/18/97 100.00 0.00 11/96 2/2 07/19/99 0.00 0.00 01 108 02 D GILLIS PL N 1240 905.00 895.00 01 08/01/99 0.00 0.00 2/2 0.00 0.00 01 109 05 D BROCATO, NOLA M. C 1240 905.00 850.00 01 02/25/95 12M 02/28/98 110.00 0.00 03/96 2/2 0.00 0.00 01 110 02 D VEGA/HERRERA C 1240 905.00 895.00 01 06/05/97 9M0 03/31/98 100.00 0.00 2/2 0.00 0.00 02 111 03 D GOLDEN 0. E. C 1240 905.00 875.00 01 07/15/92 M-M 05/30/95 260.00 0.00 03/96 2/2 0.00 10.00 02 112 04 D NATES, JOSEPH C 1240 905.00 850.00 01 02/01/97 6MT 07/31/97 110.00 0.00 2/2 0.00 0.00 02 113 01 D MARCOE, SANDRA C 1240 905.00 875.00 01 02/06/83 12M 03/31/98 210.00 0.00 02/96 2/2 0.00 25.00 02 114 02 D SOMPALASIN, SIRAPORN C 1240 905.00 850.00 01 11/30/96 6MT 05/31/97 200.00 0.00 2/2 0.00 0.00 02 115 02 D THOMAS, JULIAN/FRANC C 1240 905.00 875.00 01 09/16/95 12M 10/31/97 300.00 0.00 2/2 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 2 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 00:49:54 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 02 116 02 D ANTONACCI, VINCENT N 1240 505.00 850.00 01 10/31/97 6M0 04/30/97 220.00 0.00 05/97 2/2 0.00 0.00 02 116 D VACANT 1240 905.00 2/2 02 117 03 D SNEAD, ROSIE C 1240 905.00 845.00 01 09/19194 12M 05/31/98 210.00 0.00 04/96 2/2 0.00 0.00 02 118 03 D BLUMFIELD,RICHARD C 1240 905.00 845.00 01 01/18/95 12M 02/28/98 110.00 0.00 03/97 2/2 0.00 0.00 02 119 01 D SIMON, RUTH C 1240 905.00 850.00 01 11/05/85 12M 10/31/97 70.00 0.00 11/96 2/2 0.00 0.00 02 120 02 D MARASEK, PEGGY C 1240 905.00 895.00 01 05/20/97 12M 05/31/98 410.00 0.00 2/2 0.00 0.00 02 121 02 D BEJAR, JACOBO/SARA C 1240 905.00 875.00 01 11/29/92 12M 06/30/97 110.00 0.00 06/94 2/2 0.00 0.00 02 122 02 D MATHEW, PAUL C 1240 905.00 875.00 01 05/20/97 6MO 11/30/97 100.00 0.00 2/2 0.00 0.00 03 123 01 B-L CUSICK/COX D 1066 770.00 695.00 01 04/08/95 1YR 05/31/97 05/08/97 200.00 24.00 06/97 212 06/09/97 0.00 0.00 03 123 02 B-L RAMSEY, L N 1066 770.00 750.00 01 06/20/99 100.00 0.00 2/2 0.00 0.00 03 123 B-L VACANT 1066 770.00 2/2 03 124 01 B-L GUILLORY, MARY C 1066 770.00 720.00 01 09/01/86 M-M 01/31/91 60.00 0.00 11/96 2/2 0.00 0.00 03 125 04 B-L MATACHINSKAS, JOESPH C 1066 770.00 725.00 01 03/08/97 6M0 09/30/97 220.00 0.00 2/2 0.00 0.00 G3 126 01 8-L WINAKER/RUBENSTEIN C 1066 770.00 695.00 01 08/01/96 1YR 07/31/97 120.00 0.00 2/2 0.00 0.00 03 127 03 8-L GUARDIOLA, GLORIA C 1066 770.00 695.00 01 10/14/9S 1YR 10/31/97 100.00 0.00 2/2 0.00 0.00 03 128 06 B-L CORDRAY, ROBERT C 1066 770.00 725.00 01 04/03/97 12M 04/30/98 360.00 0.00 2/2 0.00 0.00 03 129 04 8 LASSITER/HAUDE C 1066 795.00 695.00 01 11/27/96 6M0 05/31/97 220.00 0.00 2/2 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 3 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 00:50:47 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 03 130 02 8 CHAPPUIS, JACOUELINE C 1066 795.00 695.00 01 07/20/96 1YR 07/31/97 100.00 695.00- 2/2 0.00 0.00 03 131 02 B-L URMAN, NATHAN C 1066 770.00 695.00 01 07/20/96 1YR 07/31/97 10.00 0.00 2/2 0.00 0.00 03 132 02 8-L HOELSCHER, DANIEL C 1066 770.00 695.00 01 08/23/96 6MT 08/31/97 100.00 0.00 2/2 0.00 0.00 03 133 05 B-L HOWARD/LEACH C 1066 770.00 695.00 01 07/13/96 6MT 01/31/97 110.00 0.00 2/2 0.00 0.00 03 134 01 B-L NYTHE, FRANCES ET AL C 1066 770.00 695.00 01 09/02/92 M-M 01/31/98 220.00 0.00 10/95 2/2 0.00 0.00 04 135 01 B-L DIAMOND, SANDRA C 1066 770.00 695.00 01 05/21/93 12M 06/30/97 30.00 0.00 06/94 2/2 0.00 0.00 04 136 07 B-L BAUMGARDNER, BRIGITT C 1066 770.00 695.00 01 10/01/96 6MT 03/31/98 110.00 0.00 2/2 0.00 0.00 G4 137 05 B-L WARD, L N 1066 770.00 775.00 01 06/29/97 12M 200.00 0.00 2/2 0.00 0.00 04 137 9-L VACANT 1066 770.00 2/2 04 138 03 8-L ROSS, DAVID/MARTA C 1066 770.00 695.00 01 08/10/96 1YR 02/28/98 100.00 0.00 2/2 0.00 0.00 04 139 03 B SCARBOROUGH, GRAYCE C 1066 795.00 725.00 01 02/18/91 6M0 05/31/98 210.00 0.00 06/97 2/2 0.00 0.00 04 140 02 B KOBA, RMAL/ILYAS C 1066 795.00 725.00 01 12/30/94 12M 12/31/96 200.00 0.00 03/97 2/2 0.00 25.00 04 141 05 B DOCZ, NANCY C 1066 795.00 695.00 01 06/28/92 12M 07/31/97 210.00 0.00 07/94 2/2 0.00 0.00 04 142 03 B DUPRE/DUYGULU C 1066 795.00 725.00 01 09/28/96 1YR 09/30/97 200.00 0.00 2/2 0.00 0.00 04 143 10 B FISHER/LUNDY C 1066 795.00 750.00 01 05/01/97 9MT 01/31/98 500.00 0.00 2/2 0.00 0.00 04 144 02 B AHMAD, NODRUSSAHAR C 1066 795.00 725.00 01 07/27/96 6MT 07/31/97 100.00 0.00 2/2 0.00 0.00 04 145 07 B COOPER,FRANCES/ANNE C 1066 795.00 750.00 01 07/20/95 12M 10/31/97 520.00 0.00 05/97 2/2 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 4 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 00:51:40 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 04 146 06 B ELIAS, MAZIN C 1066 795.00 745.00 01 04/19/95 12M 04/30/97 100.00 0.00 05/97 2/2 0.00 0.00 05 147 01 B **MCILLWAIN, GINA C 1066 795.00 795.00 01 02/08/97 M/M 03/31/97 0.00 0.00 2/2 0.00 0.00 05 148 01 B ARMSTRONG, NAOMI C 1066 795.00 720.00 01 02/01/88 M-M 11/30/95 98.00 0.00 12/93 2/2 200.00 0.00 05 149 02 B LORENZ,CLAIR/JOHN C 1066 795.00 720.00 01 03/01/96 1YR 08/30/97 200.00 0.00 03/97 2/2 0.00 0.00 05 150 03 B PARK/COHEN C 1066 795.00 750.00 01 05/09/97 1YR 05/31/98 100.00 0.00 2/2 05 151 01 B VARTERESSIAN, V. C 1066 795.00 695.00 01 03/31/87 12M 10/31/97 60.00 0.00 10/95 2/2 200.00 0.00 05 152 06 B NIVARTHI, SRIRAM C 1066 795.00 750.00 01 03/01/97 6MT 0B/31/97 110.00 0.00 2/2 0.00 0.00 05 153 01 B KIRK, GREG0RY C 1066 795.00 720.00 01 07/01/86 M-M 04/30/98 240.00 0.00 05/97 2/2 0.00 0.00 05 154 02 B LVOVSKY, OLEG C 1066 795.00 695.00 01 06/29/96 12M 06/30/97 120.00 0.00 2/2 0.00 0.00 06 155 01 A-L GOINS, ELAINE C 900 675.00 645.00 01 10/21/81 M-M 04/30/82 200.00 0.00 03/96 2/1 0.00 10.00 06 156 01 A-L WASHINGTON, GLADYS C 900 675.00 645.00 01 07/01/83 12M 02/28/98 210.00 0.00 02/96 2/1 0.00 20.00 O6 157 01 A-L FRANZETTI, PAUL C 900 675.00 645.00 01 05/12/96 1YR 05/31/98 210.00 0.00 06/97 2/1 0.00 20.00 06 158 01 Q-L SPENCER/COKER C 900 675.00 645.00 01 08/16/95 12M 02/28/97 210.00 0.00 03/96 2/1 0.00 10.00 06 159 04 Q-L WAGSTAFF, MARK C 900 675.00 675.00 01 05/23/97 9M0 02/28/98 100.00 0.00 2/1 0.00 0.00 06 160 05 Q-L JACKSON, BOBBIE C 900 675.00 625.00 01 10/01/95 1YR 10/31/97 110.00 0.00 2/1 06 161 02 A-L KAPLAN, HELEN C. C 900 675.Q0 625.00 01 07/19/90 12M 10/31/97 210.00 0.00 09/95 2/1 0.00 0.00 06 162 03 Q-L CALDARERA,SAM C 900 675.00 625.00 01 03/10/90 12M 08/31/97 370.00 0.00 06/94 2/1 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 5 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 00:52:34 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 06 163 01 A-L DEES,ASA & PATRICIA C 900 675.00 645.00 01 05/01/74 12M 03/31/98 0.00 0.00 03/96 2/1 0.00 10.00 06 164 04 A-L BUSCEMI, KAY/ALBINO C 900 675.00 625.00 01 01/31/97 1YR 01/31/98 110.00 0.00 2/1 0.00 0.00 07 165 05 A-L WILLIAMS, EDWARD C 900 675.00 645.00 01 04/27/91 12M 04/30/98 270.00 0.00 05/97 2/1 0.00 0.00 07 166 07 4-L FAN/PAN C 900 675.00 645.00 01 05/10/97 6MT 11/30/97 100.00 0.00 2/1 0.00 0.00 07 167 01 A-L WILKES, VICTOR C 900 675.00 620.00 01 01/28/7B 12M 04/30/97 0.00 0.00 05/97 2/1 0.00 0.00 07 168 02 A-L SULLIVAN, LISA C 900 675.00 625.00 01 09/11/96 1YR 09/30/97 310.00 0.00 2/1 0.00 0.00 07 169 01 A-L ZWILLING, ELIZABETH C 900 675.00 600.00 01 02/04/81 12M 07/31/97 10.00 0.00 09/95 2/1 0.00 10.00 07 170 04 A-L SRALLA, DONNA C 900 675.00 625.00 01 07/20/96 1YR 07/31/97 100.00 0.00 2/1 0.00 0.00 07 171 01 A-L SOSLAND, PAVEL C 900 675.00 645.00 01 03/16/96 12M 03/31/98 200.00 0.00 2/1 0.00 0.00 07 172 03 A-L KOTHA, SRIDHAR/LEKHA C 900 675.00 625.00 01 01/01/95 06M 06/30/97 210.00 0.00 01/96 2/1 0.00 25.00 07 173 01 A-L DUNKIN, H.J. C 900 675.00 625.00 01 01/24/96 12M 01/31/98 110.00 625.00 2/1 0.00 0.00 07 174 03 A-L SINGLETERRY/FLORES C 900 675.00 645.00 01 04/06/97 1YR 04/30/98 100.00 0.00 2/1 0.00 0.00 08 175 03 B MARQUEZ,CYNTHIA C 1066 795.00 720.00 01 12/15/91 1YR 04/30/98 110.00 0.00 05/97 2/2 0.00 25.00 08 176 02 B REIDERMAN, ARCADY C 1066 795.00 750.00 01 04/05/97 6MT 10/31/97 100.00 0.00 2/1 0.00 0.00 08 177 04 B KIM,SEONGJAI C 1066 795.00 750.00 01 08/10/95 06M 08/31/96 100.00 0.00 2/1 0.00 0.00 08 17E 01 B LEE,JOHN/SMITH,CAROL C 1066 795.00 725.00 01 05/01/95 12M 04/30/97 210.00 0.00 05/97 2/2 0.00 25.00 09 179 04 B LEVITT, MIRIAM C 1066 795.00 725.00 01 11/22/95 6M0 09/30/97 110.00 0.00 03/97 2/2 0.00 25.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 6 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 00:53:27 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 08 180 01 B KARASH,IGOR/SRETEANA C 1066 795.00 695.00 01 05/13/95 12M 05/31/98 210.00 0.00 06/97 2/2 0.00 25.00 08 181 02 B STARR, MARY E. C 1066 795.00 750.00 01 12/02/89 12M 04/30/97 210.00 0.00 05/97 2/2 0.00 25.00 08 182 02 B BERG/WIRPS C 1066 795.00 750.00 01 03/29/97 IYR 03/31/98 100.00 0.00 2/2 0.00 0.00 08 183 01 B GUPTA, SANJIV C 1066 795.00 725.00 01 01/27/96 12M 07/31/97 110.00 0.00 2/2 0.00 0.00 08 184 02 B BECHOR, ZION C 1066 795.00 775.00 01 06/10/97 6MT 12131/97 100.00 0.00 2/2 0.00 0.00 08 185 01 A-L STEPHEN, MELYILEEN C 900 675.00 625.00 01 10/11/87 12M 10/31/97 20.00 0.00 11/96 2/1 200.00 0.00 08 186 01 A-L DIDYK, VLADIMIR C 900 675.00 600.00 01 06/22/96 1YR 06/30/97 100.00 0.00 2/1 0.00 0.00 08 187 03 A HARVEY, DANNY/JOAN C 900 675.00 625.00 01 05/06/96 6MT 08/31/97 320.00 0.00 2/1 0.00 0.00 08 188 01 A HOLMES, DON C 900 675.00 645.00 01 04/26/96 6MT 10/31/97 100.00 0.00 05/97 2/1 0.00 20.00 09 189 03 A BLEWSTER, MARY H. C 900 675.00 625.00 01 11/04/94 12M 12/31/96 110.00 0.00 03/97 2/1 0.00 0.00 09 190 01 A MARLOW, RICHARD C 900 675.00 650.00 01 07/14/84 M-M 10/31/93 200.00 0.00 03/96 2/1 0.00 10.00 09 191 01 A NEAGLE, ELILABETH C 900 675.00 645.00 01 05/13/74 12M 05/31/97 10.00 0.00 06/97 2/1 0.00 20.00 09 192 02 A BAUMGARTNER, MAX C 900 675.00 645.00 01 02/10/90 12M 03/31/98 220.00 0.00 10/95 2/1 0.00 0.00 09 193 06 A BIDDLE, MARGARET C 900 675.00 640.00 01 07/15/94 1YR 08/31/97 120.00 0.00 09/95 2/1 0.00 0.00 09 154 01 A ANDERSON, FELISSA C 900 675.00 645.00 01 05/01/95 M-M 04/30/97 120.00 0.00 05/97 2/1 0.00 20.00 09 195 04 A PRIMO,BILL C 900 675.00 675.00 01 05/30/97 6M0 11/30/97 110.00 3.33- 2/1 0.00 0.00 09 196 04 A NALL, ELIZABETH C 900 675.00 650.00 01 04/25/92 M-M 04/30/95 110.00 0.00 03/96 2/1 0.00 10.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 7 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 01:03:11 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C><C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 09 197 08 D OWEN, MARLER/JOY C 1240 905.00 875.00 01 03/26/94 12M 03/31/98 120.00 0.00 2/2 0.00 0.00 09 198 04 D FELDMAN, ZEEV O 1240 905.00 875.00 01 07/21/95 12M 03/31/97 05/17/97 320.00 287.50 2/2 06/21/97 0.00 0.00 09 198 05 D ARIEH PL N 1240 905.00 875.00 01 06/27/99 100.00 0.00 2/20 0.00 0.00 09 198 D VACANT 1240 905.00 2/2 09 199 02 D ANDERSON, PAUL/MAY C 1240 905.00 835.00 01 09/15/94 06M 09/30/97 110.00 0.00 10/95 2/2 0.00 0.00 09 200 01 D SASKO, SEAN/ANNE C 1240 905.00 875.00 01 05/24/96 1YR 05/31/98 520.00 0.00 06/97 2/2 0.00 25.00 09 201 04 D LATIF, QAMAR C 1240 905.00 875.00 01 06/01/97 6M0 11/30/97 0.00 0.00 2/2 0.00 0.00 09 202 02 D PETERSEN, NEIL C 1240 905.00 850.00 01 12/28/96 12M 12/31/97 220.00 0.00 2/2 0.00 0.00 09 203 02 D1 COX/LAUFMAN C 1770 1450.00 1400.00 01 04/01/97 IYR 03/31/98 280.00 0.00 3/3 0.00 0.00 09 204 03 D1 SMITH, ROBERT/JOAN C 1770 1450.00 1400.00 01 02/01/97 1YR 01/31/98 110.00 0.00 3/3 0.00 0.00 10 205 04 A-L OGRADY, KRISTINE C 900 675.00 625.00 01 09/06/96 6MT 09/30/97 110.00 0.00 2/1 0.00 0.00 10 206 03 A-L BIEGAY/RON N C 900 675.00 625.00 01 06/11/95 12M 07/31/97 05/30/97 220.00 0.00 2/1 06/30/99 0.00 0.00 10 206 04 A-L DAILEY, PL N 900 675.00 675.00 01 07/07/99 200.00 0.00 2/1 0.00 0.00 10 207 02 A-L BERKMAN, EVELYN C 900 675.00 645.00 01 12/10/93 12M 03/31/98 10.00 0.00 01/96 2/1 0.00 20.00 10 208 06 A-L COLE, LARRY C 900 675.00 625.00 01 07/12/96 1YR 01/31/98 110.00 0.00 2/1 0.00 0.00 10 209 01 A-L ROSENTHALL, YETTA C 900 675.00 600.00 01 02/01/86 12M 07/31/97 10.00 0.00 05/94 2/1 0.00 0.00 10 210 01 A-L SMITH, EMMETT C 900 675.00 625.00 01 03/05/80 12M 10/31/97 0.00 0.00 10/95 2/1 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 8 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 01:03:11 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C><C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 10 211 04 A-L JAHN/TEMA RESOURCES C 500 675.00 645.00 01 07/22/95 1YR 04/30/98 320.00 1,260.00- 05/97 2/1 0.00 20.00 10 212 02 A-L ANNIGERI, S.C. C 900 675.00 645.00 01 01/26/91 M-M 08/31/91 200.00 0.00 03/96 2/1 0.00 10.00 10 213 05 A-L BROOKS, ALICE C 900 675.00 625.00 01 08/25/95 12M 12/31/97 110.00 0.00 2/1 0.00 0.00 10 214 02 A-L STANGER, JANET C 900 675.00 625.00 01 09/28/96 1YR 09/30/97 310.00 0.00 2/1 0.00 0.00 10 215 04 A-L CHANDWANI,DAYAL C 900 675.00 645.00 01 04/15/95 6MT 04/30/97 110.00 0.00 05/97 2/1 0.00 20.00 10 216 04 A-L STOLPAKOV/IMAYEVA C 900 675.00 645.00 01 04/05/97 6MT 10/31/97 210.00 0.00 2/1 0.00 0.00 11 217 02 B RUSSELL, GLEN/MARY C 1066 795.00 725.00 01 11/09/96 6MT 05/31/97 620.00 0.00 2/2 0.00 0.00 11 218 02 B VEGA/LOPEZ C 1066 795.00 750.00 01 06/01/97 12M 05/31/98 100.00 0.00 2/2 0.00 0.00 11 219 01 B ESKRIDGE, EDITH C 1066 795.00 675.00 01 07/27/70 M-M 07/31/97 10.00 0.00 05/94 2/2 0.00 0.00 11 220 02 B LAKHANI/NAJEEB C 1066 795.00 725.00 01 12/06/96 6M 12/31/97 210.00 0.00 2/2 0.00 0.00 11 221 04 B RATNAYAKA, DHANAPALA C 1066 795.00 765.00 01 04/29/97 6MT 11/30/97 110.00 0.00 2/2 0.00 0.00 11 222 02 B GONZALEZ/NIETO C 1066 795.00 725.00 01 12/31/96 12M 12/31/97 100.00 0.00 2/2 0.00 0.00 11 223 02 B ARCHER, MARY N C 1066 795.00 695.00 01 06/01/94 M-M 08/31/97 05107/97 310.00 210.33 2/2 06/22/99 0.00 0.00 11 223 03 B BARTHOLOMEUSZ PL N 1066 795.00 795.00 01 07/18/99 0.00 0.00 2/2 0.00 0.00 11 224 01 B EDMONDSON, LILLIAN C 1066 795.00 670.00 01 08/05/78 1YR 07/31/97 175.00 0.00 01/96 2/2 200.00 25.00 11 225 01 B ALTEN, ANN C 1066 795.00 675.00 01 09/15/78 M-M 06/30/97 0.00 0.00 03/96 2/2 0.00 25.00 11 226 03 B BARAKAT,NAHINDA C 1066 795.00 720.00 01 06/12/93 12M 01/31/98 120.00 0.00 03/97 2/2 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 9 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 01:03:11 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C><C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 11 227 02 B PEARLMAN,GERTRUDE C 1066 795.00 725.00 01 01/17/94 12M 02/28/98 20.00 0.00 03/97 2/2 0.00 0.00 11 228 02 B DAVIS, 05-08-97 L N 1066 795.00 77S.00 01 06/27/99 12M 100.00 0.00 212 0.00 0.00 11 228 B VACANT 1066 795.00 2/2 12 229 01 A LEVINSON, PATRICIA C 900 675.00 645.00 01 05/01/96 1YR 04/30/97 330.00 0.00 05/97 2/1 0.00 20.00 12 230 03 A OSTFELD,KEITH C 900 675.00 625.00 01 07/25/94 12M 08/31/97 110.00 0.00 09/95 2/1 0.00 0.00 12 231 02 A STAFFORD, BRENT C 900 675.00 625.00 01 12/17/96 12M 12/31/97 210.00 625.00 2/1 0.00 0.00 12 232 03 A BURLINGAME/MIODONSKI C 900 675.00 645.00 01 05/13/97 6MT 11/30/97 400.00 0.00 2/1 0.00 0.00 12 233 01 A PONTIUS, JOHN C. C 900 675.00 645.00 01 06/06/89 M-M 04/30/98 150.00 0.00 05/97 2/1 0.00 0.00 12 234 05 A TORREY/SMITH C 900 675.00 650.00 01 02/10/96 12M 02/28/98 100.00 0.00 2/1 0.00 0.00 12 235 02 A ANDERSON, KAREN C 900 675.00 645.00 01 10/03/94 M-M 09/30/97 110.00 0.00 03/96 2/1 0.00 10.00 12 236 02 A NELSON, DAVID C 900 675.00 625.00 01 07/29/95 6MT 07/31/97 110.00 0.00 2/1 0.00 0.00 13 237 02 A SOSA, ANGELA/GEORGE C 900 675.00 625.00 01 10/01/96 1YR 09/30/97 100.00 0.00 2/1 0.00 0.00 13 238 05 A BOBBETT, KRISTEN C 900 675.00 625.00 01 07/06/95 12M 07/31/97 110.00 0.00 2/1 0.00 0.00 13 239 04 A HOROWITZ, MAX C 900 675.00 600.00 01 07/23/92 12M 07/31/97 110.00 0.00 08/95 2/1 0.00 0.00 13 240 04 R TITUS, PAUL/LUCY C 900 675.00 615.00 01 06/10/95 12M 07/31/97 300.00 0.00 2/1 0.00 0.00 13 241 04 A THAILER, SHERI C 900 675.00 645.00 01 03/22/97 1YR 03/31/98 100.00 0.00 2/1 0.00 0.00 13 242 04 A BERNARD, SONIA C 900 675.00 625.00 01 09/05/96 1YR 09/30/97 110.00 0.00 2/1 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 10 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 01:03:11 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C><C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 13 243 08 A IBITO, DANIEL/LUZ C 900 675.00 645.00 01 03/07/97 6MO 09/30/97 200.00 0.00 2/1 0.00 0.00 13 244 G5 A DOLAN, JEANIE C 900 675.00 625.00 01 06/01/93 12M 10/31/97 310.00 0.00 11/96 2/1 0.00 0.00 14 245 03 A WHEAT/WHITE C 900 675.00 625.00 01 08/02/96 9MT 05/31/97 110.00 0.00 2/1 0.00 0.00 14 246 01 A CANFIELD, DEE ANN C 900 675.00 625.00 01 05/04/88 12M 07/31/97 0.00 0.00 08/95 2/1 0.00 0.00 15 247 04 B-L HUNTER, MARCIA C 1066 770.00 670.00 01 06/27/93 12M 07/31/97 120.00 0.00 07/94 2/2 0.00 0.00 15 248 01 B-L BARRETT,GEORGIA C 1066 770.00 695.00 01 10/30/96 12M 10/31/97 100.00 0.00 2/2 0.00 0.00 15 249 03 B-L JONES, CHERYL O 1066 770.00 695.00 01 02/28/96 12M 02/28/97 01/30/97 100.00 0.00 2/2 02/28/97 0.00 0.00 15 249 04 B-L PIX/WILLIAMS C 1066 770.00 725.00 01 04/01/97 1YR 03/31/98 110.00 0.00 2/2 0.00 0.00 15 250 01 B-L LASLEY/ODONNEL C 1066 770.00 695.00 01 06/01/96 12M 05/31/98 110.00 0.00 06/97 2/2 0.00 25.00 15 251 06 B IVEY/YOUNG C 1066 795.00 750.00 01 04/14/96 1YR 04/30/98 100.00 750.00- 05/97 2/2 0.00 0.00 15 252 01 B ERTEM, SHELLEY C 1066 795.00 695.00 01 06/28/89 12M 06/30/97 220.00 0.00 07/94 2/2 0.00 0.00 15 253 02 B SHAWVER, LAURA C 1066 795.00 725.00 01 07/06/96 1YR 07/31/97 110.00 0.00 2/2 0.00 0.00 15 254 02 B FLINN/CORORVE C 1066 795.00 750.00 01 03/14/97 1YR 03/31/98 295.00 0.00 2/2 0.00 0.00 15 255 07 B ALPERSTEIN, PERRY C 1066 795.00 750.00 01 04/04/97 1YR 04/30/98 210.00 0.00 2/2 0.00 0.00 15 256 06 B KONYA, ANDRAS C 1066 795.00 695.00 01 07/20/96 12M 07/31/97 100.00 0.00 2/2 0.00 0.00 16 247 01 A-L BEAGLE, RETHA C 900 675.00 645.00 01 06/01/96 6MT 11/30/97 100.00 0.00 06/97 2/1 0.00 20.00 16 258 03 A-L PESEK, DONNA C 900 675.00 625.00 01 11/09/96 6MO 05/31/97 310.00 0.00 2/1 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 11 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 01:03:11 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C><C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 16 259 05 R-L WALKER. LINDA C 900 675.00 625.00 01 01/11/96 1YR 01/31/98 100.00 0.00 2/1 0.00 0.00 16 260 01 R-L PETERS, MAE LEE C 900 675.00 645.00 01 02/01/95 12M 03/31/98 110.00 0.00 02/96 2/1 0.00 20.00 16 261 02 A-L CARLISLE/GORDON C 900 675.00 625.00 01 07/15/95 12M 07/31/97 200.00 0.00 2/1 0.00 0.00 16 262 02 A-L SHURINA,BORIS & MILA C 900 675.00 610.00 01 03/04/95 12M 03/31/98 200.00 0.00 2/1 0.00 0.00 16 263 03 A-L GARZA, ALEJANDRO N C 900 675.00 645.00 01 10/29/94 M-M 04/30/97 06/01/97 610.00 0.00 05/97 2/1 06/30/99 0.00 20.00 16 263 04 A-L SUSLOPAROVA, PL N 900 675.00 675.00 01 07/07/99 12M 200.00 0.00 2/1 0.00 0.00 16 264 01 A-L REMBECKI, RICHARD C 900 675.00 625.00 01 06/20/96 12M 12/31/97 100.00 0.00 2/1 0.00 0.00 16 265 02 A-L COOPER,CHARISSE/DONN C 900 675.00 645.00 01 02/17/94 12M 09/30/97 100.00 0.00 03/96 2/1 0.00 20.00 16 266 02 A-L MARTIN, DANA C 900 675.00 675.00 01 06/08/97 9M0 03/31/98 410.00 0.00 2/1 0.00 0.00 16 267 02 A-L WALTER, CARLA C 900 675.00 625.00 01 08/19/96 12M 05/31/98 110.00 0.00 2/1 0.00 0.00 16 268 03 A-L SIEBERT TERRY C 900 675.00 620.00 01 07/29/95 12M 10/31/97 300.00 0.00 02/96 2/1 0.00 25.00 17 269 06 A-L PHILLIPS, DAWN C 900 675.00 645.00 01 05/01/93 12M 05/31/98 110.00 0.00 06/97 2/1 0.00 20.00 17 270 03 A-L WOLFSKILL, GAYLE C 900 675.00 625.00 01 08/01/92 12M 07/31/97 110.00 0.00 08/95 211 0.00 0.00 17 271 01 A-L BERGMAN, DORIS M. C 900 675.00 645.00 01 03/01/88 12M 03/31/98 60.00 0.00 01/96 2/1 0.00 25.00 17 272 01 A-L UPDEGRAFF, LYNNE C 900 675.00 600.00 01 06/01/96 1YR 05/31/98 310 00 600.00- 2/1 0.00 0.00 17 273 01 A-L ADEBAYO, GBADEBO C 900 675.00 600.00 01 06/29/96 1YR 06/30/97 100.00 0.00 2/1 0.00 0.00 17 274 02 A-L WAYMENT, DARCEY C 900 675.00 645.00 01 02/14/97 6MT 08/31/97 100.00 0.00 2/1 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 12 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 01:03:11 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C><C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 17 275 02 A-L SCHARFF, KEVIN/MELIN C 900 675.00 625.00 01 07/13/96 1YR 07/31/97 06/06/97 100.00 0.00 2/1 07/31/99 0.00 0.00 17 276 04 A-L JUSTICE, TRACY/IRIS C 900 675.00 610.00 01 01/31/95 12M 01/31/92 210 00 0.00 03/97 2/1 0.00 5.00- 17 277 01 A-L WHISNER, SUSAN C 900 675.00 625.00 01 09/04/87 12M 12/31/97 10.00 0.00 11/95 2/1 0.00 0.00 17 278 04 A-L MCINTOSH, JOHN C 900 675.00 645.00 01 03/14/97 6MT 09/30/97 210.00 0.00 2/1 0.00 0.00 17 279 04 A-L HUNTER, IRETTA C 900 675.00 645.00 01 04/25/97 1YR 04/30/98 110.00 0.00 2/1 0.00 0.00 17 280 03 A-L POWELL, WILLLAM C 900 675.00 645.00 01 12/27/89 M-M 06/30/90 410.00 645.00- 03/96 2/1 0.00 10.00 17 281 03 A-L AMHAN, RITA C 900 675.00 645.00 01 04/26/97 12M 04/30/98 100.00 0.00 2/1 0.00 0.00 17 282 01 A-L DELEON, SUSANA C 900 675.00 625.00 01 06/24/96 6MT 12/31/97 310.00 0.00 2/1 0.00 0.00 18 283 01 B JONES, TROY C 1066 795.00 720.00 01 11/19/75 12M 02/28/98 10.00 0.00 03/97 2/2 0.00 25.00 18 284 03 B JONES, NORMA JEAN C 1066 795.00 750.00 01 04/05/97 1YR 04/30/98 350.00 0.00 2/2 0.00 0.00 19 285 01 B SOKOLOW,JERRY ET AL C 1066 795.00 720.00 01 09/18/92 M-M 03/31/93 110.00 0.00 03/97 2/2 0.00 25.00 18 286 03 B CADY, RACHEL C 1066 795.00 725.00 01 11/22/96 12M 11/30/97 110.00 0.00 2/2 0.00 0.00 18 287 05 B VAN NESS, JOHN B. C 1066 795.00 720.00 01 10/29/94 6MO 04/30/98 210.00 0.00 05/97 2/2 0.00 25.00 18 288 01 B MILES, ISRAEL/SIMI C 1066 795.00 750.00 01 04/01/97 6MT 10/31/97 200.00 0.00 2/2 0.00 0.00 18 289 03 B CAROLAN,MARY C 1066 795.00 695.00 01 08/01/94 12M 08/31/97 600.00 0.00 2/2 0.00 0.00 18 290 02 B JACKSON, PAMELA C 1066 795.00 695.00 01 10/29/95 12M 10/31/97 230.00 0.00 2/2 0.00 0.00 18 291 01 B STRIKOVSKI, MIKHAIL C 1066 795.00 695.00 01 10/05/96 1YR 10/31/97 200.00 0.00 2/2 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 13 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 01:03:11 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C><C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 18 293 02 B CARTER, DEBRA C 1066 795.00 750.00 01 05/02/97 1YR 05/31/98 500.00 0.00 2/2 0.00 0.00 18 293 07 B SCHOBELOCK, NAOMI C 1066 795.00 720.00 01 05/01/96 1YR 04/30/98 320.00 0.00 05/97 2/2 0.00 0.00 18 294 02 B PENNEY, CYNTHIA C 1066 795.00 720.00 01 06/15/95 12M 06/30/96 200.00 0.00 03/97 2/2 0.00 25.00 18 295 03 B-L E.S.R. INC.-BIZOUI L C 1066 770.00 750.00 01 06/14/97 6MT 12/31/97 200.00 0.00 2/2 0-00 0.00 18 296 02 B-L KAPLUN, BORIS C 1066 770.00 750.00 01 06/20/97 6MT 12/31/97 200.00 0.00 2/2 0.00 0.00 19 297 01 D1 WARREN, GLEN C 1770 1450.00 1320.00 01 09/15/87 12M 10/31/97 10.00 0.00 11/96 3/3 0.00 0.00 19 298 07 D1 BABUS, GLENN & LESLIE C 1770 1450.00 1345.00 01 06/19/92 M-M 12/31/95 120.00 0.00 03/97 3/3 0.00 25.00 19 299 03 D SPAIN/BASSIST C 1240 905.00 850.00 01 12/07/96 12M 12/31/97 430.00 0.00 2/2 0.00 0.00 19 300 01 D FRUCHTBAUM, JOSEPH C 1240 905.00 850.00 01 08/12/89 M-M 07/31/97 210.00 0.00 11/95 2/2 0.00 0.00 19 301 04 D LAWYER/ALLEN C 1240 905.00 875.00 01 05/05/97 1YR 05/31/98 110.00 0.00 2/2 0.00 0.00 19 302 01 D MENARD-CORRECTION O 1240 905.00 0.00 09/09/95 60.00 0.00 2/2 05/18/97 0.00 0.00 19 302 02 D QAMAR O 1240 905.00 875.00 01 100.00 0.00 2/2 05/02/97 0.00 0.00 19 302 03 D ROSEN, JAY C 1240 905.00 895.00 01 06/18/97 6M0 12/31/97 210.00 0.00 2/2 0-00 0.00 19 303 03 D HOLZBAND, BESSIE C 1240 905.00 850.00 01 07/13/87 6MT 07/31/97 60.00 0.00 03/96 2/2 0.00 25.00 19 304 01 D VALLE, DOMINGA C 1240 905.00 875.00 01 05/16/97 12M 05/31/98 100.00 875.00- 2/20 0.00 0.00 19 505 03 A LEA, DALLAS C 900 675.00 625.00 01 06/19/95 12M 03/31/98 110.00 0.00 2/1 0.00 0.00 19 506 01 A TAN, PETER/SHARON C 900 675.00 625.00 01 06/01/96 12M 05/31/98 220.00 0.00 06/97 2/1 0.00 25.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 14 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 01:03:11 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C><C> <C> <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 19 307 01 A KOHLLEFFEL,MARIE C 900 675.00 635.00 01 01/15/74 12M 10/31/97 10.00 0.00 10/95 2/1 0.00 0.00 19 308 05 A CHRISTOPHER, FRANCIS C 900 675.00 625.00 01 11/07/96 9MO 0B/31/97 210.00 0.00 2/1 0.00 0.00 19 309 04 A TRACHTENBERG, JACOB C 900 675.00 625.00 01 03/01/97 1YR 02/28/98 410.00 0.00 2/1 0.00 0.00 19 310 07 A OSBORNE, MICHELLE C 900 675.00 625.00 01 08/10/96 1YR 08/31/97 100.00 0.00 2/1 0.00 0.00 19 311 02 A KRUGER, JULIE C 900 675.00 645.00 01 06/01/97 12M 05/31/98 100.00 0.00 2/1 0.00 0.00 19 312 04 A GRAHAM/ANDERSON C 900 675.00 640.00 01 08/01/94 12M 10/31/97 320.00 0.00 09/95 2/1 0.00 0.00 20 313 01 A ROTHMAN, MARTIN C 900 675.00 650.00 01 03/17/79 M-M 05/31/90 0.00 0.00 03/96 2/1 0.00 10.00 20 314 01 A EVANS, KATHLEEN C 900 675.00 650.00 01 11/10/95 12M 01/31/98 100.00 0.00 2/1 0.00 0.00 20 315 01 A PETERSEN, MARIE C 900 675.00 645.00 01 05/14/96 1YR 04/30/98 100.00 0.00 05/97 2/1 0.00 20.00 20 316 08 A MCADOO,DEBORAH/BRUCE C 900 675.00 625.00 01 08/01/96 1YR 07/31/97 100.00 0.00 2/1 0.00 0.00 20 317 02 B HILL, SHARON N 1066 795.00 775.00 01 06/18/99 6M0 12/31/97 100.00 0.00 2/2 0.00 0.00 20 317 B VACANT 1066 795.00 2/2 20 318 01 B CORTES, DENISE/CHRIS C 1066 795.00 750.00 01 03/02/96 6MT 09/30/97 100.00 0.00 2/2 0.00 0.00 20 319 02 B NEWMAN, ROSE C 1066 795.00 725.00 01 08/15/95 12M 09/30/97 130.00 0.00 2/2 0.00 0.00 20 320 02 B MIANO, PAULA C 1066 795.00 750.00 01 03/15/97 6MT 09/30/97 110.00 0.00 2/2 0.00 0.00 20 321 07 B ZISMAN, ELI C 1066 795.00 725.00 01 06/01/96 1YR 05/31/98 120.00 0.00 06/97 2/2 0.00 25.00 20 322 01 B MOURAD/KASSAB C 1066 795.00 725.00 01 12/03/95 6M0 06/30/97 220.00 0.00 2/2 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 15 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 01:03:11 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C><C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 21 323 05 B PENA, GEORGE/MARY C 1066 795.00 725.00 01 09/18/93 1YR 03/31/98 100.00 0.00 11/96 2/2 0.00 0.00 21 324 01 B ARBEL, ARNON/NIKI C 1066 795.00 725.00 01 01/04/97 6MO 07/31/97 110.00 0.00 2/2 0.00 0.00 21 325 01 B **NOB HILL CLUBROOM C 1066 795.00 795.00 01 10/01/86 M-M 10/31/86 0.00 0.00 08/91 2/2 0.00 0.00 21 326 02 B SAMUELS, IRWIN C 1066 795.00 705.00 01 06/01/91 12M 02/28/98 220.00 0.00 03/97 2/2 0.00 25.00 21 327 02 B **NOB HILL CLUB ROOM C 1066 795.00 795.00 01 09/01/94 M-M 09/30/94 0.00 0.00 2/2 0.00 0.00 21 328 02 B HIGUCHI,MASAHIRO C 1066 795.00 725.00 01 10/28/95 12M 10/31/97 110.00 0.00 2/2 0.00 0.00 21 329 04 B HILL, JUANITA C 1066 795.00 750.00 04 11/01/95 12M 04/30/98 110.00 0.00 05/97 2/2 0.00 25.00 21 330 01 B STRAYER, FRANCES C 1066 795.00 725.00 01 07/01/89 6MT 01/31/97 210.00 0.00 03/97 2/2 0.00 20.00 22 331 01 C GOGGIN, MARY EILEEN C 1050 795.00 750.00 01 10/22/80 12M 10/31/97 30.00 0.00 11/95 2/2 0.00 0.00 22 332 02 C BERNHART/LEIBOLD C 1050 795.00 725.00 01 08/01/95 12M 10/31/97 100.00 0.00 2/2 0.00 0.00 22 333 02 C-L FOWLER, DAVID/DANA C 1050 770.00 695.00 01 09/10/96 1YR 08/31/97 110.00 0.00 2/2 0.00 0.00 22 334 01 C-L THOMASON, GEORGE C 1050 770.00 720.00 01 09/11/92 1YR 05/31/98 225.00 0.00 09/95 2/2 0.00 0.00 22 335 05 C-L BANKS, SUSAN C 1050 770.00 740.00 01 09/01/94 06M 04/30/98 320.00 0.00 09/95 2/2 0.00 0.00 22 336 01 C-L BOSTETTER, JANE C 1050 770.00 730.00 01 11/01/85 12M 12/31/96 60.00 0.00 01/96 2/2 0.00 5.00 23 337 01 C IRETON, MARY V. C 1050 795.00 735.00 01 02/15/89 12M 09/30/97 170.00 0.00 10/95 2/2 0.00 0.00 23 338 01 C HERNANDEZ/ALEJANDRO C 1050 795.00 725.00 01 07/15/94 6M0 07/31/97 110.00 0.00 09/95 2/2 0.00 0.00 23 339 01 C COALSON, PAUL/WINNIE C 1050 795.00 750.00 01 05/07/73 12M 03/31/98 100.00 0.00 11/95 2/2 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM410 RENT ROLL REPORT PAGE 16 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 01:03:11 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C><C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 23 340 03 C ANDERSON, ANGELA C 1050 795.00 750.00 01 05/15/97 6M0 11/30/97 110.00 0.00 2/2 0.00 0.00 23 341 01 C BROCHSTEIN, MEL C 1050 795.00 750.00 01 31/21/74 M-M 09/30/93 0.00 0.00 09/95 2/2 0.00 0.00 23 342 03 C LEVIN, CAROL C 1050 795.00 750.00 01 03/24/97 6MT 09/30/97 420.00 0.00 2/2 0.00 0.00 23 343 01 C PESSES, HARRIS/MITCH C 1050 795.00 700.00 01 10/10/86 6-M 04/30/97 0.00 0.00 05/97 2/2 0.00 25.00 23 344 01 C RUSIN, RUTH C 1050 795.00 725.00 01 08/06/96 6MT 08/31/97 110.00 0.00 2/2 0.00 0.00 23 345 04 C JAMISON,WILLIAM/IRIS C 1050 795.00 750.00 01 05/01/96 12M 10/31/97 120.00 0.00 2/2 0.00 0.00 23 346 02 C ZHANG, PUMIN C 1050 795.00 750.00 01 05/10/97 12M 05/31/98 100.00 0.00 2/2 0.00 0.00 23 347 03 C ZALTA, ZELDA RAE C 1050 795.00 750.00 01 02/19/94 12M 02/28/98 100.00 0.00 03/96 2/2 0.00 25.00 23 348 02 C NGUYEN, THUHA C 1050 795.00 750.00 01 03/09/97 1YR 03/31/98 200.00 0.00 2/2 0.00 0.00 24 349 02 C KING,JAMES/JANIS C 1050 795.00 750.00 01 04/01/96 1YR 06/30/98 110.00 30.00 2/2 0.00 0.00 24 350 03 C HEINEN, DOTTIE C 1050 795.00 750.00 01 05/30/95 12M 05/31/97 220.00 0.00 06/97 2/2 0.00 25.00 24 351 01 C TOLAND/MCMINN C 1050 795.00 750.00 01 03/09/96 6MT 04/30/97 420.00 0.00 2/2 0.00 0.00 24 352 01 C VYAS, ASUTOSH C 1050 795.00 725.00 01 07/08/96 1YR 07/31/97 110.00 0.00 2/2 0.00 0.00 24 353 02 C WILSON, TERRY N C 1050 795.00 725.00 01 09/14/96 9MT 06/30/97 05/30/97 310.00 0.00 2/2 06/30/99 0.00 0.00 24 354 05 C BESOZZI PL N 1050 795.00 795.00 01 07/30/99 0.00 0.00 2/2 0.00 0.00 24 354 03 C MANTEL,SELMA S. C 1050 795.00 750.00 01 01/22/90 1YR 02/28/98 210.00 0.00 02/96 2/2 0.00 25.00 24 355 04 C HARDEN, GARY/SUSAN C 1050 795.00 795.00 01 10/20/94 12M 10/31/97 300.00 0.00 11/96 212 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM"10 RENT ROLL REPORT PAGE 17 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 01:03:11 ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 24 356 04 C BRUBAKER, CAROL C 1050 795.00 700.00 01 12/15/94 12M 12/31/96 185.00 0.00 03/97 2/2 0.00 25.00 24 357 03 C SMITH, JEAN C 1050 795.00 725.00 01 10/25/96 12M 10/31/97 120.00 0.00 2/2 0.00 0.OO 24 358 01 C GAEENI,ZEBA/CHANGHIZ C 1050 795.00 750.00 01 04/26/97 12M 04/30/98 100.00 0.00 2/2 0.00 0.00 24 359 02 C KALIN, ELAINE C 1050 795.00 750.00 01 10/01/91 12M 09/30/96 210.00 0.00 10/95 2/2 0.00 0.00 24 360 01 C MITCHELL L. AUDREY C 1050 795.00 725.00 01 07/02/88 12M 06/30/97 10.00 0.00 07/94 2/2 0.00 0.00 24 361 01 C KHAN, MOHAMMED KAM C 1050 795.00 750.00 01 08/27/95 6MT 08/31/97 200.00 0.00 2/2 0.00 0.00 24 362 02 C BECK, STEVE/MARIA C 1050 795.00 645.00 01 08/17/96 M-M 03/28/97 100.00 0.00 03/97 2/2 0.00 0.00 25 363 02 D **MARQUEZ,JOE C 1240 905.00 905.00 01 11/16/96 1M0 12/31/96 0.00 0.00 2/2 0.00 0.00 25 364 01 D ULRICH, BERNICE C 1240 905.00 875.00 01 03/29/97 12M 03/31/98 720.00 0.00 2/2 0.00 0.00 25 365 01 D ATLAS, CLARE C 1240 905.00 810.00 01 11/06/70 12M 03/31/97 10.00 0.00 01/96 2/2 0.00 25.00 25 366 02 D HUSAIN, AYESHA C 1240 905.00 850.00 01 01/24/96 6MT 07/31/97 200.00 0.00 2/2 0.00 0.00 25 367 04 D EVERETT, HARTSILL L N 1240 905.00 895.00 01 07/01/99 100.00 0.00 2/2 0.00 0.00 25 367 D VACANT 1240 905.00 2/2 25 368 01 D JOSE/BOYDELL C 1240 905.00 850.00 01 08/16/96 1YR 08/31/97 325.00 0.00 2/2 0.00 0.00 25 369 01 D HOLRAN, LEDA C 1240 905.00 875.00 01 03/09/96 1YR 03/31/98 200.00 0.00 2/2 0.00 0.00 25 370 01 D HIRSCHHORN,MRS HARRY C 1240 905.00 855.00 01 11/01/73 12M 04/30/97 10.00 0.00 05/97 2/2 0.00 20.00 25 371 02 D ROACH, ROBYN C 1240 905.00 795.00 01 07/14/96 1YR 07/31/97 210.00 5.00 2/2 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM"10 RENT ROLL REPORT PAGE 18 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 01:04:02 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 25 372 01 D LEZAMA, ESTA C 1240 905.00 875.00 01 08/09/84 12M 02/28/98 210.00 0.00 09/95 2/2 0.00 0.00 25 373 04 D MCMAHON,JOE/BARBARA C 1240 905.00 875.00 01 03/09/96 12M 03/31/98 110.00 0.00 2/2 0.00 0.00 25 374 01 D SUMMY, MIRIAM C 1240 905.00 825.00 01 01/15/78 12M 07/31/97 385.00 0.00 08/95 2/2 0.0O 0.00 26 375 01 C MALONEY, VIRGINIA C 1050 795.00 725.00 01 06/05/80 12M 12/31/97 20.00 0.00 11/95 2/2 0.00 0.00 26 376 03 C RHODES/ZUNIGA C 1050 795.00 750.00 01 04/05/97 1YR 04/30/98 100.00 0.00 2/2 0.00 0.00 26 377 01 C **HELGASON, LISA C 1050 795.00 795.00 01 05/11/96 M/M 06/30/96 0.00 0.00 2/2 0.00 0.00 26 378 04 C WEISBERG, STUART C 1050 795.00 725.00 01 05/28/93 12M 07/31/97 300.00 0.00 06/94 2/2 0.00 0.00 26 379 05 C CARPENTER, JESSIE C 1050 795.00 725.00 01 01/25/97 6MT 07/31/97 110.00 0.00 2/2 0.00 0.00 26 380 06 C BROWN,CATHERINE C 1050 795.00 685.00 01 11/25/94 12M 10/31/97 100.00 0.00 01/96 2/2 0.00 25.00 26 381 03 C ADRMS, EVETTE C 1050 795.00 725.00 01 02/08/97 1YR 02/28/98 110.00 0.00 2/2 0.00 0.00 26 382 08 C GOLDFARB,CAROL/LOUIS C 1050 795.00 725.00 01 01/24/97 12M 01/31/98 110.00 0.00 2/2 0.00 0.00 26 383 02 C KAMION, PEGGY C 1050 795.00 750.00 01 08/03/91 12M 12/31/97 200.00 10.00- 11/93 2/2 0.00 0.00 26 384 01 C PENNELL/PENNELL C 1050 795.00 750.00 01 03/01/96 1YR 02/28/98 10.00 0.00 2/2 0.00 0.00 26 385 03 C **CRUZ, MIGUEL C 1050 795.00 795.00 01 10/14/96 lMO 11/30/96 0.00 0.00 2/2 0.00 0.00 26 386 01 C MORRIS, RICHARD C 1050 795.00 725.00 01 08/01/96 12M 07/31/97 320.00 0.00 2/2 0.00 0.00 26 387 03 C CREEDEN, MARILYN C 1050 795.00 725.00 01 03/15/97 1YR 03/31/98 100.00 0.00 2/2 0.00 0.00 26 388 02 C MAHMOOD, SALMA C 1050 ?95.00 750.00 51 09/01/96 6MT 02/28/97 100.00 0.00 2/2 0.00 0.00 </TABLE> <PAGE> <TABLE> <CAPTION> QCRM"10 RENT ROLL REPORT PAGE 19 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 16 NOB HILL SOUTHWEST APTS. SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 01:04:56 =================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT =================================================================================================================================== <C> <C> <C> <C> <S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 27 389 04 C ARMSTRONG,KATHRYN C 1050 795.00 750.00 01 09/01/92 12M 02/28/98 310.00 0.00 ll/95 2/2 0.00 0.00 27 390 02 C ZRIDI, SALEEM C 1050 795.00 725.00 01 07/28/96 6MT 07/31/97 100.00 0.00 2/2 0.00 O.00 27 391 06 C EBERHARD, FRAN/JERRY C 1050 795.00 750.00 01 05/18/96 1YR 04/30/98 110.00 0.00 O5/97 2/2 0.00 25.00 27 392 02 C RUSSELL, PATTY C 1050 795.00 750.00 01 lO/28/95 12M 10/31/97 310.00 0.00 2/2 0.00 0.00 27 393 06 C HARRISON, BEVERLY C lO50 795.00 725.00 O1 02/15/97 6M0 08/31/97 llO.00 O.OO 2/2 0.00 0.00 27 394 02 C MARCUS, ELLEN C 1050 795.00 725.00 O1 11/15/96 9M0 O8/31/97 210.00 0.00 2/2 O.00 0.00 27 355 01 C ROSE, RAE C 1050 795.00 725.00 O1 12/01/77 12M 02/28/98 O.00 O.OO 03/97 2/2 0.00 15.O0 27 396 01 C B0RRECA, MARGARET C 1050 795.00 750.00 01 09/15/79 12M 02/28/98 210.00 O.OO 01/96 2/2 O.00 25.00 27 397 06 C HERRERA, SAMUEL/PAT C 1050 795.00 750.00 01 12/05/92 M-M 01/31/96 200.00 0.00 02/96 2/2 0.00 25.00 27 398 02 C RIZHYK, LARISA C 1050 795.00 725.00 01 08/03/96 lYR 08/31/97 llO.00 O.O0 2/2 0.00 0.00 27 399 01 C **SOUTHWEST 0FFICE C 1050 795.00 795.00 01 03/15/76 M-M 04/30/76 0.00 0.00 9/91 2/2 0.00 0.00 27 400 05 C HEINTSCHEL/LOGAN C 1050 795.00 750.00 01 05/31/97 6M0 11/30/97 100.00 0.00 2/2 0.00 0.00 27 401 03 C OLIV0, JOHN C 1050 795.00 725.00 01 12/15/96 6M0 06/30/97 210.00 O.00 2/2 0.00 O.00 27 402 02 C MAYES, HANNEKE/JOHN C 1050 795.00 750.00 01 02/03/96 1YR 08/31/97 120.00 0.00 2/2 0.00 0.00 TOTAL CURRENT RESlDENTS 49,158.00 13,743.00- 800.00 TOTAL PREVI0US RESIDENTS 780.00 311.50 0.00 TOTAL PROJECT 315.192 212,840.00 49,938.00 13.431.50- 235,170.00 800.00 TOTAL #UNIT 302 GROSS POSSIBLE INCOME 219,590.00 </TABLE> <PAGE> HISTORICAL OPERATING STATEMENTS <PAGE> <TABLE> <CAPTION> REVIEW OF OPERATIONS FARB REALTY COMPANY 08:24 AM 07/07/97 - ------------------------------------------------------------------------------------------------------------------------------------ NOB HILL SUMMARY (952) #UNITS 1,326 JUNE 30, 1997 SQ.FT. 1,188,002 - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jun Jul Aug Actual Actual Actual Actual Actual Actual Budget Budget Budget ------ ------ ------ ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> - -INCOME- Gross Rental Income 843,585 843,255 847,350 851,232 854,260 857,160 849,016 850,050 851,225 Model/Free Units (17,560) (18,781) (19,270) (18,265) (19,572) (18,014) (18,226) (18,125) (18,100) Vacancy (25,068) (26,558) (34,974) (29,502) (38,674) (42,090) (34,760) (30,092) (27,712) Misc. Income 12,167 16,455 12,597 14,277 17,038 17,189 14,245 13,990 14,740 -------------------------------------------------------------------------------------------------- TOTAL INCOME 813,124 814,371 805,703 817,744 813,052 814,245 810,275 815,823 820,153 - -EXPENSES- Payroll 88,333 90,488 89,428 90,677 124,716 93,013 88,076 84,746 84,796 Taxes-Ad Valorem 78,318 76,835 76,835 76,835 76,835 76,835 76,402 76,402 76,402 Insurance (176,253) 25,040 25,040 25,040 23,930 23,930 25,040 25,040 25,040 Utilities 160,985 156,427 152,115 145,456 140,773 143,132 157,398 165,713 162,801 Sales & General 22,003 22,026 26,008 22,938 29,937 26,019 30,965 34,250 34,706 Maintenance 62,444 73,920 69,837 68,141 76,178 6l,158 66,915 65,855 61,810 ------- ------- ------- ------- ------- ------- ------- ------- ------- Sub-Total 236,829 444,737 439,263 429,087 472,370 424,087 444,796 452,006 445,553 Management Fee 32,525 32,574 32,228 32,710 32,522 32,571 32,728 32,950 33,122 ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL EXPENSES 269,354 477,311 471,491 461,797 504,892 458,658 477,524 484,956 478,675 -------------------------------------------------------------------------------------------------- NET OPERATING INCOME 543,770 337,060 334,212 355,946 308,159 357,587 332,751 330,867 341,478 Replacement Costs 23,814 32,515 27,908 27,400 36,150 20,331 37,445 34,480 38,440 CASH FLOW (before Debt Service) 519,956 304,546 306,305 328,546 272,009 337,255 295,306 296,387 303,038 Mortgage Interest Payments 277,277 250,444 277,277 268,333 277,277 268,333 268,343 277,288 277,288 -------------------------------------------------------------------------------------------------- NET CASH FLOW 242,679 54,102 29,028 60,213 (5,268) 68,923 20,963 19,099 25,750 -------------------------------------------------------------------------------------------------- VACANCY LOSS % 2.97% 3.15% 5.13% 3.47% 4.53% 4.91% 4.09% 3.54% 3.26% MANAGEMENT APARTMENTS % 1.85% 2.02% 2.01% 1.96% 1.95% 1.97% 2.01% 2.01% 2.01% ECONOMIC OCCUPANCY % 94.95% 94.62% 93.60% 94.39% 93.18% 92.99% 93.76% 94.33% 94.62% DIRECT EXPENSES % 28.07% 52.74% 51.84% 50.41% 55.30% 49.48% 65.39% 53.17% 52.34% MANAGEMENT FEE EXPENSE % 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.04% 4.04% 4.04% CAPITAL EXPENDITURES % 2.82% 3.86% 3.29% 3.22% 4.23% 2.37% 4.41% 4.06% 4.52% RENT INFLATION % -0.04% 0.49% 0.46% 0.36% 0.34% -0.95% 0.12% 0.14% GROSS RENTS PER SO. FT. 0.710 0.710 0.713 0.717 0.719 0.722 0.716 0.716 0.717 EFF. GROSS INC. PER SQ. FT. 0.684 0.685 0.678 0.688 0.684 0.685 0.682 O.687 O.690 DIRECT EXP'S PER SQ. FT. 2.39 4.49 4.44 4.33 4.77 4.28 4.49 4.57 4.50 AVERAGE RENT PER UNIT 636 636 639 642 644 646 640 641 642 <CAPTION> Sep Oct Nov Dec Budget Total Budget Budget Budget Budget + Actual Budget -------- ------- ------- ------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> - -INCOME- Gross Rental Income 852,540 853,515 854,110 854,705 10,212,987 10,195,970 Model/Free Units (18,025) (17,925) (17,925) (17,925) (219,485) (214,855) Vacancy (25,576) (28,257) (33,357) (35,561) (377,421) (416,015) Misc. Income 14,290 13,945 14,095 13,945 174,727 169,065 --------------------------------------------------------------------------- TOTAL INCOME 823,229 821,278 816,923 815,164 9,790,808 9,734,165 - -EXPENSES- Payroll 89,495 122,698 88,240 122,459 1,169,088 1,131,393 Taxes-Ad Valorem 76,402 76,402 76,402 76,402 920,905 910,824 Insurance 25,040 25,040 25,040 25,040 97,967 300,480 Utilities 151,492 143,012 138,376 136,257 1,796,540 1,797,175 Sales & General 32,960 29,416 26,635 26,130 333,027 355,600 Maintenance 62,235 57,065 51,955 52,230 762,828 714,840 ------- ------- ------- ------- --------- --------- Sub-Total 437,624 453,632 406,648 438,518 5,080,354 5,216,312 Management Fee 33,247 33,168 32,995 32,923 393,535 393,169 ------- ------- ------- ------- --------- --------- TOTAL EXPENSES 470,871 486,800 439,643 471,441 5,473,889 5,609,481 --------------------------------------------------------------------------- NET OPERATING INCOME 352,358 334,478 377,280 343,723 4,316,919 4,124,684 Replacement Costs 34,055 30,805 22,825 22,585 351,308 477,520 CASH FLOW (before Debt Service) 318,303 303,673 354,455 321,138 3,965,611 3,647,164 Mortgage Interest Payments 268,343 277,288 288,343 277,288 3,264,778 3,264,851 --------------------------------------------------------------------------- NET CASH FLOW 49,960 26,385 86,112 43,850 700,833 382,313 --------------------------------------------------------------------------- VACANCY LOSS % 3.00% 3.310% 3.91% 4.16% 3.70% 4.08% MANAGEMENT APARTMENTS % 2.01% 2.00% 2.00% 2.00% 1.98% 2.00% ECONOMIC OCCUPANCY % 94.89% 94.59% 94.00% 93.74% 94.16% 93.81% DIRECT EXPENSES % 51.33% 53.16% 47.61% 51.31% 49.74% 51.16% MANAGEMENT FEE EXPENSE % 4.04% 4.040% 4.04% 4.04% 4.02% 4.04% CAPITAL EXPENDITURES % 3.99% 3.610% 2.67% 2.64% 3.44% 4.68% RENT INFLATION % 0.15% 0.11% 0.07% 0.07% GROSS RENTS PER SQ. FT. 0.718 0.718 0.719 0.719 0.716 0.716 EFF. GROSS INC. PER SQ. FT. 0.693 0.691 0.688 0.686 0.687 0.683 DIRECT EXP'S PER SQ. FT. 4.42 4.58 4.11 4.43 4.28 4.39 AVERAGE RENT PER UNIT 643 644 644 645 642 641 </TABLE> <PAGE> <TABLE> <CAPTION> DETAIL OPERATING STATEMENT FARB REALTY COMPANY 08:24 AM 07/07/97 - ------------------------------------------------------------------------------------------------------------------------------------ NOB HILL SUMMARY (952) #UNITS 1,326 JUNE 30, 1997 SQ.FT. 1,188,002 - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jun Jul Actual Actual Actual Actual Actual Actual Budget Budget ------ ------ ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> - -INCOME- GROSS RENTAL INCOME 843,585 843,255 847,350 851,232 854,260 857,160 849,015 850,050 Model Apartment Cost (5,175) (5,216) (5,355) (5,355) (5,355) (5,514) (5,425) (5,425) Employee Apt Cost (10,442) (11,830) (11,687) (11,337) (11,337) (11,395) (11,670) (11,670) Discounted Rent (1,943) (1,736) (2,228) (1,573) (2,880) (1,105) (1,130) (1,030) Gratuitous Rent 0 0 0 0 0 0 0 0 -------------------------------------------------------------------------------------------------- TOTAL MODEL/FREE UNITS (7,560) (18,781) (19,270) (18,265) (19,572) (18,014) (18,225) (18,125) Vacancy (25,068) (26,558) (34,974) (29,502) (38,674) (42,090) (34,760) (30,092) Late Charge/Nsf 1,655 1,530 1,310 845 1,135 1,425 1,120 1,165 Other Income 1,287 1,505 2,179 3,259 4,237 5,915 2,220 2,220 Deposits Forfeited 2,860 2,110 1,215 2,209 3,630 1,887 2,700 2,400 Laundry Commissions 5,498 11,273 7,664 7,828 7,777 7,770 7,870 7,870 Vending Commissions 867 37 229 136 259 192 335 335 -------------------------------------------------------------------------------------------------- TOTAL MISC. INCOME 12,167 16,455 12,597 14,277 17,038 17,189 14,245 13,990 TOTAL INCOME 813,124 814,371 805,703 817,744 813,052 814,245 810,275 815,823 - -EXPENSES- Manager Salary 25,298 26,424 26,963 27,348 39,470 26,398 24,885 24,885 Leasing Salary 7,031 8,032 5,518 5,743 8,140 5,718 5,805 6,500 Maintenance Salary 19,572 18,210 17,827 17,942 27,620 19,295 19,055 19,055 Maid/Porter Salary 17,475 18,555 19,439 19,196 30,271 20,022 15,600 15,990 Insurance - Benefits 11,425 11,543 12,220 13,431 9,633 15,463 15,217 10,677 Taxes - Payroll 7,532 7,724 7,460 7,017 9,582 6,117 7,514 7,639 -------------------------------------------------------------------------------------------------- TOTAL PAYROLL 88,333 90,488 89,428 90,677 124,716 93,013 88,076 84,746 TAXES - OTHER 1,483 0 0 0 0 0 0 0 TAXES - AD VALOREM 76,835 76,835 76,835 76,835 76,835 76,835 76,402 76,402 HOMEOWNERS FEE 0 0 0 0 0 0 0 0 INSURANCE - GL, FIRE & EC (175,253) 25,040 25,040 25,040 23,930 23,930 25,040 25,040 Electrical - Apts 0 0 0 0 0 0 0 0 Electrical - Buildings 74,299 69,945 66,685 74,295 71,110 80,939 84,826 91,816 Natural Gas Service 39,945 44,785 40,977 29,047 24,983 15,744 19,149 18,645 Telephone Service 2,351 944 2,043 1,96l 1,758 1,553 2,045 2,046 Water Service 41,079 36,504 38,784 36,908 39,519 41,646 47,958 49,787 Trash Removal 3,310 4,249 3,626 3,247 3,403 3,250 3,420 3,420 -------------------------------------------------------------------------------------------------- TOTAL UTILITIES 160,985 156,427 152,115 145,456 140,773 143,132 157,398 165,713 Security Expense 12,519 10,999 8,696 8,792 9,406 8,941 9,600 9,600 Professional Fees 1,476 1,321 3,276 1,760 2,853 3,224 2,400 2,350 Advertising 668 2,080 3,231 1,751 1,908 2,351 2,430 2,430 Resident Retention 775 535 957 580 3,220 809 750 750 Locator Fees 3,135 5,120 5,315 5,285 8,644 7,318 9,980 12,640 Furniture Rental 0 0 0 0 0 0 0 0 Other Expense 1,836 1,300 3,668 2,375 2,388 2,487 3,870 3,870 Office Repair & Supplies 1,594 671 865 2,395 1,519 890 1,935 2,610 -------------------------------------------------------------------------------------------------- TOTAL SALES & GENERAL 22,003 22,026 26,008 22,938 29,937 26,019 30,965 34,250 <CAPTION> Aug Sep Oct Nov Dec Budget Total Budget Budget Budget Budget Budget + Actual Budget ------- -------- ------- ------- ------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> -INCOME- GROSS RENTAL INCOME 851,225 852,540 853,515 854,110 854,705 10,212,987 10,195,970 Model Apartment Cost (5,425) (5,425) (5,425) (5,425) (5,425) (64,519) (64,620) Employee Apt Cost (11,670) (11,670) (11,670) (11,670) (11,670) (138,048) (138,975) Discounted Rent (1,005) (930) (830) (830) (830) (16,919) (11,260) Gratuitous Rent 0 0 0 0 0 0 0 -------------------------------------------------------------------------------------------- TOTAL MODEL/FREE UNITS (18,100) (18,025) (17,925) (17,925) (17,925) (219,485) (214,855) Vacancy (27,712) (25,576) (28,257) (33,357) (35,561) (377,421) (416,015) Late Charge/Nsf 1,165 1,165 1,120 1,120 1,120 14,755 13,665 Other Income 2,220 2,220 2,220 2,220 2,220 31,702 26,640 Deposits Forfeited 3,150 2,700 2,400 2,550 2,400 29,511 30,300 Laundry Commissions 7,870 7,870 7,870 7,870 7,870 95,029 94,440 Vending Commissions 335 335 335 335 335 3,730 4,020 -------------------------------------------------------------------------------------------- TOTAL MISC. INCOME 14,740 14,290 13,945 14,095 13,945 174,727 169,065 TOTAL INCOME 820,153 823,229 821,278 816,923 815,164 9,790,808 9,734,165 - -EXPENSES- Manager Salary 24,885 26,055 37,590 25,055 31,319 340,690 328,164 Leasing Salary 6,500 6,500 9,755 6,500 16,250 92,188 89,730 Maintenance Salary 19,095 19,105 28,660 22,105 27,632 256,118 257,027 Maid/Porter Salary 15,990 15,875 22,250 15,700 18,976 229,740 202,764 Insurance - Benefits 10,681 15,309 13,143 10,904 17,451 151,880 152,776 Taxes - Payroll 7,644 7,651 11,300 7,976 10,831 98,473 100,932 ------------------------------------------------------------------------------------------- TOTAL PAYROLL 84,795 89,495 122,698 88,240 122,459 1,169,088 1,131,393 TAXES - OTHER 0 0 0 0 0 1,483 0 TAXES - AD VALOREM 76,402 76,402 76,402 76,402 76,402 919,422 916,824 HOMEOWNERS FEE 0 0 0 0 0 0 0 INSURANCE - GL, FIRE & EC 25,040 25,040 25,040 25,040 25,040 97,967 300,480 Electrical - Apts 0 0 0 0 0 0 0 Electrical - Buildings 91,816 81,330 77,836 74,340 70,845 925,257 961,986 Natural Gas Service 17,637 18,645 19,149 21,668 26,705 317,930 268,070 Telephone Service 2,045 2,045 2,045 2,045 2,045 22,881 24,540 Water Service 47,958 46,127 40,637 36,978 33,317 489,242 502,289 Trash Removal 3,345 3,345 3,345 3,345 3,345 41,231 40,290 -------------------------------------------------------------------------------------------- TOTAL UTILITIES 162,801 151,492 143,012 138,376 136,257 1,796,540 1,797,175 Security Expense 9,600 9,600 9,600 9,600 9,600 116,952 115,200 Professional Fees 2,300 2,150 2,150 2,150 2,150 27,160 27,210 Advertising 2,430 2,430 2,430 2,430 2,430 26,569 29,160 Resident Retention 950 750 750 750 750 11,578 9,200 Locator Fees 13,540 12,180 8,705 5,845 5,845 93,572 104,335 Furniture Rental 0 0 0 0 0 0 0 Other Expense 3,955 3,745 3,650 3,650 3,625 36,549 44,710 Office Repair & Supplies 1,930 2,105 2,130 2,210 1,730 20,648 26,785 -------------------------------------------------------------------------------------------- TOTAL SALES & GENERAL 34,705 32,960 29,415 26,635 26,130 333,027 355,600 </TABLE> <PAGE> <TABLE> <CAPTION> DETAIL OPERATING STATEMENT FARB REALTY COMPANY 08:24 AM 07/07/97 - ------------------------------------------------------------------------------------------------------------------------------------ NOB HILL SUMMARY (952) #UNITS 1,326 JUNE 30,1997 SQ.FT. 1,188,002 - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jun Jul Actual Actual Actual Actual Actual Actual Budget Budget ------ ------ ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Exterminating 1,131 1,037 1,201 1,039 1,292 1,045 1,650 1,600 Cleaning Supplies 836 975 827 821 1,001 1,181 1,265 1,290 Repairs And Supplies 2,695 4,143 1,512 2,482 1,886 1,599 2,020 1,970 Air Conditioner Maintenance 9,497 9,570 5,711 7,468 8,005 5,112 8,300 7,800 Appliance Maintenance 1,075 1,156 1,022 921 1,512 823 900 1,075 Building Maintenance 6,730 6,385 6,249 4,521 4,998 2,799 6,400 8,850 Carpet Maintenance 985 1,433 608 1,080 2,126 1,085 1,275 1,400 Window Treatments-Repairs 0 0 0 0 0 0 0 0 Electrical Maintenance 3,681 3,464 3,625 6,308 5,000 1,558 4,600 4,600 Painting Contract 8,715 8,650 9,534 12,118 8,486 10,251 11,520 12,150 Site Maintenance 33 1,228 (41) 634 1,688 99 1,200 1,200 Painting Material 232 251 1,557 1,465 769 843 775 725 Pool Maintenance 451 380 1,058 721 1,148 708 1,015 890 Plumbing Maintenance 12,478 17,985 17,704 13,032 14,350 11,676 9,350 9,350 Roof And Gutter Maintenance 1,503 1,859 1,774 1,268 4,805 1,908 2,500 2,500 Fire/Freeze/Flood - Minor 0 0 0 0 1,651 2,835 0 0 Landscaping 12,402 15,403 17,495 14,263 17,462 17,636 14,145 12,455 -------------------------------------------------------------------------------- TOTAL MAINTENANCE 62,444 73,920 69,837 68,141 76,178 61,158 66,915 65,855 MANAGEMENT FEE 32,525 32,574 32,228 32,710 32,522 32,571 32,728 32,950 TOTAL EXPENSES 269,354 477,311 471,491 461,797 504,892 456,658 477,524 484,956 NET OPERATING INCOME 543,770 337,060 334,212 355,946 308,159 357,587 332,751 330,867 Repl. Cost-Air Conditioner 0 0 5,919 0 2,051 0 7,350 3,875 Repl. Cost-Appliances 6,882 4,506 3,866 6,349 7,150 3,276 6,775 6,660 Repl. Cost-Bidge-Other 0 0 0 0 0 0 0 0 Repl. Cost-Buildings 0 0 0 928 1,541 2,100 1,300 1,000 Repl. Cost-Carpet/Tile 9,640 19,828 12,556 15,447 15,260 11,919 18,300 19,800 Repl. Cost-Mini-Blinds 1,020 1,100 1,022 1,158 805 707 1,020 945 Repl. Cost-Electrical 1,448 2,044 1,186 837 2,531 1,608 1,400 1,400 Repl. Cost-Painting 0 0 0 0 0 0 0 0 Repl. Cost-Site 0 0 0 0 0 0 1,300 800 Repl. Cost-Pools 0 0 0 0 0 0 0 0 Repf. Cost-Plumbing 4,824 5,036 1,275 1,693 5,790 722 0 0 Repl. Cost-Roof/Gutter 0 0 1,238 0 0 0 0 0 Fire/Freeze/Flood-Major 0 0 0 0 0 0 0 0 Acquired Assets 0 0 847 989 1,021 0 0 0 -------------------------------------------------------------------------------- TOTAL REPLACEMENT COSTS 23,814 32,515 27,908 27,400 36,150 20,331 37,445 34,480 CASH FLOW (before Debt Service) 519,958 519,956 304,546 306,305 328,546 272,009 337,255 295,306 296,387 Mortgage Interest Payments 277,277 250,444 277,277 268,333 277,277 268,333 268,343 277,288 -------------------------------------------------------------------------------- NET CASH FLOW 242,679 54,102 29,028 60,213 (5,268) 68,923 20,963 19,099 -------------------------------------------------------------------------------- <CAPTION> Aug Sep Oct Nov Dec Budget Actual Budget Budget Budget Budget Budget + Actual Budget ------ ------ ------ ------ ------ -------- ------ <S> <C> <C> <C> <C> <C> <C> <C> Exterminating 1,650 1,600 1,340 1,290 1,290 15,514 16,980 Cleaning Supplies 1,225 1,225 1,025 925 800 12,132 12,980 Repairs And Supplies 1,920 1,970 1,770 1,770 1,770 25,488 22,840 Air Conditioner Maintenance 7,400 6,950 6,550 5,800 5,800 85,663 81,900 Appliance Maintenance 1,050 1,025 1,025 650 850 11,985 9,900 Building Maintenance 5,850 5,850 5,300 4,800 4,700 65,033 68,900 Carpet Maintenance 1,400 1,425 1,125 1,075 925 14,666 13,850 Window Treatmente-Repairs 0 0 0 0 0 0 0 Electrical Maintenance 4,550 4,500 3,760 3,350 3,300 47,686 47,150 Painting Contract 10,600 9,050 8,990 7,330 6,830 113,305 110,720 Site Maintenance 1,200 1,200 1,200 1,200 1,200 10,840 17,800 Painting Material 700 675 675 650 650 9,193 8,450 Pool Maintenance 990 940 640 540 540 9,006 9,455 Plumbing Maintenance 9,350 9,350 9,350 7,850 7,850 140,324 109,200 Roof And Gutter Maintenance 2,280 2,280 2,280 2,280 2,280 27,016 28,740 Fire/Freeze/Flood - Minor 0 0 0 0 0 4,486 0 Landscaping 11,645 13,595 12,045 12,445 13,645 170,491 155,975 -------------------------------------------------------------------------------- TOTAL MAINTENANCE 61,810 62,235 57,065 51,955 52,230 762,828 714,840 MANAGEMENT FEE 33,122 33,247 33,168 32,995 32,923 393,535 393,169 TOTAL EXPENSES 478,675 470,871 486,800 439,643 471,441 5,473,889 5,609,481 NET OPERATING INCOME 341,478 352,358 334,478 377,280 343,723 4,316,919 4,124,684 Repl. Cost-Air Conditioner 6,100 3,900 4,300 0 0 26,146 116,750 Repl. Cost-Appliances 7,075 5,370 4,900 4,845 4,605 65,484 64,665 Repl. Cost-Bidge-Other 0 0 0 0 0 0 0 Repl. Cost-Buildings 1,000 4,500 5,000 1,000 1,000 18,069 28,200 Repl. Cost-Carpet/Tile 21,120 17,140 13,460 9,960 9,960 176,089 173,500 Repl. Cost-Mini-Blinds 945 945 945 820 820 11,233 10,770 Repl. Cost-Electrical 1,400 1,400 1,400 1,400 1,400 18,054 19,000 Repl. Cost-Painting 0 0 0 0 0 0 0 Repl. Cost-Site 800 800 800 800 800 4,800 23,255 Repl. Cost-Pools 0 0 0 4,000 4,000 8,000 8,000 Repf. Cost-Plumbing 0 0 0 0 0 19,340 2,000 Repl. Cost-Roof/Gutter 0 0 0 0 0 1,238 31,380 Fire/Freeze/Flood-Major 0 0 0 0 0 0 0 Acquired Assets 0 0 0 0 0 2,857 0 -------------------------------------------------------------------------------- TOTAL REPLACEMENT COSTS 38,440 34,055 30,805 22,825 22,585 351,308 477,520 CASH FLOW (before Debt Service) 303,038 318,303 303,673 354,455 321,138 3,965,611 3,647,164 Mortgage Interest Payments 277,288 268,343 277,288 268,343 277,288 3,264,778 3,264,851 -------------------------------------------------------------------------------- NET CASH FLOW 25,750 49,900 26,385 86,112 43,850 700,833 382,313 -------------------------------------------------------------------------------- </TABLE> <PAGE> <TABLE> <CAPTION> REVIEW OF OPERATIONS FARB REALTY COMPANY 03:08 PM 07/09/97 - ----------------------------------------------------------------------------------------------------------------------------------- NOB HILL SUMMARY (952) #UNITS 1,326 DECEMBER 31,1996 SQ.FT. 1,188,002 - ----------------------------------------------------------------------------------------------------------------------------------- Jan Feb Mar Apr May Jun Jul Aug Actual Actual Actual Actual Actual Actual Actual Actual -------- -------- -------- --------- -------- --------- --------- --------- <S> <C> <C> <C> <C> <C> <C> <C> <C> - -INCOME- Gross Rental Income 836,290 838,930 843,595 843,720 843,120 841,040 840,820 842,050 Model/Free Units (15,663) (19,300) (18,015) (17,428) (17,857) (18,332) (17,955) (17,778) Vacancy (67,022) (71,630) (78,865) (93,258) (85,690) (74,028) (55,051) (28,928) Misc. Income 13,126 19,548 14,167 14,400 14,016 14,198 15,523 15,935 ------------------------------------------------------------------------------------- TOTAL INCOME 766,730 767,548 760,882 747,435 753,589 762,878 783,338 811,279 - -EXPENSES- Payroll 78,323 81,888 82,278 77,100 113,540 87,613 83,563 89,623 Taxes-Ad Valorem 77,093 76,835 76,835 76,835 76,835 76,835 76,835 76,835 Insurance 36,417 36,417 36,417 36,417 25,040 25,040 25,040 25,040 Utilities 177,527 151,899 147,132 144,462 137,913 140,992 146,127 148,920 Sales & General 17,714 20,932 21,444 27,105 28,445 22,394 36,351 39,630 Maintenance 53,295 55,869 56,893 49,852 41,577 61,804 60,903 104,627 -------- -------- -------- --------- -------- --------- --------- --------- Sub-Total 440,369 423,839 420,999 411,771 423,350 414,678 428,818 484,676 Management Fee 30,669 30,701 30,435 29,897 30,144 30,515 31,333 32,449 -------- -------- -------- --------- -------- --------- --------- --------- TOTAL EXPENSES 471,038 454,540 451,434 441,668 453,494 445,193 460,152 517,124 ------------------------------------------------------------------------------------- NET OPERATING INCOME 295,693 313,008 309,448 305,767 300,094 317,686 323,180 294,154 Replacement Costs 22,498 21,608 17,098 31,156 13,383 20,721 39,739 68,356 CASH FLOW (before Debt Service) 273,195 291,400 292,350 274,611 286,711 298,965 283,448 225,798 Mortgage Interest Payments 277,845 259,274 277,155 268,215 277,155 268,215 277,277 277,277 ------------------------------------------------------------------------------------- NET CASH FLOW (4,651) 32,126 15,195 6,396 9,556 28,751 6,171 (51,479) ------------------------------------------------------------------------------------- VACANCY LOSS % 8.01% 8.54% 9.35% 11.05% 10.16% 8.80% 6.55% 3.44% MANAGEMENT APARTMENTS % 1.86% 1.85% 1.91% 1.89% 1.86% 1.93% 1.84% 1.84% ECONOMIC OCCUPANCY % 90.11% 89.16% 88.52% 86.88% 87.72% 89.02% 91.32% 94.45% DIRECT EXPENSES % 52.66% 50.52% 49.91% 48.80% 50.21% 49.31% 51.00% 57.56% MANAGEMENT FEE EXPENSE % 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% CAPITAL EXPENDITURES % 2.69% 2.58% 2.03% 3.69% 1.59% 2.46% 4.73% 8.12% RENT INFLATION % 0.32% 0.56% 0.01% -0.07% -0.25% -0.03% 0.15% GROSS RENTS PER SQ. FT. 0.704 0.706 0.710 0.710 0.710 0.708 0.708 0.79 EFF. GROSS INC. PER SQ. FT. 0.645 0.646 0.640 0.629 0.634 0.642 0.659 0.683 DIRECT EXP'S PER SQ. FT. 4.45 4.28 4.25 4.16 4.28 4.19 4.33 4.90 AVERAGE RENT PER UNIT 631 633 636 636 636 634 634 635 Sep Oct Nov Dec Dec Budget Total Actual Actual Actual Actual Budget + Actual Budget ------ ------ ------ ------ ------ -------- ------ <S> <C> <C> <C> <C> <C> <C> <C> - -INCOME- Gross Rental Income 841,340 841,580 841,805 842,630 852,194 10,096,820 10,065,620 Model/Free Units (18,972) (20,049) (18,982) (19,280) (16,221) (219,609) (192,818) Vacancy (17,169) (15,343) (14,579) (19,782) (38,912) (621,345) (407,976) Misc. Income 21,969 14,863 17,378 15,877 14,270 190,999 178,036 ---------------------------------------------------------------------------------------- TOTAL INCOME 827,168 821,051 825,622 819,345 811,331 9,640,865 9,642,862 - -EXPENSES- Payroll 90,324 79,910 117,287 106,784 84,180 1,088,232 1,062,336 Taxes-Ad Valorem 76,835 76,835 76,835 37,907 78,744 883,350 944,928 Insurance 25,040 25,040 25,040 25,040 38,238 345,988 451,572 Utilities 140,923 127,898 136,194 142,025 158,583 1,742,012 1,764,720 Sales & General 39,718 39,870 26,210 27,545 19,215 347,357 253,021 Maintenance 62,476 67,366 72,139 62,879 44,595 749,680 598,484 -------- -------- ------- ------- ------- --------- --------- Sub-Total 435,317 418,919 453,704 402,180 423,555 5,156,619 5,075,061 Management Fee 33,085 32,843 33,025 32,773 32,454 377,869 385,712 -------- -------- ------- ------- ------- --------- --------- TOTAL EXPENSES 468,402 449,762 486,729 434,953 456,009 5,534,488 5,460,773 ---------------------------------------------------------------------------------------- NET OPERATING INCOME 358,766 371,289 338,892 384,393 355,322 3,912,377 4,182,089 Replacement Costs 71,085 89,542 98,392 98,511 14,114 592,087 308,363 CASH FLOW (before Debt Service) 287,681 281,748 240,501 285,882 341,208 3,320,289 3,873,726 Mortgage Interest Payments 268,333 277,277 268,333 277,277 277,090 3,273,632 3,266,970 ---------------------------------------------------------------------------------------- NET CASH FLOW 19,348 4,471 (27,832) 8,605 64,118 46,657 606,756 ---------------------------------------------------------------------------------------- VACANCY LOSS % 2.04% 1.82% 1.73% 2.35% 4.57% 6.15% 4.05% MANAGEMENT APARTMENTS % 1.84% 1.96% 2.01% 2.04% 1.84% 1.91% 1.85% ECONOMIC OCCUPANCY % 95.70% 95.79% 96.01% 95.36% 93.53% 91.67% 94.03% DIRECT EXPENSES % 51.74% 49.64% 63.90% 47.73% 49.70% 51.07% 60.42% MANAGEMENT FEE EXPENSE % 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% CAPITAL EXPENDITURES % 8.45% 10.64% 11.69% 11.69% 1.66% 5.86% 3.06% RENT INFLATION % -0.08% 0.03% 0.03% 0.09% 1.15% GROSS RENTS PER SQ. FT. 0.708 0.708 0.709 0.709 0.717 0.708 0.706 EFF. GROSS INC. PER SQ. FT. 0.696 0.691 0.695 0.690 O.683 0.663 0.676 DIRECT EXP'S PER SO. FT. 4.40 4.21 4.58 4.O6 4.28 4.34 4.27 AVERAGE RENT PER UNIT 634 635 635 635 643 635 633 </TABLE> <PAGE> <TABLE> <CAPTION> DETAIL OPERATING STATEMENT FARB REALTY COMPANY 03:09 PM 07/09/97 - ------------------------------------------------------------------------------------------------------------------------------------ NOB HILL SUMMARY (952) #UNITS 1,326 DECEMBER 31, 1996 SQ.FT. 1,188,002 - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jul Aug Actual Actual Actual Actual Actual Actual Actual Actual ------ ------ ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> - -INCOME- GROSS RENTAL INCOME 836,290 838,930 843,595 843,720 843,120 841,040 840,820 842,050 Model Apartment Cost (5,280) (5,280) (5,280) (5,190) (5,190) (5,190) (5,195) (5,235) Employee Apt Cost (10,273) (10,255) (10,830) (10,775) (10,617) (11,007) (10,297) (10,297) Discounted Rent (110) (3,765) (1,905) (1,463) (2,150) (2,135) (2,463) (2,246) Gratuitous Rent 0 0 0 0 0 0 0 0 --------------------------------------------------------------------------------------------- TOTAL MODEL/FREE UNITS (15,663) (19,300) (18,015) (17,428) (17,857) (18,332) (17,955) (17,778) Vacancy (67,022) (71,630) (78,865) (93,258) (85,690) (74,028) (55,051) (28,928) Late Charge/Nsf 1,104 885 1,725 820 1,155 925 1,570 1,580 Other Income 2,185 2,419 2,467 2,987 3,789 3,780 4,194 3,62l Deposits Forfeited 2,900 4,104 2,326 3,703 2,220 2,479 2,715 3,450 Laundry Commissions 6,937 11,825 7,369 6,891 6,852 7,014 6,944 7,124 Vending Commissions 0 315 280 0 0 0 0 160 --------------------------------------------------------------------------------------------- TOTAL MISC. INCOME 13,126 19,548 14,167 14,400 14,016 14,198 15,523 16,935 TOTAL INCOME 766,730 767,548 760,882 747,435 763,589 762,878 783,338 811,279 - -EXPENSES- Manager Salary 22,405 22,192 24,342 21,935 34,261 21,602 22,711 23,56l Leasing Salary 4,978 5,203 5,253 5,303 7,654 5,952 6,402 7,982 Maintenance Salary 19,908 21,263 17,790 17,391 27,689 20,095 18,621 18,820 Maid/Porter Salary 12,196 14,170 14,724 14,365 21,754 18,236 19,342 22,009 Insurance - Benefits 12,203 12,116 13,288 11,864 13,568 15,680 10,553 11,023 Taxes - Payroll 6,633 6,944 6,881 6,242 8,714 6,042 5,933 6,230 --------------------------------------------------------------------------------------------- TOTAL PAYROLL 78,323 81,888 82,278 77,100 113,540 87,613 83,563 89,623 TAXES - OTHER 1,468 0 0 0 0 0 0 0 TAXES - AD VALOREM 75,625 76,835 76,835 76,835 76,835 76,835 76,835 76,835 HOMEOWNERS FEE 0 0 0 0 0 0 0 0 INSURANCE - GL, FIRE & EC 36,417 36,417 36,417 38,417 25,040 25,040 25,040 25,040 Electrical - Apts 0 0 0 0 0 0 0 0 Electrical - Buildings 95,466 68,932 67,364 67,776 72,313 80,986 85,737 87,849 Natural Gas Service 38,420 42,684 36,454 34,599 21,169 12,384 11,443 10,433 Telephone Service 2,166 1,588 1,748 1,444 2,125 1,807 2,306 2,039 Water Service 38,763 35,992 38,863 37,482 38,921 42,305 43,455 45,363 Trash Removal 2,702 2,702 2,702 3,161 3,386 3,510 3,186 3,236 --------------------------------------------------------------------------------------------- TOTAL UTILITIES 177,527 151,899 147,132 144,462 137,913 140,992 146,127 148,920 Security Expense 5,179 7,329 7,514 10,483 11,633 11,441 9,549 9,873 Professional Fees 2,325 1,433 2,681 1,767 3,840 2,719 1,709 2,468 Advertising 1,045 3,627 4,329 290 4,524 840 2,230 2,813 Resident Retention 78 916 14 469 141 163 815 417 Locator Fees 4,902 4,410 4,090 3,745 5,395 3,986 15,725 15,665 Furniture Rental 0 0 0 0 0 0 0 0 Other Expense 1,506 1,851 1,403 2,566 2,087 2,576 2,955 5,369 Office Repair & Supplies 20,680 1,367 1,413 1,785 826 670 3,386 3,025 -------------------------------------------------------------------------------------------- TOTAL SALES & GENERAL 17,714 20,932 21,444 27,105 28,445 22,394 36,351 39,630 Sep Oct Nov Dec Dec Budget Total Actual Actual Actual Actual Budget + Actual Budget ------ ------ ------ ------ ------ -------- ------ <S> <C> <C> <C> <C> <C> <C> <C> - -INCOME- GROSS RENTAL INCOME 841,340 841,580 841,805 842,530 852,194 10,096,820 10,065,620 Model Apartment Cost (5,235) (5,175) (5,900) (6,025) (5,402) (64,175) (64,076) Employee Apt Cost (10,437) (11,307) (11,003) (11,172) (10,269) (128,170) (122,142) Discounted Rent (3,300) (3,587) (2,079) (2,083) (550) (27,264) (6,600) Gratuitous Rent 0 0 0 0 0 0 0 --------------------------------------------------------------------------------------------- TOTAL MODEL/FREE UNITS (18,972) (20,049) (18,982) (19,280) (16,221) (219,609) (192,818) Vacancy (17,169) (15,343) (14,579) (19,782) (38,912) (621,345) (407,976) Late Charge/Nsf 1,385 1,055 1,640 1,240 1,430 15,184 17,646 Other Income 4,873 2,176 4,235 2,117 3,040 38,842 35,440 Deposits Forfeited 4,186 4,048 3,406 2,383 1,750 37,919 26,850 Laundry Commissions 10,725 7,584 7,738 9,896 7,700 96,898 94,000 Vending Commissions 800 0 360 240 350 2,155 4,200 --------------------------------------------------------------------------------------------- TOTAL MISC. INCOME 21,969 14,863 17,378 15,877 14,270 190,999 178,030 TOTAL INCOME 827,168 821,051 825,622 819,345 811,331 9,446,865 9,642,862 - -EXPENSES- Manager Salary 24,284 24,234 39,370 31,762 24,485 312,659 311,689 Leasing Salary 6,496 5,775 9,193 9,263 6,223 79,456 79,246 Maintenance Salary 17,849 17,866 25,429 24,374 20,661 246,994 263,825 Maid/Porter Salary 22,210 15,220 22,546 22,224 13,500 218,995 167,002 Insurance - Benefits 13,577 11,719 12,927 12,645 12,078 151,169 148,948 Taxes - Payroll 5,907 5,096 7,821 6,517 7,233 78,959 91,626 -------------------------------------------------------------------------------------------- TOTAL PAYROLL 90,324 79,910 117,287 106,784 84,180 1,088,232 1,062,336 TAXES - OTHER 0 0 0 0 0 1,468 0 TAXES - AD VALOREM 76,835 76,835 76,835 37,907 78,744 881,882 944,928 HOMEOWNERS FEE 0 0 0 0 0 0 0 INSURANCE - GL, FIRE & EC 25,040 25,040 25,040 25,040 38,238 345,988 451,572 Electrical - Apts 0 0 0 0 0 0 0 Electrical - Buildings 81,297 79,393 75,715 69,344 76,574 932,172 901,393 Natural Gas Service 10,904 12,266 17,267 28,639 32,978 276,670 281,292 Telephone Service 1,724 1,328 1,916 1,675 1,735 21,867 20,990 Water Service 43,763 31,800 37,985 39,057 43,986 473,552 622,945 Trash Removal 3,236 3,310 3,310 3,310 3,310 37,761 38,100 -------------------------------------------------------------------------------------------- TOTAL UTILITIES 140,923 127,898 130,194 142,025 158,583 1,742,012 1,764,720 Security Expense 9,920 9,943 10,513 9,730 6,780 119,105 68,890 Professional Fees 1,965 1,809 3,407 1,304 2,180 27,427 27,960 Advertising 2,501 2,063 1,780 2,571 1,700 28,618 21,100 Resident Retention 627 744 985 641 1,110 6,909 13,540 Locator Fees 21,135 19,213 3,855 5,890 3,845 107,809 68,231 Furniture Rental 0 0 0 0 0 0 0 Other Expense 2,033 3,787 2,623 4,831 3,000 33,587 35,100 Office Repair & Supplies 1,539 2,312 3,041 2,877 1,600 24,902 20,200 -------------------------------------------------------------------------------------------- TOTAL SALES & GENERAL 39,718 39,870 26,210 27,545 19,215 347,357 253,021 </TABLE> <PAGE> <TABLE> <CAPTION> REVIEW OF OPERATIONS FARB REALTY COMPANY 03:08 PM 07/09/97 - ------------------------------------------------------------------------------------------------------------------------------------ NOB HILL SUMMARY (952) #UNITS 1,328 DECEMBER 31,1995 SQ.FT. 1.188.002 - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jul Aug Actual Actual Actual Actual Actual Actual Actual Actual ------ ------ ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> - -INCOME- Gross Rental Income 812,775 812,334 811,669 811,948 812,661 811,959 811,499 816,535 Model/Free Units (18,371) (17,992) (18,985) (17,531) (17,579) (18,035) (l6,202) (15,140) Vacancy (55,784) (58,182) (43,261) (43,147) (30,935) (30,038) (19,682) (27,688) Misc. Income 12,171 17,889 9,138 16,655 15,981 15,132 15,149 16,125 --------------------------------------------------------------------------------------------- TOTAL INCOME 750,791 756,048 758,56l 767,923 780,128 779,018 790,764 789,832 - -EXPENSES- Payroll 81,974 81,373 80,181 79,910 80,109 91,422 73,216 74,759 Taxes-Ad Valorem 77,228 75,759 75,750 75,759 75,759 75,759 75,759 75,759 Insurance 32,6l1 32,611 32,811 32,611 36,417 36,417 36,417 36,417 Utilities 140,086 159,765 151,866 121,951 147,896 152,857 142,538 147,835 Sales & General 21,236 18,884 30,562 28,570 30,117 23,762 24,638 28,329 Maintenance 55,347 64,038 75,956 71,034 67,537 78,900 70,004 80,262 ------ ------ ------ ------ ------ ------ ------ ------ Sub-Total 408,483 432,430 446,935 409,834 437,835 459,118 422,572 443,363 Management Fee 30,032 30,242 30,343 30,716 31,205 31,161 31,632 31,593 ------ ------ ------ ------ ------ ------ ------ ------ TOTAL EXPENSES 438,515 462,672 477,278 440,550 469,040 490,279 454,204 474,956 NET OPERATING INCOME 312,276 293,376 281,284 327,373 311,088 288,739 336,559 314,876 Replacement Costs 37,875 27,114 51,610 27,940 72,445 46,845 44,132 28,927 CASH FLOW (before Debt Service) 274,401 266,262 229,673 299,432 238,643 241,894 292,428 285,949 Mortgage Interest Payments 272,088 249,109 276,601 268,417 274,163 268,001 277,691 277,012 Loan Draws From GECC (33,146) (69,244) (76,131) 0 (60,527) (30,052) 0 (17,111) Renovation 21,668 16,258 5,410 0 0 8,555 8,556 8,555 --------------------------------------------------------------------------------------------- NET CASH FLOW 13,794 70,139 23,793 31,015 25,007 (4,610) 6,182 17,493 --------------------------------------------------------------------------------------------- VACANCY LOSS % 6.86% 8.92% 6.33% 5.31% 3.81% 3.70% 2.43% 3.39% MANAGEMENT APARTMENTS % 2.16% 2.12% 2.27% 2.09% 2.12% 2.12% 1.94% 1.81% ECONOMIC OCCUPANCY % 90.88% 90.87% 92.33% 92.53% 94.03% 94.08% 95.58% 94.75% DIRECT EXPENSES % 50.26% 63.23% 55.06% 50.48% 53.88% 56.54% 52.07% 54.30% MANAGEMENT FEE EXPENSE % 4.00% 4.OO% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% CAPITAL EXPENDITURES % 4.66% 3.34% 0.36% 3.44% 8.91% 5.77% 6.44% 3.54% RENT INFLATION % -0.05% -0.08% 0.03% 0.09% -0.09% -0.06% 0.62% GROSS RENTS PER SQ. FT. 0.684 0.684 0.683 0.683 0.684 0.683 0.683 0.887 EFF. GROSS INC. PER SQ. FT. O.632 O.63 0.639 0.648 0.657 0.656 0.666 O.665 DIRECT EXP'S PER SQ. FT. 4.13 4.37 4.51 4.14 4.42 4.64 4.27 4.48 AVERAGE RENT PER UNIT 613 613 612 612 613 612 612 616 <CAPTION> Sep Oct Nov Dec Dec Budget Total Actual Actual Actual - Actual Budget + Actual Budget ------ ------ -------- ------ ------ -------- ------ - -INCOME- Gross Rental Income 822,340 825,810 828,255 830,517 846,957 9,808,304 9,948,991 Model/Free Units (15,763) (17,085) (17,278) (16,555) (18,984) (206,516) (225,294) Vacancy (26,758) (33,049) (37,934) (51,517) (50,588) (455,973) (535,713) Misc. Income 21,458 14,617 12,242 15,154 13,191 181,611 152,420 ------------------------------------------------------------------------------------- TOTAL INCOME 801,277 790,199 785,286 777,599 790,576 9,327,425 9,338,404 - -EXPENSES- Payroll 83,080 82,070 78,668 124,792 113,049 1,011,555 1,001,584 Taxes-Ad Valorem 75,759 75,759 75,759 39,834 80,428 874,652 965,136 Insurance 36,417 36,417 36,417 36,417 33,238 421,780 394,204 Utilities 120,998 131,253 129,953 129,616 171,194 1,676,613 1,860,103 Sales & General 27,697 20,526 13,362 19,117 16,177 286,800 231,416 Maintenance 64,033 56,695 54,069 43,042 48,913 780,917 665,289 ------ ----- ------ ------ ------ ------- ------ Sub-Total 407,983 402,719 388,227 392,818 462,999 5,052,317 5,123,732 Management Fee 32,051 31,608 31,412 31,118 31,623 373,113 373,538 ------ ------ ------ ------ ------- ------- ------- TOTAL EXPENSES 440,034 434,327 419,639 423,936 494,622 5,425,430 6,497,270 ------------------------------------------------------------------------------------- NET OPERATING INCOME 361,243 355,872 365,647 353,663 295,954 3,901,995 3,841,134 Replacement Costs 64,577 37,122 50,609 27,486 18,422 516,583 444,339 CASH FLOW (before Debt Service) 296,665 318,750 315,138 326,177 277,532 3,385,411 3,396,795 Mortgage Interest Payments 267,793 277,301 268,662 277,845 279,676 3,254,681 3,294,052 Loan Draws From GECC 0 (13,957) 0 0 0 (300,168) 0 Renovation 5,402 0 0 0 0 74,402 0 ------------------------------------------------------------------------------------- NET CASH FLOW 23,471 55,406 40,476 48,331 (2,144) 356,490 102,743 ------------------------------------------------------------------------------------- VACANCY LOSS % 3.25% 4.00% 4.58% 6.20% 6.97% 4.65% 5.39% MANAGEMENT APARTMENTS % 1.86% 1.96% 2.00% 1.95% 2.17% 2.03% 2.19% ECONOMIC OCCUPANCY % 94.83% 93.33% 93.33% 91.80% 91.79% 93.25% 92.35% DIRECT EXPENSES % 49.61% 48.77% 48.87% 47.30% 54.67% 5.51% 51.51% MANAGEMENT FEE EXPENSE % 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% CAPITAL EXPENDITURES % 7.85% 4.50% 6.10% 3.31% 2.18% 6.27% 4.47% RENT INFLATION % -0.06% 0.62% 0.71% 0.42% 0.30% 0.27% 1.98% GROSS RENTS PER SQ. FT. O.692 0.695 0.697 0.699 0.713 0.688 0.098 EFF. GROSS INC. PER SQ. FT. 0.674 0.665 0.661 0.655 0.665 0.854 0.655 DIRECT EXP'S PER SQ. FT. 4.12 4.07 3.92 3.97 4.68 4.25 4.31 AVERAGE RENT PER UNIT 620 623 625 626 639 6l6 625 </TABLE> <PAGE> <TABLE> <CAPTION> DETAIL OPERATING STATEMENT FARB REALTY COMPANY 03:08 PM 07/09/97 - ------------------------------------------------------------------------------------------------------------------------------------ NOB HILL SUMMARY (952) #UNITS 1,326 DECEMBER 31, 1995 SQ.FT. 1,188,002 - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jul Aug Actual Actual Actual Actual Actual Actual Actual Actual ------ ------ ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> - -INCOME- GROSS RENTAL INCOME 812,775 812,334 811,669 811,946 812,661 811,959 811,499 816,535 Model Apartment Cost (5,035) (5,035) (5,035) (5,010) (5,295) (5,035) (5,035) (5,135) Employee Apt Cost (12,532) (12,226) (13,355) (11,965) (11,965) (12,186) (10,725) (9,605) Discounted Rent (804) (731) (595) (556) (319) (815) (442) (400) Gratuitous Rent 0 0 0 0 0 0 0 0 -------------------------------------------------------------------------------------------- TOTAL MODEL/FREE UNITS (18,371) (17,992) (18,985) (17,531) (17,579) (18,035) (l6,202) (15,140) Vacancy (55,784) (56,182) (43,261) (43,147) (30,935) (30,038) (19,682) (27,688) Late Charge/Nsf 1,735 1,376 1,385 1,463 1,045 1,566 1,660 1,899 Other Income 2,530 2,669 2,198 2,822 2,795 3,600 2,715 3,062 Deposits Forfeited 1,759 1,931 995 3,083 1,995 2,414 2,786 2,530 Laundry Commissions 6,116 11,913 4,007 8,973 9,715 7,533 7,604 8,249 Vending Commissions 30 0 553 314 432 19 385 385 -------------------------------------------------------------------------------------------- TOTAL MISC. INCOME 12,171 17,889 9,138 16,655 15,98l 15,132 15,149 16,125 TOTAL INCOME 750,791 756,048 758,561 767,923 780,128 779,018 790,764 789,832 - -EXPENSES- Manager Salary 24,158 23,578 23,114 23,264 23,456 33,511 20,863 22,044 Leasing Salary 6,193 5,080 5,158 5,478 5,378 7,729 5,553 5,543 Maintenance Salary 18,951 18,374 18,501 19,775 20,004 30,874 19,748 20,378 Maid/Porter Salary 12,907 12,907 12,513 11,875 12,249 18,038 12,098 12,223 Insurance - Benefits 13,189 15,101 14,417 13,437 13,316 (6,645) 10,040 9,527 Taxes - Payroll 6,576 6,333 6,479 6,082 5,706 7,915 4,914 5,044 -------------------------------------------------------------------------------------------- TOTAL PAYROLL 81,974 81,373 80,181 79,910 80,109 91,422 73,216 74,759 TAXES - OTHER 1,469 0 0 0 0 0 0 0 TAXES - AD VALOREM 75,759 75,759 75,759 75,759 75,759 75,759 75,759 75,759 HOMEOWNERS FEE 0 0 0 0 0 0 0 0 INSURANCE - GL, FIRE & EC 32,6l1 32,611 32,611 32,6l1 36,417 36,417 36,417 36,417 Electrical - Apts 0 0 0 0 0 0 0 0 Electrical - Buildings 69,640 69,086 68,614 43,559 73,973 83,920 80,955 87,267 Natural Gas Service 30,036 42,667 35,512 29,160 29,442 16,223 11,327 11,023 Telephone Service 635 2,114 3,176 1,238 1,739 1,708 1,305 2,626 Water Service 39,775 40,494 41,862 45,291 40,039 48,303 46,249 44,067 Trash Removal 0 5,405 2,702 2,702 2,702 2,702 2,702 2,852 -------------------------------------------------------------------------------------------- TOTAL UTILITIES 140,086 159,765 151,866 121,951 147,896 152,857 142,538 147,835 Security Expense 4,519 4,506 4,879 5,014 5,814 5,184 5,401 4,956 Professional Fees 569 2,956 3,117 8,710 2,384 4,981 2,232 2,076 Advertising 1,719 1,414 1,531 2,117 3,655 1,226 2,079 4,183 Resident Retention 1,395 30 2,288 (64) (263) 468 115 71 Locator Fees 8,431 5,06l 14,991 9,055 8,805 8,095 9,225 12,350 Furniture Rental 0 0 0 0 0 0 0 0 Other Expense 2,970 3,030 1,607 2,521 8,222 2,598 2,834 3,476 Office Repair & Supplies 1,631 1,886 2,147 1,216 1,501 1,211 2,752 1,217 -------------------------------------------------------------------------------------------- TOTAL SALES & GENERAL 21,238 18,884 30,582 28,570 30,117 23,762 24,638 28,329 <CAPTION> Sep Oct Nov Dec Dec Budget Total Actual Actual Actual Actual Budget + Actual Budget ------ ------ ------ ------ ------ -------- ------ <S> <C> <C> <C> <C> <C> <C> <C> - -INCOME- GROSS RENTAL INCOME 822,340 825,816 828,255 830,517 846,957 9,808,304 9,946,991 Model Apartment Cost (5,240) (5,240) (5,240) (5,270) (4,812) (61,605) (56,968) Employee Apt Cost (10,070) (10,955) (11,343) (10,940) (13,545) (137,866) (160,515) Discounted Rent (453) (890) (695) (345) (450) (7,045) (5,715) Gratuitous Rent 0 0 0 0 (177) 0 (2,096) -------------------------------------------------------------------------------------------- TOTAL MODEL/FREE UNITS (15,763) (17,085) (17,278) (16,555) (18,984) (206,516) (225,294) Vacancy (26,758) (33,049) (37,934) (51,517) (50,588) (455,973) (535,713) Late Charge/Nsf 2,069 1,479 1,405 1,985 1,160 19,066 12,795 Other Income 3,393 2,795 1,500 1,223 3,783 31,302 33,449 Deposits Forfeited 5,374 3,005 4,131 2,515 1,550 32,519 25,800 Laundry Commissions 10,237 7,238 4,891 8,871 6,698 95,345 80,376 Vending Commissions 385 0 315 560 0 3,378 0 -------------------------------------------------------------------------------------------- TOTAL MISC. INCOME 21,458 14,517 12,242 15,154 13,191 181,611 152,420 TOTAL INCOME 801,277 790,199 785,286 777,599 790,576 9,327,425 9,338,404 - -EXPENSES- Manager Salary 25,579 24,632 22,076 37,441 35,677 303,716 307,833 Leasing Salary 6,053 5,528 5,528 8,524 7,649 71,747 70,988 Maintenance Salary 19,808 20,467 20,045 33,087 27,445 260,012 237,111 Maid/Porter Salary 12,313 12,298 12,271 20,583 17,121 162,275 147,445 Insurance - Benefits 12,300 12,138 12,178 15,146 15,840 134,144 157,288 Taxes - Payroll 7,026 7,006 6,569 10,011 9,317 79,660 80,921 -------------------------------------------------------------------------------------------- TOTAL PAYROLL 83,080 82,070 78,668 124,792 113,049 1,011,555 1,001,584 TAXES - OTHER 0 0 0 0 0 1,469 0 TAXES - AD VALOREM 75,759 75,759 75,759 39,834 80,428 873,183 965,130 HOMEOWNERS FEE 0 0 0 0 0 0 0 INSURANCE - GL, FIRE & EC 36,417 36,417 36,417 36,417 33,238 421,780 394,204 Electrical - Apts 0 0 0 0 0 0 0 Electrical - Buildings 60,912 71,870 67,457 57,901 81,450 835,155 982,431 Natural Gas Service 11,446 11,040 17,250 30,539 39,013 275,666 288,753 Telephone Service 1,483 1,122 2,014 1,465 1,540 20,624 18,480 Water Service 44,342 44,518 40,529 37,009 46,379 512,477 643,770 Trash Removal 2,815 2,702 2,702 2,702 2,812 32,691 32,669 -------------------------------------------------------------------------------------------- TOTAL UTILITIES 120,998 131,253 129,953 129,616 171,194 1,676,013 1,866,103 Security Expense 5,366 4,668 4,995 5,261 4,750 60,564 57,000 Professional Fees 3,785 2,022 895 1,882 915 35,811 11,160 Advertising 1,442 1,460 1,601 3,354 1,550 25,782 24,440 Resident Retention 0 1,161 110 188 990 5,499 11,889 Locator Fees 13,070 5,850 1,150 4,965 3,489 101,049 69,719 Furniture Rental 0 0 0 0 0 0 0 Other Expense 3,028 2,752 2,470 1,864 2,833 37,372 35,858 Office Repair & Supplies 1,005 2,612 2,141 1,603 1,650 20,923 20,750 -------------------------------------------------------------------------------------------- TOTAL SALES & GENERAL 27,697 20,526 13,362 19,117 16,177 286,800 231,416 </TABLE> <PAGE> <TABLE> <CAPTION> DETAIL OPERATING STATEMENT FARB REALTY COMPANY 03:08 PM 07/09/97 - ----------------------------------------------------------------------------------------------------------------------------------- NOB HILL SUMMARY (952) #UNITS 1,326 DECEMBER 31,1995 SQ.FT. 1,188,002 - ----------------------------------------------------------------------------------------------------------------------------------- Jan Feb Mar Apr May Jun Jul Aug Actual Actual Actual Actual Actual Actual Actual Actual ------ ------ ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Exterminating 994 1,694 1,533 1,585 1,433 1,573 1,591 2,903 Cleaning Supplies 649 749 717 850 954 786 969 1,231 Repairs And Supplies 2,476 2,555 2,638 1,592 1,239 2,822 2,216 2,098 Air Conditioner Maintenance 8,221 6,660 6,448 9,606 8,742 7,809 10,170 10,423 Appliance Maintenance 449 983 671 318 515 382 461 205 Building Maintenance 7,619 7,050 9,037 8,114 5,633 4,695 5,331 6,110 Carpet Maintenance 1,091 1,419 1,166 1,087 763 1,204 1,347 1,194 Window Treatments-Repairs 0 314 (314) 38 0 0 0 14 Electrical Maintenance 6,331 6,357 6,287 6,769 4,369 6,253 6,735 4,636 Painting Contract 8,317 9,144 18,937 9,289 9,070 14,501 7,392 21,159 Site Maintenance 1,224 1,666 260 1,300 1,700 642 1,752 345 Painting Material 909 (472) 273 524 35 596 290 349 Pool Maintenance 256 367 309 671 490 643 1,853 646 Plumbing Maintenance 7,827 12,882 14,405 15,532 13,097 17,298 16,395 8,213 Roof And Gutter Maintenance 812 889 1,227 826 708 989 614 276 Fire/Freeze/Flood - Minor 0 0 0 0 0 0 0 0 Landscaping 8,172 11,782 12,363 12,934 18,790 18,706 12,886 20,463 ------------------------------------------------------------------------------------------- TOTAL MAINTENANCE 55,347 64,038 75,956 71,034 67,537 78,900 70,004 80,262 MANAGEMENT FEE 30,032 30,242 30,343 30,716 31,205 31,161 31,632 31,593 TOTAL EXPENSES 438,515 462,672 477,278 440,550 469,040 490,279 454,204 474,956 NET OPERATING INCOME 312,276 293,376 281,284 327,373 311,088 288,739 336,559 314,876 Repl. Cost-Air Conditioner 460 2,790 0 1,905 33,701 11,160 3,179 2,853 Repl. Cost-Appliances 6,119 7,335 6,255 6,457 4,985 6,662 4,583 5,480 Repl. Cost-Bldgs-Other 0 0 858 0 0 0 0 125 Repl. Cost-Buildings 0 3,500 0 0 3,500 0 2,185 0 Repl. Cost-Carpet/Tile 24,507 12,933 26,766 16,339 25,973 13,681 23,248 13,131 Repl. Cost-Mini-Blinds 754 556 1,574 990 1,217 653 219 1,302 Repl. Cost-Electrical 0 0 0 0 0 1,307 1,318 1,767 Repl. Cost-Painting 0 0 0 0 0 0 0 0 Repl. Cost-Site 1,750 0 0 2,250 0 0 850 0 Repl. Cost-Pools 0 0 14,745 0 0 11,709 865 0 Repl. Cost-Plumbing 898 0 0 0 2,244 0 0 0 Repl. Cost-Roof/Gutter 3,386 0 0 0 825 0 4,350 0 Fire/Freeze/Flood-Major 0 0 0 0 0 0 0 0 Acquired Assets 0 0 1,413 0 0 1,674 3,334 4,268 ------------------------------------------------------------------------------------------- TOTAL REPLACEMENT COSTS 37,875 27,114 51,610 27,940 72,445 46,845 44,132 28,927 CASH FLOW (before Debt Service) 274,401 266,262 229,673 299,432 238,643 241,894 292,428 285,949 Mortgage Interest Payments 272,088 249,109 276,601 268,417 274,163 268,001 277,691 277,012 Loan Draws From Gecc (33,146) (69,244) (76,131) 0 (60,527) (30,052) 0 (17,111) Renovation 21,666 16,258 5,410 0 0 8,555 8,555 8,555 ------------------------------------------------------------------------------------------- NET CASH FLOW 13,794 70,139 23,793 31,015 25,007 (4,610) 6,182 17,493 ------------------------------------------------------------------------------------------- <CAPTION> Sep Oct Nov Dec Dec Budget Total Actual Actual Actual Actual Budget + Actual Budget ------ ------ ------ ------ ------ -------- ------ <S> <C> <C> <C> <C> <C> <C> <C> Exterminating 1,553 895 1,454 1,393 1,446 18,601 19,761 Cleaning Supplies 810 867 796 751 830 10,129 10,585 Repairs And Supplies 3,247 2,692 965 579 1,608 25,118 19,996 Air Conditioner Maintenance 12,131 6,613 8,997 3,714 6,875 99,533 73,650 Appliance Maintenance 322 604 1,021 667 600 6,600 7,925 Building Maintenance 4,502 6,087 4,487 4,027 3,615 72,692 46,730 Carpet Maintenance 1,304 1,222 940 594 1,535 13,331 21,070 Window Treatments-Repairs 0 7 29 0 500 87 6,775 Electrical Maintenance 3,945 2,999 2,024 2,185 3,525 58,888 50,525 Painting Contract 11,462 11,557 10,913 5,942 7,840 137,683 107,270 Site Maintenance 756 1,704 1,557 226 2,100 13,134 32,750 Painting Material 193 51 204 185 415 3,136 5,155 Pool Maintenance 648 502 2,440 230 535 9,053 7,370 Plumbing Maintenance 8,017 6,194 7,918 10,256 5,400 138,035 70,020 Roof And Gutter Maintenance 990 110 220 400 625 8,059 8,300 Fire/Freeze/Flood - Minor 0 0 0 0 0 0 0 Landscaping 14,155 14,591 10,104 11,894 12,464 166,840 177,407 ------------------------------------------------------------------------------------------- TOTAL MAINTENANCE 64,033 56,695 54,069 43,042 48,913 780,917 665,289 MANAGEMENT FEE 32,051 31,608 31,412 31,118 31,623 373,113 373,538 TOTAL EXPENSES 440,034 434,327 419,639 423,936 494,622 5,425,430 5,497,270 NET OPERATING INCOME 361,243 355,872 365,647 353,663 295,954 3,901,995 3,841,134 Repl. Cost-Air Conditioner 22,701 3,054 15,781 7,588 0 105,172 60,000 Repl. Cost-Appliances 6,026 5,825 5,674 4,130 6,450 69,531 79,164 Repl. Cost-Bldgs-Other 0 0 0 0 0 983 0 Repl. Cost-Buildings 0 (280) 300 3,675 0 12,880 14,900 Repl. Cost-Carpet/Tile 31,514 19,421 22,309 9,874 11,172 239,695 164,088 Repl. Cost-Mini-Blinds 910 482 905 364 0 9,926 0 Repl. Cost-Electrical 2,226 2,393 935 786 0 10,733 0 Repl. Cost-Painting 0 0 0 0 0 0 0 Repl. Cost-Site 1,200 0 0 0 0 6,050 28,975 Repl. Cost-Pools 0 0 931 0 0 28,250 26,479 Repl. Cost-Plumbing 0 950 589 795 800 5,476 13,600 Repl. Cost-Roof/Gutter 0 0 0 275 0 8,836 40,700 Fire/Freeze/Flood-Major 0 0 0 0 0 0 0 Acquired Assets 0 5,278 3,085 0 0 19,052 l6,433 ------------------------------------------------------------------------------------------- TOTAL REPLACEMENT COSTS 64,577 37,122 50,509 27,486 18,422 516,583 444,339 CASH FLOW (before Debt Service) 296,665 318,750 315,138 326,177 277,532 3,385,411 3,396,795 Mortgage Interest Payments 267,793 277,301 268,662 277,845 279,676 3,254,681 3,294,052 Loan Draws From Gecc 0 (13,957) 0 0 0 (300,168) 0 Renovation 5,402 0 0 0 0 74,402 0 ------------------------------------------------------------------------------------------- NET CASH FLOW 23,471 55,406 46,476 48,331 (2,144) 356,496 102,743 ------------------------------------------------------------------------------------------- </TABLE> <PAGE> <TABLE> <CAPTION> NOB HILL SUMMARY (952) UNITS 1326 DECEMBER 31, 1994 SQ.FT. 1188002 JAN FEB MAR APR MAY JUN JUL AUG DESCRIPTION ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL - --------------------------------- ------ ------ ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Gross Rental Income 795,045 797,580 798,595 801,510 803,695 805,845 808,130 810,260 Model/Free Units (23,835) (22,048) (25,396) (24,319) (23,164) (23,177) (23,390) (23,174) Vacancy (35,104) (43,847) (44,337) (49,086) (59,097) (64,870) (64,126) (62,302) Misc. Income 12,264 8,030 13,323 10,085 8,389 9,116 10,465 10,650 ------------------------------------------------------------------------------------------------ TOTAL INCOME 748,370 739,715 742,186 738,191 729,823 726,913 731,080 735,434 Payroll 71,372 76,935 77,013 101,364 78,769 100,888 60,604 83,618 Taxes-Ad Valorem 35,026 109,784 74,210 74,210 74,210 74,210 74,210 74,210 Insurance 30,222 30,222 30,222 30,222 29,559 29,559 29,559 29,559 Utilities 157,626 l6l,265 155,993 152,630 147,944 148,759 155,325 152,064 Sales & General 13,742 18,043 15,221 15,374 15,606 4,865 15,386 17,505 Maintenance 33,462 38,301 49,624 47,260 43,237 45,508 50,962 67,600 Replacement Costs 30,595 30,638 32,113 38,220 167,320 134,362 61,447 80,806 Management Fee 29,935 29,588 29,688 29,529 29,193 29,077 20,243 29,417 ------------------------------------------------------------------------------------------------ TOTAL OPERATING EXPENSES 401,980 494,776 464,084 488,809 585,837 567,228 476,637 534,780 NET OPERATING INCOME (LOSS) 346,390 244,939 278,102 249,382 143,986 159,685 254,443 200,654 Mortgage Interest Payments 273,047 244,390 272,642 262,644 271,292 263,103 271,792 272,197 Loan Draws From Gecc (43,260) 0 0 (85,129) 0 (140,761) (188,041) 0 Renovation 0 0 0 0 0 0 0 0 Cash Flow Payment 229,630 0 0 0 0 0 0 0 ------------------------------------------------------------------------------------------------ NET CASH INCOME (LOSS) (113,028) 549 5,460 71,867 (127,307) 37,343 170,691 (71,543) <CAPTION> SEP OCT NOV DEC BUDGET 1994 YTD DESCRIPTION ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL BUDGET ACTUAL - --------------------------------- ------ ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> <C> Gross Rental Income 812,039 814,009 813,791 813,639 9,674,137 9,508,400 9,674,137 Model/Free Units (23,003) (23,489) (23,810) (25,490) (284,295) (288,252) (284,295) Vacancy (61,817) (64,681) (61,896) (58,710) (669,873) (470,278) (669,873) Misc. Income 13,848 9,471 6,566 12,888 125,096 100,540 125,096 ------------------------------------------------------------------------------------------------ TOTAL INCOME 741,067 735,309 734,650 742,327 8,845,065 8,850,410 8,845,O64 Payroll 87,771 80,187 80,869 119,169 1,018,461 973,168 1,018,461 Taxes-Ad Valorem 74,210 74,210 74,210 51,370 864,070 885,672 864,070 Insurance 32,611 32,611 33,682 32,611 370,639 370,735 370,639 Utilities 157,792 143,195 138,158 153,193 1,823,943 1,803,309 1,823,943 Sales & General 19,482 12,396 17,002 12,208 176,829 218,500 176,829 Maintenance 51,903 69,821 56,734 62,814 617,226 576,198 617,226 Replacement Costs 42,464 34,092 33,146 31,244 716,447 262,482 716,448 Management Fee 29,643 29,413 29,385 29,671 353,782 354,012 353,782 ------------------------------------------------------------------------------------------------ TOTAL OPERATING EXPENSES 495,876 475,924 463,185 492,280 5,941,397 5,444,076 5,941,397 NET OPERATING INCOME (LOSS) 245,191 259,384 271,465 250,047 2,903,668 3,406,334 2,903,667 Mortgage Interest Payments 265,288 273,614 265,784 275,984 3,211,779 3,279,066 3,211,779 Loan Draws From Gecc (29,475) (91,987) (40,569) (34,092) (653,314) 0 (653,314) Renovation 0 0 0 21,666 21,666 0 21,666 Cash Flow Payment 0 0 0 0 229,630 0 229,630 ------------------------------------------------------------------------------------------------ NET CASH INCOME (LOSS) 9,377 77,757 46,250 (13,511) 93,907 127,268 93,906 </TABLE> <PAGE> <TABLE> <CAPTION> NOB HILL SUMMARY (952) UNITS 1326 DECEMBER 31, 1994 SQ.FT. 1188002 JAN FEB MAR APR MAY JUN JUL AUG DESCRIPTION ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL - -------------------------------- ------ ------ ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> GROSS RENTAL INCOME 795,045 797,580 798,505 801,510 803,695 805,845 808,130 810,260 Model Apartment Cost (4,265) (4,265) (4,265) (4,245) (4,245) (4,245) (4,245) (4,319) Manager Apt Cost (10,486) (9,655) (9,655) (10,046) (9,075) (9,075) (8,650) (8,745) Leasing Apt Cost (2,091) (2,410) (2,410) (2,294) (2,460) (2,460) (2,460) (2,460) Security Apt Cost (4,400) (4,400) (4,400) (4,395) (4,395) (4,395) (4,364) (3,945) Discounted Rent (215) (110) (1,118) (680) (330) (343) (1,012) (1,047) Gratuitous Rent 0 1,170 (1,170) 0 0 0 0 0 Maintenance Apt Cost (2,378) (2,378) (2,378) (2,659) (2,659) (2,659) (2,659) (2,659) TOTAL MODEL/FREE UNITS (23,835) (22,048) (25,396) (24,319) (23,164) (23,177) (23,390) (23,174) Vacancy (35,104) (43,847) (44,337) (49,086) (59,097) (64,870) (64,126) (62,302) TOTAL RENTAL INCOME 736,106 731,685 728,862 728,105 721,434 717,797 720,614 724,784 Late/Nsf Charge 1,045 680 1,330 750 680 1,141 1,079 1,360 Other Income 2,490 1,740 3,724 1,990 1,901 1,693 3,343 2,235 Deposits Forfeited 2,601 1,928 1,855 3,318 1,391 2,774 1,010 2,830 Laundry Commissions 6,127 3,682 6,385 4,027 4,417 3,507 5,032 4,207 Vending Commissions 0 0 29 0 0 0 0 18 TOTAL MISC INCOME 12,264 8,030 13,323 10,085 8,389 9,116 10,465 10,650 TOTAL INCOME 748,370 739,715 742,186 738,191 729,823 726,913 731,080 735,434 Manager Salary 8,880 9,513 10,285 10,580 9,580 13,881 11,413 8,579 Leasing Salary 5,232 6,000 4,900 4,900 4,900 6,202 4,855 4,191 Resident Manager Salary 10,244 11,122 11,230 12,536 8,222 12,326 8,715 12,758 Commissions And Bonuses 1,175 3,613 1,375 1,275 2,523 1,493 1,918 1,942 Maintenance Salary 16,173 l6,552 16,890 27,503 21,917 25,054 17,329 20,017 Maid/Porter Salary 11,802 11,732 11,888 17,334 11,740 16,066 12,251 13,270 Insurance - Benefits 11,096 11,961 11,913 15,886 12,680 18,984 (2,279) 16,615 Taxes - Sales 0 0 0 0 0 0 0 0 Taxes - Payroll 6,770 6,442 8,532 11,350 7,208 7,883 6,303 6,245 TOTAL PAYROLL 71,372 76,935 77,013 101,384 78,769 100,888 60,504 83,618 TAXES-OTHER 0 0 0 0 0 0 0 0 TAXES-AD VALOREM 35,026 109,784 74,210 74,210 74,210 74,210 74,210 74,210 HOMEOWNERS FEE 0 0 0 0 0 0 0 0 INSURANCE-GL, FIRE & EC 30,222 30,222 30,222 30,222 29,559 29,559 29,559 29,559 Electrical - Apts 0 0 0 0 0 0 0 0 Electrical - Buildings 72,568 68,944 74,672 73,478 76,745 85,590 91,017 89,831 Natural Gas Service 39,208 45,306 38,628 28,945 24,376 12,661 10,977 11,053 Telephone Service 1,100 646 2,051 1,134 1,211 1,172 1,520 1,759 Water Service 41,790 43,509 38,454 46,371 42,909 48,734 49,109 46,719 Trash Removal 2,960 2,960 2,188 2,702 2,702 2,702 2,702 2,702 TOTAL UTILITIES 157,626 161,265 155,993 152,630 147,944 148,759 155,325 152,064 Security 830 765 8116 727 712 174 258 277 Professional Fees 2,950 2,616 4,049 6,115 2,453 689 1,053 1,317 Advertising 64 112 49 373 0 0 0 0 Resident Retention 651 567 572 602 1,075 215 0 851 Locator Fees 3,247 4,427 3,132 1,580 4,270 1,425 12,315 7,880 Furniture Rental 0 0 0 0 0 0 0 0 Other Expenses 4,866 7,629 5,187 5,528 6,027 2,168 779 3,250 Office Repair & Supplies 1,133 1,927 1,416 1,448 1,068 203 981 3,930 TOTAL SALES & GENERAL 13,742 18,043 15,221 15,374 15,606 4,865 15,386 17,505 Exterminating 1,387 1,501 1,554 1,752 1,551 1,546 1,748 1,436 Cleaning Supplies 589 783 879 756 505 824 761 982 Repairs And Supplies 1,139 2,540 1,998 1,521 1,109 942 686 2,012 Air Conditioner Maintenance 3,534 5,503 7,278 5,291 6,201 4,119 4,722 8,917 Appliance Maintenance 57 505 348 857 612 669 225 860 Building Maintenance 807 1,549 3,273 3,185 2,182 2,307 2,919 10,139 Carpet Maintenance 1,694 1,541 1,233 1,279 661 1,672 986 2,903 Drapery Maintenance 38 0 0 0 0 0 0 853 <CAPTION> SEP OCT NOV DEC BUDGET 1994 YTD DESCRIPTION ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL BUDGET ACTUAL - ---------------------------- ------ ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> <C> GROSS RENTAL INCOME 812,039 814,009 813,791 813,639 9,674,137 9,508,400 9,674,137 Model Apartment Cost (4,940) (4,965) (5,035) (5,418) (54,452) (49,512) (54,452) Manager Apt Cost (8,269) (8,655) (8,020) (9,945) (110,276) (116,880) (110,276) Leasing Apt Cost (2,460) (2,460) (2,460) (2,460) (28,885) (29,028) (28,885) Security Apt Cost (4,365) (4,355) (4,422) (3,715) (51,550) (52,440) (51,550) Discounted Rent (310) (395) (1,214) (1,292) (8,066) (7,200) (8,066) Gratuitous Rent 0 0 0 0 0 0 0 Maintenance Apt Cost (2,659) (2,659) (2,659) (2,659) (31,066) (33,192) (31,066) TOTAL MODEL/FREE UNITS (23,003) (23,489) (23,810) (25,490) (284,295) (288,252) (284,295) Vacancy (6l,817) (64,681) (61,896) (58,710) (669,873) (470,278) (669,873) TOTAL RENTAL INCOME 727,218 725,838 728,085 729,439 8,719,969 8,749,870 8,719,968 Late/Nsf Charge 1,830 1,450 1,580 1,101 14,027 12,495 14,027 Other Income 3,400 2,831 2,940 2,794 31,082 14,920 31,082 Deposits Forfeited 4,387 4,46l 2,900 2,091 31,546 20,630 31,546 Laundry Commissions 4,212 729 (869) 6,902 48,361 62,495 48,361 Vending Commissions 19 0 14 0 80 0 80 TOTAL MISC INCOME 13,848 9,471 6,566 12,888 125,096 100,540 125,096 TOTAL INCOME 741,067 735,309 734,650 742,327 8,845,065 8,850,410 8,845,064 Manager Salary 9,996 13,647 11,832 20,951 139,137 147,080 139,137 Leasing Salary 4,689 4,523 4,523 8,178 62,093 57,600 62,093 Resident Manager Salary 11,453 10,342 10,590 17,789 137,327 117,800 137,327 Commissions And Bonuses 2,638 1,925 2,038 0 21,913 51,800 21,913 Maintenance Salary 18,553 17,692 19,345 28,312 245,338 212,364 245,338 Maid/Porter Salary 11,703 13,090 13,515 19,545 163,935 167,898 163,935 Insurance - Benefits 22,879 13,277 13,547 16,352 162,911 143,360 162,911 Taxes - Sales 0 0 0 0 0 0 0 Taxes - Payroll 5,860 5,692 5,480 8,041 85,807 75,266 85,807 TOTAL PAYROLL 87,771 80,187 80,869 119,169 1,018,461 973,168 1,018,461 TAXES-OTHER 0 0 0 0 0 0 0 TAXES-AD VALOREM 74,210 74,210 74,210 51,370 864,070 885,672 864,070 HOMEOWNERS FEE 0 0 0 0 0 0 0 INSURANCE-GL, FIRE & EC 32,611 32,611 33,682 32,611 370,639 370,735 370,639 Electrical - Apts 0 0 0 0 0 0 0 Electrical - Buildings 94,176 82,893 75,919 77,900 963,731 968,647 963,731 Natural Gas Service 13,295 12,395 18,948 27,805 283,497 292,222 283,497 Telephone Service 3,382 229 1,294 1,764 17,162 15,125 17,162 Water Service 44,237 44,976 39,789 42,527 527,125 492,615 527,125 Trash Removal 2,702 2,702 2,207 3,198 32,428 34,700 32,428 TOTAL UTILITIES 157,792 143,195 138,158 153,193 1,823,943 1,803,309 1,823,943 Security 253 377 146 208 5,544 10,920 5,544 Professional Fees 594 509 689 0 22,134 26,400 22,134 Advertising 518 309 1,793 939 4,156 10,315 4,156 Resident Retention 1,328 0 827 270 6,959 9,240 6,959 Locator Fees 10,330 5,310 10,240 4,675 68,731 62,400 68,731 Furniture Rental 0 0 0 0 0 0 0 Other Expenses 3,179 4,658 1,947 2,231 47,439 84,100 47,439 Office Repair & Supplies 3,181 1,233 1,360 3,985 21,866 15,125 21,866 TOTAL SALES & GENERAL 19,482 12,396 17,002 12,208 176,829 218,500 176,829 Exterminating 1,377 1,374 15 1,800 17,042 19,970 17,042 Cleaning Supplies 630 1,590 1,033 660 9,971 12,520 9,971 Repairs And Supplies 1,843 2,209 2,241 1,756 19,996 19,225 19,996 Air Conditioner Maintenance 3,570 6,898 4,046 6,767 66,837 75,000 66,837 Appliance Maintenance 143 1,053 376 770 6,476 8,760 6,476 Building Maintenance 4,050 7,414 5,130 4,598 47,533 34,500 47,533 Carpet Maintenance 1,777 2,252 1,206 1,012 18,216 22,650 18,216 Drapery Maintenance 319 894 648 322 3,073 3,875 3,073 </TABLE> <PAGE> <TABLE> <CAPTION> NOB HILL SUMMARY (952) UNITS 1326 DECEMBER 31, 1994 SQ.FT. 1188002 JAN FEB MAR APR MAY JUN JUL AUG DESCRIPTION ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL - ------------------------------------ ------ ------ ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Electrical Maintenance 922 1,282 3,267 4,137 3,275 2,621 2,788 7,794 Painting Contract 7,513 7,164 12,261 9,086 6,547 8,912 13,070 10,457 Site Maintenance 1,218 857 1,313 1,312 400 736 1,245 544 Painting Material 101 236 414 147 378 80 135 277 Pool Maintenance 185 467 223 8l6 792 373 485 592 Plumbing Maintenance 3,547 4,267 5,562 7,005 8,841 9,155 4,433 5,019 Roof And Gutter Maintenance 817 172 87 201 204 467 480 154 Fire/Freeze/Flood - Minor 0 0 0 0 0 0 0 0 Landscaping 9,935 9,935 9,935 9,935 9,978 11,084 16,279 14,682 TOTAL MAINTENANCE 33,462 38,301 49,624 47,200 43,237 45,508 50,962 67,600 TOTAL DIRECT EXPENSES 341,450 434,550 402,282 421,060 389,325 403,789 385,947 424,557 Replacement Cost - Air Cond 3,947 1,355 336 4,153 2,090 1,073 22,156 46,825 Replacement Cost - Appliances 4,473 5,105 7,149 4,853 4,478 2,680 2,622 7,114 Replacement Cost - Other 029 2,409 2,278 3,213 2,087 2,278 500 0 Replacement Cost - Buildings 0 0 0 0 0 0 0 501 Replacement Cost - Carpet/Tile 8,347 13,885 11,579 10,003 13,561 13,280 5,843 21,552 Replacement Cost - Draperies 852 413 843 566 789 741 359 38 Replacement Cost - Electrical 125 992 2,096 1,348 735 2,264 0 271 Replacement Cost - Painting 0 0 0 0 0 0 0 0 Replacement Cost - Site 0 4,131 1,920 13,565 138,041 111,344 29,475 4,505 Replacement Cost - Pools 0 0 0 0 l,980 0 0 0 Replacement Cost - Plumbing 3,673 2,348 2,152 0 2,810 0 0 0 Replacement Cost - Roof/Gutter 8,550 0 0 0 0 0 0 0 Fire/Freeze/Flood - Major 0 0 0 0 0 0 0 0 Acquired Assets 0 0 3,762 519 750 704 493 0 TOTAL REPLACEMENT COSTS 30,595 30,638 32,113 38,220 167,320 134,362 61,447 80,806 Management Fee 29,935 29,588 29,688 29,529 29,193 29,077 29,243 29,417 TOTAL OPERATING EXPENSES 401,980 494,776 464,084 488,809 585,837 587,228 476,637 534,780 NET OPERATING INCOME (LOSS) 346,390 244,939 278,102 249,382 143,986 159,685 254,443 200,654 Mortgage Interest Payments 273,047 244,390 272,642 262,644 271,292 263,103 271,792 272,197 Loan Draws From Gecc (43,26O) 0 0 (85,129) 0 (140,761) (188,041) 0 Renovation 0 0 0 0 0 0 0 0 Cash Flow Payment 229,63O 0 0 0 0 0 0 0 NET CASH INCOME (LOSS) (113,028) 549 5,480 71,867 (127,307) 37,343 170,691 (71,543) Vacancy Loss % 4.42% 5.50% 5.55% 6.12% 7.35% 8.05% 7.94% 7.89% Management Apts % 3.00% 2.76% 3.18% 3.03% 2.88% 2.88% 2.89% 2.86% Economic Occupancy % 92.59% 91.74% 91.27% 90.84% 89.76% 89.07% 89.17% 89.45% Direct Expenses % 42.95% 54.48% 50.37% 52.53% 48.44% 50.11% 47.76% 52.40% Management Fee % 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% Replacement Cost % 3.85% 3.84% 4.02% 4.77% 20.82% l6.67% 7.60% 9.97% Authorized Rates/Sq Ft 0.687 0.687 0.687 0.687 0.687 0.687 0.687 0.687 Gross Rents/Sq Ft O.669 0.671 0.672 0.675 0.677 0.678 0.680 0.682 Eff Gross Income/Sq Ft 0.630 0.623 0.625 0.621 0.014 0.612 O.615 0.619 Direct Expenses/Sq Ft 3.45 4.39 4.00 4.25 3.93 4.08 3.90 4.29 Average Rent/Unit 600 601 602 604 606 608 609 611 <CAPTION> SEP OCT NOV DEC BUDGET 1994 YTD ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL BUDGET ACTUAL <S> <C> <C> <C> <C> <C> <C> <C> <C> Electrical Maintenance 4,850 10,580 5,602 5,650 52,768 30,275 52,768 Painting Contract 11,284 11,041 11,139 8,871 117,344 95,400 117,344 Site Maintenance 1,798 1,974 2,432 496 14,326 18,620 14,326 Painting Material 312 235 198 116 2,629 7,500 2,629 Pool Maintenance 733 1,420 193 222 6,501 5,440 6,501 Plumbing Maintenance 6,796 7,614 8,508 10,167 80,913 68,700 80,913 Roof And Gutter Maintenance 229 659 753 1,923 6,145 10,950 6,145 Fire/Freeze/Flood - Minor 0 0 0 0 0 0 0 Landscaping 12,192 12,613 13,212 17,695 147,456 142,813 147,456 TOTAL MAINTENANCE 51,903 69,821 56,734 62,814 617,226 576,198 617,226 TOTAL DIRECT EXPENSES 423,769 412,419 400,654 431,365 4,871,168 4,827,582 4,87l,l67 Replacement Cost - Air Cond 6,118 8,947 10,472 1,856 109,326 0 109,326 Replacement Cost - Appliances 7,544 4,486 3,082 6,026 59,611 93,869 59,611 Replacement Cost - Other 2,015 2,450 0 185 18,044 15,680 18,044 Replacement Cost - Buildings (501) 0 0 0 0 0 0 Replacement Cost - Carpet/Tile 20,642 16,721 15,129 22,948 173,489 151,386 173,489 Replacement Cost - Draperies 0 0 281 230 5,110 1,547 5,110 Replacement Cost - Electrical 650 0 1,151 0 9,631 0 9,631 Replacement Cost - Painting 0 0 0 0 0 0 0 Replacement Cost - Site 3,275 0 712 0 306,967 0 306,967 Replacement Cost - Pools 0 0 1,680 0 3,660 0 3,660 Replacement Cost - Plumbing 2,721 1,489 0 0 15,192 0 15,192 Replacement Cost - Roof/Gutter 0 0 640 0 9,190 0 9,190 Fire/Freeze/Flood - Major 0 0 0 0 0 0 0 Acquired Assets 0 0 0 0 6,227 0 6,227 TOTAL REPLACEMENT COSTS 42,464 34,092 33,146 31,244 716,447 262,482 716,448 Management Fee 29,643 29,413 29,385 29,671 353,782 354,012 353,782 TOTAL OPERATING EXPENSES 495,876 475,924 463,185 492,280 5,941,397 5,444,076 5,941,397 NET OPERATING INCOME (LOSS) 245,191 259,384 271,465 250,047 2,903,668 3,406,334 2,903,667 Mortgage Interest Payments 265,288 273,6l4 265,784 275,984 3,211,779 3,279,066 3,211,779 Loan Draws From Gecc (29,475) (91,987) (40,569) (34,092) (653,314) 0 (653,314) Renovation 0 0 0 21,666 21,666 0 21,666 Cash Flow Payment 0 0 0 0 229,630 0 229,630 NET CASH INCOME (LOSS) 9,377 77,757 46,250 (13,511) 93,907 127,268 93,906 Vacancy Loss % 7.61% 7.95% 7.6l% 7.22% 6.92% 4.95% 0.92% Management Apts % 2.93% 2.89% 2.93% 3.13% 2.94% 3.03% 2.94% Economic Occupancy % 90.55% 89.17% 89.47% 89.65% 90.14% 92.02% 90.14% Direct Expenses % 62.19% 6O.67% 49.23% 53.02% 50.35% 50.77% 50.35% Management Fee % 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% Replacement Cost % 5.23% 4.19% 4.07% 3.84% 7.41% 2.76% 7.41% Authorized Rates/Sq Ft 0.687 0.696 O.696 0.695 Gross Rents/Sq Ft O.684 0.685 O.685 0.686 O.679 0.667 0.679 Eff Gross Income/Sq Ft 0.624 0.619 0.618 o.625 O.62O 0.621 0.620 Direct Expenses/Sq Ft 4.28 4.17 4.05 4.36 4.10 4.O6 4.10 Average Rent/Unit 612 614 614 614 608 598 608 </TABLE> <PAGE> QUALIFICATIONS OF ROSS P. WELSHIMER EXPERIENCE 11/90 - Present Patrick O'Connor & Associates, Inc. Associate Appraiser 10/88 - 11/90 Harris County Appraisal District Residential Field Appraiser 11/86 -11/88 Downers Grove Township Appraisal Office Assistant Chief Deputy Appraiser 10/85 - 11/86 Market Facts, Inc. Product Testing Study Director EDUCATION Illinois State University, Normal, IL (1981 - 1985) Bachelor of Science degree. Marketing major. Business Administration minor. Attended and successfully completed the following courses sponsored by: The International Association of Assessing Officers (1987): Basic Appraisal Practices, Cost Approach to Value, Market Approach to Value, Income Approach to Value. Illinois Department of Revenue (1987): Introduction to Residential and Rural Property Appraisal, Introduction to Commercial and Industrial Property Appraisal. The Marshall and Swift Valuation Service (1987): Calculator Cost Method, Segregated Cost Method. Texas State Property Tax Board (1989 - 1990): Texas Property Tax System, Introduction to Appraisal, Cost Approach to Value, Market Approach to Value, Income Approach to Value, Appraisal of Personal Property, Property Tax Law, Mass Appraisal Concepts. The Appraisal Institute (1993 - Present): Standards of Professional Appraisal Practice, Part A & B (Course 410 & 420) PROFESSIONAL AFFILIATIONS Candidate Member of the Appraisal Institute (1993 - Present) State Certified General Real Estate Appraiser TX-1324328-G (1992 - Present) Candidate RPA Designation (through Texas SPTB) (inactive) (1989 - 1990) Certified Illinois Assessing Officer (Inactive) (1987 - 1988) <PAGE> THE STATE OF TEXAS [Graphic: seal of the State of Texas] TEXAS APPRAISER LICENSING AND CERTIFICATION BOARD BE IT KNOWN THAT ROSS P WELSHIMER HAVING PROVIDED SATISFACTORY EVIDENCE OF THE QUALIFICATIONS REQUIRED BY THE TEXAS APPRAISER LICENSING AND CERTIFICATION ACT, ARTICLE 6573a.2, VERNON'S TEXAS CIVIL STATUTES, IS AUTHORIZED TO USE THE TITLE STATE CERTIFIED GENERAL REAL ESTATE APPRAISER Number: TX-1324328-G Date of Issue: December 30, 1996 Date of Expiration: December 31. 1998 In Witness Thereof {Stamp/seal of Texas Appraiser Licensing and Certification Board] /s/ A.E. Nelson, Jr. ----------------------------- A.E. Nelson, Jr., Chair /s/ Renil C. Liner ---------------------------- Renil C. Liner, Commissioner A. E. Nelson Jr., Chair Leonel Garza, Jr. Jacqueline G. Humphrey Benjamin E. Barnett, Vice-Chair David Gloier Maria F. Teran Debra S. Runyan, Secretary Vidal Gonzalez Cecil Wimberly <PAGE> QUALIFICATIONS OF W.F. ("BUDDY") TROTTER, JR. EXPERIENCE: 9/93 - Present Patrick O'Connor & Associates, Inc. 7/90- 9/93 Fox & Bubela, Inc., Houston, Texas Commercial Real Estate Appraiser Inspections, research and report preparation for all types of commercial properties, including condemnation appraisal for the Texas Highway Department. Major clients included RTC, F.D.I.C., Texas Commerce Bank, Nations Bank, Wells Fargo Bank, private individuals and lawyers. 4/86-7/90 Hill-Thompson, Inc., Houston, Texas Commercial Real Estate Appraiser Inspections, research and report preparation for all types of commercial properties, including farms and ranches, and airports. Major clients included F.D.I.C., First Interstate Bank and First City Bank. 10/83 -4/86 Austin County Appraisal District, Bellville, Texas Manager of Appraisal 5/71 - 10/83 Private business (retail) EDUCATION Rice University - Bachelor of Arts in History, 1971. Major coursework in pre law. Attended and successfully completed the following courses: Appraisal Institute Course 1-A-1, University of Houston; American Society of Farm Managers and Rural Appraisers: A-12, Standards and Ethics, Houston, Texas; Blinn College: Appraisal and Advanced Appraisal, Real Estate Law, Real Estate Marketing; Texas Association of Assessing Officers: Various Property Tax Courses. Have attended various seminars, including RTC seminar on Affordable Housing (1991). PROFESSIONAL AFFILIATIONS State Certified General Real Estate Appraiser, Texas TX-1322606-G Real Estate Broker's License, State of Texas #0361814 Chairman, Austin County Appraisal Review Board 1990 <PAGE> ================================================================================ THE STATE OF TEXAS [Graphic: seal of the State of Texas] TEXAS APPRAISER LICENSING AND CERTIFICATION BOARD BE IT KNOWN THAT WILBURN FLACK TROTTER JR HAVING PROVIDED SATISFACTORY EVIDENCE OF THE QUALIFICATIONS REQUIRED BY THE TEXAS APPRAISER LICENSING AND CERTIFICATION ACT, ARTICLE 6573a.2, VERNON'S TEXAS CIVIL STATUTES, IS AUTHORIZED TO USE THE TITLE STATE CERTIFIED GENERAL REAL ESTATE APPRAISER Number: TX-1322606-G Date of Issue: February 22, 1996 Date of Expiration: February 28, 1998 In Witness Thereof {Stamp/seal of Texas Appraiser Licensing and Certification Board] /s/ A.E. Nelson, Jr. ----------------------------- A.E. Nelson, Jr., Chair /s/ Renil C. Liner ---------------------------- Renil C. Liner, Commissioner A. E. Nelson Jr., Chair Benjamin E. Barnett Vidal Gonzalez Hayden Woodard, Vice-Chair Leonel Garza, Jr. Debra S. Runyan Maria F. Teran, Secretary David Gloier Cecil Wimberly ================================================================================ <PAGE> Patrick C. O'Connor, MAI Patrick C. O'Connor is president of Patrick O'Connor & Associates, Inc., a real estate appraisal, property tax reduction, real estate publishing and consulting firm located in Houston, Texas. Since 1983, Mr. O'Connor has been actively involved in client consultation, appraisal of commercial real estate properties, property tax reduction, and real estate brokerage primarily in the Houston metropolitan area. Types of properties appraised include apartments, retail centers, convenience stores, gas stations, office, office warehouse, bulk warehouse, service centers, land, car washes, bowling alley, mortuary, subdivisions, single-family, duplexes, churches, club houses, hotels, motels, mobile homes, restaurants, flea market, automobile service facilities, schools and veterinarian clinics. Since 1985, Mr. O'Connor has been active in publishing analyses and data regarding the Houston real estate market. Over 800 customers and the media rely on O'Connor & Associates' 14 reports as a source of timely, accurate information. Mr. O'Connor has been interviewed on CNN and quoted in the Wall Street Journal, New York Times, USA Today, National Real Estate Investor, Houston Chronicle, Houston Post and Houston Business Journal. Academic Background Bachelor of Science in Industrial Engineering, University of Houston, May 1981. Master of Business Administration, Harvard Business School, May 1983. Real Estate courses include: Principles of Real Estate I Principles of Real Estate II Principles of Real Estate III Real Property Asset Management Real Estate Law Appraisal Standards of Practice and Ethics Keeping Current with Texas Real Estate Principles of Property Tax Consulting Intangibles: Defining & Measuring the Impact on Property Taxes Comprehensive Exam Review Class Professional Affiliations Appraisal Institute courses/credits include: 110 Appraisal Principles 120 Appraisal Procedures 310 Basic Income Capitalization 320 General Applications 410 Standards of Prof. Appraisal Practice, Part A 420 Standards of Prof. Appraisal Practice, Part B 510 Advanced Income Capitalization 520 Highest and Best Use and Market Analysis 530 Advanced Sales Comp. and Cost Approaches 540 Report Writing and Valuation Analysis 550 Advanced Applications Professional Affiliations MAI Member (No. 11,008) of the Appraisal Institute Texas Real Estate Broker's License, 1985 State Certified Appraiser: (State of Texas) TX-1321378-G (State of Louisiana) No. 1796 (State of Tennessee) I.D. No. 00051369 Registered Senior Property Tax Consultant (State of Texas) <PAGE> ================================================================================ ================================================================================ MEMBERSHIP CERTIFICATE This Certifics That Patrick Cornell O'Connor has bccn admitted to membership as an MAI Member in the Appraisal Institute and is entitled to all the rights and privileges of membership subject only to the limiting conditions set forth from time to time in the Bylaws and Regulations of the Appraisal Institute. In Witness Whereof, the Board of Directors of the Appraisal Institute has authorized this certificate to be signed in its behalf by the President, and the Corporate Seal to be hereunto affixed on this 4th day of June, 1996 /s/ [Illegible] ------------------------------------- President THIS CERTIFICATE IS THE PROPERTY OF THE APPRAISAL INSTITUTE AND MUST BE RETURNED TO THE SECRETARY UPON TERMINATION OF MEMBERSHIP [APPRAISAL INSTITUTE CORPORATE SEAL] APPRAISAL INSTITUTE ================================================================================ ================================================================================ <PAGE> THE STATE OF TEXAS [Graphic: seal of the State of Texas] TEXAS APPRAISER LICENSING AND CERTIFICATION BOARD BE IT KNOWN THAT PATRICK C OCONNOR HAVING PROVIDED SATISFACTORY EVIDENCE OF THE QUALIFICATIONS REQUIRED BY THE TEXAS APPRAISER LICENSING AND CERTIFICATION ACT, ARTICLE 6573a.2, VERNON'S TEXAS CIVIL STATUTES, IS AUTHORIZED TO USE THE TITLE STATE CERTIFIED GENERAL REAL ESTATE APPRAISER Number: TX-1321378-G Date of Issue: June 12, 1997 Date of Expiration: June 30, 1999 In Witness Thereof [Stamp/seal of Texas Appraiser Licensing and Certification Board] /s/ Benjamin E. Barnett ------------------------------ Benjamin E. Barnett, Chair /s/ Renil C. Liner ----------------------------- Renil C. Liner, Commissioner Benjamin E. Barnett, Chair Leonel Garza, Jr. A.E. (Butch) Nelson, Jr. Debra S. Runyan, Vice-Chair David Gloier Jacqueline G. Humphrey, Secretary Vidal Gonzalez Maria F. Teran ================================================================================ ================================================================================ ARTHUR ANDERSEN LLP Appraisal & Valuation Services MARINA PLAYA APARTMENTS SANTA CLARA, CALIFORNIA Prepared For American Apartment Communities DECEMBER 1,1996 Prepared By ARTHUR ANDERSEN LLP Valuation Services Group <PAGE> [LETTERHEAD OF ARTHUR ANDERSEN] December 1, 1996 Mr. Kevin Kaz American Apartment Communities 615 Front Street San Francisco, CA 94111 Re: Marina Playa Apartments Santa Clara, California Dear Mr. Kaz: As you requested, we have inspected and appraised the above referenced property. A description of the property appraised, together with explanations of the appraisal procedures used, are presented in the body of the report. The purpose of this appraisal is to estimate the market value of the leasehold interest in the real estate, subject to the definition of market value, the general assumptions and limiting conditions, and the certification as set forth in this appraisal report. The intended use of the appraisal is for financing purposes for American Apartment Communities and may not be disclosed to a third party. This appraisal has been prepared in accordance with the Code of Professional Ethics and Standards of Professional Practice set forth by the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP) adopted by the Appraisal Foundation. This report may not be included or referred to in any Securities and Exchange Commission filing or other public document. Based upon the data and conclusions presented in the attached report, it is our opinion that the leasehold market value of the subject, as of December 1, 1996, was: --TWENTY MILLION FORTY THOUSAND DOLLARS -- ($20,040,000) We appreciate the opportunity to work with you on this assignment. Please call Brian E. Ginsberg at (212) 708-8197 if you have any questions or if we can be of further assistance. Very truly you /s/ Arthur Andersen LLP <PAGE> TABLE OF CONTENTS Page LETTER OF TRANSMITTAL .........................................................i SUMMARY OF CRITICAL FACTS AND CONCLUSIONS ...................................iii INTRODUCTION ..................................................................v SCOPE OF THE APPRAISAL .......................................................vi ASSUMPTIONS AND LIMITING CONDITIONS .........................................vii CERTIFICATION ................................................................ix SECTION A: SUBJECT PROPERTY IDENTIFICATION Subject Property Identification and Ownership History .....................1 Purpose and Function of the Valuation .....................................2 Property Rights Appraised .................................................3 Effective Date of the Valuation ...........................................3 SECTION B: ANALYSIS OF THE SUBJECT PROPERTY Description and Analysis of the Subject Property ..........................4 Improvements ..............................................................6 Real Estate Taxes .........................................................9 Zoning ...................................................................11 SECTION C: MARKET CONDITIONS General Conditions .......................................................12 Neighborhood Analysis ....................................................23 Apartment Market Overview ................................................26 Highest and Best Use Analysis ............................................32 SECTION D: THE APPRAISAL PROCESS .............................................37 SECTION E: THE SALES COMPARISON APPROACH Sales Comparison Approach ................................................39 NOI Per Unit Analysis ....................................................50 Conclusion by the Sales Comparison Approach ..............................51 SECTION F: INCOME APPROACH Income Capitalization Approach ...........................................52 Property Income Analysis .................................................53 Operating Expense Analysis ...............................................63 Direct Capitalization Analysis ...........................................68 Conclusion by the Income Approach ........................................71 SECTION G: RECONCILIATION OF VALUE ESTIMATES .................................72 ADDENDA Property Photographs ...................................................A-73 <PAGE> SUMMARY OF CRITICAL FACTS AND CONCLUSIONS THE SUBJECT PROPERTY Property Name: Marina Playa Apartments Property Location: 3500 Granada Avenue Santa Clara, CA 95051 Property Type: Garden apartment complex Current Owner of Record: American Apartment Communities, Inc. Land: Acres: 10.0 Acres Square Feet: 435,600 Square Feet Zoning: PD, Planned Development/Combined Zoning Building Area: Net Rentable Area (NRA): 230,804 Square Feet Number of Units: 272 Number of Stories: 2 Parking: Number of Spaces: 211 Uncovered spaces 227 Covered spaces --- 438 Parking spaces Ratio: 1.61 spaces per unit Year Built: 1971 Property Condition and Appeal: The subject is in good condition and is similar in physical appearance, project and unit features, and curb appeal to its competitive set. Highest and Best Use: Land as Though Vacant: Multifamily development Property as Improved: Multifamily development -iii- <PAGE> Interest Appraised: Leasehold Ground Lease Term: 50 years Dec. 1969-Dec. 2019 VALUE INDICATIONS TOTAL PER UNIT ----- -------- Cost Approach N/A N/A Sales Comparison Approach $20,130,000 $74,000 Income Approach $20,040,000 $73,676 Final Estimate of Market Value (12/1/96): $20,040,000 $73,676 Effective Date of Valuation: December 1, 1996 Date of Inspection: November 4, 1996 Marketing Period: 9-12 months Exposure Period: 9-12 months -iv- <PAGE> INTRODUCTION This report was prepared for American Apartment Communities for the purpose of rendering an opinion of the market value of this property. This appraisal report describes and analyzes the prospective values of the leasehold interest in a 272-unit garden apartment complex. The improvements, which were constructed in 1971, contain a net rentable area of approximately 230,804 square feet. The improvements were found to be in generally good condition. The underlying land area is 10.0 acres or 435,600 square feet. As of date of the inspection, unit occupancy was approximately 99.3 percent. The estimated values are prospective, as they are a future date from the date of property inspection and transmittal of the report. This appraisal has been prepared in compliance with the Appraisal Standards Board requirements and is a self contained appraisal report. The report contains all information significant to the solution of the appraisal problem and reports all significant data in comprehensive fashion. -v- <PAGE> SCOPE OF THE APPRAISAL As part of this assignment, the appraisers made a number of independent investigations and analyses. In conducting our investigation, various governmental planning agencies were contacted for demographic data, land policies and trends, and growth estimates. Neighborhood data were supplemented by physical inspection of the defined area. Information regarding local ordinances, utilities, and other limitations on site utilization was obtained from the client and through the appropriate agencies. Both the site and the surrounding area was inspected to determine suitability for multifamily use. In addition, the local apartment market was analyzed for past trends and current data. Estimated income and occupancy levels, expenses, and income structures are based upon this market evidence. A diligent search for comparable data was conducted, and comparable information was obtained from both public and private sources. In the case of comparable sales and occupancy data, attempts were made to contact the buyers or sellers or other knowledgeable third parties to verify that the transactions were at arm's length, cash equivalent, and market reflective. The considered information was within the property's market area and was analyzed and adjusted where necessary for use in estimating separate value indications by the cost, sales comparison and income approaches. The income approach was deemed to be the most appropriate method to value the subject. -vi- <PAGE> ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report has been made with the following general assumptions and limiting conditions. 1. No investigation has been made of, and no responsibility is assumed for, the legal description of the property being valued or legal matters, including title or encumbrances. Title to the property is assumed to be good and marketable unless otherwise stated. The property is assumed to be free and clear of any liens, easements or encumbrances unless otherwise stated. 2. Information furnished by others, upon which all or portions of this appraisal is based, is believed to be reliable, but has not been verified in all cases. No warranty is given as to the accuracy of such information. 3. This report has been made only for the purpose stated and shall not be used for any other purpose. Neither this report nor any portions thereof (including, without limitation, any conclusions, the identity of Arthur Andersen or any individuals signing or associated with this report, or the professional associations or organizations with which they are affiliated) shall be disseminated to third parties by any means without the prior written consent and approval of Arthur Andersen. 4. Subject to the provision of the "Fees" paragraph of the engagement letter to which this Statement is annexed, neither Arthur Andersen nor any individual signing or associated with this report shall be required by reason of this report to give further consultation, provide testimony, or appear in court or other legal proceedings unless specific arrangements therefore have been made. 5. This appraisal study has been made in conformance with the methodology outlined in the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation. As per your request, our study conclusions are present in report form. 6. No responsibility is taken for changes in market conditions and no obligation is assumed to revise this report to reflect events or conditions which occur subsequent to the appraisal date hereof 7. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, or national government or private entity or organization have been or can readily be obtained or renewed for any use on which the value estimates contained in this report are based. 8. Full compliance with all applicable federal, state and local zoning, use, occupancy, environmental and similar laws and regulations is assumed, unless otherwise stated. 9. Responsible ownership and competent property management are assumed. -vii- <PAGE> 10. Areas and dimensions of the property were obtained from sources believed to be reliable. Maps or sketches, if included in this report, are only to assist the reader in visualizing the property and no responsibility is assumed for their accuracy. No independent surveys were conducted. 11. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for arranging engineering studies that may be required to discover them. 12. No soil analysis or geological studies were ordered or made in conjunction with this report, nor was an investigation made of any water, oil, gas, coal, or other subsurface mineral and use rights or conditions. 13. We have not been engaged nor are we qualified to detect the existence of hazardous material which may or may not be present on or near the properties. The presence of potentially hazardous substances such as asbestos, urea-formaldehyde foam insulation, industrial wastes, etc. may affect the value of the properties. The value estimates herein are predicated on the assumption that there is no such material on, in, or near the property that would cause a loss in value. No responsibility is assumed for any such conditions or for any expertise or engineering knowledge required to discover them. The client should retain an expert in this field if further information is desired. 14. Arthur Andersen's maximum liability relating to services rendered under this letter (regardless of form of action, whether in contract, negligence or otherwise), shall be limited to the fees paid to Arthur Andersen for its services under this agreement. In no event shall Arthur Andersen be liable for consequential, special, incidental, or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.) even if it has been advised of their possible existence. 15. American Apartment Communities shall indemnify and hold harmless Arthur Andersen and its personnel from and against any claims, liabilities, costs and expenses (including, without limitation, attorney's fees and the time of Arthur Andersen personnel involved but excluding consequential, special incidental or punitive damages) brought against, paid or incurred by Arthur Andersen at any time and in any way arising Out of a breach by American Apartment Communities of its obligations under this agreement 16. This report may not be included or referred to in any Securities and Exchange Commission filing or other public document. -viii- <PAGE> CERTIFICATION WE CERTIFY THAT, TO THE BEST OF OUR KNOWLEDGE AND BELIEF... - -- the statements of fact contained in this report are true and correct - -- the reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are our personal, unbiased professional analyses, opinions, and conclusions: - -- we have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved: - -- our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event: - -- our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Supplemental Standards of Professional Practice of The Appraisal Institute and the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation: - -- the use of this report is subject to the requirements of The Appraisal Institute relating to review by its duly authorized representatives: - -- as of the date of this report, Brian E. Ginsberg, MAI, has completed the requirements of the continuing education program of The Appraisal Institute: - -- James Sullivan made a personal inspection of the property that is the subject of this report on November 4, 1996. - -- James Sullivan provided significant professional assistance to the person signing this report: - -- neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser. The Appraisal Institute or the MAI or SRA designations) shall be disseminated to the public through advertising media, public relations media, news media, sales media, or any other public means of communication without the prior written consent and approval of the undersigned: and - -- this appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. /s/ Brian E. Ginsberg, MAI --------------------------------- Brian E. Ginsberg -ix- <PAGE> A.1 SUBJECT PROPERTY IDENTIFICATION SUBJECT PROPERTY IDENTIFICATION AND OWNERSHIP HISTORY Property Address: Marina Playa Apartments 3500 Granada Avenue Santa Clara, CA 9505 1 Tax Map Reference: 290-58-019-00 Current Owner of Record: American Apartment Communities, Inc. Owner's Address: 615 Front Street San Francisco, CA 94111 Acquisition History: Date: October 1, 1996 Price: $20,600,000 Transferred from: Madison Companies -1- <PAGE> A.2 PURPOSE AND FUNCTION OF THE VALUATION The purpose of this report is to estimate the market value of the leasehold interest in the subject property. The function of this appraisal is to assist American Apartment Communities in analyzing the property for financing purposes. As used herein, market value is defined as: 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, knowledgeable, 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: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; d. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and e. 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.(1) - ---------- (1) The Appraisal of Real Estate, Tenth Edition, 1992. -2- <PAGE> A.3 PROPERTY RIGHTS APPRAISED This appraisal values the leasehold estate of the subject property. Leasehold Estate is defined in The Language of Real Estate Appraisal Second Edition, page 106, as "an ownership interest in real estate held by a tenant during the term of a lease." A.4 EFFECTIVE DATE OF THE VALUATION The effective date of value is December 1, 1996. The date of our physical inspection of the subject property was November 4, 1996. -3- <PAGE> B.1 ANALYSIS OF THE SUBJECT PROPERTY LOCATION: The subject is located on the east side of Lawrence Expressway, just south of its intersection with El Camino Real in the city of Santa Clara, a community located in northwest Santa Clara County within the San Jose PMSA. The property benefits from a suburban location in a predominantly residential neighborhood, within close proximity to major transportation corridors such as U.S. 101, I-280, and 1-880. The property is located approximately 2 miles northwest of the city of San Jose and 50 miles south of San Francisco. LAND: Size and Configuration: The subject parcel is trapezoidal in shape and includes 10.0 acres, or 435,600 square feet. The entire parcel is assumed to be usable. Frontage and Accessibility: The subject property has 324.9 linear feet of frontage along the south side of Granada Avenue, a two-lane road extending east-west from its intersection with Lawrence Expressway. The subject property also has 525. 1 linear feet of frontage along the east side Lawrence Expressway. Overall, the property is very accessible from Lawrence Expressway and is within close proximity to neighborhood amenities and retail services. The frontage on Lawrence Expressway is considered very good and provides for one of four points of ingress/egress to the property. Two points of ingress/egress are located along Granada Avenue and the fourth is located on Flora Vista Avenue. Topography: The subject parcel is level and at grade with Granada Avenue. The parcel includes dense foliage along the perimeter and a small lake in the interior. The property has attractive landscaping with a significant amount of mature trees and shrubbery. Floodplain: According to F.E.M.A. Community Map Panel No. 060350-0004C, dated July 16, 1980, the site is located within Zone B, which is defined as an area of moderate or minimal flooding located between the limits of the 100-year floodplain and the 500-year floodplain. Soil and Subsoil Conditions: We are unaware of any subsoil conditions which would adversely affect the use of the subject property. Please refer to the Assumptions and Limiting Conditions. Utilities and Public Services: All public utilities are available to the site. -4- <PAGE> Easements and Encroachments: Typical utility and access easements are in place. These easements do not appear to adversely affect the property. Development of Adjacent Sites: The surrounding area is generally developed with multifamily residential development of similar age, quality and appearance to the subject. Surrounding uses are well maintained. Additional information is provided in the Neighborhood Analysis section, but the following is a summary of adjacent and surrounding property uses. North: Multifamily residential development and the California Department of Motor Vehicles East: Multifamily residential development South: Multifamily residential development West: Multifamily residential development Conclusion: The subject is well located in an attractive suburban location. It benefits from good visibility and access from Lawrence Expressway. The size, configuration, and topography of the subject are adequate for a wide variety of uses. Overall, the subject site is considered a highly desirable multifamily site. -5- <PAGE> [GRAPHIC OMITTED] SITE PLAN - --------- MARINA PLAYA APARTMENTS SANTA CLARA, CALIFORNIA <PAGE> [GRAPHIC OMITTED] FLOODPLAIN MAP - -------------- MARINA PLAYA APARTMENTS SANTA CLARA, CALIFORNIA <PAGE> IMPROVEMENTS: Introduction: The subject property is a garden-style apartment complex containing 272 units completed in 1971. The complex contains fourteen, two-story buildings with wood exteriors and flat roofs. The buildings are configured around a small central lake and two pool areas. As a result of the configuration of the buildings, the property presents a low density environment. The apartment mix consists of eight floor plans: one junior, one-bedroom, one-bath style; three different one-bedroom, one-bath unit styles; one, two-bedroom, one-bath style: two different two-bedroom, two-bath unit styles; and a three-bedroom, two-bath unit style. The property is most heavily weighted toward one-bedroom units which account for over 63 percent of the total number of units. As a result, the average unit size is approximately 846 square feet. Project amenities include a two-story clubhouse, a billiard room, an exercise room, saunas, four hotel-type guest rooms, a restaurant, two swimming pools, a spa, and two lighted tennis courts. The complex contains four laundry facilities which are located in different buildings. The property also offers 227 covered carports. Apartment unit features include wall-to-wall carpeting, air conditioning in the living room, garbage disposals, dishwashers, ceiling fans in 40 of the larger units and fireplaces in the eight two-bedroom, two-bath, den units. Rent includes water and sewer and garbage collection. The buildings have exterior entrances with four units (two on the lower level and two on the upper level) clustered in each entryway. The property also contains 211 uncovered parking spaces. The table that follows provides a breakdown of the apartment unit mix. -6- <PAGE> UNIT MIX MARINA PLAYA APARTMENTS Number Percent of Average Square Total Area Unit Type of Units Total Feet Square Feet JR. lBR 100 36.8% 664 66,400 1BR/1BA 32 11.8% 705 22,560 1BR/1BA 20 7.4% 738 14,760 1BR/1BA 20 7.4% 805 16,100 2BR/1BA 14 5.1% 950 13,300 2BR/2BA 64 23.5% 1,070 68,480 2BR/2BA/DEN 8 2.9% 1,338 10,704 3BR/2BA 14 5.1% 1,270 17,780 -- ---- ------- 230,804 Total/Avg. 272 100.0% 846 - --------------------- Source: American Apartment Communities Building Area: 230,804 net rentable square feet Number of Buildings: 14 Number of Stories: 2 Year Completed: 1971 Structural System: o Foundation:Poured concrete slab. o Building Frame: Each building is of wood frame construction on poured concrete. o Roofing System: The roofs are flat with tar and asphalt covering. Building 2 underwent a complete roof replacement during 1995. o Exterior Walls: Exterior walls are predominantly wood with some stucco. o Fenestration: Single pane in aluminum frame. The windows are original to the buildings. -7- <PAGE> Mechanical Systems: o HVAC System: Each apartment unit is individually heated by electric. Each bedroom has a heat strip and all units are also equipped with individual wall-mounted air-conditioning units in the living room. Hot water is heated by eight gas-fired boilers located throughout the property. o Electric: Each unit has a combination heat/air conditioning unit in the living room. o Fire Protection System: The units are not sprinklered. However, the clubhouse is sprinklered. o Elevators and Stairs: Each individual building contains a staircase per each 4-unit segment. There are no elevators located on the property o Security System: A security service patrols the property nightly. Interior Finishes: o Floor Coverings: Floor coverings in the apartment units are generally carpet of average quality with vinyl tile in kitchens and bathrooms. Carpets are replaced on an as-needed basis. o Walls and Partitions: Walls in the apartment units are constructed of painted drywall on wood frame. o Ceilings: Ceilings in the apartment units are of a textured, "popcorn-style" finish. Site Improvements: o Parking: The property provides 211 uncovered surface parking spaces and 227 carports, for a total of 438 parking spaces. The parking ratio is 1.61 spaces for every apartment unit. o Landscaping: The property has fairly dense foliage along its perimeter and includes a small lake in the interior. The property has attractive landscaping with a significant amount of mature trees and shrubbery throughout. -8- <PAGE> B.2 REAL ESTATE TAXES Taxing Jurisdiction(s): Local Government: Santa Clara County Tax Account Number: 290-58-019-00 Current Tax Year: July 1 - June 30 Current Tax Rate: $1.00 per $100 of assessed value plus amounts required for debt service payments. Assessment Ratio: 100 percent of fair market value, as defined by the jurisdiction. Total Taxes: $234,131 or $860.78 per unit Taxes Due: First Installment: November 1st Second Installment: February 1st Current: According to the Santa Clara County Tax Assessment office, the taxes on the subject property are current as of the date of appraisal. Tax Rates Established: August of every year Assessments Established: March 1st of every year Reassessment Frequency: Annually Tax History: See the table below. -9- <PAGE> PROPERTY TAXES MARINA PLAY A APARTMENTS Tax Year Total Assessment(1) Rate/$100 Amount Amount Per Unit - -------- ------------------- --------- ------ --------------- 1995-96 $22,286,398 $1.04 $234,131(2) $861 - ---------- (1) Total assessment includes values of land. improvements, and personal property. (2) Based on actual tax bills. Amount slightly higher than that as indicated by the mileage rates due to additional levies for sewer service, etc. Source: Santa Clara County Tax Assessment Office By law, the tax rate in Santa Clara County is limited to 1.0 percent of full cash value plus amounts required for principal and interest on voter approved bonded indebtedness. The 1.0 percent tax rate equals $1.00 per $100 of full cash value, which includes values of land, improvements and personal property (plus amounts required for debt service payments). These funds are provided for county, city, school and special district operations as well as funds to pay for tax increment financing requirements of redevelopment agencies. There also exists a rate based on the land and improvement value of the property, reflecting amounts required for sanitation, flood control and other special district debt service payments. In addition, direct assessments for sewer service, weed abatement, other fees for service and bonded assessment charges from cities and public improvement districts are then added to arrive at the gross tax for the fiscal year. Supplemental tax bills are due with any improvement to the property or with any change in title Santa Clara County assesses commercial property based upon the most recent purchase price of the property and assessments increase an average of approximately 2.0 percent per year. Recently sold properties, such as the subject, therefore, generally have higher assessments reflecting a value closer to the true market value. According to the Santa Clara County Tax Assessors office, it is likely that the large disparity between the assessments of the tax comparables is due to the county's policy of reassessing properties at the time of sale. The Tax Assessors office noted that sales prices have typically increased faster than the county's standard 2.0 percent assessment increase. -10- <PAGE> B.3 ZONING The subject property is zoned PD, a Planned Development and Combined Zoning District, which was created to harmonize development within the existing community. This zoning district allows for uses that are not permitted to be combined in other zone districts. The restrictions that apply to this zoning are listed below, as cited from the Zoning Ordinance of the City of Santa Clara. Zoning Jurisdiction: City of Santa Clara Existing Zoning: PD, Planned Development and Combined Zoning Districts Permitted Uses: Any and all uses permitted, except industrial uses limited to MH zoning districts or involving outdoor storage on more than ten percent of the lot area. The subject is improved as a 272-unit garden-style apartment complex. Properties zoned PD were originally evaluated on a case by case basis with no pre-defined restrictions, and then judged to be conforming or non-conforming. Any changes in use require the property to undergo a re-zoning process. The site's use as an apartment property, the height and positioning of the improvements, and the number of parking spaces all conform to the site's original zoning guidelines. The subject is considered a legally conforming use as confirmed by the City of Santa Clara Planning Department. -11- <PAGE> C.1 MARKET CONDITIONS GENERAL CONDITIONS The subject property is located in the city of Santa Clara, in Santa Clara County, approximately 2 miles northwest of San Jose and 50 miles south of San Francisco. Santa Clara County and the San Jose PMSA are contiguous and are part of the San Francisco-Oakland-San Jose CMSA which also includes the Oakland, San Francisco, Santa Cruz-Watsonville, Santa Rosa, and Vallejo-Fairfield-Napa PMSAs. Due to the high concentration of San Jose PMSA residents in the local workforce and the expansive and naturally divided geography of the San Francisco-Oakland-San Jose CMSA, this report focuses on the San Jose PMSA. Trends in the San Jose PMSA impact the performance and value of the subject property. As such, we have analyzed these influences fully in the following section. The San Jose PMSA is located south of San Francisco and Oakland at the southern edge of San Francisco Bay. The PMSA's sole county, Santa Clara, covers a total land area of approximately 1,300 square miles and extends from Palo Alto/Menlo Park on the north to Gilroy on the south. Most urban development in the PMSA lies within the northwestern portion of the county, known as the Santa Clara Valley or the Silicon Valley. Communities such as Palo Alto, Mountain View, Cupertino, Sunnyvale, Santa Clara, and San Jose lie within this densely developed valley. The PMSA is bordered on the west by the Santa Cruz Mountains and on the east by the Diablo Range. While some of these hilly areas contain desirable housing, much of the PMSA's mountainous open terrain is unsuitable for residential development. In addition, a significant portion of the county's land is devoted to agricultural uses. The birth and growth of the computer and semi-conductor industries in Silicon Valley facilitated the San Jose PMSA's current concentration in the high-technology electronics, computer, aerospace, telecommunications, software, and bio-technology industries. These industries experienced rapid growth throughout the 1960s and 1970s which finally slowed in the mid-1980s. Increased efficiency due to downsizing and the general economic recovery have led -12- <PAGE> to a resurgence in the high-tech industries in the 1990s. While high costs of conducting business have precipitated the departure of the manufacturing arms of many high-tech firms from Silicon Valley, the area remains a desired location for high-tech firms' headquarters and research and development facilities. Although Santa Clara County still has a significant agricultural base, the high-tech industries overshadow other contributors to the area's economy. POPULATION Based on the 1990 census, Claritas Inc. estimates the 1996 San Jose PMSA population to be approximately 1.59 million. Currently, the San Jose metropolitan area accounts for slightly less than five percent of the state of California's total population. Population in both the PMSA and state of California grew at a faster rate than the U.S. during the 1980s. However, between 1990 and 1996, the population growth rate in the San Jose PMSA fell to a compound annual average of 1.0 percent, or slightly below the U.S. average of 1.1 percent. The population in the state of California grew at a compound annual rate of 1.5 percent over the same period. The table below sets forth population trends for the San Jose PMSA compared with those for the state of California and the United States. POPULATION TRENDS <TABLE> <CAPTION> Compound Compound Annual Annual 1996 2001 Growth Growth 1980 1990 (estimated) (projected) 1990-1996 1996-2001 ---- ---- ----------- ----------- --------- --------- <S> <C> <C> <C> <C> <C> <C> San Jose 1,295,069 1,497,577 1,593,746 1,678,380 1.0% 1.0% California 23,667,908 29,760,022 32,242,114 34,279,984 1.3% 1.2% USA 226,545,776 248,709,872 264,992,224 277,957,536 1.1% 1.0% </TABLE> - ---------- Source: Claritas Inc.: Arthur Andersen -13- <PAGE> [GRAPHIC OMITTED] AREA MAP - -------- MARINA PLAYA APARTMENTS SANTA CLARA, CALIFORNIA <PAGE> The southern and eastern portions of Santa Clara County have been capturing much of the population growth. The south county cities of Gilroy and Morgan Hill have been growing especially fast, as have Milpitas, San Jose, and adjoining neighborhoods to the south and east. In contrast, the cities located in the highly urbanized northwestern portion of the county have grown more slowly. POPULATION FORECAST SAN JOSE PMSA 1995-2015 <TABLE> <CAPTION> Annual Percent of Percent of Average Subregional Total Region Total Region Growth Rate Area 1995 2000 2010 2015 1995 2000 1995 - 2015 ---- ---- ---- ---- ---- ---- ---- ----------- <S> <C> <C> <C> <C> <C> <C> <C> Campbell 41,800 43,400 44,500 44,200 2.6% 2.5% 0.28% Cupertino 51,300 53,900 54,800 54,800 3.2% 3.1% 0.39% Gilroy 38,200 45,000 58,000 65,800 2.4% 2.6% 2.76% Los Altos 30,300 30,100 30,000 30,100 1.9% 1.8% -0.03% Los Altos Hills 8,600 8,800 8,800 8,800 0.5% 0.5% 0.12% Los Gatos 32,900 33,600 33,700 33,500 2.0% 2.0% 0.09% Milpitas 59,000 64,100 65,700 65,700 3.7% 3.7% 0.54% Monte Sereno 3,900 3,950 3,900 3,850 0.2% 0.2% -0.06% Morgan Hill 33,700 38,300 46,900 51,400 2.1% 2.2% 2.13% Mountain View 73,200 76,600 78,800 78,600 4.5% 4.5% 0.36% Palo Alto 78,600 79,000 81,800 82,400 4.9% 4.6% 0.24% San Jose 888,600 956,800 1,031,600 1,048,900 55.2% 55.7% 0.83% Santa Clara 97,600 102,200 114,200 116,900 6.1% 5.9% 0.91% Saratoga 30,500 31,200 31,100 30,900 1.9% 1.8% 0.07% Sunnyvale 126,800 135,200 142,900 147,100 7.0% 7.9% 0.75% Remainder 16,000 17,000 17,600 17,700 1.0% 1.0% 0.51% --------- --------- --------- --------- ----- ----- ---- Santa Clara County (San Jose PMSA) 1,611,200 1,719,150 1,844,300 1,880,650 100.0% 100.0% 0.78% </TABLE> - ---------- Note: Figures differ somewhat from the prior table due to different sources. Source: Association of Bay Area Governments. December 1995. -15- <PAGE> Projections by the Association of Bay Area Governments further support the trend in population growth away from the Santa Clara County's mature northwest towns and toward the less developed eastern and southern regions of the county. Between 1995 and 2015, Gilroy is expected to grow at a compound annual rate of 2.8 percent and Morgan Hill is expected to grow at a compound annual rate of 2.1 percent. Over the same period, Mountain View is expected grow at compound annual rate of 0.4 percent and the city of Santa Clara is expected to grow at a compound annual rate of 0.9 percent. EMPLOYMENT Most of the San Jose PMSA urban development is concentrated in northwestern Santa Clara County in the area known as Silicon Valley. With more than 4,100 high-tech companies, Silicon Valley is considered the nation's center of high technology. As a result, the economy of the San Jose PMSA relies on both the worldwide demand for its products and the United States defense budget - two main reasons for the area's loss of over 22,000 jobs between 1990 and 1992. Since that time, however, the high-tech industry has restructured itself and shifted from manufacturing to providing high-tech services, such as data processing services and research and software development. In particular, the explosion of internet start-up firms such as Mountain View's Netscape fueled job growth and attracted a highly-educated labor pool to the area. Consequently, the county of Santa Clara recovered and the San Jose PMSA became California's employment leader for 1995 with Silicon Valley accounting for over one third of California's exports. According to the U.S. Department of Labor, the annual average at-place employment for the San Jose PMSA increased from 845,000 in August 1995 to 877,500 in August 1996, or a net gain of over 32,000 jobs over the one-year period. The San Jose PMSA has consistently enjoyed lower unemployment rates than the national rate and the state of California as a result of its indispensable role as a high-technology research and development center. The following table displays Santa Clara County's unemployment rate for the past 6.5 years. -16- <PAGE> UNEMPLOYMENT TRENDS 1990- 1996 San Jose Year PMSA California U.S. ---- ---- ---------- ---- 1990 4.0% 5.8% 5.6% 1991 5.6% 7.7% 6.8% 1992 6.7% 9.3% 7.5% 1993 6.8% 9.4% 6.9% 1994 6.2% 8.6% 6.1% 1995 5.0% 7.8% 5.6% July 1996 3.8% 7.6% 5.4% --------------------------------------------- Source: U.S. Department of Labor. Bureau of Labor Statistics: August 1996. The State of California Employment Development Department predicts a growth rate for nonagricultural wage and salary jobs of 10.5 percent during the 1992 - 1999 period with high technology leading the economy. Services, primarily business services, will become the largest industry division with data processing services expected to continue recording fast growth. Employment in manufacturing accounted for the largest industry sector until 1992 and is projected to continue to decline in importance as a result of the defense cutbacks. Retail trade is the county's third largest industry sector and is expected to grow in tandem with the county's population growth. The total non-agriculture wage and salary job count between 1994 and 1995 showed a net gain of over 28,000 jobs. The service and construction sectors had the largest gains with annual growths of 7.8 percent and 4.6 percent, respectively. The growth in the service sector contributed nearly 19,000 jobs. The two industry sectors which lost jobs over the period were the finance, insurance and real estate sector and the government sector, which together lost 2,800 jobs. -17- <PAGE> During the most recent recession ending in 1992, the local economy lost 22,400 jobs from its 1990 total of 814,500 jobs, an average annual loss of 1.4 percent. Since bottoming out in 1992, the local economy has added nearly 35,900 jobs as of year-end 1995, a compound annual growth rate of 1.5 percent. The following table sets forth employment by industry within the San Jose PMSA over the past five years. However, contract and self-employed workers are not included in these figures and are projected to be significant. WAGE AND SALARY EMPLOYMENT BY INDUSTRY AND PLACE OF WORK SAN JOSE PMSA 1990-1995 (Thousands) Industry 1990 1991 1992 1993 1994 1995 -------- ---- ---- ---- ---- ---- ---- Manufacturing 258.2 251.5 236.8 231.7 226.0 229.6 Construction 29.5 28.1 27.3 26.1 26.4 27.6 Services 214.4 217.7 226.6 237.9 245.1 263.7 Trade 169.0 165.0 158.6 157.7 160.3 167.6 TCPU(1) 22.2 22.6 22.4 23.6 23.8 23.9 FIRE(2) 31.6 31.5 31.5 31.5 30.0 28.7 Government 89.4 89.1 88.8 87.9 88.3 86.8 Mining .3 .3 .2 .2 .1 .1 ----- ----- ----- ----- ----- ----- Total 814.5 805.8 792.1 796.6 799.9 828.0 - ---------- (1) Transportation. Communication and Public Utilities. (2) Finance, Insurance and Real Estate. Source: California Association for Local Economic Development: August 1996. The county of Santa Clara is expected to maintain its position as the high-technology corporate headquarters for the nation. Hewlett-Packard's Component Group, IBM's Storage Systems Division, Fujitsu America, Sony, Hitachi, and Samsung Semiconductor, Inc. all operate in San Jose. The following table outlines the largest employers in the county. -18- <PAGE> TOP EMPLOYERS - 1995 SANTA CLARA COUNTY Name Location Employment ---- -------- ---------- Hewlett Packard Company Palo Alto 16,000 County of Santa Clara San Jose 13,512 Lockheed Martin Missiles & Space Sunnyvale 10,124 Stanford University Stanford 7,900 IBM Corporation San Jose 7,500 Kaiser Permanente Medical Center Santa Clara 5,900 Stanford University Hospital Palo Alto 5,500 City of San Jose San Jose 5,212 Applied Materials Santa Clara 5,100 National Semiconductor Corp. Santa Clara 5,000 Sun Microsystems Mountain View 4,830 Intel Corporation Santa Clara 4,700 Apple Computer. Inc. Cupertino 4,637 S.C. Valley Health & Hospital Sys. San Jose 4,300 Silicon Graphics Mountain View 3,744 - ---------------------------------------------- Source: San Jose Metropolitan Chamber of Commerce 1996. -19- <PAGE> INCOME The San Jose metropolitan area is well above national averages in terms of median household income and in a 1995 study was ranked the sixth most affluent market in the United States. The 1996 median household income for the San Jose PMSA was estimated at $58,246, or approximately 59 percent higher than the national median. It is also nearly 43 percent higher than the state of California median household income of $40,802. The PMSA income figure has increased at an annual average of 2.8 percent since 1989 and is projected to increase an additional 2.7 percent annually through the year 2001. The following table sets forth trends in median household income in the San Jose area. MEDIAN HOUSEHOLD INCOME SAN JOSE METROPOLITAN AREA 1979 - 2001 (Projected) <TABLE> <CAPTION> Compound Compound Estimated Projected Annual Growth Annual Growth 1979 1989 1996 2001 1989-1996 1996-2001 ---- ---- ---- ---- --------- --------- <S> <C> <C> <C> <C> <C> <C> San Jose PMSA $23,387 $48,155 $58,246 $66,490 2.8% 2.7% California $18,252 $35,833 $40,802 $44,209 1.9% 1.6% United States $16,846 $30,097 $36,625 $42,259 2.8% 2.9% </TABLE> - --------------------------------------- Source: Claritas, Inc., September 1996. -20- <PAGE> TRANSPORTATION Highways Arteries The Bay Area's sprawling growth has made traffic a major concern for area residents. In a 1992 Association of Bay Area Governments survey concerning infrastructure problems, 48 percent of survey respondents indicated that the problems associated with roads were either at the critical or severe stage. Local governments are making numerous road improvements to combat the traffic problems. in the San Jose PMSA, projects in progress include a recently opened freeway in the West Valley Corridor, the widening of U.S. 101 through central San Jose, and the extension of two new freeways, Highway 85 and Highway 87. The completion of Highways 85 and 87 resulted in a 30 percent drop in commute times. San Jose's location positions the city as a transportation hub for both Santa Clara County and the Bay Area as a whole. The Bay Area's four major freeways, Highways 280, 680, and 880 and State Highway 101, all converge in San Jose. State Highway 101 heads south from San Jose to Los Angeles and north to San Francisco, Highway 880 North leaves San Jose for Oakland, and Highway 680 connects San Jose to Sacramento. San Jose's 70-mile expressway system includes 3 1 miles of commuter lanes. Public Transportation/Rail Systems Bay Area Rapid Transit (BART) is a light rail system which connects San Francisco with surrounding counties, including those in the Oakland and San Jose PMSAs. A study is underway to determine the feasibility of extending BART to downtown San Jose. The CalTrain commuter rail serves over 20 Silicon Valley stations between San Jose and San Francisco. The new Santa Clara Light Rail Line provides service to San Jose from southern Santa Clara County. Extensions -21- <PAGE> of the 20-mile Santa Clara Light Rail Line to northeast San Jose, Sunnyvale, Mountain View, and the east valley are being considered. Air Service The San Jose International Airport annually transports over 8 million passengers via thirteen passenger airlines and over 1 50 million pounds of cargo. The additions of Southwest Airlines and United's entrant into the low fare market, United Express, have offset American Airlines decision to downsize its San Jose hub operations. Overall passenger traffic at San Jose International Airport increased almost 6 percent from 1994 to 1995 to a total of 8.9 million passengers. By the end of August 1996, the airport already handled over 6.5 million passengers for the year. CONCLUSION The recent strengthening of the computer and high-tech industries has fueled the recovery of the inextricably linked Silicon Valley and Santa Clara County economies. The continued growth and success of computer and high-tech related start-up firms is expected to continue to inject vigor into the local economy. In addition, these industries continue to supply high-paying jobs that boost the area's already lofty median household income. As a result, the affordability of single-family and multifamily housing is expected to remain low as limited new development and strong demand conspire to spark home price and rental rate increases that much of the area's highly-paid work force can afford. Affordable housing is likely to be found farther away from the employment centers of northwest Santa Clara County and San Jose. The less developed eastern and southern regions of Santa Clara County are expected to see the bulk of new residential development and consequently are likely to harbor the majority of the region's population growth in the coming decades. -22- <PAGE> C.2 NEIGHBORHOOD ANALYSIS LOCATION The subject property is located in the City of Santa Clara, which is located in the northwestern Santa Clara County. The City of Santa Clara is considered a desirable residential area within the county because it has good access to the area's employment centers and retail corridors. The area has one of the Bay Area's warmest and driest climates that supports a green landscape and permits year-round outdoor recreation. The City of Santa Clara is a mature, built-out community comprised largely of desirable, well-kept single-family and multifamily residential neighborhoods. Moreover, the city benefits from excellent access to U.S. 101, I-280 and I-880, which provide access to the employment and recreation options outside of the San Jose PMSA in the San Francisco and Oakland PMSAs. The subject is located at the southeast corner of Lawrence Expressway and Granada Avenue, just south of El Camino Real and U.S. 101. Lawrence Expressway is a heavily traveled four-lane expressway which serves as a primary north-south corridor through the western portion of the city of Santa Clara, connecting U.S. 101 and I-280. The subject is bound to the north, south, east, and west by multifamily residential development. In addition, the California Department of Motor Vehicles is located northeast of the subject on Granada Avenue. BOUNDARIES OF NEIGHBORHOOD The subject's neighborhood is located in the west-central portion of the City of Santa Clara, bound to the west by Lawrence Expressway, to the east by Pomeroy Avenue, to the north by El Camino Real, and to the south by Benton Street. The neighborhood encompasses an area approximately one-half square mile and contains a large concentration of residential and commercial development. -23- <PAGE> [GRAPHIC OMITTED] NEIGHBORHOOD MAP - ---------------- MARINA PLAYA APARTMENTS SANTA CLARA, CALIFORNIA <PAGE> LAND USE PATTERNS Development along Lawrence Expressway is primarily residential in nature with pockets of commercial activity at major intersections. The subject property is located in a residential area, characterized by mid-sized garden-style apartment communities, most of which were constructed in the I 960s and 1970s. Single-family homes and duplex units are also interspersed throughout the neighborhood. Commercial development in the neighborhood is concentrated along El Camino Real. The subject property is located approximately one and one-half miles north of another major commercial corridor, Stevens Creek Boulevard. The subject is also located approximately one mile west of the City of Santa Clara's Central Park and two miles west of Pruneridge Golf Course. Multifamily projects are located off Lawrence Expressway on roads such as Granada Avenue and Flora Vista Avenue. The most proximate multifamily properties to the subject are Boardwalk and Marina Playa, both of which are located on Flora Vista Avenue. Other multifamily developments are located farther east on Granada Avenue. NEIGHBORHOOD STAGE The subject neighborhood is in the stability stage, as is evidenced by the significant number of older residential and commercial properties and its largely built-out nature. New development in the area generally consists of small infill projects. -24- <PAGE> NEW DEVELOPMENT No major multifamily developments are currently under construction or have development approvals in the City of Santa of Santa Clara. Only one project, Nantucket (Bella Vista III), is currently awaiting approval. Interland Development plans to construct the 252-unit project at 1500 Vista Club Drive in Santa Clara. CONCLUSION The subject's neighborhood is characterized as predominantly residential in nature, with areas of significant commercial development along the two main thoroughfares of El Camino Real and Lawrence Expressway. The subject property is located within close proximity to both neighborhood and regional retail shopping centers as well as a park and a golf course. Given the extensive highway network which serves the City of Santa Clara, the property is also very accessible to employment centers throughout the San Jose PMSA. Most of the residents work in Silicon Valley firms in the San Jose PMSA. The City of Santa Clara is considered an attractive residential location but has become increasingly less affordable over the past few years. Because there are limited sites available for new multifamily development, it is anticipated that very little new development of this type will occur in the near-term. This will affect the subject in a positive manner, by limiting the competition it faces for tenants. With the subject property's location within close proximity to major transportation arteries and commercial areas, but surrounded by established residential development, it is concluded that the subject should remain a strong competitor within its market. -25- <PAGE> C.3 APARTMENT MARKET OVERVIEW From a construction standpoint, the apartment market in the San Jose PMSA has slowed significantly since experiencing strong activity in the late 1980s. At the same time, strong demand has resulted in one of the nation's tightest rental markets as strong employment growth has attracted a steady stream of new households to the area. Development within several communities in the county remains restricted in order to safeguard open space, limit traffic, or protect property values. Consequently, as of June 1996, apartment vacancy in Santa Clara County dropped to 1.9 percent, the lowest in the entire San Francisco Bay Area. Local restricted development policies are, however, expected to loosen as housing becomes a more critical factor with the expected growth in labor demand. MARKET SIZE From 1991 to 1995, multifamily building permits issued in the San Jose MSA accounted for a decreasing proportion of the total number of permits issued annually. Two years of positive multifamily permitting activity during 1993 and 1994 interrupted a declining trend in the number of multifamily permits issued in the PMSA. Although the positive fundamentals of the San Jose PMSA's multifamily housing market have sparked strong interest in new development, the local regulatory and lending environments and the paucity of developable residential land continue to slow the permitting of large-scale apartment developments. The following table outlines historical permit issuance in the San Jose PMSA. -26- <PAGE> HISTORICAL PERMIT ISSUANCE SAN JOSE PMSA (SANTA CLARA COUNTY) 1989- 1995 <TABLE> <CAPTION> 1989 1990 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> <C> <C> Single-Family Permits 2,567 1,762 1,638 1,760 1,848 2,127 2,213 Multifamily Permits(1) 1,963 3,109 2,134 1,297 1,331 1,817 1,232 ----- ----- ----- ----- Total Permits 4,530 4,871 3,772 3,057 3,179 3,944 3,445 Multifamily as Percent of Total 43.3% 63.8% 56.6% 42.4% 41.9% 46.1% 35.8% Multifamily Change From Prior Year -- 58.4% -31.4% -39.2% 2.6% 36.5% -32.2% </TABLE> - ---------- (1) includes apartments, condominiums and plexes Source: Regional Financial Associates: Arthur Andersen LLP. September 1996. Residents of the San Jose PMSA exhibit a strong preference for rental-type units, with approximately 40 percent of total households residing in rental units. This rental ratio is above the national average of 36 percent. The San Jose PMSA's relatively high rental ratio is attributable to the low affordability of single family housing as only 43 percent of San Jose PMSA households can afford the median existing home price of $268,160. Area residents' propensity to rent is also driven by the relative youth of the local population and volatility of the high-tech Silicon Valley job market. VACANCY From an occupancy perspective, the San Jose PMSA apartment market is extremely tight. For the first half of 1996, Santa Clara County had the lowest vacancy rate in the entire nine-county San Francisco Bay Area. This situation is a direct result of the recovery of the job market and the constrained construction of new units in the area. The following table outlines historical vacancy rates for the San Jose PMSA. -27- <PAGE> HISTORICAL VACANCY RATES SAN JOSE PMSA 1993- 1996 Period Average Vacancy ------ --------------- Dec 1993 4.94% June 1994 4.14% Dec 1994 4.38% June 1995 3.28% Dec 1995 2.15% June 1996 1.90% Source: RealData Inc.: Arthur Andersen LLP. September 1996. The City of Santa Clara has also had a very tight apartment market over the past year. As of June 1996, the vacancy rate in the City of Santa Clara apartment market was 2.26 percent, up slightly from 1.96 percent in December 1995. NEW SUPPLY In response to the strong need for more rental housing, over 2,500 units of rental housing construction are currently in the pipeline in Santa Clara County. This figure represents more than 50 percent of the overall total for the San Francisco Bay area. Approximately 1,000 of these units will consist of affordable income housing in the city of San Jose and will not significantly impact market vacancy rates. In Cupertino, over 300 units are scheduled to be open by the end of 1996; over 250 units are planned in the city of Santa Clara; and, in Sunnyvale, a 709-unit apartment community is planned. Within the city of San Jose, in addition to the affordable income housing, a 300-unit complex is expected to open during 1996. As a result of these modest levels of new construction coupled with the projected population and employment growth, apartment vacancy rates are expected to remain extremely low in the area over the next several years. -28- <PAGE> RENTAL RATES Over the past two years, coinciding with the economic return of Silicon Valley, rental rates in the San Jose PMSA have risen sharply to reach an average of $1 .32 per square foot as of June 1996. This reflects an increase of over 10 percent in the first six months of 1996, leading the nine-county Bay Area and placing Santa Clara County in the highest ranking position in terms of average gross rental rate. In particular, the northwestern portion of the county is dominating the market with the city of Mountain View averaging $1.40 per square foot and the city of Santa Clara averaging $1.38 per square foot. For the near term, rental rates are expected to steadily increase until new construction impacts the available supply of units. The table below outlines average monthly rental rates for Santa Clara County as of June 1996. RENTAL RATES BY UNIT TYPE SANTA CLARA COUNTY JUNE 1996 Avg. Monthly Avg. Monthly Rental Apartment Type Rental Rates Rates Per Square Foot -------------- ------------ --------------------- Studio $ 747 $1.65 1 Bedroom/1 Bath $ 977 $1.41 2 Bedroom/1 Bath $l,065 $1.19 2 Bedroom/1 Bath/+ $l,254 $1.27 3 Bedroom/1 Bath $ 921 $0.90 3 Bedroom/1 Bath/+ $1,425 $1.19 4 Bedroom $1,400 $0.97 --------------------------------------- Source: RealData, Inc., September 1996. -29- <PAGE> SURVEY OF SUBJECT NEIGHBORHOOD An Arthur Andersen September 1996 survey of five apartment properties totaling 1,229 units (including the subject) located within the immediate neighborhood, indicated occupancy levels ranging from 97.7 to 100.0 percent, with an average of 99.1 percent. The following apartment properties are analyzed in more detail as part of the comparable rental analysis in the Income Approach section of this report. SURVEY OF COMPARABLE APARTMENT PROPERTIES CITY OF SANTA CLARA Number Rental Rental Complex Of Units Rates Rates/SF Occupancy - ------- -------- ----- -------- --------- Marina Playa (Subject) 272 $1,010 - $1,650 $ 1.20 - $ 1.52 99.3% Marina Cove 292 $1,075 - $1,400 $ 1.22 - $ 1.49 100.0% Boardwalk 248 $1,110 - $1,400 $ 1.47 - $ 1.61 98.8% Laguna Clara 264 $1,l50 - $1,535 $ 1.29 - $ 1.62 97.7% Lake Terrace 153 $ 930 - $1,490 $ 1.16 - $ 1.50 100.0% Total/Average 1,229 99.1% - ------------------------------------ Source: Arthur Andersen Field Research, September 1996. Monthly rental rates in the subject's market area, according to the Arthur Andersen survey, are $930 to $1,210 for one-bedroom units ($1.30 to $1.62 per square foot); $1,190 to $1,415 for two-bedroom one-bath units ($1.16 to $1.32 per square foot); and $1,290 to $1,535 for two-bedroom two-bath units ($1.21 to $1.33 per square foot). At the subject, asking rents range from $1,010 to $1,650 ($1.22 to $1.52 per square foot) and are within the range of the competitive properties. No concessions are currently being offered at the surveyed properties or the subject. -30- <PAGE> Based on the observed performance of the competitive properties, examined within the framework of overall market indicators, it appears that the supply and demand fundamentals in the multifamily market appear strong in the city of Santa Clara area. Moreover, modest population growth coupled with the limited new construction should continue to result in a strong apartment market. Market sources agree that vacancies are expected to remain low, with well-located complexes showing the highest occupancies. Consequently, the near-term outlook for the subject property appears very favorable. Santa Clara County is projected to add 29,371 households over the 1996 - 2001 period. Assuming the current rental preference of 40 percent, this household growth would translate into more than 2,300 new renters annually over the next five years. In contrast, Santa Clara County has issued an average of 1,840 new multifamily permits annually over the past seven years. Furthermore, only 2,500 new units are currently in the development pipeline in the area, only 1,500 units of which are market rate units. -31- <PAGE> C.4 HIGHEST AND BEST USE ANALYSIS The validity of an appraisal is dependent upon the consideration and conclusion of highest and best use.(3) Often expressed as "the most profitable legal use," the concept requires an analysis of many factors. Vacant land value is directly related to its highest and best use. On the other hand, an improved property may have the same or a different highest and best use than the land supporting the improvements when considered as vacant land. Therefore, for improved property, both highest and best use decisions must be separately considered, both as vacant land and as improved property. In addition to a conclusion for both the vacant land and improved property, sale and lease comparisons are usually made with properties having similar highest and best uses as the subject. The parameters for consideration relate to legality of use, physical possibilities, financial feasibility, and maximum economic production. Single uses, interim uses, legal non-conforming uses, speculative uses or excess land determinations require further analysis. HIGHEST AND BEST USE OF THE LAND AS IF VACANT Legally permissible uses are those limited by zoning, easements and rights-of-way, deed restrictions, building codes, and environmental controls. These restrictions, discussed in Section B.2, limit the permissible uses of the subject property to single-family and multifamily uses. Physically possible uses are limited by size, design, topography, flood possibilities and physical capacities. The subject site contains 10.0 useable acres consisting of a nearly trapezoidally-shaped parcel. The subject property is located between the limits of the 100-year floodplain and the 500-year floodplain. Drainage and topography are acceptable for the legally permissible uses. Although we are unqualified to render an opinion of the physical load-bearing capacity of the land or its freedom - ---------- (3) Highest and Best Use: "The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. (American Institute of Real Estate Appraisers. The Dictionary of Real Estate Appraisal, Second Edition, Copyright 1989, Page 149. -32- <PAGE> from hazardous materials, no nuisances were obvious at the time of inspection. It appears that all of the legally permissible uses are physically possible. Financially feasible uses must be supported by sufficient demand in the neighborhood to create a sufficient return to invest over the long term. In analyzing each potential highest and best use alternative, the income potential from those legally permissible and physically possible uses were considered. The income from the highest and best use should be sufficient to satisfy investor requirements and operating expenses, thereby providing a return on the land. Predominant land uses in the neighborhood provide indications of profitable land uses for the location of the subject property. Development in the immediate vicinity is dominated by multifamily residential uses of similar age and condition. The close proximity to major thoroughfares such as Lawrence Expressway, El Camino Real and U.S. 101, shopping centers, and employment centers add to the desirability of the location for residential use. Thus, the subject's location is suitable for multifamily development. Physically, this multifamily development could be in the form of either residential rental apartments or ownership condominiums. As most of the single-family residential construction in the past two years has targeted first-time home buyers, the availability of more affordable single-family housing has weakened the demand for condominiums. In addition, many area employees in the computer and high-tech industries prefer to rent instead of own to give themselves more flexibility in the dynamic, unpredictable Silicon Valley job market. Considering these issues, the highest and best use of the subject property would appear to be the development of a rental apartment complex similar to the subject. Our judgment of the maximally productive use of the site, therefore, centers on the potential for future income production in the City of Santa Clara apartment market as compared to the single-family market. Historically, the apartment properties in this area have maintained high occupancy levels and high rental rate levels due to strong demand for affordable housing alternatives to the single-family market. Demand is fueled by the subject's proximity to Silicon Valley and other Bay Area -33- <PAGE> employment centers. In addition, many employees at fast-paced Silicon Valley firms have short-term tenure expectations and thus desire temporary housing. On the supply side, there are currently no approved additions to the multifamily supply in the City of Santa Clara. Development has been and continues to be limited by the lack of available land and the slow approvals process. Santa Clara County, however, is the most active county in the Bay Area for multifamily construction. With 776 units under construction and 2,395 units planned, Santa Clara County's construction activity dwarfs that of the other Bay Area counties. However, much of this construction involves low income or Affordable Housing Program development in urban San Jose and other areas. This construction trend indicates that current rental rate levels and vacancy rates justify new construction. However, the lack of available, properly zoned land in the City of Santa Clara continues to limit construction, warranting a strong positive outlook for the local apartment market. Therefore, it is our opinion that the highest and best use of the subject site, as though vacant is for multifamily residential development at the maximum allowable density. HIGHEST AND BEST USE OF THE PROPERTY AS CURRENTLY IMPROVED The subject property is currently improved with a quality 272-unit garden apartment complex. In light of the existing improvements, a contrast with other uses is made for the optimal use which is also physically suitable for the site, legally permissible, economically feasible and the most profitable usage of the site. As earlier indicated, the highest and best use of a property as improved may differ from the highest and best use of the land as if vacant. The "as improved" analysis assists in the identity of the use that is estimated to provide the greatest overall property return on invested capital, as well as in the identification of comparable properties. Typical choices for improved property include the following usage alternatives: -34- <PAGE> 1. Demolition of the improvements; 2. Remodeling or renovation; and 3. Continued usage, as is. DEMOLITION OF THE IMPROVEMENTS The implication in a highest and best use analysis is that the existing improvements should be retained and/or renovated as long as those improvements continue to contribute to the total value of the property, or until the return from a new improvement would more than offset the cost of demolishing the existing improvements and constructing alternative facilities. An analysis of the subject property reveals that the existing improvements do continue to contribute to the overall value of the subject, with no alternative use available to the site which would provide a greater return. As a result, demolition of the improvements is considered neither warranted, nor optimal from a highest and best use standpoint. REMODELING OR RENOVATION This alternative would present the highest and best use of the site if the resulting increase in value would more than offset the cost of remodeling or renovating the existing improvements. In this case, no renovation or remodeling would be required to maximize the profitability of the subject property primarily due to the age of the building. The improvements are well constructed, functional, and supported by an adequate level of market demand. Renovation of the current use would not generate sufficient additional income to provide a return on the cost of any renovations. -35- <PAGE> CONCLUSION AND RECONCILIATION OF HIGHEST AND BEST USE In conclusion, the highest and best use of the subject property, as currently improved, is continued use as an apartment complex with ongoing upgrades of units when vacated to replace outdated carpets, appliances, and other interior unit features. -36- <PAGE> D.1 THE APPRAISAL PROCESS The purpose of this appraisal is to estimate the "as is" market value the subject property in accordance with accepted value estimating procedure. "The valuation process is a systematic procedure employed to provide the answer to a client's question about real property value. It is a model of appraisal activity, reflecting an understanding of value and the methods used in the value estimation."(4) There are three traditional approaches involved in the valuation of real property. These are known as the cost approach, the sales comparison approach, and the income approach. Each of the three approaches is related to the other, as they involve the gathering and analysis of sales, cost, and income data that pertain to the property being appraised. In the cost approach, the appraiser estimates a value by estimating the replacement cost of a structure with similar utility, deducting all forms of accrued depreciation, and adding to that the estimated value of the land. The cost approach is most reliable in estimating value of newly constructed or special purpose properties. This approach loses validity when the estimation of large amounts of physical depreciation and/or external obsolescence is required. In addition, this approach is least used by investors when evaluating apartment property acquisitions. As such, this approach has not been utilized in this appraisal report. In the sales comparison approach, value for the subject property is estimated by comparing it to other similar properties which have sold recently, applying the appropriate units of comparison and making adjustments to the comparables to arrive at an indicated value for the subject. In the case of the subject, market price per unit is the most commonly used unit of comparison. - ---------- (4) American Institute of Real Estate Appraisers. The Appraisal of Real Estate Appraisal, Chicago, Illinois, 1989, p73. -37- <PAGE> The income approach is the approach through which a value indication for income producing properties is estimated by converting the anticipated income stream into property value. This can be accomplished through two methods: the direct capitalization technique and the discounted cash flow analysis. Direct capitalization utilizes the anticipated annual income and capitalizes it at a market derived capitalization rate that reflects a specific pattern, return on investments and change in value over the expected holding period. The discounted cash flow method anticipates the income stream for a specified holding period as well as a reversion value, and discounts that income to a current value based on a specified yield rate. Direct capitalization is the most commonly applied technique in pricing apartment properties, especially when the property is stabilized. Given the stable nature of the subject property income and occupancy, the direct capitalization technique was used exclusively in this report. In all of the approaches, the most important data source is the marketplace. This applies not only to comparable sales, but also to the determination of rent levels, occupancy rates, expenses and capitalization rates. The separate value indications derived from each technique are reconciled at the end of our appraisal into a final value estimate. -38- <PAGE> E.1 SALES COMPARISON APPROACH The sales comparison approach estimates market value based on comparative analysis of recent sales of improved properties that are similar in function, size, income production and use to the appraised property. This approach to value assumes that the market will set a price for the subject in the same manner that it sets the price for comparable, competitive properties. To apply the sales comparison approach, the appraisers employ a number of appraisal principles, including the principle of substitution which holds that the value of a property that is replaceable in the marketplace tends to be set by the cost of acquiring an equally desirable substitute property. Additional considerations include examination of market conditions prevailing at the time of sale as compared to those at the date of valuation. A comparison of the subject property to the selected comparable sales was complicated by the fact that the subject property is encumbered by a long term ground lease while all of the comparables were fee simple transactions. In order to address the ground lease factor, in addition to other physical and locational differences between the subject and the comparables, the appraisers have elected to employ the net operating income comparison method in our Sales Comparison approach. The following pages contain a description of the five selected sales utilized in this analysis. This is followed by an explanation of the application of this method to the subject property, which is then followed by the appraisers value conclusion under the Sales Comparison Approach. -39- <PAGE> [GRAPHIC OMITTED] IMPROVED SALE COMPARABLES MAP - ----------------------------- MARINA PLAYA APARTMENTS SANTA CLARA, CALIFORNIA <PAGE> COMPARABLE APARTMENT SALE 1 Location: 2326-2330 California Street Mountain View, California Grantor: Master Mortgage Company Grantee: The Spieker Companies Date of Sale: April 1996 Sale Price: $4,050,001 Financing: Cash to seller Year Built: 1963 Number of Units: 80 Price Per Unit: $50,625 Overall Cap Rate: 8.98% EGIM: 5.63 Income Information: NOI: $363,772 NOI Per Unit: $4,547 Land: 2.02 acres Net Rentable Area: 79,433 square feet Occupancy at Sale: 95 percent Property Description: This property has two, two-story buildings in average condition. Amenities include a pool, laundry, balconies and storage lockers. The property has 23 one-bed units, 8 two-bed one-bath units, and 49 two-bed two-bath floorplans, with sizes ranging between 702 sq ft and 1,143 sq ft. Rental rates range from $675 to $775 per month, depending on the -40- <PAGE> floorplan. The tenant is responsible for gas heat and electricity expenses. Comments: The property benefits from good access to El Camino Real, a major regional commercial thoroughfare, and San Antonio Road, which leads directly to Highway 101. The property has good visibility from California Street, a secondary road. However, the site is proximate to unsightly development. -41- <PAGE> COMPARABLE APARTMENT SALE 2 Location: 1035-1061 Meridian Avenue San Jose, California Grantor: Federal National Mortgage Assoc. Grantee: Gilbert M. & Carol Meyer Date of Sale: March 1996 Sale Price: $4,000,000 Financing: N/A Year Built: 1964 Number of Units: 82 Price Per Unit: $48,780 Overall Cap Rate: 10.80% EGIM: 5.39 Information: Effective Gross Income: $719,197 Less Operating Expenses: $287,000 -------- NOI: $432,197 NOI Per Unit: $5,271 Land: 3.61 acres Net Rentable Area: N/A Occupancy at Sale: 97 percent Property Description: The complex consists of 7, two-story buildings of wood frame construction, with exterior walls of stucco panels. The complex is on Meridian Avenue, with easy access to SW Expressway. The property is in average condition. Project amenities include a pool, laundry facilities, balconies and patios. -42- <PAGE> The property contains 30 one-bedroom one-bath units and 52 two-bedroom one-and-a-half bath units. The tenant is responsible for gas heat and electricity expenses. Comments: The property is in an older, less attractive residential development. The improvements are currently undergoing a major renovation. -43- <PAGE> COMPARABLE APARTMENT SALE 3 Location: Kingdale Oaks 1919 Fruitdale Avenue San Jose, California Grantor: Marie Helen Pejcha Grantee: M/M Richard Tod & Catherine Spieker Date of Sale: August 1995 Sale Price: $16,760,000 Financing: Cash equivalent Year Built: 1970 Number of Units: 331 Price Per Unit: $50,634 Overall Cap Rate: 9.34% EGIM: 6.01 Income Information: NOI: $1,565,000 NOI Per Unit: $4,728 Land: 11.76 acres Net Rentable Area: N/A Occupancy at Sale: 95.6 percent Property Description: This garden apartment complex is located on Fruitdale Avenue near the juncture of I-280 and I-880. The complex consists of four two-story buildings, two one-story buildings, and nine three-story buildings of wood frame construction, with exterior walls of stucco. Project amenities include two heated pools, pool-side grills, a spa, laundry facilities, a recreation room, balconies, patios and elevators. The property offers -44- <PAGE> studios, one-bed/one-bath units, two-bed/one-bath units, two-bed/two-bath units, three-bed/two-bath units. -45- <PAGE> COMPARABLE APARTMENT SALE 4 Location: Spring Creek Apartments Formerly known as La Casa Granada Apartments 100 Buckingham Drive Santa Clara, California Grantor: State Street Bank & Trust Company Grantee: Avery Investments Partnership Date of Sale: April 1995 Sale Price: $8,875,000 Financing: Cash to seller Year Built: 1968 Number of Units: 140 Price Per Unit: $63,392 Overall Cap Rate: 10.21% EGIM: 5.62 Income Information: Gross Annual Income: $1,501,494 Less Operating Expenses: 595,000 ---------- NOI: $ 906,494 NOI Per Unit: $6,475 Land: 5.35 acres Net Rentable Area: 145,844 Occupancy at Sale: 95 percent Property Description: The complex consists of twelve two-story buildings of wood frame construction with stucco exteriors. The property is located on a secondary residential street, Buckingham Drive, which leads directly to Stevens Creek Boulevard, a major east-west thoroughfare, and -46- <PAGE> indirectly to I-280 and I-880. Project amenities include laundry facilities, balconies, storage lockers and patios. The apartments consist of the following mix: Unit Number Size 1BR/1BA 20 758 SF 2BR/2BA 108 1,063-1,025 SF 2BR/2BA 12 1,276 SF Comments: Rental rates range from $1,050 to $1,075 for the one-bedroom units, $1,295 to $1,525 for the two-bedroom two-bath units, and $1,630 to $1,655 for the three-bedroom two-bath units. The property has undergone substantial renovations since the time of the sale. -47- <PAGE> COMPARABLE APARTMENT SALE 5 Location: Hidden Willows 840-850 Meridian Avenue San Jose, California Grantor: The Willows Equity Partners Grantee: Hidden Willows, Ltd. Date of Sale: January 1995 Sale Price: $7,725,000 Financing: $2,334,701 down (30%) Year Built: 1978 Number of Units: 112 Price Per Unit: $68,973 Overall Cap Rate: 8.63% EGIM: 6.94 Income Information: Gross Annual Income: $1,057,225 Less Operating Expenses: 390,665 ---------- NOI: $ 666,560 NOI Per Unit: $5,951 Land: 3.28 acres Net Rentable Area: N/A Occupancy at Sale: 95 percent -48- <PAGE> Property Description: The complex consists of eleven two-story buildings, with wood frames and stucco exteriors. The property is in good condition. Amenities include a pool, a spa, air conditioning, laundry facilities, balconies, patios, storage lockers and a clubhouse. There are 74 one-bedroom/one-bath units and 38 two-bedroom/two-bath units. Comments: Current asking rental rates range from $775 for the one-bedroom units and $925 for the two-bedroom units. This complex is an established garden apartment community located on Meridian Way near the intersection of three major roads: the Southwest Expressway, I-280, and Meridian Avenue. Access to the property is difficult. -49- <PAGE> E2. NET OPERATING INCOME (NOI) PER UNIT ANALYSIS An indication of value for the subject property can be estimated by comparing the NOI per unit of the sales with the estimated NOI per unit of the subject (as projected in the Income Approach). In this technique, the NOI for the comparables are arrayed in descending order. Using the actual NOI (including ground lease expenses) for the subject of $7,056 per unit from the income approach, it is placed in the continuum of the comparable properties. The placement of the subject in the continuum results in an indicated value per unit. The following table shows the subject with respect to the comparables based on NOI per unit. COMPARABLE SALES RANKED BY NOI PER UNIT Sale No. Sale Date Occupancy Sale Price/Unit OAR NOI Per Unit - -------- --------- --------- --------------- --- ------------ Sale No. 5 Jan. 1995 98.0% $68,973 8.63% $5,951 Sale No. 4 Apr. 1995 95.0% $63,392 10.21% $6,475 Sale No. 3 Aug. 1995 95.6% $50,634 9.34% $4,728 Sale No. 1 Apr. 1996 95.0% $50,625 8.98% $4,547 Sale No. 2 Apr. 1996 97.0% $48,780 10.80% $5,271 Subject As of Dec. 1, 1996 98.0% $7,056 The NOI per unit of the comparables range from $4,547 to $6,475 per unit. The corresponding actual sale prices range from $48,780 to $68,973 per unit. As estimated in the income approach, the subject has an NOI of $7,056 per unit. This NOI places the subject slightly above the top of the range. In addition to this estimate, a second analysis of NOI per unit is applied. In this analysis, direct adjustments to the properties' sale prices were applied based on the percent difference between the sale's NOI and the subject's NOI. The following table summarizes the direct adjustment process. -50- <PAGE> SUMMARY OF NOI ADJUSTMENTS Sales Subject's Percent Adjusted Sale No. Price/Unit NOI Unit NOI Unit Difference Price/Unit -------- ---------- -------- -------- ---------- ---------- 1 $50,625 $4,547 $7,056 55.18% $78,560 2 $48,780 $5,271 $7,056 33.86% $65,297 3 $50,634 $4,728 $7,056 49.24% $75,566 4 $63,393 $6,475 $7,056 8.97% $69,079 5 $68,973 $5,951 $7,056 18.57% $81,781 E3. CONCLUSION BY THE SALES COMPARISON APPROACH Through the NOI adjustment process, the indicated value of the subject ranges from $65,297 to $81,781 per unit. Based on this analysis, Sales Nos. 4 and 5 appear to be the most comparable due to their similarity to the subject and the relatively small adjustments required. A value of $74,000 per unit, or approximately $20,130,000 (rounded) is concluded as the leasehold value for the subject based on the NOI per unit analysis. -51- <PAGE> F. INCOME CAPITALIZATION APPROACH The Income Capitalization Approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. The direct capitalization methodology uses a single year's stabilized net operating income as a basis for a value indication. It converts estimated "stabilized" annual net operating income to a value indication by dividing the income by a capitalization rate. The discounted cash flow (DCF) analysis focuses on the operating cash flows expected from the property and the anticipated proceeds of a hypothetical sale at the end of an assumed holding period. These amounts are then discounted to their present value. The discounted present values of the income stream and the reversion are added to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method puts more weight on income projected in the early years than income and sale proceeds to be received later. The direct capitalization method is normally appropriate for properties with relatively stable operating histories and expectations, or properties that can be expected to reach stabilization within a short period of time. Apartments, except for new construction, are typically analyzed by the direct capitalization approach, assuming that they are at a stabilized occupancy level. We consider the subject to be reaching a stabilized occupancy level and have applied only the direct capitalization method. This approach requires an estimation of the subject's income and expenses in order to forecast net operating income, which is then converted to a value indication by use of the direct capitalization analysis. Direct Capitalization The direct capitalization approach is based upon an estimate of the property's income in a year of stabilized occupancy. We first estimated effective income from apartment rents and other sources, and then estimated the operating expenses associated with the property. These were -52- <PAGE> combined to develop an operating statement for the property in a representative year. The following items were estimated in our Direct Capitalization analysis. Property Income Analysis Potential Gross Rental Income: The first step in the direct capitalization approach and the discounted cash flow approach is to estimate the gross potential income of the property. Accordingly, we surveyed the competitive rentals in the market to determine an appropriate market rent. We also considered the current leases, the recent and historical per unit average rental rates, and quoted asking rental rates for the subject. The gross potential income figure in our analysis equates to the sum of the existing annual rents in place as of the date of value, plus market rental rates applied to the vacant units. The gross potential income was trended upwards to reflect increase in market rents over the past year due to low vacancy rates and healthy competition. Based on a rent roll (as of December 3, 1996) provided by American Apartment Communities, there were a total of 272 units of which 5 were vacant, amounting to a 2.0% overall vacancy (excluding the 4 special use units). According to the leasing agent, a 2.5% vacancy rate is in line with normal turnover vacancies, with generally 5 to 10 units available. Historically, since the middle of 1996, the subject property has experienced occupancy levels ranging from 95 to 100 percent. According to the rent roll provided, the gross potential monthly rent for the occupied units amounts to $278,477 or $1,060 per unit (an increase of nearly 18% from the 1995 actual rent roll). In projecting the 1997 gross potential rental revenue, we applied an average projected monthly rent of $1,113 or a 5% increase over the December, 1996 rent roll. The 5% growth rate is conservative in light of our Apartment Market Overview which demonstrates that average rents in Santa Clara County have risen by 10% in the first six months of 1996, and is further supported by our survey of competitive properties. Market rents in our survey for one bedroom apartment range from $930 to $1,210 per unit per month while the monthly rental rates for two bedroom one bath units range from $1,190 to $1,500 per unit per month. Market rents in our survey for two bedroom two bath range from $1,290 to $1,525 per unit per month while the -53- <PAGE> monthly rental rates for three bedroom two bath units are $1,450 to $1490 per unit per month. A comparable rental survey and descriptions of the competitive properties can be found on the following pages. Our analysis indicates that our projected market and effective rents fall will within competitive properties. Variance /Concessions: Currently no concessions in the form of free or discounted rent are being offered on new leases in the market; however concessions exist in the form of rent variance. According to the property manager, rent variance represents the difference between gross potential rent and actual rents in place. Not only does it include discounts and move-in specials, but also reflects artificially low rent levels of tenants who have been living at the property for several years and whose annual rent increases at renewal have not kept pace with market rent increases. In addition, this variance/concessions also includes a deduction for the subsidized employee units at the subject property. Based on historical figures, and the new property management's aggressive policy of increasing renewing rental rates to more closely reflect current asking rates, we have projected total variance/concessions to be 2.25 percent of potential gross income going forward. Vacancy and Collection Loss: To account for income loss associated with market occupancy fluctuations and frictional vacancy resulting from short-term leases, a 2.5 percent economic vacancy loss factor was judged appropriate for the subject based on historical information. As of June 1996, the vacancy rate in the City of Santa Clara apartment market was 2.26 percent, up slightly from 1.96 percent in December 1995. The physical occupancy rate at the subject averaged 97.3 percent in 1995 and was 99.3 percent as of the date of inspection. The four competitive properties surveyed displayed physical occupancies ranging between 97.7 and 100.0 percent. A separate deduction for credit loss reflects deficient rent payments and other scheduled revenues not collected from tenants. According to the on-site leasing agent, the property has had very little credit loss over the past few years due to the strong incomes of the tenants and the strong market -54- <PAGE> conditions. Based on this trend, we have estimated credit loss at 0.5 percent of gross effective rent. Restaurant Income: Restaurant income includes base rent and percentage rent paid by the Acapulco restaurant which is located above the rental office at the subject property. In compliance with their lease, Acapulco pays annual base rent of $46,000 and annual percentage rent of the amount by which 5.5 percent of the restaurant's gross sales exceeds $818,181.72. Other Income: Other income includes application fees, cabana rentals, clubhouse rentals, late fees, laundry revenue, and security deposit forfeitures. Historically, these sources of income have ranged from 2.5 to 3.1 percent of potential gross income. Through the first seven months of 1996, however, other income was approximately 2. 1 percent of potential gross income, well below the 1996 budgeted amount of 3.2 percent of potential gross income. Since rental revenue, by far the most significant component of potential gross income, is expected to continue to increase at a faster rate than other income sources such as laundry revenue, application fees, and security deposit forfeitures, other income as a percentage of potential gross income is expected to continue to remain below historical levels. -55- <PAGE> [GRAPHIC OMITTED] RENT COMPARABLES MAP - -------------------- MARINA PLAYA APARTMENTS SANTA CLARA, CALIFORNIA <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------ Table G-2 COMPARABLE RENTAL SURVEY MARINA PLAYA APARTMENTS SANTA CLARA, CA - ------------------------------------------------------------------------------------------------------------------ Monthly Rent ------------------------------ Year Unit Size Effective No. Property and Location Built Occupancy Type (Sq. Ft) Asking Effective Per SF - --- --------------------- ----- --------- ---- -------- ------ --------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Subject Marina Playa Apartments 1971 99.3% JR. 1BR/1BA 664 $1,017 $1,017 $1.53 3500 Granada Avenue 1BR/1BA 705 $1,075 $1,075 $1.52 1BR/1BA 738 $1,125 $1,125 $1.52 1BR/1BA 805 $1,188 $1,188 $1.48 2BR/1BA 950 $1,260 $1,260 $1.33 2BR/2BA 1,070 $1,362 $1,362 $1.27 2BR/2BA/DEN 1,338 $1,625 $1,625 $1.21 3BR/2BA 1,270 $1,563 $1,563 $1.23 Comments: The subject is a two-story garden style apartment complex containing 272 units. The complex contains 14 buildings with wood exteriors and flat roofs, configured around a small central lake and two pool areas. The subject is well located in an attractive suburban location, benefitting from good visibility and access from Lawrence Expressway. Project amenities include a two-story clubhouse, a billiard room, an exercise room, saunas, four hotel-type guest rooms, a restaurant, two swimming pools, a spa, and two lighted tennis courts. The property also contains four laundry facilities and covered carports. Unit features include wall-to-wall carpeting air conditioning in the living room, garbage disposals, dishwashers, ceiling fans in 40 of the larger units and fireplaces in the eight two-bedroom, two-bath, den units. The complex was reportedly 99.3% occupied at the time of the visit, with no concessions currently being offered. </TABLE> <PAGE> <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------------------------- Table G-2 COMPARABLE RENTAL SURVEY MARINA PLAYA APARTMENTS SANTA CLARA, CA - --------------------------------------------------------------------------------------------------------------------------------- Monthly Rent ------------------------------------------------- Year Unit Size Effective No. Property and Location Built Occupancy Type (Sq. Ft) Asking Effective Per SF - --- --------------------- ----- --------- ---- -------- ------ --------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 1 Marina Cove 1972 100.0% 1BR/1BA 720 $1,075 $1,075 $1.49 3480 Granada Avenue 1BR/1BA 725 - 792 $1,075 - $1,120 $1,075 - $1,120 $1.48 - $1.41 2BR/1BA 900 $1,225 $1,225 $1.36 2BR/2BA 1,051 $1,300 $1,300 $1.24 2BR/2BA 1,056 $1,320 $1,320 $1.25 2BR/2BA 1,144 $1,400 $1,400 $1.22 Comments: This comparable is located across the street of the subject property, at the southeast corner of Flora Vista and Granada Avenues. Like the subject, the property has excellent access to major local thoroughfares such as Lawrence Expressway, El Camino Real and San Tomas Expressway and important regional routes such as Highway 101 and I-280. This 292 unit apartment community's amenities include two heated pools with spas, a clubhouse, an exercise and weight room and public laundry facilities. Unit features include dishwashers, walk-in closets, balconies/patios, dishwashers, fireplaces, vaulted ceilings in upstairs units, and central air conditioning. Situated on 12 acres of land, landscaping includes streams and gardens. The property is in good condition and was 100% occupied at the date of the survey, with no concessions being offered. </TABLE> <PAGE> <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------------------------- Table G-2 COMPARABLE RENTAL SURVEY MARINA PLAYA APARTMENTS SANTA CLARA, CA - --------------------------------------------------------------------------------------------------------------------------------- Monthly Rent ------------------------------------------------- Year Unit Size Effective No. Property and Location Built Occupancy Type (Sq. Ft) Asking Effective Per SF - --- --------------------- ----- --------- ---- -------- ------ --------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 2 Boardwalk 1977 98.8% 1BR/1BA 700 - 750 $1,110 - $1.210 $1,110 - $1,210 $1.59 - $1.61 3770 Flora Vista Avenue 2BR/1BA 950 $1,400 - $1,500 $1,400 - $1,500 $1.47 - $1.58 2BR/2BA 950 $1,400 - $1,500 $1,400 - $1,500 $1.47 - $1.58 Comments: This comparable is located one block southeast of the subject on Flora Vista Avenue, adjacent to Rental No. 1. Amenities to this 248 unit apartment community include two pools and spas, a fitness room, recreation center, covered carports, and landscaped lakes and streams. Unit features include dishwashers, cathedral ceilings (top floor), fireplaces, patios and balconies with waterfront views and extra storage areas. The property is in good condition and was reportedly 98.8 percent occupied as of the date of the survey, with no concessions currently being offered. The property offers some corporate apartments, which are fully furnished. </TABLE> <PAGE> <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------------------------- Table G-2 COMPARABLE RENTAL SURVEY MARINA PLAYA APARTMENTS SANTA CLARA, CA - --------------------------------------------------------------------------------------------------------------------------------- Monthly Rent ------------------------------------------------- Year Unit Size Effective No. Property and Location Built Occupancy Type (Sq. Ft) Asking Effective Per SF - --- --------------------- ----- --------- ---- -------- ------ --------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 3 Laguna Clara 1971 97.7% 1BR/1BA 712 $1,150 $1,150 $1.62 3131 Homestead Road 1BR/1BA 754 $1,175 $1,175 $1.56 1BR/1BA 823 $1,192 $1,192 $1.45 1BR/2BA 1,072 $1,395 - $1,415 $1,395 - $1,415 $1.30 - $1.32 2BR/2BA 1,158 $1,495 - $1,535 $1,495 - $1,535 $1.29 - $1.33 Comments: This comparable is located approximately one half mile southeast of the subject property on Homestead Road east of Lawrence Expressway. Landscaping for this property consists of mature trees integrated with a series of streams and ponds. Amenities include a year-round heated pool, clubhouse, steam and dry saunas, fitness center and carports. Unit features include fireplaces, dry bars, dishwashers, disposals, and patios and decks. The 264-unit property is in good condition and was reportedly 97.7 percent occupied as of the date of the survey, with no concessions currently being offered. </TABLE> <PAGE> <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------------------------- Table G-2 COMPARABLE RENTAL SURVEY MARINA PLAYA APARTMENTS SANTA CLARA, CA - ----------------------------------------------------------------------------------------------------------------------------------- Monthly Rent ------------------------------------------------- Year Unit Size Effective No. Property and Location Built Occupancy Type (Sq. Ft) Asking Effective Per SF - --- --------------------- ----- --------- ---- -------- ------ --------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 4 Lake Terrace 1969 l00.0% 1BR/1BA 620 - 704 $ 930 - $ 990 $ 930 - $ 990 $1.50 - $1.41 3665 Benton Street 1BR/1BA 841 $1,090 $1,090 $1.30 2BR/1BA 1,022 $1,190 $1,190 $1.16 2BR/2BA 1,067 $1,290 - $1,330 $1,290 - $1,330 $1.21 - $1.25 2BR/2BA-DEN 1,253 $1,450 - $1,490 $1,450 - $1,490 $1.16 - $1.19 3BR/2BA 1,253 $1,450 - $1,490 $1,450 - $1,490 $1.16 - $1.19 Comments: This comparable is located approximately one half mile southwest of the subject property on Benton Street near Lawrence Expressway. The property is in a slightly older neighborhood than that of the subject, characterized by a significant amount of older, multifamily buildings. Amenities include a large interior pond, a pool, a spa, two saunas, a fitness center, a clubhouse and covered carports. Unit features include optional fireplaces and patios/balconies. This property is in good condition and was approximately 100 percent occupied as of the date of the survey, with no concessions currently being offered. Summary Totals/Ranges(1) Jr1BR/1BA - - $ - - $ - - $ - 1BR/1BA 620 - 841 $ 930 - $1,210 $ 930 - $1,210 $1.30 - $1.62 2BR/1BA 900 - 1,022 $1,190 - $1,500 $1,190 - $1,500 $1.16 - $1.58 2BR/2BA 950 - 1,158 $1,290 - $1,500 $1,290 - $1,500 $1.21 - $1.58 2BR/2BA/DEN 1,253 - 1,253 $1,450 - $1,490 $1,450 - $1,490 $1.16 - $1.19 3BR/2BA 1,253 - 1,253 $1,450 - $1,490 $1,450 - $1,490 $1.16 - $1.19 ----- ----- ------ ------ ------ ------ ----- ----- 620 - 1,253 $ 930 - $1,500 $ 930 - $1,500 $1.16 - $1.62 </TABLE> ---------- (1) For comparison purposes, summary totals, ranges do not include subject data Source: Arthur Andersen, September 1996. <PAGE> We have analyzed four competitive rental complexes within the subject market area. All four of the projects were constructed between the years 1969 and 1977 and constitute a representative sample of older, Class B projects of similar exterior construction quality. The competitive projects are in generally good condition and offer similar amenities such as a pool, clubhouse, public laundry facilities, and covered carports. All of the projects surveyed offered additional amenities such as a swimming pool and pond-related landscaping. While three of the projects also offer saunas and exercise rooms, only the subject has tennis on-site tennis courts. A more detailed discussion of the comparability of each property follows. Rental No. 1, Marina Cove, contains 292 units and was constructed in 1972. This comparable is located across the street from the subject at the southeast corner of Flora Vista and Granada Avenues. The property is situated in a neighborhood with a high concentration of multifamily residential development. Like the subject, the property has excellent access to major local thoroughfares such as Lawrence Expressway, El Camino Real and San Tomas Expressway and important regional routes such as Highway 101 and I-280. The property has good visibility from Granada Avenue but, unlike the subject, does not have visibility from Lawrence Expressway. The property is configured in a low density arrangement with attractive landscaping that includes streams and gardens. Amenities include two pools, a clubhouse, public laundry facilities, covered carports, and an exercise room. Unit features include dishwashers, walk-in closets, balconies/patios, dishwashers, fireplaces and central air conditioning. The property is in good condition and was approximately 100 percent occupied as of the date of survey, with no rental concessions currently being offered. This property is slightly inferior to the subject in terms of its location, physical condition, unit mix, project amenities, and asking rental rates. Rental No. 2, Boardwalk, contains 248 units and was constructed in 1977. This comparable is located one block southeast of the subject on Flora Vista Avenue. The property is adjacent to Marina Cove Apartments and is within close proximity to other existing multifamily residential projects. Amenities include two pools, two spas, a fitness room, a clubhouse, a recreation room, laundry facilities, covered carports, and landscaped ponds and streams. Unit -61- <PAGE> features include dishwashers, cathedral ceilings (top floor), fireplaces, patios and balconies, and extra storage areas. The property is in good condition and was reportedly 98.8 percent occupied as of the date of survey, with no rental concessions currently being offered. This property is comparable to the subject in terms of its location, size, unit mix, physical condition, project amenities, and asking rental rates. Rental No. 3, Laguna Clara, contains 264 units and was constructed in 1971. This comparable is located approximately one half mile southeast of the subject property on Homestead Road east of Lawrence Expressway. The property has similar site characteristics to the subject property with mature trees and landscaping integrated with a series of streams and ponds in the interior of the property. Amenities include a pool, a clubhouse, steam and dry saunas, a fitness center and covered carports. Unit features include dishwasher, fireplaces, dry bars, double door refrigerators, and self-cleaning ovens. The property is in good condition and was reportedly 97.7 percent occupied as of the date of survey, with no rental concessions currently being offered. This property is comparable to the subject in terms of its location, size, rental rates, and exterior appearance. The subject, however, offers better amenities and larger floor plans than this property. Rental No. 4, Lake Terrace, contains 153 units and was constructed in 1969. This comparable is located approximately one half mile southwest of the subject property on Benton Street near Lawrence Expressway. This property's neighborhood is slightly inferior to that of the subject property and is characterized by a significant amount of older, multifamily buildings. Amenities include a large interior pond, a pool, a spa, two saunas, a fitness center, a clubhouse, and covered carports. Unit features include optional fireplaces and patios/balconies. This property is in good condition and was approximately 100 percent occupied as of the date of survey, with no rental concessions currently being offered. This property is inferior to the subject in terms of its location, construction quality, amenities and unit features. Although this property is inferior to the subject in the aforementioned areas, the two properties often compete for the same tenants due to the extremely limited number of vacant units in the local market. -62- <PAGE> OPERATING EXPENSE ANALYSIS In estimating the 1997 expenses for the subject property, we analyzed historical data for the subject, competitive apartments complexes and published national surveys. As seen in the following table, the property's expenses have remained relatively stable between 1993 and 1996, ranging from a low of $1,264,616 in 1993 to a high of $1,641,296 in 1996 (annualized). We also compared our stabilized expense projections on a per unit basis with the 1995 National Apartment Association (NAA) analysis of garden-style multi-family apartment buildings in the San Francisco-San Jose Region and the Institute of Real Estate Management Survey for the San Jose metropolitan area. Both of these organizations survey property managers throughout the nation to determine income and expense averages for different municipalities. Direct comparison of each category with a trade source such as NAA or IREM can be difficult since different property managers classify expenses differently. However, the analysis in the table on the following page shows that the historical expense amounts are very much in line with the market averages determined by NAA. According to the NAA and IREM analyses, the market average of operating expenses was $4425 per unit and $3894 respectively in 1995, which compares favorably to the subject's stabilized per unit operating expense of $3846. Overall our total projected 1997 operating expenses equal $1,688,506 which yields a projected operating expense ratio of 46.8%. This ratio is considered reasonable based on historical operating expense ratios which ranged from 45.92% in 1993 and 49.93% in 1995. Listed below is a description of the individual operating expenses projected in this analysis. Payroll: Payroll expenses include leasing and custodial salaries and bonuses, payroll taxes, medical benefits, and worker's compensation insurance. Based on historical costs and industry averages, payroll expenses have been estimated at $240,000. Repairs and Maintenance: Repairs and Maintenance expenses include items such as painting, carpet cleaning and repair, landscaping, trash removal, swimming pool maintenance, -63- <PAGE> exterminating, and supplies. Based on historical costs and industry averages, payroll expenses have been estimated at $155,000. Administration: Administration expenses include office supplies, licenses, postage and delivery, dues and subscriptions, telephone, and other miscellaneous costs associated with operation of the subject. Administration costs have been estimated at $26,000. Utilities: Utilities expense includes the total cost of utilities associated with both units and common areas which are not paid by tenants. Rental rates at the subject property include water and sewer and garbage removal expenses. This expense category includes electricity and gas expenses. Based upon both historical and budgeted amounts, utilities for the subject property have been estimated to be $180,000. Real Estate Taxes: Based on information provided by the Santa Clara County Assessment Office, as well as the property's operating history, taxes are estimated at $240,240, or $788 per unit. According the township assessor's office, the tax rate is expected to continue to increase at 2.0 percent per year. Insurance: Based on an examination of historical and budgeted figures. property insurance have been anticipated to total $61,000. Management Fee: Conversations with Ann Beal, the Western Region Vice President of Operations for American Apartment Communities, Inc. indicated management fees in the local market typically range from 3.0 to 5.0 percent of effective gross income. She also indicated that management fees for properties of similar location and quality to the subject are typically approximately 3.0 percent of effective gross income. Therefore, management fees have been estimated at 3.0 percent of effective gross income. Management fees are anticipated to be $108,239. -64- <PAGE> Ground Lease: The ground lease base rent at the subject property is fixed at $280,920 per year until 2019. In addition, the tenant is required to pay percentage rent of 15.0 percent of 80.0 percent of gross effective rent (GER) less the sum of the base rent amount of $280,920, the current year's tax bill, and $382,230. Based on this calculation, the ground lease base rent amount has been estimated at $280,920 and the ground lease percentage rent has been estimated at $279,747. Miscellaneous: Miscellaneous expenses include professional services such as legal and consulting fees, advertising and marketing, and security. Based on historical and budgeted figures, miscellaneous expenses are projected at $36,000. Capital Improvements: Deductions for both immediate and one to five year capital improvements have been included in the analysis. These capital items include the costs of site work, exterior and interior structural improvements, and roof repair, as well as plumbing, parking lot, deck/wood, pool, tennis court and fitness center improvements. American Apartment Communities Inc.'s capital improvements budgeted figures for the years 1996 through 2000 are used in the analysis. Capital expenditures are projected to be budgeted at $667,500 (excluding items included under the reserve for replacement). For the purposes of our direct capitalization analysis we have taken the present value of these expenditures at a market derived 11% discount rate which yielded a stabilized expenditure of $490,000. Replacement Reserves: Based on the age of the property and its history of capital expenditures, a replacement reserve fund is estimated at $300 per unit. -65- <PAGE> HISTORICAL OPERATING STATEMENTS MARINA PLAYA APARTMENTS <TABLE> <CAPTION> YTD 1996 (1/1/96-8/31/96) CY 1993 CY 1994 CY 1995 Annualized -------------------- -------------------- ------------------- ------------------- TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ----- -------- ----- -------- ----- -------- ----- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> REVENUE Rental Income $ 2,805,504 $ 10,314 $ 2,850,280 $ 10,479 $ 2,950,240 $ 10,846 $ 3,153,379 $ 11,593 Variance Concessions(2) (54,876) (202) (60,998) (224) (43,298) (159) (81,068) $ (298) Vacancy(3) (171,759) (631) (141,847) (521) (79,091) (291) (7,328) $ (27) Restaurant Income(4) 87,984 323 82,821 304 74,468 274 83,521 $ 307 Other Income(5) 87,209 321 70,819 260 85,794 315 65,927 242 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total Revenue $ 2,754,062 $ 10,125 $ 2,801,075 $ 10,298 $ 2,988,113 $ 10,986 $ 3,214,432 $ 11,818 EXPENSES Payroll 222,473 818 230,859 849 221,316 814 234,749 863 Maintenance 136,496 502 143,954 529 147,236 541 152,541 561 Administration 21,374 79 22,465 83 22,757 84 31,559 116 Utilities 172,208 633 178,866 658 182,408 671 178,092 655 Taxes 230,259 847 207,815 764 233,086 857 236,568 870 Insurance 43,747 161 47,951 176 50,835 187 61,567 226 Management Fee 79,178 291 84,947 312 90,826 334 164,082 603 Ground Lease Base Rent 80,275 295 80,275 295 280,920 1,033 281,082 1,033 Ground Lease Percentage Rest 240,111 883 229,247 843 231,792 852 265,897 978 Miscellaneous 38,495 142 42,277 155 30,814 113 35,159 129 ----------- -------- ----------- -------- ----------- -------- ----------- -------- Total Expenses $ 1,264,616 $ 4,649 $ 1,268,656 $ 4,664 $ 1,491,990 $ 5,485 $ 1,641,296 $ 6,034 NET OPERATING INCOME $ 1,489,446 $ 5,476 $ 1,532,419 $ 5,634 $ 1,496,123 $ 5,500 $ 1,573,136 $ 5,784 Capital Expenditures $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 CASH FLOW $ 1,489,446 $ 5,476 $ 1,532,419 $ 5,634 $ 1,496,123 $ 5,500 $ 1,573,136 $ 5,784 Expenses Total Revenue 45.92% 45.29% 49.93% 51.06% </TABLE> - ---------- (1) CY 1996 income and expenses see are annualized based on January through August 1996 data. (2) Concessions include free rent and other rental concessions. (3) Vacancy includes vacant and model units as well as credit loss (4) Restaurant income includes base rent and percentage rent for the restaurant above the leasing office (5) Other income includes laundry income, security deposit forfeiture and guest apartment/clubhouse rental. These figures are based on unaudited operating statements provided by American Apartment Communities. Note: CY refers to calendar year, FY refers to fiscal year. <PAGE> Table G-3 <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ PER UNIT EXPENSE COMPARABLES RENTAL APARTMENT PROPERTIES SAN JOSE METROPOLITAN AREA - ------------------------------------------------------------------------------------------------------------------------------------ Marina Playa Apartments (1) Birch Creek Apartments (2) National Apartment Ass'n 272 Units 184 Units Survey or Income and Expenses(3) Year End Projected Year End Annualized Year End 1996 1997 1995 1996(6) 1995 1996 -------- --------- -------- ---------- -------- ---- (Ann 8/96) <S> <C> <C> <C> <C> <C> <C> EXPENSES Payroll $ 863 $ 882 - $1,013 $ 858 - Maintenance $ 561 $ 570 - $1,027 $ 698 - Administration $ 116 $ 96 - $ 35 $ 330 - Utilities $ 655 $ 662 - $ 954 $ 672 - Taxes $ 870 $ 882 - $ 588 $ 988 - Insurance $ 226 $ 224 - $ 86 $ 328 - Management Fee $ 603 $ 398 - $ 382 $ 440 - Miscellaneous $ 129 $ 132 - $ 114 $ 111 - Total Expenses $4,023 $3,846 - $4,200 $4,425 - Ground Lease Base Rent $1,033 $1,033 - $2,273 - - Ground Lease Percentage Rent $ 978 $1,028 - $ 391 - - </TABLE> Institute of R.E. Management Income/Expense Analysis(4) Year End 1995 1996 -------- ---- EXPENSES Payroll $ 605 - Maintenance $ 680(7) - Administration $ 680(7) - Utilities $ 611 - Taxes $ 885 - Insurance $ 160 - Management Fee $ 448 - Miscellaneous $ 170(7) - Total Expenses $3,894 - Ground Lease Base Rent - - Ground Lease Percentage Rent - - - ---------------- Note: This analysis does not include reserve for replacement. (1) Constructed in 1971. Owned by American Apartment Communities, Inc. (2) Constructed in 1968. Owned by American Apartment Communities, Inc. (3) Average income and expense data for garden style apartments in the San Francisco-Oakland-San Jose Metropolitan Area. (4) Average income and expense data for garden style apartments built after 1978 in the San Jose metropolitan area (data for apartments built between 1946 and 1978 unavailable). (5) CY 1996 expenses have been annualized based on expenses for January through July. (6) CY 1996 expenses have been annualized based on expenses for January through June. (7) Double-counts a component of payroll which is subtracted out in the total expenses calculation. <PAGE> G.5 DIRECT CAPITALIZATION ANALYSIS The capitalization approach uses a market-derived rate which when applied to "normalized" net operating income yields a value estimate. This estimate then may be adjusted for deficient income, capital expenditures, and/or other circumstances as may be appropriate. Use of this approach requires (1) the choice of a capitalization rate and (2) the determination of normalized operations. The capitalization technique is especially useful during periods when expectations of long-term inflation, interest rates, and market conditions are fairly stable and when leases are at market rates. On the other hand, this technique is especially difficult to apply with confidence when interest rates and inflation are relatively high, or when estimated rents are particularly volatile -- as, for example, in the case of properties with leaseholds and in markets subject to substantial rental concessions. Indications of capitalization rates can be derived from various sources. The two most commonly relied upon indicators of capitalization rates are recent sales in the local or regional marketplace and regional investor surveys. We have researched both of these sources in estimating an appropriate capitalization rate for the subject property. Normalized operations are reflected in net operating income. Investors typically define net operating income for apartments as effective gross revenues less operating expenses, management fees, and reserves for replacements. We have applied this market-based definition in our analysis. As such, capitalization rates have been applied to income less a reserve for replacements. As reflected by the sales listed in the "Sales Comparison Approach" section, recent purchases have been made at overall capitalization rates applied to net operating income, ranging from 8.63 percent to 10.80 percent, as indicated on the following page. -68- <PAGE> SUMMARY OF CAPITALIZATION RATES SANTA CLARA COUNTY GARDEN APARTMENT SALES Overall Property Date Sale Price NOI Capitalization Identification of Sale Per Unit Per Unit Rate -------------- ------- -------- -------- ---- 2326-2330 California Street 4/96 $50,625 $4,547 8.98% 1035-1061 Meridian Avenue 3/96 $48,780 $5,271 10.80% Kingdale Oaks 8/95 $50,634 $4,728 9.34% Granada (Spring Creek) 4/95 $63,393 $6,475 10.21% Hidden Willows 1/95 $68,973 $5,951 8.63% Sale Nos. 3, 4 and 5 were judged most similar to the subject. Selection of a particular rate depends upon the relative risk associated with the property, including its location and the strength of the local market, and especially upon the size and timing of future changes in net income. In addition to the aforementioned sales evidence, we have considered the indications of the following investor surveys. INVESTOR SURVEYS CAPITALIZATION RATES FOR APARTMENT PROPERTIES NATIONAL MARKET Source Cap. Rates ------ ---------- Peter F. Korpacz & Associates 4Q 1996 8.5%-10.0% RERC 2Q 1996 8.5%-9.0% The investor surveys indicate that capitalization rates for apartments in the nation range from 8.5 percent to 10.0 percent. Considering the age, location, and condition of the subject property, an appropriate capitalization rate would fall near the middle of the indicated range. Based on the analysis of capitalization rates from the comparable sales and investor surveys, we estimate an appropriate overall capitalization rate for the subject of 9.35 percent. Applying this rate to -69- <PAGE> the subject's estimated stabilized net operating income, indicates a value of $20,040,000, or $73,680 per unit as of December 1, 1996 after a deduction for capital expense items. The following capitalization technique, provided in Tables G-4 and G-5, is based on the anticipated stabilized income and expenses previously discussed earlier in this section for the subject property. -70- <PAGE> INCOME CAPITALIZATION MARINA PLAYA APARTMENTS DECEMBER 1, 1996 REVENUE Gross Potential Rental Revenue $3,632,832 Variance/ Concessions 2.25% $ (81,739) Vacancy 2.50% $ (90,821) ---------- Gross Effective Rent $3,460,272 Restaurant Income $ 85,000 Other Income $ 80,000 Credit Loss 0.50% $ (17,301) ---------- Effective Gross Income $ 3,607,971 EXPENSES Payroll $ 240,000 Maintenance $ 155,000 Administration $ 26,000 Utilities $ 180,000 Taxes $ 240,000 Insurance $ 61,000 Management Fee 3.0% $ 108,239 Ground Lease Base Rent $ 280,920 Ground Lease Percentage Rent $ 279,747 Miscellaneous $ 36,000 Reserve for Replacement $300.00 /unit $ 81,600 ---------- Total Expenses $ 1,688,506 ----------- NET OPERATING INCOME $ 1,919,465 CAPITALIZED AT 9.35% TOTAL VALUE BEFORE CAP X $20,530,000 Less Capital Improvements $ (490,000) ----------- TOTAL MARKET VALUE $20,040,000 $20,040,000 <PAGE> G. RECONCILIATION AND FINAL VALUE ESTIMATE Valuation of the leasehold interest in the appraised property has been developed by the Sales Comparison Approach and Income Approach. Various appraisal techniques and methods were utilized in the analyses of the property. The value estimates by each approach are summarized as follows: Valuation Method Value ---------------- ----- December 1, 1996 Value: Cost Approach N/A Sales Comparison Approach: $20,130,000 Income Approach: $20,040,000 The cost approach is most useful when valuing new or nearly new properties or when appraising special purpose properties. The reliability of this approach is diminished when significant amounts of accrued depreciation are present. In addition, most investors in this property class give minimal consideration to this valuation approach when analyzing potential acquisitions. Given these considerations, the cost approach was not used in our valuation. The sales comparison approach is frequently a good indicator of value, especially when a sufficient number of relevant transactions with reliable information on each is available. In this case, the data about the properties and their operations is complete, allowing for a complete analysis of the sales. However, the information analyzed is at least six months old and, due to the rapid strengthening of the Santa Clara County apartment market, may not reflect prevailing market conditions. We have attempted to adjust for physical and transaction-related differences in our sales analysis. Overall, this approach is considered a fair indicator of value for the subject and a good check against the other approaches. -72- <PAGE> The income approach recognizes the income-producing nature of the subject. The valuation by this approach is based on strong market support of rental rates, expenses, absorption, and rates of return. Considered within this approach are the motivations of investors in properties such as the subject. In addition, this approach most closely reflects current methodology applied by investors actively acquiring multifamily properties. As such, this approach is given the strongest consideration in the estimate of market value of the subject property. Based on the research and analyses performed in the development of these approaches, and with primary emphasis on the income approach, it is our opinion that the market value of the leasehold interest in the appraised property, as of December 1, 1996 is: -- TWENTY MILLION FORTY THOUSAND DOLLARS -- ($20,040,000) -73- <PAGE> SUBJECT PROPERTY PHOTOGRAPHS MARINA PLAYA APARTMENTS [GRAPHIC OMITTED] Photo 1 Building and covered carports. [GRAPHIC OMITTED] Photo 2 Typical Apartment Interior A-74 <PAGE> SUBJECT PROPERTY PHOTOGRAPHS MARINA PLAYA APARTMENTS [GRAPHIC OMITTED] Photo 3 Swimming pool. [GRAPHIC OMITTED] Photo 4 Subject Property Buildings (Front View) A-75 <PAGE> SUBJECT PROPERTY PHOTOGRAPHS MARINA PLAYA APARTMENTS [GRAPHIC OMITTED] Photo 5 Exercise Room. A-76 <PAGE> MARINA PLAYA APARTMENTS SANTA CLARA, CALIFORNIA Prepared For Merrill Lynch & Co. June 1, 1997 Prepared By ARTHUR ANDERSEN LLP Valuation Services Group <PAGE> [LETTERHEAD OF ARTHUR ANDERSEN] June 23, 1997 Mr. Anthony Rokovich Merrill Lynch & Co. World Financial Center - North Tower 26th Floor New York, New York 10281 Re: Marina Playa Apartments Santa Clara, California Dear Mr. Rokovich: As requested, we have completed an updated restricted appraisal report of our full-narrative appraisal, with a valuation date of December 1, 1996, of the Marina Playa Apartments, Santa Clara, California. We recommend that the reader review this report in conjunction with the prior appraisal. The purpose of this appraisal is to estimate the market value of the leased fee interest in the real estate subject to the definition of market value, the general assumptions and limiting conditions, and the certification as set forth in this restricted appraisal update. This is a Restricted Appraisal Report which is intended to comply with the reporting requirements set forth under Standards Rule 2-2(c) of the Uniform Standards of Professional Practice for a Restricted Appraisal Report. As such it does not present discussions of the data, reasoning, and analysis that were used in the appraisal process to develop the appraiser's opinion of value. Supporting documentation concerning the data, reasoning and analyses is retained in the appraisers file. The depth of discussion contained in this report is specific to the needs of Merrill Lynch and for the intended use stated below. This report may not be included or referred to in any Securities and Exchange Commission filing of other public document. Arthur Andersen is not responsible for the unauthorized use of this report and this report is subject to the attached Statement of General Assumptions and Limiting Conditions. REAL ESTATE APPRAISED: A 272 unit garden apartment complex located at 3500 Granada Avenue, Santa Clara, California. The Marina Playa Apartments, built in 1971, are situated on 10.0 acres with 230,804 square feet of net rentable area. PURPOSE OF THE APPRAISAL: The purpose of this restricted appraisal report is to estimate the fair market value of the subject leasehold on a "free and clear" basis. Market value means the most probable price which an asset 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: <PAGE> Mr Anthony Rokovich Page 2 June 23, 1997 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 sales. For this engagement, market value will represent the consideration for the asset sold on a "free and clear" basis, and unaffected by sales concessions granted by anyone associated with the sale. INTENDED USE OF REPORT: The purpose of this restricted appraisal update is to assist the client, Merrill Lynch, in determining the fair market value of the leasehold interest in the subject property located at 3500 Granada Avenue, Santa Clara, California. Arthur Andersen's maximum liability relating to services rendered under this letter (regardless of form of action, whether in contract, negligence or otherwise), shall be limited to the fees paid to Arthur Andersen for its services under this agreement. In no event shall Arthur Andersen be liable for consequential, special, incidental, or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.) even if it has been advised of their possible existence. Merrill Lynch shall indemnify and hold harmless Arthur Andersen and its personnel from and against any claims, liabilities, costs and expenses (including, without limitation, attorney's fees and the time of Arthur Andersen personnel involved but excluding consequential, special incidental or punitive damages) brought against, paid or incurred by Arthur Andersen at any time and in any way arising out of a breach by Merrill Lynch of its obligations under this agreement. <PAGE> Mr. Anthony Rokovich Page 3 June 23, 1997 INTEREST VALUED: Leased Fee Interest EFFECTIVE DATE OF VALUE: June 1, 1997 DATE OF REPORT: June 23, 1997 APPRAISAL DEVELOPMENT AND REPORTING PROCESS: In preparing this appraisal, the appraisers completed a number of independent investigations to update our valuation analysis and conclusions. Unless a significant change was uncovered during our field investigation or analysis, we relied on information, regarding demographics and economic statistics, land policies, neighborhood data, and zoning, collected during our previous appraisal dated December, 1996. The subject and the surrounding areas were not re-inspected due to the recent date of the last appraisal (six months). All phases of the Santa Clara apartment market were analyzed to compile current data and to identify recent trends. Estimated income and occupancy levels, expenses, and income structures are based upon our market analysis and updated information provided by American Apartment Communities. In addition to the comparable sales used in the previous appraisal, we also initiated a diligent search for recent transactions. Our market research indicated that there were no new comparable sales in the subject market since our last appraisal in December, 1996 and we have thus relied upon the sales comparison approach utilized in our previous analysis. The sales comparison approach was employed as an alternative means to estimate value and was given limited weight in our final value conclusion. The Cost Approach is an appraisal procedure which is not applicable and it is thus acceptable to exclude from the valuation analysis if it will not mislead or confuse the intended user. Given the property type, age, and nature, the intended use of the appraisal, the general lack of reliance on the Cost Approach by typical investors in income producing properties, and that reasonable appraisers do not believe it to be applicable, we believe the exclusion of the Cost Approach will not confuse or mislead the intended user of the appraisal and therefore does not constitute a departure from Standards 1 through 4. The Income Approach is the most applicable for investment or income-producing real estate. The strength in this approach is the sufficient market data to estimate income, expenses, vacancy rate, capitalization rate, and discount assumptions. Valuation techniques attempt to replicate the analysis performed by investors when purchasing a property. In the case of the subject property, we completed the Income Capitalization method as we determined this method would most accurately reflect the true value of the subject property. Our updated <PAGE> Mr. Anthony Rokovich Page 4 June 23, 1997 valuation considered the updated rent roll, operating expenses and capital expenditure information provided by American Apartment Communities. To develop the opinion of value, the appraiser performed a complete appraisal process, as defined by the Uniform Standards of Professional Appraisal Practice. This Restricted Appraisal Report sets forth only the appraisers conclusions. Supporting documentation is retained in the appraiser's file. HIGHEST AND BEST USE: Highest and best use as though vacant: multifamily residential development at the maximum allowable density. Highest and best use as improved: continued use as an apartment complex with ongoing upgrades of units when vacated to replace outdated carpets, appliances, and other interior unit features SALES COMPARISON APPROACH VALUE CONCLUSION: $20,130,000 INCOME CAPITALIZATION APPROACH VALUE CONCLUSION: $21,800,000 FINAL MARKET VALUE CONCLUSION: $21,380,000 INDICATED EXPOSURE TIME: 9-12 months ESTIMATED MARKETING TIME: 9-12 months We appreciate the opportunity to work with you on this assignment. Please call Brian Ginsberg at 212-708-8197, if you have any questions or if we can be of further assistance. Very truly yours, /s/ Arthur Andersen LLP <PAGE> ADDENDA ================================================================================ ADDENDA <PAGE> INCOME CAPITALIZATION MARINA PLAYA APARTMENTS JUNE 1,1997 REVENUE Gross Potential Rental Revenue $3,865,294 Variance/ Concessions 2.00% $ (77,306) Vacancy 2.50% $ (96,632) ---------- Gross Effective Rent $3,691,356 Restaurant Income $ 85,000 Other Income $ 80,000 Credit Loss 0.50% $ (18,457) ---------- Effective Gross Income $ 3,837,899 EXPENSES Payroll $ 245,000 Maintenance $ 158,000 Administration $ 27,000 Utilities $ 184,000 Taxes $ 240,000 Insurance $ 62,000 Management Fee 3.0% $ 115,137 Ground Lease Base Rent $ 280,920 Ground Lease Percentage Rent $ 307,477 Miscellaneous $ 37,000 Reserve for Replacement $300.00 /unit $ 81,600 ---------- Total Expenses $ 1,738,134 ----------- NET OPERATING INCOME $ 2,099,765 CAPITALIZED AT 9.50% TOTAL VALUE BEFORE CAP X $22,100,000 Less Capital Improvements $ (285,693) ----------- TOTAL MARKET VALUE $21,814,307 $21,800,000 RD <PAGE> CERTIFICATION ================================================================================ CERTIFICATION 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 is our personal, 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 we have no personal interest or bias with respect to the parties involved. 4. Our compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. Further, this appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. 5. James T. Sullivan has made a personal inspection of the property that is the subject of this report. Brian E. Ginsberg has not inspected the property. 6. James T. Sullivan has provided significant professional assistance to the persons signing this report. 7. We certify that to the best of our knowledge and belief, the reported analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice (USPAP) adopted by the Appraisal Foundation, the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute and FIRREA regulations. 8. We certify that the use of this report is subject to the requirements of the Appraisal Institute relating to the review by its duly authorized representatives. 9. As of the date of this report, I, Brian E. Ginsberg, MAI, have completed the requirements of the continuing education program of the Appraisal Institute. 10. Our conclusion of the fair market leased fee value, as of June 1, 1997, was: TWENTY ONE MILLION THREE HUNDRED EIGHTY THOUSAND DOLLARS $21,380,000 /s/ Brian E. Ginsberg -------------------------------- Brian E. Ginsberg, MAI Manager, Valuation Services James T. Sullivan Contributing Appraiser <PAGE> LIMITING CONDITIONS ================================================================================ GENERAL ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report is subject to the following general assumptions and limiting conditions: 1. No investigation has been made of, and no responsibility is assumed for, the legal description of the property being valued or legal matters, including title or encumbrances. Title to the property is assumed to be good and marketable unless otherwise stated. The property is assumed to be free and clear of any liens, easements or encumbrances unless otherwise stated. 2. Information furnished by others, upon which all or portions of this appraisal is based, is believed to be reliable, but has not been verified in all cases. No warranty is given as to the accuracy of such information. 3. This report has been made only for the purpose stated and shall not be used for any other purpose. Neither this report nor any portions thereof (including, without limitation, any conclusions, the identity of Arthur Andersen or any individuals signing or associated with this report, or the professional associations or organizations with which they are affiliated) shall be disseminated to third parties by any means without the prior written consent and approval of Arthur Andersen. 4. Subject to the provision of the "Fees" paragraph of the engagement letter to which this Statement is annexed, neither Arthur Andersen nor any individual signing or associated with this report shall be required by reason of this report to give further consultation, provide testimony, or appear in court or other legal proceedings unless specific arrangements therefor have been made. 5. This appraisal study has been made in conformance with the methodology outlined in the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation and FIRREA requirements. 6. No responsibility is taken for changes in market conditions and no obligation is assumed to revise this report to reflect events or conditions which occur subsequent to the appraisal date hereof. 7. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, or national government or private entity or organization have been or can readily be obtained or renewed for any use on which the value estimates contained in this report are based. 8. Full compliance with all applicable federal, state and local zoning, use, occupancy, environmental and similar laws and regulations is assumed, unless otherwise stated. 9. Responsible ownership and competent property management are assumed. <PAGE> LIMITING CONDITIONS ================================================================================ 10. Areas and dimensions of the property were obtained from sources believed to be reliable. Maps or sketches, if included in this report, are only to assist the reader in visualizing the property and no responsibility is assumed for their accuracy. No independent surveys were conducted. 11. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for arranging engineering studies that may be required to discover them. 12. No soil analysis or geological studies were ordered or made in conjunction with this report, nor was an investigation made of any water, oil, gas, coal, or other subsurface mineral and use rights or conditions. 13. We have not been engaged nor are we qualified to detect the existence of hazardous material which may or may not be present on or near the properties. The presence of potentially hazardous substances such as asbestos, urea-formaldehyde foam insulation, industrial wastes, etc. may affect the value of the properties. The value estimates herein are predicated on the assumption that there is no such material on, in, or near the property that would cause a loss in value. No responsibility is assumed for any such conditions or for any expertise or engineering knowledge required to discover them. The client should retain an expert in this field if further information is desired. 14. Arthur Andersen's maximum liability relating to services rendered under this letter (regardless of form of action, whether in contract, negligence or otherwise), shall be limited to the fees paid to Arthur Andersen for its services under this agreement. In no event shall Arthur Andersen be liable for consequential, special, incidental, or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.) even if it has been advised of their possible existence. 15. Merrill Lynch & Co. shall indemnify and hold harmless Arthur Andersen and its personnel from and against any claims, liabilities, third party costs and expenses (including, without limitation, attorney's fees but excluding the time of Arthur Andersen personnel involved, consequential, special incidental or punitive damages) brought against, paid or incurred by Arthur Andersen at any time and in any way arising out of a breach by Merrill Lynch of its obligations under this agreement. DISCLAIMER The appraisal report appearing below is addressed to NationsBank of Texas, N.A. ("NationsBank"). NationsBank does not represent that the presumptions or conclusions in the appraisals are relevant or accurate and does not endorse the conclusions set forth in the appraisal. Any value, presumption, or conclusion regarding the property or properties appraised in the report must be verified independently of NationsBank. This appraisal has not been approved by NationsBank and is being transmitted without representation and warranty of NationsBank. <PAGE> - -------------------------------------------------------------------------------- APPRAISAL REPORT Laurel Tree Apartments 1185 Monroe Street Salinas, California 93906 and Harding Park Townhomes 1019 Polk Street Salinas, California 93906 Effective Date of Appraisal: September 28, 1996 APPRAISED FOR: NationsBank of Texas, N.A. Real Estate Risk Assessment 901 Main Street, 51st Floor Dallas, Texas 75202-3714 APPRAISED BY: ROBERT SAIA & ASSOCIATES 313 Avalon Avenue Santa Cruz, California 95060 - -------------------------------------------------------------------------------- <PAGE> ROBERT SAIA, MAI & ASSOCIATES Property Appraisers & Consultants - -------------------------------------------------------------------------------- September 28, 1996 Mr. Gary D. Long Real Estate Risk Assessment NationsBank of Texas, N.A. 901 Main Street, 51st Floor Dallas, Texas 75202-3714 Dear Mr. Long: As requested, Robert Saia & Associates has completed a market value "as is" appraisal of both the 157-unit apartment complex known as "Laurel Tree Apartments" located at 1185 Monroe Street and the 36-unit PUD development known as "Harding Park Townhomes" located at 1019 Polk Street in Salinas, California. Although the 36 units are designed and capable of being individually owned and have separate assessor parcel numbers assigned by Monterey County, the PUD process was not completed and therefore these units cannot be sold separately. These units are valued simply as multi-family residential units. As instructed, both the Laurel Tree Apartments and Harding Park Townhomes have been appraised together as one complex (i.e., 193 units). The property rights appraised are those of the leased fee interest. Many of the units are on short-term leases (less than one year), thus there is no leasehold or leased fee bonus values to consider. In other words, the fee simple and leased fee values are the same. The function of this appraisal is to aid in proper underwriting, loan classification and/or disposition of the subject property in conjunction with a pending multi-property portfolio purchase that includes the subject property. The effective date of the appraisal is September 28, 1996, the first inspection date of the property. This report was prepared as a Complete Appraisal, Summary Report following generally accepted and established appraisal practices that comply with the Uniform Standards of Professional Appraisal Practice (USPAP) and also in accordance with the NationsBank Appraisal/Evaluation Guidelines for Appraisers. As instructed, the cost approach has been omitted. Although the cost approach has very little relevancy in the appraisal of apartment complexes in this area, its omission may be considered by some to invoke the Departure Provision. The Limiting Conditions and Assumptions contained at the conclusion of this report are a vital part of the appraisal. There are no extraordinary assumptions that affects the appraisal. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 <PAGE> Page 2 Mr. Gary Long The market value estimate is based on an exposure time of four months. Based on our analysis and investigation, as discussed in the attached summary appraisal report, the Market Value "As Is" of the Laurel Tree Apartments and the Harding Park Townhomes, as of September 28, 1996, is as follows: - -------------------------------------------------------------------------------- EIGHT MILLION FIVE HUNDRED THOUSAND DOLLARS $8,500,000 - -------------------------------------------------------------------------------- The above is the value of the real estate only. Personal property value is nominal, and plays no significant role in the operation of the apartments. If you should have any questions, please contact our office. Respectfully Submitted, Robert Saia, MAI OREA Cert. #AG003191 (exp. 12/7/96) Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 <PAGE> TABLE OF CONTENTS Summary of Salient Facts .................................................. 1 Purpose of the Appraisal .................................................. 3 Function of the Report .................................................... 3 Valuation Date ............................................................ 3 Property Right Appraised .................................................. 4 Location and Property Identification ...................................... 4 Property History & Ownership .............................................. 4 Project Overview .......................................................... 4 The Extent of the Appraisal Process ....................................... 5 Competency Statement ...................................................... 7 Regional Description ...................................................... 8 City of Salinas ........................................................... 19 Salinas Apartment Market .................................................. 22 Neighborhood Description .................................................. 23 Site Analysis ............................................................. 24 Current Taxes & Assessments ............................................... 25 Improvement Description ................................................... 28 Highest and Best Use Analysis ............................................. 30 The Appraisal Process ..................................................... 33 Income Capitalization Approach ............................................ 34 Sales Comparison Approach ................................................. 54 Reconciliation of the Value Estimates ..................................... 64 Marketing Period Estimate ................................................. 65 Exposure Period Estimate .................................................. 65 Allocation of F,F&E ....................................................... 66 Assumptions and Limiting Conditions ....................................... 67 Certification of Appraisal ................................................ 70 ADDENDA Photographs of the Subject Property Maps Floor Plans Apartment Building Sales Sheets Rent Roll and Operating Statements Qualifications Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 <PAGE> SUMMARY OF SALIENT FACTS - -------------------------------------------------------------------------------- CLIENT: NationsBank PROJECT NAME: Laurel Tree Apartments/Harding Park Townhomes NO. OF UNITS: 193-net rentable (36 units are in Harding Park) ADDRESS: 1185 Monroe Street & 1019 Polk Street, Salinas, CA LOCATION: North Salinas A.P.N.: 261-591-008 & 003-534-023- 058 & 059-common area THOMAS BROS. MAP: T.B. 225 A-1 (Monterey County) CENSUS TRACT NO.: 105.00 ZONING: R-H-2.3 (High Density Residential District) RENT CONTROL: None (No pending) HIGHEST & BEST USE: - As improved existing apartments - As vacant high density residential development PROPERTY RIGHTS APPRAISED: Leased Fee Interest SALE HISTORY OVER PAST 5 YEARS: None CURRENT OWNERSHIP: Betty 0. Thysen Trust UTILITIES: Municipal services (water, electricity and sewer) are available and connected. LAND AREA: 7.762 acres plus 36 PUD lots & common area SITE DENSITY: 20.23 units per net acre FLOOD ZONE: Zone B per Panel #060202-0001 D (11/4/81) TOTAL # RENTABLE UNITS 193; Laurel Tree Apartments = 157 and Harding Park Townhomes = 36; a 1br/1ba unit in Laurel Tree is used as the on-site property manager. YEAR BUILT: 1977/1984 NET RENTABLE BUILDING AREA (sf): 80,862 + 41,292 = 122,154 COMMON AREA AMENITIES: Security gated entrances, lawn areas, asphalt drives, concrete walks; Laurel Tree Apartments has one swimming pool, 1 Jacuzzi, 1 exercise room, 1 tennis court, & 1 laundry room. Harding Park Townhomes has 1 playground area. OCCUPANCY CHARACTERISTICS: No. of Vacant Units: 0 No. of Pending Evictions: 0 Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 1 <PAGE> PROJECTED AVERAGE OCCUPANCY for the YEAR ENDING 1996: 96-97.0% GROSS ACTUAL REVENUE as reported for 1995: $1,223,817 (includes "other" income) ACTUAL MONTHLY RENTAL INCOME as reported as of 9/28-96: $107,520 STABILIZED NET INCOME EST. as of APPRAISAL DATE: $671,963 EST. EXPOSURE and MARKETING TIME: 2-6 months marketing/4 month exposure CONDITIONS TO APPRAISAL: No unusual conditions. Reference is made to Assumptions & Limiting Conditions in Addenda ================================================================================ MARKET VALUE "as is": $8,500,000 September 28, 1996 (4 month exposure period) ================================================================================ Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 2 <PAGE> PURPOSE OF THE APPRAISAL - -------------------------------------------------------------------------------- The purpose of this appraisal is to estimate the market value "as is" of the fee interest for the real estate only. "Market Value," as used in this appraisal, is defined as "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: o Buyer and seller are typically motivated; o Both parties are well informed or well advised, each acting in what he considers his own best interests; o A reasonable time is allowed for exposure in the open market; o Payment is made in terms of cash in U.S. dollars, or in terms of financial arrangement comparable thereto; and, o The price represents the normal consideration for the property sold unaffected by special or creative financing or sale concessions granted by anyone associated with the sale." (*Source: Office of the Comptroller under 12 CFR, Part 34, Subpart Appraisals, 34.42 Definitions [f]) "Market value `as is'" means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date of inspection." FUNCTION OF THE APPRAISAL - -------------------------------------------------------------------------------- The function of this appraisal is for the exclusive use of NationsBank, its subsidiaries, and/or affiliates, for loan underwriting purposes in conjunction with a portfolio purchase that includes this property. It may be used in connection with the acquisition, disposition and financing of the sale of the property. VALUATION DATE - -------------------------------------------------------------------------------- The date of valuation is September 28, 1996. This is the date of the last property inspection. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 3 <PAGE> PROPERTY RIGHTS APPRAISED and DEFINED - -------------------------------------------------------------------------------- The unencumbered fee simple estate of the property has been valued. This ownership interest is defined as: "Absolute Ownership Unencumbered by any other interest or estate; subject only to the limitations of eminent domain, escheat, police power, and taxation". Leases of seven to twelve months are considered short in duration and do not create any favorable leaseholds by the tenants. Technically speaking, the leased fee interest is being valued, although a percentage of the rental units are on a month-to-month basis. Because of the nature of a short term lease, as well as a strong correlation between contract and market rent, the value estimated for the subject property is essentially reflective of the fee simple interest. IDENTIFICATION and LOCATION OF SUBJECT PROPERTY - -------------------------------------------------------------------------------- The subject property in this appraisal consists of both the Laurel Tree Apartments and the Harding Park Townhomes, both of which are considered in the North central section of the city of Salinas. "The Laurel Tree Apartments" are located approximately one block south of West Laurel Drive and immediately east of the U.S. 101 Freeway. The mailing address is 1185 Monroe Street, Salinas, California, 93906. The Monterey County Assessor Parcel Number is 261-591-008. The "Harding Park Townhomes" are located at a security gate entrance at Polk Street just opposite Harding Street. The mailing address is 1019 Polk Street, Salinas, California, 93906. The Monterey County Assessor Parcel Number consists of 36 parcels from 003-534-023 to 003-534-058, plus 003-534-059. A legal description is included in the preliminary title report which is made a part of this appraisal. PROPERTY HISTORY and OWNERSHIP - -------------------------------------------------------------------------------- Title to the property is vested in: Paul M. Thysen & Betty 0. Thysen Trust The property has not transferred over the required reporting period. It is currently in escrow as part of a multi property portfolio sale. THE LAUREL TREE APARTMENTS & HARDING PARK TOWNHOMES-OVERVIEW - -------------------------------------------------------------------------------- Laurel Tree Apartments is a 157-unit apartment complex located on a 7.762 acre site configured in ten (10) 2-story buildings. An additional 1br/1ba unit is presently occupied by the on-site manager. The Laurel Tree Apartments is located directly south of the Laurel Inn Motel, which is located on a three acre site fronting to West Laurel Drive. and directly across from 1165 Monroe Street, a professional office center known as Laurel Park. Laurel Tree is accessed from two asphalt driveway entrances wit security gates. The property was developed in 1977. There is a good mix of units in Laurel Tree represented by studios, lofts, one bedroom, two bedroom, and three bedroom floorplans. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 4 <PAGE> There are 155 carport spaces and 99 open parking spaces. The Harding Park Townhomes is a 36-unit planned unit development located immediately west of Polk Street behind a security gated entrance opposite Harding Street. This is the only access point. The project was completed in 1984. The PUD process, however, was not completed and therefore the 36 units cannot be sold individually and separately. Harding Park Townhomes has twenty (20) 2 bedroom floorplans and sixteen (16) three bedroom floorplans. The project is physically separated by a noise abatement wall from Freeway 101. There are ten (10) clusters of attached units. There are 36 attached 1-car garage enclosures and 45 open parking spaces. Amenities offered by the Laurel Tree Apartments include lawn-greenbelt areas, one swimming pool, one Jacuzzi, one exercise room, one tennis courts, and one laundry room. The Harding Park Townhomes have a children's playground are in the northerly section of the development. Utilities provided by the landlord include water, trash removal, sewer, and basic cable television. Both the Laurel Tree Apartments and Harding Park Townhomes are served by a manager's office located in Laurel Tree fronting to Monroe Street. The office is a former one bedroom floorplan. In conclusion, the overall exterior appearance of the subject property (both the Laurel Tree Apartments and the Harding Park Townhomes) is considered above average to good and reflective of other more recently constructed and competing high density residential developments within the North Salinas area. The reader is directed to the Improvement Description of this report for further comments regarding the individual units and their respective interior improvements. THE EXTENT of THE APPRAISAL PROCESS - -------------------------------------------------------------------------------- The extent of the appraisal process encompasses the necessary research and analysis to prepare a report in accordance with the intended use, the Uniform Standards of Professional Appraisal Practice as set forth by the Appraisal Foundation, and the Standards of Professional Practice of the Appraisal Institute. With regard to the valuation of the subject property, the following steps were involved: 1. The property was last inspected and photographed on September 28, 1996. This date is considered the "effective date" of this appraisal. 2. The overall exterior sites (The Laurel Tree Apartments and Harding Park Townhomes) were personally inspected by the appraiser. The on-site office manager provided interior access to each of the various unit types within the developments. The appraiser was able Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 5 <PAGE> to physically measure a representative unit of each different floorplan. Management did indicate the existence of one (1) three bedroom floorplan only; interior access was not provided (in the case of Laurel Tree Apartments). 3. Regional, county, city, and neighborhood data were based on information taken from a variety of sources, including, but not limited to, City of Salinas Planning Department, Monterey County Tax Assessor's Office, City of Salinas Public Works Department, City of Salinas Building Department, the Association of Monterey Bay Area Governments, Salinas Chamber of Commerce, independent private studies, newspaper articles and my own files. 4. Research and investigation of current market conditions for apartment properties in the city of Salinas. 5. Interviews with brokers, appraisers, property owners and/or managers and lenders, as well as the relevant public agencies as described above. 6. The highest and best use was formed by information gathered in the previous steps. 7. After assembling and analyzing information defined in this extent of the appraisal process, final estimates of market value by each applicable valuation method were made. 8. And, finally, a single value estimate from within the concluded value by each approach was made. Greatest weight was given to those approaches felt to have the most influence on the purchasing decision. Unless otherwise stated in the report, the existence of hazardous materials, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser is not qualified, however, to detect such substances. The presence of toxic or caustic substances or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there are not such materials on or in the property that would cause a loss in value. Any such findings which would indicate otherwise could result in a decrease in value. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 6 <PAGE> COMPETENCY STATEMENT - -------------------------------------------------------------------------------- In accordance with the competency provision in the USPAP, the appraiser certifies that his education, experience and knowledge is sufficient to appraise the type of property being valued (apartment complex) and that no appraiser has provided significant professional assistance to the person inspecting the subject property in the completion of the analysis other than those mentioned in the Certification of Appraisal (see Addenda). Robert Saia, MAI has appraised this property type in the past and has the knowledge and experience necessary to complete this appraisal assignment. See Appraiser's Qualifications in the Addenda for additional information. The appraiser's analyses, opinions and conclusions were developed and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) Standards 1-3, and NationsBank appraisal policy. This appraisal assignment was not based on a requested minimum valuation, a specific valuation or the approval of a loan. The Departure Provision in the USPAP was not utilized in the preparation of this report. The appraiser's compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimated, the attainment of a stipulated result or the occurrence of a subsequent event. - -------------------------------------------------------------------------------- Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 7 <PAGE> REGIONAL ANALYSIS - -------------------------------------------------------------------------------- Market value is affected by a number of externalities; e.g., geographic, economic and environmental, governmental forces, utility, supply & demand and effective purchasing power. Real estate is affected by externalities more than any other economic good, service, or commodity. It is imperative that an appraiser observe and analyze external influences in order to identify patterns and trends, and how they relate to the subject property. Trends such as population shifts, declining apartment occupancy rates, or increased housing sales in an area are relevant in order to understand the real estate marketplace. Thus the Regional Description & Analysis is important in this appraisal because it establishes the basis for determining the highest & best use of a property as well as information used in applying the three approaches to value. The scope of this regional analysis relates to the type of property being appraised, its complexity and the approaches used to estimate value. Monterey County is located in a portion of California that is often referred to as the "Central Coast," which encompasses the area known as the "Monterey Peninsula." The county is oriented northwest to southwest, and runs parallel to the Pacific Ocean. The county has a relatively long and narrow shape, with an average of only 30 miles; elevations range from sea level to 5,844 feet atop Junipero Sierra Peak, located 12 miles inland in the Santa Lucia Range. Monterey County is bounded by the Pacific Ocean on the west, Santa Cruz County to the north, San Luis Obispo county to the south, and San Benito, Kings and Fresno counties to the east. The area is located approximately 125 miles south of San Francisco and 350 miles north of Los Angeles. Approximately 105 miles of California's 840 miles of coastline lie along the westerly boundary of Monterey County. On the whole, Monterey County has a rural orientation, with substantial tracts of land devoted to agriculture and open space uses. The county encompasses 3,784 square miles, or approximately 2,127,400 acres of land area. An interesting statistic is that nearly 27 percent of this total county area is government- owned. Twenty-five percent is owned by the federal government with major holdings such as Fort Hunter Liggett, Fort Ord, Los Padres National Forest and Camp Roberts. The remaining two percent is controlled by the state and county. Geographical location and features exhibit strong influences on the county's climate. The Pacific Ocean is responsible for the county's Mediterranean climate, characterized by year round moderate temperatures, cool, dry summers, and short, rainy seasons. Pacific winter storms are blocked by the Santa Lucia Range, allowing considerably less rain to fall on the Salinas Valley. Temperature and rainfall have important implications for the county's two major economic staples, agriculture and tourism. Mild temperatures allow for exceptionally long growing seasons for farming. Rainfall patterns, while following predictably dry weather, require reservoir and ground water storage to meet year round irrigation needs. Population Approximately one half of the county's population lives within the seven incorporated cities and adjoining unincorporated areas of the Monterey Peninsula. The eight principal cities are Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 8 <PAGE> Monterey, Marina, Seaside, Sand City, Del Rey Oaks, Pacific Grove, Carmel-by-the Sea and Salinas. The incorporated areas consist of 31.5 square miles, or about one percent of the county's total land area. The major factor for the high population density of the Monterey Peninsula vis-a-vis the rest of the county, is the unsurpassed natural beauty of the area -- especially the coastline and beaches. Based on the most recent U.S. Census (January 1, 1990), the population of Monterey County grew by approximately 24 percent during the last decade. This growth has helped push the county's total population up to approximately 382,547 in 1994. For reference, the county's growth rate over the preceding decade was just under the state's overall gain of 26 percent. In the previous census period (1970-1980) the county's total population grew 17 percent, from 247,450 to 290,444. While county's growth has been strong, the level varies from area to area. As shown below, the population of Salinas, the largest city and the county seat, increased by 35.2 percent between 1980 - `90. The growth in Salinas constitutes approximately 43 percent of the county's total population increase during that period. In contrast, the population of the city of Monterey increased by a more modest 16 percent over that census period. As shown, not all communities in the county experienced tremendous population growth. Population growth was much steadier in the cities of Seaside, Pacific Grove and Del Rey. In large part, growth in these communities is limited due to a lack of developable land. MONTEREY COUNTY: Population Growth 1980 - `90 (1990 U.S. Census) - -------------------------------------------------------------------------------- City/Area 1980 1990 Total No. % Change - --------- ---- ---- --------- -------- Salinas 80,479 108,777 28,248 +35.2% Seaside 36,567 38,901 2,334 +6.4% Monterey 27,558 31,954 4,396 +16.0% Marina 20,647 26,436 5,789 +28.0% Pacific Grove 15,755 16,117 362 +2.3% King City 5,495 7,634 2,139 +38.9% Greenfield 4,181 7,464 3,283 +78.5% Soledad 5,928 7,146 1,218 +20.5% Gonzales 2,891 4,660 1,769 +61.2% Carmel-by-the-Sea 4,707 4,239 (468) -9.9% Del Rey Oaks 1,557 1,861 104 +6.7% Unincorporated Areas 84,679 105,252 20,573 +24.3% - -------------------------------------------------------------------------------- The most recent population estimates show that the population of Monterey County, based on the January 1, 1995 estimates for California cities and counties prepared by the State of California Department of Finance, was 382,547. Recent trends show most of the increase occurring in the Salinas Valley cities rather than on the Monterey Peninsula. For example, in 1993, the fastest growing city in the county was Soledad (+6.1%), with nearby Greenfield (+5.3%) and Sand City tying for second place. Population growth in Soledad is largely attributable to an expansion of the state Correctional Facility and the development of two large residential subdivisions. Greenfield's city manager reported that population growth has been spurred by reasonable prices for single family detached housing but that future growth is limited due to a lack of land. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 9 <PAGE> Based on projections by the State Finance Department, released in April 1993, Monterey County is projected to post a 15.6 percent gain in population by the year 2000 -- representing an increase to approximately 414,000 people. In contrast, San Benito's population is projected to increase by 37 percent by the year 2000; Santa Clara County's by 13.4%; 14.4% for Santa Cruz County; and, 21.6% statewide. Below are the Finance Department's projections by county through the year 2030. PROJECTED POPULATION GROWTH (Calif. Dept. of Finance) - -------------------------------------------------------------------------------- County 1990 2000 2010 2020 2030 ------ ---- ---- ---- ---- ---- Monterey 356,000 414,000 485,300 574,100 670,900 San Benito 37,000 50,700 66,500 83,200 100,900 Santa Clara 1,502,200 1,703,900 1,839,700 1,958,600 2,064,100 Santa Cruz 230,800 264,000 294,800 322,300 354,100 Statewide 29,976,000 36,444,000 42,406,000 48,977,000 56,100,000 - -------------------------------------------------------------------------------- Transportation The major passenger transportation system in the county is via private automobile. The freeway system consists of Highways 101, 1 and 183; and, State Routes 156 and 68. Highway 101 runs north and south from San Francisco, along the West Bay, and through San Jose toward Los Angeles. Highway 1, the Coast Highway, runs north and south from the coastal region of San Francisco and through Santa Cruz toward San Luis Obispo County. Highway 68, the Salinas- Monterey Highway, intersects with Highway 1 and connects the Monterey Peninsula with the Salinas Valley to the south and Highway 101 to the north. There are 1,300 miles of county roads and approximately 500 miles of city streets for a total of 2,000 road miles in the county. In Monterey County, AMTRAK provides rail passenger service, and the Southern Pacific Transportation Company provides rail freight service. Salinas is the only city in the county that now has rail passenger service. SPRR is the main line between Los Angeles and San Francisco. The Monterey Peninsula Airport provides air freight and passenger service in and out of the county. Over the past 20 years, the airport has shown a moderate growth pattern. In 1970, the number of passengers totaled 411,497. In comparison, the number of passengers had grown to 523,040 by 1989 (+1.4% per annum). Today, passenger service is provided by United, Wings West, Pacific Coast Air and West Air. The cities of Salinas and King City both have municipal airports. And with the closure of Fort Ord, Marina has discussed plans to convert Fritzsche Army Airfield into its own municipal airport. There are harbors at Monterey and Moss Landing (4 miles from the subject) which have boating facilities with a reported 2,000 small crafts launching from its ramps every month. Approximately 1,800 transient crafts visit the harbors annually. Monterey Bay and Monterey harbor areas attract a significant portion of the tourism industry that provides jobs and an economic base for the Monterey Peninsula area and the county as a whole. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 10 <PAGE> Fort Ord and the Military Influence With its various military installations located throughout the Monterey Peninsula area, including control of approximately 27 percent of all of the land in the county, the influence of the military on Monterey County has been significant. This influence has had a considerable financial impact, including military and civilian payrolls, local purchase and contracts, construction in the area, as well as the increase in government aid to local schools due to the military population in the area. The local housing market has also been significantly effected by the presence of the military. This impact, however, has been primarily on the apartment rental market in the communities of Marina and Seaside. In addition, it has had some minor negative impact on mobile home parks in the general area. Being approximately 20 miles northeast of Fort Ord, impact from the base closure has been minimal and not measurable. Given that the Ford Ord area is not in the immediate environs of the subject property, the effect of the base closure on the Boronda Manor Apartments has not been minimal. The closure of Fort Ord was the dominant economic news for the county during 1994. The closing was the single largest national closure to date, with most of the base's 35,000 residents and $600 million payroll moving to other bases. Currently, the base's 44 square miles of land is being administered by the Fort Ord Reuse Authority. Local communities formed the Fort Ord Reuse Authority as an advisory planning committee which under an agreement formed a Fort Ord Joint Powers Agency (JPA). The JPA agreement gave voting membership to the cities of Marina, Seaside, Sand City, Del Rey Oaks, Monterey, and Salinas and extended non-voting status to Pacific Grove and Carmel. The county is also a voting member. The premise of the JPA was to create a forum for discussing reuse issues; to facilitate community involvement and to speed up the decision process via a cohesive voting unit. Initially, the base closure stirred dire predictions about the short-term impact on the county. However, as the closure set in, the immediate economic impact was much less severe than expected, and limited primarily to the adjacent communities. Fort Ord was so large that much of the base was self-contained with its own housing, stores, services, and restaurants. The long-term prospects after closure are encouraging, assuming the base's land can be opened to large scale private sector development. In fact, the first major reuse of the base was the opening of the California State University- Monterey Bay which opened its doors on August 28, 1995 to 633 students. The state university at Fort Ord "is expected to grow substantially over the years, attracting students, well paid employees, research dollars and private businesses," according to the 1995 BT Commercial Real Overview published in April 1995. The Fort Ord complex was the largest military installation in the county with a total of 28,057 acres - nearly the size of the city and county of San Francisco. Approximately 22 percent of the base (6,250 acres) was developed with barracks, housing, motor pools, administrative buildings, and various other support facilities. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 12 <PAGE> Other military installations on the Monterey Peninsula include the Presidio of Monterey, which is the home of the Defense Language Institute (foreign language school for all branches of the armed forces); the United States Naval Post Graduate School (NPGS), and the United States Coast Guard Station. The United States Department of Interior maintains 304,035 acres in the Los Padres National Forest and 164,503 acres along the Big Sur coast in the Ventana wilderness. Fort Ord Reuse Plans After more than six years of planning, the final version of the Fort Ord reuse plan shows a closed military base converted to a huge community of new homes, businesses, schools, parks, hotels and golf courses. The four volume reuse plan, filed in public libraries in the area during the first week of June 1996 by the Fort Ord Reuse Authority, has evolved from the days when a 250 member community task force first saw the base as an educational center. Along the way, planners ruled out suggestions that Fort Ord might give way to a "Disneyland in the dunes", an industrial center with 12 story high rises sprinklered about, or an endless shopping center with no room for houses. The more realistic, final plan, which the FORA board is expected to act on in July includes market research, financing analyses, economic forecasts and population projections. Still, the numbers in the reuse plan are almost overwhelming: - -Nearly 4,000 acres of land available for private owners, an area six times the size of Carmel. - -More than 13,000 new houses to be built, half as many as now exist in Salinas. - -About 12 million square feet of industrial parks and office complexes, enough to fill an area 20 times the size of Del Monte Shopping Center in Monterey. - -More than 45,000 new jobs in those businesses, a third as many as now exist in the entire county. - -A new community of more than 71,000 people, twice as many as now live in Monterey. - -About 1,800 hotel rooms, three times as many as the Hyatt Regency in Monterey and eight times as many as Embassy Suites in Seaside. - -Development costs of $451 million over the next 20 years, as much money as it takes to run the city of Pacific Grove for 50 years. The plan shows development, including the 800 acre military enclave left behind as the Presidio of Monterey Annex, the 1,300 acre California State University at Monterey Bay (CSUMB), the 845 Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 12 <PAGE> acre Marina Municipal Airport and as many as seven golf courses, covering about a third of the 44 square file base. About 18 percent of the land at Fort Ord has been developed. Another 14 percent is slated to be developed in the next 60 years, according to the reuse plan. About two-thirds of the base is to be preserved in its natural state by the U.S. Bureau of Land Management (BLM), the State Department of Parks and Recreation, the University of California Natural Reserve System, the county, and the city of Marina. The environmental impact report for the reuse plan fills one of the volumes, a 327 page document, filed in early June as FORA's proposed final plan. The environmental analysis doesn't have many specifics because a special state law allows that at Fort Ord. The reuse plan, which has taken six years and many political battles to achieve, is seen as a master sketch, with details and designs to be filled in as individual development projects emerge. Fort Ord's Impact on the Local Economy It is extremely difficult to accurately ascertain the full impact that Fort Ord's closure has had on the local economy because California was suffering through a recession during the early part of the 1990's when the base was closing. The recession has made it difficult to isolate how much of the impact the close of Fort Ord has had on the economy. What has been evident is that there was a short-term glut of rentals on the Monterey Peninsula. Surrounding communities, especially Marina, Seaside and Sand City suffered the greatest negative impact as the closure process evolved. Conversely, the prestigious residential areas such as Pebble Beach, Carmel and the more upscale areas of Monterey were not impacted by the closure. Similarly, the City of Salinas' housing market was not adversely affected to a significant degree. In the Salinas Valley the base closure has had little to no significant impact. Rather, population growth and new development in the area of Salinas continued to be most effected by issues such as the shortage of water and salt-water intrusion. In general, the Salinas Valley could be described as being somewhat of an isolated market area. As such, a Salinas Valley location became more desirable, as investor's uncertainty associated with Fort Ord's closure was primarily directed at investment properties located on the Monterey Peninsula. Overall, a somewhat stagnant to moderate housing market appears to be the continued status for the general area over the short term, although there are signs that economic conditions are improving. This is especially the case in nearby Santa Clara County ("Silicon Valley") where the housing and rental markets have exploded due to strong job growth. Little investment activity and/or new construction is anticipated in the communities adjoining Fort Ord, at least until the major issues surrounding the redevelopment/reuse of the base are resolved. As discussed, there are several issues surrounding the base closure and its reuse which need to be resolved before the prevailing atmosphere of uncertainty blanketing the local real estate market is cleared. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 13 <PAGE> Business / Industry Monterey County, with a full-time civilian work force of approximately 172,000- 175,000 workers, has two major urban areas - Salinas and the Monterey Peninsula. As shown on the following page, employment in Monterey County (not including agriculture) is projected by the Employment Development Department (EDD) to average 113,100 in 1996, which will be 2,400 jobs above the 1989 annual average. At just +2.2 percent, this very small gain in jobs reflects EDD's assessment of the impact of the Fort Ord closure. Unemployment rates in Monterey County have been consistently higher than for California as a whole. The seasonal nature of the county's economy accounts for double-digit unemployment in the winter when agriculture, food processing, and tourist-oriented industries are at a lull. Agriculture While the economy of Monterey County is diversified, agriculture is the county's leading industry and the mainstay of the local economy. Agriculture provides approximately 1/4 of the county's basic income. Almost 1/5 of California's top- producing crop farms are located in Monterey County. With 86 farming operations, the county ranks second in the state, behind Fresno County with 97 farming operations. A farming operation is defined as a farm producing a crop with a value in excess of $4 million. The county ranks third in the state in gross dollar agricultural production, making it one of the top ten producing counties in the nation. Monterey County has a total of 976,000 acres used exclusively for agriculture and another 343,680 are combined agricultural and grazing land. The county's highly productive agricultural land is often referred to as the "fog belt" agricultural area of California. The long growing season in this area makes it possible to grow as many as three crops annually. Nationwide, the county leads in the production of lettuce, broccoli, artichokes, cauliflower, mushrooms, and strawberries. According to the county's agricultural commissioner, strawberries were the third-ranked cash crop in 1994, behind broccoli and head lettuce. Despite the damage done by the 1995 historic floods, the crop value for Monterey County agriculture surpassed the $2 billion mark, after creeping toward the milestone for several years. The 1995 crop value, $2.03 billion, market a 4.8 percent increase over 1994. Among the top 12 crops, the order in terms of dollar value remained almost identical to that of 1994. Besides breaking local production records, Monterey County surpassed Kern County in 1995 to become the third in the state in gross dollar value of agriculture. It was surpassed by only Fresno and Tulare counties. By the same measure, Monterey County also is the largest vegetable producing county in the United States. The crop value for the state of California stands at $20 billion. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 14 <PAGE> Assuming water for irrigation remains sufficient, employment in agriculture is projected to increase as growers expand production of vegetables and labor- intensive strawberry and nursery crops. But because of foreign competition, the rate of growth will be slower through 1996 than over the past seven years. Foreign demand for the county's produce remains strong, however. Additional market growth is also expected as the pre-cut salad mix processing market is rapidly expanding. Agriculture continues to be effected by water availability. Even with above normal rainfall in 1993 and 1996, the effects of years of drought have brought to focus the water issue. At this time, the issue of sufficient water supply and overdrafting (saltwater intrusion) are being addressed through water conservation and other management practices which have included moratoriums on new development. Other issues facing the agriculture industry include nitrates leaching into groundwater and soil compaction. Tourism/Convention Industry Following agriculture, the health of the county's business and industry is tied to the tourism/convention industry. According to the California Office of Tourism, an estimated 5 million visitors spent $1.2 billion in 1991 in traveling to Monterey County. That total represented about 2 percent of statewide travel spending that totaled $54.1 billion. As shown in the following table, Monterey County ranked ninth among the state's counties in total travel dollars spent in 1991. TRAVEL IMPACTS BY COUNTY (Office of Tourism) - -------------------------------------------------------------------------------- Travel Expenditures Payroll Employment Tax Receipts ($000) County ($000) ($000) (Jobs) Local & State Los Angeles $13,617,556 $3,316,350 154,734 $221,008 $391,987 San Francisco 5,777,445 1,524,457 63,236 99,816 133,011 Santa Clara 1,816,493 414,511 26,269 39,982 62,715 Alameda 1,502,588 353,077 19,663 25,024 46,024 San Mateo 1,496,321 363,301 18,626 26,209 41,447 Monterey 1,062,686 199,309 16,210 29,922 45,087 Sonoma 571,605 117,118 8,788 9,660 26,355 Santa Cruz 385,672 80,350 5,347 7,464 13,561 Napa 321,794 37,972 5,078 7,023 13,489 San Benito 49,459 8,713 724 591 2,327 - -------------------------------------------------------------------------------- The Association of Monterey Bay Area Governments (AMBAG) estimates that 15 percent of total employment in the county and about 45 percent of all services and trade employment in the county are supported by tourism. The Monterey County Hospitality Association estimates that Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 15 <PAGE> the industry is directly responsible for creating over 16,000 jobs locally with a payroll of nearly $200 million. And including the estimated 10,000 indirect jobs, the payroll increases to $322 million. By the Monterey County Hospitality's estimates, the "trickle-down" effect of tourism puts the total impact at $4 billion to $5 billion. Restaurants, hotels and inns, retail trade, numerous publications, and a variety of other service-oriented businesses are directly dependent on the tourist trade for their welfare. Based on 1989 data, there was a total of 220 lodging facilities in Monterey County consisting of 10,381 rooms. Because the majority of the tourism industry is centered around the hotel and convention complexes, it has more of an impact on the Monterey Peninsula area. The Monterey Peninsula area provides for a plethora of recreational and cultural activities which in combination with the natural scenic beauty create a tremendous attraction for tourism. The area has a number of public beaches that cater to swimming and sunbathing as well as surfing and scuba diving. In addition to the beaches, there is boating and sailing as well as two yacht clubs servicing the Monterey Peninsula. The area also boasts a number of parks and campgrounds, including the Los Padres National Forest and State beaches and parks. Within these parks and reserves, there are facilities for riding, hiking, hunting, and fishing. There is also the renown Del Monte Forest area and its 17-Mile Drive; Cannery Row and Fisherman's Wharf; as well as the Carmel-by-the-Sea and the ocean-front drives of the peninsula communities. The growth of the tourist industry is reflected in the continuous extension of the visitor season. More and more small business meetings, conventions and recreational events are now being held on a year-round basis. Although travelers and visitors to the Monterey Peninsula area come from all over the world, the primary points of origin are from within California, particularly within one day's driving distance. Again, attractions such as the Monterey Bay Aquarium and John Steinbeck's Cannery Row, as well as the Monterey Fisherman's Wharf, continue to be prime sources of vacation and tourism attractions. Paralleling the growth of the travel & lodging industry, was the development of the Monterey Bay Aquarium. The aquarium was approved by the coastal commission in 1978 and the 60,000 square foot facility was completed in 1985. The entire cost of the $50 million aquarium was absorbed by the philanthropist/businessman David Packard. The aquarium drew 2.227 million visitors in its first year and has averaged approximately 1,730,000 annually through 1991 - making it the single largest tourist attraction in the county. A substantial expansion to the facility is now underway. Upon completion of the expansion, attendance is expected to substantially increase. Occupancy for hotels and motels often reach 100 percent during peak season on the Monterey Peninsula. In fact, visitation patterns are being strongly affected by the lack of available rooms. The major limiting factor to the growth of the tourist industry in Monterey County in the future will be accommodations and facilities. According to statistics provided by the Monterey Peninsula Chamber of Commerce, the average occupancy rate has been approximately 65-75 percent, although 1996 is turning out to exceed those numbers. In an effort to further promote tourism, leaders in Monterey County's tourism industry are beginning an ambitious campaign to market the area. The general plan is to form an alliance Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 16 <PAGE> among merchants, city officials and representatives of major events such as the Monterey Jazz Festival and Sports Car Racing Association of the Monterey County. The strategy for expanding tourism in the county is to spread out the times when visitors come to the county and to advertise the attractions of the region, rather than just Monterey, Pebble Beach or Carmel. Traditionally, the tourist season peaks from Memorial Day to Labor Day. Additionally, the alliance would like to also extend the average stay from two to three days in the county. To that effect, tourists would be encouraged to spend time touring the Big Sur Coast, wineries of Salinas and Carmel Valley, John Steinbeck's Salinas, and even the lesser-known missions of San Antonio and Soledad. The concept of "ecotourism" is also being promoted as a means of courting more visitors to the county. Monterey County, by virtue of its fragile ecosystem, scenic natural beauty and 20 years of "no growth" planning policy appears ideally suited to this new industry. Because the future of Monterey County may very well depend on its natural environment, "ecotourism" represents a mutual interest of both business and environmentalists. Thus the adverse impacts of increased traffic, use of precious water and growth of facilities geared to tourists are sure to be carefully weighed as community leaders look towards expanding the tourism industry in order to offset losses from the closure of Fort Ord. Monterey County's tourist season has traditionally run from Memorial Day to Labor Day, but recent patterns of hotel occupancy and retail sales show that the season starts and ends later. The summer 1995 aquarium attendance was up 10% over 1994. In June and July 1995, attendance was up 7 percent and 7.6 percent, respectively, over the same months of last year. August was expected to experience increases of up to 5 percent, according to Mr. Jim Hekkers, vice president of external affairs at the Monterey Bay Aquarium. Commercial Market The county's office market caters primarily to small local service business, while most regional and national companies are located on the Garden Road/Ryan Ranch/Highway 68 corridor, drawn by newer buildings, attractive rents, better parking ratios, and large contiguous spaces. The industrial market is "tight" in Monterey County. Vacancies are minimal and have continued to decline. Contiguous blocks of available space over 15,000 square feet are non existent. Most knowledgeable real estate brokers expect rents to increase slightly over the next year. New development should be limited because of minimal available industrial-zoned land. The local retail market may seem crowded with large shopping complexes on the drawing boards in Salinas and Sand City, but marketing reports and consultants say there's room for more. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 17 <PAGE> Housing Market Monterey County's real estate sales surged in April/May 1996 with total sales coming in 67 percent higher than for the month last year. The increased activity has promoted optimism about a recovering market. The median home price for the county is approximately $300,000. This is up slightly over the past year. Regional Description & Analysis - Conclusion A survey of statistics on agriculture, home sales, retail sales and other indicators shows that the Monterey County economy is proving wrong the dire predictions made before Fort Ord closed down. For decades, farming and the military were the area's two economic mainstays. Today agriculture remains paramount, but other sectors are changing rapidly to fill the void created by the base closure. Jobs While unemployment estimates remain seasonally high, county business have added more than 6,000 new jobs in the past 12 months, mostly in agriculture and service related fields, according to the State Employment Development Department. Construction Although the county construction permits dropped by about 4 percent in 1995, when compared to the year before, to about $319 million, single family dwelling starts have bolstered this year's construction, which is about 20 percent ahead of last year's rate. In addition, government projects are still underway, including the $100 million Natividad Medical Center in Salinas. Completion is expected in early 1997. Built around a courtyard, the new facility will offer patients an array of outpatient services devoted to the needs of families, women and children. Construction has started on the 680,000 square foot Westridge Shopping Center in Salinas. It is expected that the Wall Mart Store will open in February 1997. Real Estate Sales Although Monterey County is considered the second least affordable area in the country, higher priced homes on the Peninsula are still attractive, particularly to the people in the 45 to 54 age range. Agriculture Monterey's total crop ranks third in the state in total dollar value, behind Fresno and Tulare counties. In terms of vegetable production, the county is the largest in dollar value in the country. The county's crops amounted to 10 percent of the statewide crop total of $20 billion in 1995. Tourism The area's coastline, golf courses and resorts attract visitors from throughout the world. In 1995, attendance at the Monterey Bay Aquarium was 1.6 million and, with the opening of the Outer Bay wing in March, attendance is expected to go as high as 2.2 million this year, according to aquarium officials. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 18 <PAGE> CITY OF SALINAS-COMMUNITY PROFILE The City of Salinas, incorporated in 1874, is located eight miles inland from the Monterey Bay, at the head of the Salinas Valley. The level fertile floor of the valley tapers to a funnel just north of the City. The original King's Highway, now called El Camino Real and/or Highway 101, traverses the approximate center of the valley floor from the Prunedale area of rural north Monterey County to King City to the south. Other cities located in the valley south of Salinas includes Chular, Gonzales, Soledad, Greenfield, San Lucas, and San Ardo. A map of the city appears in the Addenda. Salinas has been recognized historically as the distribution center for agricultural products from the Salinas Valley, one of the world's richest, most fertile growing areas, with approximately 1,000 square miles of land. The economic base of Salinas has always been agriculturally oriented; however, during the past decade, rising property values have helped to make the city of Salinas a bedroom community of the Monterey Peninsula. Salinas has become the population growth center of the Monterey Bay region. Recent projections show the city will continue to grow at an annual rate of 3 percent. There are 100 manufacturing firms in Salinas. The leading group classes of products are food, electronic components and electrical products. The largest manufacturing firms in the community are: Simplot Corporation, 550 employees; National Refractories, 419 employees; Integrated Device Technology, 360 employees; Radionics, 359 employees; and McCormick & Company, Inc. (Shilling), 350 employees. The city has three distinct geographical business areas: South Salinas, East Salinas, and North Salinas (where the Laurel Tree Apartments and the Harding Park Townhomes are located). South Salinas "Old Town" is located south of West Market Street, along Main Street in south Salinas. This area has many specialty retail stores, financial institutions and restaurants. The City is actively pursuing the redevelopment of "Old Town." Since 1974, $15 million in private investments, matched by $34 million in publicly financed improvements, have been committed to this project. This redevelopment has revitalized the area and has attracted many new commercial tenants to this part of the city. This redevelopment is to include the Steinbeck Plaza, which is anticipated to be a much-heralded showpiece of the city's downtown district. It will consist of a mixed land-use project for the blighted 100 block of South Main Street and will include a five-story, 94 room hotel with rooftop restaurant; a five story, 110,000 square foot office building with conference rooms and retail shops; a four level parking garage; restaurants with a total seating of 400; and a 33,000 square foot public plaza that will include an amphitheater. County and city government offices are located in the south Salinas area. This part of the city is generally known as the financial center. It has the highest concentration of larger office buildings. One of the largest tenants in south Salinas is the County of Monterey and its support service Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 19 <PAGE> agencies. Salinas is the county seat of Monterey County. As the county seat, Salinas serves as the area's center for finance and agribusiness. It has captured nearly 40 percent of the county's office development. North Salinas The north Salinas business district of the city is located along North Main Street, south of Boronda Road and north of East Laurel Drive. The Northridge Regional Shopping Center, with over 120 specialty shops, three savings and loans, a bank, theater complex, and four major department stores, is located in this area of the city. In 1985, Northridge concluded a four year expansion, representing an investment of over $55 million. Convenience stores, financial institutions and other neighborhood stores are also located along North Main Street, which connects the north and south Salinas areas. Over the past five years, with the development of Northridge Shopping Center, north Salinas has become the retail center of the city. Office development in this part of the city has generally been directed toward smaller buildings. East Salinas The East/Alisal area of Salinas is generally described as that part of the city that is located east of Highway 101 and Natividad Road. The central commercial district is located along East Alisal. Portales de Alisal, a three level mix of retail shops and day care center, as well as medical and other professional offices, are planned on approximately eight acres located in the 500 block of East Alisal Street, in the Hebbron Heights neighborhood of the Alisal District. Neighborhood retail shops, small professional office users and trades people comprise the typical tenant profile in the east Salinas area. Vacancy in this area is low. Very few spaces are for lease. New retail space has leased very well as evidenced by the strong activity of a 19,600 square foot retail/shopping center located at 45 Sanborn Road. Population & Growth Percentage-City of Salinas vs. Monterey County ================================================================================ Year Monterey County City of Salinas ================================================================================ 2000 422,710 144,500 - -------------------------------------------------------------------------------- 1995 370,996 122,390 - -------------------------------------------------------------------------------- 1990 355,657 108,777 - -------------------------------------------------------------------------------- 1980 289,861 80,479 - -------------------------------------------------------------------------------- 1970 247,450 58,896 - -------------------------------------------------------------------------------- Monterey County-Employment by Industry ================================================================================ 1992 1998 (projected) Percent Change ================================================================================ Agriculture 30,600 32,900 8% Services 28,300 32,000 13% Retail Trade 23,700 25,700 8% Government 27,900 26,300 -6% Manufacturing 8,900 9,800 10% Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 20 <PAGE> Finance, Insurance, 6,300 7,000 11% Real Estate Transportation & 5,100 4,900 -4% Public Utilities Wholesale Trade 5,000 5,100 2% Construction 3,900 4,200 8% Mining 300 200 -33% Local Economic Developments-City of Salinas Early in 1996 the Salinas Valley Maximum Security Prison opened its new operation with its expanded correctional facilities. The new facility added nearly 700 new employees; an additional 800 new employees (the highest percentage are correctional officers) have recently been added, and by the beginning of 1997 an additional 450 new employees may be added. The recent hirings have already impacted the local apartment housing market throughout Salinas; interviews with numerous apartment managers have indicated that large numbers of newly-leased units are to correctional officers working at the Soledad State Correctional Facility; extremely limited housing within the city of Soledad have heavily impacted the demand for rental units in Salinas, considered only an approximate twenty (20) mile northerly commute from the prison. Increases in the city's services, retail trades, manufacturing, construction, and finance sector have resulted in a stronger demand for affordable multi-family housing units. The current shortage of rental units has been primarily the result of local economic activity. The expansion of the Westridge Shopping Center, a 650,000 square foot retail center, is within one- half mile of the subject property and includes a Wall Mart Store opening in February, 1997; this will also increase housing demand in the North Salinas area. Household Credit Corporation recently hired 200 new employees in 1996. Residential Growth-City of Salinas The Salinas Valley has long been an attractive area for homebuyers, especially first-time buyers who are looking for an affordable home in Monterey County. The average annual growth rate over the past 10 years was nearly 2 percent, and, as a result of continuing developments throughout both Monterey County and Salinas itself the rate should approximate 3 percent for the remaining few years to 2000. Salinas has been moving forward with several new developments that will add thousands of new people to the city by the time the next U.S. Census is taken in the year 2000. The Harden Ranch subdivision in North Salinas, for example, includes 1,683 single family homes, 719 multifamily units and an area for churches, schools and a park. Creekbridge subdivision is a mix of new homes, including 1,000 single family homes and 1,030 multifamily units. The Williams Ranch subdivision in East Salinas was planned for 1,551 homes and 519 condominiums or apartment units. If there are any restrictions to growth in Salinas it's the agricultural land that surrounds the city. The city's master plan for growth forbids city officials from considering new building projects to the south and west of the city limits because that land is some of the richest, most productive Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 21 <PAGE> farmland in California. "Slow" of "No-Growth" policies will limit Salinas' development in the south and west portions of the city; therefore, future developments will concentrate more heavily in North Salinas, in the vicinity of the Laurel Tree Apartments the Harding Park Townhomes. City of Salinas-Apartment Market Analysis Below is a simple chart illustrating the structural and vacancy characteristics estimated for the City of Salinas, as of September 28, 1996, the effective date of this appraisal. From a total of 35,902 housing units within the city, 13,247 units are considered multi-family (2 or more units in a structure). This equates to 36.9 percent. This estimate includes apartment units in plan check or currently under construction. All Housing Units ================================================================================ 1 unit 1 unit Mobile Total detached attached 2-4 units 5-9 units 10+ units homes ================================================================================ 35,902* 18,077 2,942 3,239 3,236 6,772 1,636 - -------------------------------------------------------------------------------- * Information provided by the Monterey County Association of Realtors and Association of Monterey Bay Area Governments. Utilizing the number of apartment units indicated above there currently exists 13,247 apartment units. Since the end of 1992, no apartment units have been built until 1996; the overall number has remained relatively constant for a number of years. Based on the current estimated population of Salinas of 122,390 and applying a 35% multifamily ratio provides for a total renter population of approximately 42,837. Dividing the renter population by the average 3.21 household size (estimated by the Association of Monterey Bay Area Governments) suggests that the City of Salinas would need 13,345 apartment units to accommodate this demand. Comparing this to the current apartment inventory of 13,247, a deficiency of 98 units exists. If this analysis is accurate, then this explains why the market as a whole is experiencing a very low to no vacancy rate at this time as reported by various apartment building managers throughout North Salinas, South Salinas, and East Salinas. Again, this is very consistent with my findings based on interviews with on-site managers, property managers, brokers and other appraisers. The Salinas apartment market is very tight with many of the larger professionally managed complexes reporting 98%-100% occupancy with a waiting list. The market has tightened up because of several factors including the recent expansion of the Soledad prison facility wherein they recently hired approximately 1,200 employees. As previously indicated, Household Credit Corporation recently hired 400 new employees and a host of other ancillary businesses have been hiring in and around Salinas. Additionally, the population has been growing at approximately 3,500 new residents per year. Much of this growth is due to the migration from Santa Cruz, Los Angeles, and San Jose. Many of these people are purchasing homes in the newly-developed master plan communities and many are renting. According to many of the on-site property managers renters are coming from as far as San Jose which is approximately 3/4 of an hour drive north. Rents are significantly higher in San Jose. Rents in Salinas are estimated at between $250 and $500 below San Jose rents and therefore is attracting tenants who view making the commute an attractive alternative to paying higher rents. Following are the results of a survey performed by this appraiser of ten (10) apartment complexes within the City of Salinas as of the date of this appraisal. The average apartment building size was Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 22 <PAGE> 146 units. The survey indicates the name of the complex, total number of units, total number of vacant units, and total number of units "on notice". Apartment Survey-City of Salinas September 28, 1996 ================================================================================ Total No. No. Vacant Units Name Units Units On Notice ================================================================================ Cypress Creek Apartments 288 0 12 - -------------------------------------------------------------------------------- Cypress Landing Apartments 112 0 0 - -------------------------------------------------------------------------------- Los Padres Apartments 220 4 2 - -------------------------------------------------------------------------------- Mariner Village Apartments 176 1 3 - -------------------------------------------------------------------------------- Northridge Park Apartments 232 3 3 - -------------------------------------------------------------------------------- Kipling Manor Apartments 92 0 0 - -------------------------------------------------------------------------------- Olive Tree Apartments 34 1 0 - -------------------------------------------------------------------------------- Shadowbrook Apartments 88 3 0 - -------------------------------------------------------------------------------- Sheridan Park Apartments 116 0 10 - -------------------------------------------------------------------------------- Village Green Apartments 104 0 4 - -------------------------------------------------------------------------------- TOTALS 1,462 12 34 - -------------------------------------------------------------------------------- This particular sample surveyed represents only 11.04 percent of the total number of apartment rentals in the city of Salinas. Based on information from the above respondents a vacancy rate of .8 percent was indicated. If one includes the number of "units on notice" (tenants who plan to vacate within 30 days), the vacancy rate becomes 3.15 percent. Most of the tenants who have given notices to vacate are considered "seasonal workers" engaged primarily in the agricultural trades, according to property managers surveyed. NEIGHBORHOOD DESCRIPTION AND ANALYSIS The subject property is located in a north central section of the North Salinas area of the city bounded by West Laurel Drive north, U.S. 101 Freeway west and south and by N. Main Street to the east. The area as defined is nearly triangular in shape and contains a total of approximately .25 square miles. Immediate Neighborhood Environs Three of the four (4) corners at the signalized intersection of N. Main Street and West Laurel Drive in a neighborhood commercial zone are improved with gasoline service stations: BP, Beacon and Shell Oil. Laurel Plaza office and retail center occupies a fourth corner. Continuing in a westerly direction along West Laurel Drive and moving towards the subject property a professional law office building (1-story) is near Baldwin Street; The Reef Apartments occupy the southwest corner of Parkside Street. Located at 801 W. Laurel Drive, and immediately north of the Laurel Tree Apartments and at the freeway entrance to the U.S. 101, is the Laurel Inn on a three acre site. The southeast corner of Monroe Street at West Laurel Drive is improved with a Quick-Stop convenience market and a Wash-Dry center. Referred to above in this report located directly across the street from Laurel Tree Apartments is a professional office center known as Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 23 <PAGE> Laurel Park. Nearly fifty (50) percent of the "neighborhood" as defined is improved with older, average quality detached single family California bungalows dating to the 50's and 60's. SITE ANALYSIS - -------------------------------------------------------------------------------- General: Laurel Tree Apartments & Harding Park Townhomes Based on a plat map furnished by our client (a copy is included in the Addenda), the site for the Laurel Tree Apartments contains a total of 7.762 acres. A survey of the site has not been made, and it is assumed that the Plat Map is correct. The site, which includes one separate legal parcel, has an irregular shape; please refer to the County Assessor's Plat Map on the following page. For the Harding Park Townhomes, the site consists of all of lots 1 through 36 inclusive, and Lot "A", as shown on that certain subdivision map entitled, Tract No. 887, Harding Park Townhouses with map recorded March 6, 1980 in Book No. 14, "Cities and Towns", Page 22, Monterey County Records. Topography and Drainage: The topography of both of the sites is predominantly level to slightly rolling. Drainage is believed to be adequate. Access: The Laurel Tree Apartments has two (2) different access driveways, both with security gates and both fronting to Monroe Street only. The Harding Park Townhomes, on the other hand, has only one access which is provided by a security gated entrance from Polk Street just opposite Harding Street. Utilities: All major utility services are available and connected to the property. These utilities include sewer, water, electricity, cable television, and telephone services. Sewer service is provided by the Monterey Regional Water Pollution Agency. The capacity of the sewer plant is 30 million gallons per day. Water is provided by the Alco Water Service and California Water Service Company. For both water companies combined, the maximum daily pumping capacity is 45,383,680 gallons per day. Quantity rates are $.7091 per 100 cubic feet. Natural gas and electric power are provided by Pacific Gas & Electric (PG&E). Local telephone service is provided by Pacific Bell. The City of Salinas Department of Public Works has adopted a master plan of storm drains. Charges are assessed on all on-site costs, plus off-site fees. Site Hazards: The subject property is located in a designated FEMA Zone "B", according to Community Panel Map Number # 060202-0002 D, dated November 4, 1981. The "B" designation does not require flood insurance. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 24 <PAGE> Earthquake Fault Zone The property is not located in any known earthquake fault zones. However, the region is subject to periodic earthquake tremors. We know of no particular reason why the site would be at a greater risk than other area properties. Rent Control: Monterey County does not have rent control. The county does have an "inclusionary housing" program that provides for affordable "low-income" housing. Low and moderate housing assistance is available through a variety of programs offered by the Housing Authority of Monterey County, the City of Salinas and CHISPA, a non-profit housing developer. Apartment complexes for low- income families, the elderly, handicapped and farm-labor families are located throughout Salinas. The city has established a Housing Trust Fund to help increase the supply of affordable rental units as well as opportunities for home ownership. Contamination/Toxics: We have inspected the property with the due diligence expected of a professional real estate appraiser. It is important to note, however, that the appraiser(s) are not qualified to detect hazardous waste and/or toxic materials. Such a determination would require investigation by a qualified expert in the field of environmental assessment. To our knowledge, there are no potentially hazardous materials that would affect the valuation and/or marketability of the property as of the date of valuation. The appraised value of both the Laurel Tree Apartments and the Harding Park Townhomes is specifically predicated on the assumption that there are no hazardous materials on or in the property that would cause a loss in value. Easements and Restrictions: Normal public utility easements are assumed that are not considered to adversely affect marketability. Site Analysis Conclusion In summary, the Laurel Tree Apartments complex has a site consisting of 7.762 acres on one parcel improved with 157 rentable units. All utilities are available, including sewer service, electricity, gas, telephone and cable television. The site lies in Flood Zone "B" (no flood insurance required). Zone "B" is typical of the neighborhood. The Harding Park Townhomes is appraised as a multi-family residential development consisting of 36 rentable units within a planned unit development. TAXES AND ASSESSMENT ANALYSIS In the State of California, property is enrolled at 100% percent of market value, as determined by the Assessor upon transfer of ownership or significant new construction. The maximum tax rate cannot exceed one percent of the enrolled value, plus general and/or special assessment bonds and fees approved by the voters. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 25 <PAGE> The Monterey County Assessor Parcel Number for the Laurel Tree Apartments is 261-591-008. The assessed value allocated between land and improvements, for the tax year 1996-97, is as follows: Land: $ 433,893 Improvements: $2,690,170 Personal Property: $ 76,100 Total Assessed Value $3,200,163 The Monterey County Assessor Parcel Number for the Harding Park Townhomes is 003-534-023 to 003-534-058 and 003-534-059 (common area). Each of the individual 36 units are identically assessed with an allocation between land and improvements, for the tax year 1996-97, as follows: Land: $ 8,205 Improvements: $40,206 Personal Property: $ -0- Total Assessed Value: $48,411 For the Laurel Tree Apartments, real estate taxes for the 1996-97 tax year are $33,319.36. Direct assessments of $1,172.16 are included. For the Harding Park Townhomes, real estate taxes for the 1996-97 tax year (including all 36 units) is $18,712.80. Direct assessments of $602.28 are included. The tax rate for both properties is 1.004660 percent per $100 of full cash value. Direct assessments are imposed by the North County Water Regional Agency (.004660) is added, of course, to the one (1) percent base tax rate as specified by Proposition 13 for California. There are no special assessment bonds, according to the Monterey County Tax Collector Department. Both installments have not been paid for 1996- 97. The reader should refer to the preliminary title insurance report for specific amounts of any unpaid previous tax installments. The first installment for 1996-97 is due November 10, 1996. The tax rate area for both the Laurel Tree Apartments and the Harding Park Townhomes is 005-022. Re-assessment of Laurel Tree Apartments & Harding Park Townhomes: Proposition 13 The current tax amounts for the 1996-97 tax year will not remain the same beginning on July 1, 1197. According to Proposition 13 for California, the subject property will be re-assessed, most likely based on the new sale price or market value at time of sale. The assessments will be based on full cash value using a tax rate per $100 of full cash value. The passage of Proposition 13 establishes a maximum property tax of one percent of full cash value. The Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 26 <PAGE> mandated one percent (1%) property tax level converts to a $1.00 base tax rate. The additional rate imposed by the Water Regional Agency will be added to the $1.00 base rate. ZONING DESCRIPTION AND ANALYSIS The Laurel Tree Apartments and the Harding Park Townhomes are currently under the zoning designation of R-H-2.3 by the City of Salinas. This zoning designation specifically refers to a high density residential district. Section 37-44 addresses specific purposes of the particular district's regulations. They are as follows: (1) To provide appropriately located areas for high density multiple family dwelling units consistent with the General Plan and with standards of public health and safety established by the Salinas Municipal Code. (2) To provide adequate light, air, privacy, and open space for each dwelling unit and protect residents from the harmful effects of excessive noise, population, density, traffic congestion and other adverse environmental impacts. (3) To promote development of affordable housing by providing a density bonus for projects in which a portion of the dwellings are affordable to qualifying households. (4) To achieve design compatibility through the use of site development standards. (5) To protect adjoining low density residential districts from excessive noise or loss of sun, light, quiet, and privacy resulting from proximity to multifamily dwellings. (6) To provide sites for public and semipublic land uses needed to complement residential development or requiring a residential environment. (7) To ensure the provision of public services and facilities needed to accommodate planned population densities. For a comprehensive list of all property development regulations under the R-H- 2.3 Zoning District the reader may refer to the Addenda of this report. Parking Requirements-On-site Division 18-Off-Street Parking and Loading Regulations of the City of Salinas Municipal Code lists all use classifications. For multifamily residential complexes containing over ten (10) units, the off-street parking and loading requirement is 1.6 spaces per unit. The Laurel Tree Apartments has 158 carport spaces and 99 open spaces for a combined total of 257 spaces. Harding Park Townhomes has 36 garaged spaces and 45 open spaces for a combined total of 81 spaces. It appears that the subject property meets all applicable city zoning, building and parking requirements. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 27 <PAGE> IMPROVEMENT DESCRIPTION AND ANALYSIS The Laurel Tree Apartments were constructed in 1977 and contain a total of ten (10) two-story buildings configured on a 7.762 acre site. There are a total of 158 rentable units in five (5) floorplans; one unit is used as the office manager for the complex. The unit is a 1br/1ba floorplan. The net rentable building area is 80,862 square feet. There is also a large separate laundry room. The Laurel Tree Apartments are considered Class D Building(s) Construction Type V (wood frame) of the Uniform Building Code. Class D buildings are characterized by combustible construction. The exterior walls are made up of closely spaced wood studs with an exterior stucco-masonry covering. The roof is supported by a wood truss system with a concrete slab floor on 1st floor area. The upper floor (2nd story) consists of plywood sheets. Also, the subject is in a class of construction referred to as protected one-hour construction. The Harding Park Townhomes were constructed in 1984 and contain a total of ten (10) buildings located on a planned unit development with a common area consisting essentially of asphalt paved driveways and parking areas plus a children's playground area located at the northern-most section of the development. There is a masonry noise abatement wall separating the site from U.S. 101 Freeway to the immediate west of the development. There are a total of 36 rentable units in two (2) floorplans. The two bedroom floorplans are constructed on one level only. The total net rentable building area is 41,292 square feet. All units contain interior washer/dryer areas that are located in the attached 1-car garages. The Harding Park Townhomes are attached and are considered Class D Building(s) Construction Type V (wood frame) of the Uniform Building Code. Class D buildings are characterized by combustible construction. The exterior walls are made up of closely spaced wood studs with an exterior wood siding, in this case. The roof is supported by a wood truss system with a concrete slab floor on first floor area. The upper floor (2nd story) consists of plywood sheets. Also, the Plaza Apartments is in a class of construction referred to as protected one-hour construction. Unit Mix-Laurel Tree Apartments ================================================================================ TYPE UNITS AREA (sf) ================================================================================ STUDIO 48 399 - -------------------------------------------------------------------------------- LOFT 60 520 - -------------------------------------------------------------------------------- 1BR/1BA 24 542 - -------------------------------------------------------------------------------- 2BR/1BA 24 700 - -------------------------------------------------------------------------------- 3BR-2BA 1 702 - -------------------------------------------------------------------------------- TOTAL 157 80,862 - -------------------------------------------------------------------------------- Interior Improvements: Laurel Tree Apartments Floor coverings consist of wall to wall carpeting over concrete slab in lower levels and over plywood subfloor in upper levels. Vinyl flooring is in kitchens and bathrooms. Gas heating is included. The kitchens have Formica countertops, free-standing gas range and ovens, garbage Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 28 <PAGE> disposals, stainless steel sinks and dishwashers. Each of the ten (10) buildings are served with individual hot water heaters. Bathrooms are improved with tile wainscoting and cultured marble vanities. Overall condition is considered good. Many of the units have recently been upgraded with new carpeting and interior painting. Unit Mix-Harding Park Townhomes ================================================================================ TYPE UNITS AREA (sf) ================================================================================ 2BR-1BA 20 975 - -------------------------------------------------------------------------------- 3BR-2.5BA 16 1,362 - -------------------------------------------------------------------------------- TOTAL 36 41,292 - -------------------------------------------------------------------------------- Note: Information regarding the individual unit sizes was made available by drawings of floorplans provided to the appraiser by Lincoln Management Company. The appraiser was provided access to representative floorplans of each particular unit and has verified the accuracy of the floorplan and gross living area, for both the Laurel Tree Apartments and the Harding Park Townhomes. The inspected units are considered representative of the complex. It is assumed that the condition of the interior units are similar with some variation. Interior Improvements: Harding Park Townhomes Tile floor entry areas over concrete slab are typical. All of the units have brick fireplaces with tile hearths. Floor coverings consist of wall to wall carpeting over concrete slab in lower levels and over plywood subfloor in upper levels. Vinyl flooring is in kitchens and bathrooms. There is central forced air gas heating. Built-in electric range and ovens, Formica counters, fan and hood combinations, garbage disposals, and dishwashers are typical kitchen amenities. There are areas located within attached garages for washer/dryer. There are also enclosed patio yards with sliding glass door access from living rooms. Recent upgrading has taken place with new exterior painting and installation of mini- blinds. The overall condition is good. Effective Age: Laurel Tree Apartments & Harding Park Townhomes The actual age of the Laurel Tree Apartments complex is 19 years. An average quality Class D apartment project is estimated to have a total economic life of fifty (50) years. This is based primarily on the performance of many comparable properties built in the 1940's and 1950's still in existence in Monterey County and capable of attracting tenants due to upgrading and above-average maintenance. In addition, the Marshall and Swift Cost Valuation Service provides reasonable support for an estimated total economic life expectancy of fifty (50) years. Because the Laurel Tree Apartments has undergone substantial recent upgrading under the current management to date it is the appraiser's opinion that an estimated overall effective age of twelve (12) years is considered reasonable and supportable. The actual age of the Harding Park Townhomes is 12 years. The Harding Park Townhomes is also considered representative of average quality Class D apartment projects. Due to the recent complete exterior painting and above-average maintenance and continual upgrading and Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 29 <PAGE> replacing of appliances, for example, it is my opinion that an effective age for this development is estimated at 10 years. Remaining Economic Life: The remaining economic life of the Laurel Tree Apartments is estimated at 38 years, although it certainly could be longer or even shorter. This estimate is made by deducting the effective age of 12 years from total economic life of 50 years. Also, the remaining economic life of the Harding Park Townhomes is 40 years, based on a total economic life of 50 years. External Obsolescence Because some of the apartment units located in both the Laurel Tree Apartments and the Harding Park Townhomes are in relative close proximity to U.S. 101 Freeway, the Lincoln Property Management was consulted as to any adverse effects that these rental units may have experienced in attracting and maintaining tenants over a reasonable period of time. No significant problems have occurred in renting any of the few units that are located close to the freeway, which is separated by a 12' noise abatement wall and adequate distance setbacks. There is no difference in rental rates (i.e. rent loss) between apartment units located in close proximity to the freeway and from interior sections of the developments. HIGHEST AND BEST USE ANALYSIS Definition Highest and best use, as used in this appraisal, is defined as that reasonable and probable use that will support the highest present value, as defined, as of the effective date of the appraisal, September 28, 1996. Alternatively, that use, from among reasonably probable and legal alternative uses, found to be physically possible, appropriately supported, financially feasible, which results in highest land value. The above definition of the "Highest and Best Use" is in reference to land that is unimproved. In cases of improved land, a determination of the contributory value of the improvements to the land must be made. The improvements found on a site may be of inappropriate use, but will continue until the land value exceeds the total value of the property in its existing use. Discussion Our opinion of the highest and best use of the subject land parcel will be supported based upon our analysis of the four tests outlined below: 1. Legally Permissible Use. This type of use is legal and conforms to the zoning assigned to property, as well as to the City's planning goals. 2. Physically Possible Use. The shape, size, and available utilities are adequate to serve this use. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 30 <PAGE> 3. Financially Feasible Use. Population and immediate income statistics support the feasibility of the highest and best use based upon the quantity, quality, and distribution of the income and its prospective users. 4. Maximally Possible Use. An analysis of which possible legal uses will produce a net return and/or create value to the site. All three standard appraisal approaches to value are affected by the highest and best use. Therefore, valuation is highly dependent upon the conclusions set forth by this analysis. Physically Possible Section 37-46 of the City of Salinas Municipal Code specifies a minimum lot size of 7,200 square feet in a R-H-2.3 high density residential district. The Laurel Tree Apartments has a site size of 338,113 0 square feet. A minimum of 1,800 square feet is required for each unit, according to Section 37-46 of the Regulations. Based on this requirement, therefore, the site is physically capable of being developed with the current apartment improvements. This same analysis is also applicable to the Harding Park Townhomes planned unit development. Legally Permissible The subject is zoned and general plan designated to allow high density residential uses. As existing, the subject is a legal and conforming use. Both the Laurel Tree Apartments and Harding Park Townhomes are legally permissible under the current zoning regulations. Financially Feasible In evaluating the most reasonable and probable use of the vacant site, we considered the demographics of the surrounding area, land use patterns, local market supply and demand, general market conditions, and the physical characteristics of the property itself. The most feasible and marketable use for the subject site(s) appears to be for apartment use, given the present shortage of rental housing in Salinas, which is a result of the local economy and current growth of Salinas. Rapid changes in market conditions which were previously discussed in the Neighborhood and City Sections indicate apartment and multi-family housing as the most reasonably probable use of the subject property. Maximally Possible Use The final of the four tests in the highest and best use analysis is the use that maximizes the land value by providing the highest return. This test must be considered sequentially with the prior three tests; it makes no difference that the most probable highest value is a apartment complex, for example, if the zoning does not permit this use. The most profitable use is a multi-family or apartment use. This is largely based on the fact that the current improvements are apartments and are configured on the sites as such. At the present time, the City of Salinas Planning Department recognizes through its general plan the R-H- 2.3 high density residential district of the subject's neighborhood in North Salinas and is aware of the changing market conditions and rental shortage that exists in the City of Salinas. There is virtually no availability of vacant land in South Salinas for apartment use, for example, since that area is Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 31 <PAGE> primarily designated as agricultural land. The City is encouraging the future development of high density residential land in the North Salinas section of the city. Highest and Best Use Conclusion - As Improved In conclusion, the highest and best use of the Laurel Tree Apartments, as improved, is apartment use. In conclusion, the highest and best use of the Harding Park Townhomes, as improved, considering its planned unit development configuration, common area, and individual tax parcels as recognized by Monterey County, is most likely a sale of all 36 units at market values under the assumption, of course, that the individual units could be sold separately. For purposes of this appraisal, however, the Harding Park Townhomes are considered as multi-residential units, since there is no evidence that the PUD process has been completed as of the appraisal date, September 28, 1996. Highest and Best Use Conclusion - As Vacant In conclusion, the highest and best use as vacant is a multi-family or apartment-type use. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 32 <PAGE> THE APPRAISAL PROCESS - -------------------------------------------------------------------------------- The estimation of a real property's market value involves a systematic process in which the appraisal problem is defined and the data required is gathered, analyzed and interpreted into an estimate of value. Traditionally, three methods of valuation have been used in appraising: the Cost, Sales or Market Comparison and Income Approaches. In the Cost Approach, the value of the site is first estimated by comparing it to similar sites that have recently sold or are currently offered for sale. Replacement cost new of the improvements is determined by reference to actual costs of similarly constructed properties. Depreciation from all sources is then deducted from the replacement cost new of the improvements to arrive at the present value. The depreciated value of the improvements is added to the estimated land value to arrive at the total value by the cost approach. In this appraisal, however, NationsBank has requested that the cost approach be omitted from this appraisal assignment. The cost approach has been determined to have little to no significant applicability in the valuation of 10 to 30 year-old multi-family properties due largely to the subjectivity involved with estimating depreciation in older properties. Moreover, cost and value are oftentimes not the same. The Sales Comparison Approach involves comparison of the subject to similar properties that have recently sold or that are offered for sale. These sales are reviewed for differences from the subject in the date of sale, location of the site, physical characteristics and other factors. The comparable properties are then adjusted to formulate a value range for the property being appraised. The third of the three valuation techniques is the Income Capitalization Approach. This approach involves estimating net operating income, and discounting this income to a present worth through the capitalization process. For most income-producing properties, including apartments and multi-family properties, this is the better valuation technique. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 33 <PAGE> INCOME CAPITALIZATION APPROACH - -------------------------------------------------------------------------------- The first and primary approach applied to the valuation of the subject is the income capitalization method. This technique involves conversion of future anticipated income into an estimate of present value by the capitalization process. This procedure involves three steps as indicated below: 1. Estimate gross income from available rental information and the subject's operating history; 2. Estimate and deduct vacancy and collection loss allowance and operating expenses to derive net operating income; and, 3. Select an applicable capitalization method or methods, develop the appropriate capitalization rate, and complete the necessary computations to derive an economic value indicated by the income capitalization approach. Required Information Documents that are helpful to better estimate value under the Income Approach include the following: o Income/Expense statements o Personal Financial Statements of Owner (if applicable) o Rent Roll o Lease Agreements o Other (service agreements) Income and expense statements. Operating statements provided by management over the past year and eight months are included in the Addenda. Personal Financial Statements. The owner's personal financial statements are not required to appraise the property, but can be helpful under certain circumstances. While market value intrinsically assumes transfer to a willing and knowledgeable buyer at market price, financial statements of the owner often provides insight into the current management quality and style of the property. An undercapitalized owner, for example, may not be able to institute correction of deferred maintenance that will enhance livability. As such, occupancy and rates may suffer from inadequate level of maintenance, which results in loss of reputation. Financial statements of the subject ownership have not been reviewed. However, based on conversations with management and the overall good maintenance level and high occupancy of the property, it can logically be assumed that ownership is capable of operating the property in a strong professional manner. Based on conversations with management, and inspections of other properties owned by Thysen and managed by Lincoln Property Residential, the subject has been operated in a professional manner and there appears to be no operational problems at this time. Rent Roll: A roll of the current tenants have been provided by management as of September 28, 1996. As of the inspection date, seven units were unoccupied, but five of these have been leased 34 <PAGE> to new occupants who have yet to move in (i.e., 1.03% vacancy). There is no vacancy in the Harding Park Condominiums. Lease Agreements: A copy of the standard 2-page residential rental agreements have been reviewed, and have been included in the Addenda. All tenants are on short-term 7, 8 and 9 month leases. The rental agreements are typical of others used in the marketplace. Utilities, except for water, trash and basic cable are paid for the tenant. There is a late charge of $30 if management elects to accept rent after the third of the month, and a $20 returned check fee. No pets are allowed without written consent. Use of the premises shall be for a private residence only. No more than three persons shall occupy a one bedroom unit; no more than 5 are allowed in a two bedroom. Occupancy limits are strongly enforced. First month and security deposits are collected prior to the tenant moving in. Capital Improvements: Capital expenditures over the past two years have also been reviewed and/or discussed with the property manager. Improvements to the property over the past year and half include exterior paint (entire complex), new landscaping, new appliances and carpets in most units. Occupancy trends: In addition to the above, occupancy trends of the complex have been reviewed. Since Lincoln Property took over as managers, occupancy has been increasing. Increased occupancy has also been due to an improving rental market. The new management has also qualified tenants better which have resulted in less turnover and less evictions. There are no rental specials at this time. Other: According to management, the laundry machines are owned by the service company. Subject Asking Rents As of September 28, 1996, the following monthly rents (all unfurnished) were being charged at the subject complex: LAUREL TREE APARTMENTS 26 Studios 399sf $450 $1.13/sf $11,700 22 Studios 399sf $495 $1.24/sf $10,890 60 1Br/loft 520sf $540 $1.04/sf $32,400 24 1Br/1ba 542sf $560 $1.03/sf $13,440 24 2Br/1ba 700sf $675 $0.96/sf $16,200 1 3Br/1ba 702sf $800 $1.14/sf $ 800 ---- -------- ------- 157 $544/avg. unit $1.05/sf $85,430 HARDING PARK TOWNHOUSES 20 2Br/1ba 975sf $775 $0.79 $15,500 16 3Br/2.5ba 1,362sf $895 $0.65 $14,320 -- ------- ---- -------- ------- 36 $828/unit $0.72 $29,820 TOTAL 193 $597/unit $115,250 -------- 35 <PAGE> Note: There may be some size variances in LaurelTree complex; only a few representative units could be measured. The "market" or asking rents at Harding Park are clearly below market potential. All rents include water, trash removal and basic cable. Tenants pay their own gas and electric (Pacific Gas & Electric Company), telephone, and premium cable channels. To qualify, prospective tenants must have three times the monthly rental rate and a positive credit report and previous rental history. There is a $25 application fee (includes credit report). The application fee is non-reimbursable. The above price list was set in September 1996. Management periodically surveys other complexes in the area in order to maintain market rental levels. As can be noted on the rent roll in the Addenda, some of the subject apartment units are already at the new "market" price levels. Those units with leases expiring will be moved to the new rates. At this time, there is a difference of approximately 2+/- percent between the market and actual rents (i.e., actual rents lag about 2 percent below market). However, it appears that the "market" rents in the Harding Park project are below potential, as based on our rental survey. Rent Survey and Analysis In order to determine whether the subject rentals are at or within a market rental range, a survey of competing complexes was made. This analysis involved a comparison of amenities and facilities offered by competitive projects with those offered by the subject. The competing complexes considered most helpful in estimating the subject economic or market rental level are summarized on the following pages. 36 <PAGE> RENT COMPARABLE NUMBER 1 Name: CYPRESS CREEK Location: 162 Casentini Street, Salinas Age/Type: 9 years old/ two-story garden design - 288 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $725-750 750 $0.97-1.00 2BR/2BA = $925-950 1,000 $0.925-0.95 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, racquetball, spa, w/d hookups, laundry rooms Vacancy: 0% (some units will become available in next few weeks) Comments: Nine year old project; good tenant appeal. Located off N. Main Street. Close to shopping, schools, freeway. Deposit=$300/400. $25 per month extra with lease (either 6 or 9 months). Pet deposit of $400 (cats). Good demand over past year. Source: (408) 758-3008 [GRAPHIC OMITTED] 37 <PAGE> RENT COMPARABLE NUMBER 2 Name: FOX CREEK Location: 36 W. Alvin, Salinas Age/Type: 1986/ two-story garden design - 168 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $625 708 $0.88 2BR/1BA = $725 875 $0.83 2BR/2BA = $750 986 $0.76 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, w/d hookups in all units, laundry rooms Vacancy: 0% (some units will become available in December) Comments: Ten year old project; good tenant appeal. Located off N. Main Street. Close to shopping, schools, freeway. Deposit = $250. Pet deposit of $350 (20 lbs.). Good demand over past year. No units available. Some units may become available in December. Carport parking plus open. No specials. Month- month rentals. Source: (408)449-1800 [GRAPHIC OMITTED] 38 <PAGE> RENT COMPARABLE NUMBER 3 Name: CYPRESS LANDING Location: 552 Rico Street, Salinas Age/Type: 1989/ two-story garden design - 112 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $655-690 750+/- $0.87-0.92 2BR/1BA = N/A 2BR/2BA = $765-825 975+/- $0.78-0.84\5 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, some units have fp's (all 1/br's), laundry rooms Vacancy: 0% (some units will become available in October) Comments: Good tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit = $350/450. Good demand over past year. No units available. Some units may become available in October. Carport parking plus open. No specials. 6 and 12 month leases ($15/mo. taken off 12 mo lease). Source: (408)424-4343 [GRAPHIC OMITTED] 39 <PAGE> RENT COMPARABLE NUMBER 4 Name: NORTHPOINTE Location: 196 E. Alvin Drive, Salinas Age/Type: 1976/ two-story garden design - 138 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $568 648 $0.87-0.92 2BR/1BA = $620 735 $0.84 2BR/1BA = $669 835 $0.80 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, some units have fp's (all 1/br's), laundry rooms Vacancy: 1% (only one unit available at survey time) Comments: Avg-Avg+ tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit = $300/400. Good demand over past year. Carport parking plus open. No specials. 6 month leases. Source: (408)443-1776 [GRAPHIC OMITTED] 40 <PAGE> RENT COMPARABLE NUMBER 5 Name: THE REEF APARTMENTS Location: 333 W. Laurel Drive, Salinas Age/Type: 1960's/ garden court design - 54 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $530-545 625 $0.87 2BR/1BA = $650 800 $0.81 Studio = $450 400+/- $1.13 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: pool only Vacancy: 0% (none at time of survey; waiting list) Comments: Avg tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. No specials. Source: (408) 449-1680 [GRAPHIC OMITTED] 41 <PAGE> RENT COMPARABLE NUMBER 6 Name: SHERIDAN PARK Location: 1450 N. First Street, Salinas Age/Type: 1983+/ two-story garden design - 116 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $570 630 $0.90 2BR/1BA = $620 800 $650 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Heated pool, 2 sauna, spa, laundry rooms, security gates Vacancy: 0% (none at time of survey) Comments: Avg-Avg+ tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit = first month's rent plus key deposit. Carport parking plus open. No specials. No units available, but 10 units will be in November. Source: (408) 449-8203 [GRAPHIC OMITTED] 42 <PAGE> All rental rates quoted in the survey are month-to-month or short-term leases. None of the complexes surveyed in this report had long-term leases. All complexes are garden style two and/or three-stories of similar vintage and design as the subject. All are located in the general subject neighborhood. Typically, rents include water and trash removal. None of the complexes were offering any specials. Rental Number 1 represents Cypress Creek, located at 162 Casentini Street, nearby the subject. This is a 288-unit complex built in 1987. It is of good quality and in good condition. Amenities include tennis courts, heated pool, sauna, racquetball, spa, laundry hookups, laundry rooms and carport parking. No promotional specials or concessions. Leases are 6 and 12 month terms. Security deposits are $300 and $400 (depending on the unit size). Pets are allowed with a $400 deposit. One bedroom units are reported at 750 square feet, and rent from $725 to $750, depending on variation of location within the complex. Two bedroom/two bath units measure 1,000 square feet and rent from $925 to $950, or $0.93 to $0.95/sf Only four units are available. This is one of the newer and better quality complexes in Salinas and is similar in many respects to the subject. Like Rental Number 2 below, it is comparable to the subject, but superior. The subject does not offer the recreational amenities nor does it have the appeal as Rental #1. On a per unit basis, the subject should definitely rent lower than $725 for one bedrooms, and $925 for two bedrooms. Rental Number 2 represents the 168-unit Fox Creek Apartments, located at 136 West Alvin Drive nearby the subject in north Salinas. The overall quality and condition are good. No promotional specials or concessions. Leases are 6 and 12 month terms Security deposits are $250. Amenities consists of a pool, spa, weightroom, clubhouse, laundry rooms, and tennis courts. Some units have washer/dryer hookups. There are 76 one bedroom, 24 two bedroom/one bath, and 68 two bedroom/two bath units. One bedroom units are reported by management at 708 square feet, and rent at $625 per month, or $0.88/sf Two bedroom/ one bath units are 875 square feet, and rent at $725 per month, or $0.83/sf Two bedroom/two bath units are 986 square feet, and rent at $750 per month, or $0.76/sf Current vacancy is zero. Like Rental #1, this comparable is superior to the subject as it contains more recreational amenities and is newer. This comparable is useful in setting the upper end of the per unit rental range for the subject. It is clear that the subject one bedroom units should rent below $625, and the two bedrooms should fall below $725 per month. Rental Number 3 is the 112-unit Cypress Landing Apartments located at 552 Rico Street, nearby the subject in north Salinas. This is a newer complex built in 1989. It is of good quality and in good condition. There are 36 one bedroom and 76 two bedroom/ two bath units. One bedroom units measure approximately 750 square feet and are $640-665 per month. Two bedroom units are approximately 975 square feet, and rent from $745-795 per month. Amenities include a pool, spa, clubhouse and carport parking. Some units have fireplaces. No rental concessions or specials. The property is close to shopping, freeway access and schools. The overall appeal is good. Only one unit is currently available. As with the previous two comparables, Rental #3 is superior to the subject. 43 <PAGE> Rental Number 4 is the 138-unit Northpointe Apartments located at 196 East Alvin in North Salinas nearby the subject. This is a two-story garden complex built in 1976. The overall quality and condition are above average to good. The location directly off N. Main is close to shopping, schools and freeway access. The complex has 1, one bedroom unit currently available at $568/month, and 1, two bedroom/one bath unit at $620/month. Two bedrooms reportedly rent as high as $669 per month. One bedrooms range from 624 to 648 square feet, and two bedrooms contain 735 to 835 square feet. Rents include water and trash. Security deposits are $300 for one bedrooms and $400 for two bedrooms. Leases of six months are required. There are no specials or concessions. Pets are not allowed. Amenities include two laundry rooms, and one swimming pool. The appeal, age and level and quality of amenities are similar to the subject. The subject has an advantage of having security fencing. Overall, this comparable provides good support for the subject "market" rents (with the exception of the three bedroom units). Rental Number 5 represents The Reef Apartments, a 54-unit garden court design complex built in the 1960's. This complex is also located in north Salinas nearby the subject. It is older than the subject, and has slightly less appeal. This complex is renting one bedroom units at $530 to $545, and two bedroom units at $650 Studios are $450 per month. All rents include water and garbage. The subject offers superior appeal in that the rent includes basic cable and security gates. Given these differences, the subject should rent about $20 to $25 per month higher. Overall, Rental #5 gives good support to the subject "market" rents by bracketing at the lower end. Rental Number 6 represents Sheridan Park, located nearby the subject. This is an average quality property that features security gates. Rents are $570 for one bedrooms and $620 per month for two bedroom/one bath units. Water and trash removal are included in the rent, but basic cable is not. The overall quality and appeal are similar to the subject. According to management, there are no available units at this time. Overall, this is an excellent comparable for the subject. Other: In addition to the above primary comparables, several other complexes including many owned by Thysen in the Salinas marketplace were considered. Thysen owns another 12 complexes in Salinas (most are in North Salinas). Although not enough to "set" the market, the number of complexes controlled by Thysen has an influence on rental levels. Thysen property managers (employees of Lincoln Property) regularly refer clientele to other Thysen complexes. Still, there are more than enough competing projects to make it difficult if not possible to "control" the market. Market Rental Conclusion The six primary comparables strongly support the current subject "market" rental rates for the subject's one and two bedroom units; however, the three bedroom units (Harding Park) at only $0.65/sf are below market. Although few complexes have three bedroom units, it is clear from the two bedroom rentals that the subject three bedroom units should rent closer to $1,000 per month than the quoted $895 per month. This is in part due to their larger size, but also to enclose garages, security gates and newer condition. 44 <PAGE> Of the complexes surveyed (including those not shown in this appraisal) which consisted of about 2,000 total units, overall vacancy is running between 1-2 percent. Most had no vacancy. Some had only a few units available. A few managers stated that units should become available in November and December as seasonal workers go home. When a unit does become available, it typically takes 3 to 7 days to re-rent. However, in several cases, the unit is pre-leased (rented prior to the occupant moving out). Subject Market Rental Income (@ 100 percent Occupancy) Based on market rents, the subject would have a monthly gross rental income of $115,230 based on the current asking "market" rents. However, we believe that an additional $1,680 per month (from an increase in 3br units) should be added to better reflect market potential. Consequently, the "market" rental income is estimated at $116,910, or $1,402,920 on an annual basis. Actual Reported Income Shown below is a table outlining collected revenue for 1994, through August 31, 1996. Rental income for September 1996 is also shown. Income statements are shown in the Addenda. ================================================================================ 1994 1995 YTD ('96) Sept. 96 ================================================================================ *Gross Rents: $1,053,223 $1,142,846($518/un) *$816,682 $107,520 - -------------------------------------------------------------------------------- Laundry $ 21,189 $ 23,324 $ 19,784 N/A - -------------------------------------------------------------------------------- Other $ 65,503 $ 57,647 $ 48,545 N/A - -------------------------------------------------------------------------------- * - collected rents (not including vacancies) N/A = Not available Rental Income Estimate: Almost all of the subject's total income is derived from rents. Rental income has increased steadily over the past 1.5 years. This is due in part to new management and an improving rental market. The actual rental income for the month of September 1996 was $107,520, or $557 per unit. This amount does not include vacant/vacant pre-leased units. The market rent for the vacant units total $5,025, or $628 per unit on average. Blending this with actual rental income, results in a gross scheduled rental income of $112,545, or $583 per unit. This is 5.7 percent below market potential. We have used $112,545 or $1,350,540 annualized for stabilized gross rental income. Laundry: The laundry income is stabilized at $15,000 per year. This is consistent with other complexes of this size and with the subject's prior past years of operation. Other: Other income consists of retained deposits, late charges, nsf checks, and miscellaneous charges to tenants. The large percentage of this category relates to security deposits. Although forfeited security deposits and late charges are a source of income, it is not included in the reconstructed operating statement as part of ongoing cash flows. This is largely because this type of income was not accounted for in the computation of gross and net operating incomes for the comparable sales. By including other income for the subject but not the comparables, would be overstating value. However, other income has been considered in the overall valuation. 45 <PAGE> Total Gross Income: Total gross income is estimated at $1,365,540; rounded to $1,365,000. Vacancy and Collection Loss In estimating a stabilized vacancy factor, several factors were considered. First, vacancy has decreased over the past few years due to new management and improving market conditions. The property has been upgraded over the past year. Meanwhile, market conditions have improved due to an expanding economy. The resurgence of "Silicon Valley" 70 miles to the north, the new Soledad Correctional facility, and several thousand feet of regional shopping space has created many new jobs. The new Wal-Mart in this area will also expand the retail base, and bring in new jobs. As of the inspection date, the subject complex is running a zero vacancy. This is consistent with comparable Salinas projects. However, units are expected to become available and occupancy will not remain at 100 percent. Annual vacancy has been low, according to management (about 2-4 percent). In addition to vacancy, consideration must also be made for ongoing collection loss. In the case of the subject, collection loss has been reduced from previous years due to the stricter qualifying policies. There are no pending evictions. Consideration should still be made for collection loss. A reasonable stabilized collection loss rate is 1 to 2 percent of gross income. Assuming continued good professional management, vacancy and collection loss should run at approximately 5 percent on average. There is the strong possibility that vacancy and collection will fall below this estimate over the next 12 to 24 months; however, longer-term, consideration should be made for decreased economic activity which could result in "softer" rental conditions. Effective Gross Income The effective gross income is estimated by deducting five percent from estimated gross income, as shown below: - -------------------------------------------------------------------------------- Gross Annual Income: $ 1,365,540 Less: Allowance for Vac/Collection (5%) (68,277) ----------- EFFECTIVE GROSS INCOME $ 1,297,263 - -------------------------------------------------------------------------------- Expense Analysis In order to estimate the value of the property by the income capitalization approach, expenses must be deducted from effective gross income to arrive at a net operating income estimate. Like other types of income property, apartment property expenses are a function of services provided as well as physical and geographical characteristics of the property itself. Operating and "fixed" expenses vary from complex to complex, but generally fall between 33 to 45 percent of revenue (gross income), including replacement reserves. Expenses can be broken down into per unit per year (or month), or as a percentage of rental revenue or effective gross income. Expenses as a percentage of income change depending on 46 <PAGE> revenue levels. It can be difficult to compare apartment expenses on a line-by- line basis. No two apartment complexes are alike. Shown on the following page is a recent operating history of the subject. Expense categories are analyzed and discussed below. It should be noted that new management took over in 1995; expense records previous to 1995 are not complete and do appear to reflect current conditions. Real Estate Taxes & Direct Assessments California state law requires the reassessment of any parcel upon change of ownership. The market value of the subject property intrinsically assumes a hypothetical sale. Therefore, it is necessary to estimate real estate taxes based upon market value. In the State of California, property is enrolled at 100 percent of market value as determined by the County Assessor upon transfer of ownership or significant new construction. The maximum tax rate cannot exceed 1 percent of the enrolled value, plus general assessment bonds and fees approved by the voters. Enrolled value can be increased by a maximum of 2 percent per year, absent transfer, or new construction, based on the cost of living. Under Proposition 8, approved subsequent to Proposition 13, value can also be decreased to reflect current market conditions. The actual taxes are below what the new taxes would be based upon market value. According to the Monterey County Tax Collector Department, there are no special assessment bonds. The tax rate is 1.05 percent of assessed value. Since market value has not yet been estimated by the income capitalization approach, a technique which adds the composite tax rate reflecting the ad valorem taxes to the capitalization rate has been used. The resulting value estimate is then multiplied by the composite tax rate to obtain the amount of new taxes. This method gives only an approximation since the assessed value may not necessarily be the sale price (or market value). In addition, the value conclusion by the sales comparison approach has been used as a guide. Applying the tax rate, results in new taxes of $89,000+/- ================================================================================ SUBJECT PROPERTY OPERATING HISTORY ================================================================================ Expense Item 1994 1995 Y-T-D (8/96) - ------------ ---- ---- ------------ Payroll $107,178 $136,437 $ 86,174 Utilities $133,212 $152,013 $ 79,180 Insurance $ 60,020 $ 8,245 $ N/A Taxes & $ 50,033 $ 42,854 $ 25,880 License & Permits $ 140 $ 2,023 $ 1,884 Management Fee N/A $ 30,485 $ 28,619 Administrative $ 13,042 $ 25,465 $ 8,465 Maintenance & Repair $ 89,815 $202,979 $ 65,484 Gardening/Landscaping $ 359 $ 26,693 $ 16,000 Cable T.V $ 18,396 $ 16,830 $ 12,700 Security 423 $ 8,321 $ 6,000 -------- -------- -------- $472,618 $652,354 $330,386 ================================================================================ TOTAL Per Unit (Rd) $2,448/unit $3,380/unit $2,569/unit ================================================================================ 47 <PAGE> Note: Maintenance & repair expense in 1995 is inflated due to installation of new carpets and extra supplies. Many of the above categories are group expenses (e.g., pool supplies and maintenance is under Maintenance and Repairs). License and Permits In addition to taxes, apartment properties incur license and permit fees. These fees have been approximately $2,300 per year over the past two years. As such, the stabilized estimate is $2,300 ($ 13/unit). Payroll The manager lives in the complex and the unit rent is included in his compensation. Payroll expense was reported at $136,437 in 1995, or $707 per unit. This includes payroll taxes, state compensation insurance, unemployment taxes, wages for manager and office workers as well as maintenance personnel, and bonus. To date in 1996, this category is $86,174, or $670 per unit annualized. This expense has been stabilized at $675 per unit, or $130,000. Utilities Utility expense includes water, trash, basic cable, sewer, electrical for exterior site lighting and for other common amenities, including laundry facilities, filtering equipment for the pool, lighting for the clubhouse, etc.; tenants pay their own telephone, electric and gas, and premium channel cable. The subject units are individually metered. Trash removal service is included in the monthly rent for all units. Utility expense can be estimated on a price per unit or on a price per square foot basis. The projects with the greatest amount of amenities and larger unit sizes generally show the highest rates of utility expenses. In 1994 and 1995, utilities were reported at $133,212 and $136,437, respectively. The annualized projection for 1996 based on the first eight months is $670 per unit. We have stabilized this expense at $800 per unit, which is consistent with prior years and other apartment complexes throughout the region. Insurance Insurance expense has been stabilized at $100 per unit as based on similar complexes throughout the region. Actual insurance expense does not appear accurate (e.g., $60,020 in 1994). Management Fee (Supervisory Management) Lincoln Property Company has been managing the property over the past year and one-half. The reported fee was $30,485 for 1995. To date in 1996, the fee has been $28,619. The fee will increase with the increase in rental. Normally, management companies will charge from a low of 3 for large projects to a high of 6 percent of collected rent for smaller complexes. This expense has been stabilized at 4 percent of effective gross income. 48 <PAGE> Maintenance and Repair This category includes on-going maintenance and repairs that include the common areas, plumbing, pool, and electric. This category also includes building/pool supplies, appliance replacement and decorating supplies. In 1995, most carpets were replaced. This level of replacement does not recur on an annual basis, thus an adjustment is required in stabilizing this expense. M&R in 1994 was reported at $70,892, or $377 per unit. Normally, maintenance and repair ranges from 4 to 7 percent of effective gross income, or $400 to $600 per unit. The actual subject expense has been substantially higher due to the refurbishing of the complex over the past year. It should also be noted that this category does not include landscape/gardening and exterminating contracts or wages for maintenance personnel. Administrative This category consists of advertising and promotion, office supplies, computer expense, legal, credit check expense, and miscellaneous expense such as stationary, postage, etc. As shown in the Income & Expense Statement prepared by Lincoln Property Residential, a management fee paid to Lincoln is included under this category. In this analysis, the management fee has been separated and discussed under its own category. Administrative expense has been stabilized at $20,000. Gardening/Landscaping/Cable T.V./Security Landscaping is contracted to a private landscape company. Basic cable is included in the rent, thus it is an expense to the landlord. Security patrol and exterminating are also contracted. Total expense reported in 1995 was $51,844. The total for the first eight months of 1996 is $34,700. We have stabilized this category at $50,000. Replacement Reserves Most owners do not utilize the replacement reserve account during the analysis or operation of an apartment complex. Rather, capital improvement items are often expensed as they are incurred. However, since capital expenditures affect the investor's cash flow, an analysis of the property's value must account for these expenses in the form of appropriate reserves for replacement. Reserves for replacements are estimated at 2.5 percent of EGI, which equates to $32,000. This takes into account the current average - good condition, and recently completed capital improvements of the project. Items which are commonly associated with a reserve account include repaving of drives, replacement of underground utility pipes and electrical conduit, roof and foundation, as well as resurfacing of the pool new appliances, etc. (i.e., items that are not normally expensed year to year). Net Operating Income Total stabilized expenses and collection loss allowance amount to $3,240 per unit. This also equates to 48 percent of effective gross income. It should be noted that as a percentage of income, expenses are higher at the subject than they are for many complexes in this region. The reasons for this include: (1) basic cable service included in the rent; and (2) rents are relatively low in comparison to complexes in neighboring counties, thus as a percentage of income, expenses appear high. This will probably change somewhat as rent levels increase over the next several months. Net operating income is estimated by deducting operating and fixed expenses from effective gross income, as shown below and on the following page: 49 <PAGE> - -------------------------------------------------------------------------------- Effective Gross Income $ 1,297,263 Total Expenses (625,300) ----------- Net Operating Income Before Income Taxes & Depreciation $ 671,963 - -------------------------------------------------------------------------------- Capitalization Rate Analysis After net operating income is estimated, an appropriate capitalization method is selected. Of the various techniques, the one that is almost always used due to its simplicity is direct capitalization. This method employs the use of a single rate known as the overall rate. The overall rate reflects the relationship between the projection of annual net operating income and a sale price or an estimate of value. It is calculated by dividing the net operating income of the sale into the sale price. When the property is purchased all cash, which is rare for larger apartments, and there is no subsequent change in value or income, then the capitalization rate is also the rate of return on the total property investment. In the Sales Comparison Approach section of this report, there is a table in which we have summarized our analysis of capitalization rates for the comparable sales. These capitalization rates were based on actual or actual near-term potential gross annual income less expenses at time of sale. In each case, expenses included new real estate taxes at market value as opposed to actual taxes which are typically much lower. The capitalization rates derived from each of these sale properties are summarized below: Sale No. 1 2 3 4 5 6 7 8 - -------------------------------------------------------------------------------- Cap Rate (%): 8.54 8.6 9.1 9.34 9.6 10.15 7.9 9.69 The main factor influencing capitalization rates is the perception of risk. Those properties perceived to have higher risk, will sell at higher capitalization rates. The lower risk properties sell at lower capitalization rates. Apartment properties, because of their low vacancy, generally fall into the low risk category. Risk factors that should be taken into account in selecting an appropriate capitalization rate include the following: o Amount of available land zoned to allow future apartments o Upside (or downside) potential of cash flow o Existing or planned government restrictions on use and/or rent increases o Deferred maintenance and remaining life of site improvements o Marketability/liquidity o Availability of financing Availability of Land (potential of future competition) While there are several hundred acres of undeveloped land in the general area, most is zoned agriculture or has environmental issues such as sloughs/wetlands. This is not to say, however, that additional apartments could not be developed within a 50 mile radius. There has been very little apartment construction in the area over the past 9 years. One of the main reasons is the high 50 <PAGE> cost of land and building. So, while future construction of apartments will occur to some degree, the high cost will result in higher rents that likely will not compete with the subject. Upside Potential of Cash Flow Gross revenue projected at stabilized occupancy is based largely on the current average rate. The market rate, although close, is still higher than the actual income. And given high occupancy in almost all Salinas apartment properties, it appears certain that rents will continue to gradually increase over the next 12 to 24 months. Consequently, upside rental potential appears good at this particular time. The subject is not affected by rent control, so this would not be a limiting factor. The market rents were concluded higher than actual, thus the capitalization rate should be lower to reflect this upside. Deferred Maintenance The subject is well-maintained without any significant repairs or deferred maintenance. Better-conditioned apartments tend to sell at lower capitalization rates. Marketability/Liquidity Appropriately priced, the subject would have good marketability (see Marketing and Exposure Estimate sections). This tends to lower the overall capitalization rate since there would be good buyer demand. At 193 units, the subject is on the larger size (although the two complexes could be sold off separately). There is also the possibility of sell off the Harding Park property as individual townhomes, which has a tendency to drive down the overall capitalization rate. Availability of Financing Financing should not have a significant impact on the capitalization as capital is available for this type of property. Capitalization Rate Conclusion In conclusion, the subject capitalization rate should fall around 8.0 percent, as evidenced by the sales. Discussions with brokers, property owners and management companies indicate that apartment capitalization rates are dropping in Santa Clara County. Applying the 8.0 percent rate results in the following value: $671,963/ .080 = $8,400,000 (rounded) - -------------------------------------------------------------------------------- 51 <PAGE> INCOME APPROACH SUMMARY - -------------------------------------------------------------------------------- INCOME Gross Annual Rental Income $ 1,350,540 Laundry $ 15,000 ----------- TOTAL GROSS INCOME $ 1,365,540 Less: Vacancy & Collection Loss Allowance (5%) (68,277) ----------- ================================================================================ EFFECTIVE (COLLECTED) GROSS INCOME $ 1,297,263 ================================================================================ Stabilized Operating Expenses Per Unit (rd) - ----------------------------- ------------- Payroll $130,000 $ 675 Taxes (Prop 13) $ 89,000 $ 461 License & Permits $ 2,300 $ 12 Utilities $154,000 $ 800 Insurance $ 19,000 $ 100 Management Fee $ 52,000 (4.0%) *Administrative $ 20,000 $ 104 Maintenance + Repair $ 77,000 $ 400 Landscape/Cable T.V./Security $ 50,000 $ 259 Replacement Reserves $ 32,000 $ 166 -------- ----- * includes Advertising & Promotional ================================================================================ TOTAL OPERATING EXPENSES $625,300 $3,240(rd) (48%) ================================================================================ ================================================================================ NET OPERATING INCOME (NOI) $671,963 ================================================================================ OVERALL CAPITALIZATION RATE (Applied to NOI) .080 ---- ================================================================================ Market Value As Is $8,399,538 ROUNDED $8,400,000 ================================================================================ 52 <PAGE> Other Capitalization Procedures Other capitalization methods may be used in the appraisal of apartment properties, although their understanding and use falls far short of direct capitalization. The Discounted Cash Flow analysis (DCF) is one such method. In this procedure, the value of a property is equivalent to the present value of the annual before tax cash flows, over an assumed investment holding period, plus the sale (reversion) of the property at the end of the holding period, at a single discount rate. The advantage of this approach is that it identifies variability in annual cash flows, especially in a start-up operation. The Discounted Cash Flow Analysis requires several assumptions that impairs its reliability. For this reason, it is oftentimes considered a secondary valuation method in the appraisal of apartment appraisals. In this appraisal, the DCF procedure has not been used as it does not provide any additional insight into the valuation of this property. There are several reasons for excluding this approach. There is nothing to suggest at this time that there will be substantial changes in income patterns, although the near- term trend appears to be continued strengthening and gradual increasing of rents. Another reason is that there would be several assumptions that would have to be made. Perhaps the most compelling is that the sales were not purchased on a DCF approach. Employing a DCF for the subject would require that inferences be made about each sales as to applicable yield and going-out capitalization rates, as well as hold periods and annual expense and income increase (or decrease) projections. If the majority of these sales were purchased in this manner, then a DCF would have applicability; however, this is not the case. Income Approach Conclusion: The Income Approach concludes a value of $8,400,000. 53 <PAGE> SALES COMPARISON APPROACH - -------------------------------------------------------------------------------- The Sales Comparison or Market Data Approach involves making an analysis of the property being appraised based on sales of similar properties. To a lesser degree, this procedure may consider the asking prices of current listings. The market data approach presumes that a prospective purchaser would pay no more for a property than the amount with which he or she could buy another of equal utility. The reliability of this procedure is determined by: 1) availability of comparable sales; 2) comparability of sales in terms of date of sale, location, size, density, or other physical characteristics; and, 3) verification of the sales data. Although there are variations, apartment property sales are often analyzed using four unit-of-comparison indicators: o Price per unit o Gross Income Multiplier or Effective Gross Income Multiplier o Price per Rentable Square Foot o Price per Room Price Per Unit Method: The price per unit method is most often affected by unit size, condition, overall functional utility, and location of a property. Sales with high average unit sizes which are situated in the most desirable locations tend to command the highest price per unit. Naturally, the existing potential rent levels also affect the sale price, thus influencing the price per unit value. Each of these factors determine the amount of net operating income that can be generated per unit which is a fundamental measurement of investor return when applying the price per unit method. Price Per Room Method: Sale price per room demonstrates the same relationship as price per unit. Applying the same logic discussed above, which considers the average unit size of the subject, existing rent levels, and location relative to the comparable sales, a value per room can be estimated for the appraised property. Price Per Square Foot Method: While size is a strong influence in sale price per unit and price per room, the rent levels attained by a property per square foot are closely related to the price per square foot it may attain in the marketplace. It is generally true that all else being equal, the rent per square foot for larger units is less than the rents per square foot for small units. Thus, apartment buildings which have larger unit sizes have lower rents per square foot and therefore have lower selling prices per square foot. Gross Income Multiplier Method: The gross income multiplier (GIM) technique is oftentimes perceived as one of the most accurate market measure of value by the Direct Sales Comparison Approach. The GIM is calculated by dividing the sale price of the sale property by its gross annual income. This method tends to equalize property differences such age, size, and number of units. In general, where there is a fee simple title, apartment properties tend to sell at 5.5 to 8 times multiple on actual income. The range is tempered by a number of factors that include location, condition, quality, and upside rental potential. The more desirable properties with good track records will typically be higher on the 54 <PAGE> scale, whereas lower quality facilities in weak locations tend to fall at the lower side. Since the GIM involves gross income rather than net income, the appraiser must compare the level of expenses of the comparables with the subjects'. This technique works best when expense operating ratios are reasonably consistent. Comparison is not straightforward, for example, when the sale property has an operating expense ratio that is significantly higher than the subjects'. Consequently, when estimating a GIM, care must be taken when comparing gross incomes. A variation of the GIM technique-effective gross income multiplier (EGIM)-is calculated by dividing the sale price by the effective gross annual income instead of the gross annual income. This technique, however, often does not result in a further refinement since apartment vacancy (and collection loss) throughout the region is very low. Comparable Sales Description & Analysis A search for apartment properties was made in Salinas and surrounding areas. No sales of larger apartment complexes (over 100 units) in Salinas during 1995 and 1996 were found. The most recent larger apartment transaction in Salinas occurred in 1994; a 60 unit complex sold in 1993 and an 112-unit property transferred in late 1991. A summary of these sales is summarized on the following pages. Additional information is included in the Addenda. To obtain more recent sales data, it was necessary to expand the search into nearby cities and counties. The strongest sales activity at this time is taking place in Santa Clara County, adjacent to the north of Monterey County. A number of larger sales have also taken place in Santa Cruz County, to the west. A brief description of each sales area and how it relates to Salinas is summarized in the following paragraphs. Santa Clara County/San Jose: This is the largest county in the region with a population of over 1.4 million. It contains the City of San Jose, the third largest city in California. "Silicon Valley" originated in Santa Clara County. The county is home to over 2000 electronic firms, including industry leaders such as Intel and Hewlett Packard. Over the past 20 months, technological employment has dramatically increased resulting in the creation of several new jobs. To fill new jobs, several thousand people have moved into "Silicon Valley" thus creating a demand for housing. As a result, apartment and other housing rents have increased substantially, nearly doubling from previous lows in some cases. Investors have now caught on to increasing rental activity, and sales activity is brisk. This market has "filtered" into nearby communities, including Santa Cruz, Alameda County, and to some lesser degree, Salinas. The resurgence of the Santa Clara County market comes after six years of sluggish performance. The last major upswing was in 1982-85 when rents increased annually by 18 to 20 percent. From 1995 to 1989, rents and vacancy were steady. In late 1989, following the Loma Prieta earthquake and a decline in economic activity, vacancy levels started to increase and rents became soft with rental concessions given in some complexes. Starting in late 1994, the market started to once again turn upward. In 1995, economic conditions improved and rents increased to reflect a landlord's market. Today, vacancy is extremely low with very units available for rent. This is expected to continue for at least the next six to 12 months as little land is available for new apartment construction. 55 <PAGE> COMPARABLE MARKET DATA - APARTMENT SALES <TABLE> <CAPTION> Project Name Sale Location No. Units Sale Year Sale Price/ GIM Price Per Unit No. A.P.N. RSF-Bldg Date (COE) Built Price Sq. Ft OAR Cash-on-Cash ======================================================================================================================= <S> <C> <C> <C> <C> <C> <C> <C> <C> [1] Willow Gardens Apartments 1760 Stokes Street 186 6/14/96 1971 $13,650,000 $85.17 7.04 $73,387 San Jose, CA 160,260 8.54% 6.8% - ---------------------------------------------------------------------------------------------------------------------- 2-story apartment garden style built in 1970. Wood frame, wood exterior. Average quality and condition. 190 covered parking spaces (carports). Amenities include pool, spa, laundry, recreation room, balconies/patios, storage lockers, a/c. 6.40 acres (29.06 du/ac). First loan $10,600,000 from St. Paul Federal Bank. Document #13330744. - ---------------------------------------------------------------------------------------------------------------------- [2] Ocean Terrace 1630 Merrill Street 100 7/12/96 1972 $6,300,000 $78.04 6.5 $63,000 Santa Cruz, CA 80,724 sf 8.6% 8.1% - ---------------------------------------------------------------------------------------------------------------------- 100-unit garden style built on 2.7 acres in county area of Santa Cruz. Built in 1972, there are six buildings, a pool, exercise room, sauna, three laundry rooms, and on-site manager's office. Wood frame construction. Average quality and avg+ condition. 130 on-site parking spaces. AEK kitchens. $4,725,000 first from Home Savings of America. - ---------------------------------------------------------------------------------------------------------------------- [3] Fox Creek Village 196 West Alvin Rd., 168 9/24/94 1986 $8,350,000 $66.31 6.8 $55,650 Salinas, CA 141,856 sf 9.1% 9.87% - ---------------------------------------------------------------------------------------------------------------------- Built in 1986, Fox Creek Village consists of 76, 1/br/1ba units measuring 708 sf; 24, 2br/1ba units measuring 875 sf, and 68, 2br/1ba units 986 sq ft. The gross building area is 145,023; the net rentable has been reported at 141,858 sf. 36 units have wood-burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. There are laundry rooms with washers and dryers in the complex. Above average to good quality and condition. One covered parking space per unit. - ---------------------------------------------------------------------------------------------------------------------- [4] Kingdale Oaks 1919 Fruitdale Avenue 331 8/15/95 1970 $16,760,000 $66.22 6.01 $50,634 San Jose, CA 253,098 sf 9.34% 11.1% - ---------------------------------------------------------------------------------------------------------------------- Average quality, 1, 2, and 3-story buildings built in 1964-1970. Wood frame and stucco. Concrete slab. Average condition. 331 covered parking spaces (carport). 166 open parking. Amenities include 2 heated pools, spa, poolside grills, laundry rooms, volleyball, and recreation building. Elevator served. New first loan from St. Paul Federal Bank, and seller second. Marketing time was reported at six months. 11.76 acres (28.15 du/ac). 1, 2 and 3 bedroom units. ======================================================================================================================= 56 </TABLE> Note: The above date was obtained from sources deemed reliable. However, the accuracy of the data cannot be guaranteed by R. Saia, MAI Associates (9/96) <PAGE> COMPARABLE MARKET DATA - APARTMENT SALES <TABLE> <CAPTION> Project Name Sale Location No. Units Sale Year Sale Price/ GIM Price Per Unit No. A.P.N. RSF-Bldg Date (COE) Built Price Sq. Ft OAR Cash-on-Cash ======================================================================================================================= <S> <C> <C> <C> <C> <C> <C> <C> <C> [5] Hidden Creek Apartments 200 Button Street 146 7/14/94 1973 $7,400,000 $77.81 6.78 $50,685 Santa Cruz, CA 95,100 9.6% N/A - ---------------------------------------------------------------------------------------------------------------------- 3.8 acres (37 du/ac). 2-story, nine buildings. Garden style walk-up. Average quality and condition. 42 studios, 60 1br/1ba, 44 2br/1ba units. About half of complex is subsidized housing tenants. Financing terms n/a. Marketing time = 3 months. Amenities include pools, creek fountain and extensive landscaping. - ---------------------------------------------------------------------------------------------------------------------- [6] North Bay Apartments 41 Granview Street 115 12/15/95 1989 $8,550,000 $81.88 6.11 $74,348 Santa Cruz 104,421 10.15% 10.8% - ---------------------------------------------------------------------------------------------------------------------- Good quality, 2-story garden style complex built in 1989. Average to good location. Buyer had to pay $300,000 in repairs and $175,000 in commissions. Cap Rate is somewhat high based on other sales of similar age, size and location. Property was never exposed to open market. - ---------------------------------------------------------------------------------------------------------------------- [7] 2186-2198 Brutus Street Salinas 60 5/26/93 1988 $3,072,000 $61.46 7.83 $51,200 49,980 7.9% N/A - ---------------------------------------------------------------------------------------------------------------------- Average to good quality garden complex located in north Salinas close to shopping, schools and freeway access. There are 23, 1br units, and 37, 2br/2ba units. Average unit size is 833 square feet. No rent control. Financing terms were not available. - ---------------------------------------------------------------------------------------------------------------------- [8] Cypress Landing 552 Rico Street 112 11/1/91 1989 $5,950,000 $59.11 6.4 $53,125 Salinas, CA 100,660 9.69 - ---------------------------------------------------------------------------------------------------------------------- Newer, garden style consisting of 36 1br/1ba and 76 2br/2ba units, 2-story buildings. Good quality and condition. Amenities include clubhouse, spa, pool, weight room, tennis courts. Carport + open spaces. Average monthly rent at time of sale = $689. Average unit size = 899 square feet. All cash to seller. ======================================================================================================================= 57 </TABLE> Note: The above date was obtained from sources deemed reliable. However, the accuracy of the data cannot be guaranteed by R. Saia, MAI Associates (9/96) <PAGE> Housing prices in San Jose are higher than they are in Salinas. Good Salinas neighborhoods, such as those found in north Salinas, can be compared to the more average/middle income areas of San Jose as well as the agricultural communities of Gilroy and Morgan Hill, in southern Santa Clara County. Still, downward adjustments are required for location when comparing San Jose to Salinas. Santa Cruz: In general, rental housing in Santa Cruz is less than it is in San Jose, but higher than in Salinas. Although considered more desirable, Santa Cruz is a relatively good area to draw comparable sales for comparison to Salinas. Santa Cruz is a coastal community that relies heavily on tourism and agriculture; some technology has filtered into the area from Silicon Valley. Rents have been increasing, but not nearly at the pace of San Jose. Occupancy is also extremely high in this area. A downward location adjustment is required when comparing a Salinas property to a Santa Cruz property. Monterey: No sales over 100 units were found in Monterey. This is mainly due to the limited number of larger units in the city. Although the City of Monterey is superior to Salinas in residential desirability, nearby cities such as Seaside and Marina are overall comparable. However, no sales of larger units were found in this area as well. Adjustment Process The most common unit of comparison indicator for apartments is price per unit. As such, the subject has been adjusted to the comparable sales on this basis. A sequence for making adjustments must be followed when percentage adjustments are calculated and added together. The first adjustment is for property rights conveyed. In this case, all properties sold fee simple or leased fee (short term leases of less than one year); no leasehold sales were included. Thus, no adjustment was required. The second adjustment converts the transaction price of the comparable into its cash-equivalent or modifies it to match the financing terms projected for the subject property. No sales with financing favorable enough to significantly influence the sales price were included, no adjustment was required. The third adjustment is made for conditions of sale or other (e.g., personal property included in sale price). No REO or distressed sales were included, and no sales with furnished units were considered. Every apartment has some amount of personal property that transfers with the property; however, these items are nominal. Other adjustments considered were based on differences in market conditions, appeal, quality/density, condition, and size. No specific adjustment was made for rent control (i.e., San Jose complexes), although this is considered in the location adjustments. Shown on the following pages is a table summarizing eight apartment sales Additional information concerning each sale, including recording data and a photograph, is in the Addenda. 58 <PAGE> Apartment Sale Number 1, at $73,387 per unit, is a June 1996 sale of the Willow Gardens Apartments, an 186-unit garden style walk-up apartment located in a centrally-located middle-income neighborhood in San Jose. This is an average quality complex in average condition at time of sale. There are 162, two bedroom/two bath units, and 24, three bedroom/two bath units. The average unit size is 861 square feet. Amenities consist of a pool, spa, recreation building, and laundry rooms. The project sits on 6.40 acres, indicating a density of 29.06 units per acre. The project falls under San Jose Rent Control, which limits rental increases to eight percent with pass-through for extraordinary and capital expenses. The purchase price of $13,650,000 represents a rentable per square foot indicator of $85.17, and a per room value of $17,773. The GIM on actual rental income is 7.04. On market rents, the GIM is 6.29, indicating reasonably good upside rental potential. The Overall Capitalization Rate is 8.54 percent on actual income less actual expenses adjusted for new taxes and reserves. The cash-on-cash rate is 6.8 percent. In comparison to the subject, a downward adjustment is required for location. As noted, San Jose rent levels are higher than those found in Salinas. For example, a two bedroom/two bath unit at Willow Garden is $1,000+, or about $200-300 per unit higher than in Salinas. A downward adjustment of 25 percent as based on rental differential appears reasonable. The subject's average unit size is smaller. A 10 percent adjustment has been made. No size adjustment is required. Adjusting downward by 35 percent, results in an indicated subject per unit value of $48,000 (rounded). Apartment Sale Number 2, at $63,000 per unit, is a July 1996 sale of the Ocean Terrace Apartments, an 100-unit garden style walk-up apartment located in an unincorporated area of Santa Cruz County between the cities of Capitola and Santa Cruz. This is an average plus quality complex in above average condition at time of sale. There are 52, two bedroom/ units, and 32, one bedroom/ units. There are also 16, 3 bedroom units. The average unit size is 807 square feet. Amenities consist of a pool, sauna, exercise room, and laundry rooms. The project sits on 2.70 acres, indicating a density of 37 units per acre. The purchase price of $6,300,000 represents a rentable per square foot indicator of $78.04, and a per room value of $16,406. The GIM on actual rental income is 6.5. Market rents were about 3 percent higher than actual income during the six month marketing period. The Overall Capitalization Rate is 8.6 percent on actual income less actual expenses adjusted for new taxes and reserves. The cash-on- cash rate is 8.1 percent. In comparison to the subject, a downward adjustment is required for location. As noted, Santa Cruz rent levels are higher than those found in Salinas. For example, a two bedroom/two bath unit at Ocean Terrace is $800-850+, or about $100-250 per unit higher than in Salinas. A downward adjustment of 15 percent as based on rental differential appears reasonable. In addition, a downward adjustment of 5 percent is made for the subject's larger size. Smaller properties tend to sell at higher unit values because they appeal to a larger group of buyers. Adjusting downward by 20 percent, results in an indicated subject per unit value of $50,000 (rounded). 59 <PAGE> Apartment Sale Number 3, at $55,655 per unit, represents Fox Creek Village, an 168-unit two-story garden complex built in 1986, located nearby the subject in north Salinas. Although newer and superior than the subject, Sale 3 is one of the best comparables because of its nearby proximity. Physical characteristics are superior. Fox Creek includes a pool, tennis court, recreation building and laundry facilities. There are 76, one bedroom units; and, 92 two bedroom units. The average unit size is 844 square feet. Some of the units have fireplaces. Parking is by carport stalls and open spaces. The overall quality and condition are good. In comparison to the subject, a downward adjustment of 15 percent is required for appeal and amenities. Another adjustment of 10 percent is made for this property's lower effective age and larger average unit size. Although there are no sales in Salinas to determine whether apartment property value has increased since the September 1994 sale date, it is logical to assume that since rents are now somewhat higher that values are likely higher as well. Consequently, an upward adjustment of 5 percent is made. On balance, a negative 20 percent adjustment is required indicating a subject unit value of approximately $44,500. Apartment Sale Number 4, at $50,634 per unit, is located south of Freeway 280 near San Jose City Community College within single family and apartment neighborhood. the project is under San Jose Rent Control Ordinance. This is average quality and condition. The buildings are wood frame and stucco with flat T&G roofs built in 1964 and 1970. There are 36, studios; 264 1br/1ba units; 20, 2br/1ba units; 5, 3br/2ba; and, 6 2br/2ba units. Amenities include 2 heated pools, poolside grills, laundry rooms, recreation room, and volleyball. Elevator served. Units have either balcony or patio and are separately metered. Average condition. 1.5 parking spaces per unit (166 open spaces and 331 carport). According to selling broker Bruce Hermann with Marcus & Millichap, gross scheduled actual income at time of sale was $2,787,000, or approximately $700 per unit per month. Actual vacancy (and stabilized vacancy) was 4.38%. Factoring-in taxes at market (per Prop 13), total expenses were reported at approximately $1,100,000. Net operating income is estimated at $1,565,000. Financing consisted of a 1st from St. Paul Federal Bank of $14,850,000 (VIR) 8%, 25-yr amortization and a seller second of $556,000 @ 7%, 2 years resulting in a total annual debt service of $1,414,297. Cash flow (after debt service) is $150,703, indicating a cash-on-cash rate of 11.1% on the cash downpayment of $1,354,000. The marketing time was reported at 6 months. The sale reportedly did not involve an exchange. This sale closed in August 1995, but was negotiated several months prior. In comparison to the subject, a downward adjustment is required for location, although not nearly as great as the adjustment made for Sale 1. The subject has superior appeal, but due to the locational difference a downward adjustment of 15 percent is made. A 5 percent upward adjustment is required for market conditions, that is, rents have moved upward over the past 1.5 years. A 5 percent upward adjustment is made for size, but offsetting this is this comparable's larger average unit size. On balance, this sale should be adjusted down by 10 percent. This sale indicates a potential subject unit value of $45,500 (rounded). 60 <PAGE> Apartment Sale Number 5, at $50,685 per unit, represents a nine building, two- story, garden style complex of average quality. The project is located near Highway 1 in the City of Santa Cruz. It is in a neighborhood of predominately small bungalow single family homes built from 1930 to 1970; a new zero-lot line SFR development is located directly across. There are 42 studio units with an average size of 550 square feet; 60, 1br/1ba units @ 650 sf and, 44, 2br/1ba units of 750 sf. The rentable area is 95,100 square feet (avg. unit = 651). There are no recreational amenities except for pool and common utility rooms. Landscaping is extensive in some areas. One-half of the units are subsidized housing units. At time of sale, "market" rents were $600 for studio, $750 for 1 bedrooms, and $850 for two bedrooms. The gross and net incomes are estimates based on reported actual income per MLS listing (#369018). According to assessor's office, some buildings had deferred maintenance, however, cost to repair are not known. In comparison to the subject, a downward adjustment of 15 percent is required by this comparable's superior location. No other adjustments are made. The indicated subject unit value, therefore, is $43,000 (rounded). Apartment Sale Number 6, at $74,348 per unit, is located in west Santa Cruz off Highway 1. This is a good quality walk-up garden design built in 1989. It is the newest complex built in west Santa Cruz area. Amenities include a swimming pool and carport parking. There are no other recreational facilities, although the complex is within a short drive to beaches and three miles to Santa Cruz Beach & Boardwalk (good tenant appeal). The buyer paid $300,000 in repairs and $175,000 commission, thus actual price was somewhat higher than reported above. The property was never exposed to the open market. The higher than normal capitalization rate is reflective of this and the extra cost to the buyer of repairs and commission. There are 18, 1br/1ba units; 69, 2br/2ba units; and, 28, 2br/2.5ba units. Market rents are about 3-5% higher than actual. In comparison to the subject, downward adjustments are required for age/appeal, unit size, location and size. We estimate these to be 35 percent (15% location, 5% size, and 10% age/appeal, and 5% unit size). The indicated subject value per unit from this sale is $48,000 (rounded). Apartment Sale Number 7, at $51,200 per unit, represents an average to good quality garden style apartment complex located in north Salinas. There are 23, 1 bedroom units and 37, 2 bedroom units. The 60 unit complex is smaller than the subject, however, it is very similar in location. Adjusting this sale down by 10 percent for size, and upward by 5 percent for improved market conditions since date of sale results in an indicated subject value per unit of $48,500 (rounded). Although this is a nearby comparable, because of its smaller size and older sales date less emphasis was placed on it in the final analysis. Apartment Sale Number 8, at $53,125 per unit, represents the sale of the 112- unit Cypress Landing Apartments in north Salinas. One of the last complexes to have been built in Salinas, Cypress was completed in 1989. There are 12, two- story buildings. 61 <PAGE> Amenities include a pool, hot tub, weight room, tennis court and recreation building. All units have patios or balconies, refrigerators, R/O and dishwashers; some have fireplaces. There are 36, 1br/1ba units; and, 76 2br/2ba units measuring between 955 to 985 square feet. Carport and open parking. The average unit size is 899 square feet. Gross annual income at time of sale was $925,740, and net operating income was $573,218, indicating a cap rate of 9.69%. Normally, a 1991 sale would not be used as part of a primary sales analysis. In this case, given the scarcity of large apartment sales in Salinas, it has been used. No adjustment is required for location. Cypress is newer and has superior appeal than the subject. It is also smaller. A 20 percent downward adjustment is reasonable for these factors. On the other hand, an upward adjustment of 5 percent is made for improved market conditions since late 1991. On balance, a negative 15 percent adjustment is applied indicating a subject unit value of $45,000 (rounded). Sales Comparison Approach Summary & Conclusion The sales analyzed in the sales comparison approach range in size from 60 to 331 spaces, and in unadjusted price from $50,634 to $74,387 per unit. After adjustment, the sales indicated the following range of value: Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Sale 6 ------ ------ ------ ------ ------ ------ $48,000 $50,000 $44,500 $45,500 $43,000 $48,000 Sale 7 Sale 8 Average = $46,563 ------ ------ Median = $48,000 $48,500 $45,000 For one reason or another, the sales are not highly similar. They do, however, provide a reasonably narrow range of potential subject value. The sales consistently group around $45,000-46,000 per unit; all three sales in Salinas sold in the low to mid-$50,000 per unit range, but all three are superior. In our opinion, a unit value of $45,500 is a reasonable and supportable per unit value to apply to the subject property. 193 units x $45,500/unit $8,780,000(rd) Check for Reasonableness: Based on a market value of $8,780,000, the subject property would have the following unit of comparison indicators: Price Per Rentable SF: $ 71.88 Price Per Room: $14,417 GIM: 6.4 Price Per Rentable SF: The range of the comparables is $59.11 to $85.17. The subject falls towards the middle of this range; consequently, the above price appears reasonable by this method. 62 <PAGE> Price Per Rentable SF: The range of the comparables is $59.11 to $85.17. The subject falls towards the middle of this range; consequently, the above price appears reasonable by this method. Price Per Room: The range of the comparables is $14,157 to $19,344; most are in the $14,000 to $16,000 range. The subject is at the lower end, but is not out of line. GIM: The subject has a high expense ratio which should be considered in selecting the appropriate GIM. The range of the comparables is 6.01 to 7.83; most range from 6.01 to 6.8. At 6.4, the subject is probably at the higher end given its relatively high expense ratio as compared to the comparables. However, in this case, the upside potential is good. Consequently, the higher multiple is not unreasonable. Consequently, the subject is valued by the Sales Comparison Approach at $8,780,000. 63 <PAGE> RECONCILIATION OF THE VALUE ESTIMATES The market value of the subject property has been estimated by two of the three traditional appraisal approaches. The indications given by each are summarized as follows: ================================================================================ Income Approach $8,400,000 Sales Comparison Approach $8,780,000 ================================================================================ In order to determine our final opinion of value, the reliability and relevance of each value based upon the quality of data collected, and the applicability of the assumptions underlying each approach was considered. The cost approach was not used in this appraisal. Although it may have some relevancy, it is not a primary valuation method. The Sales Comparison Approach is a more accurate method than the cost approach, but is flawed to some degree by the limited number of comparable sales in the Salinas area. The sales that were available, however, provided consistent support. The Income Capitalization Approach is the better of the two methods, but is also flawed to some degree by the lack of recent sales in Salinas. The sales provided a strong central tendency in indicating that capitalization rates are within a fairly narrow range of 8.0 to 9.5 percent; however, market conditions are improving and capitalization rates are decreasing. Without recent empirical data in Salinas, however, it is difficult to pinpoint a specific rate for the subject property. Still, most weight has been given to the Income Approach in concluding a final value estimate. STATEMENT OF VALUE Based on the foregoing analysis, the value of the subject property, as of September 28, 1996, is estimated as follows: EIGHT MILLION FIVE HUNDRED THOUSAND DOLLARS ($8,500,000) 64 <PAGE> MARKETING PERIOD - -------------------------------------------------------------------------------- The sales marketing time is the time that it should take to market and sell the property in its "as is" condition as of the date of the appraisal. This should not be confused with exposure time which is the amount of time necessary to expose a property to the open market in order to achieve a sale. Marketing time is a forward estimate of the amount of time necessary to expose a property on the open market in order to achieve a sale from the effective date of the appraisal. Indications of the marketing times associated with the "as is" market value estimates are provided by the marketing time of sale comparables, and interviews with participants in the market. The sales marketing period is a period of time that is reasonable in light of a given property's characteristics and market conditions, based on certain assumptions. To our knowledge, there have been no sales the size of the subject in the Northern Monterey County market area over the past year. Sales from other parts of Northern California indicate that the marketing time would be less than 6 months. Apartment sales that have taken place over the past 24 months indicate that marketing times rarely exceed 6 months, and usually fall between 1 to 6 months. The length of time is not only a function of physical and locational characteristics, but the marketing and pricing. Based on the subject characteristics and assuming a list price close to the estimated market value, marketing time is estimated at 2-5 months. EXPOSURE PERIOD - -------------------------------------------------------------------------------- USPAP requires that an estimate of reasonable exposure time be made in the performance of an appraisal where the value being sought is "as-is. In the USPAP, the Comment to Standards Rule 1-2(b) states: When estimating market value, the appraiser should be specific as to the estimate of exposure time linked to the value estimate. The Comments to Standard Rules 2-2(a)(v) and 2-2(b)(v) state: Defining the value to be estimated requires both an appropriately referenced definition and any comments needed to clearly indicate to the reader how the definition is being applied [See Standards Rule 1-2(b)]. The Statement issued by the Appraisal Standards Board is as follows: 65 <PAGE> Reasonable exposure time is one of a series of conditions in most market value definitions. Exposure time is always presumed to precede the effective date of the appraisal. Exposure time may be defined as follows: The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market. Exposure time is different for various types of real estate and under various market conditions. It is noted that the overall concept of reasonable exposure encompasses not only adequate, sufficient and reasonable time but also adequate, sufficient and reasonable effort. This statement focuses on that time component. The fact that exposure time is always presumed to occur prior to the effective date of the appraisal is substantiated by related facts in the appraisal process: supply/demand conditions as of the effective date of the appraisal; the use of current cost information; the analysis of historical sales information (sold after exposure and after completion of negotiations between the seller and buyer); and the analysis of future income expectancy estimated from the effective date of the appraisal. Since there are few comparable properties to the subject that have sold in this market area, estimating exposure time is based more on discussions with knowledgeable real estate professionals. All of the sales with known marketing times took less than 6 months. The exposure time period assumes that the subject is appropriately priced and marketed. Obviously, a list price that is significantly higher than what the property is worth will result in a longer than typical marketing period. Although it could be sooner or later, our best estimate of an exposure period (based on our appraised value) is 4 months. ALLOCATION OF FURNITURE, FIXTURES AND EQUIPMENT - -------------------------------------------------------------------------------- For the most part, apartment in the subject region do not require significant furniture, fixtures or equipment as part of the ongoing operation of the property. In the case of the subject, FF&E is minimal and contributes only a nominal value to the overall property worth. Personal property items observed on the premises include pool equipment, furniture in the recreation/clubhouse, office furniture and equipment (e.g., computer/printer) carts, supplies, etc. The market value of the above is estimated at less than $15,000. Some of the personal property items such as the computer and copier (i.e., office equipment) would be removed upon sale. All of the comparables had similar amounts of personal property items that were included in the sale, thus there is no need for an adjustment. 66 <PAGE> Although not as management intensive as a hotel, apartments require management expertise that technically creates some (minor) going-concern value. In valuing the subject, any going-concern/goodwill has effectively been removed by deducting an offsite professional management fee. The net incomes estimated from each sale comparable also had offsite management fees deducted. It is assumed that the subject will continue to operate under professional management. In conclusion, the estimated market value of the subject is of the real estate only; FF&E (personal property) is nominal and any going-concern/goodwill value would have been removed in the deduction of an offsite professional management fee. ASSUMPTIONS AND LIMITING CONDITIONS - -------------------------------------------------------------------------------- The estimate of value contained herein is based upon and subject to the following assumptions and qualifying conditions, to which the addressee shall be deeded to consent by acceptance hereof: It is assumed that merchantable fee simple title, free of encumbrance, is vested in the owner of record. It is recognized that a potential purchaser would likely consider the effect of value through consideration of the maximum conventional financing available for the property type as of the date of value. It is assumed that the property is subject to lawful, competent and informed ownership and management. It is also assumed that all financial information on the business operation is correct; errors or misstatements may have a material impact on the appraised value. We reserve the right to make changes if such errors or misstatements were later discovered. It is assumed that the information supplied by the addressee as to the parcel or parcels of real estate is correct and complete, including the legal description as it appears in this report. The appraisers assume no responsibility for matters of legal nature affecting the property or the title thereto, nor does the appraisers render any opinion as to title. No attempt has been made to render an opinion of or status of easements that may exist. It is understood that exhibits included in this report are solely for the purpose of assisting the reader to visualize or understand its content and are not intended to be exact in scale or detail. It is understood that no survey has been made to render an opinion of or status of easements that may exist. It is understood that material contained herein which is stated to be or is obviously furnished by others is believed to reliable but has not been verified except as specifically stated. Such information is believed to be true and correct; however, no responsibility for accuracy can be assumed by the appraisers. 67 <PAGE> We are not required to give testimony or appear in court because of having made this appraisal, with reference to the property in question, unless arrangements have been previously; made therefor. The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization. The separate valuations of land and building must not be used in conjunction with any other appraisal and are invalid if so used. If this appraisal contains a valuation relating to a geographical portion of a large parcel or tract or real estate, the value reported for such geographical portion relates to such portion only and should not be construed as applying with equal validity to other portions of the larger parcel or tract, and the value of all geographical portion may or may not equal the value to the entire parcel or tract considered as an entity. We assume that there are no hidden or unapparent conditions of the property, subsoil or structures which would render it more or less valuable. We assume no responsibility for such conditions or for engineering which might be required to discover such factors. The appraisers assume the mechanical equipment to be in good working order unless expressed otherwise. Unless otherwise stated in this report, the existence of hazardous materials, which may not be present on the property, was not observed by the appraisers. The appraisers have no knowledge of the existence of such materials on or in the property. The appraisers, however, are not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired. All information and comments concerning the location, neighborhood, trends, construction quality and costs, loss in value from whatever cause, condition, rents, or any other data of the property appraised herein represent the estimates and opinions of the appraisers formed after an examination and study of the property. While it is believed the information, estimated and analysis given and the opinions and conclusions drawn therefrom are correct, the appraisers do not guarantee them and assumes no liability for any errors in fact in analysis or in judgment. Disclosure of the contents of this appraisal report (especially any conclusions as to value), the identity of the appraisers or the firm with which they are connected, or any reference to the Appraisal Institute, or the SRPA/MAI designations shall not be disseminated to the public through advertising media, public relations media, news media, sales media, or any 68 <PAGE> other public means of communication without the prior written consent and approval of the undersigned. The appraisers are considered the owner of the report, and delivery of same has been to addressee only for his specific intended real estate decision. Certain forms, formatting and techniques contained herein are private property and proprietary in nature. As such, they are protected under state and federal laws covering trademarks, copyrighting, etc. Copying or re-use is strictly prohibited without expressed written consent. Certain information contained herein is considered "not for public knowledge" and is provided herein "under strictest confidence." Said information shall be used only in connection with the business decision as specifically described in the function of the appraisal. No other use of any information contained herein is permitted. Said information shall not be re-used, shared, disclosed, etc., except in accordance with the certification, limiting conditions, function and purposes as contained herein. Any deviation from the above may subject the user to additional legal action for invasion of privacy. Acceptance and use of this report constitutes specific and implied consent to all condition, limitations, etc. Further, the client shall hold harmless the appraisers for any unpermitted use or action resulting from such use. On appraisals subject to satisfactory completion of repairs, alterations, or new construction, the appraisal report and value conclusions are contingent upon completion of the improvements in a timely and workmanlike manner, and as of the effective date of the appraisal. Any projections in income and expenses in this report are not predictions of the future. Instead, they are an estimate of current thinking of market participants of what future income and expenses will be. No warranty or representation is made that these projections will materialized. This appraisal was prepared for Home Savings as client to be used in lending decisions or any related business pertaining to its interest in the appraised property. If an informational copy has been provided to the owner it should not be utilized for other functions. The Americans with Disabilities Act (ADA) became effective January 26, 1992. The appraiser has not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. 69 <PAGE> CERTIFICATION OF APPRAISAL - -------------------------------------------------------------------------------- I certify that, to the best of my knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions and conclusions. 3. I have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. 4. My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. 5. The analyses, opinions and conclusions were developed, and, this report has been prepared, in conformity with Title XI of the Federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and its regulations, as well as the Code of Professional Ethics and Standards of the Professional Conduct of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation and the Appraisal Institute. 6. Robert Saia and James Barcells, SRA have made a personal inspection of the property. Mr. Saia's General Certificate from the State of California is valid and in good standing as of the appraisal date. 7. No one other than the undersigned prepared the analyses, conclusions, and opinions concerning real estate that are set forth in this appraisal report. It should be noted that James Barcells helped with the preparation of the report. 8. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 9. Members of the Appraisal Institute are required to meet certain continuing education requirements. As of the date of this report, Mr. Saia have completed the requirements of the continuing education program of the Appraisal Institute. /s/ Robert S. Saia - ---------------------------- Robert S. Saia, MAI OREA Cert #AG003191 70 <PAGE> - ADDENDA - 71 <PAGE> SUBJECT PHOTOGRAPHS [GRAPHIC OMITTED] [GRAPHIC OMITTED] <PAGE> SUBJECT PHOTOGRAPHS [GRAPHIC OMITTED] [GRAPHIC OMITTED] <PAGE> REGIONAL LOCATION MAP [GRAPHIC OMITTED] <PAGE> NEIGHBORHOOD LOCATION MAP [GRAPHIC OMITTED] <PAGE> ZONING MAP [GRAPHIC OMITTED] <PAGE> [GRAPHIC OMITTED] <PAGE> [GRAPHIC OMITTED] <PAGE> RENTAL LOCATION MAP [GRAPHIC OMITTED] <PAGE> COMPARABLE SALES LOCATION MAP [GRAPHIC OMITTED] <PAGE> COMPARABLE SALES LOCATION MAP Santa Cruz [GRAPHIC OMITTED] <PAGE> COMPARABLE SALES LOCATION MAP San Jose [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 1 Project Name: Willow Garden Apartments Location: 1750 Stokes Street, San Jose Assessor's Parcel No.: 284-24-008 Grantor: Marie Helen Pejcha Trust Grantee: Willow Gardens Ltd. Rec. Doc. #: #13330744 Sales Date: June 14, 1996 Sales Price: $13,650,000 No. of Units: 186 Condition/Quality: Average/average Site Area: 6.40 acres (29.06 du/ac) Year Built: 1971 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $73,387 Price/Room: $17,773 GIM: 7.04 Price/RSF: $85.17 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $1,165,752 - -------------------------------------------------------------------------------- OAR: 8.54% - -------------------------------------------------------------------------------- Occupancy: 99.0% (1 unit vacant @ time of sale) Financing: see comments below Comments: Average quality garden style two-story walk-up built in 1971. Average condition and appeal. There are 162, two bedroom/two bath units, and 24, three bedroom/2 bath units. Gross rentable area is 163,740 sf Zoning is R-4, high density. Located in area of apartments, condominiums and single family homes (middle income) with commercial/retail along major arterials. Centrally-located, close to shopping, schools, employment and freeway access. Financing terms consisted of $10,600,000 first, and a seller second of $1,275,000 @ 8%, 2 yrs. The buyer put down $1,775,000. The <PAGE> market income is estimated at $2,170,200 and the actual was $1,940,052 at time of sale. The market derived GIM is 6.29, and the market derived OAR is 9.06% (actual OAR = 8.54%). Under San Jose Rent Control Ordinance which limits annual rent increases to 8 percent. Source/Confirmation: various, including public records, inspection, Comps Inc., Stan Jones Marcus & Millichap. [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 2 Project Name: Ocean Terrace Location: 1630 Merrill Street, Santa Cruz Assessor's Parcel No.: 027-274-41 Grantor: Santa Cruz Central Investments Grantee: D&M Piterman Rec. Doc. #: #8760321 Sales Date: July 12, 1996 Sales Price: $6,300,000 No. of Units: 100 Condition/Quality: Average+/Average+ Site Area: 2.7 acres (37 un/ac) Year Built: 1972 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $63,000 Price/Room: $16,406 GIM: 6.5 Price/RSF: $78.04 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $543,984 - -------------------------------------------------------------------------------- OAR: 8.6% - -------------------------------------------------------------------------------- Occupancy: 100% (0 unit vacant @ time of sale) Financing: New First from Home Savings (see below) Comments: 100 unit garden style two-story walk-up built in 1972. It is located in an unincorporated area of Santa Cruz County one mile from the city limits of Santa Cruz and two miles north of Capitola Village, a seaside tourist area. The neighborhood is predominately average quality single family and apartments with scattering of mobilehome parks and small retail/shopping centers. The ocean is approximately one-half mile south. Amenities include a pool, sauna, three laundry rooms, <PAGE> on-site manager's office, and exercise room. There are six buildings on the 2.7 acre site. Construction is wood frame and wood siding and stucco. Roofs are flat tar and gravel. Parking is 130 spaces. All units feature AEK kitchens including dishwashers, refrigerators, garbage disposals and R/O's. There are 32, 1br/1ba units containing 624 sf 40, 2br/1ba units measuring 860 sf, 12 units are 2br/1.5ba @ 923 sf, and, 16 are 3br/2ba units @ 955 square feet. Market rents range from $680-695 for the 1br units to $955-$980 for the 3br units. The 2br units range from $780 to $855. Based on market rents, the monthly gross rental income is $79,950. Laundry income is $1,125 per month. The actual income for January 1996 was $77,480, or 3% below market. Based on market rental income and laundry income, gross annual income is projected (over next 12 months) at $972,900. Deducting 4 percent for vacancy and collection loss, results in EGI of $933,984. Expenses estimated by seller are approximately $390,000 (including reserves), resulting in a NOI of $543,984 and a cap rate of 8.6 percent. The Home Savings first loan has an estimated annual debt service of $416,044, yielding cash flow of $127,939 and a cash-on-cash rate of 8.1%. reportedly, the property was purchased by the seller in 1985 at $5,200,000 (unconfirmed). Source/Confirmation: Home Savings of America, South Bay Equities [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 3 Project Name: Fox Creek Village Location: 196 W. Alvin Road, Salinas Assessor's Parcel No.: 261-631-010 Grantor: Sollecito Grantee: Fox Creek Partners Rec. Doc. #: Reel 3151 pg 1419 Sales Date: September 24, 1994 Sales Price: $9,350,000 No. of Units: 168 Condition/Quality: Good/Good Site Area: 7.84 acres (21.43 du/ac) Year Built: 1986 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $55,655 Price/Room: $15,688 GIM: 6.8 Price/RSF: $66.31 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $850,850 - -------------------------------------------------------------------------------- OAR: 9.1% - -------------------------------------------------------------------------------- Occupancy: 96.5% Financing: New loan through Bank of America Comments: Well-located in north Salinas near schools and shopping. Fox Creek consists of 76, 1br/1ba units measuring 708 Sf, 24, 2br/1ba units @ 875 sf, and, 68, 2br/1ba units @ 986 sf 36 units have wood burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. Amenities include a pool, tennis court, and recreation room. Financing terms were not available, although there was a first made by Bank of America at market rate and terms. Assuming normal downpayment and market interest rate at time of sale, cash-on- <PAGE> cash is estimated at 9.87%. No rent control. Vacancy at time of sale was reported at 3.5 percent. One covered parking space plus open parking. Garden- design walk-up. Source/Confirmation: various, including public records, inspection, etc. [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 4 Project Name: Kingdale Oaks Location: 1919 Fruitdale Avenue, San Jose Assessor's Parcel No.: 282-40-022,023 Grantor: Marie Helen Pejcha Trust Grantee: Tod & Catherine Spieker Rec. Doc. #: #12983233 Sales Date: August 15, 1996 Sales Price: $16,760,000 No. of Units: 331 Condition/Quality: Average/Average Site Area: 11.76 acres (28.15/un per ac) Year Built: 1970 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: 50,634 Price/Room: $16,878 GIM: 6.01 Price/RSF: $66.22 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $1,565,000 - -------------------------------------------------------------------------------- OAR: 9.3% - -------------------------------------------------------------------------------- Occupancy: 95.62% (14 units vacant @ time of sale) Financing: See Comments Below Comments: Located south of Freeway 280 near San Jose City Community College within single family and apartment neighborhood. Close to shopping, schools and freeway access. Zoned R24 and R4 (high density residential). Under San Jose Rent Control Ordinance. Average quality, wood frame and stucco buildings (flat T&G roofs) built in 1964 and 1970. There are 36, studios; 264 1br/1ba units; 20, 2br/1ba units; 5, 3br/2ba; and, 6 2br/2ba units. Amenities include 2 heated pools, poolside grills, laundry rooms, recreation room, and volleyball. Elevator served. Units have either balcony or <PAGE> patio and are separately metered. Average condition. 1.5 parking spaces per unit (166 open spaces and 331 carport). According to selling broker Bruce Hermann with Marcus & Millichap, gross scheduled actual income at time of sale was $2,787,000. Actual vacancy (and stabilized vacancy) was 4.38%. Factoring-in taxes at market (per Prop 13), total expenses were reported at approximately $1,100,000. Net operating income is estimated at $1,565,000. Financing consisted of a 1st from St.Paul Federal Bank of $14,850,000 (VIR) 8%, 25-yr amortization and a seller second of $556,000 @ 7%, 2 years resulting in a total annual debt service of $1,414,297. Cash flow (after debt service) is $150,703, indicating a cash-on-cash rate of 11.1% on the cash downpayment of $1,354,000. The marketing time was reported at 6 months. The sale reportedly did not involve an exchange. Source/Confirmation: Marcus & Millichap (415) 494-8900 [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 5 Project Name: Hidden Creek Apartments Location: 200 Button Street, Santa Cruz Assessor's Parcel No.: 008-202-026 Grantee: Hidden Creek Rec. Doc. #: #5547479 Sales Date: July 24, 1994 Sales Price: $7,400,000 No. of Units: 146 Condition/Quality: Avg/Avg Site Area: 3.8 acres (37 du/ac) Year Built: 1973 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $50,68 Price/Room: $16,818 GIM; 6.78 Price/RSF: $77.81 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $710,400 - -------------------------------------------------------------------------------- OAR: 9.6% - -------------------------------------------------------------------------------- Occupancy: 98% (est) Financing: Not available Comments: Nine two-story buildings, garden style, complex of average quality. Located near Highway 1 in City of Santa Cruz. located in neighborhood of predominately small bungalow single family homes built from 1930 to 1970; a new zero-lot line SFR development is located directly across. There are 42 studio units with an average size of 550 square feet; 60, 1br/1ba units @ 650 sf, and, 44, 2br/1ba units of 750 sf. The rentable area is 95,100 square feet (avg unit = 651 ).There are no recreational amenities except for pool and common utility rooms. Landscaping is extensive in some areas. One-half of the units are subsidized housing units. At time of sale, "market" rents were $600 for studio, $750 for 1 bedrooms, and $850 for two bedrooms. The gross and <PAGE> net incomes are estimates based on reported actual income per MLS listing (#369018). According to assessor's office, some buildings had deferred maintenance, however, cost to repair are not known. Source/Confirmation: various, including public records, assessor, MLS [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 6 Project Name: North Bay Apartments Location: 41 Grandview Street, Santa Cruz Assessor's Parcel No.: 002-051-65 Grantor: EQR Northbay Chicago Inc. Grantee: Sequoia Equities Rec. Doc. #: #7770608 Sales Date: December 1995 Sales Price: $8,550,000 No. of Units: 115 Condition/Quality: Good/Good Site Area: 5.17 (22.2 du/ac) Year Built: 1989 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $74,348 Price/Room: $19,344 GIM: 6.11 Price/RSF: $81.88 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $867,825 - -------------------------------------------------------------------------------- OAR 10.15% - -------------------------------------------------------------------------------- Occupancy: 1000/a (no vacancy at time of sale) Financing: $2,425,000 down, $6,300,000 first (see below) Comments: Good quality walk-up garden design built in 1989. Newest complex built in west Santa Cruz area. Located off Highway 1 (Mission Street) in area of single family and apartments/condos. Above average to good location. Buyer paid $300,000 in repairs and $175,000 commission, thus actual price was somewhat higher than reported above. The property was never exposed to the open market. The higher than normal capitalization rate is reflective of this and the extra cost to the buyer of repairs and <PAGE> commission. There are 18, 1br/1ba units; 69, 2br/2ba units; and, 28, 2br/2.5 ba units. Market rents are about 3-5% higher than actual. Amenities include a swimming pool and carport parking. No other recreational facilities, although the complex is within a short drive to beaches and three miles to Santa Cruz Beach & Boardwalk. Overall good tenant appeal. Source/Confirmation: various, including public records, broker [GRAPHIC OMITTED] <PAGE> [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 7 Location: 2186-2198 Brutus Street, Salinas Assessor's Parcel No.: 253-081-015 Grantee: Tom Favazza Rec. Doc. #: #35062 Sales Date: May 26, 1993 Sales Price: $3,072,000 No. of Units: 60 Condition/Quality: Good/Good Site Area: 1.8+/- ac (33 du ac) Year Built: 1988+/- - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $51,200 Price/Room: $14,157 GIM: 7.83 Price/RSF: $61.46 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $242,445 - -------------------------------------------------------------------------------- OAR: 7.9% - -------------------------------------------------------------------------------- Occupancy: Not available Financing: Not available Comments: Average to good garden style complex located off N. Main Street in north Salinas. Close to shopping, schools, and freeway access. There are 23, 1br/1ba units, and 37 2br/2a units. Total rentable area is 49,980 sf. Average unit size is 833 sf. Market income at time of sale was estimated at $392,445. Vacancy and expenses were estimated at $150,000, resulting in an estimated NOI of $242,445 (7.9% cap rate). Source/Confirmation: public records, damar <PAGE> [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 8 Project Name: Cypress Landing Apartments Location: 552 Rico Street, Salinas Assessor's Parcel No.: 261-201-018 Grantee: William Lewis Rec. Doc. #: Reel 2692 pg: 0774 Sales Date: November 1991 Sales Price: $5,950,000 No. of Units: 112 Condition/Quality: Good/Good Site Area: 6 acres (18.7du/ac) Year Built: 1989 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $53,125 Price/Room: $14,442 GIM: 6.4 Price/RSF:. $59.11 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $573,218 - -------------------------------------------------------------------------------- OAR: 9.69% - -------------------------------------------------------------------------------- Occupancy: 2.7% (3 units vacant @ time of sale) Financing: All cash to seller Comments: Two story, garden style apartment complex of good quality and condition, built in 1989. One of the last apartment complexes to have been built in the north Salinas area. Close to shopping, schools and freeway access. 12, two-story buildings. Amenities include pool, hot tub, weight room, tennis court and recreation building. All units have patios or balconies, refrigerators, R/O and dishwashers; some have fireplaces. There are 36, 1br/1ba units; and, 76 2br/2ba units measuring between 955 to 985 square feet. Carport and open parking. No rent control. 899 sf average unit size. <PAGE> [GRAPHIC OMITTED] <PAGE> SKETCH ADDENDUM [GRAPHIC OMITTED] <PAGE> SKETCH ADDENDUM [GRAPHIC OMITTED] <PAGE> SKETCH ADDENDUM [GRAPHIC OMITTED] <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 1 5:02 Harding Park Townhouses ID F:106 Available Unit. As Of 09/27/96 <TABLE> <CAPTION> Make-ready categories are: TRASH, DAMAG, HVAC, ELECT, APPLI, PAINT, FLOOR, CLEAN. ========================================================================================================================== Type Unit Mk. Ready Vac. Unit rent Unit Notes Applicant Applied Due in Make Ready Assessment Code ==== ==== ========= ==== ========= ============== ================= ======== ======== ===================== ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> VACANT UNITS, MAKE-READY NOT COMPLETED PRE-LEASED: ================================================== C1 6 NNNNNNNNN 3 895.00 ______________ Vigil, Gary 09/11/96 10/03/96 Vacated: 09/24/96 ========================================================================================================================== Type Unit Due Out Vac. Unit rent Unit Notes Applicant Applied Due in Make Ready Assessment Code ==== ==== ========= ==== ========= ============== ================= ======== ======== ===================== ==== OCCUPIED UNITS, CURRENT Resident 0N NOTICE TO VACATE PRE-LEASED: ================================================================ B1 3 10/01/96 -4 775.00 ______________ Abella, Oiris 09/11/96 10/08/96 _____________________ ========================================================================================================================== </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 1 5:02 Harding Park Townhouses ID 3.6.1 All Units <TABLE> <CAPTION> == Unit Profile == ==== Scheduled vs Actual Rent === ==================== ==Moved= == Current Lease === Security YNAD ID. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ==== ===== ====== ===== ====== ===== ==================== ======== ======== ======== ======= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1 B1 950 775.00 0.816 775.00 0.816 Klopson, Nakelle 01/06/95 01/06/95 07/06/95 600.00 Y -- 2 B1 950 775.00 0.816 765.00 0.805 Scheinder, Kathryn 11/21/95 11/21/95 08/19/96 1000.00 Y -- 3 B1 950 775.00 0.816 700.00 0.737 Norris, Deidra 08/01/95 08/27/95 05/26/96 600.00 Y OL 4 B1 950 775.00 0.816 720.00 0.758 Alacala, Nicolas 11/15/94 11/15/94 09/30/96 500.00 Y -- 5 B1 950 775.00 0.816 720.00 0.758 Rodriguez, Daniel 06/04/94 06/04/94 10/17/96 500.00 Y -- 6 C1 1100 895.00 0.814 0.00 0.000 VACANT/PRELEASED 09/24/96 500.00 N VL 7 C1 1100 895.00 0.814 845.00 0.768 Contreras, Christin 10/29/94 09/11/96 07/10/97 500.00 Y -- 8 B1 950 775.00 0.816 775.00 0.816 Garcia, Dena 09/06/96 09/07/96 07/06/97 500.00 Y -- 9 B1 950 775.00 0.816 700.00 0.737 Schmidt, Albert 11/14/90 11/14/90 11/13/91 500.00 Y -- 10 C1 1100 895.00 0.814 890.00 0.809 Linosnero, Jovencio 11/18/95 08/07/96 06/06/97 500.00 Y -- 11 C1 1100 895.00 0.814 895.00 0.814 Trotter, Danielle 05/27/93 05/27/93 05/27/94 535.00 Y -- 12 B1 950 775.00 0.816 675.00 0.711 Taylor, Tina 08/01/94 08/01/94 08/01/95 500.00 Y -- 13 B1 950 775.00 0.816 775.00 0.816 Cariaga, David 03/26/96 03/26/96 06/25/96 500.00 Y -- 14 C1 1100 895.00 0.814 850.00 0.773 Garnese, Theresa 07/22/95 08/01/96 07/31/97 920.00 Y -- 15 C1 1100 895.00 0.814 895.00 0.814 Rico, Yolanda 06/01/96 06/01/96 05/31/97 500.00 Y -- 16 B1 950 775.00 0.816 650.00 0.684 MCCLAIN, GLENNA 09/23/95 09/09/96 07/08/97 500.00 Y -- 17 B1 950 775.00 0.816 775.00 0.816 Nolasco, Julio 05/18/96 05/18/96 05/17/97 500.00 Y -- 18 C1 1100 895.00 0.814 895.00 0.814 Bass, Patricia 06/07/96 06/07/96 06/06/97 700.00 Y -- 19 C1 1100 895.00 0.814 825.00 0.750 Wilson, Kim 06/03/93 09/13/96 05/12/97 570.00 Y -- 20 B1 950 775.00 0.816 735.00 0.774 Ceja, Hector 04/18/95 04/18/95 07/31/96 500.00 Y -- 21 B1 950 775.00 0.816 700.00 0.737 Pearson, Steven 12/03/94 06/12/95 07/14/97 500.00 Y -- 22 C1 1100 895.00 0.814 895.00 0.814 Rodriguez, Patricia 04/20/96 05/02/97 05/31/97 500.00 Y -- 23 C1 1100 895.00 0.814 895.00 0.814 Bradley, Sean 08/23/96 08/23/96 08/22/97 500.00 Y -- 24 B1 950 775.00 0.816 775.00 0.816 Villavicecio, Rey 03/12/94 03/12/94 07/31/96 500.00 Y -- 25 B1 950 775.00 0.816 775.00 0.816 Orozco, Dora 08/08/96 08/08/96 07/31/97 500.00 Y -- 26 C1 1100 895.00 0.814 895.00 0.814 Hale, Angelina 07/31/96 07/31/96 04/30/97 600.00 Y -- 27 C1 1100 895.00 0.814 870.00 0.791 Ebo, Steve 09/07/91 09/07/91 08/31/96 500.00 Y -- 28 B1 950 775.00 0.816 750.00 0.789 Serna, Alfredo 07/06/90 07/06/90 06/30/91 500.00 Y -- 29 B1 950 775.00 0.816 775.00 0.816 Chargulaf, Glen 07/25/96 08/08/96 07/14/97 1000.00 Y -- 30 C1 1100 895.00 0.814 895.00 0.814 Nickerson, Micheal 05/16/96 05/16/96 05/15/97 535.00 Y -- 31 C1 1100 895.00 0.814 865.00 0.786 Lopez, Raquel 08/29/95 09/01/95 05/31/96 500.00 Y -- 32 B1 950 775.00 0.816 675.00 0.711 Lorena, Rangel 05/14/95 05/14/95 11/13/96 500.00 Y -- 33 B1 950 775.00 0.816 745.00 0.784 Cavanaugh, Dennis 05/29/93 05/29/93 08/31/96 500.00 Y -- 34 C1 1100 895.00 0.814 895.00 0.814 Hoyt, Craig 06/21/96 06/21/96 06/12/97 500.00 Y -- 35 C1 1100 895.00 0.814 870.00 0.791 Heath, Karen 12/01/90 12/01/90 08/31/96 500.00 Y -- 36 B1 950 775.00 0.816 775.00 0.816 White, Tom 05/06/96 05/06/96 05/05/97 500.00 Y -- ====== ==== ===== ====== ===== ====== ===== ==================== ======== ======== ======== ======= ==== TOTAL: 36 36600 29820.00 0.815 27910.00 0.786 35500 SF Occupied ====== ==== ===== ====== ===== ====== ===== ==================== ======== ======== ======== ======= ==== </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 2 5:01 Harding Park Townhouses ID 3.6.1 All Units <TABLE> <CAPTION> PHYSICAL OCCUPANCY: Occupied Pct Vacant Pct Total OCCUPANCY PERCENT: Excl. Off-Line Incl. Off-Line =================== ======== ===== ====== ==== ====== =================== ============== ============== <S> <C> <C> <C> <C> <C> <C> <C> <C> Square Footage.: 35,500 97.0% 1,100 2.0% 36,600 Incl. Vac. Leased.: 100.0% 100.0% Unit Count.: 35 97.2% 1 2.8% 36 Excl. Vac. Leased.: 97.2% 97.2% EXPOSURE TO VACANCY: Number Pct MOVES/TRANSFERS: MAKE-READY STATUS.: Number Pct ========================== ====== ==== ================ ===================== ====== ====== Currently Vacant Units.: 1 2.8% Oct In.: 0 Total Vacant Units.: 1 100.0% Lees Vacant Leased.: -1 2.8% Oct Out.: 1 Ready To Rent (Y).: 0 0.0% Less Occupied Pre-Leased.: -1 2.8% Need Make-Ready (N).: 1 100.0% Plus Occupied On Notice.: 1 2.8% Off-Line Down (D).: 0 0.0% Occupied But skipped.: 0 0.0% Off-Line Admin (A).: 0 0.0% ------ ---- Net Exposure To Vacancy.: 0 0.0% RENTAL RATES: Occupied /SqFt Pct Vacant /SqFt Pct Total /SqFt Pct ================ ========= ===== ===== ====== ===== ==== ========= ===== ====== Scheduled Rent.: 28,925.00 0.815 97.0% 895.00 0.814 3.0% 29,820.00 0.815 100.0% Actual Status.: 27,910.00 0.786 93.6% 895.00 0.814 3.0% 28,805.00 0.787 96.6% Loss To Lease.: 1,015.00 0.029 3.4% STATUS OF UNIT TYPES, SUBTOTALED BY FIRST 8 CHARACTERS OF UNIT TYPE: ==================================================================================================================================== Unit Total # % Avg. Occup. Total Sch. $ Avg. $ Act. $ Rent Sched. Loss to Made Not OffLn OffLn Type Units 0cc. 0cc. SqFt SqFt SqFt /Unit /SqFt /Unit /SqFt Rent Lesse Rdy. Rdy. Adm. Down ==== ===== ==== ==== ==== ====== ===== ====== ====== ====== ===== ======== ======= ==== ==== ==== ===== B1 20 20 100% 950 19000 19000 775.00 0.816 736.75 0.776 15500.00 765.00 0 0 0 0 C1 16 15 94% 1100 16500 17600 895.00 0.814 878.33 0.798 14320.00 250.00 0 1 0 0 ==== ===== ==== ==== ==== ====== ===== ====== ====== ====== ===== ======== ======= ==== ==== ==== ===== 2 36 35 97% 1017 35500 36600 828.33 0.815 797.43 0.786 29820.00 1015.00 0 1 0 0 ==================================================================================================================================== </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 1 5:02 Laurel Tree Apartments ID F:106 Available Unit. As Of 09/27/96 <TABLE> <CAPTION> Make-ready categories are: TRASH, DAMAG, HVAC, ELECT, APPLI, PAINT, FLOOR, CLEAN. ========================================================================================================================== Type Unit Mk. Ready Vac. Unit rent Unit Notes Applicant Applied Due in Make Ready Assessment Code ==== ==== ========= ==== ========= ============== ================= ======== ======== ===================== ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> VACANT UNITS, MAKE-READY NOT COMPLETED PRE-LEASED: ================================================== A.2 155 NNNNNNNNN 2 540.00 ______________ _________________ ________ ________ Vacated: 09/25/96 AL.1 32 NNNNNNNNN 12 540.00 SILVER _________________ ________ ________ Vacated: 09/15/96 E.2 40 NNNNNNNNN 12 450.00 GREY _________________ ________ ________ Vacated: 09/15/96 ========================================================================================================================== Type Unit Due Out Vac. Unit rent Unit Notes Applicant Applied Due in Make Ready Assessment Code ==== ==== ========= ==== ========= ============== ================= ======== ======== ===================== ==== OCCUPIED UNITS, CURRENT Resident 0N NOTICE TO VACATE: ===================================================== AL.1 26 10/02/96 -5 540.00 ______________ _________________ ________ ________ _____________________ B.1 68 10/18/96 -21 675.00 ______________ _________________ ________ ________ _____________________ VACANT UNITS, MAKE-READY NOT COMPLETED PRE-LEASED: ================================================== A.1 143 NNNNNNNNN 28 560.00 ______________ Robles, Frank 08/19/96 10/01/96 Vacated: 09/04/96 A.2 71 NNNNNNNNN -4 540.00 ______________ Lerma, Alicia 08/16/96 10/08/96 Vacated: 09/18/96 E.1 111 NNNNNNNNN 32 495.00 ______________ Calkins, Chri 09/24/96 09/27/96 Vacated: 08/29/96 E.2 59 NNNNNNNNN 20 450.00 ______________ Davis, Robert 09/07/96 10/01/96 Vacated: 09/07/96 E.2 123 NNNNNNNNN 10 450.00 ______________ Trujillo, Ele 09/15/96 10/13/96 Vacated: 09/17/96 ========================================================================================================================== Type Unit Due Out Vac. Unit rent Unit Notes Applicant Applied Due in Make Ready Assessment Code ==== ==== ========= ==== ========= ============== ================= ======== ======== ===================== ==== OCCUPIED UNITS, CURRENT Resident 0N NOTICE TO VACATE PRE-LEASED: ================================================================ ==== ==== ========= ==== ========= ============== ================= ======== ======== ===================== ==== AL.l 44 10/10/96 -13 540.00 BROWN Estrada, Mary 09/27/96 10/18/96 _____________________ ========================================================================================================================== </TABLE> <PAGE> <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 20 E.1 400 495.00 1.238 495.00 1.238 Miller, Eddie 05/30/96 05/30/96 05/29/97 375.00 Y -- 21 E.1 400 495.00 1.238 495.00 1.238 Rosario, Stephanie 05/18/96 05/18/96 05/31/97 375.00 Y -- 22 E.1 400 495.00 1.238 495.00 1.238 Giles, Jerillyn 08/03/96 08/07/96 01/30/97 375.00 Y -- 23 AL.1 500 540.00 1.080 540.00 1.080 White, Walter 08/05/96 08/08/96 04/30/97 375.00 Y -- 24 AL.1 500 540.00 1.080 475.00 0.950 Sanks, Ken 07/03/95 09/10/96 06/09/97 475.00 Y -- 25 AL.1 500 540.00 1.080 540.00 1.080 Johnson, Karen 09/27/96 09/27/96 04/26/97 375.00 Y -- 26 AL.1 500 540.00 1.080 515.00 1.030 Moreno, Carmen 05/27/95 05/27/95 11/26/95 860.00 Y -- 27 E.1 400 495.00 1.238 430.00 1.075 Burela, Maria 12/01/93 09/01/95 06/30/96 410.00 Y -- 28 E.1 400 495.00 1.238 495.00 1.238 Ricca, Steven 05/01/96 05/01/96 10/30/97 375.00 Y -- 29 E.1 400 495.00 1.238 465.00 1.163 01ms, Jeffrey 08/20/94 09/01/95 05/31/96 500.00 Y -- 30 E.2 400 450.00 1.125 495.00 1.238 Farwell, Bradley 09/12/96 09/12/96 09/11/97 375.00 Y OL 31 E.2 400 450.00 1.125 495.00 1.238 Deleos, Lisa 06/01/94 09/01/95 06/30/96 375.00 Y -- 32 AL.1 500 540.00 1.080 0.00 0.000 VACANT 09/15/96 375.00 N VA 33 AL.1 500 540.00 1.080 515.00 1.030 Cortez, Gerardo 02/15/96 02/15/96 11/14/97 375.00 Y -- 34 E.2 400 450.00 1.125 495.00 1.238 Davis, Kelli 09/02/96 09/02/96 06/01/97 375.00 Y -- 35 E.2 400 450.00 1.125 495.00 1.238 Ulferts, Tamara 09/20/96 09/20/96 04/19/97 375.00 Y -- 36 E.2 400 450.00 1.125 455.00 1.138 Bledea, John 10/01/93 09/01/95 08/31/96 375.00 Y -- 37 E.2 400 450.00 1.125 495.00 1.238 Sullivan, Joseph 06/14/96 06/15/96 06/14/97 375.00 Y -- 38 E.2 400 450.00 1.125 465.00 1.163 Nolan, James 02/06/95 10/01/95 07/16/96 375.00 Y -- 39 E.2 400 450.00 1.125 450.00 1.125 Rankin, Eiko 04/17/96 04/17/96 10/16/97 525.00 Y -- 40 E.2 400 450.00 1.125 0.00 0.000 VACANT 09/15/96 750.00 N VA 41 E.2 400 450.00 1.125 495.00 1.238 Darnell, Sandra 08/16/96 08/16/96 05/31/97 675.00 Y -- 42 AL.1 500 540.00 1.080 555.00 1.110 Verhines, Ray 11/10/94 09/01/95 08/31/96 375.00 Y -- 43 AL.1 500 540.00 1.080 475.00 0.950 Cagalawan, Theodore 03/27/94 05/06/95 07/12/97 410.00 Y -- 44 AL.1 500 540.00 1.080 515.00 1.030 Chavez, Flor Patric 12/29/95 12/29/95 09/28/96 875.00 Y OL 45 E.1 400 495.00 1.238 495.00 1.238 Stevenson, Eric 09/20/96 09/20/96 09/19/97 375.00 Y -- 46 E.1 400 495.00 1.238 450.00 1.125 Garcia, Moises 09/01/95 09/01/95 05/30/96 375.00 Y -- 47 E.1 400 495.00 1.238 450.00 1.125 Esteer, Mark 09/18/95 09/18/95 06/15/96 375.00 Y -- 48 E.1 400 495.00 1.238 490.00 1.225 Arturo, Irao 10/08/90 09/01/95 04/13/97 375.00 Y -- 49 AL.1 500 540.00 1.080 540.00 1.080 Canales, Rosemary 05/30/96 05/30/96 05/31/97 375.00 Y -- 50 AL.1 500 540.00 1.080 540.00 1.080 Dearborn, Todd 05/10/96 05/10/96 05/09/97 610.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 2 5:00 Laurel Tree Apartments ID 3.6.1 All Units <TABLE> <CAPTION> == Unit Profile == ==== Scheduled vs Actual Rent === ==================== ==Moved= == Current Lease === Security YNAD ID. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ==== ===== ====== ===== ====== ===== ==================== ======== ======== ======== ======= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 51 AL.1 500 540.00 1.080 500.00 1.000 Gardner, Lula 04/21/94 04/21/94 12/31/96 410.00 Y -- 52 AL.1 500 540.00 1.080 495.00 0.990 Brown, Steve 07/01/94 10/01/95 04/09/97 375.00 Y -- 53 E.1 400 495.00 1.238 455.00 1.138 Dozier, Carl 02/02/93 08/26/96 08/25/97 375.00 Y -- 54 E.1 400 495.00 1.238 495.00 1.238 Ramirez, Alisha 09/07/96 09/07/96 05/31/97 375.00 Y -- 55 E.1 400 495.00 1.238 440.00 1.100 Cabading, Arlene 03/19/93 07/01/95 12/31/96 375.00 Y -- 56 E.1 400 495.00 1.238 495.00 1.238 Brandt, Robert 03/01/93 03/01/93 09/01/93 375.00 Y -- 57 AL.1 500 540.00 1.080 535.00 1.070 Belnas, Angelo 07/15/95 07/15/95 04/15/96 375.00 Y -- 58 E.2 400 450.00 1.125 455.00 1.138 Arias, Jerry 01/26/94 08/07/96 08/06/97 410.00 Y -- 59 E.2 400 450.00 1.125 0.00 0.000 VACANT/PRELEASED 09/07/96 100.00 N VL 5A D.1 702 800.00 1.140 800.00 1.140 Williams, Kim/ EMPL 07/27/96 07/28/96 01/31/97 0.00 Y -- 60 E.2 400 450.00 1.125 495.00 1.238 Villanueva, Maria 07/15/96 07/15/96 01/31/97 0.00 Y -- 61 E.2 400 450.00 1.125 450.00 1.125 Khalil, Linda 12/16/95 12/16/95 09/15/96 375.00 Y -- 62 E.2 400 450.00 1.125 495.00 1.238 Hoyte, Steven 03/12/96 03/12/96 03/11/97 375.00 Y -- 63 E.2 400 450.00 1.125 495.00 1.238 Mc Nabb, Dennis 01/02/92 01/02/92 06/30/92 375.00 Y -- 64 E.2 400 450.00 1.125 450.00 1.125 Sumler, Curtis 01/31/96 01/31/96 01/30/97 375.00 Y -- 65 E.2 400 450.00 1.125 440.00 1.100 Gandolfi, Donald 04/01/83 04/01/95 03/31/96 295.00 Y -- 66 B.1 720 675.00 0.938 675.00 0.938 Scholler, Rina 01/27/96 01/27/96 01/26/97 375.00 Y -- 67 A.1 550 560.00 1.018 540.00 0.982 Yu, Liu 01/01/96 01/01/96 09/30/96 410.00 Y -- 68 B.1 720 675.00 0.938 575.00 0.799 Ortiz, Jesus 04/10/95 04/10/95 10/10/95 375.00 Y -- 69 A.1 550 560.00 1.018 560.00 1.018 Hernandez, Jose 08/26/94 07/01/96 03/31/97 410.00 Y -- 70 B.1 720 675.00 0.938 675.00 0.938 Campos, Juan 02/03/95 08/17/95 05/14/96 295.00 Y -- 71 A.2 550 540.00 0.982 0.00 0.000 VACANT/PRELEASED 10/01/96 475.00 N VL 72 B.2 720 615.00 0.854 655.00 0.910 Solis, David 08/06/94 09/01/95 08/31/96 375.00 Y -- 73 A.1 550 560.00 1.018 540.00 0.982 Curtis, Karisa 12/01/95 12/01/95 09/30/96 375.00 Y -- 74 B.2 720 615.00 0.854 675.00 0.938 Buckner, Becky 07/28/95 07/28/95 12/27/96 375.00 Y -- 75 A.2 550 540.00 0.982 540.00 0.982 Becerra, Aaron 10/01/91 10/01/91 03/31/92 375.00 Y -- 76 B.2 720 615.00 0.854 675.00 0.938 Hester, Jerry 02/09/96 02/09/96 08/08/96 375.00 Y -- 77 A.2 550 540.00 0.982 540.00 0.982 Brundage, Frank 03/19/81 07/19/95 08/31/96 200.00 Y -- 78 B.2 720 615.00 0.854 640.00 0.889 Rodriquez, Aracely 08/01/95 08/01/95 07/31/96 375.00 Y -- 79 A.2 550 540.00 0.982 560.00 1.018 Pertano, Jhunne Sel 12/01/95 12/01/95 08/31/96 375.00 Y -- 80 B.2 720 615.00 0.854 610.00 0.847 Doroy, Lorna 05/20/95 03/01/96 02/28/97 375.00 Y -- 81 A.2 550 540.00 0.982 540.00 0.982 Rios, Elizabeth 06/01/94 10/01/95 09/30/96 375.00 Y -- 82 AL.1 500 540.00 1.080 525.00 1.050 Martinez, Michael 05/18/94 09/01/95 12/31/96 375.00 Y -- 83 AL.1 500 540.00 1.080 495.00 0.990 Chaney, Donald C. 02/10/94 09/01/95 06/30/96 410.00 Y -- 84 AL.1 500 540.00 1.080 540.00 1.080 Flores, Maria 05/03/96 05/04/96 02/03/97 375.00 Y -- 85 AL.1 500 540.00 1.080 540.00 1.080 Vaccarezza, Don 08/27/95 09/01/95 08/31/96 375.00 Y -- 86 AL.1 500 540.00 1.080 540.00 1.080 Ray, Timothy 09/20/96 09/20/96 09/19/97 375.00 Y -- 87 AL.1 500 540.00 1.080 520.00 1.040 Garrido, Joseph 06/03/94 10/28/95 07/27/96 375.00 Y -- 88 AL.1 500 540.00 1.080 540.00 1.080 Singh, Bimaljit 09/02/96 09/02/96 06/01/97 475.00 Y -- 89 AL.1 500 540.00 1.080 540.00 1.080 Smith, Connie 02/29/96 03/07/96 11/23/97 375.00 Y -- 90 AL.1 500 540.00 1.080 495.00 0.990 Valdez, Blanca 02/01/94 09/01/95 04/13/97 375.00 Y -- 91 AL.1 500 540.00 1.080 540.00 1.080 Daniels, Matthew 09/26/94 05/01/96 10/31/97 405.00 Y -- 92 AL.1 500 540.00 1.080 495.00 0.990 Headspeth, David 10/23/93 10/01/95 08/31/96 375.00 Y -- 93 AL.1 500 540.00 1.080 520.00 1.040 Petereon, Scott 04/29/95 07/31/96 07/30/97 375.00 Y -- 94 AL.1 500 540.00 1.080 495.00 0.990 Graham, Christopher 04/18/94 09/01/95 06/30/96 375.00 Y -- 95 AL.1 500 540.00 1.080 540.00 1.080 Barnes, Christi 05/18/96 05/31/96 02/17/97 875.00 Y -- 96 AL.1 500 540.00 1.080 500.00 1.000 Farmer, Aaron 04/12/95 04/12/95 10/10/95 375.00 Y -- 97 AL.1 500 540.00 1.080 540.00 1.080 Gaxiola, Tony 06/01/96 09/01/96 08/31/97 375.00 Y -- 98 AL.1 500 540.00 1.080 540.00 1.080 Decius, Carl R. 03/13/96 03/15/96 03/14/97 375.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 3 5:00 Laurel Tree Apartments ID 3.6.1 All Units <TABLE> <CAPTION> == Unit Profile == ==== Scheduled vs Actual Rent === ==================== ==Moved= == Current Lease === Security YNAD ID. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ==== ===== ====== ===== ====== ===== ==================== ======== ======== ======== ======= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 99 AL.1 500 540.00 1.080 540.00 1.080 Ekiss, Dennis 11/16/95 11/16/95 08/15/96 375.00 Y -- 100 AL.1 500 540.00 1.080 495.00 0.990 Jackson, Angel 08/01/89 11/01/95 10/30/96 375.00 Y -- 101 AL.1 500 540.00 1.080 540.00 1.080 Morgan, Eric C. 06/10/96 06/10/96 06/09/97 375.00 Y -- 102 AL.1 500 540.00 1.080 540.00 1.080 Porraz, Elizabeth 09/13/96 09/13/96 09/12/97 375.00 Y -- 103 AL.1 500 540.00 1.080 540.00 1.080 Gomez, Mario 03/13/96 03/15/96 03/10/97 375.00 Y -- 104 AL.1 500 540.00 1.080 565.00 1.130 Aranda, Daniel 04/15/96 04/14/96 10/13/97 410.00 Y -- 105 AL.1 500 540.00 1.080 515.00 1.030 Sanchez, Jorge 12/22/95 12/22/95 09/21/96 375.00 Y -- 106 AL.1 500 540.00 1.080 540.00 1.080 Herrera, Jesus Mart 09/06/96 09/06/96 05/31/97 375.00 Y -- 107 AL.1 500 540.00 1.080 515.00 1.030 Tanori, Fabian 01/10/96 01/10/96 01/09/97 375.00 Y -- 108 AL.1 500 540.00 1.080 540.00 1.080 Torrez, Jesse 08/06/96 08/10/96 01/20/97 375.00 Y -- 109 E.1 400 495.00 1.238 455.00 1.138 Monzalvo, Alfredo 12/05/94 09/01/95 08/31/96 375.00 Y -- 110 E.1 400 495.00 1.238 495.00 1.238 Lee, Denise 07/13/96 07/13/96 11/03/96 375.00 Y -- 111 E.1 400 495.00 1.238 0.00 0.000 VACANT/PRELEASED 08/26/96 0.00 N VL 112 E.1 400 495.00 1.238 495.00 1.238 Lucas, Ronald 09/06/96 09/06/96 06/05/97 375.00 Y -- 113 AL.1 500 540.00 1.080 540.00 1.080 Cortez, Rafael 11/16/95 11/18/95 08/17/96 375.00 Y -- 114 AL.1 500 540.00 1.080 515.00 1.030 Jin, Park Tai 02/24/96 02/24/96 02/23/97 375.00 Y -- 115 AL.1 500 540.00 1.080 540.00 1.080 Fairman, Sammy 09/05/96 09/05/96 06/04/97 375.00 Y -- 116 AL.1 500 540.00 1.080 540.00 1.080 Thompson, Chris 08/04/96 08/07/96 01/22/97 410.00 Y -- 117 AL.1 500 540.00 1.080 495.00 0.990 Hernandez, Manuel 03/13/96 03/15/96 03/14/97 375.00 Y -- 118 E.1 400 495.00 1.238 475.00 1.188 Pacheco. Priscilla 11/11/95 11/11/95 08/10/96 375.00 Y -- 119 E.1 400 495.00 1.238 430.00 1.075 Kelly, Tracy 12/29/92 12/29/92 07/13/97 400.00 Y -- 120 E.1 400 495.00 1.238 495.00 1.238 Acosta, David 03/18/96 03/18/96 03/17/97 375.00 Y -- 121 AL.1 500 540.00 1.080 515.00 1.030 Figueroa, Julio 06/09/94 06/09/94 05/29/96 410.00 Y -- 122 E.2 400 450.00 1.125 430.00 1.075 Call, Carl 07/23/91 10/01/95 06/30/96 375.00 Y -- 123 E.2 400 450.00 1.125 0.00 0.000 VACANT/PRELEASED 09/17/96 100.00 N VL 124 E.2 400 450.00 1.125 435.00 1.088 Lindsley, Tammy 06/01/95 03/01/96 02/28/97 375.00 Y -- 125 E.2 400 450.00 1.125 450.00 1.125 Ronald Anderson 02/01/95 02/01/95 07/26/96 375.00 Y -- 126 E.2 400 450.00 1.125 435.00 1.088 Li, Jin Le 06/19/95 03/01/96 02/28/97 375.00 Y -- 127 5.2 400 450.00 1.125 495.00 1.238 Edwards, Ayana 06/22/96 06/27/96 06/25/97 375.00 Y -- 128 5.2 400 450.00 1.125 495.00 1.238 Nomura, Ko 09/01/96 09/01/96 02/28/97 375.00 Y -- 129 5.2 400 450.00 1.125 495.00 1.238 Denard, Ardella 04/21/96 04/21/96 07/20/96 375.00 Y -- 130 AL.1 500 540.00 1.080 540.00 1.080 King, Tim 07/06/96 07/15/96 03/31/97 375.00 Y -- 131 AL.1 500 540.00 1.080 540.00 1.080 Cooper, Callie 09/20/96 09/21/96 06/30/97 375.00 Y -- 132 AL.1 500 540.00 1.080 540.00 1.080 Jiuenez, Alex 09/13/96 09/13/96 06/12/97 375.00 Y -- 133 AL.1 500 540.00 1.080 540.00 1.080 James, Karen 10/25/95 09/19/96 09/18/97 375.00 Y -- 134 AL.1 500 540.00 1.080 540.00 1.080 Andrade, Connie 05/17/96 05/17/96 05/16/97 375.00 Y -- 135 AL.1 500 540.00 1.080 540.00 1.080 Jasper, Valarie 06/05/96 06/07/96 06/06/97 375.00 Y -- 136 AL.1 500 540.00 1.080 540.00 1.080 Christenson, Kim 07/08/96 07/08/96 12/31/96 375.00 Y -- 137 AL.1 500 540.00 1.080 540.00 1.080 Smith, Kaysee 09/27/96 09/27/96 04/26/97 750.00 Y -- 138 AL.1 500 540.00 1.080 540.00 1.080 Dhesi, Harry Mohan 06/17/96 06/17/96 10/16/96 375.00 Y -- 139 AL.1 500 540.00 1.080 540.00 1.080 Velasquez, Sadie 08/08/96 08/08/96 04/30/97 375.00 Y -- 140 AL.1 500 540.00 1.080 515.00 1.030 Martinez, Thomas 11/01/95 11/01/95 07/31/96 410.00 Y -- 141 AL.1 500 540.00 1.080 515.00 1.030 Miglionato, Kevin 09/09/95 10/01/95 09/30/96 375.00 Y -- 142 B.1 720 675.00 0.938 605.00 0.840 Lopez, Alejandro 06/24/95 06/24/95 12/31/96 410.00 Y -- 143 A.1 550 560.00 1.018 0.00 0.000 VACANT/PRELEASED 08/30/96 100.00 N VL 144 B.1 720 675.00 0.938 675.00 0.938 Cooper, Theresa 07/03/96 07/03/96 03/31/97 375.00 Y -- 145 A.1 550 560.00 1.018 560.00 1.018 Harrigan, Parrish 04/15/96 04/20/96 04/06/97 375.00 Y -- 146 B.1 720 675.00 0.938 675.00 0.938 Carrillo, Jesse 09/20/96 09/20/96 04/30/97 375.00 Y -- 147 A.1 550 560.00 1.018 520.00 0.945 Lovelady, Tami L. 06/08/91 09/01/95 06/30/96 375.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 4 5:00 Laurel Tree Apartments ID 3.6.1 All Units <TABLE> <CAPTION> == Unit Profile == ==== Scheduled vs Actual Rent === ==================== ==Moved= == Current Lease === Security YNAD ID. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ==== ===== ====== ===== ====== ===== ==================== ======== ======== ======== ======= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 148 B.1 720 675.00 0.938 675.00 0.938 Anderson, Denise 03/13/96 03/13/96 03/12/97 375.00 Y -- 149 A.1 550 560.00 1.018 560.00 1.018 Corral, Guadalupe 07/05/96 07/05/96 04/30/97 375.00 Y -- 150 B.2 720 615.00 0.854 675.00 0.938 Parker, Dan 04/05/96 04/07/96 04/06/97 375.00 Y -- 151 A.2 550 540.00 0.982 520.00 0.945 Limosnero, Alex 02/09/93 02/09/93 12/01/93 375.00 Y -- 152 B.2 720 615.00 0.354 675.00 0.938 Jenkins, Jennifer 09/27/96 09/27/96 04/26/97 375.00 Y--- 153 A.2 550 540.00 0.982 540.00 0.982 Abundis, Bertha 09/27/95 09/27/95 09/26/96 375.00 Y -- 154 B.2 720 615.00 0.854 600.00 0.833 Mayfield, Rose M. 04/15/95 04/15/95 01/01/97 375.00 Y -- 155 A.2 550 540.00 0.982 0.00 0.000 VACANT 09/25/96 375.00 N VA 156 B.2 720 615.00 0.854 675.00 0.938 Becerril, Antonio 07/19/96 07/19/96 01/18/97 375.00 Y -- 157 A.2 550 540.00 0.982 580.00 1.055 Jennings, Martha 07/01/94 07/01/94 08/31/96 375.00 Y -- ====== ==== ===== ====== ===== ====== ===== ==================== ======== ======== ======== ======= ==== TOTAL: 157 80382 84270.00 1.048 79610.00 1.039 76632 SF Occupied ====== ==== ===== ====== ===== ====== ===== ==================== ======== ======== ======== ======= ==== </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 5 5:00 Laurel Tree Apartments ID 3.6.1 All Units <TABLE> <CAPTION> PHYSICAL OCCUPANCY: Occupied Pct Vacant Pct Total OCCUPANCY PERCENT: Excl. Off-Line Incl. Off-Line =================== ======== ===== ====== ==== ====== =================== ============== ============== <S> <C> <C> <C> <C> <C> <C> <C> <C> Square Footage.: 76,632 95.3% 3,750 4.7% 80,382 Incl. Vac. Leased.: 98.1% 98.1% Unit Count.: 149 94.9% 8 5.1% 157 Excl. Vac. Leased.: 94.9% 94.9% EXPOSURE TO VACANCY: Number Pct MOVES/TRANSFERS: MAKE-READY STATUS.: Number Pct ========================== ====== ==== ================ ===================== ====== ====== Currently Vacant Units.: 8 5.1% Oct In. 9 Total Vacant Units.: 8 100.0% Lees Vacant Leased.: -5 3.2% Oct Out.: 7 Ready To Rent (Y).: 0 0.0% Less Occupied Pre-Leased.: -2 1.3% Need Make-Ready (N).: 8 100.0% Plus Occupied On Notice.: 3 1.9% Off-Line Down (D).: 0 0.0% Occupied But skipped.: 0 0.0% Off-Line Admin (A).: 0 0.0% ----- ---- Net Exposure To Vacancy.: 4 2.5% RENTAL RATES: Occupied /SqFt Pct Vacant /SqFt Pct Total /SqFt Pct ================ ========= ===== ===== ====== ===== ==== ========= ===== ====== Scheduled Rent.: 80,245.00 1.047 95.2% 4,025.00 1.073 4.8% 84,270.00 1.048 100.0% Actual Status.: 79,610.00 1.039 94.5% 4,025.00 1.073 4.8% 83,635.00 1.040 99.2% Loss To Lease.: 635.00 0.008 0.8% STATUS OF UNIT TYPES, SUBTOTALED BY FIRST 8 CHARACTERS OF UNIT TYPE: ==================================================================================================================================== Unit Total # % Avg. Occup. Total Sch. $ Avg. $ Act. $ Rent Sched. Loss to Made Not OffLn OffLn Type Units 0cc. 0cc. SqFt SqFt SqFt /Unit /SqFt /Unit /SqFt Rent Lesse Rdy. Rdy. Adm. Down ==== ===== ==== ==== ==== ====== ===== ====== ====== ====== ===== ======== ======= ==== ==== ==== ===== A.l 8 7 88% 550 3850 4400 560.00 1.018 548.57 0.997 4480.00 80.00 0 1 0 0 A.2 16 14 88% 550 7700 8800 540.00 0.982 547.50 0.995 8640.00 -105.00 0 2 0 0 AL.1 60 59 98% 500 29500 30000 540.00 1.080 526.19 1.052 32400.00 815.00 0 1 0 0 B.l 10 10 100% 720 7200 7200 675.00 0.938 650.00 0.903 6750.00 250.00 0 0 0 0 B.2 14 14 100% 720 10080 10080 615.00 0.854 640.00 0.889 8610.00 -350.00 0 0 0 0 D.l 1 1 100% 702 702 702 800.00 1.140 800.00 1.140 800.00 0.00 0 0 0 0 E.1 22 21 95% 400 8400 8800 495.00 1.238 473.57 1.184 10890.00 450.00 0 1 0 0 E.2 26 23 88% 400 9200 10400 450.00 1.125 471.96 1.180 11700.00 -505.00 0 3 0 0 ==== ===== ==== ==== ==== ====== ===== ====== ====== ====== ===== ======== ======= ==== ==== ==== ===== 8 157 149 95% 512 76632 80382 536.75 1.048 534.30 1.039 84270.00 635.00 0 8 0 0 ==================================================================================================================================== </TABLE> <PAGE> HARDING PARK INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE - ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 75,256.90 (75,256.90) RENTAL INCOME VARIANCE (2,430.27) 2,430.27 ---------- ---------- ---------- ---------- ---------- NET CURRENT RENT 27,725.55 24,494.60 215,248.42 198,317.89 16,930.53 OTHER RENTAL INCOME SECURITY DEPOSITS 1,600.00 1,041.50 6,435.00 4,262.00 2,173.00 FORFEITED SECURITY DEPOSITS 941.70 2,372.52 2,372.52 CHARGES TO TENANTS 368.13 738.13 200.00 538.13 MISCELLANEOUS 97.50 45.00 712.50 428.50 284.00 DAMAGE (1,000.00) 1,000.00 LATE CHARGES 155.00 250.00 1,190.00 985.00 205.00 NSF FEES 20.00 130.00 120.00 10.00 CREDIT CHECK 175.00 100.00 420.00 290.00 130.00 ---------- ---------- ---------- ---------- ---------- TOTAL OTHER RENT INCOME 3,337.33 1,456.50 ll.998.15 5,285.50 6,712.65 TOTAL RENTAL INCOME 31,062.88 25,951.10 227,246.57 203,603.39 23,643.18 ---------- ---------- ---------- ---------- ---------- OTHER INCOME REFUNDED DEPOSITS (1,875.00) (1,070.00) (5.410.00) (2,605.00) (2,805.00) INTEREST INCOME 13.12 20.26 762.57 656.86 105.71 US BOND INTEREST INCOME 7,189.00 7,188.75 0.25 ---------- ---------- ---------- ---------- ---------- TOTAL OTHER INCOME (1,861.88) (1,049.74) 2,541.57 5,240.61 (2,699.04) TOTAL INCOME 29.201,00 24,901.36 229,788.14 208,844.00 20,944.14 ========== ========== ========== ========== ========== TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 140.00 468.26 468.26 REPAIRS/MAINT.PAYROLL 875.15 905.28 6,229.21 6,356.49 (127.28) MANAGERS SALARIES 689.74 343.38 3,408.77 2,442.09 966.68 OFFICE SALARIES 304.00 64.82 2,600.62 1,160.61 1,440.01 GROUNDS PAYROLL 1,608.00 (1,608.00) STATE COMP. INS.-PAYROLL 121.93 83.38 824.22 874.62 (50.40) PAYROLL-HOSPITAL INS 226.93 166.77 1,539.57 1,185.31 354.26 FICA - PAYROLL TAX 128.71 88.02 870.06 834.18 35.88 FUTA - PAYROLL TAX 13.55 9.27 91.58 99.81 (8.23) SDI TAX-PAYROLL-UNEMPL0Y 16.94 11.58 109.00 392.66 (283.66) ---------- ---------- ---------- ---------- ---------- PAYROLL EXPENSES 2,516.95 1,672.50 16,141.29 14.953,77 1,187.52 ADMINISTRATIVE EXPENSES PROMOTIONS 11.21 11.21 </TABLE> <PAGE> HARDING PARK INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE - ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> PLUMBING MAINTENANCE 155.26 504.59 783.35 1,825.35 (1,041.50) APPLIANCE REPLACEMENT 391.77 491.77 188.92 302.85 BLDG MAINT SVC/CONTRACT 47.96 402.58 (354.62) ELECTRIC MAINTENANCE 30.20 20.01 948.96 (928.95) ---------- ---------- ---------- ---------- ---------- MAINTENANCE EXPENSES 2,693.94 (1,679.49) 16,341.05 12,594.18 3,746.87 CONTROLLABLE EXPENSES 10,431.28 12,099.76 71,656.57 63,954.02 7,702.55 ---------- ---------- ---------- ---------- ---------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE (62.15) (62.15) PROPERTY TAXES 9,383.11 9,383.11 LICENSES & PERMITS 26.60 (26.60) FIXED EXPENSES 9,320.96 26.60 9,294.36 ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME (NOI) 18,769.72 12,801.60 148,810.61 144,863.38 3,947.23 ========== ========== ========== ========== ========== DEBT SERVICE INT. IN 1ST MORTGAGE 69,962.00 73,007.00 (3,045.00) INTEREST EXPENSE 96.31 (96.31) LOAN EXPENSES 2,893.62 2,451.19 442.43 ---------- ---------- ---------- ---------- ---------- DEBT SERVICE 72,855.62 75,554.50 (2,698.88) OPERATING CASE FLOW 18,769.72 12,801.60 75,954.99 69,308.88 6,646.11 ========== ========== ========== ========== ========== NON OPERATING EXPENSES REFURBISHMENT & DEFERRAL 1,681.00 5,619.96 1,681.00 17,393.95 (15,712.95) ---------- ---------- ---------- ---------- ---------- NON OPERATING EXPENSES 1,681.00 5,619.96 1,681.00 17,393.95 (15,712.95) PROFIT/LOSS 17,088.72 7,181.64 74,273.99 51,914.93 22,359.06 ========== ========== ========== ========== ========== </TABLE> <PAGE> LAUREL TREE INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE - ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 222,021.07 (222,021.07) RENTAL INCOME VARIANCE (26,802.21) 26,802.21 ---------- ---------- ---------- ---------- ---------- NET CURRENT RENT 84,603.20 71,445.70 601,433.78 541,571.01 59,862.77 OTHER RENTAL INCOME SECURITY DEPOSITS 2,800.00 4,845.00 29,960.00 33,755.00 (3,795.00) FORFEITED SECURITY DEPOSITS 1,385.13 1,431.85 9,971.60 2,831.41 7,140.19 LAUNDRY INCOME 1,013.40 994.50 8,288.25 11,058.00 (2,769.75) CHARGES TO TENANTS 855.17 780.00 4,921.81 3,335.00 1,586.81 MISCELLANEOUS 230.00 (230.00) UTILITIES 15.41 (15.41) DAMAGE 160.00 794.52 141.00 653.52 LATE CHARGES 510.00 1,055.00 5,300.00 6,177.00 (877.00) NSF FEES 98.89 40.00 518.89 365.00 153.89 CREDIT CHECK 125.00 614.05 1,866.00 3,324.05 (1.458.05) ---------- ---------- ---------- ---------- ---------- TOTAL OTHER RENT INCOME 6,947.59 9,760.40 61,621.07 61,231.87 389.20 TOTAL RENTAL INCOME 91,550.79 81,206.10 663,054.85 602,802.88 60,251.97 ---------- ---------- ---------- ---------- ---------- OTHER INCOME REFUNDED DEPOSITS (3,515.00) (4,875.00) (26,015.00) (25,377.77) (637.23) INTEREST INCOME 103.84 53.01 451.18 272.53 178.65 OTHER INCOME 5,600.00 (5,600.00) ---------- ---------- ---------- ---------- ---------- TOTAL OTHER INCOME (3,411.16) (4,821.99) (25,563.82) (19,505.24) (6,058.58) TOTAL INCOME 88,139.63 76,384.11 637,491.03 583,297.64 54,193.39 ========== ========== ========== ========== ========== TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 595.00 3,713.69 1,225.00 2,488.69 REPAIRS/MAINT.PAYROLL 3,773.55 5,266.09 27,060.76 36,263.68 (9,202.92) MANAGERS SALARIES 2,940.56 1,564.34 15,239.30 10,589.58 4,649.72 OFFICE SALARIES 1,296.02 375.35 11,087.05 6,000.58 5,086.47 GROUNDS PAYROLL 4,248.00 (4,248.00) DECORATING PAYROLL 312.00 (312.00) STATE COMP. INS.-PAYROLL 522.89 468.22 3,707.70 4,466.32 (758.62) PAYROLL-HOSPITAL INS 973.17 936.47 6,925.52 6,169.02 756.50 FICA - PAYROLL TAX 551.95 494.24 3,913.68 4,251.17 (337.49) FUTA - PAYROLL TAX 58.10 52.03 411.97 465.17 (53.20) SDI TAX-PAYROLL-UNEMPLOY 72.63 65.03 489.89 1,579.64 (1,089.75) ---------- ---------- ---------- ---------- ---------- PAYROLL EXPENSES 10,783.87 9,221.77 72,549.56 75,570.16 (3,020.60) </TABLE> <PAGE> LAUREL TREE INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE - ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> ADMINISTRATIVE EXPENSES PROMOTIONS 110.27 110.27 ADVERTISING 46.53 655.35 4,595.31 5,549.52 (953.71) SIGNS, FLAGS, BANNERS 339.20 389.20 (389.20) BROCHURES 60.83 60.83 OFFICE SUPPLIES 225.85 166.60 664.71 679.42 (14.71) FURNITURE RENTAL (3,358.23) (3,358.23) LEGAL EXPENSES 325.69 3,311.89 1,120.16 2,191.73 MISCELLANEOUS 69.90 83.00 232.00 958.66 (726.66) CREDIT CHECK EXPENSE 289.60 369.00 1,089.60 1,749.45 (659.85) AUDIT EXPENSE (3,358.23) BANK CHARGES 20.00 (44.00) 289.25 0.30 288.95 PETTY CASE REIMB 31.98 (31.98) POSTAGE 53.64 430.19 287.99 142.20 DUES & SUBSCRIPTIONS (87.34) 491.60 (578.94) LINCOLN FEE 2,949.16 2,578.80 21,907.73 12,509.80 9,397.93 EMPLOYEE TRAINING 100.00 257.76 (157.76) OUTSIDE STATIONARY MISC 770.32 1,493.74 (723.42) ---------- ---------- ---------- ---------- ---------- ADMINISTRATIVE EXPENSE 568.55 4,251.59 30,117.03 25,519.58 4,597.45 CONTRACT SERVICES SEC SUP/EXP-FIRE PROTECT 510.76 103.12 5,633.69 3,740.64 1,893.05 EXTERMINATING CONTRACT (241.50) 220.00 1,415.17 1,287.00 128.17 CABLE T.V 1,238.98 1,226.20 10,202.46 8,629.48 1,572.98 GARDENING CONTRACT 1,492.03 1,700.00 14,077.68 12,393.05 1,684.63 ---------- ---------- ---------- ---------- ---------- CONTRACT SERVICES 3,000.27 3,249.32 31,329.00 26,050.17 5,278.83 UTILITY SERVICES TELEPHONE EXPENSE 62.74 98.35 923.44 1,125.09 (201.65) TRASH REMOVAL 3,138.65 3,529.25 21,970.55 26,750.40 (4,779.85) PGE-- HOUSE 957.48 6,428.40 12,884.99 (6,456.59) GAS - HOUSE 816.31 1,635.65 8,482.03 6,414.08 2,067.95 PGE APARTMENT METERS 78.63 66.12 917.89 805.93 111.96 WATER 1,182.60 1,267.06 3,709.37 7,604.43 (3,895.06) SEWER CHARGES 3,358.23 13,432.92 13,432.92 ---------- ---------- ---------- ---------- ---------- UTILITY SERVICES 8,637.16 7,553.91 55,864.60 69,017.84 (13,153.24) MAINTENANCE EXPENSES CARPET REPAIRS/MAINT (654.50) 170.00 4,064.50 1,557.20 2,507.30 CARPET REPLACEMENT 4,601.43 9,130.61 10,427.96 33,294.02 (22,866.06) GROUNDS SUPPLY/REPLACEMENT 145.02 383.21 4,282.39 (3,899.18) POOL SUPPLY/REPLACEMENT 335.53 (6.07) 1,667.63 1,055.05 612.58 DECORATING SUPPLIES 238.80 5,007.42 5,091.40 12,171.57 (7,080.17) </TABLE> <PAGE> LAUREL TREE INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE - ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> CLEANING SUPPLIES/SERV 552.69 608.26 5,263.35 4,729.89 533.46 BLDG MAINT SUPPLIES 1,243.15 4,365.44 10,813.25 31,323.17 (20,509.92) PLUMBING MAINTENANCE 130.17 2,059.27 1,803.26 8,754.48 (6,951.22) APPLIANCE REPLACEMENT 1,133.24 2,473.78 7,821.20 12,328.97 (4,507.77) BLDG MAINT SVC/CONTRACT (213.93) 389.54 (608.34) 997.88 ELECTRIC MAINTENANCE 20.63 199.77 1.774.65 1,288.01 486.64 ---------- ---------- ---------- ---------- ---------- MAINTENANCE EXPENSES 7,796.16 23,794.55 49,499.95 110,176.41 (60,676.46) CONTROLLABLE EXPENSES 30,786.01 48,071.14 239,360.14 306,334.16 (66,974.02) ---------- ---------- ---------- ---------- ---------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE (272.78) (272.78) PROPERTY TAXES 16,496.79 16,496.79 LICENSES & PERMITS 1,884.00 1,997.40 (113.40) ---------- ---------- ---------- ---------- ---------- FIXED EXPENSES 18,108.01 1,997.40 16,110.61 NET OPERATING INCOME (NOI) 57,353.62 28,312.97 380,022.88 274,966.08 105,056.80 ========== ========== ========== ========== ========== DEBT SERVICE ---------- ---------- ---------- ---------- ---------- OPERATING CASH FLOW 57,353.62 28,312.97 380,022.88 274,966.08 105,056.80 ========== ========== ========== ========== ========== NON OPERATING EXPENSES REFURBISHMENT & DEFERRAL (1,530.13) 5,682.84 3,068.96 30,555.22 (27,486.26) ---------- ---------- ---------- ---------- ---------- NON OPERATING EXPENSES (1,530.13) 5,682.84 3,068.96 30,555.22 (27,486.26) PROFIT/LOSS 58,883.75 22,630.13 376,953.92 244,410.86 132,543.06 ========== ========== ========== ========== ========== </TABLE> <PAGE> HARDING PARK INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE - ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 24,858.23 75,256.90 315,648.85 (240,391.95) RENTAL INCOME VARIANCE 1,953.16 (2,430.27) (25,865.19) 23,434.92 ---------- ---------- ---------- ---------- ---------- NET CURRENT RENT 27,871.40 25,976.39 304,639.24 288,948.66 15,690.58 OTHER RENTAL INCOME SECURITY DEPOSITS 1,500.00 7,338.00 10,512.l0 (3,174.10) FORFEITED SECURITY DEPOSITS 500.00 500.00 CHARGES TO TENANTS 120.00 280.00 1,945.00 (1,665.00) MISCELLANEOUS 75.00 92.34 653.50 975.51 (322.01) UTILITIES 10.54 27.59 (27.59) DAMAGE 1,500.00 500.00 500.00 1,261.03 (761.03) LATE CHARGES 165.00 40.00 1,315.00 565.00 750.00 NSF FEES 10.00 130.00 102.00 28.O0 CREDIT CHECK 50.00 60.00 540.00 200.00 340.00 ---------- ---------- ---------- ---------- ---------- TOTAL OTHER RENT INCOME 3,290.00 832.88 11,256.50 15,588.23 (4,331.73) TOTAL RENTAL INCOME 31,161.40 26,809.27 315,895.74 304,536.89 11,358.85 ---------- ---------- ---------- ---------- ---------- OTHER INCOME REFUNDED DEPOSITS (500.00) (500.00) (4,665.00) (11,515.49) 6,850.49 INTEREST INCOME 108.87 16.92 851.57 188.60 662.97 US BOND INTEREST INCOME (208.94) (127.16) 14,377.50 14,377.50 ---------- ---------- ---------- ---------- ---------- TOTAL OTHER INCOME (600.07) (610.24) 10,564.07 3,050.61 7,513.46 TOTAL INCOME 30,561.33 26,199.03 326,459.81 307,587.50 18,872.31 ========== ========== ========== ========== ========== TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 802.67 890.42 890.42 REPAIRS/MAINT.PAYROLL 852.37 783.00 9,727.26 6,825.78 2,901.48 MANAGERS SALARIES 470.85 594.64 3,982.49 2,937.14 1,045.35 OFFICE SALARIES 467.40 240.00 1,907.78 1,963.50 (55.72) GROUNDS PAYROLL 1,068.00 1,608.00 7,158.00 (5,550.00) DECORATING PAYROLL 96.00 240.00 (240.00) STATE COMP. INS.-PAYROLL 175.54 268.01 1,301.39 1,882.33 (580.94) WORKERS COMP. MEDICAL 23.42 (23.42) PAYROLL-HOSPITAL INS 351.06 204.85 2,038.84 880.85 1,157.99 FICA - PAYROLL TAX 185.28 140.28 1,284.66 1,463.05 (178.39) FUTA - PAYROLL TAX 19.51 23.47 147.24 128.07 19.17 SDI TAX-PAYROLL-UNEMPLOY 29.89 3.54 457.44 696.56 (239.12) ---------- ---------- ---------- ---------- ---------- PAYROLL EXPENSES 3,354.57 3,421.79 23.345.52 24,198.70 (853.18) </TABLE> <PAGE> HARDING PARK INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE - ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> ADMINISTRATIVE EXPENSES ADVERTISING 148.96 378.29 2,374.79 1,616.04 758.75 SIGNS, FLAGS, BANNERS 91.29 91.29 OFFICE SUPPLIES 3.12 118.80 337.65 465.59 (127.94) COMPUTER EXPENSES 4.80 4.80 LEGAL EXPENSES 25.00 1,303.77 18.33 1,285.44 MISCELLANEOUS 11.40 23.16 302.81 71.02 231.79 CREDIT CHECK EXPENSE 8.00 27.50 46.55 260.29 (213.74) BANK CHARGES 4.00 36.00 36.00 PETTY CASH REIMB 8.00 202.99 (194.99) POSTAGE 48.06 101.39 101.39 DUES & SUBSCRIPTIONS 22.10 22.10 LINCOLN FEE 1,018.09 8,264.33 8,264.33 NSF CHECK 9.33 9.33 (9.33) EMPLOYEE TRAINING 19.00 154.76 154.76 OUTSIDE STATIONARY MISC 377.83 377.83 ---------- ---------- ---------- ---------- ---------- ADMINISTRATIVE EXPENSE 1,260.63 582.08 13,426.07 2,643.59 10,782.48 CONTRACT SERVICES SEC SUP/EXP-FIRE PROTECT (290.82) 2,110.77 64.58 2,O46.19 EXTERMINATING CONTRACT 2,117.50 2,117.50 CABLE T.V 580.94 611.84 3,243.66 3,679.32 (435.66) GARDENING CONTRACT 350.00 6,684.60 6,684.60 ---------- ---------- ---------- ---------- ---------- CONTRACT SERVICES 640.12 611.84 14,156,53 3,743.90 10,412.63 UTILITY SERVICES TELEPHONE EXPENSE 39.50 19.01 492.92 271.32 221.60 TRASH REMOVAL 1,175.85 1,491.40 15,148.37 16,599.55 (1,451.18) PGE - HOUSE 149.57 432.04 3,197.00 2,057.45 1,139.55 GAS - HOUSE 650.29 650.29 PGE APARTMENT METERS 73.46 62.18 703.71 104.46 599.25 WATER 60.89 112.75 2,369.49 2,286.12 83.37 SEWER CHARGES (12.30) 4,752.64 4,620.24 132.40 ---------- ---------- ---------- ---------- ---------- UTILITY SERVICES 1,486.97 2,117.38 27.314,42 25,939.14 1,375.28 MAINTENANCE EXPENSES CARPET REPAIRS/MAINT 65.00 55.00 385.00 1,321.95 (936.95) CARPET REPLACEMENT 214.50 16,114.09 3,298.36 12,815.73 GROUNDS SUPPLY/REPLACEMENT 31.80 466.84 (435.04) EQUIPMENT RENTAL 47.61 (47.61) POOL SUPPLY/REPLACEMENT 720.54 221.36 499.18 DECORATING SUPPLIES 196.57 4,073.73 495.38 3,578.35 CLEANING SUPPLIES/SERV 5.93 200.00 1,522.96 1,380.00 142.96 </TABLE> <PAGE> HARDING PARK INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE - ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> EXTERMINATING SUPPLIES 165.00 190.00 650.00 (460.00) BLDG MAINT SUPPLIES 816.72 1,773.63 10,838.44 11,154.26 (315.82) PLUMBING MAINTENANCE (78.74) 2,598.43 127.84 2,470.59 APPLIANCE REPLACEMENT 3,927.15 1,930.67 1,996.48 BLDG MAINT SVC/CONTRACT 22.72 (30,604.29) 603.42 1,764.67 (1,161.25) ELECTRIC MAINTENANCE 92.28 1,059.94 1,059.94 MISC. MAINT. EXPENSES 2.66 42.96 (40.30) ---------- ---------- ---------- ---------- ---------- MAINTENANCE EXPENSES 923.91 (27,999.59) 42,068.16 22,901.90 19,166.26 CONTROLLABLE EXPENSES 7,666.20 (21,266.50) 120,310.70 79,427.23 40,883.47 ---------- ---------- ---------- ---------- ---------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE 789.51 11,493.20 1,579.02 11,493.20 (9,914.18) PROPERTY TAXES 9,043.84 9,383.11 17,613.26 (8,230.15) LICENSES & PERMITS 26.60 28.00 (1.40) ---------- ---------- ---------- ---------- ---------- FIXED EXPENSES 789.51 20,537.04 10,988.73 29,134.46 (18,145.73) NET OPERATING INCOME (NOI) 22,105.62 26,928.49 195,160.38 199,025.81 (3,865.43) ========== ========== ========== ========== ========== DEBT SERVICE INT. IN 1ST MORTGAGE 146,013.65 154,659.00 (8,645.35) INTEREST EXPENSE 96.31 96.31 LOAN EXPENSES 2,451.19 8,132.91 (5,681.72) ---------- ---------- ---------- ---------- ---------- DEBT SERVICE 148,561.15 162,791.91 (14,230.76) OPERATING CASH FLOW 22,105.62 26,928.49 46,599.23 36,233.90 10,365.33 ========== ========== ========== ========== ========== NON OPERATING EXPENSES DEPRECIATION EXPENSE 78,078.00 78,047.00 78,078.00 78,047.00 31.00 DEFERRED INT. AMORTIZ 2,194.92 2,948.11 2,194.92 2,948.11 (753.19) REFURBISHMENT & DEFERRAL (213.56) 43,641.00 17,785.92 43,641.00 (25,855.08) NON OPERATING EXPENSES 80,059.36 124,636.11 98,058.84 124,636.11 (26,577.27) ---------- ---------- ---------- ---------- ---------- PROFIT/LOSS (57,953.74) (97,707.62) (51,459.61) (88,402.21) 36,942.60 ========== ========== ========== ========== ========== </TABLE> <PAGE> LAUREL TREE INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE - ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 73,974.83 222,021.07 888,199.94 (666,178.97) RENTAL INCOME VARIANCE (3,794.74) (26,802.21) (123,925.78) 97,123.57 ---------- ---------- ---------- ---------- ---------- NET CURRENT RENT 74,281.68 70,180.09 838,207.30 764,274.16 73,933.14 OTHER RENTAL INCOME SECURITY DEPOSITS 5,550.00 750.00 46,120.00 55,757.34 (9,637.34) FORFEITED SECURITY DEPOSITS 674.84 5,501.32 5,501.32 LAUNDRY INCOME 799.50 14,613.30 15,534.71 (921.41) CHARGES TO TENANTS 865.00 330.00 5,095.36 9,055.93 (2,960.57) MISCELLANEOUS 145.17 230.00 389.41 (159.41) SOFT DRINK INCOME 4.04 (4.04) UTILITIES 27.84 15.41 110.89 (95.48) DAMAGE 70.00 141.19 211.00 1,454.20 (1,243.20) LATE CHARGES 1,110.00 337.84 9,252.00 3,012.84 6,239.16 NSF FEES 40.00 50.00 1,015.00 341.00 674.00 CREDIT CHECK 275.00 220.00 4,374.05 2,180.00 2,194.05 ---------- ---------- ---------- ---------- ---------- TOTAL OTHER RENT INCOME 9,384.34 2,002.03 86,427.44 86,840.36 (412.92) TOTAL RENTAL INCOME 83,666.02 72,182.12 924,634.74 851,114.52 73,520.22 ---------- ---------- ---------- ---------- ---------- OTHER INCOME REFUNDED DEPOSITS (6,265.00) (2,195.00) (42,905.34) (51,329.48) 8,424.14 INTEREST INCOME 136.51 562.01 562.01 OTHER INCOME 5,600.00 5,600.00 ---------- ---------- ---------- ---------- ---------- TOTAL OTHER INCOME (6,128.49) (2,195.00) (36,743.33) (51,329.48) 14,586.15 TOTAL INCOME 77,537.53 69,987.12 887,891.41 799,785.04 88,106.37 ========== ========== ========== ========== ========== TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 22.98 1,550.00 4,580.14 1,550.00 3,030.14 REPAIRS/MAINT.PAYROLL 3,583.07 5,070.00 51,559.50 26,504.01 25,055.49 MANAGERS SALARIES 2,145.01 1,805.36 17,607.09 11,022.86 6,584.23 OFFICE SALARIES 1,992.63 960.00 9,620.79 7,695.50 1,925.29 GROUNDS PAYROLL 1,572.00 4,248.00 17,205.12 (12,957.12) DECORATING PAYROLL 240.00 312.00 782.37 (470.37) STATE COMP. INS. -PAYROLL 499.76 1,078.68 6,365.56 6,453.30 (87.74) WORKERS COMP. MEDICAL 93.68 (93.68) PAYROLL-HOSPITAL INS 1,030.54 819.40 9,998.51 3,828.60 6,169.91 FICA - PAYROLL TAX 527.52 686.01 6,255.92 4,954.14 1,301.78 FUTA - PAYROLL TAX 55.53 197.97 676.19 547.07 129.12 SDI TAX-PAYROLL-UNEMPLOY 94.50 29.88 1,868.51 2,342.75 (474.24) </TABLE> <PAGE> LAUREL TREE INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE - ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> ---------- ---------- ---------- ---------- ---------- PAYROLL EXPENSES 9,951.54 14,009.30 113,092.21 82,979.40 30,112.81 ADMINISTRATIVE EXPENSES PROMOTIONS 42.33 42.33 ADVERTISING 358.29 2,013.12 8,663.22 6,385.45 2,277.77 SIGNS, FLAGS, BANNERS 389.20 389.20 OFFICE SUPPLIES 13.32 475.16 1,401.95 2,481.52 (1,079.57) COMPUTER EXPENSES 41.29 41.29 LEGAL EXPENSES (105.00) 3,159.14 (41.00) 3,200.14 MISCELLANEOUS 48.60 92.61 1,055.20 284.00 771.20 CREDIT CHECK EXPENSE 97.60 43.00 2,489.05 914.16 1,574.89 BANK CHARGES 24.00 (0.30) 84.90 (0.30) 85.20 PETTY CASH REIMB 31.98 374.40 (342.42) POSTAGE 210.89 479.25 479.25 DUES & SUBSCRIPTIONS (105.65) (105.65) LINCOLN FEE 2,645.40 23,242.51 23,242.51 NSF CHECK (115.00) EMPLOYEE TRAINING 81.00 762.76 762.76 OUTSIDE STATIONARY MISC 1,807.78 1,807.78 ---------- ---------- ---------- ---------- ---------- ADMINISTRATIVE EXPENSE 3,479.10 2,403.59 43,544.91 10,398.23 33,146.68 CONTRACT SERVICES SEC SUP/EXP-FIRE PROTECT 86.45 6,211.22 359.85 5,851.37 EXTERMINATING CONTRACT 21.50 2,058.50 2,058.50 CABLE T.V 2,477.96 2,447.36 13,587.94 14,717.22 (1,129.26) GARDENING CONTRACT 2,002.54 20,009.63 20,009.63 DECORATING CONTRACT 300.00 (300.00) ---------- ---------- ---------- ---------- ---------- CONTRACT SERVICES 4,588.45 2,447.36 41,867.29 15,377.07 26,490.22 UTILITY SERVICES TELEPHONE EXPENSE 272.17 75.96 2,023.39 1,100.68 922.71 TRASH REMOVAL 3,138.65 3,980.45 40,522.03 44,943.15 (4,421.12) PGE - HOUSE 1,002.42 2,709.68 17,884.95 25,254.48 (7,369.53) GAS - HOUSE 1,120.41 13,669.18 13,669.18 PGE APARTMENT METERS 206.34 148.33 1,654.76 1,255.27 399.49 WATER 1,384.62 15,689.12 14,570.21 1,118.91 SEWER CHARGES 24,325.94 20,149.38 4,176.56 ---------- ---------- ---------- ---------- ---------- UTILITY SERVICES 5,739.99 8,299.04 115,769.37 107,273.17 8,496.20 MAINTENANCE EXPENSES CARPET REPAIRS/MAINT 420.00 145.00 3,214.70 5,710.59 (2,495.89) CARPET REPLACEMENT 2,233.53 857.98 54,669.98 11,154.10 43,515.88 GROUNDS SUPPLY/REPLACEMENT 343.22 4,282.39 2,210.44 2,071.95 </TABLE> <PAGE> LAUREL TREE INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE - ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> EQUIPMENT RENTAL 62.70 242.40 (242.40) POOL SUPPLY/REPLACEMENT 2,994.94 805.81 2,179.13 DECORATING SUPPLIES 298.23 403.47 11,521.88 1,433.09 16,088.79 CLEANING SUPPLIES/SERV 387.61 245.00 8,176.12 6,450.00 1,726.12 EXTERI4INATING SUPPLIES 630.00 (630.00) BLDG MAINT SUPPLIES 1,593.05 5,302.44 41,666.18 32,957.86 8,708.32 PLUMBING MAINTENANCE 68.69 275.00 13,524.15 385.00 13,139.15 APPLIANCE REPLACEMENT (307.80) 13,161.18 3,854.92 9,306.26 BLDG MAINT SVC/CONTRACT 189.74 (14,682.80) 331.94 907.20 (575.26) ELECTRIC MAINTENANCE 34.58 1,366.48 1,366.48 MISC. MAINT. EXPENSES 11.35 171.84 (160.49) ---------- ---------- ---------- ---------- ---------- MAINTENANCE EXPENSES 4,917.63 (7,047.99) 160,911.29 66,913.25 93,998.04 CONTROLLABLE EXPENSES 28,676.71 20,111.30 475,185.07 282,941.12 192,243.95 ---------- ---------- ---------- ---------- ---------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE 3,465.06 50,442.37 6,930.12 50,442.37 (43,512.25) PROPERTY TAXES 16,210.11 16,496.79 32,420.22 (15,923.43) LICENSES & PERMITS 1,997.40 112.00 1,885.40 ---------- ---------- ---------- ---------- ---------- FIXED EXPENSES 3,465.06 66,652.48 25,424.31 82,974.59 (57,550.28) NET OPERATING INCOME (NOI) 45,395.76 (16,776.66) 387,282.03 433,869.33 (46,587.30) ---------- ---------- ---------- ---------- ---------- DEBT SERVICE ---------- ---------- ---------- ---------- ---------- OPERATING CASH FLOW 45,395.76 (16,776.66) 387,282.03 433,869.33 (46,587.30) ========== ========== ========== ========== ========== NON OPERATING EXPENSES DEPRECIATION EXPENSE 166,289.00 166,165.00 166,289.00 166,165.00 124.00 REFURBISHMENT & DEFERRAL (2,226.24) 77,300.00 37,412.62 77,300.00 (39,887.38) ---------- ---------- ---------- ---------- ---------- NON OPERATING EXPENSES 164,062.76 243,465.00 203,701.62 243,465.00 (39,763.38) PROFIT/LOSS (118,667.00) (260,241.66) 183,580.41 190,404.33 (6,823.92) ========== ========== ========== ========== ========== </TABLE> <PAGE> LAUREL TREE LPC - Employee Compensation Report 05 Sep 1996 Page 18 <TABLE> <CAPTION> CD# LOC HOME RC EMPL# EMP NAME .......... RT HIRE MONTHLY HOURLY MONTHLY MONTHLY AUTO MONTHLY PROJ DATE CASH CASH NONCASH SALARY ALLOW RENT <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> LP6 939 1789 SC 60722 BALLADARES, OSCAR G R 04/Ol/95 1213.33 7.00 1,213.33 LP6 939 1789 SC 61853 DIMICK, DONALD K R 04/01/95 2133.36 12.31 2,133.36 LP6 939 1789 SC 61908 DOYLE, CASEY P R 08/20/96 1213.34 7.00 1,213.34 LP6 939 1789 SC 67045 PIERCE, TARA E R 04/01/95 1733.33 10.00 1,733.33 LP6 939 1789 SC 69410 WILLIAMS, KIMBERLY R 04/18/95 2200.00 12.69 533.36 2,733.36 800.00 ------- ------ -------- -------- ------- 1789 8493.36 533.36 9,026.72 .00 800.00 CD# LOC HOME RC EMPL# EMP NAME .......... RT 100 PERCENT MULTIPLE DIST PERCENT PROJ DISTRIBUTION PROJ ACCT SUB LP6 939 1789 SC 60722 BALLADARES, OSCAR G R * 1788 0503 0002 18.600 1789 0503 0002 81.400 LP6 939 1789 SC 61853 DIMICK, DONALD K R * 1789 0503 0004 81.000 1788 0503 0004 19.000 LP6 939 1789 SC 61908 DOYLE, CASEY P R 1789 0503 0001 LP6 939 1789 SC 67045 PIERCE, TARA E R * 1789 0502 0003 81.000 1788 0502 0003 19.000 LP6 939 1789 SC 69410 WILLIAMS, KIMBERLY R * 1789 0501 0081 81.000 1788 0501 0061 19.000 </TABLE> <PAGE> - -------------------------------------------------------------------------------- QUALIFICATIONS OF ROBERT SAIA, MAI, SRA Calif. OREA Certificate #AG003191 - -------------------------------------------------------------------------------- EXPERIENCE Independent real estate appraiser since 1981. EDUCATION Associate Arts Degree from West Valley College. Major in Real Estate. Bachelor of Arts Degree in Economics from San Jose State University. Graduated with distinction. Graduate Studies in the Master of Business Administration Program at Golden Gate University, San Francisco. Advanced courses in appraisal taken at California State University, Hayward, University of San Francisco and San Jose State University, through the Appraisal Institute. MEMBERSHIPS Former Member of the Society of Real Estate Appraiser (SRPA designation) Current Member of the Appraisal Institute, MAI #8841 Current Member of Admissions Committee Appraisal Institute Board of Directors, South Bay Chapter Appraisal Institute 1993-95. National admissions board member. STATE CERTIFICATES AND LICENSES State of California "Certified-General" Appraiser Certificate No. AG003191 State of California Real Estate License (non-active) State of Nevada "Certified-General" Appraiser Certificate No. 00621 APPRAISAL ASSIGNMENTS Some of the types of properties appraised in the past are outlined below: Commercial: Retail stores, office buildings, service stations, vacant land, Residential: Single family, multi-family, townhouse/condominium, vacant land, subdivision, apartments and mobile home parks. Industrial: Vacant land, warehouses, research and development facilities, industrial condominiums and manufacturing facilities, mini-storage warehouses, food processing facilities, truck terminals. <PAGE> Special Use: Airport, carwash, landfill, right-of-way, easement valuation, commercial nursery, and golf courses. Lodging Facilities: Motels, hotels, inns, SRO, Recreational vehicle parks CLIENTS A brief partial list of past clients with whom Mr. Saia has worked with includes: American Savings Bank County of Santa Clara Comerica Bank Bank of America NT&SA First National Bank of Central California Bank of Salinas Home Savings of America Metropolitan Securities & Trust City of Monterey City of San Jose City of Palo Alto Imperial Thrift & Mortgage NationsBank Pacific Western Bank Bay View Federal Bank Wells Fargo Bank Phoenix Home Life DISCLAIMER The appraisal report appearing below is addressed to Metropolitan Life Insurance Company ("MetLife"). MetLife does not represent that the presumptions or conclusions in the appraisals are relevant or accurate and does not endorse the conclusions set forth in the appraisal. Any value, presumption, or conclusion regarding the property appraised in the report must be verified independently of MetLife. This appraisal has not been approved by MetLife and is being transmitted without representation and warranty of MetLife. <PAGE> LANDAUER REAL ESTATE COUNSELORS APPRAISAL of LEASEHOLD INTEREST IN PORTIONS OF COPLEY PLACE BOSTON, MASSACHUSETTS as of June 30, 1997 Prepared for Metropolitan Life Insurance Company 5420 LBJ Freeway Suite 1310 Dallas, Texas 75240 Prepared by Landauer Associates, Inc. 666 Fifth Avenue New York, NY 10103 <PAGE> [Letterhead of LANDAUER REAL ESTATE COUNSELORS] July 23, 1997 Mr. David Martin Investment Manager Metropolitan Life Insurance Company Real Estate Investments 5420 LBJ Freeway, Suite 1310 Dallas, TX 75240 Re: Retail, Offices & Garages at Copley Place, Boston, MA Dear Mr. Martin: In accordance with your instructions we have estimated the Market of the leasehold interest in the captioned property, as of June 30, 1997. We are pleased to present our report containing information relevant to the valuation and the methods by which the data have been analyzed in reaching the value conclusion. As a result of our investigations, analyses and conclusions, we have estimated that the Market Value of the leasehold interest, subject to existing leases and to the Assumptions and Limiting Conditions which are contained in the report, as of June 30, 1997, was: THREE HUNDRED FIFTEEN MILLION DOLLARS ($315,000,000) Allocated as follows: Retail Portion $147,000,000 Office Portion $122,000,000 Garage/Hotel Common area portion $ 46,000,000 These allocations have been provided only to identify the relative contributions of the various components to the aggregate value; they do not necessarily reflect the individual values of the components as separate entities. <PAGE> LANDAUER REAL ESTATE COUNSELORS Mr. David Martin July 23, 1997 Metropolitan Life Insurance Company Page 2 It should be emphasized that, at the request of the client, the valuation has been performed over an accelerated time frame and that, following the initial provision of property data, only limited assistance was received from the property ownership in response to various queries relating to the operations and leasing of the property. In certain instances, therefore, where answers to various operating and leasing questions were not provided, we have made what we believe to be reasonable assumptions based upon our previous knowledge of the property, which was appraised by Landauer in 1992, and general industry-wide trends. We appreciate the opportunity to have been of service to you in connection with this assignment. Sincerely, LANDAUER ASSOCIATES, INC. /s/ James C. Kafes /s/ Michael J. Patis James C. Kafes, MAI CRE Michael J. Patis, FRICS Executive Managing Director Managing Director /s/ Douglas W. Portway /s/ Gregory A. Cervieri Douglas W. Portway Gregory A. Cervieri Director Associate <PAGE> [GRAPHIC OMITTED] [Aerial Photograph] <PAGE> LANDAUER REAL ESTATE COUNSELORS - TABLE OF CONTENTS - Frontispiece Letter of Transmittal Table of Contents Page ---- EXECUTIVE SUMMARY .......................................................... 1 ASSUMPTIONS AND LIMITING CONDITIONS ........................................ 3 CERTIFICATION .............................................................. 6 SCOPE OF THE ASSIGNMENT .................................................... 7 Purpose of the Appraisal ............................................. 7 Subject Property ..................................................... 7 Date of the Appraisal ................................................ 8 Date of Inspection ................................................... 8 Property Rights Appraised ............................................ 8 Function of the Appraisal ............................................ 8 Definition of Market Value ........................................... 8 Ownership History .................................................... 9 Appraisal Process .................................................... 10 REGIONAL OVERVIEW .......................................................... 12 Introduction ......................................................... 12 Location ............................................................. 12 Population ........................................................... 13 Households and Income Trends ......................................... 13 Economy .............................................................. 14 Employment ........................................................... 14 Unemployment ......................................................... 17 Education ............................................................ 18 Transportation ....................................................... 18 Tourism .............................................................. 21 OFFICE MARKET OVERVIEW ..................................................... 25 Introduction ......................................................... 25 City of Boston ....................................................... 27 City of Cambridge .................................................... 28 Rent Levels .......................................................... 29 Suburban Market ...................................................... 34 <PAGE> LANDAUER REAL ESTATE COUNSELORS RETAIL MARKET OVERVIEW ..................................................... 35 Supply ............................................................... 35 Demand/Sales Analysis ................................................ 37 Conclusion ........................................................... 38 NEIGHBORHOOD ANALYSIS ...................................................... 40 Overview ............................................................. 40 Regional Access ...................................................... 41 PROPERTY ANALYSIS .......................................................... 43 Site Data ............................................................ 43 Improvements Description ............................................. 43 Real Estate Taxes .................................................... 56 Zoning ............................................................... 57 Highest and Best Use ................................................. 58 VALUATION .................................................................. 61 Introduction ......................................................... 61 Methodology .......................................................... 62 Income Approach ...................................................... 63 Cash Flow Assumptions: Office Portion ................................ 65 Office Cash Flow Projection .......................................... 71 Cash Flow Assumptions: Garages and Hotel Contribution ................ 72 Garage/Hotel Cash Flow Projection .................................... 73 Cash Flow Assumptions: Retail Portion ................................ 74 Retail Cash Flow Projection .......................................... 79 Real Estate Investment Market Overview ............................... 80 Office Building Sales Analysis ....................................... 81 Office Discounted Cash Flow Analysis ................................. 82 Garage & Hotel Discounted Cash Flow Analysis ......................... 86 Garage Value Allocation .............................................. 87 Shopping Center Sales Analysis ....................................... 88 Retail Discounted Cash Flow Analysis ................................. 90 Conclusion ........................................................... 94 <PAGE> - TABLE OF CONTENTS - (continued) - ADDENDA - Office Rent Roll Office Pro-Ject Tenant Register Office Lease Expiration Schedule Office Building Sales Retail Rent Roll Retail Lease Expiration Schedule Retail Pro-Ject Tenant Register Recent Retail Lease Analysis Comparable Shopping Center sales Floorplans Legal Description Excerpted Ground Rent Terms Professional Qualifications <PAGE> LANDAUER REAL ESTATE COUNSELORS EXECUTIVE SUMMARY Subject Property: Portions of Copley Place, a mixed-use development which was completed in 1984 and consisting of retail, office, hotel, residential and parking components constructed on air rights over 9.5 acres of land. The property is located in the Back Bay section of Boston, approximately one mile southwest of the Financial District. The portions of the development included in this appraisal are the retail, office, Central Garage, and Dartmouth Street garage components. The two hotels and the residential apartment building are not included although the hotels' Common Area and Central plant contributions are included. The distribution of uses within the development and the portions included in this appraisal are set forth below: ================================================================================ Component Occupied Area Incl. in Appraisal ================================================================================ Mall Stores 260,491 s.f. (GLA) yes - -------------------------------------------------------------------------------- Neiman Marcus 107,922 s.f. (GLA) yes - -------------------------------------------------------------------------------- Total Retail 368,413 s.f. (GLA) yes - -------------------------------------------------------------------------------- Offices 845,000 s.f. (NRA) yes - -------------------------------------------------------------------------------- Dartmouth St. Garage 698 spaces yes - -------------------------------------------------------------------------------- Central Garage 830 spaces yes ================================================================================ The Westin Hotel 800 rooms no - -------------------------------------------------------------------------------- Marriott Hotel 1,147 rooms no - -------------------------------------------------------------------------------- Tent City Residences 104 units no ================================================================================ The retail component consists of a 368,413 leasable square foot enclosed, two-level regional mall which is anchored by Neiman Marcus. The office component consists of approximately 845,000 square feet of leasable area in four interconnected office towers surrounding a skylit atrium over the shopping center. The enclosed central garage contains 830 parking spaces and a second parking facility, the Dartmouth Street garage, contains an additional 698 parking spaces. Property Rights Appraised: The leasehold interest, as encumbered by existing subleases and operating contracts, in portions of Copley Place, a mixed use development located in the Back Bay section of downtown Boston, MA. The leasehold interest, 1 <PAGE> LANDAUER REAL ESTATE COUNSELORS from the Massachusetts Turnpike Authority expires December 14, 2077. All of the ground rent liability has effectively been pre-paid by way of a bond issue which guarantees the ground rent payments. The excerpted ground rent terms (from the lease between the Massachusetts Turnpike Authority to Urban Investment and Development Co.) are found in the addenda. As a result, the value of the leasehold interest effectively equals the value of the leased fee interest. Purpose of the Report: To estimate the market value of the leasehold interest in the subject property. Function of the Appraisal: To serve as an element in the refinancing of the property. Neighborhood: Back Bay, Boston. Mixed Commercial and Residential area. Zoning: Specified Development Agreement Highest and Best Use: As is - mixed-use development. Valuation Rates & & Conclusions: Item Retail Office Garage/hotel Total ------------ ------------ ----------- ------------ Discount Rate 11.0% 11.0% 12.0% 11.2% Residual Cap Raze 8.5% 9.5% 10.0% 9.2% Overall Rate 7.2% 8.8% 8.9% 8.1% ------------ ------------ ----------- ------------ Estimated Value Cash Flows $ 75,474,961 $ 60,547,996 S26,825,616 $162,848,574 Residual $ 71,600,841 $ 61,345,295 $19,443,808 $152,389,944 ------------ ------------ ----------- ------------ Total Value $147,075,803 $121,893,292 $46,269,424 $315,238,518 Rounded to $147,00,000 $121,900,000 $46,000,000 $315,000,000 ------------ ------------ ----------- ------------ Value per s.f $ 399 $ 144 n/a n/a % of total value 46.7% 38.7% 14.6% 100.0% ------------ ------------ ----------- ------------ Cash Flow % of total 51% 50% 58% 52% Residual % of total 49% 50% 42% 48% 2 <PAGE> LANDAUER REAL ESTATE COUNSELORS ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report has been made with the following general assumptions: 1. Title to the property is assumed to be good and marketable unless otherwise stated. No responsibility is assumed for the legal description or any legal matter. The property is considered to be under responsible ownership, management, subject to responsible leasing efforts, and free of all liens and encumbrances except as specifically discussed herein. 2. The property is appraised free and clear of any or all liens or encumbrances unless otherwise stated. 3. The definition of value and the other definitions and assumptions on which the analyses are based are set forth in appropriate sections of this report and are to be part of these General Assumptions as if included here in their entirety. 4. All engineering is assumed to be correct. The sketches, plot plans and drawings included in this report are included only to assist the reader in visualizing the property. 5. It is assumed that there are no hidden or unapparent conditions in the property, soil, sub-soil, or structures which would render the properties more or less valuable. No responsibility is assumed for such conditions or for arranging for engineering which would be required to discover them. All materials used in the structures on the appraised property are assumed to be free of asbestos, toxic materials, or any other potential health risks unless otherwise so stated and identified herein. No opinion is expressed on structural or mechanical conditions. 6. This appraisal was prepared without an engineer's building inspection report. Without such information we cannot accurately project the impact any major expenditures would have on the value of the property. Accordingly, the estimated value reported herein reflects the total value of the subject as if unaffected by major expenditures, which include capital improvements and deferred maintenance. If major expenditures exceed the capital improvements assumption utilized in our cash flow assumptions, it will be necessary to deduct the additional costs from our value conclusion. 7. It is assumed that there is full compliance with all applicable federal, state and local environmental regulations and laws, that all applicable zoning and use regulations and restrictions have been complied with, unless a nonconformity has been stated, defined and considered in the appraisal report. 8. It is assumed that all required licenses, certificates of occupancy, legislative or administrative consents from any local or national governmental or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained is this report is based. 3 <PAGE> LANDAUER REAL ESTATE COUNSELORS 9. It is assumed that the utilization of the land and/or improvements is within the boundaries or property lines of the property described herein and that there is no encroachment or trespass unless noted within the report. 10. The information furnished to the appraisers by the client and others, as contained in this report, is considered to be from reliable sources and where feasible, has been verified; however, no responsibility is assumed for the accuracy of this information. Our estimate of value, reported herein, has relied upon property data provided by Urban Retail Properties Co. including allocations of income and expenses between the retail, office, parking, hotel, central plant and other components of the complex. The appraisers reserve the right to modify the value conclusion should the accuracy of that information change subsequent to delivery of this report. 11. At the request of the client, the valuation has been performed over an accelerated time frame and, following the initial provision of property data, only limited assistance was received from the property ownership in response to various queries relating to the operations and leasing of the property. In certain instances, therefore, where answers to various operating and leasing questions were not provided, we have made what we believe to be reasonable assumptions based upon our previous knowledge of the property, which was appraised by Landauer in 1992, and general industry-wide trends. 12. Tenant lease data utilized in the cash flow projections was based upon detailed computerized lease abstracts provided by the property owner, verified against a sampling of lease abstracts prepared by the client's attorney. 13. It is assumed that all and any costs associated with tenant improvements and lease commissions for all leases which commenced prior to the date of value have been paid in full prior to the appraisal date, unless otherwise noted. 14. This appraisal is based upon and supported by available factual economic and market data and our interpretation of market conditions as of the date of inspection of the property. Although we believe that our assumptions and forecasts are well supported, we cannot be held responsible for unforesecable events which may alter market conditions prior to the effective date of the opinion of value. 15. The Americans With Disabilities Act ("ADA") became effective January 26, 1992. Landauer has not made a specific compliance survey and analysis of the subject property to determine whether or not they are in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible non-compliance with the requirements of ADA in estimating the value of the property. 4 <PAGE> LANDAUER REAL ESTATE COUNSELORS The appraisal report has been made with, and is subject to, the following general limiting conditions: 1. "Use and disclosure of the contents of this report is governed by the bylaws and regulations of the Appraisal Institute. The client may show the report in its entirety to interested parties outside its organization. Furthermore, the client may reference Landauer as its appraiser of record, and the appraisal report in its entirety only, in any registration statement, prospectus, proxy materials, other offering materials or other communication (whether oral or written) distributed to third parties, subject to Landauer's prior written consent to any such reference." 2. Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraiser and, in any event, only with proper written qualification and only in its entirety. 3. The appraisers herein, by reason of this appraisal report, are not required to give further consultation, testimony or to be in attendance in court or at any governmental or other hearing with reference to the property without prior arrangements having been made relative to such additional employment. 4. The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and buildings must not be used in conjunction with any other appraisal and are invalid if so used. 5. Special Limiting Conditions may be stated in various portions of this report, and are to be carefully noted in accepting this appraisal. 6. The value estimations in this report apply only to the appraisal problem as stated, the value definition, the reported highest and best use, client and/or legal institution, interest appraised, or other special conditions more fully described in the body of this report. 5 <PAGE> LANDAUER REAL ESTATE COUNSELORS CERTIFICATION The undersigned certify to the best of their knowledge and belief that: The statements of fact contained in this appraisal report and upon which the analyses, opinions and conclusions expressed herein are based are true and correct. This report is made subject to the Assumptions and Limiting Conditions in this report, which set forth all of the limiting conditions (imposed by the terms of the assignment or by the appraisers) affecting the analyses, opinions and conclusions contained in this report. Employment and compensation for making this appraisal are in no way contingent upon the values reported, and we certify that we have no direct or indirect current or prospective personal interest or bias in the subject matter of this appraisal report or to the parties involved. No one other than the undersigned prepared the analyses, opinions or conclusions concerning real estate that are set forth in this report. This report has been made in conformity with the Uniform Standards of Professional Practice and in accordance with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to reviews by its duly authorized representatives. James C. Kafes is currently certified under the Continuing Education Program of the Appraisal Institute. During the course of this assignment, the retail portion of the subject property was inspected by Michael J. Patis on June 24, 1997 and the office and garage portions were inspected by Douglas W. Portway on July 16, 1997. Michael J. Patis previously inspected the entire property on December 19, 1991. James C. Kafes and Gregory A. Cervieri have not inspected the property. /s/ James C. Kafes /s/ Michael J. Patis James C. Kafes, MAI CRE Michael J. Patis, FRICS Executive Managing Director Managing Director /s/ Douglas W. Portway /s/ Gregory A. Cervieri Douglas W. Portway Gregory A. Cervieri Director Associate 6 <PAGE> LANDAUER REAL ESTATE COUNSELORS SCOPE OF THE ASSIGNMENT Purpose of the Appraisal: Landauer has been retained by Metropolitan Life Insurance Company to estimate the market value of the leasehold interest in portions of Copley Place, a mixed-use development located in the Back Bay section of Boston, Massachusetts. Subject Property: Copley Place is a mixed-use development which was completed in 1984 and consists of retail, office, hotel, residential and parking components constructed on air rights over 9.5 acres of land. The portions of the development included in this appraisal are the retail, office, central garage, and Dartmouth Street garage components. The two hotels and the residential apartment building are not included although the hotels' Common Area and Central plant contributions are included. The distribution of uses within the development and the portions included in this appraisal are set forth below: ================================================================================ Component Occupied Area Incl. in Appraisal ================================================================================ Mall Stores 260,491 s.f. (GLA) yes - -------------------------------------------------------------------------------- Neiman Marcus 107,922 s.f. (GLA) yes - -------------------------------------------------------------------------------- Total Retail 368,413 s.f. (GLA) yes - -------------------------------------------------------------------------------- Offices 845,000 s.f. (NRA) yes - -------------------------------------------------------------------------------- Dartmouth St. Garage 698 spaces yes - -------------------------------------------------------------------------------- Central Garage 830 spaces yes ================================================================================ The Westin Hotel 800 rooms no - -------------------------------------------------------------------------------- Marriott Hotel 1,147 rooms no - -------------------------------------------------------------------------------- Tent City Residences 104 units no ================================================================================ The retail component consists of a 368,413 leasable square foot enclosed, two-level regional mall which is anchored by Neiman Marcus. The office component consists of approximately 845,000 square feet of leasable area in four interconnected office towers surrounding a skylit atrium over the shopping center. The enclosed central garage contains 830 parking spaces and a second parking facility, the Dartmouth Street garage, contains an additional 698 parking spaces. 7 <PAGE> LANDAUER REAL ESTATE COUNSELORS The property is located in the Back Bay section of Boston, approximately one mile southwest of the Financial District. The site is bordered by Dartmouth Street to the east, Stuart Street to the north, Huntington Avenue to the northeast, Harcourt Street to the southwest and Carleton Street to the southeast. Date of the Appraisal: The effective date of the appraisal is June 30, 1997. Date of Inspection: The retail portion of the subject property was inspected by Michael J. Patis on June 24, 1997 and the office and garage portions were inspected by Douglas W. Portway on July 16, 1997. Michael J. Patis had previously inspected the entire property on December 19, 1991. James C. Kafes and Gregory A. Cervieri did not inspect the property. Property Rights Appraised: Leasehold interest as encumbered by existing subleases and operating contracts in portions of Copley Place. Function of the Appraisal: The function of this appraisal is to assist Metropolitan Life Insurance Company in connection with the refinancing of the property. Definition of Market Value: "Fair Market Value" and "Market Value" are, for the purpose of the analysis, considered to be synonymous. "Market Value" is defined by the Appraisal Institute, The Appraisal of Real Estate, 10th ed. (Chicago: Appraisal Institute, 1992, p. 20) as: The most probable price, as of a specified date, in cash, terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress. Fundamental assumptions and conditions presumed in this definition are: 1. Buyer and seller are motivated by self-interest. 8 <PAGE> LANDAUER REAL ESTATE COUNSELORS 2. Buyer and seller are well informed and are acting prudently. 3. The property is exposed for a reasonable time on the open market. 4. Payment is made in cash, its equivalent, or in specified financing terms. 5. Specified financing, if any, may be the financing actually in place or on terms generally available for the property type in its locale on the effective appraisal date. 6. The effect if any, on the amount of market value of atypical financing, services, or fees shall be clearly and precisely revealed in the appraisal report. Ownership and History: The land under Copley Place is owned by the Massachusetts Transit Authority. The air rights over the land were leased to Urban Investment & Development Co. ("Urban") which was owned by Aetna at the time of the lease. The entire Copley development consists of four inter-connecting office towers, a two-level enclosed shopping center, two garages, two hotels and a residential building. The two hotels and the residential apartment building are not part of the security for this loan and are, therefore, excluded from this appraisal; however, certain common area and central plant contribution by the hotels are included in the analysis. In the spring of 1980 site work began and lasted for approximately one year. In 1981 construction of the retail and office components began. In the spring of 1983, the shopping center opened, followed in the summer of 1983 by the offices. The development cost for the retail, office and garage components reportedly was approximately $250,000,000. In December 1984, JMB acquired Urban from Aetna thereby acquiring Urban's leasehold position in Copley Place. On December 31, 1996 Urban Investment and Development Company and JMB Realty Corporation sold the "Buyer Percentage" (66.67%) interest in the Copley Place Associates to Overseas Partners Capital Corporation for $216,600,000. The purchase price is based upon agreed value for the property of $324,900,000. 9 <PAGE> LANDAUER REAL ESTATE COUNSELORS Appraisal Process: In order to complete the assignment, Landauer has: 1. Inspected the property and its environs; 2. Reviewed the property's relevant physical, functional, locational and legal characteristics. As a result of this, amongst other things, it was concluded that the highest and best use of the property is `as developed"; 3. Considered local economic conditions and trends along with the relevant real estate market conditions and trends; 4. Analyzed the operating performance of the property including, where appropriate, the historical operating data, the owner's budgets, comparable market data and Landauer's knowledge of both comparable properties and general industry-wide trends; 5. Developed valuation assumptions and prepared cash flow projections, as a basis for discounted cash flow analyses; 6. Estimated the market value of the leasehold interest. Primary emphasis has been placed upon the income approach to value, in general, and the discounted cash flow technique in particular, reflecting the actions of typical buyers and sellers of properties such as this. The cost approach was not be employed as it does not lend itself to properties of this physical, legal and economic complexity and is not employed by typical buyers and sellers. The market approach suffers from similar limitations although, relevant transactions have been reviewed to gauge the general reasonableness of the valuation assumptions employed and the resultant value conclusions. It should be emphasized that, at the request of the client, the valuation has been performed over an accelerated time frame and that, following the initial provision of property data, only limited assistance was received from the property ownership in response to various queries relating to the operations and leasing of the property. In certain instances, therefore, where answers to various operating and leasing questions were not provided, we have made what we believe to be reasonable assumptions 10 <PAGE> LANDAUER REAL ESTATE COUNSELORS based upon our previous knowledge of the property, which was appraised by Landauer in 1992, and general industry-wide trends. 11 <PAGE> LANDAUER REAL ESTATE COUNSELORS REGIONAL OVERVIEW Introduction: The subject property is located in the Back Bay neighborhood in the City of Boston, Suffolk County, Massachusetts. Boston is the state capital and the financial, high-tech, distribution and education center for the New England Region. The rapid economic growth in the Greater Boston area began to slow in the mid-to-late 1980s. Contractions in defense spending, the collapse of the stock market in October 1987, and the downturn in high-tech industries and the financial services sector hindered continued growth. New England entered into a regional recession in the late 1980s, followed by the onset of a national recession in the early 1990s. Massive layoffs occurred, particularly in the computer, manufacturing and construction industries and the New England real estate market collapsed. Several regional banks failed and many businesses closed. The depressed state of the economy resulted in a significant decrease in consumer and corporate spending. Economic conditions in much of New England are now showing signs of dramatic improvement. Unemployment levels have decreased, office vacancy levels have come down and home buying has increased. Overall, the economic outlook for the area is good, although growth is expected to be considerably slower than the rate experienced during the mid-1980s. Location: Boston is located on Massachusetts' east coast at the mouth of Massachusetts Bay. It is wholly located in Suffolk County, which also contains two other cities, Brookline and Chelsea. It is the largest metropolitan area in New England with 5,795,642 people in the living in the New England Consolidated Metropolitan Area. The City of Boston itself had a population of 3,176,022 as of the first quarter of 1995. Boston is part of the Boston-Brockton-Nashua, Massachusetts-New Hampshire NECMA (New England Consolidated Metropolitan Area) which includes Suffolk, Bristol, Essex, Middlesex, Norfolk, Plymouth, and Worcester Counties in Massachusetts; and Hillsbourough, Rockingham, and Strafford Counties in New Hampshire. As noted above, Boston is located in Suffolk which is the most economically viable county in the region. While the majority of the information presented in this section is pertinent to Boston, its economic health is often indicative of the economic vitality of the surrounding areas. 12 <PAGE> SUFFOLK COUNTY, MASSACHUSETTS REGIONAL ECONOMIC & DEMOGRAPHIC FACT SHEET (1980-2001) <TABLE> <CAPTION> 1996 2001 Compound Annual Growth 1980 1990 (est.) (Proj.) 1980-1990 1990-1996 1996-2001 ---- ---- ------ ------- --------- --------- --------- <S> <C> <C> <C> <C> <C> <C> <C> Population Suffolk County, MA 649,281 663,906 639,534 615,207 0.2% -0.6% -0.8% Boston-Brockton-Nashua, NECMA 5,330,055 5,685,998 5,795,642 5,843,774 0.6% 0.3% 0.2% State of Massachusetts 5,732,147 6,016,425 6,108,354 6,139,841 0.5% 0.3% 0.1% United States 224,810,186 248,708,990 265,253,151 276,918,306 1.0% 1.1% 0.9% Households Suffolk County, MA 252,310 264,061 260,579 251,591 0.5% -0.2% -0.7% Boston-Brockton-Nashua, NECMA 1,879,638 2,111,440 2,210,004 2,238,927 1.2% 0.8% 0.3% State of Massachusetts 2,032,879 2,247,110 2,343,876 2,367,747 1.0% 0.7% 0.2% United States 79,887,108 91,947,195 100,066,882 104,497,652 1.4% 1.4% 0.9% Avg. Household Income Suffolk County, MA $ 16,379 $ 29,499 $ 35,952 $ 45,773 6.1% 3.4% 4.9% Boston-Brockton-Nashua, NECMA $ 21,133 $ 46,911 $ 56,367 $ 69,098 8.3% 3.1% 4.2% State of Massachusetts $ 20,749 $ 45,502 $ 54,543 $ 66,793 8.2% 3.1% 4.1% United States $ 20,382 $ 38,464 $ 44,680 $ 53,841 6.6% 2.5% 3.8% Per Capita Income Suffolk County, MA $ 6,577 $ 14,994 $ 18,953 $ 23,325 8.6% 4.0% 4.2% Boston-Brockton-Nashua, NECMA $ 7,563 $ 17,420 $ 21,711 $ 26,733 8.7% 3.7% 4.2% State of Massachusetts $ 7,473 $ 16,995 $ 21,157 $ 26,031 8.6% 3.7% 4.2% United States $ 7,334 $ 14,220 $ 17,043 $ 20,545 6.8% 3.1% 3.8% Aggregate Income (Millions) Suffolk County, MA $ 4,270 $ 9,955 $ 12,121 $ 14,350 8.8% 3.3% 3.4% Boston-Brockton-Nashua, NECMA $ 40,314 $ 99,050 $ 125,832 $ 156,222 9.4% 4.1% 4.4% State of Massachusetts $ 42,838 $ 102,249 $ 129,233 $ 159,828 9.1% 4.0% 4.3% United States $ 1,648,846 $ 3,536,695 $ 4,520,610 $ 5,689,345 7.9% 4.2% 4.7% Retail Sales (000) Suffolk County, MA $ 4,949,468 $ 5,324,644 1.5% Boston-Brockton-Nashua, NECMA $ 53,335,064 $ 58,929,270 2.0% State of Massachusetts $ 53,872,985 $ 58,436,927 1.6% United States $2,355,241,609 $2,871,024,805 4.0% </TABLE> Source: Urban Decision Systems; Market Statistics Retail Sales data is for 1995 and 2000 Growth Rates - 1996 to 2001 [GRAPHIC OMITTED] <PAGE> LANDAUER REAL ESTATE COUNSELORS Population: Population trends are summarized on the facing page. The Boston-Brockton-Nashua, Massachusetts-New Hampshire NECMA contains an estimated 5,795,642 residents and is the fourth largest metropolitan area in the United States. The 1990 population of 5,685,998 residents had increased 1.9% by 1996, a 0.3% compound annual increase. The population of the United States of America for the same period grew by 6.7%, or a 1.1% compound annual increase. Projections for the NECMA from 1996 to the year 2001 indicate a leveling off at a 0.2% growth rate. This compares to a compound annual growth rate for the United States for the same period of 0.9%. Households and Income Trends: Since the household generally is the decision-making unit for consumption expenditures, a rise in the number of households can compensate for slow population growth. Even when population declined, between 1970 and 1980, the number of households rose slightly. Between 1990 and 1996, the number of household in Suffolk County declined from 264,061 to 260,579, a 0.2% average annual decrease. Over the same period, the number of households in the NECMA increased from 2,111,440 to 2,210,004, a 0.8% average annual increase. Projections through 2001 indicate an acceleration of the decline within Suffolk County, with an average annual decline of 0.7%, and a deceleration of household growth within the NECMA, averaging only 0.3% annually. Average household size, however, is forecast to remain unchanged within the county and the NECMA through 2001, at 2.45 and 2.61 respectively. However, since average household size within the NECMA is expected to remain relatively unchanged, and the number of households are expected to increase only slightly to the year 2001, growth in consumption expenditures will probably not come from these sources. The average household income for the NECMA in 1996 was $56,367, up from 1990's $46,911. This exceeded the nation's income by nearly $12,000. Through the year 2001, average household income growth in the NECMA will continue to outpace national growth at 4.2% per year versus 3.8%, respectively. Average household income in the NECMA rose by 20.2% from that of 1990, a 3.2% compound annual growth, significantly greater than the overall growth in average household income for the United 13 <PAGE> ================================================================================ BOSTON METROPOLITAN AREA MAJOR EMPLOYERS ================================================================================ MA Company Location Employees Businesses - -------------------------------------------------------------------------------- Raytheon Lexington l6,744 Electronics, aircraft products, energy and environmental - -------------------------------------------------------------------------------- NYNEX Boston 16,063 Telecommunications and network services - -------------------------------------------------------------------------------- Stop & Shop Cos. Quincy 13,000 Supermarkets - -------------------------------------------------------------------------------- Digital Equipment Corp. Maynard 12,000 Networked computer systems, software and services - -------------------------------------------------------------------------------- Fidelity Investments Boston 9,000 Financial services - -------------------------------------------------------------------------------- Demoulas Market Basket Tewksbury 8,700 Super markets - -------------------------------------------------------------------------------- AT&T Boston 8,500 Computer and telecommunications - -------------------------------------------------------------------------------- State Street Boston Corp. Boston 8,498 Financial Services - -------------------------------------------------------------------------------- Shaw's Supermarket's Bridgewater 8,359 Supermarkets - -------------------------------------------------------------------------------- General Electric Lynn 7,600 Manufacturer of aircraft engines, equipment, propulsion - -------------------------------------------------------------------------------- Bank of Boston Corp. Boston 7,600 Banking Services - -------------------------------------------------------------------------------- Marriott International Boston Food service, hotels, retirement communities - -------------------------------------------------------------------------------- Sears Roebuck & Co. Boston 7,528 Retail - -------------------------------------------------------------------------------- Polaroid Corp. Cambridge 7,200 Imaging - -------------------------------------------------------------------------------- Fleet Financial Group Boston 7,000 Financial Services - -------------------------------------------------------------------------------- Baybanks, Inc. Boston 6,250 Commercial bank - -------------------------------------------------------------------------------- Blue Cross Blue Shield of MA Boston 6,000 Health care services - -------------------------------------------------------------------------------- John Hancock Mutual Life Boston 5,933 Insurance/financial services ================================================================================ Source: Boston Globe, May 21, 1996 <PAGE> LANDAUER REAL ESTATE COUNSELORS States as a whole, which averaged 2.5% per year or 16.2% over the same period. - Per capita income for the NECMA grew by 24.6% from 1990, a 3.7% compound annual growth. This compares to a 19.9% growth in national per capita income, a 3.1 % compound annual growth. Growth in per capita income within the NECMA is forecast to continue to outpace that of the nation though the year 2001, at 4.2% and 3.8%, respectively. Economy: The Boston MSA is the nation's fourth largest metropolitan area, after Los Angeles, New York and Chicago. Its work force is well educated, drawing on the area's many colleges and universities. High-technology industries, financial services, education, and health care are the driving forces of the area's economy. The combination of research laboratories and venture capital give Boston a clear advantage in emerging industries such as biomedical research and development, software development, and communications equipment. The table which appears on the facing page indicates that the top employers in the Boston metropolitan area consist of large labor-intensive institutions. Hospitals, technology firms and universities top the list. Other major Boston area employers include Lotus Development Corporation with 5,500 employees and Arthur D. Little Incorporated with 3,500 employees. Employment: The Boston metropolitan region has undergone a major transition from a light manufacturing economy specializing in consumer nondurables such as food, apparel, textiles and leather goods to one of the premier high-technology manufacturing centers in the country. At the same time, the city of Boston functions as the state capital and as a center of banking and finance for the state and the New England region. Key factors in this transformation have been the existence of major educational and health institutions, a highly educated work force, and the availability of venturecapital funds to foster the growth of the high-technology and related services sectors. The current and projected distribution of employment by sector is as follows: 14 <PAGE> <TABLE> <CAPTION> ======================================================================================================================== Non-Agricultural Employment by Sector Suffolk County, Massachusetts ======================================================================================================================== Percent of Percent of Estimated Percent of Projected Percent of Sector 1980 Total 1990 Total 1996 Total 2001 Total ======================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> Mining 0 0.0% 13 0.0% 16 0.0% 14 0.0% Construction 10,929 2.0% 11,464 2.0% 11,999 2.1% 14,244 2.3% Manufacturing 54,929 10.0% 33,905 5.8% 30,902 5.3% 30,278 4.9% Transportation & Utilities 38,529 7.0% 35,920 6.2% 35,764 6.1% 35,907 5.8% Trade 90,806 16.5% 83,806 14.4% 80,566 13.8% 83,571 13.5% Finance, Insurance & Real Estate (FIRE) 70,118 12.7% 80,340 13.8% 79,055 13.6% 81,426 13.1% Services 86,414 33.8% 228,104 39.2% 244,141 41.9% 272,126 43.9% Government 99,151 18.0% 107,953 18.6% 99,831 17.1% 101,994 16.5% - ------------------------------------------------------------------------------------------------------------------------ Total 550,876 100.0% 581,505 100.0% 582,274 100.0% 619,560 100.0% ======================================================================================================================== </TABLE> Compound Annual Change Sector 1980-90 1990-96 1996-2001 ========================================================== Mining n.a. 3.5% -2.6% Construction 0.5% 0.8% 3.5% Manufacturing -4.7% -1.5% -0.4% Transportation & Utilities -0.7% -0.1% 0.1% Trade -0.8% -0.7% 0.7% Finance, Insurance & Real Estate (FIRE) 1.4% -0.3% 0.6% Services 2.0% 1.1% 2.2% Government 0.9% -1.3% 0.4% - ---------------------------------------------------------- Total 0.5% 0.0% 1.2% ========================================================== <TABLE> <CAPTION> ======================================================================================================================== Non-Agricultural Employment by Sector Boston-Brockton-Nashau, NECMA ======================================================================================================================== Percent of Percent of Estimated Percent of Projected Percent of Sector 1980 Total 1990 Total 1996 Total 2001 Total ======================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> Mining 794 0.0% 1,010 0.0% 1,182 0.0% 1,038 0.0% Construction 78,243 3.1% 97,046 3.4% 91,827 3.1% 99,552 3.2% Manufacturing 654,113 26.0% 521,544 18.2% 449,710 15.3% 439,773 14.1% Transportation & Utilities 115,608 4.6% 123,930 4.3% 126,170 4.3% 128,369 4.1% Trade 543,395 21.6% 673,999 23.5% 684,592 23.3% 722,547 23.1% Finance, Insurance & Real Estate (FIRE) 151,995 6.0% 209,284 7.3% 202,420 6.9% 210,878 6.7% Services 593,846 23.6% 871,036 30.3% 1,015,916 34.6% 1,147,450 36.7% Government 377,668 15.0% 374,184 13.0% 366,184 12.5% 379,965 12.1% - ------------------------------------------------------------------------------------------------------------------------ Total 2,515,662 100.0% 2,872,083 100.0% 2,938,001 100.0% 3,129,572 100.0% ======================================================================================================================== </TABLE> Compound Annual Change Sector 1980-90 1990-96 1996-2001 ========================================================== Mining 2.4% 2.7% -2.6% Construction 2.2% -0.9% 1.6% Manufacturing -2.2% -2.4% -0.4% Transportation & Utilities 0.7% 0.3% 0.3% Trade 2.2% 0.3% 1.1% Finance, Insurance & Real Estate (FIRE) 3.3% -0.6% 0.8% Services 3.9% 2.6% 2.5% Government -0.1% -0.4% 0.7% - ---------------------------------------------------------- Total 1.3% 0.4% 1.3% ========================================================== <TABLE> <CAPTION> ======================================================================================================================== Non-Agricultural Employment by Sector State of Massachusetts ======================================================================================================================== Percent of Percent of Estimated Percent of Projected Percent of Sector 1980 Total 1990 Total 1996 Total 2001 Total ======================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> Mining 0 0.0% 1,419 0.0% 1,389 0.0% 1,214 0.0% Construction 77,523 2.9% 101,407 3.4% 93,676 3.1% 101,614 3.2% Manufacturing 671,455 25.3% 521,264 17.5% 443,014 14.6% 432,218 13.4% Transportation & Utilities 121,605 4.6% 129,855 4.3% 128,812 4.3% 130,693 4.1% Trade 576,550 21.7% 700,321 23.5% 701,641 23.2% 737,979 22.9% Finance, Insurance & Real Estate (FIRE) 158,958 6.0% 213,302 7.1% 204,448 6.8% 212,409 6.6% Services 633,945 23.9% 915,677 30.7% 1,057,927 35.0% 1,192,582 37.1% Government 412,391 15.5% 402,094 13.5% 394,910 13.1% 409,069 12.7% - ------------------------------------------------------------------------------------------------------------------------ Total 2,652,427 100.0% 2,985,339 100.0% 3,025,317 100.0% 3,217,778 100.0% ======================================================================================================================== </TABLE> Compound Annual Change Sector 1980-90 1990-96 1996-2001 ========================================================== Mining na. -0.4% -2.7% Construction 2.7% -1.3% 1.6% Manufacturing -2.5% -2.7% -0.5% Transportation & Utilities 0.7% -0.1% 0.3% Trade 2.0% 0.0% 1.0% Finance, Insurance & Real Estate (FIRE) 3.0% -0.7% 0.8% Services 3.7% 2.4% 2.4% Government -0.3% -0.3% 0.7% - ---------------------------------------------------------- Total 1.2% 0.2% 1.2% ========================================================== <TABLE> <CAPTION> ======================================================================================================================== Non-Agricultural Employment by Sector United States ======================================================================================================================== Percent of Percent of Estimated Percent of Projected Percent of Sector 1980 Total 1990 Total 1996 Total 2001 Total ======================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> Mining 1,023,277 1.1% 706,935 0.6% 580,297 0.5% 555,131 0.4% Construction 4,315,369 4.8% 4,999,505 4.6% 5,265,186 4.4% 5,550,150 4.3% Manufacturing 20,247,600 22.3% 19,114,481 17.4% 18,291,693 15.5% 18,206,940 14.1% Transportation & Utilities 5,128,888 5.7% 5,788,409 5.3% 6,121,598 5.2% 6,348,340 4.9% Trade 20.385,888 22.5% 25,866,231 23.6% 27,888,031 23.6% 31,009,236 24.0% Finance, Insurance & Real Estate (FIRE) 5,158,620 5.7% 6,692,006 6.1% 6,881,294 5.8% 7,374,991 5.7% Services 17,881,415 19.7% 27,876,068 25.4% 33,655,628 28.4% 38,961,776 30.2% Government 16,588,538 18.3% 18,641,411 17.0% 19,663,109 16.6% 21,156,568 16.4% - ------------------------------------------------------------------------------------------------------------------------ Total 90,729,595 100.0% 109,685,046 100.0% 118,346,836 100.0% 129,163,132 100.0% ======================================================================================================================== </TABLE> Compound Annual Change Sector 1980-90 1990-96 1996-2001 ========================================================= Mining -3.6% -3.2% -0.9% Construction 1.5% 0.9% 1.1% Manufacturing -0.6% -0.7% -0.1% Transportation & Utilities 1.2% 0.9% 0.7% Trade 2.4% 1.3% 2.1% Finance, Insurance & Real Estate (FIRE) 2.6% 0.5% 1.4% Services 4.5% 3.2% 3.0% Government 1.2% 0.9% 1.5% - --------------------------------------------------------- Total 1.9% 1.3% 1.8% ========================================================= Source: Data Resources, Inc. <PAGE> LANDAUER REAL ESTATE COUNSELORS ================================================================================ Compound Annual Estimated 1996 % of Growth Employment Sector Employment Total 1996-2001 - -------------------------------------------------------------------------------- Manufacturing 449,710 15.3% -0.4% - -------------------------------------------------------------------------------- Non-Manufacturing 2,441.4 84.7% 1.6% - -------------------------------------------------------------------------------- Mining 1,182 0.0% -2.6% - -------------------------------------------------------------------------------- Construction 91,827 3.1% 1.6% - -------------------------------------------------------------------------------- Transp./Utilities 126,170 4.3% 0.3% - -------------------------------------------------------------------------------- Trade 684,592 23.3% 1.1% - -------------------------------------------------------------------------------- F.I.R.E. 202,420 6.9% 0.8% - -------------------------------------------------------------------------------- Services 1,015,916 34.6% 2.5% - -------------------------------------------------------------------------------- Government 366,184 12.5% 0.7% - -------------------------------------------------------------------------------- Total 2,938,001 100.0% 1.3% - -------------------------------------------------------------------------------- Source: DRI/McGraw-Hill ================================================================================ Historical and projected employment by industry for the NECMA indicate that employment growth was steady during the 1980s, averaging 1.3% per year. Between 1989 and 1991, as the nation and the Northeast struggled through a recession, employment declined significantly within the NECMA, and remained relatively unchanged between 1991 and 1993, with the low point in total non-agricultural employment reported in 1992. As the nation emerged from the recession, employment growth returned to the NECMA as well, albeit at a slower pace than that of the nation. During 1995, the Boston area experienced a 2.6% growth in employment; however, employment growth slowed to 1.6% during 1996. This is partially reflective of the national deceleration in employment growth, coupled with the restructuring of the region's banking, computer industry and hospitals. An additional factor is the increasing tightness of the Boston labor market, as reflected by the drop in the area's unemployment rate of over one percentage point during 1996 to an annual average of 3.7%, the lowest rate since 1989. Through 2001, employment in the Boston area is projected to grow by 1.3% annually. When compared with the NECMA, the State of Massachusetts and the nation, Suffolk County is projected to experience slightly weaker job growth, at only 1.2% per year. Regional growth will be led by gains in services such as computer software, engineering, research 15 <PAGE> LANDAUER REAL ESTATE COUNSELORS laboratories, management consulting, health care, tourism and, of course, the mutual fund industry. Six employment sectors experienced growth from 1980 to 1990. Conversely, the period between 1990 and 1996 saw declines in four out of eight categories of employment. These employment contractions are a direct result of the regional and national recession during most of this period. The Services sector's gains dominate the Boston market. During the 1990-96 period, the Services sector posted average annual growth of 2.6%. This was the largest positive growth during this period, second only to the minuscule Mining category. With the exception of the Trade and Transportation & Utilities sectors, which both posted an average 0.3% growth rate between 1990 and 1996, every other sector declined. While the outlook for 1996 to the year 2000 is brighter for the NECMA, the Service sector will continue to dominate growth, with the anticipated compound annual growth rate for this period projected at 2.5%. In fact, over 70% Boston's job growth through the year 2001 is forecast to result from increases in the Services sector. Overall, through the year 2001, projections show modest increases in other sectors and a total employment growth of 1.3% per year for the NECMA. This compares favorably to the national rate projected of 1.8% per year. A number of factors will influence employment growth in the area. The FIRE sector will be affected by the recent flurry of mergers and acquisitions, including the acquisition of Shawmut National Corp. by Fleet Financial Group, the acquisition by MetLife Insurance of The New England, and the merger of BayBanks and Bank of Boston, to name a few. The Fleet/Shawmut transaction will reportedly eliminate 1,500 jobs in the area but will also add a relocated Fleet headquarters. Insiders indicate few jobs will actually be shed by this merger. Boston's large educational sector may also shrink as the generation of "baby boomers" has now passed through their college years. Construction growth has been propelled by projects like the Fleet (formerly Shawmut) Center which replaced the Boston Garden Arena, construction of a new hotel at the World Trade Center, and the Central Artery/Tunnel Project (CA/T), a 7.5 interstate highway project which is expected to improve access to downtown Boston from outlying areas, and to Logan Airport from downtown Boston. The 16 <PAGE> LANDAUER REAL ESTATE COUNSELORS cranes now blanket the skyline of Boston, largely due to the central artery depression, but it should be noted that no new construction of a high-rise office building has been announced, and that while office market rents have risen, they have yet to approach the level which would make high-rise office development feasible. The employment outlook for the Boston area is one of modest growth. Mergers and acquisitions of high-tech and banking companies and continued cutbacks in defense spending still will be concerns in 1996. Nevertheless, atypical of most cities, Boston's office and retail and markets are relatively healthy amidst a slowly improving New England economy still struggling to recovering from the recent recession. Unemployment: Unemployment in the City of Boston, the Boston M.S.A., and the U.S., are shown on the chart below (Unemployment rates for the NECMA are not available. The M.S.A. definition approximates that of the NECMA's.): Unemployment Rates 1990 1991 1992 1993 1994 1995 1996 4/97 ---- ---- ---- ---- ---- ---- ---- ---- Boston 5.6% 8.5% 7.8% 6.5% 5.8% 4.7% 4.5% 3.9% Boston M.S.A 5.1 7.8 7.5 6.0 5.2 5.4 3.7 3.3 United States 5.4 6.8 7.4 7.1 6.1 5.6 5.4 4.8 Source: U.S. Bureau of Labor Statistics,Employment and Earnings Currently the M.S.A.'s unemployment rate is below that of the nation's. Unemployment in the Boston M.S.A. and the City of Boston has fluctuated in that it has kept pace with, exceeded, or been below the unemployment rate of the nation since 1990. Boston suffered under a triple burden in the early 1990's. The computer industry, the linchpin of its mid-1980's economy, had lost its niche and had difficulty repositioning itself in an increasingly competitive international marketplace. While the computer industry faltered, Boston had been transformed into a business and financial services economy, but the New England region that Boston serves, entered a recession earlier and had been more deeply affected than other recessionary regions. The national recession, though widely described as shallow and short, affected New England more severely because of its other problems. In contrast, however, Boston has recovered more quickly than 17 <PAGE> LANDAUER REAL ESTATE COUNSELORS most other cities and the M.S.A. has recovered faster than the surrounding New England area. Much can be said for Boston's ability to retain its status as a 24-hour city, but it's ability to remain sheltered from recessionary pressures to specific industries, such as mutual funds and high-technology, continues to be the source of skepticism. Education: The NECMA is home to eleven of New England's fifteen best known colleges and universities. Suffolk county includes such institutions as Harvard College with a full time enrollment of 17,156, Northeastern University with a full time enrollment of 14,081, Boston University with a full time enrollment of 21,667, to name a few. Harvard University was founded in 1636, and is the oldest college in the United States; the Massachusetts Institute of Technology was founded in 1861. Harvard offers study in nearly all general areas, and is well known for its Masters of Business Administration, Law and Medical degrees. M.I.T. is most famous for its research in the sciences, but also offers courses of study in some liberal arts areas. These institutions, and twenty five other colleges and universities in the Boston Region, profoundly affect the population of the NECMA. Not only do these institutions affect population, but they also serve to create a steady base of employment for a large number of local residents, as well as an incubator for new technology, bio-technology, consulting and other businesses. Transportation: Massachusetts' seaport facilities serve the region rather than the nation. Massport, consisting of three public terminals, is the only container facility. Another 22 private terminals receive bulk cargo, and these terminals account for 90% of all cargo shipments. Forty percent of all shipments into Massport are by barge. This means that overseas cargo is off loaded at another port -- generally Montreal, Halifax or New York -- and barged into Boston for consumption by the region's residents. To a large degree the present urban pattern of the NECMA was created by the introduction and growth of the railroad. Urban settlement grew up along the rail routes, and land use patterns in Back Bay were influenced by the jockeying of various railroads to establish routes and terminals in the Boston peninsula area. Rail transportation is still important in Boston. Riders use commuter rail daily along nine routes terminating downtown at either North Station or South Station. 18 <PAGE> LANDAUER REAL ESTATE COUNSELORS An extensive multi-modal transit network today is the backbone of Boston's transportation infrastructure. Twenty rail corridors radiate from the city's center. These are supplemented by a proliferation of public and private bus routes. The Boston subway system is the oldest in the country, dating from 1887, and for decades, it was heavily used. As late as 1951, the Metropolitan Transit Authority, a precursor to today's Massachusetts Bay Transportation Authority, served almost one million daily riders. Subway ridership began to drop precipitously in the 1950s due to rising incomes, the growing availability of automobiles, inexpensive gasoline and the decentralization of both housing and jobs. In response to this suburbanization process, public funding switched from mass transit to highway construction. In the 1970s large portions of the MBTA fleet and infrastructure deteriorated due to deferred maintenance. The MBTA has undertaken a massive capital program to rejuvenate its aging system including expanding the capacity of existing stations, replacing outdated components and expanding service areas. Daily ridership is over 700,000 passengers per day, up from about 550,000 in 1991. Four subway lines connect the suburbs to the downtown crossing in the retail district of downtown Boston. The Orange Line extends from Malden to North Station in downtown Boston. The Green Line extends from Cambridge to North Station. This is the oldest subway line in the nation. The Red Line services Cambridge, Roxbury and the suburban towns of Quincy and Braintree. Finally, the much smaller Blue Line extends from the government center in Boston to Logan Airport and then to suburban Revere. Bus usage also accounts for many linked trips as buses feed thousands of passengers into the subway system every day. M.B.T.A. buses operate on over 159 routes. Since the early years of the 20th century the proliferation of the automobile has had a great influence on urban development and land use. Three interstate highways connect the city to the national highway system, but by any measure transpiration to and within the city by car is horrendous. Built for an earlier time, the highways leading to the city reached their capacity long ago. Compounding the problem is the fact that a number of major 19 <PAGE> LANDAUER REAL ESTATE COUNSELORS highways (I-95, I-93 and I-90) pass through rather than around the city, thus mixing regional and commuting traffic during the ever-growing rush hours. Boston's highway system reinforces the original spoke and hub pattern established by early settlements and the railways. Two circumferential highways link these interstate spokes. Route 128 was one of the first circumferentials in the nation; initial sections were completed in 1948. An outer beltway, Route 485, completed in the 1960s, runs in a radius approximately 25 to 35 miles from the center of Boston, and connects I-95 north and I-95 south. Documented traffic volumes on the region's roadways have increased between 12% and 53% in the past decade. After many years of study, the Massachusetts Department of Public Works manages what may be the largest transportation-construction project ever undertaken in a city: the depression of the Central Artery (a portion of 1-93) and construction of a third harbor tunnel leading to east Boston and Logan International Airport, the Central Artery/Tunnel Project (CA/T). CA/T is a 7.5 mile interstate highway project, approximately half of which is tunnel. The CA/T Project will stretch from Charlestown in the north to Southampton Street in the south (I-93); from Harrison Avenue in the West to Logan Airport and Route 1A in the east (I-90). The CA/T is expected to Improve city traffic by diverting non-local traffic away from the downtown area, as well as improve pedestrian traffic and air quality. Boston will benefit from faster, and easier access to Logan airport. The infrastructure improvements will enable larger vehicles to travel across the Boston Harbor and dramatically relieve demands on existing roadways. The Third Harbor Tunnel, a 1.6 mile four-lane section also known as the Ted Williams Tunnel, has been open for commercial traffic, buses, taxis and trucks, since the fourth quarter of 1995 and is expected to open to the general public by about the year 2000. The tunnel will allow an estimated 70% of airport traffic to bypass downtown Boston which will reduce travel time from 30 minutes or more to 10 minutes. The highway section of the CA/T should be completed by 2004 at a total cost of nearly $7.7 billion. The downtown Boston office market will also generally benefit as the new eight to ten lane underground tunnel handles Boston's commuter traffic 20 <PAGE> LANDAUER REAL ESTATE COUNSELORS demands more efficiently than the current above-ground system. The depression of the Central Artery will create 27 acres of open space in the heart of the city, reduce traffic noise and positively impact air quality by reducing pollution associated with motor vehicle emissions. Boston is a major air hub. Logan Airport is the only international airport to serve the region and may soon be unable to handle the region's air transportation requirements. Located only three miles from downtown, Logan is served by both domestic and international airlines. The third harbor tunnel relieves some of the auto congestion to the airport; however, the problem of congestion in the air and at airport gates remains. One increasingly frequent suggestion is the development of a second airport, probably located at one of the existing military bases earmarked for closure. Pease Air Force Base in Portsmouth, New Hampshire and Fort Devens in Bedford, Massachusetts have been identified as possible sites. A Tufts University study, however, favors spending to electrify the rail lines between Boston and New Haven in order to speed the Boston-to-New York rail trip with concurrent reductions in the air traffic between these two cities. Tourism: Boston and its surrounding areas are well known as tourist destinations because of their climate, history, waterfront and culture. The table below shows historical convention attendance and the number of tourists to Boston, along with the 1997 forecast estimate. ================================================================================ Tourism and Convention Attendance Trends - -------------------------------------------------------------------------------- Estimated Number +/- Over Year of Visitors Previous Year - -------------------------------------------------------------------------------- 1988 8.8 million +3% - -------------------------------------------------------------------------------- 1989 8.2 million -6% - -------------------------------------------------------------------------------- 1990 8.5 million +3% - -------------------------------------------------------------------------------- 1991 8.2 million -3% - -------------------------------------------------------------------------------- 1992 8.76 million +6% - -------------------------------------------------------------------------------- 1993 9.1 million +4% - -------------------------------------------------------------------------------- 1994 9.7 million +6% - -------------------------------------------------------------------------------- 1995 10.0 million +2% - -------------------------------------------------------------------------------- 1996 10.6 million +3% - -------------------------------------------------------------------------------- 1997 10.9 million +3% - -------------------------------------------------------------------------------- Source: Pinnacle Advisory Group ================================================================================ <PAGE> LANDAUER REAL ESTATE COUNSELORS Historical sites include the Freedom Hall, Bunker Hill Monument, Old North Church, Paul Revere's House, as well as Cape Cod and The Islands (Martha's Vineyard and Nantucket). Boston and Cambridge are also world-renowned for their top educational institutions and museums. The "college town" atmosphere is attractive to many tourists. International tourism leads all segments in growth, and the universities draw a large constituency from Asian countries. Quincy Market and other venues famous for retail as well as a number of fine dining restaurants also serve to draw tourists to the Boston area. From 1985 to 1992 the number of tourists visiting the Boston area has grown at a compound annual rate of 2.8 percent. This strong tourism base helps to even out the fluctuations between weekday and weekend retail activity and hotel occupancy levels common to most downtown markets. Hoteliers in Boston report Saturday to be the third strongest day of the week. Convention attendance and tourism statistics for 1993 from the Boston Convention and Visitor's Bureau are measured differently than the historical statistics and are, therefore, not comparable. Most recently, Boston has benefited from an increase of conventions and convention attendees. Between 1993 and 1994, convention attendance increased by over 300,000 delegates or 24%. In 1996, 300 events were held in Boston with 36 conventions requiring over 1,000 rooms each. The average daily spending by a convention delegate with room was $250 in 1996. The average stay for a convention delegate was 4.1 days. This is a far greater amount than the average daily spending by a visitor with room which was $176 in 1995, with the average length of stay at 2.3 days. The largest city in New England, Boston, is the hub of commerce for the region. Boston, Massachusetts is a city with contradictory historic trends. While households and employment are expected to grow at very slow rates (0.3% and 0.1%, respectively), other market indicators are quite positive. Income growth, unemployment rates and the metropolitan office market all show signs of health. The economic recession which plagued New England during the first half of the decade had less of an impact on the City of Boston due to its stature as the region's financial center. In addition, Boston's substantial institutional presence has facilitated a more rapid economic recovery than was forecast due to the emergence and subsequent expansion of numerous high-technological companies as well as growth in 22 <PAGE> LANDAUER REAL ESTATE COUNSELORS the mutual fund and health-care related industries. Increasing reliance on technological innovation bodes well for this market and the future demand for office space in the metropolitan area. 23 <PAGE> LANDAUER REAL ESTATE COUNSELORS Map 2 The Boston Office Market Submarket Detail [GRAPHIC OMITTED] Source: BOMSA of Greater Boston <PAGE> Boston Metropolitan Office Market [GRAPHIC OMITTED] LANDAUER <PAGE> LANDAUER REAL ESTATE COUNSELORS OFFICE MARKET OVERVIEW Introduction The Metropolitan Boston Office market has emerged as one of the strongest markets in the nation. This is noteworthy given the weakness of the region only four years ago. Recent news articles focusing on the state of the Boston office market reflect an optimistic and upbeat situation. US office markets are doing so well today (particularly in major cities like Boston, Washington, New York and San Francisco) that speculative construction is no longer out of the realm of possibility. "The National Scope", Real Estate Forum (2/97) Vol. 52, No. 2 P.170/2 A new Cushman & Wakefield survey reveals that the five healthiest suburban commercial real estate markets in the nation this year are located in Northern Virginia, Atlanta, Dallas, Chicago and Boston. In Boston, the office vacancy rate in the CBD was just half the national average. Recent quarterly vacancy rate declines measured over 12 percent in Boston `s suburbs, while nationwide rates were down about 6 percent to an average 14.2 percent. "C&W Survey: Boston Area RE Among Best", New England Real Estate Journal (10/10/96) Vol. 35. No. 40 P.2C/1 Boston based Meredith & Grew reports that the area is commercial real estate market finished last year in good condition. The greater Boston market vacancy rate ended at 5.8 percent, which was down almost 12 percent from the level of four years ago. Fourth quarter 1996 was especially busy for area brokers, with net absorption for the three-month period exceeding 450,000 square feet. That brought total absorption for the year to 1.3 million square feet. The citywide vacancy rate hit 5.5 percent at year end, with the Financial District's rating standing at 5.1 percent and the smaller Back Bay standing at just 3.6 percent. Suburban vacancies, meanwhile dropped to 6.3 percent, which was their lowest since the end of the last decade. "Areas Commercial Market Finishes 1996 On a High Now" Boston Globe (1/18/97) P.E1/1 The office market in the Boston metropolitan area totaled 102.9 million square feet as of April 1997. The office market is comprised of the City of Boston, the City of Cambridge, and Boston's Suburbs. 25 <PAGE> LANDAUER REAL ESTATE COUNSELORS According to Spaulding & Slye's Boston brokerage office, the supply of office space in the major office submarkets at the end of the first quarter of 1997 was as follows: - -------------------------------------------------------------------------------- Inventory of Office Space Boston Office Market - April 1997 (in square feet) - -------------------------------------------------------------------------------- Size % Metro Market Vacancy % ---- -------------- --------- Boston North Station 2,143,277 2.1% 10.9% Charlestown 1,683,500 1.6% 3.1% Financial District 29,908,431 29.0% 6.6% Fort Pt Channel 2,240,241 2.2% 11.3% South Station 1,934,221 1.9% 11.8% Back Bay 9,522,670 9.2% 5.0% ----------- ----- --- Total City of Boston 47,432,340 46.1% 6.8% City of Cambridge Alewife / Route 2 1,382,668 1.3% 2.5% Harvard Square/Mass. Ave. 1,764,313 1.7% 3.3% East Cambridge 6,500,131 6.3% 5.8% ----------- ----- --- Total City of Cambridge 9,647,112 9.4% 4.9% Suburbs North 6,061,935 5.9% 13.1% Northwest 7,312,588 7.1% 9.8% Rte. 128/Mass. Pike 11,454,451 11.1% 6.5% South 10,074,844 9.8% 9.5% Rte. 495/Mass Pike 5,913,097 5.7% 8.4% Rte. 495 North 4,117,178 4.0% 18.2% Rte. 495 South 985,545 1.0% 3.2% ----------- ----- --- Total Suburbs 45,919,638 44.6% 9.8% Total Boston Metropolitan Area 102,999,090 100.0% 8.0% - -------------------------------------------------------------------------------- Source: Spaulding & Slye Report - -------------------------------------------------------------------------------- The overall City of Boston and Suburban markets account for approximately equal parts of the overall inventory. The largest concentration of Class A product is found in the Financial District. The City of Boston currently enjoys a stronger occupancy level than the suburbs. Currently the total metropolitan office market vacancy rate stands at a decade low of 8.0%, with the city at 6.8% and the suburbs at 9.8%. 26 <PAGE> LANDAUER REAL ESTATE COUNSELORS Boston Metropolitan Area Office Vacancy [GRAPHIC OMITTED] Vacancy rates are down significantly from previous years in all city markets. The total metropolitan office market vacancy rate is significantly improved from the 8.7% recorded in October 1996 and the 15.9% in October 1993. In the following sections, the individual submarkets will be examined in greater detail. City of Boston Overview The City of Boston consists of six submarkets, the Financial District; Back Bay; Charlestown; North Station; South Station; and Fort Point Channel. Of these the Financial District is by far the largest with 29.9 million sq. ft. The second largest is Back Bay with 9.5 million sq. ft. The remaining 8.0 million sq. ft. are spread over the remaining four city submarkets; North Station, Charlestown, Fort Port Channel and South Station. Of these, only the financial district and Back Bay contain significant quantities of Class A space today. The major subdivisions of the downtown Boston office market are: o Financial District o Back Bay o North Station o Charlestown o South Station o Fort Point Channel 27 <PAGE> LANDAUER REAL ESTATE COUNSELORS The area is remarkably compact, and no district is more than a ten- to fifteen-minute walk from any other. Geographically, the area is bounded by the Public Gardens and the Massachusetts Avenue. Inventory of Space - Downtown [GRAPHIC OMITTED] Within the City of Boston, the Financial District is the dominant sub-market in terms of size and prestige. The much smaller Back Bay market has been equaled or eclipsed by the Cambridge market as well as a number of the suburban office market districts in size, but the Back Bay location remains prestigious. Vacancy Rates Vacancy rates for the City of Boston have fallen drastically since 1992, The overall vacancy rate for the City stood at 6.8% as of April 1997. Boston Metropolitan Area Office Vacancy [GRAPHIC OMITTED] 28 <PAGE> LANDAUER REAL ESTATE COUNSELORS Rent levels Rent levels for the City of Boston overall have shown continued improvement. Rents have risen from $26.08 per square foot in April 1996 to $27.90 per square foot in April 1997. City of Boston Asking Rents [GRAPHIC OMITTED] Financial District The heart of the city's economy is the financial district, with a current inventory of 29.9 million square feet. Its borders are State Street on the north, Purchase and Summer Streets on the south, the Central Artery on the east and Washington Street on the west. The area houses many of Boston's major banks, including the Bank of Boston, Shawmut Corporation, Bay Bank and State Street Bank. It is also the center for the money-management industry. Boston ranks second only to New York in money management, and ranks first in management of mutual funds for the nation. The office vacancy rate in the Financial district has experienced a remarkable recovery over the past six years: 29 <PAGE> LANDAUER REAL ESTATE COUNSELORS Office Vacancy - Financial District [GRAPHIC OMITTED] This is largely due to a dearth of new construction and the recovery of the Boston economy, largely driven by the financial services sector. At present the vacancy rate is exerting upward pressure on rents which is expected to spur new product, most likely in the form of rehabilitated space given the lack of developable sites. Rent levels likewise have improved considerably over the recent past. Asking rents currently average $31.37 per square foot, up 8.4 percent from April 1996's $28.94. Over time, base rents have trended strongly upward. Using Boston office-tower rents in the financial district as a benchmark, we can trace the distinct upward trend in base rents from 1979 to 1988. In 1979, base rents in new downtown office towers averaged $12 per square foot. By 1985, base rents had almost tripled from this depressed level and averaged $33 per square foot. The market suffered a crash around 1990 from which the recovery has been dramatic. During the early 1990's rents fell to the low $20's for prime class A space. The extent of the recovery can been seen in the most recent quarter's asking rentals. As of first quarter 1997, average asking rents in buildings in the financial district were in the $30.00 to $45.00 range depending upon tenant buildout. Back Bay asking rents are lower, between $28.00 to $36.00. Asking rents in new towers in 1989 hit $60 per square foot, but those prices are not seen now. Free rent and some other leasing 30 <PAGE> LANDAUER REAL ESTATE COUNSELORS concessions that were at an all-time high a few years ago are absent from the market. Back Bay The Back Bay market has benefited and will continue to benefit from many positive characteristics. Back Bay has the highest percentage of its population with a college degree of any of Boston's neighborhoods or districts. This highly educated workforce and the location's accessibility through public transportation and highway network is what attracts companies to Back Bay. This market is easily accessible from downtown Boston and is well served by public transportation. The office leasing market was once dominated by large owner/users, advertising firms, and financial services institutions. Publishing, communications, and medical users have a strong presence in today's Back Bay submarket. The Back Bay vacancy rate continues to decline. The current vacancy rate of 5.0 percent is close to the structural vacancy rate where little space remains effectively available. Already large space users are encountering difficulties leasing appropriate space. Office Vacancy - Back Bay Markets [GRAPHIC OMITTED] Asking rents in the Back Bay have improved 10.8 percent from April 1996 to $27.89 per square foot. Continued upward pressure is anticipated for rentals as the supply of available space diminishes. Following are the most recent asking rentals and vacancy rates at properties judged most competitive to Copley Place: 31 <PAGE> LANDAUER REAL ESTATE COUNSELORS - -------------------------------------------------------------------------------- Address Year Built Available % Asking Rents - -------------------------------------------------------------------------------- 399 Boylston Street 1984 23% $28.00-$32.00 855 Boylston Street 1986 19% $28.00 One Exeter Place 1984 30% $28.50 101 Hungington Ave 1970 10.4% $32.00-$36.00 - -------------------------------------------------------------------------------- Copley Place's office component competes most favorably with 101 Huntington Avenue. The Prudential Center is a superior competitor, however this property is effectively 100% leased. Additions to Supply Because of the tightly controlled planning process in Boston, the approval process can be lengthy and complicated for the developer. The positive side of the system is that it affords existing and approved projects a certain amount of protection. In addition to trying 1o keep the office market in relative supply-demand equilibrium, the BRA has created an exhaustive design-review process to ensure that a building will make a contribution to Bostons rich architectural heritage and make thoughtful use of public space. For all of the problems this presents to developers, the BRA is often cited as one of the positive forces in downtown Boston. As of January 1997 no new office construction was underway for the Back Bay market. Prudential Center is reported to have approvals for a second tower although the timing of this project is conditional upon the economic feasibility of the project. With many potential large space users facing the "structural/no vacancy" situation, there is pressure for new development although rentals remain below the feasibility levels necessary for new development. In this current tight market it is expected the suburbs will benefit from the overflow effect. On a larger scale the City may risk business relocations due to space limitations and rising occupancy costs. The possibility of new renovation projects is growing given the rising rentals and the tightening market. 32 <PAGE> LANDAUER REAL ESTATE COUNSELORS City of Cambridge Overview The Cambridge office market developed initially because this city, just across the Charles River from Boston, is the home of two of the world's premier educational institutions, Harvard and MIT. The latter, particularly, has spawned numerous private, high-technology enterprises, and although Cambridge office developers market their office buildings widely, the vast majority of office space here is still leased by Cambridge-bred firms. As a result this submarket's tenant roster continues to be dominated by high technology office tenants, especially in the East Cambridge office buildings adjacent to the MIT laboratories. The Cambridge office market contains about 9.6 million square feet of office space. Currently there is no new construction underway. Net absorption in this market for the first quarter of the year equaled 31,164 square feet, or 6.6 percent of the supply of vacant (469,323). Vacancy Rate The first quarter 1997 vacancy rate, at 4.9%. was the lowest in the Greater Boston market This is a 64 percent decease form the January 1993 vacancy rate of 13.6 percent. Boston Metropolitan Area Office Vacancy [GRAPHIC OMITTED] Rent Levels Overall asking rents average $26.48 per square foot, up from the $24.58 from April 1996 and the $20.00 per square foot recorded in 1991. Rentals are expected to be under continued upward pressure as vacancies fall and the economy continues to expand. 33 <PAGE> LANDAUER REAL ESTATE COUNSELORS Suburban Market Overview The suburban market is made up of seven submarkets, North; Northwest; Route 128/Mass Pike; South; Route 495/Mass Pike; Route 495 North; and Route 495/South. The suburban market totaled 45.9 million sq. ft. in April 1997. The largest of these submarkets was Route 128/Mass Pike with 11.5 million sq. ft. in April 1997. The South submarket was a close Second with 10.1 million sq. ft. in April 1997. The total office market inventory expanded from 91.1 million sq. ft. in October, 1990 to 102.9 million sq. ft. in April 1997, according to Spaulding & Slye, a Boston-based brokerage company. Vacancy Rate The suburbs declined along similar lines, vacancies dropped from the same 16.3% rate in October 1993 to 9.8% in April 1997. This tightening signifies a far more rapid recovery than had been predicated. At present the market is considered healthy with evidence of rental increases foreshadowing economically feasible new construction. Boston Metropolitan Area Office Vacancy [GRAPHIC OMITTED] The suburban market has improved considerably over the past four years. Select submarkets, notable Waltham let the recovery. The northern submarkets still lag the strongest markets including the City of Boston. Rent Levels Rentals in the suburban currently average $22.94 per square foot slightly up from April 1996's $22.64 per square foot. The strongest submarket is the Route 128 / Massachusetts Turnpike submarket which recorded an average rental of $25.50 per square foot. The weakest submarket is the Route 495 north market with an average rental of just $13.13 per square foot. 34 <PAGE> LANDAUER REAL ESTATE COUNSELORS RETAIL MARKET OVERVIEW Supply: As previously noted, the retail component of Copley Place consists of an enclosed, two-level, urban mall which contains 260,491 square feet of high-end fashion mall tenants and a 107,922 square foot Neiman Marcus store. The center is located in the Back Bay section of downtown Boston and is bordered by Stuart Street to the north, Dartmouth Street to the east, Carleton Street to the southeast, Harcourt Street to the southwest and Huntington Avenue to the northeast. Shopping in central Boston centers around three main areas -- Downtown Crossing, the downtown waterfront area and Back Bay. The Downtown Crossing area includes the 1.6 million square foot Lafayette Place mixed-use development which opened in 1984. The center includes approximately 840,000 square feet of gross leasable area anchored by Jordan Marsh and connects to the downtown Filene's Basement store. The development also includes a 500-room hotel, parking for 1,300 cars and an open air plaza for dining and special events. The waterfront area includes the Faneuil Hall/Quincy Marketplace development by the Rouse company. The mixed use development, which adjoins both the waterfront and the financial district, includes an 80,000 square foot retail component and is a major tourist attraction. The Back Bay area contains the city's most exclusive retail outlets and is superior in respect of location, quality of merchandise, customer base and achieved rental levels. The major retail concentrations are located at Copley Place, the adjoining Prudential Center and in freestanding stores along nearby Boylston and Newbury Streets. The combined retail facilities draw visitors from all over the Boston area. At the present time, the Back Bay area contains approximately 1,200,000 square feet of gross leasable area and comprises approximately 40% of the total city of Boston retail market. In fact, over two hundred retailers are located in the area along Boylston and Newbury Streets, including Alexander Kaminsky, Avanti, Burberry's, Cartier, Escada, FAO Schwartz, Gianni Versage, Guess and Kenneth Cole, to name a few. 35 <PAGE> <TABLE> <CAPTION> COMPARABLE BACK BAY RETAIL RENTALS - --------------------------------------------------------------------------------------------------------------------------- # Location Tenant Leased Area Date Net Rent (psf) Excess TI (sf) Term Allowance Concessions <C> <S> <C> <C> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------- 1 77 Newbury Street Lease out for 3,000 May-97 $60.00 One month free, or signature 5 yrs. 2% of rent - --------------------------------------------------------------------------------------------------------------------------- 2 Newbury Street Space will go on n.a. July-97 Asking: $60-$65 None (between Clarendon market soon. and Dartmouth Currently occupied Streets) - --------------------------------------------------------------------------------------------------------------------------- 3 711 Boylston Street Apparel tenant 5,300 of May-97 $64.00 None grade level 5 years Basement $10.00 to space $15.00 - --------------------------------------------------------------------------------------------------------------------------- 4 118 Newbury Street Telecommunications 3,000 May-97 $61.00 None Firm (2,500 on plus annual parlor & escalations of 3% 500 on mezzanine) - --------------------------------------------------------------------------------------------------------------------------- 5 194 Newbury Street NikeTown Superstore 30,000 sf Dec-96 Yr. 1: $42.00 Build to suit SWC Newbury & Street level, 20 years Yr. 2: $42.85 building. Exeter Streets 2nd and 3rd Yr. 3: $43.85 Landlord reportedly floors Yr. 4: $44.85 spent $65 psf over Yr. 5: $45.85 standard Yr. 6-10: $53.20 Yr. 11-15: $64.00 Annual Avg: $3.25 Yr. 16-20: $70.00 10 Yr. Avg: $48.54 20 Yr. Avg: $57.70 - --------------------------------------------------------------------------------------------------------------------------- 6 126 Newbury Street Pottery Barn 7,220 sf Oct-96 $61.00 Standard Street level 3 years - --------------------------------------------------------------------------------------------------------------------------- 7 75 Newbury Street Coach 2,000 sf Oct-96 $65.00 Standard Street Level 10 years - --------------------------------------------------------------------------------------------------------------------------- 8 164 Newbury Street Sunglass Hut 1,250 sf Oct-96 $68.00 Unknown (estimated) 5 years - --------------------------------------------------------------------------------------------------------------------------- </TABLE> - ----------------------------------------------------------------------------- # Location Comments - ----------------------------------------------------------------------------- 1 77 Newbury Street The space is two steps down from the street. Entrance is through the building lobby which has just been renovated. Reportedly, this lease has been out for signature for two months, but another tenant is ready to lease the space at the same rent level for ten years, between $60 and $65 per square foot. - ----------------------------------------------------------------------------- 2 Newbury Street This is street level space. Floor through of a (between Clarendon brownstone and Dartmouth Streets) - ----------------------------------------------------------------------------- 3 711 Boylston Street This building underwent a complete renovation. - ----------------------------------------------------------------------------- 4 118 Newbury Street This is a brownstone and there are several steps to the parlor level - ----------------------------------------------------------------------------- 5 194 Newbury Street This is a new 4-story building. The tenant SWC Newbury & occupies the first three floors and the landlord Exeter Streets occupies the fourth floor. The lease was signed in late 1995. The leasing agent stated that the first floor was priced at $80 per square foot. First 10 year effective rent: $45.29 20 year effective rent: $54.45 - ----------------------------------------------------------------------------- 6 126 Newbury Street Includes additional 6,000 square feet of basement storage space. - ----------------------------------------------------------------------------- 7 75 Newbury Street - ----------------------------------------------------------------------------- 8 164 Newbury Street Tenant moved from space next door. - ----------------------------------------------------------------------------- <PAGE> LANDAUER REAL ESTATE COUNSELORS Details of recent 1996 and 1997 retail leases for street level stores on Newbury and Boylston Streets are displayed on the facing page. The spaces surveyed range in size from 1,250 square feet to 30,000 square feet with three-to-ten-year lease terms. The signed base rents range from $42.00 per square foot to $68.00 per square foot, with approximately half remaining level throughout the term and the remainder with stated rent steps. The comparable leases are all net leases, with tenant responsible for payment of real estate taxes and operating expenses. Copley Place is connected by a pedestrian bridge to the Prudential Center (across Huntington Avenue) where an enclosed mall containing approximately 462,000 square feet of retail space, the Shops at Prudential Center, is located. This center originally opened in 1965, and its expansion/redevelopment was completed in 1993. The center is anchored by Lord & Taylor and Saks department stores, and contains 71 additional stores including smaller tenants such as FAO Schwartz, Brooks Brothers, Escada, Giorgio Armani and Yves St. Laurant. According to the 1997 Shopping Center Directory published by Blackburn Marketing Services (U.S.), Inc., the center had a 1996 occupancy rate of 91% and retail sales of approximately $553 per square foot. Copley Place represents a major upscale retail presence in its market area. It both complements and competes with the Shops at Prudential Center and the historic shopping areas along Newbury and Boylston Streets. Secondary competition is provided by various enclosed suburban regional malls, primarily the Mall at Chestnut Hill and the adjacent Atrium at Chestnut Hill (which in part duplicate some of the tenants of Copley Place). Secondary competition for Copley Place is also provided by a variety of high-end merchants in the affluent suburbs of Boston including Concord, Lexington, Marblehead, Newton and Wellesley. Two other more local vertical malls --Cambridgeside Galleria (Cambridge) and Lafayette Place (downtown Boston) -- possess inferior tenant mixes, cater to less affluent shoppers and are not considered to be directly competitive with Copley Place. While Prudential Center provides competition, it also lends a high degree of synergy by reinforcing the general strength of the Back Bay as an upscale retail location and providing more of a link between Copley Place and the freestanding retailers on Boylston & Newberry Streets. Also, given the 36 <PAGE> LANDAUER REAL ESTATE COUNSELORS general malaise in the retail industry over the last 5 years or so, along with the opening of the expanded Shops at Prudential Center across Huntington Avenue, Copley Place has done exceptionally well, maintaining both high sales and occupancy levels. In fact, during 1995 and 1996, retail sales at Copley Place increased by 7.3% and 6.6% respectively. This provides further evidence of the quality of the development, in that it has continued In do well during a period of faltering retail sales trends nationally, while withstanding the advent of enhanced competition. Demand/ Sales Analysis: Generally speaking, Suffolk County and the Boston-Brockton-Nashau NECMA experienced fairly strong retail sales growth from the early to late 1980s. Since the late 1980s, however, Suffolk County and the Boston-Brockton-Nashau NECMA lagged the State of Massachusetts as a whole in retail growth. All three regions experienced declines in total retail sales between 1990 and 1992. Between 1992 and 1995, Suffolk County's total retail sales increased by an average of 3.9%, lagging both the Boston-Brockton-Nashau NECMA's (4.0%) and the State of Massachusetts' (4.3%) average annual increases. Between 1993 and 1995, however, all three regions experienced more dramatic average annual increases in total retail sales, reaching 5.0% per annum for Suffolk County and the Boston-Brockton-Nashau NECMA, and 5.4% per annum for the state. Reflecting current economic conditions, the outlook in the near-mid term is for continued growth although at lower levels than experienced during the most recent past. Total retail sales (i.e. all retail sales including supermarkets, drugstores, auto dealerships etc.) for Suffolk County and the Boston-Brockton-Nashua NECMA approximated $4.9 billion and $53.3 billion in 1995 respectively. Total retail sales for Suffolk County and the Boston-Brockton-Nashau NECMA are projected to increase at approximately 1.5% and 2.0% per annum through 2000, respectively. Total retail sales per household for Suffolk County averaged $18,994 in 1995, only 79% of the Boston-Brockton-Nashau NECMA average. The differential reflects the comparatively lower income levels for the inner city area as a whole, compared with the region as a whole. GAFO Sales (general merchandise, apparel and accessories, furniture and furnishings and other retail sales) are otherwise known as department store type merchandise and, together with food, represent the bulk of sales at 37 <PAGE> LANDAUER REAL ESTATE COUNSELORS regional malls and specialty centers such as Copley Place. GAFO sales within Suffolk County increased at 3.2% per annum from 1987-1990, compared with 3.5% for the Boston MSA, and 3.7% for Massachusetts. GAFO sales per household, meanwhile, were much lower for Suffolk County. Between 1990 and 1992 as the area suffered from the national recession, GAFO sales declined at an annual rate of 3.5% in Suffolk County, by 1.8% in the Boston MSA, and by 1.2% in Massachusetts as a whole. Between 1992 and 1995, as the region emerged from the recession, GAFO sales increased at an annual rate of 7.6% in Suffolk County, by 2.5% in the Boston MSA, and by 2.2% in Massachusetts. In 1996, the estimated average GAFO sales per household for Suffolk County of $6,038 represented only 64% of the Boston-Brockton-Nashau NECMA ($9,466) and 66% of the Massachusetts ($9,160) averages. Again, the comparatively lower levels for Suffolk County reflect the corresponding income levels for the area and disguise the sales potential for the up-market retail milieu in and around the Back Bay. Retail sales in the Copley Place trade area are expected to increase at rates that reflect the current economic recovery and recent historical increases at the center. As a result, and reflecting current reported sales trends, retail sales for Copley Place have been projected by Landauer to increase by 4% per annum throughout the projection period. Forecast increases in population, the number of households and the increased income per household should fuel a growth in sales. Conclusion: As previously noted, the Back Bay area is Boston's most prestigious retail location with a wide variety of up-market retailers in both the freestanding locations along Newberry and Boylston Streets and in the enclosed centers at Prudential Center and Copley Place. Vacancy levels at Copley Place, Newbury and Boylston Streets are extraordinarily low and generally represent frictional levels. A strict regulatory environment should preclude any additional significant retail expansion in the Back Bay for the foreseeable future. Although the recent expansion of the Shops at Prudential Center provided additional competition for Copley Place, it also reinforced the competitive draw of the general location, to the benefit of each. The combined drawing power of the two centers, which are linked by the pedestrian bridge across 38 <PAGE> LANDAUER REAL ESTATE COUNSELORS Huntington Avenue, may well exceed the sum of the individual drawing powers of the centers were they not to be connected in this way. This is evidenced to some extent by the performance of Copley Place over the last few years. Despite having been through a period of faltering national retail sales, and despite the enhanced competition provided by the redeveloped and expanded Shops at Prudential Center, Copley Place has continued to maintain high sales and occupancy levels, testifying to the quality of the development and the location.. With no new competition proposed and a general improvement in the retail sales climate nationwide, the prospects for Copley Place maintaining its market share are good. 39 <PAGE> LANDAUER REAL ESTATE COUNSELORS Location Map Back Bay, Boston [GRAPHIC OMITTED] <PAGE> LANDAUER REAL ESTATE COUNSELORS NEIGHBORHOOD ANALYSIS Overview: Copley Place is located in the part of Boston that is known as the Back Bay, and is located approximately one mile southwest of the heart of Boston's Financial District. The area is characterized by a mixture of historic and contemporary buildings predominantly supporting office, retail and residential uses. The urban neighborhood is bounded by Storrow Drive and the Charles River to the north, Arlington Street and the Public Gardens/Boston Common to the east, Huntington Avenue and the Massachusetts Turnpike to the south and Massachusetts Avenue to the west. The Back Bay is an area of contrasts and contains a mixture of stately old town houses, relatively new office buildings, chic fashion-oriented shops and abundant parkland. Noteworthy buildings in the area include the Ritz Carlton Hotel, the Boston Public Library, Haynes Convention Center, Trinity Church, Holy Cross Cathedral, Old South Church, Christian Science Church, Horticultural Hall, the Museum of Fine Arts, Longwood Medical Center, the Decorators Building, and Symphony Hall, home of the Boston Pops. Many hotels and office buildings are located in the immediate vicinity of Copley Place. In addition, open public areas like Boston Public Garden, Commonwealth Avenue Mall and Copley Square Park are nearby. Development in the Back Bay has historically been subject to innovative, but restrictive zoning ordinances, aimed at preserving the character of the area and concentrating commercial development along the so-called High Spine, of which Boylston Street is the center. The historical background, together with the strong growth of the office and retail markets in the Back Bay, has created a unique community ambiance and business environment. As noted elsewhere in the report, the Back Bay office district contains about 9.5 million square feet of office space. Major office buildings and mixed-use premier projects enhance the area. Copley Plaza, the Heritage on the Garden, the John Hancock Tower and 500 Boylston Street are examples. Office tenants tend to be of two types. On the one hand, there are huge insurance firms such as New England Life, John Hancock, Liberty Mutual, Prudential and major space users such as Massachusetts Financial Services, Gillette, Boston Edison and New England Telephone. On the other hand, the remainder of the Back Bay market consists of small professional firms 40 <PAGE> LANDAUER REAL ESTATE COUNSELORS occupying 10,000 square feet or less and include many creative firms in the areas of advertising, design, consulting, architecture and engineering. As noted in the Retail Market Overview, Back Bay is also the premier high-end retail location, encompassing Copley Place, the Shops at Prudential Center and freestanding retail stores located along Boylston and Newbury Streets. It is also a highly desirable residential area, especially for young urban professionals. Copley Place has the benefit of being surrounded by luxury shopping. Located within Copley Place are such retailers as Neiman Marcus, Tiffany & Company, Williams-Sonoma, Gucci, and A/X Armani Exchange. Directly across Huntington Avenue lies the Shops at Prudential Center. The mixed use development includes office, residential, hotel, retail and garage components. As noted elsewhere in the report, approximately 150,000 square feet of mall stores were added to the center in 1993. Anchored by Lord & Taylor and Saks Fifth Avenue, this center is connected to Copley Place by a pedestrian bridge, and contains other smaller upscale retailers such as Escada, Yves St. Laurant, Giorgio Armani and Brooks Brothers, complementing those at Copley Place. Additional upscale retail outlets and boutiques, including Burberry's, Cartier, Coach, Empono Armani, Escada, Gianni Versage and Rodier of Paris, are located along Boylston and Newbury Streets. Additionally, there are over sixty restaurants and over thirty cafes, coffee houses or desert restaurants located along Newbury and Boylston Streets. Because of the quality of the environment, the Back Bay is the center of hotel accommodations. First class hotels such as Copley Plaza, the Ritz Carlton, Westin, Marriott and Four Seasons are all located in the immediate vicinity. Regional Access The transportation system in the area is highly developed with an extensive local and commuter subway and bus system. The major road arteries that connect Boston with the suburban areas merge in the Back Bay. The Massachusetts Turnpike links the Back Bay with the Western Suburbs. The Southeast Expressway (Interstate 93) provides the Back Bay with a link to the South Shore. Storrow Drive connecting with Route 93 North, links the North Shore to the Back Bay. The street system in the Back Bay consists of 41 <PAGE> LANDAUER REAL ESTATE COUNSELORS both local and arterial streets and limited access highways, as well as light and heavy rail service which provides easy access to the area and to the project. The suburbs and airport are equally accessible. 42 <PAGE> LANDAUER REAL ESTATE COUNSELORS PROPERTY ANALYSIS Site Data: The site is located in the Back Bay section of Boston, Massachusetts. The site is bordered by Dartmouth Street to the east, Huntington Avenue to the north, Harcourt Street to the west and Carleton Street to the south. The site is generally level at grade and irregular in shape. A site plan on the facing page delineates its boundaries. The site is traversed by the Massachusetts Turnpike on the north side of the site and by the Amtrak, Conrail and the Boston subway system on the southern side of the site. The subject's site area is approximately 9.5 acres. All municipal utilities are available at the site. The site is improved with a mixed-use development that consists of retail, office, hotel, residential and parking components which are constructed over the turnpike and railroad tracks. As mentioned previously in this report, Urban Investment and Development Co. originally held the leasehold interest in the air-rights over the site with tenure expiring on December 14, 2077. Urban has since been acquired by JMB and title to the property is now vested in Copley Place Associates, a wholly owned subsidiary. All of the ground rent liability under the air rights lease has effectively been pre-paid by way of a bond issue which guarantees the ground rent payments. Improvements Description: Overview: Copley Place is a mixed-use development which was completed in 1984 on 9.5 acres of land and air rights (above the Boston Extension of the Massachusetts Turnpike). The improvements consist of four (six story) connected office towers surrounding an atrium, with a two-level enclosed mall (anchored by Neiman Marcus) on the bottom two levels. The development also includes the Marriott and Westin Hotels at the south and north ends, respectively. The main structure also includes an 830 parking space, enclosed "Central Parking Garage." Adjoining the complex, but not physically attached, is a 104 unit, subsidized rental apartment building (Tent City Residences) with below grade parking. Below the residences is the Dartmouth Street Garage a 698 parking space, two level facility. The main complex is joined by a pedestrian bridge to the Prudential Center immediately to the northwest. The Back Bay Station is located across Dartmouth Street to the east with 43 <PAGE> Photographs of Copley Place [GRAPHIC OMITTED] Diagram of Copley Place [GRAPHIC OMITTED] View of office component sky lobby <PAGE> Photographs of Copley Place [GRAPHIC OMITTED] View of upper level of mall. [GRAPHIC OMITTED] View of entrance to Sony Theaters. <PAGE> Photographs of Copley Place [GRAPHIC OMITTED] View of mall restaurant area. [GRAPHIC OMITTED] View of center mall atrium from second level. <PAGE> Photographs of Copley Place [GRAPHIC OMITTED] View of new stairway at Neiman Marcus end of mall. [GRAPHIC OMITTED] View of vacant retail unit. <PAGE> Photographs of Copley Place [GRAPHIC OMITTED] View of typical office tenant floor. [GRAPHIC OMITTED] View of service corridor behind retail tenant spaces. <PAGE> Photographs of Copley Place [GRAPHIC OMITTED] View of freight elevator. [GRAPHIC OMITTED] View of Dartmouth Street garage entry. <PAGE> Photographs of Copley Place [GRAPHIC OMITTED] View of central garage deck repair. [GRAPHIC OMITTED] View of central plant mechanical area. <PAGE> LANDAUER REAL ESTATE COUNSELORS direct pedestrian access to and from the property. Amtrak, Conrail and the commuter rail (Purple and Orange lines) all stop at the Back Bay Station. As previously noted, for the purposes of this appraisal, only the office, retail, Central Garage, and Dartmouth Street Garage components of Copley Place are being valued. The Hotel and the residential building have been excluded. The basic distribution and location of space is as follows: ================================================================================ Component Occupied Area Incl. in Appraisal ================================================================================ Mall Stores 260,491 s.f. (GLA) yes - -------------------------------------------------------------------------------- Neiman Marcus 107,922 s.f. (GLA) yes - -------------------------------------------------------------------------------- Total Retail 368,413 s.f. (GLA) yes - -------------------------------------------------------------------------------- Offices 845,000 s.f. (NRA) yes - -------------------------------------------------------------------------------- Dartmouth St. Garage 698 spaces yes - -------------------------------------------------------------------------------- Central Garage 830 spaces yes ================================================================================ The Westin Hotel 800 rooms no - -------------------------------------------------------------------------------- Marriott Hotel 1,147 rooms no - -------------------------------------------------------------------------------- Tent City Residences 104 units no ================================================================================ The main structure (which incorporates the central garage, mall and office space) is built on foundation piles with precast concrete and steel piles. The floors are supported by structural steel decking. Walls consist of gypsum block with exterior foil-backed wallboard. The exterior curtain walls consist of face brick and glass block. Exterior and interior windows are non-thermal break aluminum, fixed with tinted insulated thermal glass. The roof consists of gypsum board roof sheathing on a metal deck with a loosely laid elastomeric membrane roofing system. The finishes includes drywall construction, cement plaster and stucco work and painting and glazed wall coatings. Walls and floors also have ceramic and travertine tiles. Ceilings consist of acoustical tiling. The skylight is constructed of glass and aluminum. The office areas are generally finished 51 <PAGE> LANDAUER REAL ESTATE COUNSELORS [GRAPHIC OMITTED] LOWER RETAIL LOBBY <PAGE> LANDAUER REAL ESTATE COUNSELORS with sheetrock walls, carpeted floors, suspended acoustical tile ceilings with recessed fluorescent lighting. The main structure (which incorporates the central garage, mall and office space) has 24 geared traction elevators (17 in office buildings, 7 in the mall, 1 in Neiman Marcus), 3 hydraulic elevators (1 in the office buildings, 2 in Neiman Marcus), 1 dumbwaiter (in Neiman Marcus) and 20 escalators (2 in the office buildings, 14 in the mall and 4 in Neiman Marcus). Retail: As previously noted, the retail space at Copley Place consists of a two-level, enclosed urban mall containing 260,491 square feet of mall space and a 107,922 square foot Neiman Marcus store. The mall contains over 100 stores together with restaurants and a 13-screen Sony movie theater. As illustrated by the plan on the facing page, the mall building is basically triangular in shape. Internally, at the lower level, the stores are primarily arranged along a lineal east-west axis, with the Marriott Hotel lobby and the Huntington Avenue Bridge (to the Prudential Center, Saks and Lord & Taylor) at the west end, the main building atrium lobby at the center and the Neiman Marcus store at the east end where escalators also lead down to the Back Bay Transportation Center entry lobby. At the lower level, there are also two shorter north-south side courts - one at the east end of the mall extending north to the Stuart Street pedestrian bridge (providing access to the Westin Hotel), and the other extending south from the atrium to the Sony multi-screen movie theater. The corridor from the Huntington Avenue Bridge, through the lower level of the mall to the Back Bay Transportation center is heavily trafficked, especially at peak commuting hours. The atrium lobby also contains the elevator access to the office buildings together with escalators to the upper level of the mall. The layout of the upper level is similar with the main east-west corridor linking the Gap at the west end of the mall to Neiman Marcus at the west end and a shorter side court extending south from the central atrium area. Unlike the lower level, however, there is no ingress or egress to the mall at the upper level. A new stairway is under construction at the Neiman Marcus end of the mall to provide access to the upper level retail. 52 <PAGE> LANDAUER REAL ESTATE COUNSELORS [GRAPHIC OMITTED] SKYLOBBY <PAGE> LANDAUER REAL ESTATE COUNSELORS Functionally the mall appears to work reasonably well although the existence of only one anchor store wouldn't normally be conducive to maximizing shopper circulation within the mall. As a rule, regional malls rely on at least two strategically-located anchor stores to stimulate and maximize pedestrian circulation within the mall. In the case of Copley Place, however, there is only one department store - Neiman Marcus -which is located at the east end of the center. At the lower level circulation is encouraged by the location of the Marriott Hotel and the pedestrian bridge to the Prudential Center at the west end of the mall, the pedestrian bridge to the Westin Hotel and the escalators to the Back Bay Transportation Center at the east end of the mall. To some extent, the 462,000 square foot Prudential Center (anchored by Lord & Taylor and Saks) also now acts as an anchor. Most two-level malls also require public ingress and egress points at each level in order to maximize circulation. At Copley, the primary access and egress to the center are located at the lower level. These factors go some way to explaining why, as reported by mall management, the pedestrian flow tends to be lower on the upper level of the mall than on the lower level. The new stairway at the Neiman Marcus end of the mall, which was important in finalizing the J. Crew lease, is expected to go some way towards ameliorating this condition. Also offsetting these potential functional deficiencies at the center, to some extent, is the "high-end" nature of many of the mall stores which are unique to the center and which attract increased pedestrian flow. Physically, the mall provides an attractive, above-average retail environment which is consistent with the high-end nature of the tenant mix and its marketing thrust. Upon inspection, the mall appeared to be in good overall physical condition. Office: The office component consists of approximately 845,000 square feet of leasable area in four interconnected office towers surrounding a sky-lit atrium. The six office floors are called the second through seventh floors although are technically the fourth through ninth floors of the project. The entrance (Skylobby) to the office elevator banks is located on the third floor and is accessed via the elevator bank at the center of the retail atrium. Sixteen elevators serve the office towers. 53 <PAGE> LANDAUER REAL ESTATE COUNSELORS The office component consists of four irregularly shaped (hexagonal) interconnected office towers surrounding a sky-lit atrium. The towers are called One, Two, Three and Four Copley Place. The atrium is ten-stories high and is capped with a glass and steel pinnacled roof. There is a three story waterfall which spills into a granite pool on the ground floor. The third floor (Skylobby) is the entrance to the office elevator banks. Each tower has its own private lobby and is served by four elevator cabs. The cabs are finished with rosewood, brass and marble. The office component consists of approximately 845,000 square feet of leasable area in seven floors including the Skylobby. While the office space is of reasonably good Class A design and quality, it could be viewed as possessing certain functional deficiencies. In particular, the building could be regarded as functionally inferior to a typical office building because it does not have a dedicated office lobby on the ground floor. Pedestrians entering the building have to go through the retail mall in order to access the office building. In addition the buildings are low-rise in nature and have extremely large floorplates and consequently lack light, air and views normally found in freestanding office buildings. The lowest floor of the office space overlooks the roofing area of the larger mall roof and has extremely limited views of the street. On the other hand, the buildings each have a dedicated lobby and the option on upper floors to provide an interconnected floorplate consisting of all four towers, or the option to segregate off a single tower, depending on tenant preferences. Certain tenants, such as Bain have interconnected floors in their units. The skylobby and the corresponding office tower lobbies do not appear to have been renovated since the buildings were constructed in 1984. These areas have a dated finish in need of upgrading. In conclusion, the office buildings suffer from functional obsolescence due to the entrance through the mall and low rise construction. Physically the office buildings suffer from the dated appearance of the skylobby and its corresponding office building lobbies. Some of this deterioration could have been overcome had a higher grade of material, such as granite been used in the lobby areas. The functional detriments, however, appear to be a result of the property 54 <PAGE> LANDAUER REAL ESTATE COUNSELORS being constructed over in-use thruway and railroad trackage. The cost to accommodate a high rise office tower would have been prohibitive because of the truss and piling necessary to support high-rise construction. Central Garage: The central garage is located beneath the retail and office structure and above the central plant. A portion of the garage is physically divided and reserved for the use of the two hotels. The portion of the garage included in the subject security contains 830 parking spaces and is constructed of reinforced concrete. Access is available from the office and retail levels by elevator. The garage is fully sprinklered. Upon inspection a re-decking project was underway to replace damaged decking. Construction is expected to be complete by the end of the summer. Dartmouth Street Garage: The Dartmouth Street garage is a two level underground parking garage located under the Tent City residences. The garage totals 698 spaces and is fully sprinklered. This garage provides overflow capacity for the central garage during peak periods of demand. 55 <PAGE> LANDAUER REAL ESTATE COUNSELORS Real Estate Taxes: The Central Garage, Dartmouth Street garage, retail and office components of Copley Place, which are the subject of the appraisal, are identified in the City of Boston tax rolls as follows: o Office, Retail, Central Plant and Central Garage Ward 4, Parcel 985-200, Bill 8820 o Dartmouth Street garage Ward 4, Parcel 00600-020, Bill 045320 Properties in Boston are not reassessed upon sale, but are reassessed every three years. Properties can also have their assessment adjusted annually if there is significant market activity. The property is scheduled for a re assessment next year. Taxes are based on a July 1 to June 30 fiscal year with payments in August, November, February and May. The tax rates and assessed values for FY/98 will not be set until early 1998. Consequently, the August and November payments are based upon 25% of the total previous fiscal year billing, with the February and May payments adjusted to make up the difference after the tax liability has been set. As of January 1, 1997, the subject property was assessed as follows: ----------------------------------------------- Assessments as of 1/1/97 ----------------------------------------------- Parcel Assessed Value ----------------------------------------------- 100 Huntington Ave $200,083,500 ----------------------------------------------- 128 Dartmouth St. $ 10,573,200 ----------------------------------------------- The 1997/98 tax rate is $41.50 per $1,000 of assessed value. The tax rate and assessments for 100 Huntington Avenue have fluctuated over the past several years as follows: 56 <PAGE> LANDAUER REAL ESTATE COUNSELORS - -------------------------------------------------------------------------------- Office, Retail & Central Garage - -------------------------------------------------------------------------------- FY Year Tax Rate Per $1,000 AV Assessments Tax - -------------------------------------------------------------------------------- 1995/96 $42.66 $153,952,000 $6,567,592 - -------------------------------------------------------------------------------- 1996/97 $42.59 $179,214,500 $7,632,746 - -------------------------------------------------------------------------------- 1997/98 $41.50 $200,083,500 $8,303,465 - -------------------------------------------------------------------------------- Dartmouth Street Garage - -------------------------------------------------------------------------------- FY Year Tax Rate Per $1,000 AV Assessments Tax - -------------------------------------------------------------------------------- 1995/96 $42.66 $ 9,765,700 $ 416,605 - -------------------------------------------------------------------------------- 1996/97 $42.59 $ 10,169,700 $ 433,128 - -------------------------------------------------------------------------------- 1997/98 $41.50 $ 10,573,200 $ 438,788 - -------------------------------------------------------------------------------- This results in estimated fiscal 1997/98 tax of $8,742,253. The taxes are allocated between the office, retail, and central garage at roughly the following percentages: ------------------------------------------------ Component Percentage ------------------------------------------------ Office 62.5% ------------------------------------------------ Retail 24.4% ------------------------------------------------ Copley Garage 10.8% ------------------------------------------------ Dartmouth Garage Separate tax bill ------------------------------------------------ The Dartmouth Street garage is taxed separately requiring no allocation for real estate taxes. Zoning: According to representatives of the Boston Redevelop Authority ("BRA"), Copley Place was legally approved under a specified development agreement. The original building plans were approved as the specified development agreement. Landauer was not provided with the original plans/specified development agreement and has not been able to verify that the existing improvements are in accordance with the provisions. However, it was represented to us by the BRA that the improvements are in accordance with the provisions. Copley Place is built over the Massachusetts Turnpike. The State leased the air rights over the Turnpike to the developers, Urban Investment & Development. Since the agreement was between the State and a developer, Copley Place is exempted from local zoning regulations. 57 <PAGE> LANDAUER REAL ESTATE COUNSELORS Density/use was agreed upon by the State authorities and the developer and reviewed/approved by the Boston Redevelopment Authority. The only allowable use is the specified development which appears to have been built in accordance with the provisions. Highest and Best Use: Overview: The Dictionary of Real Estate Appraisals, published by the American Institute of Real Estate Appraisers, (now the Appraisal Institute) copyright 1989, defines Highest and Best Use on page 149, as follows: The reasonable probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability. The following tests must be passed in determining highest and best use: 1. The use must be legal: 2. The use must be probable, not speculative or conjectural; 3. There must be a demand for such use; 4. The use must be profitable; 5. The use must be such as to return to land the highest net return; and 6. The use must be such as to deliver the return for the longest period of time. Implied within this definition is the recognition of the contribution of that specific use to community environment or to community development goals in addition to wealth maximization of individual property owners. Also implied is that the determination of highest and best use results from the appraiser's judgment and analytical skill, i.e., that the use determined from analysis represents an opinion, not a fact to be found. In appraisal practice, the concept of highest and best use presents the premise upon which value is based. In the context of most probable selling price (market value), another appropriate term to reflect Highest and Best Use would be most probable. In the context of investment value, an alternative term would be "most profitable use." 58 <PAGE> LANDAUER REAL ESTATE COUNSELORS This definition implies legal use; hence, existing zoning or other legal constraints must be considered. Property uses that are within the realm of possibilities, but are highly speculative in nature or otherwise improbable, are excluded from consideration. In estimating highest and best use, there are four stages of analysis: 1. Physically possible. What uses are permitted based on the site's size, shape, area, terrain, soil conditions, topography and access to utilities? 2. Legally permissible. What uses are permitted by zoning and deed restrictions on the site in question? 3. Financially feasible. Which possible uses will produce a net return to the owner of the site? 4. Maximally productive. Among the feasible uses, which use will produce the highest net return or the highest present worth? The highest and best use of the land as if vacant and available for development may be different from highest and best use of the improved property. This is true when the improvements are not an appropriate use, but make a contribution to the total property value in excess of the value of the site. Based upon the analysis of the current market, we have reached the following opinions and conclusions. Land as if vacant: Physically Possible: The entire site encompasses an area of approximately 9.5 acres. It is irregularly shaped, with sufficient length and width to permit any development. The site is traversed by the Massachusetts Turnpike on the north side of the site and by the Amtrak, Conrail and the Boston subway system on the southern side of the site. These unusual deficiencies could hinder certain development scenarios. All types of improvements suitably scaled to the site are physically possible. Legally Permissible: According to representatives of the Boston Redevelopment Authority density/use of the site was agreed upon by the State authorities and the developer and reviewed/approved by the BRA. The special development agreement permits the existing mixed-use development incorporating retail, office, hotel, residential and parking. The special 59 <PAGE> LANDAUER REAL ESTATE COUNSELORS development agreement of the site is considered a negotiated process. The allowable, legally permissible development of the site is considered the specified mixed use development agreement. Financially Feasible: Under the current zoning regulations financially feasible uses of the site normally would include the specified mixed use development scenario. However, given the current rents and construction costs, it is unlikely that any new construction would be financially feasible at the present time. Maximally Productive: Under the current zoning regulations the maximally productive use of the site normally would be considered to be the specified mixed use development scenario. However, given current rent levels, it is unlikely that new construction would be financially feasible/maximally productive at the present time. Land As Improved: As previously stated, the allowable, legally permissible mixed use development is considered a specified development scenario. Accordingly the financially feasible and maximally productive use of the property as currently improved is considered to be the existing improvements. Given the current market conditions, it is unlikely that new construction would be financially feasible/maximally productive. Conclusion Since the zoning is controlled by a specific declaration which specifies the existing mixed use development, Landauer concludes that the highest and best use assuming a vacant site, and as improved, is the existing mixed use development. 60 <PAGE> LANDAUER REAL ESTATE COUNSELORS VALUATION Introduction: There are three traditional approaches to value, the income approach, the sales comparison approach and the cost approach. The applicability of each depends on the characteristics of the subject property. Major investment-grade properties such as Copley Place, typically possess highly detailed and complex physical, legal, locational and economic characteristics. The primary valuation approach employed by buyers and sellers of such properties is the income approach. This approach converts the anticipated future benefits of ownership to an expression of present value. Typically the discounted cash flow analysis technique is employed. This technique first projects the anticipated cash flows for the property over a holding period (normally ten years). The projected cash flows and net residual value are then discounted at a market-oriented discount rate, to an expression of present value. The sales comparison approach involves a comparison of the subject property with similar properties that have sold, in order to derive an estimate of market value. It is also based on the theory of substitution, and implies that a prudent investor would not pay more to buy a property than it would cost to buy an equally desirable substitute property. Large multi-tenanted, investment grade properties typically possess highly detailed and complex physical, financial legal, locational and economic characteristics. Accurate and reliable comparative analysis of market transactions is often impaired by the absence of all or significant amounts of such data. In the case of the subject property this includes the absence of investment grade sales of leasehold interests in mixed-use projects with similarly complex financial structures. At best, such analyses of transactions which are available, provide only broad indications of such things as prices per square foot, first year returns and general cash flow assumptions, as support for the income approach to value. While such information is utilized by buyers and sellers of such properties, the approach is not employed as a method of accurately estimating the market value. Additionally, even for properties where the approach is suitable, its reliability is dependent on there being a sufficiently adequate body of comparable transaction data. Urban mixed use developments are comparatively uncommon and recent sales of leasehold interests in such properties even more so. The absence of recent comparable transactions in the Washington- 61 <PAGE> LANDAUER REAL ESTATE COUNSELORS New York-Boston corridor, renders the approach of marginal value and it has consequently not been employed in the valuation of the Subject property. Recent transactions of major retail properties such as regional shopping centers and local freestanding office buildings have been reviewed, however, to provide an indication of investor attitudes and requirements, albeit for a superior and more favored property type. In the Cost Approach, the estimated land value is added to the estimated replacement cost of the improvements, minus the estimated depreciation from all sources. The approach is best suited to special use properties and is not very well suited to leasehold interests in complex, mixed-use, income-producing properties such as Copley Place. It is not typically employed by investors although values and sales prices are often related to estimated replacement cost, particularly during a downturn in the market. The cost approach has not, consequently been employed in the valuation of Copley Place. Methodology The computer software PRO-JECT has been used to project the income and expenses for the various components of Copley Place over a fifteen-year period, commencing July 1, 1997. The program incorporates existing lease terms and permits the entry of assumptions regarding present and future market rents, lease terms and operating expenses. Expense recoveries are calculated in accordance with individual lease terms. Upon expiration, new leases are based upon projected market rents and expense escalation bases for office tenants are reset to zero. Unless specifically known at the present time, future renewal probability is based upon a weighted average vacate/release ratio. Where leases contain either renewal or expansion options and, where these are deemed to be favorable to the tenant, the option terms have been reflected in the projection. The discounted cash flow analyses are based upon the cash flows for Years 1-10 together with the projected net residual value at the end of Year 10. The residual values are based upon the projected NOI's for Year 11. Years 12 though 15 were projected in order to view the cash flows in the years immediately following the residual calculations. 62 <PAGE> LANDAUER REAL ESTATE COUNSELORS Income Approach: As previously noted, the Income Approach to value relates the anticipated income from a property to its value to an investor. It measures the amount an investor can reasonably pay for the property and receive an appropriate return on that investment as compared to alternative investment opportunities. This involves the projection of revenue and expenses over an anticipated holding period with the resulting cash flows discounted to a present indication of market value. In this analysis, value is equated to the present worth of anticipated cash flows plus the present worth of the future resale (reversionary) value assumed to be realized at the end of a projected holding period. The process employed to value Copley Place involved a thorough analysis and understanding of the complex proportionate shares of each income and expense item. Retail, Office, Garage, Hotel contributions and central plant income and expenses are allocated at differing rates to the various components for recovery purposes. The market places great emphasis on income in place. Some investors have considered purchases through capitalization of income in place. However, a sophistcated investor would want to consider the cash flow characteristics over a reasonable holding/investment period. We therefore believe that a reliable method for measuring the investment potential of a mixed use development is the discounted cash flow technique (DCF) which provides a model of the income generated by the property components over a given holding period. Given the modeling complexity of the various components of Copley Place this approach is judged the only reliable technique for estimating value. The discounted cash flow technique converts projected cash flow, including the reversionary value (property resale at the termination of the investment term) into a net present value utilizing a discount rate. Copley Place is a mixed-use development which was completed in 1984 and consists of retail, office, hotel, residential and parking components on 9.5 acres of land and air rights. For the purposes of this appraisal we are valuing only the retail, office, Central Garage, Dartmouth Street Garage components together with the hotel common area and central plant income and expenses. In order to value the leasehold interest of portions of Copley Place Landauer utilized three different cash flow projections; 63 <PAGE> LANDAUER REAL ESTATE COUNSELORS 1) An office cash flow projection, 2) A retail cash flow projection, and 3) A garage/hotel projection. The office cash flow projection includes revenues and expenses for the office buildings. The garage/hotel projection includes the Central and Dartmouth Street garage income and expenses, and the common area and central plant contributions from the hotels. The retail cash flow projection includes revenues and expenses for the mall stores and Neiman Marcus. Operating statements for calendar years 1994-1996 have been reviewed together with budget projections for calendar year 1997. This information, along with other market data, provides the basis for the cash flow projections. The three cash flow projections are discounted separately with rates appropriate for the relative property types, as supported by a review of market transactions. 64 <PAGE> LANDAUER REAL ESTATE COUNSELORS Cash Flow Assumptions -- Office Portion Introduction: As previously noted, the office cash flow projection utilizes the computer software PRO-JECT. Which incorporates basic lease data and permits the entry of basic assumptions concerning future revenues and selected expenses. Cash Flow Term: 11 years from July 1, 1997 Inflation Rate: The projection utilizes an annual inflation assumption of 4%. Standard Lease: The standard office lease calls for five to ten-year lease terms. Ten year leases are typically written with rent steps during the course of the lease. As illustrated in the following table, however, most of the recent leasing has been for terms approximating 5 years: - -------------------------------------------------------------------------------- Tenant Lease Sq. Ft. Begins Ends Term Average - -------------------------------------------------------------------------------- Personnel Decision 5,413 01-Jan-96 3l-Dec-2001 6 - -------------------------------------------------------------------------------- Advantis 10,026 01-Feb-96 31-Jan-2000 4 - -------------------------------------------------------------------------------- Willis Corron 26,578 01-Apr-96 31-Mar-2006 10 - -------------------------------------------------------------------------------- RMV 132,359 01-Aug-96 31-Jul-2001 5 - -------------------------------------------------------------------------------- Colpits 420 01-Nov-96 31-Oct-97 1 - -------------------------------------------------------------------------------- Blair Television 3,123 01-Dec-96 30-Nov-2001 5 - -------------------------------------------------------------------------------- Global Knowledge 23,502 01-Jan-97 31-May-98 1 - -------------------------------------------------------------------------------- Oxigene 1,946 01-May-97 30-Apr-2002 5 - -------------------------------------------------------------------------------- Greater Boston CB 10,852 01-Aug-97 31-Jul-2002 5 - -------------------------------------------------------------------------------- Sun 64,237 01-Oct-97 30-Sep-2004 7 - -------------------------------------------------------------------------------- Miller Comm. Expsn 6,528 01-Dec-97 30-Nov-2002 5 5 - -------------------------------------------------------------------------------- Based upon recent leasing activity, all lease-up and speculative renewals are assumed to be for 5 year lease terms. The standard lease also includes escalations based upon a pro-rata share of real estate taxes and operating expenses over an expense stop, together with a work letter. The base year expense stops are typically the year of occupancy and work letters approximate $30.00 per square foot. Rentable Area: According to the information provided to Landauer, the office portion currently contains a net rentable area of 845,000 square feet. 65 <PAGE> LANDAUER REAL ESTATE COUNSELORS Occupancy: Approximately 15% of the office space is currently vacant. Leases have been signed for an additional 110,271 square feet which will bring the vacancy level to a nominal 3% by year end. Only 47,087 square feet is vacant and unleased, and there is reported to be strong interest in this space. Due to the accelerated time frame for this assignment, the leasing personal at Copley Place were unavailable for interview during the course of our analyses. Our understanding of the current leasing situation, therefore, is based upon the most recent rent roll, discussions with the managing agent and a property inspection. Expiration Analysis: The following chart details the timing of lease expirations. Currently vacant space has also been included. Lease expiration exposure is reasonably well balanced over the course of the projection: ------------------------------------------------------------- Year ---------------------- Cash Flow Fiscal Square Feet % of NRA ------------------------------------------------------------- 1 1998 46,226 5% ------------------------------------------------------------- 2 1999 35,271 7% ------------------------------------------------------------- 3 2000 129,263 15% ------------------------------------------------------------- 4 2001 32,630 4% ------------------------------------------------------------- 5 2002 161,106 19% ------------------------------------------------------------- 6 2003 149,178 18% ------------------------------------------------------------- 7 2004 100,551 12% ------------------------------------------------------------- 8 2005 345,513 41% ------------------------------------------------------------- 9 2006 83,175 10% ------------------------------------------------------------- 10 2007 154,532 18% ------------------------------------------------------------- Fiscal year 2005 is subject to the greatest exposure, 41 %, however portions of this space are rollovers for speculative lease ups and renewals. In consideration of the market emphasis on income in place versus a speculative lease-up, we have assumed a measured lease-up of the vacant office space at Copley Place. We have assumed that the building will reach stabilized occupancy by January 1998. Lease-up Timing: In consideration of the market emphasis on income in place versus a speculative lease-up, we have assumed a measured lease-up of the vacant office space at Copley Place. We have assumed that the building will reach 66 <PAGE> LANDAUER REAL ESTATE COUNSELORS stabilized occupancy by January 1998. We project the lease-up of the currently vacant space as follows: Date SF Leased Term --------------------------------------------- 11/1/97 25,186 5 --------------------------------------------- 1/1/98 8,384 5 --------------------------------------------- 1/1/98 1,986 5 --------------------------------------------- 3/1/98 8,724 5 --------------------------------------------- 3/1/98 758 5 --------------------------------------------- 6/1/98 1,377 5 --------------------------------------------- 9/1/98 772 5 --------------------------------------------- Lease Periods: All new and renewal leases are assumed to run for a period of five years. Rent Steps: No rent steps are assumed on 5 year leases. Lease Renewal: Renewal probability is projected at 67% and the probability of nonrenewal is 33%. This factor is applied to speculative downtime between leases as well as leasing commissions and tenant alterations. Market Rents: Those seeking to buy Copley Place would most likely estimate future office rents based both on rents recently agreed to by office tenants at Copley Place and on rents in buildings competitive to the subject. We have collected comparable office rents from buildings competitive to the subject and reviewed the recent performance of the subject. The best indication of market rent logically lies with the recent leasing at the subject. This activity will, therefore, be afforded the greatest weight in estimating the market rent. The office rent comparable chart on the facing page shows 1995, 1996 and 1997 leases from buildings located in the subject's general area, as well as recent leases in the subject. The spaces surveyed range in size from under 420 square feet to 153,000 square feet with five-to-ten-year lease terms. The signed base rents range from $17.00 per square foot to $32.69 per square foot. The comparable leases have real estate tax escalations over a tax year base amount escalations. The comparables all also have some variation of a direct operating escalation or net operating escalations. Electricity is generally not included in the base rent. The comparable have workletters ranging from $27.50 to $40,00 per square foot. No evidence of free rent was uncovered in the tightening market. 67 <PAGE> LANDAUER REAL ESTATE COUNSELORS The comparable rent chart delineates the parameters of the office rental market in buildings generally competitive with the subject. The ranges derived from the market comparables are useful in bracketing and supporting the recent rental activity in the subject which an average rental of approximately $30.00 per square foot. [GRAPHIC OMITTED] Given the fact that the subject property is an older 1984 building, which has inferior views and is not a dedicated office building, the office component of the subject is generally considered inferior to the high rise comparables. Copley Place does enjoy significant advantages over the smaller buildings located in Back Bay, notably the amenity package that comes from its location in a mixed use facility. Reviewing the leases and affording the greatest weight to the leasing at Copley Place, an average market rent of $30.00 with a $30.00 work allowance has been projected for the office space at Copley Place. In addition, and based upon leasing at the subject, a market rent of $17.00 per square foot is projected for the small lobby level service/travel space. The market rents are projected to increase at an average annual rate of 4% per annum over the course of the projection. After the initial terms, upon rollover or renewal, all space is assumed to be released at the, then, market rate. Electric charges are in addition to the above market rents. Escalations: Standard lease terms generally provide for reimbursement to the landlord for increases in real estate taxes over a base year, with each tenant paying its allocated share based on square footage occupied. Operating escalation provisions are generally also based on pro rata increases in operating expenses over a base year. In practice, the real estate taxes and operating expenses are pooled for recovery purposes. Current contractual arrangements are assumed 68 <PAGE> LANDAUER REAL ESTATE COUNSELORS to remain in effect until expiration and are collected accordingly based on an inflation factor of 4% per annum. Upon renewal or releasing, escalations are reset to zero, and a new base year is established for real estate taxes. Extended Hours: Expenses for the common facilities in the building and tenant spaces are included in our estimate of utilities expense. Electric income includes overtime HVAC and certain tenant electric charges. This income source has generated the following revenue over the past several years. - -------------------------------------------------------------------------------- Actual 94 Actual 95 Actual 96 Budget 97 - -------------------------------------------------------------------------------- Extended Hours $185,647 $116,122 $229,702 $99,996 - -------------------------------------------------------------------------------- Based on the 1997 budgeted income and expenses, this item is projected at $99,996, increasing at 4% annually thereafter. Landlord Utilities: Income reimbursements for landlord utility expenses associated with the common areas of the facility. Historically this item has fluctuated as follows: - -------------------------------------------------------------------------------- Actual 94 Actual 95 Actual 96 Budget 97 - -------------------------------------------------------------------------------- Direct LLU 262,533 337,219 561,376 322,664 - -------------------------------------------------------------------------------- Based on the historical trends and the budgeted 1997 income and expenses, electric income is projected to be $322,664, increasing at 4% annually thereafter. Miscellaneous R.E. Tax Contribution: The bulk of the real estate costs are recovered through the main operating escalation. In addition, miscellaneous recoveries have been as follows: - -------------------------------------------------------------------------------- Actual 94 Actual 95 Actual 96 Budget 97 - -------------------------------------------------------------------------------- Real Estate Contribution 0 21,775 0 86,680 - -------------------------------------------------------------------------------- The recovery is estimated at $86,680 for 1997 growing at 4 percent per annum. Vacancy/Credit Loss: A 5.0% contingency provision is applied against total revenues in each year as an allowance for collection loss and income fluctuation. 69 <PAGE> LANDAUER REAL ESTATE COUNSELORS Rollover Vacancy: A six-month down-time period to fill spaces vacated by previous tenants has been projected. Based upon a 67% renewal probability, this results in an average vacancy of two months for all speculative lease renewals. Operating Expenses: Operating expenses for the property are based upon the historical and budgeted operating expenses for the center. Detailed operating expenses were provided by Urban Retail Properties, Co. for the mixed-use complex as a whole. Many of the expenses particularly common area and central plant related items are allocated between the various property components (office, retail, hotel, garage etc.), depending on use. The complex allocations are based on specific formulas and vary from item to item. The detailed expenses and allocations were analyzed in depth by Landauer prior to utilization in the projections. Details of the real estate tax allocations were itemized in an earlier section of the report. Having regard to the data reviewed and Landauer's knowledge of industrywide trends, the budgets and allocations appear to be generally reasonable and have, therefore, been adopted for the purposes of the cash flow projection. The allocated operating expenses for the office portion of the property from 1994 through Budget 1997, are as follows: - -------------------------------------------------------------------------------- Operating Expenses Actual 94 Actual 95 Actual 96 Budget 97 - -------------------------------------------------------------------------------- Real Estate Taxes 5,049,813 3,081,916 5,107,917 5,311,704 - -------------------------------------------------------------------------------- Insurance 169,402 176,389 173,334 186,948 - -------------------------------------------------------------------------------- General Operating 1,091,749 1,069,675 1,413,473 1,647,456 - -------------------------------------------------------------------------------- Central Plant & CAM 3,480,505 3,453,449 3,725,335 3,710,445 - -------------------------------------------------------------------------------- Management 0 0 1,176 557,880 - -------------------------------------------------------------------------------- TOTAL EXPENSES 9,791,469 7,781,429 10,421,235 11,414,433 - -------------------------------------------------------------------------------- Real Estate Taxes: See Real Estate Tax section. Leasing Commissions: Leasing commissions for the office tenancies are assumed to be a set dollar amount per square foot. The leasing history of Copley Place support the following schedule of leasing commissions. -------------------------------- Lease Type 5 Year -------------------------------- New $6.50 -------------------------------- Renew $4.00 -------------------------------- Weighted Average $4.83 -------------------------------- 70 <PAGE> LANDAUER REAL ESTATE COUNSELORS Tenant Work Allowance: Based upon the estimated market lease terms, the tenant work allowance for new 5-year office tenants is projected at $30.00 per square foot, with a $6.00 per square foot workletter for renewal tenants. A weighted average of $13.92 per square foot has been applied to expiring leases under the assumption of a 67% renewal probability. The tenant work allowances is projected to increase 4 percent per annum. -------------------------------- Lease Type 5 Year -------------------------------- New $30.00 -------------------------------- Renew $ 6.00 -------------------------------- Weighted Average $13.92 -------------------------------- Free Rent: No free rent is projected for new leases; our research did not find free rent to be a factor in the current market. Capital Reserve: A capital reserve allowance of $0.25 per square foot in 1997, increasing at 4% percent per annum, has been projected. Office Cash Flow Projection: The resultant 11-year cash flow projection is summarized on the facing page. The average annual increases for the major cash flow components are as follows: Minimum Rentals 4.7% Effective Gross Income 4.2% Expenses 4.0% Net Operating Income 4.5% Net Cash Flow 7.0% The projection of income and expenses for the office portion of Copley Place results in a supportable and market oriented projection. Income and expenses compare well with the historic operations of the property and future increases are supported by market parameters. 71 <PAGE> LANDAUER REAL ESTATE COUNSELORS Cash Flow Assumptions: Garages and Hotel Contribution Introduction: The income and expenses attributable to the garages and the hotel components have been modeled from an analysis of historic and projected operations. All financial information was provided by Urban Retail Properties, Co. Cash Flow Term: 11 years from July 1, 1997. General Inflation Assumption: Unless otherwise indicated, the projection utilizes an annual inflation assumption of 4% for revenue and expenses. Garage Income: The garage income is attributed to the Central garage and the Dartmouth Street Garage. Income has been analyzed historically with the greatest weight afforded to the Budget for 1997. Garage income has fluctuated over the past 3 years as follows: - -------------------------------------------------------------------------------- Actual 94 Actual 95 Actual 96 Budget 97 - -------------------------------------------------------------------------------- Copley Garage n/a 5,643,624 6,411,535 6,509,869 - -------------------------------------------------------------------------------- Dartmouth Garage n/a 1,803,333 2,045,534 2,424,419 - -------------------------------------------------------------------------------- Total Garage Revenue n/a 7,446,957 8,457,069 8,934,288 - -------------------------------------------------------------------------------- Part of the fluctuation is attributable to changes in accounting and reporting systems. The 1997 budgeted revenues have been adopted and projected to increase at 4% per annum. Hotel Income: Based on financial statements provided by Urban Retail Properties, Co., the projections also include the two hotels' common area maintenance and central plant contributions. The projected combined amount for 1997 totals $1,767,397. - -------------------------------------------------------------------------------- Actual 94 Actual 95 Actual 96 Budget 97 - -------------------------------------------------------------------------------- Marriott 1,110,785 1,149,167 1,220,795 1,024,185 - -------------------------------------------------------------------------------- Westin 787,461 808,031 886,945 743,212 - -------------------------------------------------------------------------------- Total Hotel Revenues 1,896,246 1,957,198 2,107,740 1,767,397 - -------------------------------------------------------------------------------- 72 <PAGE> LANDAUER REAL ESTATE COUNSELORS This income source has been relatively stable and predictable over the past several year. The budgeted 1997 total income has therefore been adopted and is projected to increase at 4% per annum.. Operating Expenses: Operating expenses, including real estate taxes, for the garages and hotel portions are based upon the historical and budgeted operating expenses for the center. Detailed operating expenses were provided by Urban Retail Properties, Co. for the mixed-use complex as a whole. Garage Expenses: the cash flow contains expenses for the Copley and Dartmouth Street Garages. The 1997 garage expense estimates were based upon the historical garage history of the property and discussions with Urban Retail Properties, Co. and the parking manager. The total 1997 garage expenses are estimated at $5,301,093. - -------------------------------------------------------------------------------- Actual 94 Actual 95 Actual 96 Budget 97 - -------------------------------------------------------------------------------- Copley Garage 2,905,725 6,953,893 3,571,814 3,764,902 Dartmouth Garage 984,333 1,157,870 1,441,019 1,536,191 TOTAL EXPENSES 3,890,058 8,111,763 5,012,833 5,301,093 Westin/Marriott Common Area: The projections also include the common area expenses attributable to the two hotels which are projected to total $208,246 for 1992. - -------------------------------------------------------------------------------- Actual 94 Actual 95 Actual 96 Budget 97 - -------------------------------------------------------------------------------- Marriott 832,740 805,175 888,635 864,890 - -------------------------------------------------------------------------------- Westin 576,631 555,443 610,895 599,984 - -------------------------------------------------------------------------------- TOTAL EXPENSES 1,409,371 1,360,618 1,499,530 1,464,874 - -------------------------------------------------------------------------------- Garage/Hotel Cash Flow Projection The resultant 11-year cash flow projection is summarized on the facing page. The average annual increases for the major cash flow components are as follows: Effective Gross Income 4.0% Expenses 4.0% Net Operating Income 4.0% Cash Flow 4.0% 73 <PAGE> LANDAUER REAL ESTATE COUNSELORS The recent leases in Copley Place have typically been for ten-year terms and provide for rent steps during the term of the lease. The leases also provide for reimbursement of real estate taxes, common area expenses, insurance and central plant. The initial base rents generally range from $30.00 to $100.00 per square foot of GLA, depending on store size. Details of several proposed new leases with a high probability of signature were provided by Urban Retail Properties Company and have been incorporated in the analysis. Included in this category are proposals for new leases to Swarovski (926 square feet), The Gap (expanding into an additional 7,318 square feet). Simply Cigars (a temporary tenant occupying 480 square feet), Confetti Fine Confections (relocating and contracting from 410 square feet to 240 square feet), and Helly Hanson (1,560 square feet). In regard to the prospective lease to Helly Hanson, this assumes the early termination of the lease to Bombay Company (1,150 square feet), which is scheduled to expire January 31, 1998 according to the lease abstract provided by Urban Retail Properties Company, along with the relocation of Confetti Fine Confections, currently occupying 410 square feet of space adjacent to Bombay Company. Lease Expirations are summarized schedule is set forth below, a detailed lease expiration in the Addenda. - -------------------------------------------------------------------------------- Fiscal Year Expiring s.f. % of NRA Cumulative - -------------------------------------------------------------------------------- 1998 16,175 4.4% 4.4% - -------------------------------------------------------------------------------- 1999 19,793 5.4% 9.8% - -------------------------------------------------------------------------------- 2000 43,064 11.7% 21.5% - -------------------------------------------------------------------------------- 2001 12,007 3.3% 24.7% - -------------------------------------------------------------------------------- 2002 11,265 3.1% 27.8% - -------------------------------------------------------------------------------- 2003 19,700 5.3% 33.1% - -------------------------------------------------------------------------------- 2004 27,060 7.3% 40.5% - -------------------------------------------------------------------------------- 2005 47,310 12.8% 53.3% - -------------------------------------------------------------------------------- 2006 23,869 6.5% 59.8% - -------------------------------------------------------------------------------- 2007 12,691 3.4% 63.2% - -------------------------------------------------------------------------------- 2008 17,078 4.6% 67.9% - -------------------------------------------------------------------------------- Minimum Rent: Market rental estimates for the center were based upon an analysis of the current rent roll, recent leasing and current lease proposals. The rentals were 75 <PAGE> LANDAUER REAL ESTATE COUNSELORS used as the basis for projecting lease terms for the existing vacant units and also for future rentals for existing leases when they expire. In general terms, both rentals and sales per square foot tend to decrease as the size of the unit increases. The existing leases were therefore analyzed by unit size. An exhibit displaying the our analysis of the recent retail leases at Copley Place appears in the addenda. As a result of this analysis, the following average market rentals have been estimated: -------------------------------------------- Market Rent Leased Area (s.f.) (per sq. ft.) -------------------------------------------- 0 to 499 $ 100.00 -------------------------------------------- 500 to 999 $ 75.00 -------------------------------------------- 1,000 to 2,999 $ 65.00 -------------------------------------------- 3,000 to 4,999 $ 50.00 -------------------------------------------- 5,000 to 7,999 $ 40.00 -------------------------------------------- 8,000 to 20,000 $ 30.00 -------------------------------------------- Theater $ 25.00 -------------------------------------------- Anchor $ 13.50 -------------------------------------------- Storage $ 35.00 -------------------------------------------- Exterior $ 15.00 -------------------------------------------- Given the attributes of the Subject property relative to the freestanding stores on Boylston and Newbury Streets, the rentals are generally supported by the $42-$68 per square foot comparable range noted in an earlier section of the report. Direct comparisons, however, are not always too easy to make. On the one hand, Copley Place is an enclosed mall with potentially greater drawing power which results in higher sales volumes and rentals per square foot. On the other hand, the occupancy costs (operating expenses, real estate taxes etc.) for such centers are usually significantly higher than for freestanding stores which, in turn, reduces the potential rentals. On balance, the best evidence for the subject property is provided by the leasing activity within the center itself. Reflecting current general economic conditions and the current outlook for retail sales, the estimated market rentals are projected to increase by 4.0% per annum. The resultant rentals are utilized for all existing leases, by size category, following their expiration. 76 <PAGE> LANDAUER REAL ESTATE COUNSELORS As a further test of reasonableness for the rent/sales projections, we have analyzed the occupancy costs associated with the leases at Copley Place. As a general rule, total occupancy costs (base rent, percentage rent and expense recoveries) cease to be viable when they exceed approximately 15% of sales. For the duration of the cash flow projection, the total gross income from mall tenants (excluding Neiman Marcus and Sony Theaters) falls into the 11.8%-12.4% range. These ratios are based upon contract rather than market rentals and the ratio would be closer to the 15% level if all of the leases were at market instead. Under the circumstances, the projected market rentals and sales appear to be sufficient to enable the mall to operate viably. Vacant Units: Most of the vacant space is being held in connection with the proposed new deals previously mentioned. In addition, two stores containing 1,532 and 528 square feet, respectively, are currently vacant, representing approximately 0.8% of the mall gross leasable area. All vacant space is assumed to lease up during fiscal 1998. Lease Rollovers: It is assumed that 70% of tenants will renew following lease expirations and that 30% will vacate. Future leases are assumed to be for 10-year terms with a 10% increase in the minimum rental at the end of the third year and a further 10% at the end of the sixth year. This is supported by the recent leases at the subject, an analysis of which appears in the addenda. Of the thirty three recent leases, the majority incorporate rent steps with an average step of 10.05%. Of the leases which incorporate steps, the overwhelming majority contain two steps, the first after three years and the second after six years. One lease, Williams Sonoma, contains annual CPI increase. Two month's weighted average down time is assumed between all leases. Percentage Rent: Percentage rent is typically earned when tenant sales exceed a specified breakpoint. Sales have been projected on a tenant by tenant basis, based upon the sales performance to date. The most recent sales provided by the owner were for the twelve months ending 5/30/97; however, not all tenants had reported their May 1997 totals. For the 1996 calendar year, sales for mall tenants who have been in occupancy since January 1, 1996 averaged approximately $590 per square foot (excluding Neiman Marcus and Sony Theatres). For mall tenants who have been in occupancy since January 1, 1995, sales for Calendar 1996 approximated $579 per square foot, an increase 77 <PAGE> LANDAUER REAL ESTATE COUNSELORS of approximately 5.5% over that of Calendar 1995 when sales averaged approximately $549 per square foot. Given the current trends in retail sales, individual tenant sales projected to increase by 4% per annum throughout the projection period. Expense Recoveries: As previously noted, the standard lease form requires most tenants to contribute a pro rata share of real estate taxes, common area maintenance, central plant and insurance. One tenant (Legal Sea Food) pays a fixed contribution, covering all expenses, which is projected to increase at the assumed inflation rate. Additional fixed contributions (increasing annually) are received from Neiman Marcus for real estate taxes, common area maintenance and insurance. Vacancy and Credit Loss: As previously noted, an average one month downtime has been provided between leases. In addition, a vacancy and credit loss of 3% has been applied against potential gross income, excluding Neiman Marcus and Sony Theatres contributions. Operating Expenses: Operating expenses for the property are based upon the historical and budgeted operating expenses for the center. Detailed operating expenses were provided by Urban Retail Properties Company for the mixed-use complex as a whole. Many of the expenses - particularly common area and central plant related items - are allocated between the various property components (office, retail, hotel, garage etc.), depending on use. The complex allocations are based on specific formulas and vary from item to item. The detailed expenses and allocations were analyzed in depth by Landauer prior to utilization in the projections. Details of the real estate tax allocations were itemized in an earlier section of the report. Having regard to the data reviewed and Landauer's knowledge of industrywide trends, the budgets and allocations appear to be reasonable and have therefore been adopted for the purposes of the cash flow projection. The budgeted costs for the 1997 calendar year for the retail component of the property are listed below. 78 <PAGE> LANDAUER REAL ESTATE COUNSELORS - -------------------------------------------------------------------------------- Item Total psf - -------------------------------------------------------------------------------- Direct Expenses: Real Estate Taxes $2,075,428 $ 5.63 Insurance 84,972 0.23 Management Fee 753,564 2.05 Re-allocated Expenses: Central Plant 1,582,019 4.29 Common Area Maintenance (CAM) Exterior 158,866 0.43 Truck Dock 152,525 0.41 Security 802,850 2.18 Mall & Entry 1,951,609 5.30 Huntington Street Bridge 176,673 0.48 Stuart Bridge 66,968 0.18 Railroad Station & Turnpike 58,990 0.16 ---------- ------ Total CAM 3,368,482 9.14 G&A - General 6,026 0.02 G&A - Operations 148,984 0.40 Marketing 888,336 2.41 - -------------------------------------------------------------------------------- Total Expenses $8,977,482 $24.37 - -------------------------------------------------------------------------------- Most of the expenses, with the exception of management and the general & administrative expense categories are recoverable from the tenants. CAM recoveries also incorporate a 15% administrative surcharge. With the exception of the basic management fee, which is based upon 3% of minimum and percentage rents, the expenses are projected to increase at 4% per annum. The only exception is the "Recaptures" category which consists of percentage rent offsets for a handful of tenants which are assumed to terminate when the existing leases expire. Capital Expenses: A reserve fund of $0.25 per square foot or $92,103 for the 1997 calendar year has been allocated for replacement of short lived items, and is anticipated to increase at 4% per annum. Retail Cash Flow Projection: The resultant 11-year cash flow projection is summarized on the facing page. The average annual increases for the major cash flow components are as follows: Minimum Rentals 4.9% Effective Gross Income 4.6% Expenses 4.1% Net Operating Income 5.0% Cash Flow 4.9% 79 <PAGE> LANDAUER REAL ESTATE COUNSELORS Real Estate Investment Market Overview According to the Second Quarter 1997 Korpacz Real Estate Investor Survey, the national real estate market has stabilized and, for the most part, price increases are slowing. Sellers are encountering cap rate resistance among buyers. While suburban office prices are beginning to level out, the CBD office market is warming up and is likely to become a very active transaction market in the coming months. At the same time, regional malls are back in play and institutional investors want `A" malls, even though cap rates are under 8%. Neighborhood centers are the most popular retail type. Most investors are still interested in industrial warehouse/distribution facilities but there may be hard times ahead in the apartment market where overbuilding is beginning to have an effect. A noteworthy trend is the powerful impact REITs are having on the market. A recent study by Koll reported the following: The Koll Real Estate Index indicates that real estate investment trusts handled a large share of major commercial real estate deals during the first quarter of 1997. While 45.1 percent of the biggest transactions were conducted by REITs, only 20.7 percent of the deals were handled by individual investors and small investment partnerships, and only 15.1 percent were facilitated by large investors, partnerships, and opportunity funds. Most of the deals REITs conducted involved retail and apartment properties, in which $108.5 billion, or more than 60 percent of the value of all commercial properties so far this year, was involved. REP's invested a significant portion of their money ($6.6 billion) in properties in the Washington, D. C., metropolitan area. The next-largest sum went toward Atlanta-area properties ($6.3 billion), followed by Dallas-Ft. Worth properties ($4.4 billion) and Los Angeles properties ($3.8 billion). National Mortgage News (07/07/97) Vol. 21. No. 40, P. 30/1 The drive by REIT's to diversify geographically and increase their size, coupled with the high price of the stock market and readily available financing, are placing upward pressure on real estate prices. The valuation of all types of real estate today involves several tests of reasonableness. Other than Discounted Cash Flow methodologies, great, weight is placed on cash-on-cash returns, first-and second-year overall rates, 80 <PAGE> LANDAUER REAL ESTATE COUNSELORS per unit values, average rates of return, allocation ratios (between cash flow and reversion) and multiples of gross rent. Most economists have adopted the view that the United States has entered a decade of steady economic expansion marked by low interest rates, low unemployment and minimal inflation. This is an unusual combination which has spurred appreciation of real estate as an investment vehicle. The likelihood of this trend continuing is the subject of considerable debate. In the event of a market correction the lack of new product entering the market should cushion the real estate market against any large swings in value. Moving forward, we believe that investors in real estate, CBD office product in particular, will find their acquisition option increasingly limited. This is due to the rising prices for good product and the increasing competition among buyers, most notably the REITs. The specter of new construction is still somewhat distant and is unlikely to occur before rentals approach $50 per square foot. Office Building Sales Analysis As previously noted, the Sales Comparison Approach is an imprecise technique for major income properties in general, and is especially so for leasehold interests in major mixed use complexes such as Copley Place. Nevertheless, recent comparable sales have been reviewed in order to provide general support for the income approach conclusions. Five office building sales were identified and reviewed for the purposes of this analysis. It is important to note that, in some respects, the Copley Place office towers are potentially less attractive than conventional office buildings. On the one hand, their proximity to the retail space and good transportation accessibility are positive amenities for office workers. On the other hand, the lack of a traditional dedicated entranceway and "stand-alone" identity could limit their appeal to more prestige-oriented tenants. In addition, the low-rise design of the buildings does not permit the "view" amenity which can be offered by high-rise office towers. The five sales are shown on the facing page chart. The sales are all located in the Boston Metropolitan area (Boston, Cambridge & Wobum) and sold from October 1995 to June 1997. The buildings were built between 1966 and 1987 81 <PAGE> LANDAUER REAL ESTATE COUNSELORS had strong occupancy rates at sale The sales range in size from 263,040 rentable square feet to 929,545 rentable square feet and sold for $109 to $301 per rentable square foot. First year overall rates range from 9.1 % to 11.3%. Sale # 1 is of 75-101 Federal Street. A 560,000 square foot 31 story office tower built in 1988 and a 252,000 square foot art deco building renovated in 1985. The property is located in the financial district. The property was 93 percent occupied at the time of sale (10/95) and sold for $193 per square foot. Sale # 2 is of 99 Summer Street, a 20 story Class A building which sold for $165 per square foot in September of 1996. Sale # 3 consists of two buildings located in Cambridge which sold for $171 per square foot in November 1996. This sale yielded a first year OAR of 11.3%. Sale # 4 was of Unicorn Park, a 408,683 square foot office complex located in Woburn. This property sold in December 1996 for $109 per square foot.. The first year OAR was 9.3%. Sale #5 is the sale of the State Street Bank Building in June 1997 for $301 per square foot. The first year OAR was 9.1 %. This Class A building was 100 percent leased at the time of sale. The best sale in terms of comparability to the office portion at Copley Place is number two, 99 Summer Street. Office Discounted Cash Flow Analysis Two rates are essential components of the discounted cash flow analysis valuation technique: a discount rate to estimate the present worth of the anticipated cash flow and a capitalization rate applied to the anticipated sale or valuation for refinancing purposes at the end of the cash flow analysis period. The discount rate is the measure of the rate of investment return which may be expected by a fair market buyer of a property. The discount rate consists of three components, which are a) a real rate of return b) compensation for expected inflation c) compensation for investment risk. 82 <PAGE> LANDAUER REAL ESTATE COUNSELORS In selecting a discount rate to apply to the annual cash flows, we have considered a variety of factors, the most significant being the internal rate of return sought by institutional and other major investors for investment-grade real estate, diversified by property type and location. We have analyzed actual transactions and studied published surveys of real estate investment criteria. The real estate transaction data that are available, point to rising cash flow return expectations both for the short term (capitalization rates) as well as extended holding periods (internal rates of return). Published investor surveys such as those provided by Peter F. Korpacz & Associates, Inc., and the Real Estate Research Corporation also attest to this condition. Peter F. Korpacz reports that the second quarter 1997 average free and clear internal rate of return of national office buildings is 11.76% and that the average free and clear residual capitalization rate is 9.59%. Cash flow returns for the best properties traditionally offer a risk/reward premium over such benchmarks as short-term Treasury Bills and long term Treasury Bonds. As real estate market conditions heat up, the spread will tighten as competition increases. - -------------------------------------------------------------------------------- National CBD Office Market - Second Quarter 1997 - -------------------------------------------------------------------------------- Key Rates Current Quarter Last Quarter Year Ago - -------------------------------------------------------------------------------- Discount Rate (IRR) Range 10.00%-15.00% 10.00%-15.00% 10.00%-15.00% - -------------------------------------------------------------------------------- Average 11.76% 11.74% 11.99% - -------------------------------------------------------------------------------- Residual Cap Rate Range 8.25%-12.00% 8.25%-12.00% 8.25%-12.00% - -------------------------------------------------------------------------------- Average 9.59% 9.63% 9.67% - -------------------------------------------------------------------------------- Overall Cap Rate (OAR) Range 7.50%-12.00% 7.50%-12.00% 8.00%-12.50% - -------------------------------------------------------------------------------- Average 9.28% 9.30% 9.53% - -------------------------------------------------------------------------------- Source: Kotpacz, Real Estate Investors Survey - 2nd Quarter 1997 - -------------------------------------------------------------------------------- In order to estimate a discount rate to estimate the property's value we reviewed national and local office building sales. Recent national sales (9/96-6/97) indicate that expected internal rates of return on substantially occupied buildings range from 10.5% to 13.5%. Expected first-year overall rates ranged from 5.2% to 13.0%. Generally, the rates for newer Class A buildings are more comparable to the subject. The recent local office building sales consist of dedicated office buildings which are not overly comparable to an office building constructed over a shopping mall such as the subject. 83 <PAGE> LANDAUER REAL ESTATE COUNSELORS In general we feel that the selection of appropriate discount and residual rates for the property is difficult because the available market data are limited and, when available, are not highly comparable. The limited transaction activity provides few indicators of investor criteria, and therefore cause our choice of rates to be less certain. To select appropriate discount and residual rates for the Copley Place office towers, the following factors were considered: o The property is located in the Back Bay market; o The property was completed in 1984 and has been well maintained; o The property is well occupied with strong tenancies; o The property is constructed over a shopping mall; o The property benefits from the retail services; o The property has minimal vacancy; o The Boston economy is thriving; o CBD office product is in high demand with investors; o No new construction is underway in this tight submarket; o Demand for space has out stripped supply in the Back Bay. Having regard to the physical quality of the improvements, coupled with the quality of the tenant mix, high occupancy and sales levels, it is considered that the property possesses good quality investment attributes for its class. Based upon the review of comparable sales data and the Korpacz investor survey, a discount rate of 11.0% in conjunction with a residual cap rate of 9.5% (and a 0.5% sales commission rate) is considered to adequately reflect the quantity, quality and durability of the projected cash flows. Both the discount rate and the reversionary cap rate lie slightly below the average rates in the Korpacz survey, reflecting the quality of the subject property, its high occupancy and modest near-term rollover risk, the current strength of the Boston office market and the current appeal of both CBD office properties and the Boston market to institutional investors. The resultant discounted cash flow analysis is summarized on the facing page and produces an estimated market value of $122,000,000 or $144 per square foot. The value lies in the bottom half of the comparable sale price per square foot range ($109 to $301). The price is suppressed to some extent by the below-market rentals for the DMV lease which occupies approximately 15.6% of the net rentable area. The value yields an initial overall rate of 84 <PAGE> LANDAUER REAL ESTATE COUNSELORS 8.8% (with a five-year average of 10.43%) below the range of the comparables, but justified by the strength of the market and the downward pressure being placed on returns. Approximately 50% of the estimated value is in the cash flows and 50% in the residual. 85 <PAGE> LANDAUER REAL ESTATE COUNSELORS Garage & Hotel Discounted Cash Flow Analysis: The garage and hotel contribution income is an integral part of the Copley Place complex. It consists of (a) the hotels' net contributions to the Common Area and Central Plant expenses and (b) the net incomes from the Central and Dartmouth Street Garages. The primary purpose of discounting the cash flows separately was to enable the retail and office components to be analyzed separately for market comparison purposes rather than to specifically estimate a separate stand-alone value for this component of the complex which would probably not be sold separately. After discounting the cash flows, the garage contribution will be further isolated in order verify it's reasonableness on a per unit basis relative to actual market activity. In selecting the discount rate to apply to the annual cash flows for the garage and hotel contribution we have analyzed published surveys of general real estate investment criteria and market parameters of investor requirements. Market data suggest decreasing cash flow return expectations both for the short term (capitalization rates) as well as extended holding periods (internal rates of return). In selecting appropriate discount and residual rates for the Copley Place garages and hotel contribution, the following factors were considered: o The rates employed for the retail and office components of the development; o The Back Bay location; o The physical condition of the properties; o The strong operating performance of the properties; o The supported provided by the adjacent office, hotel and retail portions of the development; o The state of the thriving Boston economy; o The lack of new garage construction in the market; o The strong demand for parking spaces in the Back Bay. Weighing the garage and hotel contribution's strong operating performance we consider rates at the lower end of the range of investor expectations (10.0% to 15.0% % discount rates and 7.5% to 12.0% first year overall rates) to be appropriate for the subject. More specifically, in estimating a value for 86 <PAGE> LANDAUER REAL ESTATE COUNSELORS the subject property we considered discount rates ranging from 11.0% to 14.0% and reviewed the resultant overall rates and cash-on-cash rates. We have, conseqeuently, selected a discount rate of 12% and a residual capitalization rate of 10% for the valuation of the Copley Place garage and hotel contributions. These rates have regard to the strong Boston real estate market and the benefits of the adjacent mixed use development at Copley Place, as well as the characteristics of the projected cash flows, relative to the corresponding retail and office cash flows. The resultant discounted cash flow analysis is summarized on the previous facing page and produces an indicated value of $46,000,000 for the garage and hotel contributions to the cash flow projection. The value produces an initial overall rate of 8.9% (with a five-year average of 9.66%) and a cash flow/residual split of approximately 60%/40. Given the high value of these components ($46,000,000) relative to the entire development, the contribution of the parking component has been isolated further and analyzed to test for reasonableness relative to market activity. Garage Value Allocation The allocated value for the two parking garages has been estimated by capitalizing the net operating income attributable to the hotel contribution then deducting the value from the Parking and Hotel Contribution value indication. The resulting value for the parking garages was then checked for reasonableness against the market. The methodology used is summarized on the facing page. The implied OAR of 8.92% and the per unit value of $27,814 appear reasonable in comparison to a recent sale in Boston. The Boston Harbor Garage, a 1,400 space self park garage located near Faneuil Hall and the Long Wharf Marriott sold in November 1996 for $55,000,000 or $39,286 per unit. The garage sold for an implied OAR of 9.5% on projected 1997 revenue. The Boston Harbor Garage is judged superior to the subjects two garages in terms of location, yet the subject garages have upside potential tied to the improving performance of Copley Place. Given the physical and function characteristic of the subject garages the value indication of $42,500,000 ($27,814 per space) appears reasonable. 87 <PAGE> LANDAUER REAL ESTATE COUNSELORS Shopping Center Sales Analysis As with the office component, the Sales Comparison Approach is considered to be an imprecise technique for valuing the retail portion of the subject property. Similarly, recent sales of Regional Shopping Centers have been reviewed in order to provide general support for the income approach conclusions. Investor interest in regional shopping centers has been relatively strong over the past 18 months, with well over $2 billion invested in this product type. During this period, this activity was influenced by favorable pricing and by the availability of capital seeking retail product. Consistent with the prior few years, the purchasers of regional shopping centers were primarily the retail REITs and foreign investors. The market for regional shopping centers continues to be segmented. For the centers of superior quality, investor interest remains strong. With very little prime product available for sale, pricing remains competitive. For centers of lesser quality or location, interest is strong only if the asset is fairly priced (with an adequate yield rate). These assets have been a favored target in the recent past for the retail REITs. Landauer's survey of Regional Shopping Center Transactions appears in the addenda to this report. Of the sales listed in the survey, we have focused on the twenty-seven most recent sales, those which have occurred since June of 1995. The majority of these sales were in secondary markets, and none were located in a city's central business district. Additionally, none were a component of a mixed-use development and all contain multiple anchors. As such, these transactions may not be considered to be truly comparable to Copley Place. Of the twenty-seven regional shopping center transactions included in our survey that occurred since June of 1995, most were solid performers in secondary markets. Of the half dozen assets which were of exceptional quality (with sales ranging from $300 to $633 per sq. ft.), first-year overall returns ranged from 6.1 % to 8.9%. For those assets of lesser quality or location, first-year OARs mostly ranged from 9.0% to 9.9% (with a few outside this range). During this period, there were also a number of assets 88 <PAGE> LANDAUER REAL ESTATE COUNSELORS sold subject to existing ground leases with the first-year OARs ranging from 9.3% to 10.4%. For many of the assets sold in 1996, very little information has been made available regarding the internal rate of return (IRR) or residual capitalization rates. With many of these centers of average quality, buyers reportedly focused more on the near-term return. Of the transactions included in our survey, information relating to these yield rates is available for less than half. Although the overall range in IRRs (at 10.5% to 20%) was wide, most were in the 11% to 12% range. Residual capitalization rates for these assets ranged from 7% to 11%, with a range of 7% to 8% for the better assets. As in the past period, buyers have continued to focus on the relationship of a center's productivity (as measured through sales) to the purchase price. For the better assets sold since June of 1995, this ratio ranged from 1.0 to 1.18. For all others, the ratio was lower, ranging from 0.4 to 0.9. Interestingly, in late 1995, it had been forecast by many that 1996 would reveal a reduced interest in regional shopping center acquisitions. It was then thought that weak performance in this product type and improving markets elsewhere (particularly in the office segment) would result in fewer retail transactions. However, it would appear that investors continued to view shopping centers favorably, viewing this asset type as having the ability to offer adequate returns. As noted previously, Copley Place is the premier center within its market area. It is a solid performer, with its 1996 mall sales averaging almost $580 per square foot. As such, in order to define the most comparable transactions, we have limited the transactions to those centers with mall sales volumes greater than $300 per square foot, and which were not subject to a ground lease. Ten of the sales meet these criteria, two in New York (sales 19 and 20), two in Illinois (sales 4 and 10), two in California (sales 17 and 27), one in Pennsylvania (sale 3), one in New Jersey (sale 24), one in Texas (sale 23), and one located in the Southeast (sale 9). The price per square foot of owned GLA ranged from $263 to $690, with an average of $390 per square foot. First year overall rates ranged from 6.1% to 8.9%, with an average of 7.8%. 89 <PAGE> LANDAUER REAL ESTATE COUNSELORS Retail Discounted Cash Flow Analysis In the selection of the capitalization and discount rates, we considered the high quality of the project and the minimal risk perceived in realizing the various components of projected net income, including projected sales. According to the Korpacz Real Estate Investor Survey of the National Regional Mall Market, (Second Quarter 1997.), regional malls are back "in play" and institutional investors want "A" malls, even though cap rates are under 8%. More participants in the survey believe that regional malls are the best investment this year. The Survey noted that free and clear equity IRRs ranged from 10.0% to 14.0% and averaged 11.75%. Free and clear equity capitalization rates ranged from 7.0% to 11.0% and averaged 8.57%. Residual capitalization rates ranged from 7.5% to 11.0% and averaged 8.78%. Market rents are expected to increase between 0% to 4.0%, averaging a 2.86% increase, while expenses are expected to increase 3.0% to 4.0%, averaging a 3.75% increase. The aforementioned rates were surveyed from national institutional type investors such as pension funds, pension fund advisors, and investment advisors. A summary of Korpacz Investor Survey follows. - -------------------------------------------------------------------------------- Survey of Investment Criteria - National Regional Mall Market Second Quarter 1997 - -------------------------------------------------------------------------------- Key Indicators Current Quarter Last Quarter Year Ago - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Free & Clear Equity IRR - -------------------------------------------------------------------------------- Range 10.50-14.00% 10.00-14.00% 10.00-14.00% - -------------------------------------------------------------------------------- Average 11.75% 11.69% 11.50% - -------------------------------------------------------------------------------- Change (Basis Points) -- +6 +25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Free & Clear Equity Cap Rate - -------------------------------------------------------------------------------- Range 7.00-11.00% 7.00-11.00% 6.25-11.00% - -------------------------------------------------------------------------------- Average 8.57% 8.57% 8.17% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Residual Cap Rate - -------------------------------------------------------------------------------- Range 7.50-11.00% 7.50-11.00% 7.00-11.00% - -------------------------------------------------------------------------------- Average 8.78% 8.76% 8.56% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Source: Peter F. Korpacz & Associates. Inc. - Quarterly Survey of Investment Criteria - -------------------------------------------------------------------------------- 90 <PAGE> LANDAUER REAL ESTATE COUNSELORS According to the Korpacz survey investor yield requirements for regional malls have increased approximately 25 basis points over the last 12 months. The decrease in investor requirements results from an increased general perception that the recovery from the recent recession will continue. The major concern facing the national retail market has been sluggish sales and the financial instability of tenants. Competition for the better properties appears to be steady due to a variety of factors, including the scarcity of good quality investment real estate, the desire for an adequate hedge against inflation, and the quest for a safe haven for investment capital. Arising out of concerns over troubled real estate markets and overbuilding, investor cash flow projections today tend to be more "realistic", incorporating assumptions and probabilities in keeping with actual market experience and predicated upon moderate future expectations. To select appropriate discount and residual rates for the Copley Place, the following factors were considered: o The property is located in the Back Bay market; o The property was completed in 1984 and has been well maintained; o The property is well occupied with strong tenancies; o The historical increases in sales have outperformed those of the region; o The property has continued to maintain high occupancy and sales levels during a period marked by generally sluggish sales performance nationally and the opening of the adjoining Prudential Center retail complex; o The property benefits from other high-end retailers in the area; o The property has minimal vacancy; o The Boston economy is thriving; o No new construction is underway in this tight submarket; o Demand for space has out stripped supply in the Back Bay. Having regard to the physical quality of the improvements, coupled with the quality of the tenant mix, high occupancy and sales levels, it is considered that the property possesses above-average investment attributes for its class. Based upon the review of comparable sales data and the Korpacz investor survey, a discount rate of 11.0% in conjunction with a residual cap rate of 91 <PAGE> LANDAUER REAL ESTATE COUNSELORS 8.5% (and a 0.5% sales commission rate) is considered to adequately reflect the quantity, quality and durability of the projected cash flows. Both the discount rate and the reversionary cap rate lie slightly below the average rates in the Korpacz survey, reflecting the quality of the subject property, its overall strength in its market area, as exhibited by its average sales volume per square foot and historical sales growth, and its premier location. The residual cap rate also reflects the prospective age of the property ten years from now and the fact that the cash flow projection contains no major capital renovation expenditures which may be necessary by that time. The resultant discounted cash flow analysis is summarized on the facing page and produces an estimated market value of $147,000,000, or $399 per square foot, for the retail component of the property. The value lies near the center of the range of price per square foot of the comparable sales and 2.3% above the average price per square foot. The value estimate yields a first year overall rate of 7.3%. Similar to the value estimate per square foot of rentable area, the first year overall rate lies near the center of the range of overall rates, but slightly below the average. It is notable, however, that this is due to the presence of several vacant stores which have leases pending and occupancies scheduled in late fall and early winter, as noted in the Valuation section of this report. As such, the first year cash flow is slightly depressed, and the overall rate increases to 7.7% during the second year of the projection, near the average overall rate of the comparable transactions. The annual net operating income accounts for 51.3% of the total value, with the remaining 48.7% due to the sales proceeds at the end of the holding period. A final test of reasonableness is the ratio between the mall value per square foot and the average retail sales per square foot. For the recent transaction deemed most comparable to the subject, the ratio of purchase price to sales ranged from 0.83 to 1.18, with an average of 1.02. The lower ratios typically involve transactions in which the numbers include anchor values and sales which are typically much lower on a square foot basis than the in-line mall stores. The value estimate for Copley Place, including the center's anchor, yields a purchase price to 1996 retail sales ratio of 0.83. As such, the ratio of purchase price to sales for the subject property falls at the bottom of the range. 92 <PAGE> LANDAUER REAL ESTATE COUNSELORS In order to analyze the mall component of value, it is necessary to extract the portion of value attributable to Neiman Marcus. Capitalizing the Neiman Marcus net income (minimum and percentage rent) at 10% results in an implied value allocation of $11,717,420. This produces an implied mall valuation of $135,358,000 or approximately $520 per square foot. The projected mall sales (excluding Neiman Marcus) for Calendar 1997, meanwhile approximate $478 per square foot. This results in a value/sales ratio of approximately 1.09 which appears to be reasonable by market standards. 93 <PAGE> LANDAUER REAL ESTATE COUNSELORS Conclusion: Although the three approaches to value were initially considered in the valuation of the leasehold interest of the subject property, the cost and market approaches were not employed as a result of the property's complex legal, financial and physical characteristics as well as the absence of any significant recent comparable transactions of leasehold interests in major mixed use projects in the northeastern United States. The valuation of the leasehold interest was based on the property's highest and best use, which is its current use as mixed use development. As a result, primary reliance was placed upon the income approach to value in general, and the discounted cash flow analysis technique, in particular, reflecting the actions of typical buyers and sellers of major commercial investment grade real estate. This valuation technique takes into consideration all of the factors essential to a long-term cash flow projection. The resulting cash flows and reversion were analyzed in light of the yield expectations of representative buyers and sellers of institutional-grade real estate. Because of its sensitivity to current market conditions and its ability to handle a broad assortment of variables unique to the subject property, this particular method is relied upon most heavily in this analysis. Although the market approach was not employed directly in the valuation, recent sales of Boston office properties and national regional malls were analyzed to determine the investment yield requirements implied by recent market transaction activity. As a result, it was concluded that the sales supported the investment criteria employed in the discounted cash flow analyses and the resultant value conclusions. Copley Place is a well-located, major institutional grade real estate asset. The enclosed mall represents one of the three major components of the City's high-end retail shopping area which is centered on the freestanding stores along Boylston and Newberry Streets, the Shops at Prudential Center and Copley Place itself. The mall enjoys high occupancy and sales levels and has performed well during a period of faltering sales nationwide and during which enhanced competition was presented by the redeveloped and expanded Shops at Prudential Center. The office portion of the development has also performed well and enjoys high occupancy levels and increasing rentals. The Boston office leasing market has rebounded strongly and declining vacancy levels have been accompanied by commensurate increases in rentals although they still fall short of the levels where new development would be feasible. 94 <PAGE> LANDAUER REAL ESTATE COUNSELORS Both the retail and office components of the property support the third major source of income, namely the parking garages. Both regional malls and CBD office buildings generally are currently favored by major institutional investors, in general, while Boston is a favored location, in particular. The appraisal of the property was performed over an accelerated time frame although Landauer had previously appraised the property in early 1992 and had some familiarity with it. As a result, following the initial provision of property data, only limited assistance was received from the property ownership in response to various queries relating to the operations and leasing of the property. In certain instances, therefore, where answers to various operating and leasing questions were not provided, we have made what we believe to be reasonable assumptions based upon our previous knowledge of the property and general industry-wide trends. The three major components of the value: retail, office and parking/hotel revenues were analyzed separately. The value conclusions appear to be reasonable by current market standards and are generally supportable by the comparable market data. In conclusion, as a result of our investigations and analyses, it was concluded that the market value of the leasehold interest in the subject property, subject to occupancy leases, as of June 30, 1997, was: THREE HUNDRED FIFTEEN MILLION DOLLARS ($315,000,000) Allocated as follows: Retail Portion $147,000,000 Office Portion $122,000,000 Garage/Hotel Common area portion $ 46,000,000 These allocations have been provided only to identify the relative contributions of the various components to the aggregate value; they do not necessarily reflect the individual values of the components as separate entities. 95 <PAGE> ADDENDA <PAGE> OFFICE RENT ROLL <PAGE> Capley Place - Office PROJECT DESIGNATOR: LAOl REVISION: 7/14/97 @ 10:43 LEASE ABSTRACT REPORT FOR ALL TENANTS 7/21/97 @ 13:27 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING BREAKPOINT TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (0005) (000'S) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 1-SUITE 1101 - 8,398 6/94 12/99 - 20.00 167,960 - - - IBM # 2-SUITE 1102 - 23,502 1/97 6/97 - 28.00 658.056 - - - Global Knowledge # 3-SUITE 1200 - 64,237 10/97 9/04 - 29.50 1,894,992 - - - Sun Life 10/02 34.50 2,216,177 # 4-SUITE 1345 - 132,359 8/96 7/01 - 32.69 4,326,816 - - - RMV # 5-SUITE 1600 - 10,026 2/96 1/00 - 17.50 175,455 - - - Advantis 2/97 19.50 195,507 2/98 21.75 218,066 2/99 24.00 240,624 # 6-SUITE 1601 - 28,724 2/95 1/00 - 18.91 543,171 - - - AT&T Resource Ngmt 6/98 20.95 601,768 # 7-SUITE 1603 - 1,946 5/97 4/02 - 30.50 59,353 - - - Oxigene # 8-SUITE 1700 34,116 6/94 11/99 - 18.50 631,146 - - AT&T 6/97 19.50 665,262 # 9-SUITE 2103 - 10,852 8/97 7/02 - 25.05 271,843 - - - Greater Boston CS # 10-SUITE 2200 - 28,654 9/91 5/98 - 24.00 687,696 - - - Olsten Health Serv # 11-SUITE 2200 - 28,654 6/98 1/00 - 20.95 600,301 - - - AT&T # 12-SUITE 2300 - 8,162 6/91 5/98 - 18.00 146.916 - - - Cipriani Kremer # 13-SUITE 2301 - 20,084 0/93 8/03 - 24.14 484.828 - - - Census Bureau 9/98 21.52 432,208 # 14-SUITE 2400 - 17,617 6/93 5/00 - 19.50 343,532 - - - Core. Inc. 6/98 22.00 387.574 </TABLE> PRO RATA % OF RENT TENANT RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ------------ ----------- ----------- # 1-SUITE 1101 100 RECOVERY %10,411,668 IBM # 2-SUITE 1102 100 RECOVERY %10,813,043 Global Knowledge # 3-SUITE 1200 100 RECOVERY %10,919,392 Sun Life # 4-SUITE 1345 100 RECOVERY %10,435,750 RMV # 5-SUITE 1600 100 RECOVERY %10,435,750 Advantis # 6-SUITE 1601 100 RECOVERY %10,227,035 AT&T Resource Ngmt # 7-SUITE 1603 100 RECOVERY %10,919,392 Oxigene # 8-SUITE 1700 100 RECOVERY 9,986,210 AT&T # 9-SUITE 2103 100 RECOVERY %10,919,392 Greater Boston CS # 10-SUITE 2200 100 RECOVERY 8,998,828 Olsten Health Serv # 11-SUITE 2200 100 RECOVERY %11,427,017 AT&T # 12-SUITE 2300 100 RECOVERY %10,537,150 Cipriani Kremer # 13-SUITE 2301 Escalation Census Bureau Real Estate Tax # 14-SUITE 2400 100 RECOVERY 9,352,037 Core. Inc. <PAGE> <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING BREAKPOINT TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (0005) (000'S) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 15-SUITE 2401 6.573 7/95 6/02 - 25.54 167,874 - - - Boston Mortgage 7/97 2604 171,161 7/99 27.54 181,020 7/01 28.54 187,593 # 16-SUITE 2402 11,191 1/97 12/98 - 25.00 279.775 - - - Bain & Co. # 17-SUITE 2403 823 12/95 8/03 - 25.71 21.159 - - - Census Expansion # 18-SUITE 2500 37,941 5/96 8/04 16.50 626,027 - - - Sam & Co. Expnsn 5/97 2450 929,555 5/98 2850 1.081,319 5/00 3050 1,157,201 5/02 32.50 1,233,083 # 19-SUITE 2700 116,763 8/84 8/04 - 32.85 3,835,664 - - - Sam & Co. 9/99 37.60 4,390,289 # 20-SUITE 3200 45,300 2/84 2/99 - 16.00 724,800 - - - Fleet Bank # 21-SUITE 3201 8,384 1/98 12/02 - 31.20 261.581 - - Lease Up # 22-SUITE 3300 26,578 4/96 3/06 - 25.00 664,450 - - - Willis Corroon 6/01 29.00 770,762 # 23-SUITE 3301 3,123 12/96 11/01 27.15 84,789 - - - Blair Television # 24-SUITE 3400 16,654 2/95 2/05 - 14.50 241.483 - - - Canadian Consulate # 25-SUITE 3401 5,413 1/96 1 2/01 - 26.00 140,738 - - - Personnel Decision # 26-SUITE 3500 12,574 11/94 7/03 - 35.00 440,090 - - - German Consulate 8/96 36.00 452,664 8/97 37.00 465,238 8/98 38.00 477,812 8/99 39.00 490,386 8/00 40.00 502,960 8/01 41.00 515,534 8/02 42.00 528,108 </TABLE> PRO RATA % OF RENT TENANT RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ------------ ----------- ----------- # 15-SUITE 2401 100 RECOVERY %10,227,035 Boston Mortgage # 16-SUITE 2402 100 RECOVERY %1O,435,750 Bain & Co. # 17-SUITE 2403 NONE Census Expansion # 18-SUITE 2500 100 RECOVERY %10,435,750 Sam & Co. Expnsn # 19-SUITE 2700 100 RECOVERY 8,188,050 Sam & Co. # 20-SUITE 3200 FLEET ESCALATION Fleet Bank # 21-SUITE 3201 100 RECOVERY %11,427,017 Lease Up # 22-SUITE 3300 100 RECOVERY %10,435,7S0 Willis Corroon # 23-SUITE 3301 100 RECOVERY %10,435,750 Blair Television # 24-SUITE 3400 ESCALATION Canadian Consulate # 25-SUITE 3401 100 RECOVERY %10,435,750 Personnel Decision # 26-SUITE 3500 100 RECOVERY %10,227,035 German Consulate <PAGE> <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING BREAKPOINT TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (0005) (000'S) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 27-SUITE 3501 8,187 6/95 8/98 - 19.75 161,693 - - - Liberty Mutual 7/97 20.50 167,834 7/98 24.00 196,488 1- 36 21.00 171,927 - - - # 28-SUITE 4100 1,310 7/87 10/97 - 17.00 22.270 - - - Jane Edmonds Assoc # 29-SUITE 4102 7,334 2/95 1/01 - 22.50 165,015 - - - Neurotec 2/98 28.00 205,352 # 30-SUITE 4105 2,366 7/95 12/97 - 17.50 41,405 - - - Standard Parking # 31-SUITE 4110 1,742 11/95 10/00 - 21.50 37,453 - - - Nova Scotia 11/97 22.50 39,195 11/98 23.50 40,937 # 32-SUITE 4120 865 6/97 5/98 - 16.65 14.402 - - Copley Place Travl # 33-SUITE 4125 1,728 3/85 5/00 - 15.00 25,920 - - - NE Minority Prchsg # 34-SUITE 4135 780 12/93 11/98 - 17.00 13.260 - - - Emperial House # 35-SUITE 4140 758 3/98 2/03 - 31.20 23,650 - - - Lease-Up # 36-SUITE 4145 1,377 6/98 5/03 - 31.20 42,962 - - - Lease Up # 37-SUITE 4150 420 11/96 10/97 - 27.00 11,340 - - - ColPitts # 38-SUITE 4155 3,504 8/94 7/98 - 22.00 77,088 - - - Hay Group, The 1- 36 29.64 103,859 - - - # 39-SUITE 4234 64,099 11/92 11/02 - 22.24 1,425,562 - - - IRS 1/98 24.47 1,568.503 # 40-SUITE 4400 4,622 9/95 9/05 - 22.00 101,684 - - - Urban Retail 9/98 24.00 110,928 9/01 26.00 120,172 9/04 28.00 129.416 </TABLE> PRO RATA % OF RENT TENANT RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ------------ ----------- ----------- # 27-SUITE 3501 NONE Liberty Mutual NONE # 28-SUITE 4100 NONE Jane Edmonds Assoc # 29-SUITE 4102 100 RECOVERY 9,986,210 Neurotec # 30-SUITE 4105 NONE Standard Parking # 31-SUITE 4110 100 RECOVERY %10,227,035 Nova Scotia # 32-SUITE 4120 NONE Copley Place Travi # 33-SUITE 4125 NONE NE Minority Prchsg # 34-SUITE 4135 NONE Emperial House # 35-SUITE 4140 100 RECOVERY %11,427,017 Lease-Up # 36-SUITE 4145 100 RECOVERY %11,427,017 Lease Up # 37-SUITE 4150 NONE Col Pitt s # 38-SUITE 4155 100 RECOVERY %10,227,035 Hay Group, The 100 RECOVERY %10,227,035 # 39-SUITE 4234 Escalation IRS Real Estate Tax # 40-SUITE 4400 100 RECOVERY %l0,351,250 Urban Retail <PAGE> <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING BREAKPOINT TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (0005) (000'S) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 41-SUITE 4402 772 9/98 8/03 - 31.20 24,086 - - - Lease Up # 42-SUITE 4500 23,554 3/91 2/01 - 21.50 506.411 - - - Unicco 3/98 24.50 577,073 # 43-SUITE 4602 2,270 11/88 5/97 - 30.00 68,100 - - - Tiffany & Company # 44-SUITE 4605 14,717 11/94 5/97 - 22.37 329.219 - - - Miller Communictns # 45-SUITE 4605 16,239 6/97 11/02 - 24.75 401,915 - - - Miller Communictns 10/97 25.00 405,975 10/98 25.50 414,095 12/99 34.00 552,126 # 46-SUITE 4605 6,528 12/97 11/02 - 29.00 189,312 - - - Miller Coemi. Expsn 12/99 34.00 221,952 # 47-SUITE 4606 949 3/95 2/98 - 17.00 16,133 - - - Funding Resources # 48-SUITE 460A 3,500 3/89 11/97 - 0.00 0 - - - Building Office # 49-SUITE 2100 6,378 12/97 12/25 - 0.00 0 - - - Office of the Bldg # 50 25,186 11/97 10/02 - 30.00 755.580 - - - LEASE UP # 51 1,986 1/98 12/02 - 31.20 61,963 - - - LEASE UP # 52 8,724 3/98 2/03 - 31.20 272,189 - - - LEASE UP 918,543 </TABLE> PRO RATA % OF RENT TENANT RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ------------ ----------- ----------- # 41-SUITE 4402 100 RECOVERY %1l,427,017 Lease Up # 42-SUITE 4500 100 RECOVERY 8,466,900 Unicco # 43-SUITE 4602 95% As If Escltn Tiffany & Company # 44-SUITE 4605 100% As If Escltn %1O,511,800 Miller Communictns # 45-SUITE 4605 100 RECOVERY %10,227,035 Miller Communictns # 46-SUITE 4605 100 RECOVERY %10,227,035 Miller Comm. Expsn # 47-SUITE 4606 100 RECOVERY %10,227,035 Funding Resources # 48-SUITE 460A NONE Building Office # 49-SUITE 2100 NONE Office of the Bldg # 50 100 RECOVERY %10,919,392 LEASE UP # 51 100 RECOVERY %l1,427,017 LEASE UP # 52 100 RECOVERY %11,427,017 LEASE UP <PAGE> OFFICE PRO-JECT TENANT REGISTER <PAGE> Copley Place - Office PROJECT DESIGNATOR: LAO1 REVISION: 7/14/97 o 10:43 TENANT REGISTER 7/21/97 @ 13:32 TENANT SQUARE FEET BEGIN DATE END DATE - ---------------------------------------- ----------- ---------- -------- # 1 - SUITE 1101 IBM 8,398 6/1994 12/1999 # 2 - SUITE 1102 Global Knowledge 23,502 1/1997 6/1997 # 3 - SUITE 1200 Sun Life 64,237 10/1997 9/2004 # 4 - SUITE 1345 RMV 132,359 8/1996 7/2001 # 5 - SUITE 1600 Advantis 10,026 2/1996 1/2000 # 6 - SUITE 1601 AT&T Resource Mgmt 28,724 2/1995 1/2000 # 7 - SUITE 1603 Oxigene 1,946 5/1997 4/2002 # 8 - SUITE 1700 AT&T 34,116 6/1994 11/1999 # 9 - SUITE 2103 Greater Boston CB 10,852 8/1997 7/2002 # 10 - SUITE 2200 Olsten Health Serv 28,654 9/1991 5/1998 # 11 - SUITE 2200 AT&T 28,654 6/1998 1/2000 # 12 - SUITE 2300 Cipriani Kremer 8,162 6/1991 5/1998 # 13 - SUITE 2301 Census Bureau 20,084 8/1993 8/2003 # 14 - SUITE 2400 Core, Inc. 17,617 6/1993 5/2000 # 15 - SUITE 2401 Boston Mortgage 6,573 7/1995 6/2002 # 16 - SUITE 2402 Bain & Co. 11,191 1/1997 12/1998 # 17 - SUITE 2403 Census Expansion 823 12/1995 8/2003 # 18 - SUITE 2500 Bain & Co. Expnsn 37,941 5/1996 8/2004 # 19 - SUITE 2700 Bain & Co. 116,763 8/1984 8/2004 # 20 - SUITE 3200 Fleet Bank 45,300 2/1984 2/1999 # 21 - SUITE 3201 Lease Up 8,384 1/1998 12/2002 # 22 - SUITE 3300 Willis Corroan 26,578 4/1996 3/2006 # 23 - SUITE 3301 Blair Television 3,123 12/1996 11/2001 # 24 - SUITE 3400 Canadian Consulate 16,654 2/1995 2/2005 # 25 - SUITE 3401 Personnel Decision 5,413 1/1996 12/2001 # 26 - SUITE 3500 German Consulate 12,574 11/1994 7/2003 # 27 - SUITE 3501 Liberty Mutual 8,187 6/1995 8/1998 # 28 - SUITE 4100 Jane Edmonds Assoc 1,310 7/1987 10/1997 # 29 - SUITE 4102 Neurotec 7,334 2/1995 1/2001 # 30 - SUITE 4105 Standard Parking 2,366 7/1995 12/1997 # 31 - SUITE 4110 Nova Scotia 1,742 11/1995 10/2000 # 32 - SUITE 4120 Copley Place Travl 865 6/1997 5/1998 # 33 - SUITE 4125 NE Minority Prchsg 1,728 3/1985 5/2000 # 34 - SUITE 4135 Emperial House 780 12/1993 11/1998 # 35 - SUITE 4140 Lease-Up 758 3/1998 2/2003 # 36 - SUITE 4145 Lease Up 1,377 6/1998 5/2003 # 37 - SUITE 4150 Colpitta 420 11/1996 10/1997 # 38 - SUITE 4155 Hay Group, The 3,504 8/1994 7/1998 # 39 - SUITE 4234 IRS 64,099 11/1992 11/2002 # 40 - SUITE 4400 Urban Retail 4,622 9/1995 9/2005 # 41 - SUITE 4402 Lease Up 772 9/1998 8/2003 # 42 - SUITE 4500 Unicco 23,554 3/1991 2/2001 # 43 - SUITE 4602 Tiffany & Company 2,270 11/1988 5/1997 # 44 - SUITE 4605 Miller Communications 14,717 11/1994 5/1997 # 45 - SUITE 4605 Miller Communications 16,239 6/1997 11/2002 # 46 - SUITE 4605 Miller Comm, Expsn 6,528 12/1997 11/2002 # 47 - SUITE 4606 Funding Resources 949 3/1995 2/1998 # 48 - SUITE 460A Building Office 3,500 3/1989 11/1997 # 49 - SUITE 2100 Office of the Bldg 6,378 12/1997 12/2025 # 50 - LEASE UP 25,186 11/1997 10/2002 # 51 - LEASE UP 1,986 1/1998 12/2002 # 52 - LEASE UP 8,724 3/1998 2/2003 ---------- 52 TENANTS 918,543 ========== <PAGE> OFFICE LEASE EXPIRATION SCHEDULE <PAGE> Copley Place - Office PROJECT DESIGNATOR: LAO1 REVISION: 7/14/97 o 10:43 EXPIRATION REPORT YEARS 1998 TO 2009, ALL TENANTS, INCLUDING OPTIONS, INCLUDING RENEWALS, EXCLUDING BASE LEASES AND PRIOR OPTIONS, BASE RENTS INCLUDING CPI ADJUSTMENTS, INCLUDING PERCENTAGE RENTS 7/21/97 @ 13:33 TERM/ BASE TOTAL MARKET TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF - ------------------ --------- -------- ------- ------- ------- ------- # 28-SUITE 4100 INITIAL Jane Edmonds Assoc 1,310 10/1997 17.00 0.00 17.00 31.20 # 37-SUITE 4150 INITIAL Colpilts 420 10/1997 27.00 0.00 27.00 31.20 # 48-SUITE 460A INITIAL Building Office 3.500 11/1997 0.00 0.00 0.00 0.00 # 30-SUITE 4105 INITIAL Standard Parking 2,366 12/1997 17.50 0.00 17.50 31.20 # 47-SUITE 4606 INITIAL Funding Resources 949 2/1998 16.99 1.49 18.49 32.45 # 32-SUITE 4120 INITIAL Copley Place Travl 865 5/1998 16.65 0.00 16.65 18.39 # 10-SUITE 2200 INITIAL Olsten Health Serv 28,654 5/1998 24.00 3.02 27.02 32.45 # 12-SUITE 2300 INITIAL Cipriani Kremer 8,162 5/1998 18.00 1.05 19.05 32.45 -------- ------- ------- ------- ------- 8 FY 98 EXPIRATIONS 46,226 20.34 2.09 22.43 29.62 -------- ------- ------- ------- ------- # 34-SUITE 4135 INITIAL Emperial House 780 11/1998 17.00 0.00 17.00 32.45 # 16-SUITE 2402 INITIAL Bain & Co. 11,191 12/1998 25.00 1.24 26.24 32.45 # 20-SUITE 3200 INITIAL Fleet Bank 45,300 2/1999 16.00 14.57 30.57 32.45 -------- ------- ------- ------- ------- 3 FY 99 EXPIRATIONS 57,271 17.77 11.77 29.54 32.45 -------- ------- ------- ------- ------- 11 CUMULATIVE EXPS 103,497 18.92 7.45 26.36 31.18 # 8-SUITE 1700 INITIAL AT&T 34,116 11/1999 19.50 2.35 21.85 33.75 # 1-SUITE 1101 INITIAL IBM 8,398 12/1999 20.00 1.82 21.82 35.10 # 11-SUITE 2200 INITIAL AT&T 28,654 1/2000 20.95 1.18 22.13 33.75 # 5-SUITE 1600 INITIAL Advantis 10,026 1/2000 24.00 2.42 26.42 33.75 <PAGE> PAGE 2 TERM/ BASE TOTAL MARKET TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF - ------------------ --------- -------- ------- ------- ------- ------- # 6-SUITE 1601 INITIAL AT&T Resource Mgmt 28,724 1/2000 20.95 2.68 23.63 35.10 # 33-SUITE 4125 INITIAL NE Minority Prchsg 1,728 5/2000 15.00 0.00 15.00 35.10 # 14-SUITE 2400 INITIAL Core. Inc. 17,617 5/2000 22.00 3.77 25.77 35.10 -------- ------- ------- ------- ------- 7 FY100 EXPIRATIONS 129,263 20.81 2.30 23.10 34.34 -------- ------- ------- ------- ------- 18 CUMULATIVE EXPS 232,760 19.97 4.59 24.55 32.93 # 31-SUITE 4110 INITIAL Nova Scotia 1,742 10/2000 23.50 2.68 26.18 35.10 # 29-SUITE 4102 INITIAL Neurotec 7,334 1/2001 28.00 3.57 31.57 36.50 # 42-SUITE 4500 INITIAL Unicco 23,554 2/2001 24.50 5.19 29.69 36.50 -------- ------- ------- ------- ------- 3 FYlOl EXPIRATIONS 32,630 25.23 4.69 29.93 36.42 -------- ------- ------- ------- ------- 21 CUMULATIVE EXPS 265,390 20.61 4.60 25.21 33.36 # 38-SUITE 4155 OPTION 1 Hay Group, The 3,504 7/2001 29.64 3.27 32.91 35.10 # 4-SUITE 1345 INITIAL RMV 132,359 7/2001 32.69 3.01 35.70 36.50 # 27-SUITE 3501 OPTION 1 Liberty Mutual 8,187 8/2001 21.00 0.00 21.00 35.10 # 23-SUITE 3301 INITIAL Blair Television 3,123 11/2001 27.15 3.01 30.16 36.50 # 25-SUITE 3401 INITIAL Personnel Decision 5,413 12/2001 26.00 3.01 29.01 37.96 # 7-SUITE 1603 INITIAL Oxigene 1,946 4/2002 30.50 3.06 33.56 36.50 # 15-SUITE 2401 INITIAL Boston Mortgage 6,573 6/2002 28.54 3.92 32.46 36.50 -------- ------- ------- ------- ------- 7 FY102 EXPIRATIONS 161,105 31.50 2.90 34.41 36.45 -------- ------- ------- ------- ------- 28 CII4ULATIVE EXPS 426,495 24.73 3.96 28.69 34.53 # 9-SUITE 2103 INITIAL Greater Boston CB 10,852 7/2002 25.05 3.06 28.11 36.50 # 50 INITIAL LEASE UP 25,186 10/2002 30.00 3.06 33.06 36.50 <PAGE> PAGE 3 TERM/ BASE TOTAL MARKET TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF - ------------------ --------- -------- ------- ------- ------- ------- # 39-SUITE 4234 INITIAL IRS 64,099 11/2002 24.47 2.72 27.19 36.50 # 45-SUITE 4605 INITIAL Miller Communictns 16,239 11/2002 34.00 3.92 37.92 36.50 # 46-SUITE 4605 INITIAL Miller Comm. Expan 6,528 11/2002 34.00 3.92 37.92 36.50 # 37-SUITE 4150 RENEWAL 1 Colpitts 420 12/2002 31.20 2.43 33.63 39.48 # 28-SUITE 4100 RENEWAL 1 Jane Edmonds Assoc 1,310 12/2002 31.20 2.43 33.63 39.48 # 21-SUITE 3201 INITIAL Lease Up 8,384 12/2002 31.20 2.43 33.63 37.96 # 51 INITIAL LEASE UP 1,986 12/2002 31.20 2.43 33.63 37.96 # 30-SUITE 4105 RENEWAL 1 Standard Parking 2,366 2/2003 31.20 3.11 34.31 37.96 # 35-SUITE 4140 INITIAL Lease-Up 758 2/2003 31.20 3.10 34.31 37.96 # 52 INITIAL LEASE UP 8,724 2/2003 31.20 3.11 34.31 37.96 # 47-SUITE 4606 RENEWAL 1 Funding Resources 949 4/2003 31.19 3.11 34.31 39.48 # 36-SUITE 4145 INITIAL Lease Up 1,377 5/2003 31.20 3.11 34.31 37.96 -------- ------- ------- ------- ------- 14 FY103 EXPIRATIONS 149,178 28.09 3.00 31.08 36.78 -------- ------- ------- ------- ------- 42 CUMULATIVE EXPS 575,673 25.60 3.71 29.31 35.11 # 32-SUITE 4120 RENEWAL 1 Copley Place Travl 865 7/2003 18.38 0.00 18.38 22.37 # 26-SUITE 3500 INITIAL German Consulate 12,574 7/2003 42.00 4.60 46.60 39.48 # 12-SUITE 2300 RENEWAL 1 Cipriani Kremer 8,162 7/2003 31.20 3.11 34.31 39.48 # 41-SUITE 4402 INITIAL Lease Up 772 8/2003 31.20 3.11 34.31 37.96 # 13-SUITE 2301 INITIAL Census Bureau 20,084 8/2003 21.52 3.67 25.19 39.48 # 17-SUITE 2403 INITIAL Census Expansion 823 8/2003 25.71 0.00 25.71 39.48 # 34-SUITE 4135 RENEWAL 1 Emperial House 780 1/2004 32.45 3.18 35.63 41.06 <PAGE> PAGE 4 TERM/ BASE TOTAL MARKET TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF - ------------------ --------- -------- ------- ------- ------- ------- # 16-SUITE 2402 RENEWAL 1 Bain & Co. 11,191 2/2004 32.45 3.19 35.64 39.48 # 20-SUITE 3200 RENEWAL 1 Fleet Bank 45,300 4/2004 32.45 3.19 35.64 39.48 --------- ------- ------- ------- ------- 9 FY1O4 EXPIRATIONS 100,551 31.17 3.40 34.57 39.33 --------- ------- ------- ------- ------- 51 CUMULATIVE EXPS 676,224 26.43 3.66 30.09 35.74 # 18-SUITE 2500 INITIAL Bain & Co. Expnsn 37,941 8/2004 32.50 4.98 37.48 41.06 # 19-SUITE 2700 INITIAL Bain & Co. 116,763 8/2004 37.60 7.39 44.99 41.06 # 3-SUITE 1200 INITIAL Sun Life 64,237 9/2004 34.50 4.38 38.88 39.48 # 8-SUITE 1700 RENEWAL 1 AT&T 34,116 1/2005 33.75 3.30 37.05 42.70 # 1-SUITE 1101 RENEWAL 1 IBM 8,398 2/2005 33.75 3.30 37.05 42.70 # 24-SUITE 3400 INITIAL Canadian Consulate 16,654 2/2005 14.50 18.44 32.94 41.06 # 6-SUITE 1601 RENEWAL 1 AT&T Resource Mgmt 28,724 3/2005 33.75 3.30 37.04 42.70 # 11-SUITE 2200 RENEWAL 1 AT&T 28,654 3/2005 33.75 3.30 37.04 41.06 # 5-SUITE 1600 RENEWAL 1 Advantis 10,026 3/2005 33.75 3.30 37.04 41.06 --------- ------- ------- ------- ------- 9 FYlOS EXPIRATIONS 345,513 34.12 5.80 39.92 41.10 --------- ------- ------- ------- ------- 60 CUMULATIVE EXPS 1,021,737 29.03 4.39 33.42 37.55 # 33-SUITE 4125 RENEWAL 1 NE Minority Prchsg 1,728 7/2005 33.74 3.30 37.04 42.70 # 14-SUITE 2400 RENEWAL 1 Core. Inc. 17,617 7/2005 33.75 3.30 37.04 42.70 # 40-SUITE 4400 INITIAL Urban Retail 4,622 9/2005 28.00 5.53 33.53 42.70 # 31-SUITE 4110 RENEWAL 1 Nova Scotia 1,742 12/2005 35.10 2.70 37.80 44.41 # 22-SUITE 3300 INITIAL Willis Corroon 26,578 3/2006 29.00 6.45 35.45 44.41 # 29-SUITE 4102 RENEWAL 1 Neurotec 7,334 3/2006 35.10 3.43 38.53 44.41 <PAGE> PAGE 5 TERM/ BASE TOTAL MARKET TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF - ------------------ --------- -------- ------- ------- ------- ------- # 42-SUITE 4500 RENEWAL 1 Unicco 23,554 4/2006 35.10 3.43 38.53 44.41 --------- ------- ------- ------- ------- 7 FY106 EXPIRATIONS 83,175 32.44 4.47 36.91 43.92 --------- ------- ------- ------- ------- 67 CUMULATIVE EXPS 1,104,912 29.29 4.39 33.68 38.03 # 38-SUITE 4155 RENEWAL 1 Hay Group, The 3,504 9/2006 35.10 3.43 38.53 42.70 # 4-SUITE 1345 RENEWAL 1 ANY 132,359 9/2006 35.10 3.44 38.53 44.41 # 27-SUITE 3501 RENEWAL 1 Liberty Mutual 8,187 10/2006 35.10 3.44 38.53 42.70 # 23-SUITE 3301 RENEWAL 1 Blair Television 3,123 1/2007 36.50 3.60 40.10 46.18 # 25-SUITE 3401 RENEWAL 1 Personnel Decision 5,413 2/2007 36.50 3.60 40.10 46.18 # 7-SUITE 1603 RENEWAL 1 Oxigene 1,946 6/2007 36.50 3.60 40.10 44.41 --------- ------- ------- ------- ------- 6 FY107 EXPIRATIONS 154,532 35.19 3.45 38.64 44.38 --------- ------- ------- ------- ------- 73 CUMULATIVE EXPS 1,259,444 30.01 4.28 34.29 38.81 # 15-SUITE 2401 RENEWAL 1 Boston Mortgage 6,573 8/2007 36.50 3.60 40.10 44.41 # 9-SUITE 2103 RENEWAL 1 Greater Boston CE 10,852 9/2007 36.50 3.60 40.10 44.41 # 50 RENEWAL 1 LEASE UP 25,186 12/2007 37.96 2.92 40.88 46.18 # 39-SUITE 4234 RENEWAL 1 IRS 64,099 1/2008 37.96 3.69 41.65 46.18 # 46-SUITE 4605 RENEWAL 1 Miller Conun. Expan 6,528 1/2008 37.96 3.69 41.65 46.18 # 4S-SUITE 4605 RENEWAL 1 Miller Coniiunictns 16,239 1/2008 37.96 3.69 41.65 46.18 # 28-SUITE 4100 RENEWAL 2 Jane Edmonds Assoc 1,310 2/2008 37.96 3.69 41.65 48.03 # 37-SUITE 4150 RENRWAL 2 Colpitta 420 2/2008 37.97 3.69 41.66 48.03 # 51 RENEWAL 1 LEASE UP 1,986 2/2008 37.96 3.69 41.65 46.18 # 21-SUITE 3201 RENEWAL 1 Lease Up 8,384 2/2008 37.96 3.69 41.65 46.18 <PAGE> PAGE 6 TERM/ BASE TOTAL MARKET TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF - ------------------ --------- -------- ------- ------- ------- ------- # 35-SUITE 4140 RENEWAL 1 Lease-Up 758 4/2008 37.96 3.69 41.65 46.18 # 30-SUITE 4105 RENEWAL 2 Standard Parking 2,366 4/2008 37.96 3.69 41.65 46.18 # 52 RENEWAL 1 LEASE UP 8,724 4/2008 37.96 3.69 41.65 46.18 # 47-SUITE 4606 RENEWAL 2 Funding Resources 949 6/2008 37.96 3.69 41.65 48.03 --------- ------- ------- ------- ------- 14 FY108 EXPIRATIONS 154,374 37.79 3.56 41.35 46.02 --------- ------- ------- ------- ------- 87 CUMULATIVE EXPS 1,413,818 30.86 4.20 35.06 39.60 # 36-SUITE 4145 RENEWAL 1 Lease Up 1,377 7/2008 37.96 3.69 41.66 46.18 # 26-SUITE 3500 RENEWAL 1 German Consulate 12,574 9/2008 37.96 3.69 41.65 48.03 # 12-SUITE 2300 RENEWAL 2 Cipriani Kremer 8,162 9/2008 37.96 3.69 41.65 48.03 # 32-SUITE 4120 RENEWAL 2 Copley Place Travl 865 9/2008 22.38 0.00 22.38 27.22 # 13-SUITE 2301 RENEWAL 1 Census Bureau 20,084 10/2008 37.96 3.69 41.65 48.03 # 17-SUITE 2403 RENEWAL 1 Census Expansion 823 10/2008 37.95 3.69 41.64 48.03 # 41-SUITE 4402 RENEWAL 1 Lease Up 772 10/2008 37.96 3.70 41.66 46.18 # 34-SUITE 4135 RENEWAL 2 Emperial House 780 3/2009 39.48 3.88 43.35 49.95 # 16-SUITE 2402 RENEWAL 2 Bain & Co. 11,191 4/2009 39.48 3.87 43.35 48.03 # 20-SUITE 3200 RENEWAL 2 Fleet Bank 45,300 6/2009 39.48 3.87 43.35 48.03 --------- ------- ------- ------- ------- 10 FY109 EXPIRATIONS 101,928 38.68 3.76 42.44 47.83 --------- ------- ------- ------- ------- 97 CUMULATIVE EXPS 1,515,746 31.39 4.17 35.56 40.15 <PAGE> RETAIL RENT ROLL <PAGE> Copley Place - Retail PROJECT DESIGNATOR: FY-R REVISION: 7/17/97 @ 15:18 LEASE ABSTRACT REPORT FOR ALL TENANTS 7/21/97 @ 12:29 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 1-SUITE ANCHOR 1 104,332 2/84 1/14 - 10.00 1,043,320 1.00 45,000 NEIMAN MARCUS - 0.50 UNLIMITED # 2-SUITE A-0l 11,745 9/84 7/09 - 40.00 469,800 TIFFANY & CO 10/96 42.00 493,290 10/98 44.00 516,780 10/00 45.00 528,525 10/04 50.00 587,250 1- 60 67.24 789,773 2- 60 81.81 960,880 # 3-SUITE A-l0 7 5,166 9/86 1/04 - 40.00 206,640 5.00 UNLIMITED VICTORIA'S SECRET - 2/97 50.00 258,300 # 4-SUITE A-14 5 2,513 5/95 3/O5 - 65.00 163,345 6.00 UNLIMITED MARK CROSS - </TABLE> BREAKPOINT PRO RATA % OF RENT TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ---------- ------------ ----------- ----------- # 1-SUITE ANCHOR 40,000 NEIMAN MARCUS CAM ZERO NEIMAN MARCUS REAL ESTATE TAX 1,235,030 INSURANCE RECOVERY 1,881 UTILITIES NEIMAN MARCUS HVAC MARKETING ZERO # 2-SUITE A-0l NATURAL CAM PRORATA + 15% ZERO TIFFANY & CO RET EXPENSE RECVRY ZERO HVAC RECOVERY UTILITIES INSURANCE RECOVERY ZERO MARKETING ZERO NATURAL CAM PRORATA + 15% ZERO RET EXPENSE RECVRY ZERO HVAC RECOVERY UTILITIES INSURANCE RECOVERY ZERO MARKETING ZERO NATURAL CAM PRORATA + 15% ZERO RET EXPENSE RECVRY ZERO HVAC RECOVERY UTILITIES INSURANCE RECOVERY ZERO MARKETING ZERO # 3-SUITE A-l0 NATURAL CAM PR + 15% NOM ZERO VICTORIA'S SECRET RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 4-SUITE A-14 NATURAL CAM PR + 15% NOM ZERO MARK CROSS RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES <PAGE> PAGE 2 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 5-SUITE A-14b 6 3,846 4/96 1/06 32.50 124,995 5.00 UNLIMITED BROOKSTONE - - 2/00 60.00 230,760 # 6-SUITE A-14d 2 484 11/95 7/09 - 35.00 16,940 TIFFANY STORAGE # 7-SUITE A-15 5 2,604 10/94 1/05 - 53.08 138,220 6.00 UNLIMITED BEBE # 8-SUITE A-17 5 1,201 12/95 10/05 - 70.00 84,070 6.00 UNLIMITED KENNETH COLE - # 9-SUITE A-19 6 4,922 2/84 2/00 - 42.00 206,724 5.00 UNLIMITED POLO - 3/96 42.88 211,055 # 10-SUITE A-21 6 4,506 9/84 7/99 - 30.00 135,180 6.00 UNLIMITED RIZZOLI - # 11-SUITE B-0l 5 2,370 1/94 12/03 - 43.79 103,782 5.00 UNLIMITED ARTFUL HAND GALLRY - 6/96 44.65 1O5,821 </TABLE> BREAKPOINT PRO RATA % OF RENT TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ---------- ------------ ----------- ----------- # 5-SUITE A-14b NATURAL CAM PR + 15% NOM ZERO BROOKSTONE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 6-SUITE A-14d NATURAL CAM PR + 15% NOM ZERO TIFFANY STORAGE RET EXPENSE RECVRY ZERO # 7-SUITE A-15 NATURAL CAM PR + 15% NOM ZERO BEBE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 8-SUITE A-17 NATURAL CAM PR + 15% NOM ZERO KENNETH COLE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 9-SUITE A-19 4,221 CAM PR + 15% NOM ZERO POLO RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 10-SUITE A-21 NATURAL CAM PR + 15% NOM ZERO RIZZOLI RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 11-SUITE B-0l NATURAL CAM PR + 15% NOM ZERO ARTFUL HAND GALLRY RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES <PAGE> PAGE 3 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 12-SUITE B-04 7 6,602 6/95 1/08 - 47.57 314,057 6.00 UNLIMITED WILLIAMS-SONOMA - 2/97 49.47 326,619 2/98 51.45 339,684 2/99 53.51 353,272 2/00 55.65 367,402 2/01 57.88 382,099 2/02 60.19 397,382 2/03 62.60 413,278 2/04 65.10 429,809 2/05 67.71 447,001 2/06 70.42 464,881 2/07 73.23 483,477 # 13-SUITE B-06 5 2,075 10/94 1/O5 - 60.00 124,500 6.00 UNLIMITED EILEEN FISHER - 10/97 65.00 134,875 10/01 70.00 145,250 # 14-SUITE B-09 5 1,234 4/94 3/04 - 85.00 104,890 6.00 UNLIMITED LOUIS VUITTON - 4/97 90.00 111,060 4/01 95.00 117,230 # 15-SUITE B-l0 5 2,368 3/90 4/04 - 56.00 132,608 6.00 UNLIMITED JOAN & DAVID - 12/97 62.00 146,816 12/99 67.00 158,656 # 16-SUITE B-14 6 3,556 2/95 1/05 - 47.19 167,808 6.00 UNLIMITED GUCCI 2/98 51.74 183,987 2/02 57.05 202,870 # 17-SUITE B-19 4 825 2/84 8/04 - 60.00 49,500 9.00 UNLIMITED SWEET TEMPTATIONS - 9/97 65.00 53,625 9/01 70.00 57,750 </TABLE> BREAKPOINT PRO RATA % OF RENT TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ---------- ------------ ----------- ----------- # 12-SUITE B-04 NATURAL CAM PR + 15% NOM ZERO WILLIAMS-SONOMA RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 13-SUITE B-06 NATURAL CAM PR + 15% NOM ZERO EILEEN FISHER - 10/97 RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 14-SUITE B-09 NATURAL CAM PR + 15% NOM ZERO LOUIS VUITTON RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 15-SUITE B-l0 NATURAL CAM PR + 15% NOM ZERO JOAN & DAVID RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 16-SUITE B-14 NATURAL CAM PR + 15% NOM ZERO GUCCI RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 17-SUITE B-19 NATURAL CAM PR + 15% NOM ZERO SWEET TEMPTATIONS - RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES <PAGE> PAGE 4 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 18-SUITE B-20 3 450 10/89 9/99 60.00 27,000 6.00 UNLIMITED COACH FOR BUSINESS - - # 19-SUITE B-23 4 969 9/84 3/02 - 75.00 72,675 8.00 UNLIMITED CRABTREE & EVELYN - # 20-SUITE C-03 3 240 9/97 9/04 - 55.00 13,200 9.00 UNLIMITED CONFETTI - 10/97 60.00 14,400 10/01 65.00 15,600 # 21-SUITE C-04 6 4,325 12/94 12/04 - 50.00 216,250 6.00 UNLIMITED BALLY OF SWTZRLAND - # 22-SUITE C-06 5 1,497 9/87 3/98 - 65.00 97,305 6.00 UNLIMITED MONDI - 9/97 70.00 104,790 # 23-SUITE C-07 6 3,355 4/84 1/05 - 46.00 154,330 6.00 UNLIMITED FRENCH CONNECTION - 9/97 49.00 164,395 9/01 52.00 174,460 # 24-SUITE C-09 5 1,000 9/95 9/05 - 65.00 65,000 7.00 UNLIMITED BOITEGA VENETA - 9/00 75.00 75,000 </TABLE> PR SECBREAKPOINT PRO RATA % OF RENT TENANT C (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ------------- ------------ ----------- ----------- # 18-SUITE B-20 NATURAL CAM PR + 15% NOM ZERO COACH FOR BUSINESS RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 19-SUITE B-23 NATURAL CAM PR + 15% NOM ZERO CRABTREE & EVELYN RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 20-SUITE C-03 NATURAL CAM PR + 15% NOM ZERO CONFETTI RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO # 21-SUITE C-04 4,325 CAM PR + 15% NOM ZERO BALLY OF SWTZRLAND RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 22-SUITE C-06 NATURAL CAM PR + 15% NOM ZERO MONDI - RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 23-SUITE C-07 NATURAL CAM PR + 15% NOM ZERO FRENCH CONNECTION - RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 24-SUITE C-09 NATURAL CAM PR + 15% NOM ZERO BOITEGA VENETA RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES <PAGE> PAGE 5 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 25-SUITE C-11 5 2,510 11/95 9/05 - 70.00 175,700 6.00 UNLIMITED ARMANI A/X - 10/00 80.00 200,800 # 26-SUITE C-12 4 758 3/96 2/06 - 100.00 75,800 7.00 UNLIMITED STODDARDS - # 27-SUITE C-13 3 450 8/95 7/05 - 75.00 33,750 6.00 UNLIMITED MONT BLANC - # 28-SUITE C-14 5 2,164 2/84 2/07 - 42.00 90,888 6.00 UNLIMITED CACHE - 3/97 55.00 119,020 3/00 60.00 129,840 3/04 65.00 140,660 # 29-SUITE C-l5 4 700 2/84 12/04 - 90.00 63,000 8,00 UNLIMITED GODIVA CHOCOLATIER - 11/97 105.00 73,500 11/01 115.00 80,500 # 30-SUITE C-16 3 332 11/93 12/03 - 60.00 19,920 6.00 UNLIMITED JUST WATCHES - 11/96 75.00 24,900 11/00 90.00 29,880 # 33-SUITE C-19 3 281 2/84 2/99 - 140.93 39,601 FLEET BANK - </TABLE> BREAKPOINT PRO RATA % OF RENT TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ---------- ------------ ----------- ----------- # 25-SUITE C-11 NATURAL CAM PR + 15% NOM ZERO ARMANI A/X RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 26-SUITE C-12 458 CAM PR + 15% NOM ZERO STODDARDS RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 27-SUITE C-13 NATURAL CAM PR + 15% NOM ZERO MONT BLANC RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 28-SUITE C-14 NATURAL CAM PR + 15% NOM ZERO CACHE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 29-SUITE C-l5 NATURAL CAM PR + 15% NOM ZERO GODIVA CHOCOLATIER RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 30-SUITE C-16 NATURAL CAM PR + 15% NOM ZERO JUST WATCHES RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 31-SUITE C-19 NATURAL NONE FLEET BANK <PAGE> PAGE 6 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 32-SUITE C-27 7 5,880 9/84 5/O5 30.00 176,400 6.00 UNLIMITED LAURIAT'S BOOKS - 5/96 40.00 235,200 5/98 43.00 252,840 5/02 46.00 270,480 # 33-SUITE C-28 9 21,566 4/84 1/00 - 17.50 377,405 9.00 UNLIMITED SONY THEATERS - 3/97 17.87 385,384 # 34-SUITE C-28b 2 234 11/94 12/04 - 30.06 7,034 GODIVA STORAGE - 11/97 40.09 9,381 11/01 43.09 10,083 # 35-SUITE D-06 7 7,434 3/89 2/04 - 25.00 185,850 6.00 UNLIMITED CHILI'S GRILL&BAR - 3/97 27.00 200,718 3/99 30.00 223,020 # 36-SUITE D-O8 5 1,335 10/96 9/06 - 50.00 66,750 6.00 UNLIMITED PAVO REAL GALLERY 10/99 55.00 73,425 10/03 60.00 80,100 # 37-SUITE D-1O 4 675 10/95 12/O5 - 60.00 40,500 6.00 UNLIMITED PAVO REAL - # 38-SUITE 0-11 4 743 11/93 7/03 100.00 74,300 8.00 UNLIMITED EASTERN NEWSSTAND - </TABLE> BREAKPOINT PRO RATA % OF RENT TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ---------- ------------ ----------- ----------- # 32-SUITE C-27 NATURAL CAM PR + 15% NOM ZERO LAURIAT'S BOOKS RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 33-SUITE C-28 NATURAL CAM PRORATA + 15% ZERO SONY THEATERS RET EXPENSE RECVRY ZERO INSURANCE RECOVERY ZERO UTILITIES HVAC RECOVERY MARKETING ZERO # 34-SUITE C-28b NATURAL CAM PR + 15% NOM ZERO GODIVA STORAGE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO # 35-SUITE D-06 NATURAL CAM PR + 15% NOM ZERO CHILI'S GRILL&BAR RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 36-SUITE D-O8 NATURAL CAM PR + 15% NOM ZERO PAVO REAL GALLERY RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 37-SUITE D-1O NATURAL CAM PR + 15% NOM ZERO PAVO REAL RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 38-SUITE 0-11 NATURAL CAM PR + 15% NOM ZERO EASTERN NEWSSTAND RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES <PAGE> PAGE 7 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 39-SUITE D-13 4 800 1/96 12/05 - 75.00 60,000 6.00 UNLIMITED N LANDAU HYMAN - 3/01 85.00 68,000 # 40-SUITE D-15 4 926 12/91 7/97 - 50.00 46,300 5.00 UNLIMITED H20 PLUS - # 41-SUITE D-15 4 926 11/97 10/07 - 125.00 115,750 6.00 UNLIMITED SWAROVSKI - 10/02 135.00 125,010 # 42-SUITE D-16 4 774 11/95 10/00 - 75.00 58,050 6.00 UNLIMITED CUSTOM SHOP, THE - # 43-SUITE D-17 5 2,800 10/94 1/O5 - 55.00 154,000 6.00 UNLIMITED MUSEUM / FINE ARTS # 44-SUITE D-19 5 2,400 2/84 2/06 - 32.02 76,848 5.00 UNLIMITED BEYLERIAN - 3/96 40.00 96,000 3/00 45.00 108,000 3/04 50.00 120,000 # 45-SUITE D-21 5 1,520 3/94 2/04 - 60.00 91,200 6.00 UNLIMITED JAEGER - 3/97 64.00 97,280 3/01 68.00 103,360 </TABLE> BREAKPOINT PRO RATA % OF RENT TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ----------- ------------ ----------- ----------- # 39-SUITE D-13 NATURAL CAM PR + 15% NOM ZERO N LANDAU HYMAN RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 40-SUITE D-15 NATURAL CAM PR + 15% NOM ZERO H20 PLUS RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 41-SUITE D-15 NATURAL CAM PR + 15% NOM ZERO SWAROVSKI RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 42-SUITE D-16 NATURAL CAM PR + 15% NOM ZERO CUSTOM SHOP, THE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 43-SUITE D-17 NATURAL CAM PR + 15% NOM ZERO MUSEUM / FINE ARTS RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 44-SUITE D-19 NATURAL CAM PR + 15% NOM ZERO BEYLERIAN RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 45-SUITE D-21 NATURAL CAM PR + 15% NOM ZERO JAEGER RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES <PAGE> PAGE 8 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 46-SUITE D-24 8 9,014 5/84 3/99 - 22.19 200,021 8.00 UNLIMITED CRATE & BARREL - # 47-SUITE E-01 7 6,409 4/86 7/01. - 40.00 256,360 6.00 UNLIMITED GAP, THE - 9/98 47.00 301,223 # 48-SUITE E-03 7 7,318 1/98 12/07 - 20,00 146,360 5.0O UNLIMITED GAP EXPNS, THE - # 49-SUITE E-04 6 3,997 11/90 12/00 - 25.00 99,925 5.00 UNLIMITED CIRCUIT CITY XPRSS - # 5O-SUITE E-05 6 3,710 9/92 12/02 - 35.00 129,850 4.00 UNLIMITED DISNEY STORE, THE - 10/96 38.00 140,980 10/98 41.00 152,110 # 51-SUITE E-09 7 6,581 8/90 8/02 - 40.00 263,240 5.00 UNLIMITED LIZ CLAIBORNE - # 52-SUITE E-10 4 692 5/92 4/02 60.00 41,520 6.00 UNLIMITED CODE AZUR - 5/97 70.00 48,440 </TABLE> BREAKPOINT PRO RATA % OF RENT TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ---------- ------------ ----------- ----------- # 46-SUITE D-24 NATURAL NONE CRATE & BARREL # 47-SUITE E-01 NATURAL CAM PR + 15% NOM ZERO GAP, THE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 48-SUITE E-03 NATURAL CAM PR + 15% NOM ZERO GAP EXPNS, THE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 49-SUITE E-04 NATURAL CAM PR + 1.5% NOM ZERO CIRCUIT CITY XPRSS RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 5O-SUITE E-05 NATURAL CAM PR + 15% NOM ZERO DISNEY STORE, THE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 51-SUITE E-09 NATURAL CAM PR + 15% NOM ZERO LIZ CLAIBORNE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 52-SUITE E-10 NATURAL CAM PR + 15% NOM ZERO CODE AZUR RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES <PAGE> PAGE 9 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 53-SUITE E-32 5 2,086 3/92 9/05 - 60.00 125,160 6.00 UNLIMITED GYMBOREE - 4/99 65.00 135,590 # 54-SUITE E-14 5 1,363 9/96 6/06 - 65.00 88,595 6.00 UNLIMITED EYEX - 7/99 70.00 95,410 7/03 75.00 102,225 # 55-SUITE E-16 6 3,947 2/93 1/05 - 30.00 118,410 4.00 UNLIMITED NATURE COMPANY, THE - 2/97 35.00 138,145 2/00 40.00 157,880 # 56-SUITE F-01 7 5,596 9/92 8/04 - 36.00 201,456 5.00 UNLIMITED BANANA REPUBLIC - 10/98 42.00 235,032 # 57-SUITE F-03 7 5,697 2/94 1/06 - 40.00 227,880 5.00 UNLIMITED LIMITED, THE - 1/98 43.50 247,820 1/02 47.00 267,759 # 58-SUITE F-08 7 6,792 5/97 4/07 - 0.00 0 5.00 UNLIMITED J. CREW - 7/97 30.00 203,760 5/00 35.00 237,720 5/04 40.00 271,680 # 59-SUITE F-13 1 3,590 9/91 1/14 - 26.06 93,555 NEIMAN'S EXPANSION - </TABLE> BREAKPOINT PRO RATA % OF RENT TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ---------- ------------ ----------- ----------- # 53-SUITE E-32 NATURAL CAM PR + 35% NOM ZERO GYMBOREE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 54-SUITE E-14 NATURAL CAM PR + 15% NOM ZERO EYE X RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 55-SUITE E-16 NATURAL CAM PR + 15% NOM ZERO NATURE COMPANY, THE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 56-SUITE F-01 NATURAL CAM PR + 15% NOM ZERO BANANA REPUBLIC RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 57-SUITE F-03 NATURAL CAM PR + 15% NOM ZERO LIMITED, THE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 58-SUITE F-08 NATURAL CAM PR + 15% NOM ZERO J. CREW RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO # 59-SUITE F-13 NATURAL CAM PR + 15% MOM ZERO NEIMAN'S EXPANSION RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES <PAGE> PAGE 10 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 60-SUITE G-05 7 5,985 2/84 1/99 - 33.42 200,019 5.00 UNLIMITED COMPAGNIE INTRNTNL - # 61-SUITE G-07 5 2,400 3/97 3/07 - 65.00 156,000 6.00 UNLIMITED BENTLEYS LUGGAGE - # 62-SUITE G-08 6 3,062 5/92 4/04 - 40.00 122,480 6.00 UNLIMITED GAP KIDS - # 63-SUITE G-10 4 815 3/94 2/04 - 42.50 34,638 6.00 UNLIMITED ENRICO CELLI - # 64-SUITE G-11 4 890 12/91 12/02 - 60.00 53,400 6.00 UNLIMITED KNOT SHOP - 1/99 70.00 62,300 # 65-SUITE G-15 5 1,183 11/91 12/01 - 60.00 70,980 8.00 UNLIMITED BRASS BOOT - 11/97 65.00 76,895 11/99 70.00 82,810 # 66-SUITE G-16 5 1,083 12/95 12/O5 - 50.00 54,15O 6.00 UNLIMITED EBX - 10/98 55.00 59,565 10/02 60.00 64,980 </TABLE> BREAKPOINT PRO RATA % OF RENT TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ---------- ------------ ----------- ----------- # 60-SUITE G-05 NATURAL CAM PR + 15% NOM ZERO COMPAGNIE INTRNTNL RET EXPENSE RECVRY ZERO INSURANCE RECOVERY ZERO HVAC RECOVERY UTILITIES # 61-SUITE G-07 NATURAL CAM PR + 15% NOM ZERO BENTLEYS LUGGAGE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 62-SUITE G-08 NATURAL CAM PR + 15% NOM ZERO GAP KIDS RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 63-SUITE G-10 NATURAL CAM PR + 15% NOM ZERO ENRICO CELLI RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 64-SUITE G-11 NATURAL CAM PR + 15% NOM ZERO KNOT SHOP RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 65-SUITE G-15 NATURAL CAM PR + 15% NOM ZERO BRASS BOOT RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 66-SUITE G-16 NATURAL CAM PR + 15% NOM ZERO EBX RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES <PAGE> PAGE 11 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 67-SUITE G-18 3 421 3/90 3/00 - 50.00 21,050 6.00 UNLIMITED DESTINATION BOSTON - # 68-SUITE G-19 5 1,697 7/96 12/97 - 0.00 0 10.00 UNLIMITE RED SOX CLUBHOUSE - # 69-SUITE H-03 7 7,991 9/91 12/02 - 25.00 199,775 5.00 UNLIMITED SATURDAY MATINEE - 1/01 30.00 239,730 # 70-SUITE H-05 6 3,101 3/90 3/00 25.00 77,525 6.00 UNLIMITED KOWLOON CAFE - 4/96 30.00 93,030 # 71-SUITE H-10 6 3,677 9/86 5/98 - 33.00 121,341 10.00 UNLIMITE CAFE SBARRO - # 72-SUITE H-13 4 528 1/98 12/02 - 78.00 41,184 10.00 UNLIMITE LEASE UP - # 73-SUITE H-14 4 700 2/84 5/08 - 60.00 42,000 8.00 UNLIMITED MRS FIELD'S - 6/98 67.00 46,900 6/01 75.00 52,500 6/05 80.00 56,000 </TABLE> BREAKPOINT PRO RATA % OF RENT TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ---------- ------------ ----------- ----------- # 67-SUITE G-18 NATURAL CAM PR + 15% NOM ZERO DESTINATION BOSTON RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 68-SUITE G-19 NATURAL CAM PR + 15% NOM ZERO RED SOX CLUBHOUSE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 69-SUITE H-03 NATURAL CAM PR + 15% NOM ZERO SATURDAY MATINEE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 70-SUITE H-05 NATURAL CAM PR + 15% NOM ZERO KOWLOON CAFE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 71-SUITE H-10 NATURAL CAM PR + 15% NOM ZERO CAFE SBARRO RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 72-SUITE H-13 ZERO CAM PR + 15% NOM ZERO LEASE UP RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 73-SUITE H-14 NATURAL CAM PR + 15% NOM ZERO MRS FIELD'S RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES <PAGE> PAGE 12 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 74-SUITE H-16 7 6,808 4/90 4/00 - 20.56 140,000 4.00 UNLIMITED LEGAL SEAFOOD - # 75-SUITE H-17 3 480 4/92 3/02 - 83.33 39,998 8.00 UNLIMITED CASWELL MASSEY - # 76-SUITE H-l8 3 480 7/94 2/04 - 93.75 45,000 7.00 UNLIMITED SUNGLASS HUT - 3/97 104.17 50,002 3/01 114.58 54.998 # 77-SUITE H-19 3 480 5/97 4/98 - 0.00 0 8.00 UNLIMITED AKTEO - # 78-SUITE H-20 3 480 7/97 1/98 - 71.43 34,286 10.00 UNLIMITED SIMPLY CIGARS - # 79-SUITE J-01 4 986 3/94 2/04 - 55.00 54,230 7.00 UNLIMITED NANCY'S COFFEE - 3/99 60.00 59,160 # 80-SUITE J-03 4 697 5/90 4/98 - 75.00 52,275 7.00 UNLIMITED TOPKAPI - # 81-SUITE J-04 5 1,290 12/84 7/99 - 50.00 64,5OO 9.00 UNLIMITED DOUBLE RAINBW CAFE - # 82-SUITE J-05 5 1,300 11/94 9/04 - 65.00 84,500 6.00 UNLIMITED ENZO ANGIOLINI - </TABLE> BREAKPOINT PRO RATA % OF RENT TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ---------- ------------ ----------- ----------- # 74-SUITE H-16 NATURAL ANNUAL CONTRIBUTN LEGAL SEAFOOD # 75-SUITE H-17 NATURAL NONE CASWELL MASSEY # 76-SUITE H-l8 NATURAL CAM PR + 15% NOM ZERO SUNGLASS HUT RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO # 77-SUITE H-19 NATURAL NONE AKTEO # 78-SUITE H-20 NATURAL NONE SIMPLY CIGARS # 79-SUITE J-01 NATURAL CAM PR + 15% NOM ZERO NANCY'S COFFEE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 80-SUITE J-03 NATURAL CAM PR + 15% NOM ZERO TOPKAPI RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 81-SUITE J-04 NATURAL CAM PR + 15% NOM ZERO DOUBLE RAINBW CAFE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 82-SUITE J-05 NATURAL CAM PR + 15% NOM ZERO ENZO ANGIOLINI RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES <PAGE> PAGE 13 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 83-SUITE J-09 4 55O 3/94 2/04 - 85.00 46,750 6.00 UNLIMITED GOLDSMITH - # 84-SUITE J-10 5 1,150 6/87 7/97 - 55.00 63,250 6.00 UNLIMITED BOMBAY COMPANY - # 85-SUITE J-10 5 1,560 11/97 10/04 - 60.00 93,600 6.00 UNLIMITED HELLY HANSON - # 86-SUITE J-l1 3 410 10/94 8/97 - 55.00 22,550 9.00 UNLIMITED CONFETTI - # 87-SUITE J-12 4 839 11/87 9/97 - 63.57 53,335 6.00 UNLIMITED MIMI MATERNITY - # 88-SUITE J-13 5 1,532 1/98 12/07 - 65.00 99,580 6.00 UNLIMITED LEASE UP - # 89-SUITE J-15 5 1,532 8/91 8/01 - 60.00 91,920 6.00 UNLIMITED BENETTON - 9/98 70.00 107,240 </TABLE> BREAKPOINT PRO RATA % OF RENT TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - --------------- ---------- ------------ ----------- ----------- # 83-SUITE J-09 NATURAL CAM PR + 15% NOM ZERO GOLDSMITH RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 84-SUITE J-10 NATURAL CAM PR + 15% NOM ZERO BOMBAY COMPANY RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 85-SUITE J-10 NATURAL CAM PR + 15% NOM ZERO HELLY HANSON RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 86-SUITE J-l1 NATURAL CAM PR + 15% NOM ZERO CONFETTI RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 87-SUITE J-12 NATURAL CAM PR + 15% NOM ZERO MIMI MATERNITY RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 88-SUITE J-13 NATURAL CAM PR + 15% NOM ZERO LEASE UP RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 89-SUITE J-15 NATURAL CAM PR + 15% NOM ZERO BENETTON RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES <PAGE> PAGE 14 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> # 90-SUITE J-16 5 2,313 9/90 8/00 - 45.00 104,085 6.00 UNLIMITED JESSICA McCLINTOCK - # 91-SUITE J-18 5 1,800 2/95 3/05 - 53.62 96,516 6.00 UNLIMITED NINE WEST - # 92-SUITE J-19 2 250 6/87 7/97 - 25.00 6,250 - - BOMBAY CO STORAGE - # 93-SUITE J-20 6 3,993 12/88 10/98 - 35.00 139,755 6.00 UNLIMITED EPISODE - # 94-SUITE K-01 6 4,000 4/95 3/05 - 40.00 160,000 6.00 UNLIMITED CHOICES - # 95-SUITE K-02 6 3,379 5/88 1/01 - 38.03 128,503 5.00 2,5OO SHARPER IMAGE - 6/96 41.73 141,006 4.00 4,000 3.00 5,000 2.00 UNLIMITED # 96-SUITE K-03 3 326 9/92 12/15 - 0.00 0 6.00 UNLIMITED FLEUR-TACIOUS - # 97-SUITE K-04 3 110 1/85 2/99 - 120.00 13,200 - - FLEET - STUART ST - # 98 SUITE K-06 4 700 9/85 8/97 - 15.00 l0,500 6.00 UNLIMITED NOUVEAU FASHIONS - # 99-SUITE K-08 4 805 11/92 10/97 - 15.00 12,075 6.00 UNLIMITED TREASURED LEGACY - </TABLE> BREAKPOINT PRO RATA % OF RENT TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ---------- ------------ ----------- ----------- # 90-SUITE J-16 NATURAL CAM PR + 15% NOM ZERO JESSICA McCLINTOCK RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 91-SUITE J-18 NATURAL CAM PR + 15% NOM ZERO NINE WEST RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 92-SUITE J-19 - NONE BOMBAY CO STORAGE # 93-SUITE J-20 NATURAL CAM PR + 15% NOM ZERO EPISODE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 94-SUITE K-01 NATURAL CAM PR + l5% NOM ZERO CHOICES RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITlES # 95-SUITE K-02 2,000 CAM PR + 15% NOM ZERO SHARPER IMAGE RET EXPENSE RECVRY ZERO HVAC RECOVERY INSURANCE RECOVERY ZERO MARKETING ZERO UTILITIES # 96-SUITE K-03 ZERO NONE FLEUR-TACIOUS # 97-SUITE K-04 - HVAC RECOVERY FLEET - STUART ST # 98 SUITE K-06 175 NONE NOUVEAU FASHIONS # 99-SUITE K-08 NATURAL NONE TREASURED LEGACY <PAGE> PAGE 15 <TABLE> <CAPTION> PRIMARY/ ANNUAL SECONDARY SQUARE LEASE LEASE OPTION MINIMUM MINIMUM OVERAGE CEILING TENANT CODES FEET BEGIN END #/MOS RENT/SF RENT % (000's) - ---------------- --------- ------- ----- ----- ------ -------------- ----------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> #100-SUITE K-09 - 1,544 1/95 12/00 - 15.00 23,160 6.00 UNLIMITED CRAMER'S HAIR SALN - #lO1-SUITE K-10 - 2,977 1/95 11/97 - 5.00 14,885 6.00 UNLIMITED MEH INTERNATIONAL #102-SUITE K-11 - 410 12/93 11/98 - 10.00 4,100 RODOLPHO'S TAILRNG ------- 370,899 ======= </TABLE> BREAKPOINT PRO RATA % OF RENT TENANT (000'S) RECOVERIES SHARE BASE SUBJ TO CPI - ---------------- ---------- ------------ ----------- ----------- #100-SUITE K-09 586 MARKETING ZERO CRAMER'S HAIR SALN #lO1-SUITE K-10 NATURAL UTILITIES ZERO MEH INTERNATIONAL #102-SUITE K-11 NATURAL UTILITIES ZERO RODOLPHO'S TAILRNG <PAGE> RETAIL LEASE EXPIRATION SCHEDULE <PAGE> Copley Place - Retail PROJECT DESIGNATOR: FY-R REVISION: 1/17/97 0 15:18 EXPIRATION REPORT YEARS 1998 TO 2015, ALL TENANTS, INCLUDING OPTIONS. EXCLUDING RENEWALS, EXCLUDING BASE LEASES AND PRIOR OPTIONS, BASE RENTS EXCLUDING CPI ADJUSTMENTS, INCLUDING PERCENTAGE RENTS 7/21/97 @ 12:32 TERM/ BASE TOTAL MARKET TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF - ------------------ --------- -------- ------- ------- ------- ------- # 40-SUITE D-15 INITIAL H20 PLUS 926 7/1997 50.00 30.34 80.33 81.12 # 84-SUITE J-10 INITIAL BOMBAY COMPANY 1,150 7/1997 55.00 29.55 84.55 70.30 # 92-SUITE J-19 INITIAL BOMBAY CO STORAGE 250 7/1997 25.01 0.00 25.01 37.86 # 86-SUITE J-11 INITIAL CONFETTI 410 8/1997 55.00 30.56 85.55 108.16 # 98-SUITE K-06 INITIAL NOUVEAU FASHIONS 700 8/1997 15.00 0.00 15.00 0.00 # 87-SUITE J-12 INITIAL MIMI MATERNITY 839 9/1997 63.58 30.49 94.07 81.12 # 99-SUITE K-08 INITIAL TREASURED LEGACY 805 10/1997 15.00 0.00 15.00 0.00 #101-SUITE K-10 INITIAL MEN INTERNATIONAL 2,977 11/1997 5.00 2.41 7.41 0.00 # 68-SUITE G-19 INITIAL RED SOX CLUBHOUSE 1,697 12/1997 11.98 29.03 41.01 70.30 # 78-SUITE H-20 INITIAL SIMPLY CIGARS 480 1/1998 71.43 0.00 71.43 104.00 # 22-SUITE C-06 INITIAL MONDI 1,497 3/1998 70.00 30.48 100.48 73.12 # 80-SUITE J-03 INITIAL TOPKAPI 697 4/1998 75.00 30.30 105.30 84.36 # 77-SUITE H-19 INITIAL AXTEO 480 4/1998 43.58 0.00 43.58 104.00 # 71-SUITE H-10 INITIAL CAFE SEARRO 3,677 5/1998 33.00 32.58 65.58 56.24 -------- ------- ------- ------- ------- 14 Ft 98 EXPIRATIONS 16,585 35.16 20.69 55.85 52.58 # 93-SUITE J-20 INITIAL EPISODE 3,993 10/1998 35.00 30.50 65.50 56.24 #102-SUITE K-11 INITIAL RODOLPHO'S TAILRNG 410 11/1998 10.01 2.52 12.53 0.00 # 60-SUITE G-05 INITIAL COMPAGNIE INTRNTNL 5,985 1/1999 33.42 28.16 61.58 46.79 <PAGE> PAGE 2 TERM/ BASE TOTAL MARKET TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF - ------------------ --------- -------- ------- ------- ------- ------- # 31-SUITE C-19 INITIAL FLEET BANX 281 2/1999 140.93 0.00 140.93 116.99 # 97-SUITE K-04 INITIAL FLEET - STUART ST 110 2/1999 120.00 0.55 120.55 116.99 # 46-SUITE D-24 INITIAL CRATE & BARREL 9,014 3/1999 43.63 0.00 43.63 35.10 -------- ------- ------- ------- ------- 6 FY 99 EXPIRATIONS 19,793 39.91 14.72 54.64 43.79 -------- ------- ------- ------- ------- 20 CUMULATIVE EXPS 36,378 37.74 17.44 55.19 47.80 # 10-SUITE A-21 INITIAL RIZZOLI 4,506 7/1999 30.00 30.45 60.45 58.49 # 81-SUITE J-04 INITIAL DOUBLE RAINBW CAFE 1,290 7/1999 64.79 35.06 99.85 76.04 # 18-SUITE B-20 INITIAL COACH FOR BUSINESS 450 9/1999 199.52 33.07 232.59 116.99 # 33-SUITE C-28 INITIAL SONY THEATERS 21,566 1/2000 17.87 25.95 43.82 30.42 # 67-SUITE G-18 INITIAL DESTINATION BOSTON 421 1/2000 50.00 32.67 82.66 121.67 # 9-SUITE A-19 INITIAL POLO 4,922 2/2000 43.49 32.49 75.99 60.83 # 70-SUITE H-05 INITIAL KOWLOON CAFE 3,101 3/2000 30.00 35.67 65.68 60.83 # 74-SUITE H-16 INITIAL LEGAL SEAFOOD 6,808 4/2000 41.99 21.53 63.53 48.67 -------- ------- ------- ------- ------- 8 FY100 EXPIRATIONS 43,064 30.37 27.58 57.96 45.07 -------- ------- ------- ------- ------- 28 CUMULATIVE EXPS 79,442 33.75 22.94 56.69 46.32 # 90-SUITE J-16 INITIAL JESSICA McCLINTOCK 2,313 8/2000 45.00 32.48 77.48 79.08 # 42-SUITE D-16 INITIAL CUSTOM SHOP, THE 774 10/2000 93.61 37.88 131.49 91.25 # 49-SUITE E-04 INITIAL CIRCUIT CITY XPRSS 3,997 12/2000 37.48 32.49 69.97 63.27 #100-SUITE K-09 INITIAL CRAMER'S HAIR SALN 1,544 12/2000 15.00 2.76 17.76 0.00 # 95-SUITE K-02 INITIAL SHARPER IMAGE 3,379 1/2001 49.72 34.76 84.48 63.27 -------- ------- ------- ------- ------- 5 FYlOl EXPIRATIONS 12,007 43.10 29.65 72.75 59.98 -------- ------- ------- ------- ------- 33 CUMULATIVE EXPS 91,449 34.98 23.82 58.80 48.11 <PAGE> PAGE 3 TERM/ BASE TOTAL MARKET TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF - ------------------ --------- -------- ------- ------- ------- ------- # 47-SUITE E-01 INITIAL GAP, THE 6,409 7/2001 51.90 33.05 84.95 50.61 # 89-SUITE J-15 INITIAL BENETTON 1,532 8/2001 70.00 33.02 103.02 82.25 # 65-SUITE G-l5 INITIAL BRASS BOOT 1,183 12/2001 70.00 33.68 103.68 85.54 # 19-SUITE B-23 INITIAL CRAETREE & EVELYN 969 3/2002 78.03 37.04 115.07 98.69 # 75-SUITE H-17 INITIAL CASWELL MASSEY 480 3/2002 83.32 0.00 83.32 131.59 # 52-SUITE E-10 INITIAL CODE AZUR 692 4/2002 70.01 33.47 103.47 98.69 -------- ------- ------- ------- ------- 6 FY1O2 EXPIRATIONS 11,265 60.96 32.07 93.03 69.12 -------- ------- ------- ------- ------- 39 CUMULATIVE EXPS 102,714 37.83 24.73 62.55 50.42 # 51-SUITE E-09 INITIAL LIZ CLAIBORNE 6,581 8/2002 40.00 35.37 75.37 52.64 # 69-SUITE H-03 INITIAL SATURDAY MATINEE 7,991 12/2002 30.00 34.24 64.24 54.74 # 64-SUITE G-11 INITIAL KNOT SHOP 890 12/2002 70.00 34.56 104.56 102.64 # 50-SUITE E-05 INITIAL DISNEY STORE, THE 3,710 12/2002 41.00 33.78 74.78 68.43 # 72-SUITE H-13 INITIAL LEASE UP 528 12/2002 78.00 34.50 112.50 94.90 -------- ------- ------- ------- ------- 5 FY1O3 EXPIRATIONS 19,700 38.51 34.55 73.06 59.86 -------- ------- ------- ------- ------- 44 CUMULATIVE EXPS 122,414 37.94 26.31 64.24 51.94 # 38-SUITE D-11 INITIAL EASTERN NEWSSTAND 743 7/2003 194.50 41.62 236.12 102.64 # 11-SUITE B-01 INITIAL ARTFUL HAND GALLRY 2,370 12/2003 44.65 35.99 80.64 92.52 # 30-SUITE C-16 INITIAL JUST WATCHES 332 12/2003 90.00 37.52 127.52 142.33 # 3-SUITE A-10 INITIAL VICTORIA'S SECRET 5,166 1/2004 50.00 39.06 89.06 42.70 # 79-SUITE J-01 INITIAL NANCY'S COFFEE 986 2/2004 60.00 46.88 106.88 106.75 # 45-SUITE D-21 INITIAL JAEGER 1,520 2/2004 68.00 38.91 106.91 92.52 <PAGE> PAGE 4 TERM/ BASE TOTAL MARKET TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF - ------------------ --------- -------- ------- ------- ------- ------- # 76-SUITE H-18 INITIAL SUNGLASS HUT 480 2/2004 114.57 30.77 145.35 142.33 # 83-SUITE J-09 INITIAL GOLDSMITH 550 2/2004 85.00 42.96 127.96 106.75 # 35-SUITE D-06 INITIAL CHILI'S GRILL&BAR 7,434 2/2004 38.40 42.68 81.07 56.93 # 63-SUITE G-10 INITIAL ENRICO CELLI 815 2/2004 43.95 37.43 81.38 106.75 # 14-SUITE B-09 INITIAL LOUIS VUITTON 1,234 3/2004 244.84 38.20 283.04 92.52 # 15-SUITE B-10 INITIAL JOAN & DAVID 2,368 4/2004 67.00 37.01 104.01 92.52 # 62-SUITE G-08 INITIAL GAP KIDS 3,062 4/2004 47.53 37.44 84.97 71.17 -------- ------- ------- ------- ------- 13 FY1O4 EXPIRATIONS 27,060 63.94 39.60 103.54 73.82 -------- ------- ------- ------- ------- 57 CUMULATIVE EXPS 149,474 42.64 28.71 71.36 55.90 # 17-SUITE B-19 INITIAL SWEET TEMPTATIONS 825 8/2004 70.01 38.14 108.15 106.75 # 56-SUITE F-01 INITIAL BANANA REPUBLIC 5,596 8/2004 64.17 37.44 101.61 56.93 # 82-SUITE J-05 INITIAL ENZO ANGIOLINI 1,300 9/2004 75.00 38.77 113.77 92.52 # 20-SUITE C-03 INITIAL CONFETTI 240 9/2004 69.10 37.40 106.50 131.59 # 85-SUITE J-10 INITIAL HELLY HANSON 1,560 10/2004 60.00 41.89 101.89 85.54 # 29-SUITE C-15 INITIAL GODIVA CHOCOLATIER 700 12/2004 173.11 40.29 213.39 111.02 # 21-SUITE C-04 INITIAL BALLY OF SWTZRLAND 4,325 12/2004 63.99 39.52 103.S1 74.01 # 34-SUITE C-28b INITIAL GODIVA STORAGE 234 12/2004 43.08 30.82 73.90 51.81 # 7-SUITE A-15 INITIAL BEBE 2,604 1/2005 53.08 40.73 93.81 96.22 # 43-SUITE D-17 INITIAL MUSEUM / FINE ARTS 2,800 1/2005 65.46 38.70 104.16 96.22 # 13-SUITE B-06 INITIAL EILEEN FISHER 2,075 1/2005 74.48 39.05 113.53 96.22 # 16-SUITE B-14 INITIAL GUCCI 3,556 1/2005 89.01 39.44 128.4S 74.01 <PAGE> PAGE 5 TERM/ BASE TOTAL MARKET TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF - ------------------ --------- -------- ------- ------- ------- ------- # 55-SUITE E-16 INITIAL NATURE COMPANY,TKE 3,947 1/2005 40.00 39.09 79.09 74.01 # 23-SUITE C-07 INITIAL FRENCH CONNECTION 3,355 1/2005 52.00 39.09 91.09 74.01 # 91-SUITE J-18 INITIAL NINE WEST 1,800 3/2005 59.07 40.47 99.54 96.22 # 94-SUITE K-01 INITIAL CHOICES 4,000 3/2005 49.00 41.10 90.10 74.01 # 4-SUITE A-14 INITIAL MARX CROSS 2,513 3/2005 65.00 39.57 104.57 96.22 # 32-SUITE C-27 INITIAL LAURIAT'S BOOKS 5,880 5/2005 46.00 38.88 84.88 59.21 -------- ------- ------- ------- ------- 18 FY105 EXPIRATIONS 47,310 61.16 39.28 100.45 77.88 -------- ------- ------- ------- ------- 75 CUMULATIVE EXPS 196,784 47.10 31.25 78.35 61.18 # 27-SUITE C-13 INITIAL MONT BLANC 450 7/2005 154.27 40.16 194.43 148.02 # 24-SUITE C-09 INITIAL BOTTEGA VENETA 1,000 9/2005 75.00 39.59 114.59 96.22 # 53-SUITE E-12 INITIAL GYMBOREE 2,086 9/2005 65.00 39.37 104.37 96.22 # 25-SUITE C-11 INITIAL ARMANI A/X 2,510 9/2005 91.47 40.14 131.61 96.22 # 8-SUITE A-17 INITIAL KENNETH COLE 1,201 10/2005 90.21 40.14 130.35 96.22 # 37-SUITE D-10 INITIAL PAVO REAL 675 12/2005 73.60 39.56 113.16 115.46 # 39-SUITE D-13 INITIAL N LANDAU HYMAN 800 12/2005 85.44 39.65 125.08 111.02 # 66-SUITE G-16 INITIAL EBX 1,083 12/2005 83.32 39.09 122.42 100.06 # 57-SUITE F-03 INITIAL LIMITED, THE 5,697 1/2006 47.00 40.43 87.42 61.58 # 5-SUITE A-14b INITIAL BROOKSTONE 3,846 1/2006 60.00 39.45 99.45 74.01 # 26-SUITE C-12 INITIAL STODDARDS 758 2/2006 160.18 41.10 201.28 111.02 # 44-SUITE D-19 INITIAL BEYLERIAN 2,400 2/2006 50.00 41.08 91.07 100.06 # 54-SUITE E-14 INITIAL EYE X 1,363 6/2006 75.00 39.85 114.85 96.22 -------- ------- ------- ------- ------- <PAGE> PAGE 6 TERM/ BASE TOTAL MARKET TENANT SQUARE FT END DATE RENT/SF RECV/SF RENT/SF RENT/SF - ------------------ --------- -------- ------- ------- ------- ------- 13 FY106 EXPIRATIONS 23,869 69.90 40.03 109.93 87.42 -------- ------- ------- ------- ------- 88 CUMULATIVE EXPS 220,653 49.56 32.20 81.77 64.02 # 36-SUITE D-08 INITIAL PAVO REAL GALLERY 1,335 9/2006 60.00 40.91 100.91 96.22 # 28-SUITE C-14 INITIAL CACHE 2,164 2/2007 65.00 41.52 106.52 104.07 # 61-SUITE G-07 INITIAL BENTLEY'S LUGGAGE 2,400 3/2007 65.00 45.92 110.93 96.22 # 58-SUITE F-05 INITIAL J. CREW 6,792 4/2007 40.00 34.14 74.14 59.21 -------- ------- ------- ------- ------- 4 FY107 EXPIRATIONS 12,691 51.09 38.34 89.44 77.75 -------- ------- ------- ------- ------- 92 CUMULATIVE EXPS 233,344 49.65 32.54 82.18 64.77 # 41-SUITE D-15 INITIAL SWAROVSKI 926 10/2007 135.01 41.92 176.93 111.02 # 48-SUITE E-03 INITIAL GAP EXPNS. THE 7,318 12/2007 38.77 40.97 79.74 61.58 # 88-SUITE J-13 INITIAL LEASE UP 1,532 12/2007 65.00 41.73 106.73 100.06 # 12-SUITE B-04 INITIAL WILLIAM-SONOMA 6,602 1/2008 73.23 43.66 116.89 66.60 # 73-SUITE H-14 INITIAL MRS FIELD'S 700 5/2008 80.01 54.00 134.01 124.88 -------- ------- ------- ------- ------- 5 FYLOS EXPIRATIONS 17,078 61.35 42.66 104.02 72.25 -------- ------- ------- ------- ------- 97 CUMULATIVE EXPS 250,422 50.44 33.23 83.67 65.28 # 6-SUITE A-14d INITIAL TIFFANY STORAGE 484 7/2009 35.01 32.36 67.36 60.61 1 FY110 EXPIRATIONS 484 35.01 32.36 67.36 60.61 98 CUMULATIVE EXPS 250,906 50.41 33.23 83.64 65.27 # 59-SUITE F-13 INITIAL NEIMAN'S EXPANSION 3,590 1/2014 26.06 72.01 98.07 0.00 # 1-SUITE ANCHOR INITIAL NEIMAN MARCUS 104,332 1/2014 13.88 21.39 35.27 0.00 -------- ------- ------- ------- ------- 2 FY114 EXPIRATIONS 107,922 14.28 23.08 37.36 0.00 -------- ------- ------- ------- ------- 100 CUMULATIVE UPS 358,828 39.55 30.17 69.72 45.64 <PAGE> RETAIL PRO-JECT TENANT REGISTER <PAGE> Copley Place - Retail PROJECT DESIGNATOR: FY-R REVISION: 7/17/97 @ 15:18 TENANT REGISTER 7/21/97 @ 12:32 TENANT SQUARE FEET BEGIN DATE END DATE - -------------------------------------------- ----------- ---------- -------- # 1 - SUITE ANCHOR NEIMAN MARCUS 104,332 2/1984 1/2014 # 2 - SUITE A-01 TIFFANY & CO 11,745 9/1984 7/2009 # 3 - SUITE A-10 VICTORIA'S SECRET 5,166 9/1986 1/2004 # 4 - SUITE A-14 MARK CROSS 2,513 5/1995 3/2005 # 5 - SUITE A-14b BROOKSTONE 3,846 4/1996 1/2006 # 6 - SUITE A-14d TIFFANY STORAGE 484 11/1995 7/2009 # 7 - SUITE A-15 BEBE 2,604 10/1994 1/2005 # 8 - SUITE A-17 KENNETH COLE 1,201 12/1995 10/2005 # 9 - SUITE A-19 POLO 4,922 2/1984 2/2000 # 10 - SUITE A-21 RIZZOLI 4,506 9/1984 7/1999 # 11 - SUITE B-01 ARTFUL HAND GALLRY 2,370 1/1994 12/2003 # 12 - SUITE B-04 WILLIAMS-SONOMA 6,602 6/1995 1/2008 # 13 - SUITE B-06 EILEEN FISHER 2,075 10/1994 1/2005 # 14 - SUITE B-09 LOUIS VUITTON 1,234 4/1994 3/2004 # 15 - SUITE B-10 JOAN & DAVID 2,368 3/1990 4/2004 # 16 - SUITE B-14 GUCCI 3,556 2/1995 1/2005 # 17 - SUITE B-19 SWEET TEMPTATIONS 825 2/1984 8/2004 # 18 - SUITE B-20 COACH FOR BUSINESS 450 10/1989 9/1999 # 19 - SUITE B-23 CRABTREE & EVELYN 969 9/1984 3/2002 # 20 - SUITE C-03 CONFETTI 240 9/1997 9/2004 # 21 - SUITE C-04 BALLY OF SWTZRLAND 4,325 12/1994 12/2004 # 22 - SUITE C-06 MONDI 1,497 9/1987 3/1998 # 23 - SUITE C-07 FRENCH CONNECTION 3,355 4/1984 1/2005 # 24 - SUITE C-09 BOTTEGA VENETA 1,000 9/1995 9/2005 # 25 - SUITE C-11 ARMANI A/X 2,510 11/1995 9/2005 # 26 - SUITE C-12 STODDARDS 758 3/1996 2/2006 # 27 - SUITE C-13 MONT BLANC 450 8/1995 7/2005 # 28 - SUITE C-14 CACHE 2,164 2/1984 2/2007 # 29 - SUITE C-15 GODIVA CHOCOLATIER 700 2/1984 12/2004 # 30 - SUITE C-16 JUST WATCHES 332 11/1993 12/2003 # 31 - SUITE C-19 FLEET BANK 281 2/1984 2/1999 # 32 - SUITE C-27 LAURIAT'S BOOKS 5,880 9/1984 5/2005 # 33 - SUITE C-28 SONY THEATERS 21,566 4/1984 1/2000 # 34 - SUITE C-28b GODIVA STORAGE 234 11/1994 12/2004 # 35 - SUITE D-06 CHILI'S GRILL&BAR 7,434 3/1989 2/2004 # 36 - SUITE D-08 PAVO REAL GALLERY 1,335 10/1996 9/2006 # 37 - SUITE D-10 PAVO REAL 675 10/1995 12/2005 # 38 - SUITE D-11 EASTERN NEWSSTAND 743 11/1993 7/2003 # 39 - SUITE D-13 N LANDAU HYMAN 800 1/1996 12/2005 # 40 - SUITE D-15 H20 PLUS 926 12/1991 7/1997 # 41 - SUITE D-15 SWAROVSKI 926 11/1997 10/2007 # 42 - SUITE D-16 CUSTOM SHOP, THE 774 11/1995 10/2000 # 43 - SUITE D-17 MUSEUM / FINE ARTS 2,800 10/1994 1/2005 # 44 - SUITE D-19 BEYELERIAN 2,400 2/1984 2/2006 # 45 - SUITE D-21 JAEGER 1,520 3/1994 2/2004 # 46 - SUITE D-24 CRATE & BARREL 9,014 5/1984 3/1999 # 47 - SUITE E-01 GAP, THE 6,409 4/1986 7/2001 # 48 - SUITE E-03 GAP EXPNS, THE 7,318 1/1998 12/2007 # 49 - SUITE E-04 CIRCUIT CITY XPRSS 3,997 11/1990 12/2000 # 50 - SUITE E-05 DISNEY STORE, THE 3,710 9/1992 12/2002 # 51 - SUITE E-09 LIZ CLAIBORNE 6,581 8/1990 8/2002 # 52 - SUITE E-10 CODE AZUR 692 5/1992 4/2002 # S3 - SUITE E-12 GYMBOREE 2,086 3/1992 9/2005 # 54 - SUITE E-14 EYE X 1,363 9/1996 6/2006 # 55 - SUITE E-16 NATURE COMPANY,THE 3,947 2/1993 1/2005 # 56 - SUITE F-01 BANANA REPUBLIC 5,596 9/1992 8/2004 # 57 - SUITE F-03 LIMITED, THE 5,697 2/1994 1/2006 # 58 - SUITE F-08 J. CREW 6,792 5/1997 4/2007 # 59 - SUITE F-13 NEIMAN'S EXPANSION 3,590 9/1991 1/2014 # 60 - SUITE G-05 COMPAGNIE INTRNTNL 5,985 2/1984 1/1999 # 61 - SUITE G-07 BENTLEY'S LIXGAGE 2,400 3/1997 3/2007 # 62 - SUITE G-08 GAP KIDS 3,062 5/1992 4/2004 <PAGE> Copley Place - Retail PAGE 2 TENANT SQUARE FEET BEGIN DATE END DATE - -------------------------------------- ----------- ---------- -------- # 63 - SUITE G-10 ENRICO CELLI 815 3/1994 2/2004 # 64 - SUITE G-11 KNOT SHOP 890 12/1991 12/2002 # 65 - SUITE G-15 BRASS BOOT 1,183 11/1991 12/2001 # 66 - SUITE G-16 EBX 1,083 12/1995 12/2005 # 67 - SUITE G-18 DESTINATION BOSTON 421 3/1990 1/2000 # 68 - SUITE G-19 RED SOX CLUBHOUSE 1,697 7/1996 12/1997 # 69 - SUITE H-03 SATURDAY MATINEE 7,991 9/1991 12/2002 # 70 - SUITE H-05 KOWLOON CAFE 3,101 3/1990 3/2000 # 71 - SUITE H-10 CAFE SBARRO 3,677 9/1986 5/1998 # 72 - SUITE H-13 LEASE UP 528 1/1998 12/2002 # 73 - SUITE H-14 MRS FIELD'S 700 2/1984 5/2008 # 74 - SUITE H-16 LEGAL SEAFOOD 6,808 4/1990 4/2000 # 75 - SUITE H-17 CASWELL MASSEY 480 4/1992 3/2002 # 76 - SUITE H-18 SUNGLASS HUT 480 7/1994 2/2004 # 77 - SUITE H-19 AKTEO 480 5/1997 4/1998 # 78 - SUITE H-20 SIMPLY CIGARS 480 7/1997 1/1998 # 79 - SUITE J-01 NANCY'S COFFEE 986 3/1994 2/2004 # 80 - SUITE J-03 TOPKAPI 697 5/1990 4/1998 # 81 - SUITE J-04 DOUBLE RAINBW CAFE 1,290 12/1984 7/1999 # 82 - SUITE J-05 ENZO ANGIOLINI 1,300 11/1994 9/2004 # 83 - SUITE J-09 GOLDSMITH 550 3/1994 2/2004 # 84 - SUITE J-10 BOMBAY COMPANY 1,150 6/1987 7/1997 # 85 - SUITE J-10 HELLY HANSON 1,560 11/1997 10/2004 # 86 - SUITE J-11 CONFETTI 410 10/1994 8/1997 # 87 - SUITE J-12 MIMI MATERNITY 839 11/1987 9/1997 # 88 - SUITE J-13 LEASE UP 1,532 1/1998 12/2007 # 89 - SUITE J-15 BENETTON 1,532 8/1991 8/2001 # 90 - SUITE J-16 JESSICA McCLINTOCK 2,313 9/1990 8/2000 # 91 - SUITE J-18 NINE WEST 1,800 2/1995 3/2005 # 92 - SUITE J-19 BOMBAY CO STORAGE 250 6/1987 7/1997 # 93 - SUITE J-20 EPISODE 3,993 12/1988 10/1998 # 94 - SUITE K-01 CHOICES 4,000 4/1995 3/2005 # 95 - SUITE K-02 SHARPER IMAGE 3,379 5/1989 1/2001 # 96 - SUITE K-03 FLEUR-TACIOUS 326 9/1992 12/2015 # 97 - SUITE K-04 FLEET - STUART ST 110 1/1985 2/1999 # 98 - SUITE K-06 NOUVEAU FASHIONS 700 9/1985 8/1997 # 99 - SUITE K-08 TREASURED LEGACY 805 11/1992 10/1997 #100 - SUITE K-09 CRAMER'S HAIR SALN 1,544 1/1995 12/2000 #101 - SUITE K-10 MEH INTERNATIONAL 2,977 1/1995 11/1997 #102 - SUITE K-11 RODOLPHO'S TAILRNG 410 12/1993 11/1998 ---------- 102 TENANTS 370,899 ========== <PAGE> RECENT RETAIL LEASE ANALYSIS <PAGE> <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------------------- COPLEY PLACE RECENT RETAIL LEASE ANALYSIS - ---------------------------------------------------------------------------------------------------------------------- Occupancy Base Rent Tenant Date Term Area Suite # Step Date psf Annual % Step % Rent <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Storage Tenants: Godiva Storage Nov-94 10.2 234 C-28b 30.06 7,034 0% Nov-97 40.09 9,381 33.4% Nov-2001 43.09 10,083 7.5% Tiffany Storage Nov-95 l3.7 484 A-l4d 35.00 16,940 0% ====================================================================================================================== Average 12.0 32.53 Small Tenants: 100 to 500 square feet Confetti Fine Confection Oct-94 10.0 410 J-11 55.00 22,550 9% Oct-97 60.00 24,600 9.1% Oct-2001 65.00 26,650 8.3% Mont Blanc Jul-95 10.1 450 C-13 75.00 33,750 6% Sunglass Hut Aug-94 9.6 480 H-18 93.75 45,000 7% Mar-97 104.17 50,002 11.1% Mar-200l 114.58 54,998 10.0% Akteo May-97 1.0 480 H-19 0.00 0 8% ====================================================================================================================== Average 7.7 74.58 7.3% Small Tenants: 500 to 999 square feet Pavo Real Oct-95 10.3 675 D-10 60.00 40,500 6% Eastern Newsstand Nov-93 9.7 743 D-11 100.00 74,300 8% Custom Shop Shirtmaker Nov-95 5.0 774 D-16 75.00 58,050 6% N. Landau Hyman Jan-96 10.0 800 D-13 75.00 60,000 6% Jan-2001 85.00 68,000 13.3% Enrico Celli Mar-94 10.0 815 G-10 42.50 34,638 6% Sweet Temptations Feb-94 10.6 825 B-19 60.00 49,500 9% Sep-97 65.00 53,625 8.3% Sep-200l 70.00 57,750 7.7% Nancys Coffee Cafe Mar-94 10.0 986 J-0I 55.00 54,230 7% Mar-99 60.00 59,160 9.1% ====================================================================================================================== Average 9.4 66.79 6.9% </TABLE> <PAGE> <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------------------- COPLEY PLACE RECENT RETAIL LEASE ANALYSIS - ---------------------------------------------------------------------------------------------------------------------- Occupancy Base Rent Tenant Date Term Area Suite # Step Date psf Annual % Step % Rent <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Medium Tenants: 1,000 to 1,999 square feet Bottega Veneta Sep-95 10.1 1,000 C-09 65.00 65,000 7% Sep-2000 75.00 75,000 15.4% EBX Dec-95 10.1 1,083 G-l6 50.00 54,150 6% Oct-98 55.00 59,565 10.0% Oct-2002 60.00 64,980 9.1% Kenneth Cole Nov-95 10.0 1,201 A-17 70.00 84,070 6% Pavo Real - The Gallery Nov-96 9.9 1,335 D-08 50.00 66,750 6% Oct-99 55.00 73,425 10.0% Oct-2003 60.00 80,100 9.1% Eye-X Aug-96 9.9 1,363 E-14 65.00 88,595 6% Jul-99 70.00 95,410 7.7% JuI-2003 75.00 102,225 7.1% Jaeger Mar-94 10.0 1,520 D-21 60.00 91,200 6% Mar-97 64.00 97,280 6.7% Mar-2001 68.00 103,360 6.3% Nine West Feb-95 10.2 1,800 J-18 53.62 96,516 6% ====================================================================================================================== Average 10.0 59.09 6.1% Medium Tenants: 2,000 to 2,999 square feet Eileen Fisher Oct-94 10.3 2,075 B-06 60.00 124,500 6% Oct-97 65.00 134,875 8.3% Oct-2001 70.00 145,250 7.7% Artful Hand Gallery Jan-94 10.0 2,370 B-01 43.79 103,782 5% Jun-96 44.65 105,821 2.0% Bently's Luggage Mar-97 10.1 2,400 G-07 65.00 156,000 6% Armani AIX Nov-95 6.9 2,510 C-11 70.00 175,700 6% Oct-2000 80.00 200,800 14.3% Mark Cross Oct-95 9.5 2,513 A-14 65.00 163,345 6% Bebe Oct-94 10.3 2,604 A-15 53.08 138,220 6% Museum of Fine Arts Oct-94 10.3 2,800 D-17 55.00 154,000 6% ====================================================================================================================== Average 9.6 58.84 5.9% </TABLE> <PAGE> <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------------------- COPLEY PLACE RECENT RETAIL LEASE ANALYSIS - ---------------------------------------------------------------------------------------------------------------------- Occupancy Base Rent Tenant Date Term Area Suite # Step Date psf Annual % Step % Rent <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Large Tenants: 3,000 to 4,999 square feet French Connection Dec-94 10.2 3,355 C-07 46.00 154,330 6% Sep-97 49.00 164,395 6.5% Sep-2001 52.00 174,460 6.1% Gucci Feb-95 10.0 3,556 B-14 47.19 167,808 6% Feb-98 51.74 183,987 9.6% Feb-2002 57.05 202,870 10.3% Bally of Switzerland Jan-95 10.0 4,325 C-04 50.00 216,250 6% ====================================================================================================================== Average 10.1 47.73 6.0% Large Tenants: 5,000 to 7,999 square feet The Limited Jan-94 12.1 5,697 F-03 40.00 227,880 5% Jan-98 43.50 247,820 8.7% Jan-2002 47.00 267,759 8.0% Williams Sonoma Jun-95 12.7 6,602 B-04 47.57 314,057 6% Feb-97 49.47 326,619 4.0% Annual CPI J. Crew May-97 10.0 6,792 F-08 0.00 0 5% Jul-97 30.00 203,760 N/A May-2000 35.00 237,720 16.7% May-2004 40.00 271,680 14.3% ====================================================================================================================== Average 11.6 39.19 5.3% </TABLE> <PAGE> COMPARABLES SHOPPING CENTER SALES <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1. Confidential 1988 12/96 $30,159,000 -- 100% $112 12.5% 12.5% 9.0% 18.5% Michigan Fee Simple 2. Confidential 1976/89 12/96 $22,317,000 $16,976,904 100% $42 15.4% N/A 9.0% 22.1% Tennessee Fee Simple 3. Confidential - 2 Centers 12/96 $225,000,000 -- 50% $307 8.0% N/A N/A N/A Pennsylvania Fee Simple Center 1 1981/96 Center 2 1961/65 1983/95 </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 1. Strong center located in a middle market. Purchase excluded the department stores but included 6.22 acres of vacant land. Mall sales (1995): $229 per sq. ft. Occupancy (9/96); 99%. High OAR necessitated by the perceived flatness in the center s future income. (Little lease-up and no development potential.) Pro forma assumptions: 4% per year. Ratio of purchase price to mall sales: 0.5. Seller's analysis. 2. Average center located in a middle market. Purchase included all of the department stores. Center impacted by competition. OAR recognizes perceived flatness in future cash flow, Mall sales (1995): $239 per sq. ft. Occupancy (9/96): 82.3%. Pro forma assumptions: 4% per year. Ratio of purchase price to mall sales: 0.3. Implied IRR is leveraged. Seller's analysis. 3. Project of tremendous quality and appeal. Complex consists of two separate enclosed regional shopping centers. Purchase included the mall GLA plus the land under one of the department stores at Center 1; the mall GLA plus 2 of the departments stores and the land under another 3 department stores at Center 2. Mall sales (1995): Center l-$450 PSF and Center 2-$329 PSF. Occupancy at purchase: 90-92%. 1 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 3. Confidential - 2 Centers Pennsylvania (continued) 4. Confidential 1956/95 12/96 $266,000,000 -- 100% $421 7.9% 7.9% N/A N/A Illinois Fee Simple 5. Confidential 1967/89 12/96 $22,250,000 -- 100% $126 10.4% 10.4% 11.0% 20.1% California Leasehold </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 3. With the recent redevelopment of the property, a large percentage of the space at the property was leased at market: resulting in a seemingly high overall rate for a center of this quality. Seller required a six month marketing period for this asset. 4. Center of great quality. Purchase included the mall area. Mall sales (1995): $381 PSF. Occupancy at purchase: high 90's. Ratio of purchase price to mall sales: 1.0. Seller's 1st year OAR: 7.5%. Buyer's analysis. 5. Solid center with good demographics. Onerous ground rent payments. Sale included mall area. Mall sales PSF (1995):$286. Occupancy at purchase: 97.3%. Ratio of purchase price to mall sales: 0.4. Assumed growth: 4% per year. Seller's analysis. 2 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 6. Confidential 12/96 $52,000,000 $9,000,000 Oklahoma Center I 1976/89/94 100% N/A 11.0% N/A 10.0% 13.0% Fee Simple Center 2 1980/93 50% N/A 10.3% N/A 10.5% 11.5% Fee Simple 7. Confidential 1977/91 11/96 $74,490,000 $56,300,000 100% $123 9.1% 9.0% 9.5% 15.2% California Fee Simple 8. Confidential 1975/78 11/96 $43,686,000 $32,100,000 100% $109 9.9% 11.9% 10.0% 15.8% Montana Fee Simple </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 6. Center located in a growing middle market which is the home of the University of Oklahoma. Purchase included the mall area, J.C. Penney store and Sears store (367,482 sq. ft.). Occupancy at purchase: 80%. Proforma growth: 2.7% per year average for rent. Center is located in a growing part of Oklahoma City (includes 3.3 acres of excess land). Purchase excluded department stores. Mall sales 1995: $211 per sq. ft. Occupancy at purchase: 77%. Pro forma assumptions: 3.0% per year (rent). Seller's analysis. 7. Dominant center with expansion potential. Purchase included the mall and two of the department stores. Mall sales (1995): $263 PSF. Occupancy at purchase: 85.2%. Seller assumed 4% per year increase in sales, rent and expenses. Cash-on-cash rate: 9.0% (both OAR and COC off or 1996 forecasted cash flow and don't reflect the required capital payment of $3 million which is included as part of the purchase price). Ratio of purchase price to mall sales: 0.7. Seller's analysis. 8. Dominant center (with expansion potential) located in a tertiary market. Sale included the mall area and two of the department stores. Mall sales (1995): $231 PSF. Occupancy at purchase: 97.5%. Seller assumed increase of 4% per year 3 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 9. Confidential 1970/87 11/96 $168,000,000 -- 100% $486 6.1% 6.1% 7.25% 10.7% Southeast Fee Simple (7.1% year 2) 10. Confidential 1974/92 11/96 $86,400,000 -- 100% $274 8.9% 8.9% N/A N/A Illinois Fee Simple 11. Confidential 1971/92 11/96 $44,000,000 -- 100% $80 9.9% 9.9% N/A N/A Tennessee Fee Simple 12. Confidential l973/93 10/96 $85,500,000 -- 100% $183 9.0% 9.0% N/A N/A Texas Fee Simple </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- in sales rent and expenses. Ratio a purchase price to mall sales: 0.6. Seller's analysis. 9. Center of tremendous quality with expansion potential. Purchase included mall area and 16 acres of vacant land. Mall sales (1995): $429 per sq. ft. Occupancy at purchase: 95%. Ratio of purchase price to mall sales: 1.13. 10. Solid performer with strong anchors and virtually no competition. Tertiary market location. Purchase included mall area. Mall sales: $317 PSF 1995 ($330 PSF forecasted for 1996). Occupancy at purchase: 94%. Ratio of purchase price to mall sales: 0.9. Seller's analysis. 11. Average center in a tertiary market with two strong performing anchors. Mall sales year ending 9/96: $245 PSF. Occupancy at purchase: 90%. Seller's analysis. 12. Center of quality in great location in a competitive market. Sale included the mall area. Mall sales (year ending 6/30/96): $228 PSF. Occupancy at purchase: 85%. OAR on income in place (return is reported 9.4% on 1st year cash flow). Ratio of purchase price to mall sales: 0.8. Buyer's analysis. 4 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 13. Confidential 1978/90 8/96 $38,650,000 $2l,250,000 50% $247 9.4% N/A N/A N/A Georgia Leasehold 14. Confidential 1990 6/96 $37,000,000 -- 100% $234 10.3% N/A N/A N/A California Leasehold l5. Confidential 1980 5/96 $37,250,000 -- 100% $147 9.3% 8.l% 9.5% l2.0% Virginia Leasehold 16. Confidential 1986 3/96 $95,000,000 $57 million 37.5% N/A 6.8% 4.7% N/A N/A Connecticut (37.5%) Partnership Interest </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 13. Solid performer which is to be expanded with a fifth department store. Buyer purchased the interest of its partner. Purchased excluded the department stores. In addition, 10 acres, which is to be used for the expansion ( and is owned in fee), was included in the purchase. Mall sales in 1995: $312 per sq. ft. Occupancy at purchase: 90%. Ration of purchase to price to mall sales: 0.8. 14. Unenclosed center of quality. Sale did not include the department stores. Mall sales (1995): $340 per sq. ft. Occupancy at purchase: 88%. High first year return reflective of the leasehold interest being purchased (with stipulated ground rent payments reportedly limiting the buyer's upside) and a few small environment and engineering issues. Ratio of purchase price to mall sales: 0.7. Buyer's analysis. 15. Center of quality, located in a tertiary market. Sale included the mall area and land underlying the Sears store. Mall sales (1995): $273 PSF. Occupancy at purchase: 95%. Pro forma assumptions (sales rent and expenses: 0-3% per year. Ratio of purchase price to mall sales: 0.7. Buyer's analysis 16. Center of quality. Sale included the mall area and land underlying one of the department stores. Mall sales (1994): $405 per sq. ft. Occupancy at 12/94: 96%. 5 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 17. Confidential 1962/90 3/96 $133,740,000 -- -- $355 7.6% 7.6% N/A N/A California 18. Confidential 1981 3/96 $27,000,000 -- 100% $75 13.0% 13.0% N/A 10.5% Pennsylvania Fee Simple 19. Confidential 1969/86 12/95 $222,000,000 -- 100% $263 7.7% 7.7% 8.0% 11.0% New York Fee Simple 20. Confidential 1973/91 12/95 $108,000,000 $66 million 100% $690 N/A N/A N/A N/A New York in debt Fee Simple </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 17. Center of quality, located in a competitive market, which is to be expanded. Purchase included the mall area and vacant I. Magnin store. Mall sales (1995): $300 per sq. ft. Ratio of mall sales to purchase price: 1.18. Occupancy at purchase: 90%. Purchase price comprised of $123,000 plus various earn-out funds related to the I. Magnin store and expansion cost reimbursements. 18. Solid performer in its market with expansion capacity. Mall sales: $206 per sq. ft. Occupancy at purchase: 94%. Assumed increases of 4% in sales and rent and 2% to 5% in expenses. Ratio of mall sales to purchase price: 0.5. First year OAR perceived by buyer to reflect the market for this center and the relative flatness of the projected cash flow. Seller's analysis. 19. Center of quality. Sale included the mall area, two of the four department stores and the land underlying a third. Mall sales: $400 per sq. ft. Occupacy at purchase: 88%. Pro forma assumptions (sales and rent): 2-3% annual growth. Ratio of purchase price to mall sales: 1.05. Buyer's analysis. 20. Center of quality, located in a densely developed market. Sale included only the mall area. Mall sales (1995): $633 per sq. ft. Occupancy at purchase: 100%. Ratio of mall sales to purchase price was 1.09. Buyer's analysis. 6 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 21. Confidential 1977/88 12/95 $57,500,000 $38.2 million 100% $283 N/A N/A N/A N/A California in assumed Fee Simple* debt 22. Confidential 1971 12/95 $21,000,000 -- 100% $47 15.5% 15.5% 10.5% 12.0% Massachusetts Fee Simple 23. Confidential 1981/92 9/95 $32,700,000 $21,800,000 30% $327 6.6% 5.2% 7.0% 11.4% Texas (30%) Fee Simple 24. Confidential 1974 8/95 $64,174,858 $6,174,858 50% $461 8.7% 7.6% N/A N/A New Jersey (50%) (50%) Fee Simple 7 </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 21. Sale involved $2.1 million in cash, operating units in the Macerich REIT and the assumption of existing debt. Sale included none of the department stores. Mall sales (1995): $261 per sq. ft. Occupancy at purchase: 93%. Ratio of purchase price to mall sales: 1.08. Buyer's analysis. * With a few ground leased parcels. 22. Class B-C center, with one of its two department stores in Chapter 11 at the time of the purchase. Sale included the entire center. Assumed growth: -5%, -6%, -5%. -3% per year, then +4% per year for rent and sales, and 4% per year for expenses. Mall sales (1995): $284 per sq. ft. Occupancy: 80.4%. Buyer reportedly received a good price due to the seller's timing constraints for sale. Seller's analysis. 23. Center of great quality and appeal. Purchase included the mall area. Mall sales (1995): $325 per sq. ft. Occupancy at sale: 93%. Leveraged IRR was 16.7%. Center purchased in 12/94 and a partial interest resold as of this date. Ratio of purchase price to mall sales: 1.02. Buyer's analysis. 24. Center of quality, located in a very competitive market. Buyer owned other 50% interest. Sale included mall area and land underlying Macy. Mall sales psf: $424. Occupancy at purchase: 97.2%. Pro forma assumptions (sales and rent): 1%, 2%, and then 3%. Expenses: 4% per year. Ratio of purchase price to mall sales: 1.09. Buyer's analysis. 7 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 25. Confidential 1990 8/95 $78,000,000 $21,000,000 100% $105 9.5% N/A N/A N/A Maryland Fee Simple 26. Confidential 1974 8/95 $26,000,000 -- 100% -- -- -- -- -- Arizona Fee Simple 27. Confidential 1980 6/95 $24,57l,000 $7,071,000 25% $343 8.9% 8.1% 9.0% 12.3% California (25%) (25%) Fee Simple </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 25. Sale involved $55.6 million in cash, plus assumed debt and an allocation of operating partnership units in the Macerich REIT. Purchase included four of the five department stores. Mall sales (1995): $267 per sq. ft. Occupancy at purchase: 91.5%. Buyer's analysis. 26. Two-level regional center, connected to another center of tremendous quality and appeal by a retail bridge. Although well-located, with two department stores (one of very strong appeal), this center was in need of remerchandising and some cosmetic renovation at the time of purchase. Center purchased by owner of the regional shopping center to which this property is attached. Of this purchase price, a portion was allocated to a freestanding office building. 27. Center of quality, located in a competitive market. Buyer already owned other 75% interest. Sale included the mall area and land underlying Robinsons-May. Mall sales (1994): $360 psf. Occupancy at purchase: 93%. Pro forma: 4% per year - sales, rent and most expenses. First year cash-on-cash rate: 8.1%. IRR is unleveraged (leveraged rate was not calculated). Buyer's analysis. 8 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 28. Confidential 1992 4/95 $158,136,000 -- 100% $211 8.5% 7.8% 8.0% 10.7% Massachusetts Fee Simple (after capital) 29. Confidential 1977 2/95 $47,280,000 -- 50% $278 -- -- -- -- Illinois (50%) Fee Simple 30. Confidential 1961/80/ 1/95 $43,687,000 -- 100% $107 12.6% 12.6% 10.75% 13.5% California 84 Fee Simple </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 28. Well located center of quality. High first-year OAR is, in part, reflective of the age of the center (opened in 1992) and its at or above market rents. Mall sales 1994: $262. Occupancy at purchase: 91%. Purchase included one department store, mall area and a number of junior department stores. Pro forma: 4% per year sales and rent, 3% per year expenses. Indicated ratio of purchase price to mall sales: 1.38. Buyer's analysis. 29. Dominant center, located in a tertiary market. Interest originally purchased in December of 1992 for $38,175,000. Option exercised in January of 1995 (closed 2/95) to resell this interest in return for 2,022,247 shares in the Simon REIT. With a share price on 1/31/95 of $23.38, a price of $47,280,000 is implied for this interest. 30. One of the oldest regional shopping centers in Orange County. Buyer reportedly purchased for redevelopment potential. Mall sales 1994: $215 per sq. ft. Occupancy at purchase: 96.3%. Purchase included mall area and land underlying one department store. Pro forma: 3.5% per year sales and rent, 3.0% per year expenses. Ratio of purchase price to mall sales: 0.5. Buyer's analysis. 9 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 31. Confidential 1970/91 1/95 $123,000,000 -- 100% $286 7.8% 7.8% 8.0% 10.5% California Fee Simple 32. Confidential 1981/91 1/95 $87,000,000 $45,257,025 99.8% $143 7.8% N/A N/A N/A Virginia (99.8%) (99.8%) Fee Simple 33. Collin Creek 1981/92 12/94 $108,000,000 -- 100% $297 6.7% 6.7% 7.0% 11.6% Plano, Texas Fee Simple </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 31. Center of quality with expansion potential. Mall sales in 1994: $250 psf. Occupancy at purchase: 85%. Projections assume growth ranging from 3% to 5% per year The purchase included only the mall area Ratio of purchase price to mall sales: 1.14. Center offered for sale in April 1994 at $153 million. A letter of intent was withdrawn in September 1994 at $135 million. Buyer's analysis. 32. Center of quality, located in a rapidly growing area. [Purchase included all anchors but Sears (594,201 sf)]. Mall sales (1994): $259 psf. Occupancy at purchase: 94%. $84.7 million paid at closing and another $2.3 million paid by the buyer in 12/95 (most of which is for an excess land parcel). Seller's analysis. 33. Center of quality and appeal. Purchase included the mall area. Mall sales in 1993: $288 psf. Occupancy at sale: 96%. Projections assume growth of 5% per year in expenses and average increase of 5.7% per year in sales and rent. Ratio of purchase price to center sales: 1.03. Purchase included only the mall area. Buyer's analysis. 10 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 34. Simon - 3 Centers 12/94 $153,225,000 -- 100% Fee Simple - - Broadway Square 1975/93 -- $44,000,000 -- $98 8.7% 6.7% 9.0% 11.5% Tyler, Texas - - Orange Park 1975/85/91 $78,300,000 -- $l71 8.2% 8.0% 8.5% 11.5% Jacksonville. Florida - - University Mall 1974/86 -- $29,400,000 -- $125 8.6% 0.0% 8.5% 12.0% Pensacola, Florida </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 34. Centers of quality, located in secondary or tertiary markets. Purchase price includes $1.5 million paid for excess land at 2 of the centers. Buyer's analysis. - - Mall sales 1994: $252 psf. Occupancy: 93.7%. Purchase included mall area and 2 department stores. Assumed growth rates: 3.5% per year. Ratio of purchase price to center sales: 0.8. - - Mall sales 1994: $231 psf. Occupancy: 97.8%. Purchase included mall area and one department store. Assumed growth: 3.5% per year in expenses; 0% per year for 2 years, 1%. 2% and 3.5% per year in sales; and 0%, 2% and 3.5% in rent. Ratio of purchase price to center sales: 1.0. - - Mall sales 1994' $150 psf. Occupancy: 87.2%. Purchase included only mall area. Growth rates: 3.5% per year in expenses and sales and 0%, then 3.5% per year in rent. Ratio of purchase price to center sales: 0.8. 11 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 35. Biltmore Fashion 1963/92 12/94 $110,760,000 -- 100% $265 7.8% 7.8% N/A N/A Phoenix, Arizona 94 Fee Simple 36. Independence Mall 1974/88 12/94 $53,100,000 -- 100% $135 8.0%+/- -- 8.5% 12.l+/- Independence, Missouri Fee Simple 37. Mall at St. Vincent 1977/91 12/94 $18,000,000 -- 100% $89 10.7% 10.7% N/A N/A Shreveport, Louisiana Fee Simple Includes small lshd.) 38. Layton Hills 1980/91 9/94 $51,375,000 -- 50% $226 9.2% N/A N/A N/A Salt Lake City, Utah Fee Simple </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 35. Center of great quality and appeal with expansion capability. Purchase included mall area and department stores. In addition to $81.5 million in cash, the sellers received shares in TRG. Occupancy at purchase: 97%. Mall sales in 1994: $400 psf. Pro forma assumptions: 4% per year expenses; 5%. then 4% per year in rent; 13.8%, 5%, and then 4% per year in sales. Ratio of purchase price to center sales: 1.02. 36. Class B-C center with some design problems -- tertiary location. Occupancy at purchase; 84%. Purchase included only the mall area. Purchase price included $1.7 million for deferred maintenance. Pro-forma: 4% per year sales, rent, and expenses. OAR varies (seller's first-year OAR of 7.6% to buyer's 8.0% +). Seller's analysis. 37. Class B-C center located in a secondary market. Purchase included mall area. Occupancy: 88%. Mall sales (1993): $178 psf. Pro forma: Rent - 4% per year; Expenses - 3.5% per year; Sales -4% for one year, 6% for one year, 10% per year for two years, 5% for one year. and 4% per year thereafter. Buyer's analysis. 38. Class B Center, located in a secondary market. Purchase included the entire center plus a convenience center. Occupancy at purchase: 96%. Buyer's Analysis. 12 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 39. Carolina East 1979 9/94 $13,325,000 -- 100% $95 10.6% 10.6% 10.0% 14.7% Greenville. North Carolina Fee Simple 40. Chesterfield Towne 1975/88/ 7/94 $84,000,000 $68,000,000 Nominal $155 9.0% N/A N/A N/A Center 95 (Nominal 65%) 65% Richmond, Virginia Fee Simple 41. North Shore 1985/90 7/94 $41,600,000 $34,000,000 100% $118 8.9% -- N/A N/A Slidell, Louisiana Fee Simple 42. Waterside Shops 1992 6/94 $65,250,000 -. 100% $312 7.75% 7.75% 7.9% 11.0% Naples, Florida Fee Simple 43. Riverchase Galleria 1986 2/94 $87,500,000 $40,000,000 50% $411 7.4% -- 7.5% 11.5% Birmingham, Alabama (50%) (50%) Fee Simple </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 39. Class B-C center, located in a secondary market. Occupancy at purchase: 94%. Mall sales (1993): $193 psf. Sale included mall area. Pro forma: 4% per year sales, rent, and expenses. Ratio of purchase price to mall sales: 0.5. Seller's analysis. 40. Center of quality, located in a competitive market. Purchase included all three anchors and mall area. Mall sales (1993): $290 psf. Occupancy at purchase: 95%. Excluding value attributable to the anchors, a ratio of purchase price to mall sales of 1.11 is indicated. Buyer's analysis. 41. Dominant center, located in a tertiary market. Purchase included mall area plus two department stores. Mall sales 1993: $219 psf. Occupancy at purchase: 86%. Ratio of purchase price to center sales: 1.10. Seller's analysis. 42. Unenclosed specialty center, located in an affluent area. Purchase included in the entire center. Occupancy at sale: 97.4%. Mall sales: $285 psf 1993, $306 projected for 1995. Pro forma growth: 5% per year increase in sales and rent; 4% per year in expenses. Analysis assumes freestanding tenant is added - otherwise OAR is 7- 7.5%. Ratio of purchase price to center sales: 1.22. Buyer's analysis. 43. Center of quality and appeal. Purchase included mall area and outparcels. Mall sales 1994: $373 psf. Occupancy at sale: 94.5%. Pro forma assumption: 4.5% per year in sales and rent and 4.0% per year in expenses. Ratio of purchase price to center sales: 1.10. Buyer's analysis. 13 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 44. Crossroads Mall 1974/91 2/94 $51,500,000 -- -- $138 10.3% 10.3% N/A N/A Oklahoma City, Oklahoma 45. Arden Fair 1957/ 12/93 $96,200,000 -- -- $452 7.0% 7.0% N/A N/A Sacramento. California 90 (50%) 46. Fiesta Mall 1979/ 12/93 $124,300,000 * * $397 7.4%, -- 8.0% +/-11% Mesa, Arizona 89 * Favorable note reportedly assumed (amount unknown). </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 44. Class B-C center, located in a secondary market. Center on the market for some tune. Purchase included mall area. Mall sales 1993: $189 psf. Occupancy at purchase: 95%. Some redevelopment potential. Buyer's analysis. 45. Dominant center of tremendous quality and appeal. Mall sales in 1993: $405 per sq. ft. Purchase included only the mall area. Occupancy at purchase: 90%. Ratio of purchase price to center sales: 1.12. Seller's analysis. 46. Dominant regional shopping center located in a competitive market. Occupancy at purchase: 98.4%. Mall sales estimated to be $339 per sq. ft. in 1993. Purchase included mall area and land underlying the department stores. Projections assume increase in sales and expenses of 4% (rent and CPI increases are 3%, then 4% per year). With favorable financing, leveraged IRR is +/- 14%. (Existing anchors are on long-term ground leases.) Ratio of purchase price to center sales: 1.17. Buyer's analysis. 14 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 47. Galleria at 1981 12/93 $125,000,000 -- -- $311 7.1% 7.1% 7.5% 11.5% Fort Lauderdale Fort Lauderdale, Florida 48. Stratford Square 1981 12/93 $119,000,000 -- -- $242 7.7% 7.3% N/A N/A Bloomingdale, Illinois 49. Kenwood 1958/88 l2/93 $194,000,000 $41,000,000 --- $400 7.5% 7.5% 7.5% 11.3% Cincinatti, Ohio (implied) (structure 2nd participating mortgage) 50. Westgate 1982 l2/93 $71,100,000 $30,000,000 99.8% $135 8.1% -- 8.5% 12.0% Amarillo, Texas Fee Simple </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 47. Dominant center of quality and appeal, located in an affluent area. Mall sales in 1993 estimated to be $340 per sq. ft. Occupancy at purchase: 86%. Purchase included an earn-out payment of $3 million which the buyer reportedly chose to pay at closing on a discounted basis (not shown in purchase price). Purchase involved the mall area and land under-lying 4 of the 5 department stores. Ratio of purchase price to center sales: 1.10. Buyer's analysis. 48. Center of quality located in a competitive market. Center benefits from its prime location in a growing area sale. Sale involved only the mall area. 1992 sales: $255 per sq. ft. Occupancy at purchase: 95%. Ratio of purchase price to center sales: 0.9. Buyer's analysis. 49. Center of quality. Agreement involved the mall area and land underlying the J.C. Penney store. Occupancy at purchase: 97%. Sales in 1993 estimated to be $346 per sq. ft. Ratio of implied price to center sales is 1.16. Lender's analysis. 50. Dominant center located in secondary market (in need of renovation). Sales included mall area and two department stores. Occupancy at purchase: 93.5%. Growth in pro forma: 4% per year, rent and expenses 5% per year for mall sales, and 3% per year for anchor sales. Mall sales 1993: $230 psf. Seller's analysis. 15 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 51. Coronado Center 1964 9/93 $l15,000,000 -- -- $223 7.5% 7.5% 7.25% 11.0% Albuquerque, New Mexico 52. Garden State Plaza 1957/ 7/93 $190,000,000 $130,000,000 8.2% $293 7.4% 5.4% 7.5%- 12.4% Paramus, New Jersey 82/84 (50%) (50%) 9.0% 89 53. Clackamas Town Center 1981 7/93 $33,873,965 $9,093,965 9.0% $265 7.75% 5.20% 8.0% 11.5% Portland, Oregon (29.5%) (29.5%) 54. Carolina Place 1991/ 6/93 $92,500,000 -- -- -- 7.5% 7.5% 7.0% 12.1% Charlotte, 93 (80%) North Carolina </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 51. Dominant center. Occupancy at purchase: 92%. Mall Sales: $281 per sq. ft. in 1992. Purchase included mall area and one department store. Price per sq. ft. of mall area is $267. implying a ratio to center mall sales of 1.00. Buyer's analysis. 52. Dominant center of tremendous quality and appeal, with expansion potential. Occupancy at purchase 99%. 1992 mall sales $434 per sq. ft. Purchase included all of the anchor store improvements and the mall area. Additional funds were contributed for a 50% interest in the land. Price per sq. ft. implied for the mall area was $634; representing a purchase price to mall sale ratio of 1.46. The leveraged IRR was reportedly 16.8%. Buyer's analysis. 53. Dominant center with occupancy at purchase of 94%. Sale involved mall area. 1992 sales per sq. ft.: $301. Ratio of purchase price to center sales: 0.9. Implied leveraged IRR is 12.25%. Buyer's analysis. 54. Well located center which should benefit from a growing trade area. Mall sales fiscal year 1992 -93: $200 per sq. ft. Occupancy at purchase: 75%. Purchase included mall, Sears and J.C. Penney (603,500 sq. ft). 12.1% yield represents return to the buyer. Buyer receives a preferred return of 7.5% in the first year, then 7.75%, 8.0% and 8.25% per year thereafter. Buyer's analysis. 16 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 55. Montgomery Mall 1970/ 6/93 $42,000,000 -- 100% $69 9.5% -- 8.5% 12.0% Montgomery, Alabama 88 Fee Simple 56. The Mall at Short Hills 1957/ 6/93 $140,000,000 Short Hills, New Jersey 1980 57. The Florida Mall 1986 5/93 $81,500,000 $37,500,000 variable $322 7.4% 8.6% 7.5% 12.0% Orlando, Florida (50%) (50%) 58. Rivercenter 1988 5/93 $101,300,000 $14,500,000 5.0% $242 8.7% N/A 8.5% 12.2% San Antonio, Texas 59. Sarasota Square 1977/ 1/93 $84,000,000 -- -- $268 7.5% 7.5% 7.5% 11.0% Sarasota, Florida 86/89 </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 55. Dominant center in its market. Owner defaulted on its mortgage which was acquired by the lender. Occupancy: 86.5%. Sales (1992): $265 psf. 56. Dominant center of great quality and appeal to be enhanced by an expansion. Occupancy at purchase 88%. Very high mall sales. Purchase included 50% interest in improvements, 100% of land underlying mall and retirement of the debt. Three anchors and mall GLA to be added to the center. High sales per sq. ft. Buyer's analysis. 57. Dominant center with expansion potential. Occupancy at purchase: 99%. Very strong sales ($502 psf comp. in 1992). Purchase included mall area and one department store. Additional funds contributed for two outparcels. High cash-on-cash rate implied by low interest rate on debt. The leveraged IRR was reportedly 12.3%. Ratio of purchase price to sales 0.9. Buyer's analysis. 58. Center of quality. Occupancy at purchase: 89% (85% mall tenants). 1992 mall sales: $286 psf. Purchase included the land underlying the hotel and one department store. Indicated overall rate for the retail portion of the purchase reported to be 8.0%. Buyer's analysis. 59. Dominant center in its market with expansion potential. Occupancy at purchase: 95%. 1992 mall sales between $260 and $270 per sq. ft. Ratio of purchase price to sales: 1 .00. Only mall area was included in the purchase. Buyer's analysis. 17 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 60. South Bay Galleria 1985 12/92 $64,000,000 $35,000,000 Variable $351 6.5% N/A N/A N/A Redondo Beach, California (nominal 50%) (50%) 61. The Avenues 1990 12/92 $82,000,000 $20,000,000 8.36% $250 7.5% N/A 7.25% 11.5%- Jacksonville, Florida (nominal 50%) 11.7% 62. White Oaks Mall 1977 12/92 $38,175,000 - $223 8.0% 8.0% 8.5% 12.0% Springfield, Illinois (50%) </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 60. Dominant center of great quality and appeal. Occupancy at purchase: 90%. 1992 mall sales $280 per sq. ft. Sale involved an 8% cumulative preferred return on the partnership level. Ratio of purchase price to sales: 1.25. Seller's analysis. 61. Center of good quality (with expansion potential), located in an area of growth. Occupancy at purchase: 90%. 1992 estimated mall sales: $215 per sq. ft. Sale involved mall area and one of the department stores. Assumed growth rates: sales - 7% through 1997, then 6% per year; rent -6% per year; expenses - 5% per year. Buyer received a noncumulative preferred return of 8%, with the balance split 50/50. Implied yield on buyer's investment (with the preferred return) is 12.5% to 13%. Sale included a "look back" of 11.5% prior to any split of future sale proceeds. Ratio of purchase price to center sales: 1.50. Buyer's analysis. 62. Dominant center located in a tertiary market. At the time of sale, Bergner's was in Chapter 11 and Kohl's had vacated its store (with this space to be converted to mall GLA). Occupancy at purchase: 86% (or 78% including Kohl's). 1991 sales: $233 per sq. ft. Assumed growth: sales and rent - 8% and then 4% per year; expenses - 4% per year. Transaction included $7 million contribution for their 50% share of costs related to a renovation program. Ratio of purchase price to center sales: 1.00. Buyer's analysis. 18 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 63. West Oaks Mall 1984 9/92 $75,000,000 $63,000,000 -- $189 7.3% N/A 8.0% 12.0% Houston, Texas (implied) (convertible) 64. The Pavilions at 1990 8/92 $80,000,000 (All cash) -- $137 6.5% 6.5% 7.0% 11.5% Buckland Hills (nominal 50%) Manchester, Connecticut 65. Altamonte Mall 1974/90 7/92 $70,000,000 $10,399,085 8.5% $248 6.5% 5.2% 7.1% 11.5% Orlando, Florida (50%) (50%) 66. Natick Mall 1966/81 6/92 $51,000,000 (All cash) -- -- 6.9% 6.9% N/A N/A Natick, Massachusetts 67. Shoppers' World 1951 6/92 $19,800,000 (All cash) -- -- 7.0% 7.0% N/A N/A Framingham, Massachusetts </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 63. 10-year convertible debt on a class A regional shopping center with purchase option. One anchor included in the deal. Occupancy at purchase: 93%. 1992 estimated sales: $260 PSF. Seller's analysis. 64. Dominant center which is well located. Sale involved mall area and all of the department stores. Occupancy at purchase: 91%. 1992 mall sales: $354 per sq. ft. Assumed growth rates: sales and rent -4% per year for four years and then 5% per year; expenses - 5% per year. Buyer received a non-cumulative preferred return of 9-10% and 50% of cash flow. Buyer's analysis. 65. Solid performer with expansion potential. Sale included mall GLA and one department store. Occupancy at purchase: 95%. 1992 estimated sales: $307 PSF. Assumed growth rates: 5% per year. Ratio of purchase price to center sales: 1.27. Buyer's analysis. 66. Dominant center which is well located, but is in need of renovation. Center purchased simultaneously with Sale No. 42 with the intention of renovating and expanding the center with two additional anchor stores and more mall GLA. Buyer's analysis. 67. Well located unenclosed center in need of extensive capital expenditures. Center purchased for the rights to the anchor store which will be relocated to Sale No. 41. Center to be demolished and replaced with a "power center". Buyer's analysis. 19 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 68. North Shore 1958/86 5/92 $102,875,000 (All cash) -- $108 6.0% 6.0% N/A N/A Shopping Center Peabody, Massachusetts 69. Town Center at 1980/86 4/92 $202,500,000 (All cash) -- $517 6.6% 6.6% 7.0% 11.1% Boca Raton Boca Raton, Florida 70. Oakview Mall 1991 4/92 $74,225,000 $25,000,000 -- $179 6.5% N/A 7.5% 12.5% Omaha, Nebraska 71. University Square Mall 1974 3/92 $85,000,000 (All cash) -- $161 7.9% 7.9% 8.0% 11.5% Tampa, Florida </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 68. Well located center with strong anchor alignment. Occupancy at purchase: 81 %. Extensive redevelopment planned for the center over the next 2 years. Given the changes planned for the center, IRR and residual cap. rate were reportedly calculated using a development approach and were not available. Mall sales: $270 PSF in 1990. Buyer's analysis. 69. Well located center of quality and appeal. Sale excluded anchor improvements. Occupancy at purchase: 97%. Sales PSF 1991: $389 PSF (1992: $416 PSF), with ratio to purchase price of 1.24. Assumed growth: 2% then 5% per year. Buyer's analysis. 70. Dominant center, located in a secondary market, with expansion potential. Sales at stabilization (1993/94) assumed to be $227 PSF. Occupancy at purchase: 80%. OAR at stabilization: 7-8%. Unleveraged IRR: 11.0%. Ratio of purchase price to center sales: 1.00. Buyer's analysis. 71. Dominant center in its market, which may be impacted by the 1992 opening of another regional shopping center in the area. However, buyer intends to substantially renovate the center in the near future. Purchase involved one department store and mall area. Occupancy at purchase: 98%. 1991 mall sales were $255 PSF, or $205 PSF for the owned area; implying a ratio of purchase price to center sales of 0.8. Buyer's analysis. 20 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 72. Glendale Galleria 1976-88 2/92 $96,944,000 (All cash) -- $399 6.5% 6.5% 7.3% 11.0% Glendale, California 73. Clackamas Town Center 1981 1/92 $86,400,000 $22,400,000 9.03% $283 6.4% 6.0% 7.5% 12.5% Portland, Oregon 74. Sarasota Square Mall 1977/ 12/91 $80,000,000 -- $257 7.5% -- 8.0% 12.5% Sarasota, Florida 86/89 (90% interest) 75. Eastland Mall 1975/91 12/91 $74,760,000 (All cash) -- $223 7.5% 7.5% N/A 11.5%- Charlotte, North Carolina 12.0% 76. The Parks at Arlington 1988/ 12/91 $92,500,000 (All cash) -- $309 6.0% 6.0% 7.5% 12.0% Fort Worth, Texas 1990 (nominal 50%) 77. South Hills Village 1965 12/91 $105,110,000 (All cash) -- $175 6.8% 6.8% 7.5% 11.2% Pittsburgh, Pennsylvania </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 72. Dominant center of quality and appeal. 91% occupied at purchase. Sale included only the mall area. Sales in 1991: $376 PSF, with a ratio to purchase price of 1.06. Buyer's analysis. 73. Dominant center of quality and appeal. Well occupied center at purchase. Sale included only the mall area. Sales in 1991 were $300 PSF. Ratio of purchase price to sales: 0.9. Unleveraged IRR: 11.1%. Buyer's analysis. 74. Seller provided a $56 million note and $16.2 line of credit. 75. Solid center which caters to a middle income shopper. Competition exists in this market. 1991 sales (est.) $276 PSF. Seller's analysis. 76. Dominant center which has been recently expanded. 80% occupied at purchase. Buyer received a 5 year guaranteed annual return ranging from 8-9.5%. Sales in 1990 of $275 PSF. Buyer's analysis. 77. Dominant center in its market. Center in need of renovation at the time of purchase. Excluding Sears, the outparcels and Woolworth, a net value of $320 PSF is implied with mall sales (net of Woolworth) in 1990 of $320 PSF. Buyer's analysis. 21 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 78. Maine Mall 1971/ 12/9l $40,846,394 $22,387,500 8.625% -. 7.3% 5.1% 8.0% 11.8% South Portland, Maine 1983 (37.5%) (37.5%) 79. Alderwood Mall 1979/80 11/91 $103,750,000 (All cash) -- $399 6.1% 6.1% 7.0% 11.8% Seattle, Washington 80. The Oaks 1978/83 10/91 $95,000,000 (All cash) -- $320 6.1% 6.1% 7.5% 11.1% Thousand Oaks, California (nominal 50%) 81. Valley Fair 1986 8/91 $98,950,000 $38,450,000 -- $550 5.9% 2.4% 6.5% 11.1% Santa Clara, California (50%) (50%) 82. West Town 1972/ 4/91 $36,750,000 (All cash) -- $101 6.2% 6.1% 7.0% 12.9% Knoxville, Tennessee 1987 (50%) 83. Montclair Plaza 1968/ 3/91 $210,500,000 $83,000,000 N/A $294 5.7% 1.9% 6.5% 11.2% Montclair, California 1985 84. Edison Mall 1965/ 1/91 $115,200,000 (All cash) -- $203 6.0% 6.0% 7.0% 10.5% Fort Myers, Florida 1985 </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 78. Dominant center in a secondary market which was in need of cosmetic upgrading at purchase. Excluding Woolworth and anchors, a price of $305 PSF is indicated (a ratio of 1.0 to mall sales in 1990 of $302). (Leveraged IRR was 12.3%.) Buyer's analysis. 79. Solid performer in need of some cosmetic upgrading. Some expansion potential. 1991 sales $321 PSF, indicating a ratio to purchase price PSF of 1.24. Buyer's analysis. 80. Well located center of great quality. Sale involved a preferred return to buyer of 7-8%, with a guaranteed yield of 11 %. Buyer's analysis. A ratio of purchase price to 1990 sales of $292 PSF of 1.25 is implied. 81. Dominant center in its market. Mall sales in 1990 were $444 PSF, indicating a ratio to purchase price of 1.24. Buyer's analysis. 82. Dominant center with expansion potential, located in a secondary market. Buyer's analysis. 83. Center of quality with expansion potential. Two strip centers were included as part of the purchase. Ratio of center sales to value of 0.9%. Excluding the anchors, a value of $400 PSE is implied, indicating a ratio to 1990 mall sales PSF of 1.20. Buyer's analysis. 84. Dominant center in a secondary market, with minimal competition. Excluding the anchors, a value of $340 PSF is implied, indicating a ratio to 1990 mall sales PSF of 1.14. Buyer's analysis. 22 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 85. Victor Valley 1986 1/91 $72,000,000 (All cash) -- N/A 6.6% 6.6% 7.5% 11.55% Victorville, California (70%) 86. Paradise Valley 1979/ 1/91 $80,000,000 (All cash) -- $293 6.0% 6.0% 6.25% 10.75% Paradise Valley, Arizona 1990 (50%) 87. Fashion Center at 1989/ 12/90 $230,000,000 -- -- 7.0% -- 6.0% 11.0% Pentagon City 1990 (implied) (accrued) (retail/ (14 Arlington, VA hotel) yrs.) 7.0% (office) 88. Scottsdale Fashion 1989/ 12/90 $132,500,000 (All cash) -- -- 6.2% 6.2% 6.5% 10.82% Square 1990 (50%) Scottsdale, AZ 89. Crossroads Mall 1960/ 12/90 $78,000,000 $63,000,000 -- $284 7.5% -- -- 12.2% Omaha, NE 1988 (implied) (convertible) 90. Neshaminy Mall 1968/ 12/90 $50,500,000 (All cash) -- $158 8.9% 8.9% 7.5% 14.5% Philadelphia, PA 1975/ 1989 </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 85. Dominant center in a tertiary market with tremendous growth potential and limited retail competition. Preferred return ranging from 7.1% to 9.5%. 86. Center was being expanded at purchase (50,000 sq. ft. unleased). Purchase included an annual guaranteed return of 6% through 12/95. (Actual 1st year return was less than 6%.) Seller's analysis. 87. Participating preferred joint venture on new MXD (retail, hotel and office). Class A regional. 6.5% guaranteed return with 0.5% accrued equates to 7.0% OAR for two years. JV structure with buyer receiving 100% of cash flow and almost 100% of residual. 88. Class A center. Anchors were included in sale, as were 2 small office buildings. 83% occupied at the time of the purchase. 87% of purchase price allocated at the center. Purchase included a guaranteed return of 6.27% for first 12 months. Residual cap. rate for mall 6.5%, 9% for the two office buildings and 7.5% for the ground leases. 89. 4-year convertible debt on Class A regional mall, located in a secondary market, and purchase option. Expanded and Dillard's added in 1988. 1990 mall sales: $308 PSF. 90. Class B center purchased for redevelopment potential and excess land. Dark anchor (Pomeroy's) and other two anchors have no operating covenant. Buyer's analysis. 23 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 91. Willowbrook Mall 1981/ 12/90 $146,000,000 $48,667,000 10.75% $348 5.5% -- 6.5% 11.0% Houston, TX 1986 (6.0% guarantee) 92. The Pavilions at 1990 11/90 $136,870,000 $99,078,000 8.75% $419 6.2% N/A 6.5% 12.0% Buckland Hills Manchester, Connecticut 93. Gennessee Valley Center 1970/ 7/90 $110,000,000 $46,500,000 9.0%- $312 6.7% 4.4% 7.0% 12.6% Flint, Ml 1979/ 10.25% 1987 94. Lynhaven Mall 1981 6/90 $129,175,000 (All cash) -- -- 5.5% 5.5% 6.0% 10.75% Virginia Beach, Virginia (75%) 95. Salem Center 1980 6/90 $33,350,000 (All cash) -- $150 7.0% -- 7.25% 13.5% Salem, OR 96. Lincoln Mall 1973 5/90 $91,330,500 (All cash) -- $250 6.0% 6.0% 8.0% 11.4% Chicago. IL </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 91. Class A center with sixth anchor opening late 1991. Strong 1990 sales: $266 PSF. 1.29 ratio price/ sales. Seller provided wrap financing through 2/96. Sale included three-year guarantee of 6.23% return. Buyer's analysis. 92. Class A, new center with sixth anchor being added in 1991. Sale involved one partner buying out another. 50% interest transferred. Sale included other consideration. 1990 sales: $349 PSF. 1.2 ratio price/sales. 93. Dominant center in a secondary market with expansion potential for a fourth anchor. 1989 sales $279 PSF. Price to center sale ratio of 94. Center with expansion potential. Sale includes one anchor and one junior anchor. Buyer's analysis. 95. Inner city center, with mall area and anchors connected with sky bridges. At the time of purchase, the center was in need of remerchandising and a cosmetic upgrading. 87% occupied at purchase. Sales in 1990 were $170 PSF. 96. Class B center. 1988 sales PSF $208. Vacant fourth anchor store formerly occupied by Wieboldts. Ratio of sales price to center sales is 1.20. Seller's 10-year analysis. 24 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 97. Coastland Center 1977/ 4/90 $72,550,000 $18,839,000 12.25% $226 6.0% 3.6% 7.0% 11.1%- Naples, FL 1985 98. West Shore Plaza 1967/ 3/90 $87,773,400 N/A -- $185 5.5% -- -- N/A Tampa, FL 1984 99. Regency Square 1975/ 1/90 $120,500,000 $15,400,000 8.5%- $500 5.1% 4.2% 6.5% 10.06% Richmond, VA 1987 10.25% 100. Pan American 1956- 11/89 $215,750,000 $17,227,128 8.25%- -- 5.0%- -- 7.0% 10.0%- Properties 1979 9.875% 6.0% (malls) 10.5% California (6), plus (malls) 9.0% (malls) Washington (1), expansions 8.0%- (strips) 11.0%- Arizona (1) 8.5% 12.0% (strips) (strips) 101. Woodfield Mall 1971 9/89 $237,500,000 (All cash) N/A $603 4.5% 4.5% 6.0% 12.1% Shaumberg, IL (50%) 102. Fox Run Mall 1982- 6/89 $112,000,000 (All cash) N/A $438 5.3% 5.3% 7.0% 10.9% Newington, NH l986 103. Aetna Package 1968- 6/89 $195,000,000 (All cash) N/A -- 7.4% 7.4% 7.0% 12.5% + Iowa, Arkansas, and 1977 Colorado </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 97. Class B center with expansion potential. (Buyer's 15 year projection.) Includes $13,100,000 in imputed value for the land (to be purchased at a later date). Purchase price to 1988 sales ratio of 0.9 indicated. 98. Well-located Class B center purchased for redevelopment. Transaction reflects potential upgrading. 99. 1989 sales PSF $304. Value PSF distorted by inclusion of ground lease income. Ratio of sales price to center sales of 1.54. (IRR implied using seller's projections and a residual cap. rate of 6.5%.) 100. Two regional and six community centers. The regional centers are well located but were in a somewhat neglected physical condition at purchase. Expansion potential exists at both centers. Strip centers average. 101. Class A center with expansion potential. Ratio of sales price to center sales of 1.67. 102. Buyer's analysis. Class A center. 103. Buyer's analysis. 8 regional centers and 1 strip center included in sale. Dominant centers in their respective markets. 25 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 104. Oak Court Shopping 1988 5/89 $78,700,000 (All cash) N/A $284 5.2% 5.2% 7.5% 10.25% Center and Office (mall) (mall) (mall) (mall) Building $114 2.4% 2.4% 8.5% Memphis, TN (off.) (off.) (off.) (off.) 105. Rhode Island Mall 1967- 5/89 $79,000,000 (All cash) -- -- 5.8% 5.8% 8.0% 10.5% Warwick, RI 1985 106. McAlister Square 1968- 4/89 $20,800,000 $20,000,000 -- -- 6.4% -- -- -- Greenville, SC 1974 107. Patrician Malls 1972- 2/89 $163,778,765 $16,400,000 9% -- 6.0%- 5.4%- 7.25%- 11.3%- Maryland (3) 1981 7.1% 6.4% 8.0% 12.0% (11.6% avg.) 108. Century 111 Mall 1979 1/89 $66,250,000 (All cash) -- $234 6.1% 5.7% 7.25% 11.2% West Mifflin, PA (50%) 109. Midwest Malls 1970- 1/89 $212,000,000 (All cash) -- -- 4.8% 4.8% N/A 11.1% Minnesota (1) 1975 Michigan (1) 110. Montebello Town Center 1985 12/88 $129,500,000 (All cash) -- $279 6.0% 6.0% 6.0% 10.5% Montebello, CA 111. Queens Center 1973 12/88 $80,000,000 (All cash) -- $487 6.5% 6.5% N/A 10.0%- Elmhurst, NY 10.5% 112. Spring Hill Mall 1980- 12/88 $122,500,000 (All cash) -- -- 5.0% 5.0% 6.5% 11.3% West Dundee, IL 1986 (100%) </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 104. Buyer's analysis. Class A center located in a dense and relatively affluent trade area. Sale price includes $1,700,000 anticipated to be spent on TIs and commissions to reach stabilized occupancy. OAR in stabilized year (1991) is 7.3% (retail) and 8.7% (office). 105. Seller's 10-year analysis for a good quality, two-anchor center with expansion potential. 106. Buyer's analysis for a solid regional center. Price includes excess land with development potential. Price is reflective of presence of asbestos. 107. Reportedly, two of the three centers are located in weak trade areas. Centers in need of some upgrading. 108. Buyer's analysis. Center needs re-merchandising and has vacant fifth anchor. 109. Buyer's analysis. Blended rates for two mid-line centers. 1987 sales: $224 PSF and $249 PSF. 110. Buyer's analysis. 111. Seller's analysis. Sale included 40,000 SF of vacant space on the 4th level plus garage. 112. Seller's analysis. Includes 86 acres of land. Actual interest sold was 90%. 26 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 113. Metrocenter Mall 1978- 12/88 $80,000,000 (All cash) -- $205 6.3% 6.3% 7.0% 11.8% Jackson, MS 1984 114. Blue Ridge Mall 1958- 10/88 $46,300,000 (All cash) -- -- 6.7% 6.7% 7.0% 12.3% Kansas, City, MO 1980 115. Columbus Square 1965/ 9/88 $31,390,000 (All cash) -- $137 7.2% 7.2% 8.0% 13.2% Columbus, GA 1986 116. Orlando Fashion Square 1973 6/88 $67,300,000 $11,491,700 8.0%- $265 5.4% 4.2% 6.0% 12.6% Orlando, FL 12.75% 117. Plaza Frontenac 1976 6/88 $53,750,000 (All cash) -- $298 6.0% 6.0% 8.0% + 11.0% Frontenac, Missouri 118. Northridge Mall 1972 4/88 $114,775,000 $18,108,000 $282 5.0%- 5.25%- 7.0% 10.25%- 5.25% 5.75% 10.5% Southridge Mall 1970 $122,800,000 $18,600,000 $269 6.4% 5.6% 7.0% 10.9% Wisconsin 119. Briarwood Mall 1973 3/88 $48,827,500 $10,827,500 -- $255 7.4% 4.2% 8.0% N/A Ann Arbor, Michigan plus (50%) (50%) expansion 120. Miami International 1984 1/88 $43,405,000 $22,600,000 12.85% $101 8.0% 3.04% 8.5% 13.16% Miami, FL (50%) (50%) 121. The Falls 1980/ 1/88 $72,300,000 (All cash) -- $266 6.5% 6.5% 7.0% 11.5% Miami, FL 1984 122. Menlo Park Mall 1960 and 1/88 $78,250,000 (All cash) -- $ 61 5.0% 5.0% 8.0% 10.3% Edison, New Jersey 1966-67 </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 113. Includes $78,550,000 for the regional center ($205 PSF) and $1.45 million ($25 PSF) for the convenience center. 1987 sales: $166 PSF. 114. Price includes excess land. First year OAR was 7.4% excluding land. Mall has potential for redevelopment. 115. Buyer's analysis. Recently renovated property. 116. Good quality center in need of renovation, with expansion potential. 117. Class A center in need of renovation and remerchandising. Buyer's analysis. 118. Seller's analysis. Properties were not submitted to open bid. However, deal still perceived arm's length. Good properties, with mid-line merchandise. 119. $2,000,000 of purchase price was allocated to residual land. 120. Price influenced by above-market financing, owned anchors which pay no rent, and allocation for excess land. 121. Good quality center in area of great demographics. 1987 mall sales PSF: $279. 122. Development property with high vacancy. Buyer anticipated spending an additional $7,000,000 for upgrading. 27 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 123. Detroit Area Centers 1976 and 1/88 $122,805,000 $24,275,000 N/A N/A 5.5% 4.0% 7.5% 10.5% Detroit, Ml (2) 1977 (29.5%) 124. Georgia Package 1969 to 1/88 $123,000,000 (All cash) -- $117 7.1% 7.1% 8.0% 12.0% Georgia (4) 1986 125. Castleton Square 1983 12/87 $45,100,000 $19,195,948 8.5%- -- 6.5% 5.6% N/A 11.1% Shopping Center (50%) 9.75% Indianapolis, IN 126. Prudential Regional 1969 to 11/87 $156,300,000 $19,371,115 6.25%- N/A 5.6% 5.5% N/A 10.0% Mall Portfolio 1981 8.125% or Florida (1) plus 5.75% Ohio (1) expansion North Dakota (1) Illinois (2) 127. Northglenn Mall 1968/ 7/87 $34,500,000 $27,500,000 N/A $55 -- -- -- -- Denver, CO 1986 128. MacDonald Group 1965 to 4/87 $243,000,000 $73,210,000 5.06%- N/A 7.2% 4.6% 8.0% 11.0% Shopping Centers 1972 (contract) 10.0% to Los Angeles Area (2) plus 11.5% Ventura, CA (1) expansion Fresno, CA (1) 129. Chicago Ridge Mall 1981 3/87 $73,053,200 (All cash) -- $209 6.55% -- -- 11.7% Chicago, IL </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 123. Seller's analysis; good quality centers. 124. Three good quality regionals and one community community center. Buyer's analysis. 125. Unknown amount allocated to 14.71 acres of peripheral land. While project has excellent location in a growing area, reportedly, it is in need of upgrading (at a cost of $5 million). 126. Expansion potential exists at 3 regionals. Property quality varies. Expansion potential exists at 3 of the centers. 5% growth rate assumed. 127. Asbestos removed prior to sale at cost of $2.5 million. Class B or C center in poor trade area. 128. Class A center (Fresno). Class B centers (Buenaventura and Huntington). Class D center (Carson). IRR and Final Year Cap. are reportedly those used by the buyer. While 1st year returns are based on seller's analysis, they should not be far from those returns indicated by buyer's projections. 129. Price included rent guarantees and earn-out provision. Price is 15% greater than 9/86 sales price. (Center also sold in September of 1986.) 28 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 130. Chicago Area Centers 1966 to 1/87 $228,777,000 $46,277,000 5.5%- N/A 6.0% 5.7% 7.5%- 12.8% Chicago, IL (5) 1976 (closed) (50%) (50%) 9.75% 8.0% plus expansions 131. The Brickyard 1977/79 12/86 $86,440,000 $44,000,000 9.0% N/A 7.4% 5.5% N/A 11.5% Chicago, IL (average) 132. New Park Mall 1980/85 12/86 $47,420,000 $14,920,000 9.5%; $224 6.0% 4.0% N/A N/A Newark, CA (contract) (50%) (50%) Prime plus 1% (two notes) 133. Quakerbridge Mall 1976/77 12/86 $55,750,000 $12,667,000 9.0%- $285 5.4% 4.0% 8.0% 12.0% Lawrence, NY (contract) (50%) (50%) 10.75% (9.16% blended) 134. Fashion Valley Mall 1969/81 12/86 $93,054,000 $9,854,000 9.0% $176 6.4% 7.1% 9.5% 13.5% San Diego, CA 135. Hickory Ridge Mall 1981/86 12/86 $55,250,000 $23,110,000 10.375% $161 6.7% 3.4% 8.5% 13.4% Memphis, TN 136. Jim Wilson Package 1972 to 12/86 $118,000,000 $18,289,000 9.5- $78 7.9% 7.1% 10.0% 13.4% Florida (I), 1976 10.5% Georgia (1), Mississippi (2) </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 130. Purchase of 50% interest in three Class A centers, a Class B center and a strip center. Indicated returns reflect buyer's guarantees. 131. Includes a related convenience center. 132. Class A center. Part of original Macy's package. 133. Class A center. Buyer's 15 year analysis. Part of original Macy's package. Analysis reflects expansion income after 1988 and 5% growth. 134. First year cash-on-cash reflects Buyer's guaranteed 7.0% return. Sale price reflects 100% value but 50% was purchased. Includes one anchor store; excludes leases on five additional anchors. 135. Analysis reflects expansion income; final year cap. is assumed by Landauer. Class A center in a Class B market. 136. Class B centers (Florida and Georgia) and Class C (Mississippi). 29 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 137. Macyes Package 1957 to 12/86 $343,500,000 (All cash) -- N/A 6.0% 6.0% 8.0% 11.71% New Jersey (1), 1984 (excluding to New York (1) dev. land) 8.5% California (1) 138. Sunnyvale Town Center 1979 12/86 $27,113,000 $9,613,000 9.0% $190 6.75% 4.75% 9.0% 11.43% Sunnyvale, California (50%) (50%) 139. Town East Mall 1971/86 10/86 $121,857,000 $11,763,000 8.75% $278 6.31% 5.67% 7.5% 11.0% Mesquite, TX 140. Eastridge Mall 1971/83 10/86 $97,626,000 $43,626,000 8.75%- $ 95 6.5% 4.4% 9.0% 13.9% San Jose, CA 10.0% 141. Northbrook Court 1976 10/86 $116,000,000 $24,500,000 N/A $318 6.0% N/A 7.5% 11.0% Northbrook, IL 142. Chicago Ridge Mall 1981 9/86 $63,630,000 (All cash) -- $182 6.5% N/A N/A 13.3%- Chicago, IL to 16.6% 7.0% 143. Bel Air Mall and 1967/ 8/86 $86,750,000 $13,418,000 4.55%- $71 8.1% 7.1% N/A 13.8% Bel Air Village 73/84 9.25% Mobile, AL 144. Hulen Mall 1977 7/86 $14,800,000 (All cash) -- $74 N/A N/A N/A N/A Fort Worth, TX (50%) 145. South Dekalb Mall 1969 7/86 $17,278,000 $5,778,000 7-10% N/A N/A N/A N/A N/A Atlanta, GA (50%) (50%) 146. Northway Mall 1962 4/86 $14,000,000 (All cash) -- $ 55 10.2% 10.2% N/A 17-18% Pittsburgh, PA </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 137. Seller's 15-year analysis for purchase of mall retail; additional $20,000 assumed paid for development land. Includes some owned anchors. Sale included in Class A center (Garden State), Class C center (South Shore) and Class D center (Bay Fair). 138. 12-year analysis caps Year 13. Price does not include Buyer's required $500,000 improvements. 139. Buyer's analysis; reflects expansion income. Class B center. 140. Buyer's analysis. Class B center. Sale price reflects 100% value but 50% was purchased. 141. Physically, a Class A center with access problems and a lot of competition. 142. Potential expansion earn-out provision. Buyer's analysis based on a range of low to high assumptions. Class B center. 143. Price included $250,000 improvements. Class B center. 144. Buy-out of 50% partner, so price reflects control premium. 145. Seller's estimated analysis of Buyer's IRR and returns. Market problems. Price includes office building. Class B- or C+ center. 146. Returns based on buyer's analysis. Class B center in market with strong competition. 30 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 147. ValIco Fashion Park 1976/78 1/86 $82,242,000 $26,742,223 9.5% $242 7.1% 5.3% 9.0% 13.0% Cupertino, CA 148. The Meadows Mall 1978 12/31/85 $60,500,000 $21,744,306 9.5% N/A 7.6% 5.7% 8.0% 14.0% Las Vegas, NV 149. Baybrook Mall 1978 12/1/85 $82,500,000 $13,800,000 10.8% $244 7.2% 6.5% N/A 12.8% Houston, TX 150. Military Circle 1970/ 12/85 $68,000,000 (All cash) -- N/A 8.1% 8.1% 9.0% 13.34% Norfolk, VA 74/84 151. Port Plaza Mall 1977 12/85 $39,000,000 $10,600,000 10% $84 8.0% 7.9% N/A 13.1% Green Bay, WI 152. Goodman Package 1970/78 8/85, $216,192,000 $61,192,000 N/A $71 8.4% 7.4% N/A 13.9% Pennsylvania (3) 10/85 $135 7.9% 6.5% N/A 13.1% $160 6.9% 5.8% N/A 13.7% 153. Louis Joliet Mall 1978 7/85 $38,950,000 $25,900,000 8.75%- $130 8.75% N/A N/A N/A Joliet, IL 10.0% 154. The Willows Shopping 1977 6/85 $24,600,000 $14,600,000 9-12% $ 88 8.3% N/A 9.0% 13.5%- Center 14.0% Concord, California 155. Woodland Hills Mall 1976 3/85 $86,000,000 (All cash) -- $222 6.7% 6.7% 8.0% 12.6% Tulsa, Oklahoma 156. Beaver Valley Mall 1970 3/85 $45,500,000 $12,600,000 N/A $55 8.6% 6.7% 10.25% 14.9% Pittsburgh, PA </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 147. Additional $5,000,000 paid for excess land plus potential for 150,000 sq. ft. Class B+ center. 148. Sale includes four anchors. 149. 150. Includes an inn, office space, retail and peripheral sites. Needs some remerchandising. 151. 152. Class B centers. 153. 154. Specialty center with seven buildings. Leasehold interest with option to purchase land. 155. Current rents substantially below market rents. 156. Sale included two of three anchors and 50% interest in 60 acres of excess land. Class B center. 31 <PAGE> 2/14/97 COMPARABLE SHOPPING CENTER SALES (Continued) <TABLE> <CAPTION> Price PSF Final of 1st 1st Year Sale Name of Property/ Year Date Sale Mortgage Owned Year Year Cap. No. Location Built of Sale Price Amount Interest GLA OAR COC (NOI) IRR - --- -------- ----- ------- ----- -------- -------- --------- ---- ---- ----- --- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 157. Cumberland Mall 1973 2/85 $82,700,000 $13,192,471 8.25% $254 6.4% 4.8% 7.5% 13.8% Atlanta, GA (10 yrs.) 14.7% (15 yrs.) 158. Tysons Corner 1969 2/85 $168,852,000 $21,472,000 6% N/A 7.5% 7.0% 6.0%- 16.0%- McLean, VA 7.0% 22.1% </TABLE> Sale No. Comments - --- -------------------------------------------------------------------------- 157. Superior center in a strong market, with plans for fifth anchor. 158. Sale includes all three anchors. Development potential for additional mall and anchor GLA. 32 <PAGE> FLOORPLANS <PAGE> LANDAUER REAL ESTATE COUNSELORS Cash flow Assumptions -- Retail Portion Introduction As with the office and garage components of the development, income and expenses for the retail component were projected over an eleven-year period, commencing 7/1/1997, as the basis for the discounted cash flow analysis. The cash flow model incorporates the terms of the existing and projected future occupancy leases together with assumptions regarding the likely future course of the various income and expenses categories. The projected lease terms and cash flow assumptions are based upon a review and analysis of the leasing activity to date, the sales and operating performance to date, the owner's budgets and Landauer's knowledge of general market conditions. Occupancy: As of the effective date of value, the property contained a total gross leasable area of 368,413 square feet, of which approximately 12,584 square feet (4.8%) of the mall gross leasable area was vacant. The total mall GLA includes approximately 6,436 square feet of space which is located on the exterior of the center and is reserved for minority businesses. The general distribution of space within the center is as follows: - -------------------------------------------------------------------------------- Vacancy Area Leased Vacant Total Rate - -------------------------------------------------------------------------------- Mall Stores 247,907 12,584 260,491 4.8% - -------------------------------------------------------------------------------- Neiman Marcus 107,922 0 107,922 0.0% - -------------------------------------------------------------------------------- Total GLA 361,616 12,584 368,413 3.4% - -------------------------------------------------------------------------------- A standard lease form is used for all mall tenants although amendments have been made in individual cases. Most tenants are required to pay a fixed minimum rent, percentage rent and a pro rata share of expenses such as real estate taxes, common area maintenance, central plant and insurance. A copy of the rent roll for the property is set forth in the Addenda to the report. As summarized in the Addenda to the report, the Neiman Marcus lease extends through 1/31/2014 at a fixed minimum rent of $1,136,875 per annum ($1,043,320 per annum for the original leased area, 104,332 square feet, and $93,555 per annum for the additional 3,590 square feet of space which was added as of September 1991). In addition, Neiman Marcus contributes towards common area maintenance, real estate taxes and central plant. 74 <PAGE> LANDAUER REAL ESTATE COUNSELORS [GRAPHIC OMITTED] LOWER RETAIL GALLERY <PAGE> LANDAUER REAL ESTATE COUNSELORS [GRAPHIC OMITTED] UPPER RETAIL GALLERY <PAGE> LANDAUER REAL ESTATE COUNSELORS [GRAPHIC OMITTED] SKYLOBBY <PAGE> LANDAUER REAL ESTATE COUNSELORS [GRAPHIC OMITTED] 2ND FLOOR <PAGE> LANDAUER REAL ESTATE COUNSELORS [GRAPHIC OMITTED] 3RD FLOOR <PAGE> LANDAUER REAL ESTATE COUNSELORS [GRAPHIC OMITTED] 4TH FLOOR <PAGE> LANDAUER REAL ESTATE COUNSELORS [GRAPHIC OMITTED] 5TH FLOOR <PAGE> LANDAUER REAL ESTATE COUNSELORS [GRAPHIC OMITTED] 6TH FLOOR <PAGE> LANDAUER REAL ESTATE COUNSELORS [GRAPHIC OMITTED] 7TH FLOOR <PAGE> LEGAL DESCRIPTION <PAGE> SCHEDULE A Sublease from Urban Investment and Development Co., as Landlord to UIDC of Massachusetts, Inc., as Tenant dated August 31, 1982 Premises Air rights and appurtenant interests in, upon and over those certain parcels of real estate in the Commonwealth of Massachusetts, County of Suffolk, City of Boston, situated at Huntington Avenue and Stuart and Dartmouth Streets and shown on the plan (the "Plan") entitled "Plan of Property Owned by Massachusetts Turnpike Authority Sublease Air Rights to UIDC of Massachusetts, Inc. (Central Development), Copley Place, Boston Massachusetts", consisting of 6 sheets, dated August 18, 198[Illegible], most recently revised 9/2/92, prepared by Cullinan Engineering Co., Inc., a print of which is attached hereto and incorporated herein by reference and which Plan is to be recorded with a Notice of Sublease with Suffolk County Registry of Deeds, said parcels being bounded and described as follows and as shown on the Plan: First Parcel That portion of the following described parcel lying above elevation 90.00, as shown on sheet 1 of the Plan: Measuring from a point, as shown on sheet 1 of the Plan, at the intersection of the northeasterly sideline of Harcourt Street and the southeasterly sideline of Huntington Avenue, said point having a north coordinate of 491049.72 and an east coordinate of 713555.39 referred to the Massachusetts Coordinate System, thence, N 41(degrees) 41' 32" E, along the southeasterly sideline of Huntington Avenue, a distance of 192.31 feet to a point; thence, NORTHEASTERLY along said southeasterly sideline of Huntington Avenue, by a curve to the right having a radius of 138.92 feet, an arc distance of 26.62 feet to the True Point of Beginning; From said True Point of Beginning, thence NORTHEASTERLY along said southeasterly sideline of Huntington Avenue, by a curve to the right having a radius of 138.92 feet, <PAGE> an arc distance of 18.92 feet to a point of intersection with another curve; thence, NORTHEASTERLY along said southeasterly sideline of Huntington Avenue, by a curve to the right having a radius of 1938.42 feet, an arc distance of 129.39 feet to a point of intersection with another curve; thence, NORTHEASTERLY along the southeasterly sideline of the merge of Huntington Avenue with Stuart Street, by a curve to the right having a radius of 554 feet, an arc distance of 200.60 feet to a point of tangency; thence, N 71(degrees) 59' 45" E, a distance of 6.38 feet to a point; thence, S 27(degrees) 00' 53" E, a distance of 41.67 feet to a point; thence, NORTHEASTERLY along the southeasterly sideline of Stuart Street, by a curve to the right having a radius of 1390.00 feet, an arc distance of 218.60 feet to a point of tangency; thence, N 71(degrees) 59' 45" E, a distance of 82.00 feet to a point of curvature; thence NORTHEASTERLY along the southerly sideline of the intersection of said Stuart Street and Dartmouth Street by a curve to the right having a radius of 90.00 feet, an arc distance of 31.79 feet to a point of intersection with another curve; thence, SOUTHEASTERLY along said southerly sideline of the intersection of Stuart Street and Dartmouth Street by a curve to the right having a radius of 40.00 feet, an arc distance of 47.10 feet to a point of tangency on the southwesterly sideline of Dartmouth Street; thence, S 2(degrees) 17' 35" E, a distance of 221.61 feet to a point; thence, A-2 <PAGE> S 41(degrees)41' 40" W, a distance of 547.11 feet to a point; thence, N 48(degrees) 18' 20" W, a distance of 327.70 feet to a point; thence, N 41(degrees) 41' 40" E, a distance of 5.80 feet to a point; thence, N 48(degrees) 18' 20" W, a distance of 57.30 feet to a point; thence, N 41(degrees) 41' 40" E, a distance of 2.75 feet to a point; thence, N 48(degrees) 18' 20" W, a distance of 20.50 feet to a point; thence, S 86(degrees) 41' 40" W, a distance of 59.46 feet to a point; thence, N 70(degrees) 33' 00" W, a distance of 1.43 feet to a point; and thence, N 03(degrees) 18' 20" W, a distance of 89.54 feet to the True Point of Beginning; Containing 263,087 square feet, more or less, according to the Plan. Second Parcel -- Level 2 Lease Area That portion of the following described parcel from elevation 90.00 to a plane between line K-J at elevation 119.94 and line L-M at elevation 124.48, as shown on sheets 1 and 3 of the Plan: Beginning at point "J", as shown on sheet 3 of the Plan; thence, N 41(degrees) 41' 40" E, a distance of 14.26 feet to point "K"; thence, S 48(degrees) 18' 20" E, a distance of 57.30 feet to point "L"; thence, S 4l(degrees) 41' 40" W, a distance of 5.80 feet to point "M"; thence, N 48(degrees) 18' 20" W, a distance of 8.32 feet to point "C"; and thence, N 58(degrees) 06' 01" W, a distance of 49.70 feet to point "J", the point of beginning; Containing 540 square feet, more or less, according to the Plan. A-3 <PAGE> Third Parcel - Level 2A Lease Area Those portions of the following described parcel from elevation 90.00 to elevation 121.00, as shown on sheets 1 and 3 of the Plan: Beginning at point "F" as shown on sheet 3 of the Plan, said point being on the southeasterly sideline of Huntington Avenue and the northerly most point of the parcel herein described; thence, S 03(degrees) 18' 20" E, a distance of 39.41 feet to point "E"; thence, N 63(degrees) 46' 00" W, a distance of 7.54 feet to point "R"; thence, N 17(degrees) 04' 21" W, a distance of 15.26 feet to point "S"; thence, N 07(degrees) 19' 11" E, a distance of 3.52 feet to point "T"; thence, N 82(degrees) 40' 49" W, a distance of 1.66 feet to point "U"; being on the southeasterly sideline of Huntington Avenue; and thence, NORTHEASTERLY by a curve to the right, having a radius of 138.92 feet, an arc distance of 20.46 feet along said southeasterly sideline of Huntington Avenue to point "F", being the point of beginning; containing 275 square feet, more or less, according to the Plan. Fourth Parcel - Level 2B Lease Area Those portions of the following described parcel from elevation 90.00 to elevation 121.00 and above elevation 145.83, as shown on sheets 1 and 3 of the Plan: Beginning at point "K" as shown on sheet 3 of the Plan, said point being on the southeasterly sideline of Huntington Avenue, and the northerly most point of the parcel herein described; thence, S 03(degrees) 18' 20" E, a distance of 41.58 feet to point "G"; thence, N 63(degrees) 46' 00" W, a distance of 1.34 feet to point "E"; thence, N 03(degrees) 18' 20" W, a distance of 39.41 feet to point "F"; and thence, A-4 <PAGE> NORTHEASTERLY by a curve to the right having a radius of 138.92 feet, an arc distance 1.90 feet along said southeasterly sideline of Huntington Avenue to point "K", being the point of beginning; Containing 47 square feet, more or less, according to the Plan. Fifth Parcel - Level 2C Lease Area That portion of the following described parcel from elevation 90.00 to elevation 117.00 and above elevation 145.83, as shown on sheets 1 and 3 of the Plan: Beginning at point "E" as shown on sheet 3 of the Plan, thence S 63(degrees) 46' 00" E, a distance of 1.34 feet to point "G"; thence, S 03(degrees) 18' 20" E, a distance of 47.96 feet to point "H"; thence, N 70(degrees) 33' 00" W, a distance of 1.27 feet to point "A"; and thence, N 03(degrees) 18' 20" W, a distance of 48.17 feet to point "E", being the point of beginning; Containing 54 square feet, more or less, according to the Plan. Sixth Parcel - Level 3 Lease Area That portion of the following described parcel from elevation 90.00 to elevation 136.50, as shown on sheets 1 and 3 of the Plan: Beginning at point "N" as shown on sheet 3 of the Plan, thence, N 86(degrees) 41' 40" E, a distance of 59.46 feet to point "P"; thence, S 48(degrees) 18' 20" E, a distance of 20.50 feet to point "Q"; S 41(degrees) 41' 40" W, a distance of 17.01 feet to point "J"; thence, A-5 <PAGE> N 58(degrees) 06' 01" W, a distance of 2.33 feet to point "B"; and thence, N 70(degrees) 33' 00" W, a distance of 65.09 feet to point "N", being the point of beginning; Containing 947 square feet, more or less, according to the Plan. There is excepted from the above six (6) parcels the Excepted Portion described below. Excepted Portion The "Excepted Portion" consists of: (a) the Turnpike Area defined in the Sublease and below, including those volumes described in both plan and profile elevation views on said Plan as "Excepted Portion - Turnpike Area," "Excepted Portion Ramp B (relocated)," "Excepted Portion Ramp D, (relocated)," and "Excepted Portion Ramp B and D," (b) the volume described in both plan and profile elevation views on said Plan as "Consolidated Rail Corp. Easement" or "Excepted Portion -- R.R. Easement," and (c) those parts of the Premises lying below the plane which is at an elevation of (i) plus ninety feet (+90') referred to the Massachusetts Turnpike Datum, (ii) minus ten feet (-10') referred to the National Geodetic Vertical Datum and (iii) minus four and 35/100 feet (-4.35') referred to the Boston City Base. As used in the sublease, the following terms have the following definitions: Railroad Easement Area The "Railroad Easement Area" shall refer to the volume described in (b) of the definition of "Excepted Portion," as further described in a Deed of Easement from Massachusetts Turnpike Authority to New York Central Railroad Company dated December 27, 1962 recorded with said Deeds Book 7710 page 182 as affected by Amendment recorded with said Deeds in Book 9154 page 379. Turnpike Area The "Turnpike Area" shall refer to the travelled roadways and ramps within the volumes described in (a) of the definition of "Excepted Portion" above, including, without limitation1 all tunnel structures, of the Massachusetts Turnpike and certain retaining walls and support structures which pertain to such roadways and ramps. Notwithstanding the foregoing, any such support structure which also provides support for any improvement, addition or installation now or hereafter erected or installed in the Premises shall be deemed part of the Premises, subject to the right of the Massachusetts Turnpike Authority to have access to all such support structures pursuant to Section 5.1(c) of the Master Lease. A-6 <PAGE> EXCERPTED GROUND RENT TERMS <PAGE> SCHEDULE B As used in this Schedule, the following terms shall have the following meanings: (i) the "Rent Commencement Date" shall mean December 15, 1978, (ii) the "Rent Increase Date" shall mean the "Commencement of Construction Date" or January 1, 1981, whichever .s earlier, unless extended as herein provided, (iii) the "Commencement of Construction Date" shall mean the date upon which the Tenant will have first entered upon the Demised Portion for the purpose of constructing any of the improvements to be constructed pursuant to the provisions of Article XI or, if earlier, the date upon which the Tenant will have first entered upon the Demised Portion for the purpose of commencing demolition of any improvement or structure now existing thereon pursuant to authority so to demolish given in accordance with the provisons of this lease and shall have moved heavy construction equipment (excluding machinery for boring or other testing equipment) on the site for either of the foregoing purposes, and (iv) "Escrow Agent" shall mean The First National Bank of Boston, a Bank incorporated under the laws of the United States of America having its principal place of business in Boston and authorized to accept and carry out Escrows of the sort herein provided, or its successor agent hereunder. I. RENT FROM THE RENT COMMENCEMENT DATE UNTIL RENT INCREASE DATE A. Upon the execution of this lease, the Tenant has paid the Landlord the sum of S2,750, and the Landlord acknowledges receipt thereof, as rent for the period from the Rent Commencement Date through December 31, 1978. <PAGE> B. Commencing January 1, 1979 and continuing on the first day of each month thereafter through December 1, 1979, the Tenant will pay the Landlord rent at an annual rate of S66,000, payable in equal monthly installments in advance of $5,500. C. On January 1, 1980 the Tenant will pay to the Landlord rent in the amount of One Dollar ($1.00) for the period from January 1, 1980 through the day preceding the Rent Increase Date. II. RENT FROM THE RENT INCREASE DATE THROUGH DECEMBER 14, 2077 A. For the period beginning with the Rent Increase Date and ending March 31, 1981, the Tenant shall pay rent at the annual rate of $1,200,000, payable in equal monthly installments of $100,000 in advance, prorated with respect to any month in which the Rent Increase Date falls. B. For the period beginning with April 1, 1981 and ending August 15, 1981, the Tenant shall pay rent in the amount of $450,000, payable on August 15, 1981 in arrears. C. On the fifteenth day of February, 1982, the fifteenth day of August, 1982 and on the fifteenth day of each succeeding February and August, through February 15, 2002, the Tenant shall pay to the Landlord the sum of $600,000, being onehalf the annual rent of $1,200,000, payable semi-annually in arrears, except as otherwise provided in Section IV C of this Schedule B. -2- <PAGE> D. In addition, on February 15, 2002, the Escrow Agent shall deliver to the Landlord all of the bonds and interest there-for (unless Landlord will have earlier received such bonds and interest pursuant to the provisions of Section IV of this Schedule B) then held by it on account of rent for the period from February 15, 2002 through December 14, 2077. E. On January 1, 2003 and the first day of each January thereafter through January 1, 2077, the Tenant shall pay to the Landlord One Dollar ($1.00) in full payment of the balance of the rent for the period from February 15, 2002 through December 14, 2077. III. TENANT'S RIGHT OF CANCELLATION Tenant may cancel this lease effective no later than March 31, 1981 if (i) Tenant will have given notice of its desire to exercise such right of cancellation by mailing such notice to Landlord and to the Escrow Agent pursuant to the provisions of Section 14.4 of this lease, no later than February 28, 1981 and (ii) the Commencement of Construction Date has not occurred prior to the date such notice is given. If such two conditions have been met, this lease will terminate on the last day of the calendar month next following the giving of such notice, and the parties will have no further rights or obligations hereunder thereafter, except as provided in Paragraph E of Section IV of this -3- <PAGE> Schedule B. The dates set forth herein are subject to extension under certain circumstances described in Section 14.12 of the lease. IV. SECURITY DEPOSIT A. At any time and from time to time hereafter, but in any event not later than the "Commencement of Construction Date" or April 1, 1981, whichever is earlier, the Tenant shall acquire and deposit with the Escrow Agent United States Treasury Bonds 7-5/8% due February 15, 2007, callable not earlier than February 15, 2002, paying interest at an annual rate of not less than $1,200,000, and having a total par value at maturity of not less than $15,800,000, to secure performance of its obligations hereunder. B. The Escrow Agent shall receive and hold such bonds and apply the interest thereon and the principal thereof as follows: The Escrow Agent shall: (i) from the interest received thereon pay to Landlord $450,000 on the fifteenth day of August, 1981, and thereafter $600,000 on the fifteenth day of each February and August after August 15, 1981 through February 15, 2002 on account of the Tenant's rent obligations as set forth in Section II C of this Schedule B, except as otherwise provided in Section IV B(iii), IV C and IV D of this Schedule B. -4- <PAGE> (ii) pay to the Tenant any interest thereon received by it in excess of the total of the amounts payable by it to Landlord pursuant to the foregoing clause (i) and payable to itself for services under subparagraph F below, such payment to be made on each February 15 and August 15, commencing after delivery of such bonds and ending February 15, 2002. (iii) upon maturity of such bonds, or upon its earlier receipt of the notice provided for in Paragraph IV C of this Schedule B, deliver such bonds in kind (or the proceeds thereof at maturity), with all interest thereon not otherwise paid or payable pursuant to (i) and (ii) above and Paragraph E below, to the Landlord. C. At any time after the deposit of such bonds with the Escrow Agent, the Landlord may, by written notice to the Escrow Agent, approved by the Governor, demand and receive from the Escrow Agent all of such bonds then received and held by it as Escrow Agent hereunder, together with any interest thereon then held by the Escrow Agent and not otherwise distributed pursuant to B(i), (ii), or Paragraph E hereof. Upon the delivery of such bonds and interest pursuant to this Schedule B, all rent otherwise payable hereunder shall be forgiven and the rent payable hereunder shall be reduced to rent at the rate of $1.00 per year, payable in arrears on the first day of each January thereafter for the remainder of the term hereof, with a pro rata adjustment to be made with respect to the then current year to eliminate any double payment of rent or interest, or double receipt thereof, by either party. -5- <PAGE> D. If this lease shall expire or be terminated for any reason before its agreed expiration date (other than in accordance with Section III of this Schedule B), the Escrow Agent will deliver to the Landlord all of such bonds then held by it together with any interest thereon remaining undistributed. E. If the Tenant shall exercise its Right of Cancellation, as provided in Section III of this Schedule B, the Escrow Agent shall distribute to Tenant the bonds and interest then remaining undistributed, if any, then held by it as Escrow Agent. F. For its services hereunder the Escrow Agent will be entitled to a fee at the annual rate of $2,000 payable semi-annually in arrears which it may deduct from interest received by it. Upon termination of the escrow the Escrow Agent will be entitled to an additional termination fee of $10,000. It may deduct this amount from interest received by it or from the proceeds of payment or sale of such bonds then held by it or the Escrow Agent may require that such fee be paid to it by the party to whom the bonds held by it in escrow are to be delivered as a condition precedent to its delivery to such party of such bonds. If the original or any successor Escrow Agent shall fail or cease to serve as such, the Landlord shall appoint a successor Escrow Agent, subject to the reasonable approval by the Tenant. The Assets held by the former Escrow Agent shall be delivered to its successor, which shall assume all of the rights and duties of its predecessor. Upon such delivery -6- <PAGE> such successor shall deliver such receipts and such instruments setting forth its assumption of said agreement to carry out the obligations of the Escrow Agent hereunder as may reasonably be required by the predecessor Escrow Agent, the Landlord, the Tenant or any one or more of them. -7- <PAGE> PROFESSIONAL QUALIFICATIONS <PAGE> LANDAUER REAL ESTATE COUNSELORS - -------------------------------------------------------------------------------- Professional Qualifications JAMES C. KAFES, MAI, CRE EXPERIENCE: Landauer Associates, Inc., New York, NY (since 1986) Division Manager/Executive Managing Director in Charge of National Valuation and Technical Services, Member of the Management Committee, and General Manager of the New York Valuation and Technical Services Division. Valuation and real estate counseling on major urban properties and portfolios, including financial and feasibility analyses, appraisal reviews, fairness opinions and independent fiduciary services. Miller & Kafes Associates, Inc. (1972-1986) Principal. Valuations, market studies, investment analyses and counseling services on major commercial developments nationwide and in the Caribbean. James E. Gibbons Associates (1970-1972) Assistant Director. Real estate valuations and counseling services. National Bank of North America (1969-1970) Chief Appraiser. Market valuations and analysis of investment opportunities. General Services Administration (1962-1968) Economic analyses, highest and best use studies, market valuations. PROFESSIONAL ACTIVITIES: MAI: Appraisal Institute CRE: American Society of Real Estate Counselors Has served on national committees of the Appraisal Institute and ASREC since 1971, including current service as a board member and past service as Editor-in-Chief and Chairman of the Editorial Board of The Appraisal Journal, published quarterly by the Appraisal Institute. Member: Board of Directors, RCC North America, Inc. Roundtable of Advisors, Murray H. Goodman Center for Real Estate Studies, Lehigh University The Real Estate Board of New York, Inc. CERTIFICATION: Currently certified in the Appraisal Institute's voluntary program of continuing education for its designated members. EDUCATION: BS, MBA, Lehigh University <PAGE> LANDAUER REAL ESTATE COUNSELORS - -------------------------------------------------------------------------------- Professional Qualifications MICHAEL J. PATIS, FRICS EXPERIENCE: Landauer Associates, Inc., New York, NY (since 1986) Managing Director, Valuation and Technical Services Division General counseling, valuation (including portfolio valuations), evaluation and investment analyses of major retail, commercial, industrial and residential real estate nationwide. Miller & Kafes Associates, Inc., New York, N.Y. (1978-1986) Vice President. Valuation and evaluation of major investment-grade retail, commercial, industrial and residential real estate throughout the United States together with computer applications and analyses. Town & City Properties PLC, London, England (1970-1978) Management/Development Surveyor. Management, valuation and development of major investment-grade real estate for major national property company, throughout the United Kingdom. Experience variously included property management of major commercial real estate portfolio (including general management, valuation, lease negotiations and legal matters) and development of major commercial properties (including project feasibility analyses, planning procedures, project management, leasing, financing and general legal matters). L.W. Ellwood & Co., Ridgewood, N.J. (1969) Appraisal Assistant. Commercial real estate consulting, valuation and evaluation, nationwide. PROFESSIONAL ACTIVITIES: Member: Fellow of the Royal Institution of Chartered Surveyors (FRICS), since 1985. Associate of the Royal Institution of Chartered Surveyors (ARICS), 1972-1985 Associate Member: Appraisal Institute EDUCATION: Diploma in Surveying (Estate Management), City of Leicester Polytechnic, Leicester, England - 1969 Appraisal Institute courses successfully completed: Appraisal Principles, Basic Valuation Procedures, Capitalization Theory and Techniques - Parts I, II & III, Valuation Analysis and Report Writing, Investment Analysis and Standards of Professional Practice. <PAGE> LANDAUER REAL ESTATE COUNSELORS - -------------------------------------------------------------------------------- Professional Qualifications DOUGLAS W. PORT WAY EXPERIENCE: Landauer Associates, Inc. New York, NY (since 1996) Director, Valuation and Technical Services Division General counseling, valuation, evaluation and investment analyses of major retail, commercial, industrial and residential real estate nationwide. CoreStates Financial Corp., Philadelphia, PA (199 1-1995) Vice President, Real estate valuation and review for lender financing, disposition, workout and asset management. Landauer Associates, Inc. (1987-1991) Assistant Vice President, Valuation and Technical Services Division. General counseling, valuation, evaluation and investment analyses of major retail, commercial, and industrial real estate nationwide. Miller & Kafes Associates, Inc., New York, NY (1984-1987) Appraisal and valuation of retail, commercial, hotel and industrial realty throughout the United States together with computer applications and analyses. PROFESSIONAL ACTIVITIES: Candidate: Appraisal Institute EDUCATION: Bachelor of Arts, Fordham College, Fordham University, New York - 1983 Appraisal Institute courses successfully completed: Appraisal Principles, Valuation Procedures, Capitalization Theory and Techniques - Parts I, II, Advanced Applications, and Standards of Professional Practice. <PAGE> LANDAUER REAL ESTATE COUNSELORS - -------------------------------------------------------------------------------- Professional Qualifications GREGORY A. CERVIERI EXPERIENCE: Landauer Associates, Inc., New York, NY (since 1995) Associate, Valuation and Technical Services Division Real estate consulting, emphasizing appraisals of commercial properties and feasibility studies for office and retail properties. Barenholtz & Farrell, New York, NY & Southport, CT (1992-1994) Appraiser. Real estate counseling services, including property valuation, management consulting, portfolio analysis and transaction counseling. JC Contracting, Fort Lee, NJ (1988-1992) Principal. Independent contractor responsible for sales development, bidding and job organization of commercial contracting projects and home construction, repair and renovation. Local Union #6, Jersey City, NJ (1986-1991) Carpenter/Foreman. Worked on major projects in Manhattan and Bergen, Hudson and Essex Counties in New Jersey, including Newark Airport's Terminal C, office buildings, shopping centers and hotels. Coordinated jobs and managed a crew of twenty-eight carpenter/journeymen. PROFESSIONAL ACTIVITIES: MAI Candidate - Appraisal Institute EDUCATION: Master of Science in Real Estate; New York University Real Estate Institute, New York, NY Bachelor of Arts in Biology and Psychology; University of Rochester, Rochester, NY <PAGE> [Letterhead of LANDAUER REAL ESTATE COUNSELORS] July 17, 1997 Mr. David Martin Investment Manager Metropolitan Life Insurance Company Real Estate Investments 5420 LBJ Freeway, Suite 1310 Dallas, TX 75240 Re: Retail, Offices & Garages at Copley Place, Boston Dear Mr. Martin: In accordance with your instructions we have estimated the market value (as defined by the Uniform Standards of Professional Appraisal Practice) of the leasehold interest, as of June 30, 1997, in the portions of Copley Place, Boston, MA which are listed below: 1. Approximately 368,413 square feet of enclosed retail space including a 107.922 square foot Neiman Marcus store and approximately 260,491 square feet of small store space. The center is approximately 96.6% occupied with approximately 93 tenants; 2. Approximately 845,000 square feet (NRA) of office space in four towers with approximately 37 tenants; 3. The Central Parking Garage containing approximately 830 spaces; 4. The Dartmouth Parking Garage containing approximately 698 parking spaces. The residential component and the two hotels are excluded from the appraisal although, certain common area and central plant contributions by the hotels were included in the analysis. This letter is to preliminarily confirm the results of our analyses prior to the issue our self-contained appraisal report which is to follow. In accordance with the Uniform Standards of Professional Appraisal Practice (USPAP), this letter report constitutes a "Restricted" report and may be relied upon only by Metropolitan Life insurance Company. The values reported are subject to the summaries of assumptions and cash flows which were previously provided and to the assumptions, limiting conditions and other analyses which will be contained in our self-contained report which is to follow, our conclusions cannot be understood properly without reference to these items. <PAGE> LANDAUER REAL ESTATE COUNSELORS Mr. David Martin July 17, 1997 Metropolitan Life Insurance Company Page 2 The function of the appraisal is to assist you in connection with the refinancing of the property. In the course of the assignment, we have: 1. Inspected the property and its environs; 2. Reviewed the property's relevant physical, functional, locational and legal characteristics. As a result of this, amongst other things, it was concluded that the highest and best use of the property is "as developed"; 3. Considered local economic conditions and trends along with the relevant real estate market conditions and trends; 4. Analyzed the operating performance of the property including, where appropriate, the historical operating data, the owner's budgets, comparable market data and Landauers knowledge of both comparable properties and general industry-wide trends; 5. Developed valuation assumptions and prepared cash flow projections, as a basis for discounted cash flow analyses; 6. Estimated the market value of the leasehold interest. Primary emphasis has been placed upon the income approach to value, in general, and the discounted cash flow technique in particular, reflecting the actions of typical buyers and sellers of properties such as this. The cost approach was not be employed as it does not lend itself to properties of this physical, legal and economic complexity and is not employed by typical buyers and sellers. The market approach suffers from similar limitations although, relevant transactions have been reviewed to gauge the general reasonableness of the valuation assumptions employed and the resultant value conclusions. Based upon the foregoing, we have estimated that the market value of the leasehold interest in the referenced portions of Copley Place, Boston, MA, as of June 30, 1997, was: THREE HUNDRED FIFTEEN MILLION DOLLARS ($315,000,000) Allocated as follows: Retail Portion $147,000,000 Office Portion $122,000,000 Garage/Hotel Common area portion $ 46,000,000 <PAGE> LANDAUER REAL ESTATE COUNSELORS Mr. David Martin July 17, 1997 Metropolitan Life Insurance Company Page 3 These allocations have been provided only to identify the reLative contributions of the various components to the aggregate value; they do not necessarily reflect the individual values of the components as separate entities. It should be emphasized that, at the request of the client, the valuation has been performed over an accelerated time frame and that, following the initial provision of property data, only limited assistance was received from the property ownership in response to various queries relating to the operations and leasing of the property. In certain instances, therefore, where answers to various operating and leasing questions were not provided, we have made what we believe to be reasonable assumptions based upon our previous knowledge of the property, which was appraised by Landauer in 1992, and general industry-wide trends. We appreciate the opportunity to have been of service to you in connection with this assignment. Sincerely, LANDAUER ASSOCIATES, INC. /s/ James C. Kafes /s/ Michael J. Patis James C. Kafes, MAI CRE Michael J. Patis, FRICS Executive Managing Director Managing Director /s/ Douglas W. Portway /s/ Gregory A. Cervieri Douglas W. Portway Gregory A. Cervieri Director Associate <PAGE> LANDAUER REAL ESTATE COUNSELORS Mr. David Martin July 17, 1997 Metropolitan Life Insurance Company Page 4 ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report has been made with the following general assumptions: 1. Title to the property is assumed to be good and marketable unless otherwise stared. No responsibility is assumed for the legal description or any legal matter. The property is considered to be under responsible ownership, management, subject to responsible leasing efforts, and free of all liens and encumbrances except as specifically discussed herein. 2. The property is appraised free and clear of any or all liens or encumbrances unless otherwise stated. 3. The definition of value and the other definitions and assumptions on which the analyses are based are set forth in appropriate sections of this report and are to be part of these General Assumptions as if included here in their entirety. 4. All engineering is assumed to be correct. The sketches, plot plans and drawings included in this report are included only to assist the reader in visualizing the property. 5. It is assumed that there are no hidden or unapparent conditions in the property, soil, sub-soil, or structures which would render the properties more or less valuable. No responsibility is assumed for such conditions or for arranging for engineering which would be required to discover them. All materials used in the structures on the appraised property are assumed to be free of asbestos, toxic materials. Or any other potential health risks unless otherwise so stated and identified herein. No opinion is expressed on structural or mechanical conditions. 6. This appraisal was prepared without an engineer's building inspection report. Without such information we cannot accurately project the impact any major expenditures would have on the value of the property. Accordingly, the estimated value reported herein reflects the total value of the subject as if unaffected b~ major expenditures, which include capital improvements and deferred maintenance. If major expenditures exceed the capital improvements assumption utilized in our cash flow assumptions, it will be necessary to deduct the additional costs from our value conclusion. 7. It is assumed that there is full compliance with all applicable federal, state and local environmental regulations and laws, that all applicable zoning and use regulations and restrictions have been complied with, unless a nonconformity has been stated. defined and considered in the appraisal report. 8. It is assumed that all required licenses, certificates of occupancy, legislative or administrative consents from any local or national governmental or private entity or organization have been <PAGE> LANDAUER REAL ESTATE COUNSELORS Mr. David Martin July 17, 1997 Metropolitan Life Insurance Company Page 5 or can be obtained or renewed for any use on which the value estimate contained is this report is based. 9. It is assumed that the utilization of the land and/or improvements is within the boundaries or property lines of the property described herein and that there is no encroachment or trespass unless noted within the report. 10. The information furnished to the appraisers by the client and others, as contained in this report, is considered to be from reliable sources and where feasible, has been verified; however, no responsibility is assumed for the accuracy of this information. Our estimate of value, reported herein, has relied upon property data provided by Urban Retail Properties Co. including allocations of income and expenses between the retail, office, parking, hotel, central plant and other components of the complex. The appraisers reserve the right to modify the value conclusion should the accuracy of that information change subsequent to delivery of this report. 11. At the request of the client, the valuation has been performed over an accelerated time frame and, following the initial provision of property data, only limited assistance was received from the property ownership in response to various queries relating to the operations and leasing of the property. In certain instances, therefore, where answers to various operating and leasing questions were not provided, we have made what we believe to be reasonable assumptions based upon our previous knowledge of the property, which was appraised by Landauer in 1992, and general industry-wide trends. 12. Tenant lease data utilized in the cash flow projections was based upon detailed computerized lease abstracts provided by the property owner, verified against a sampling of lease abstracts prepared by the client's attorney. 13. It is assumed that all and any costs associated with tenant improvements and lease commissions for all leases which commenced prior to the date of value have been paid in full prior to the appraisal date, unless otherwise noted. 14. This appraisal is based upon and supported by available factual economic and market data and our interpretation of market conditions as of the date of inspection of the property. Although we believe that our assumptions and forecasts are well supported, we cannot be held responsible for unforeseeable events which may alter market conditions prior to the effective date of the opinion of value. 15. The Americans With Disabilities Act ("ADA") became effective January 26, 1992. Landauer has not made a specific compliance survey and analysis of the subject property to determine whether or not they are in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the <PAGE> LANDAUER REAL ESTATE COUNSELORS Mr. David Martin July 17, 1997 Metropolitan Life insurance Company Page 6 requirements of the ADA, could reveal that the property is not in compliance with one or more requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible non-compliance with the requirements of ADA in estimating the value of the property. The appraisal report has been made with, and is subject to, the following general limiting conditions: 1. Use and disclosure of the contents of this report is governed by the bylaws and regulations of the Appraisal Institute. In accordance with the Uniform Standards of Professional Appraisal Practice (USPAP), this letter report constitutes a "Restricted" report and may be relied upon only by Metropolitan Life Insurance Company. The values reported are subject to the summaries of assumptions and cash flows which were previously provided and to the assumptions, limiting conditions and other analyses which will be contained in our self-contained report which is to follow; our conclusions cannot be understood properly without reference to these items. 2. Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraiser and, in any event, only with proper written qualification and only in its entirety. 3. The appraisers herein, by reason of this appraisal report, are not required to give further consultation, testimony or to be in attendance in court or at any governmental or other hearing with reference to the property without prior arrangements having been made relative to such additional employment. 4. The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and buildings must not be used in conjunction with any other appraisal and are invalid if so used. 5. Special Limiting Conditions may be stated in various portions of this report, and are to be carefully noted in accepting this appraisal. <PAGE> LANDAUER REAL ESTATE COUNSELORS Mr. David Martin July 17, 1997 Metropolitan Life Insurance Company Page 7 CERTIFICATION The undersigned certify to the best of their knowledge and belief that: The statements of fact contained in this appraisal report and upon which the analyses, opinions and conclusions expressed herein are based are true and correct. This report is made subject to the Assumptions and Limiting Conditions in this report, which set forth all of the limiting conditions (imposed by the terms of the assignment or by the appraisers) affecting the analyses, opinions and conclusions contained in this report. Employment and compensation for making this appraisal are in no way contingent upon the values reported, and we certify that we have no direct or indirect current or prospective personal interest or bias in the subject matter of this appraisal report or to the parties involved. No one other than the undersigned prepared the analyses, opinions or conclusions concerning real estate that are set forth in this report. This report has been made in conformity with the Uniform Standards of Professional Practice and in accordance with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to reviews by its duly authorized representatives. James C. Kafes is currently certified under the Continuing Education Program of the Appraisal Institute. During the course of this assignment, the retail portion of the subject property was inspected by Michael J. Patis on June 24, 1997 and the office and garage portions were inspected by Douglas W. Portway on July 16, 1997. Michael J. Patis previously inspected the entire property on December 19, 1991. James C. Kafes and Gregory A. Cervieri have not inspected the property. /s/ James C. Kafes /s/ Michael J. Patis James C. Kafes, MAI, CRE Michael J. Patis, FRICS Executive Managing Director Managing Director /s/ Douglas W. Portway /s/ Gregory A. Cervieri Douglas W. Portway Gregory A. Cervieri Director Associate DISCLAIMER The appraisal report appearing below is addressed to NationsBank of Texas, N.A. ("NationsBank"). NationsBank does not represent that the presumptions or conclusions in the appraisals are relevant or accurate and does not endorse the conclusions set forth in the appraisal. Any value, presumption, or conclusion regarding the property or properties appraised in the report must be verified independently of NationsBank. This appraisal has not been approved by NationsBank and is being transmitted without representation and warranty of NationsBank. <PAGE> - -------------------------------------------------------------------------------- APPRAISAL REPORT The Circles Apartments 2260-98 N. Main Street Salinas, California 93906 and North Plaza Apartments 2310-2348 N. Main Street Salinas, California 93906 Effective Date of Appraisal: September 28, 1996 APPRAISED FOR: NationsBank of Texas, N.A. Real Estate Risk Assessment 901 Main Street, 51st Floor Dallas, Texas 75202-3714 APPRAISED BY: ROBERT SAIA & ASSOCIATES 313 Avalon Avenue Santa Cruz, California 95060 - -------------------------------------------------------------------------------- <PAGE> ROBERT SAIA, MAT & ASSOCIATES Property Appraisers & Consultants - -------------------------------------------------------------------------------- September 28, 1996 Mr. Gary D. Long Real Estate Risk Assessment NationsBank of Texas, N.A. 901 Main Street, 51st Floor Dallas, Texas 75202-3714 Dear Mr. Long: As requested, Robert Saia & Associates has completed a market value "as is" appraisal of both the 319-unit apartment complex known as "The Circles," located at 2260-98 N. Main Street and the 120-unit apartment complex known as "North Plaza," located at 2310-48 N. Main Street, in Salinas, California. As instructed, these complexes have been appraised together as one complex (i.e., 439 units). The property rights appraised are those of the leased fee interest. As of the appraisal date, there are 308 occupied and 11 vacant units in "The Circles" and 115 occupied and 5 vacant units in "North Plaza" (3.6% vacancy rate). All but approximately 80 units are on short-term leases (less than one year), thus there is no leasehold or leased fee bonus values to consider. In other words, the fee simple and leased fee values are the same. The function of this appraisal is to aid in proper underwriting, loan classification and/or disposition of the subject property in conjunction with a pending portfolio purchase that includes the subject property. The effective date of the appraisal is September 28, 1996, the first inspection date of the property. This report was prepared as a Complete Appraisal, Summary Report" following generally accepted and established appraisal practices that comply with the Uniform Standards of Professional Appraisal Practice (USPAP) and also in accordance with the NationsBank Appraisal/Evaluation Guidelines for Appraisers. As instructed, the cost approach has been omitted. Although the cost approach has very little relevancy in the appraisal of apartment complexes in this area, its omission may be considered by some to invoke the Departure Provision. The Limiting Conditions and Assumptions contained at the conclusion of this report are a vital part of the appraisal. There are no extraordinary assumptions that affects the appraisal. The market value estimate is based on an exposure time of four months. Based on our analysis and investigation, as discussed in the attached summary appraisal report, the Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 <PAGE> Page 2 Mr. Gary Long Market Value "As Is" of The Circles Apartments and North Plaza Apartments, as of September 28, 1996, is as follows: -------------------------------------------------------------------- TWENTY ONE MILLION DOLLARS ($21,000,000) -------------------------------------------------------------------- The above is the value of the real estate only. Personal property value is nominal, and plays no significant role in the operation of the apartments. If you should have any questions, please contact our office. Respectfully Submitted /s/ Robert Saia Robert Saia, MAI OREA Cert. #AG003191 (exp. 12/7/96) Robert Saia & Associates 3)3 Avalon Avenue Santa Cruz, CA (408) 458-9095 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA TABLE OF CONTENTS Summary of Salient Facts ................................................... 1 Purpose of the Appraisal ................................................... 3 Function of the Report ..................................................... 3 Valuation Date ............................................................. 3 Property Right Appraised ................................................... 4 Location and Property Identification ....................................... 4 Property History & Ownership ............................................... 4 Project Overview ........................................................... 4 The Extent of the Appraisal Process ........................................ 5 Competency Statement ....................................................... 7 Regional Description ....................................................... 8 City of Salinas ............................................................ 19 Salinas Apartment Market ................................................... 22 Neighborhood Description ................................................... 23 Site Analysis .............................................................. 24 Current Taxes & Assessments ................................................ 26 Improvement Description .................................................... 29 Highest and Best Use Analysis .............................................. 32 The Appraisal Process ...................................................... 34 Income Capitalization Approach ............................................. 35 Sales Comparison Approach .................................................. 54 Reconciliation of the Value Estimates ...................................... 64 Marketing Period Estimate .................................................. 65 Exposure Period Estimate ................................................... 65 Allocation of F,F&E ........................................................ 66 Assumptions and Limiting Conditions ........................................ 68 Certification of Appraisal ................................................. 71 ADDENDA Photographs of the Subject Property Maps Floor Plans Apartment Building Sales Sheets Rent Roll and Operating Statements Qualifications Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 <PAGE> The Circle & N. Plaza Apartments. Salinas. CA SUMMARY OF SALIENT FACTS - -------------------------------------------------------------------------------- CLIENT: NationsBank PROJECT NAME: The Circles Apartments/North Plaza Apartments NO. OF UNITS: 439 ADDRESS: 2260-98 & 2310-48 N. Main Street, Salinas, CA LOCATION: North Salinas A.P.N.: 253-111-014,015 & 253-121-025 THOMAS BROS. MAP: T.B. 225 A-1 (Monterey County) CENSUS TRACT NO.: 105.00 ZONING: R-H-2.3 (High Density Residential District) RENT CONTROL: None (No pending) HIGHEST & BEST USE: -As improved... existing apartments -As vacant... high density residential development PROPERTY RIGHTS APPRAISED: Leased Fee Interest SALE HISTORY OVER PAST 5 YEARS: None CURRENT OWNERSHIP: Betty O. Thysen Trust UTILITIES: Municipal services (water, electricity and sewer) are available and connected. LAND AREA: 17.23 acres SITE DENSITY: 18.51 units per net acre FLOOD ZONE: Zone B per Panel #060202- 0001 D (11/4/81) TOTAL # RENTABLE UNITS 319-The Circles + 120-North Plaza 439; an additional unit (a lbr-1ba 753 sf plan) is used as a maintenance/storage room and is unavailable for rent. YEAR BUILT: 1979-83 & 1986 NET RENTABLE BUILDING AREA (sf): 274,885 sf plus 123,400 sf = 398,285 sf COMMON AREA AMENITIES: Security gated entrances, lawn areas, asphalt drives, concrete walks, 2 swimming pools, 1 jacuzzi, 1 exercise room, 1 racquetball court, 2 tennis courts, 4 laundry rooms (14'x 21' )/asphalt drives, concrete walks, 2 playground areas. OCCUPANCY CHARACTERISTICS: No. of Vacant Units: 11-The Circles + 5-North Plaza = 16 total units No. of Pending Evictions: 5 Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 1 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA ACTUAL NUMBER OCCUPIED UNITS: on 9/28/96 and OCCUPANCY RATE: 323(96.4%) PROJECTED AVERAGE OCCUPANCY for the YEAR ENDING 1996: 96-97.0% (no significant. changes anticipated over next four months) GROSS ACTUAL REVENUE as reported for 1995: $3,024,558 (includes "other" income) ACTUAL MONTHLY RENTAL INCOME as reported as of 9/28-96: $295,339 (nic laundry and "other") STABILIZED NET INCOME EST. as of APPRAISAL DATE: $1,873,800 EST. EXPOSURE and MARKETING TIME: 2-6 months marketing, 4 month exposure CONDITIONS TO APPRAISAL: No unusual conditions. Reference is made to Assumptions & Limiting Conditions in Addenda ================================================================================ MARKET VALUE "as is": $21,000,000 September 28, 1996 (4 month exposure period) ================================================================================ Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 2 <PAGE> PURPOSE OF THE APPRAISAL ================================================================================ The purpose of this appraisal is to estimate the market value "as is" of the fee interest for the real estate only. "Market Value," as used in this appraisal, is defined as "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: o Buyer and seller are typically motivated; o Both parties are well informed or well advised, each acting in what he considers his own best interests; o A reasonable time is allowed for exposure in the open market; o Payment is made in terms of cash in U.S. dollars, or in terms of financial arrangement comparable thereto; and, o The price represents the normal consideration for the property sold unaffected by special or creative financing or sale concessions granted by anyone associated with the sale." (*Source: Office of the Comptroller under 12 CFR, Part 34, Subpart Appraisals, 34.42 Definitions [f]) "Market value `as is' " means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date of inspection.." FUNCTION OF THE APPRAISAL ================================================================================ The function of this appraisal is for the exclusive use of NationsBank, its subsidiaries, and/or affiliates, for loan underwriting purposes in conjunction with a portfolio purchase that includes this property. It may be used in connection with the acquisition, disposition and financing of the sale of the property. VALUATION DATE ================================================================================ The date of valuation is September 28, 1996. This is the date of the last property inspection. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 3 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA PROPERTY RIGHTS APPRAISED and DEFINED ================================================================================ The unencumbered fee simple estate of the property has been valued. This ownership interest is defined as: "Absolute Ownership Unencumbered by any other interest or estate; subject only to the limitations of eminent domain, escheat, police power, and taxation". Leases of seven to twelve months are considered short in duration and do not create any favorable leaseholds by the tenants. Technically speaking, the leased fee interest is being valued, although a percentage of the rental units are on a month-to-month basis. Because of the nature of a short term lease, as well as a strong correlation between contract and market rent, the value estimated for the subject property is essentially reflective of the fee simple interest. IDENTIFICATION and LOCATION OF SUBJECT PROPERTY ================================================================================ The subject property is north of E. Bolivar Street and south of Russell Road on the east side of N. Main Street in the "North Salinas" section of the city. "The Circles Apartments" are located at 2260-98 N. Main Street, and "North Plaza Apartments" are at 2310-48 N. Main Street within the City of Salinas, California, 93906. "The Circles" consists of two separate and distinct parcels described by the Monterey County Assessor's Office as 253-111-014 and 253-111-015. "North Plaza" consists of one parcel described by the Monterey County Assessor's Office as 253-121-025. A legal description is included in the preliminary title report which is made a part of this appraisal. PROPERTY HISTORY and OWNERSHIP ================================================================================ Title to the property is vested in: Betty O. Thysen Trust THE CIRCLES APARTMENTS & NORTH PLAZA APARTMENTS-OVERVIEW ================================================================================ The Circles Apartments is a 319 unit apartment complex located within a twenty (20) building design layout on 17.23 acres. Circles Apartments is the largest apartment complex north of U.S. 101 Freeway in Salinas. "Circles" was constructed over a four (4) year period beginning in 1979. One additional unit (a 1br/1ba 753 sf plan) is used as a maintenance and storage room. All units are either one or two bedroom plans. North Plaza is a 120-unit apartment complex located within a twenty-four (24) building design layout on 6.087 acres. "North Plaza" was constructed in 1986 and shares an access over its southerly boundary line with "The Circles" complex. Unit types consists of both one story one bedroom plans or two-story townhouse style three bedroom two bathroom plans. Access to The Circles is from three (3) different areas: the main access is from N. Main Street; a rear access is from Perez Street; a third access is from a shared asphalt paved street also used by residents of North Plaza. North Plaza has only one access: it is the shared street along its southerly boundary line with The Circles. All apartment units in both developments are provided with one carport. There are an Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 4 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA additional 176 uncovered parking spaces that are available in The Circles; there are an additional 125 uncovered spaces available in North Plaza. Amenities offered by The Circles Apartments include lawn-greenbelt areas, two swimming pools, one Jacuzzi, one exercise room, one racquetball court, two tennis courts, and four laundry rooms (14' x 21'). North Plaza Apartments has approximately one acre of its total area devoted to asphalt paved access that is shared with The Circles Apartments. The resulting high density does not allow for many amenities as found in The Circles Apartments. In addition to the asphalt paved streets and greenbelt areas, there are only two children's playgrounds. There are no swimming pools located exclusively within the North Plaza Apartments. All of the units in The Circles and North Plaza have fireplaces. Utilities provided by the landlord include water, trash removal, sewer, and basic cable television. Each of the twenty (20) buildings in The Circles is provided with a 250-gallon hot water heater. Each of the individual apartments in North Plaza are served with a 30-gallon hot water heater. Both The Circles Apartments and North Plaza Apartments are served by an office manager's building located just past the security entrance gates fronting to N. Main Street. This building is located adjacent to one of the swimming pools and contains a gross building area of 1,407 square feet. The basic structure is wood frame with exterior stucco finish over a concrete slab foundation. Architectural design is considered contemporary. The interior is configured with three (3) separate office rooms, a full kitchen, and a large open reception room dominated by a large fireplace with a brick hearth. Ceiling is wood-beam cathedral-like with two custom ceiling fan fixtures. There are also men's and women's restrooms. The building makes good use of large glass panels providing a vista of the adjacent pool and deck areas. In conclusion, the overall exterior appearance of the subject property (both The Circles Apartments and North Plaza Apartments) is considered above average to good and reflective of other more recently constructed and competing high density residential developments within the North Salinas area. The reader is directed to the Improvement Description of this report for further comments regarding the individual units and their respective interior improvements. THE EXTENT of THE APPRAISAL PROCESS ================================================================================ The extent of the appraisal process encompasses the necessary research and analysis to prepare a report in accordance with the intended use, the Uniform Standards of Professional Appraisal Practice as set forth by the Appraisal Foundation, and the Standards of Professional Practice of the Appraisal Institute. With regard to the valuation of the subject property, the following steps were involved: Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 5 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA 1. The property was last inspected and photographed on September 28, 1996. This date is considered the "effective date" of this appraisal. 2. The overall exterior sites (The Circles Apartments and North Plaza Apartments) were personally inspected by the appraiser. The on-site office manager provided interior access to a representative sample of individual units within the developments. The resulting site and improvement descriptions were based on my inspection as well as on conversations with Lincoln Property Management representatives. 3. Regional, county, city, and neighborhood data were based on information taken from a variety of sources, including, but not limited to, City of Salinas Planning Department, Monterey County Tax Assessor's Office, City of Salinas Public Works Department, City of Salinas Building Department, the Association of Monterey Bay Area Governments, Salinas Chamber of Commerce, independent private studies, newspaper articles and my own files. 4. Research and investigation of current market conditions for apartment properties in the city of Salinas. 5. Interviews with brokers, appraisers, property owners and/or managers and lenders, as well as the relevant public agencies as described above. 6. The highest and best use was formed by information gathered in the previous steps. 7. After assembling and analyzing information defined in this extent of the appraisal process, final estimates of market value by each applicable valuation method were made. 8. And, finally, a single value estimate from within the concluded value by each approach was made. Greatest weight was given to those approaches felt to have the most influence on the purchasing decision. Unless otherwise stated in the report, the existence of hazardous materials, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser is not qualified, however, to detect such substances. The presence of toxic or caustic substances or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there are not such materials on or in the property that would cause a loss in value. Any such findings which would indicate otherwise could result in a decrease in value. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 6 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA COMPETENCY STATEMENT ================================================================================ In accordance with the competency provision in the USPAP, the appraiser certifies that his education, experience and knowledge is sufficient to appraise the type of property being valued (apartment complex) and that no appraiser has provided significant professional assistance to the person inspecting the subject property in the completion of the analysis other than those mentioned in the Certification of Appraisal (see Addenda). Robert Saia, MAI has appraised this property type in the past and has the knowledge and experience necessary to complete this appraisal assignment. See Appraiser's Qualifications in the Addenda for additional information. The appraiser's analyses, opinions and conclusions were developed and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) Standards 1 - 3, and NationsBank appraisal policy. This appraisal assignment was not based on a requested minimum valuation, a specific valuation or the approval of a loan. The Departure Provision in the USPAP was not utilized in the preparation of this report. The appraiser's compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimated, the attainment of a stipulated result or the occurrence of a subsequent event. ================================================================================ Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 7 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA REGIONAL ANALYSIS ================================================================================ Market value is affected by a number of externalities; e.g., geographic, economic and environmental, governmental forces, utility, supply & demand and effective purchasing power. Real estate is affected by externalities more than any other economic good, service, or commodity. It is imperative that an appraiser observe and analyze external influences in order to identify patterns and trends, and how they relate to the subject property. Trends such as population shifts, declining apartment occupancy rates, or increased housing sales in an area are relevant in order to understand the real estate marketplace. Thus the Regional Description & Analysis is important in this appraisal because it establishes the basis for determining the highest & best use of a property as well as information used in applying the three approaches to value. The scope of this regional analysis relates to the type of property being appraised, its complexity and the approaches used to estimate value. Monterey County is located in a portion of California that is often referred to as the "Central Coast," which encompasses the area known as the "Monterey Peninsula." The county is oriented northwest to southwest, and runs parallel to the Pacific Ocean. The county has a relatively long and narrow shape, with an average of only 30 miles; elevations range from sea level to 5,844 feet atop Junipero Sierra Peak, located 12 miles inland in the Santa Lucia Range. Monterey County is bounded by the Pacific Ocean on the west, Santa Cruz County to the north, San Luis Obispo county to the south, and San Benito, Kings and Fresno counties to the east. The area is located approximately 125 miles south of San Francisco and 350 miles north of Los Angeles. Approximately 105 miles of California's 840 miles of coastline lie along the westerly boundary of Monterey County. On the whole, Monterey County has a rural orientation, with substantial tracts of land devoted to agriculture and open space uses. The county encompasses 3,784 square miles, or approximately 2,127,400 acres of land area. An interesting statistic is that nearly 27 percent of this total county area is government-owned. Twenty-five percent is owned by the federal government with major holdings such as Fort Hunter Liggett, Fort Ord, Los Padres National Forest and Camp Roberts. The remaining two percent is controlled by the state and county. Geographical location and features exhibit strong influences on the county's climate. The Pacific Ocean is responsible for the county's Mediterranean climate, characterized by year round moderate temperatures, cool, dry summers, and short, rainy seasons. Pacific winter storms are blocked by the Santa Lucia Range, allowing considerably less rain to fall on the Salinas Valley. Temperature and rainfall have important implications for the county's two major economic staples, agriculture and tourism. Mild temperatures allow for exceptionally long growing seasons for farming. Rainfall patterns, while following predictably dry weather, require reservoir and ground water storage to meet year round irrigation needs. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 8 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Population Approximately one half of the county's population lives within the seven incorporated cities and adjoining unincorporated areas of the Monterey Peninsula. The eight principal cities are Monterey, Marina, Seaside, Sand City, Del Rey Oaks, Pacific Grove, Carmel-by-the Sea and Salinas. The incorporated areas consist of 31.5 square miles, or about one percent of the county's total land area. The major factor for the high population density of the Monterey Peninsula vis-a-vis the rest of the county, is the unsurpassed natural beauty of the area --especially the coastline and beaches. Based on the most recent U.S. Census (January 1, 1990), the population of Monterey County grew by approximately 24 percent during the last decade. This growth has helped push the county's total population up to approximately 382,547 in 1994. For reference, the county's growth rate over the preceding decade was just under the state's overall gain of 26 percent. In the previous census period (1970--1980) the county's total population grew 17 percent, from 247,450 to 290,444. While county's growth has been strong, the level varies from area to area. As shown below, the population of Salinas, the largest city and the county seat, increased by 35.2 percent between 1980 - `90. The growth in Salinas constitutes approximately 43 percent of the county's total population increase during that period. In contrast, the population of the city of Monterey increased by a more modest 16 percent over that census period. As shown, not all communities in the county experienced tremendous population growth. Population growth was much steadier in the cities of Seaside, Pacific Grove and Del Rey. In large part, growth in these communities is limited due to a lack of developable land. MONTEREY COUNTY: Population Growth 1980 - '90 (1990 U.S. Census) - -------------------------------------------------------------------------------- City/Area 1980 1990 Total No. % Change - --------- ---- ---- --------- -------- Salinas 80,479 108,777 28,248 +35.2% Seaside 36,567 38,901 2,334 +6.4% Monterey 27,558 31,954 4,396 +16.0% Marina 20,647 26,436 5,789 +28.0% Pacific Grove 15,755 16,117 362 +2.3% King City 5,495 7,634 2,139 +38.9% Greenfield 4,181 7,464 3,283 +78.5% Soledad 5,928 7,146 1,216 +20.5% Gonzales 2,891 4,660 1,769 +61.2% Carmel-by-the-Sea 4,707 4,239 (468) -9.9% Del Rey Oaks 1,557 1,661 104 +6.7% Unincorporated Areas 84,679 105,252 20,573 +24.3% - -------------------------------------------------------------------------------- The most recent population estimates show that the population of Monterey County, based on the January 1, 1995 estimates for California cities and counties prepared by the State of California Department of Finance, was 382,547. Recent trends show most of the increase occurring in the Salinas Valley cities rather than on the Monterey Peninsula. For example, in 1993, the fastest growing city in the county was Soledad (+6.1%), with nearby Greenfleld (+5.3%) and Sand City tying for second place. Population growth in Soledad is largely attributable to an expansion of the Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 9 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA state Correctional Facility and the development of two large residential subdivisions. Greenfleld's city manager reported that population growth has been spurred by reasonable prices for single family detached housing but that future growth is limited due to a lack of land. Based on projections by the State Finance Department, released in April 1993, Monterey County is projected to post a 15.6 percent gain in population by the year 2000 --representing an increase to approximately 414,000 people. In contrast, San Benito's population is projected to increase by 37 percent by the year 2000; Santa Clara County's by 13.4%; 14.4% for Santa Cruz County; and, 21.6% statewide. Below are the Finance Department's projections by county through the year 2030. PROJECTED POPULATION GROWTH (Calif. Dept. of Finance) - -------------------------------------------------------------------------------- County 1990 2000 2010 2020 2030 ------ ---- ---- ---- ---- ---- Monterey 356,000 414,000 485,300 574,100 670,900 San Benito 37,000 50,700 66,500 83,200 100,900 Santa Clara 1,502,200 1,703,900 1,839,700 1,958,600 2,064,100 Santa Cruz 230,800 264,000 291,800 322,300 354,100 Statewide 29,976,000 36,444,000 42,408,000 48,977,000 56,100,000 - -------------------------------------------------------------------------------- Transportation The major passenger transportation system in the county is via private automobile. The freeway system consists of Highways 101, 1 and 183; and, State Routes 156 and 68. Highway 101 runs north and south from San Francisco, along the West Bay, and through San Jose toward Los Angeles. Highway 1, the Coast Highway, runs north and south from the coastal region of San Francisco and through Santa Cruz toward San Luis Obispo County. Highway 68, the Salinas-Monterey Highway, intersects with Highway 1 and connects the Monterey Peninsula with the Salinas Valley to the south and Highway 101 to the north. There are 1,300 miles of county roads and approximately 500 miles of city streets for a total of 2,000 road miles in the county. In Monterey County, AMTRAK provides rail passenger service, and the Southern Pacific Transportation Company provides rail freight service. Salinas is the only city in the county that now has rail passenger service. SPRR is the main line between Los Angeles and San Francisco. The Monterey Peninsula Airport provides air freight and passenger service in and out of the county. Over the past 20 years, the airport has shown a moderate growth pattern. In 1970, the number of passengers totaled 411,497. In comparison, the number of passengers had grown to 523,040 by 1989 (+1.4% per annum). Today, passenger service is provided by United, Wings West, Pacific Coast Air and West Air. The cities of Salinas and King City both have municipal airports. And with the closure of Fort Ord, Marina has discussed plans to convert Fritzsche Army Airfield into its own municipal airport. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 10 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA There are harbors at Monterey and Moss Landing (4 miles from the subject) which have boating facilities with a reported 2,000 small crafts launching from its ramps every month. Approximately 1,800 transient crafts visit the harbors annually. Monterey Bay and Monterey harbor areas attract a significant portion of the tourism industry that provides jobs and an economic base for the Monterey Peninsula area and the county as a whole. Fort Ord and the Military Influence With its various military installations located throughout the Monterey Peninsula area, including control of approximately 27 percent of all of the land in the county, the influence of the military on Monterey County has been significant. This influence has had a considerable financial impact, including military and civilian payrolls, local purchase and contracts, construction in the area, as well as the increase in government aid to local schools due to the military population in the area. The local housing market has also been significantly effected by the presence of the military. This impact, however, has been primarily on the apartment rental market in the communities of Marina and Seaside. The closure of Fort Ord was the dominant economic news for the county during 1994. The closing was the single largest national closure to date, with most of the base's 35,000 residents and $600 million payroll moving to other bases. Currently, the base's 44 square miles of land is being administered by the Fort Ord Reuse Authority. Local communities formed the Fort Ord Reuse Authority as an advisory planning committee which under an agreement formed a Fort Ord Joint Powers Agency (JPA). The JPA agreement gave voting membership to the cities of Marina, Seaside, Sand City, Del Rey Oaks, Monterey, and Salinas and extended non-voting status to Pacific Grove and Carmel. The county is also a voting member. The premise of the JPA was to create a forum for discussing reuse issues; to facilitate community involvement and to speed up the decision process via a cohesive voting unit. Initially, the base closure stirred dire predictions about the short-term impact on the county. However, as the closure set in, the immediate economic impact was much less severe than expected, and limited primarily to the adjacent communities. Fort Ord was so large that much of the base was self-contained with its own housing, stores, services, and restaurants. The long-term prospects after closure are encouraging, assuming the base's land can be opened to large scale private sector development. In fact, the first major reuse of the base was the opening of the California State University-Monterey Bay which opened its doors on August 28, 1995 to 633 students. The state university at Fort Ord "is expected to grow substantially over the years, attracting students, well paid employees, research dollars and private businesses," according to the 1995 BT Commercial Real Overview published in April 1995. The Fort Ord complex was the largest military installation in the county with a total of 28,057 acres --nearly the size of the city and county of San Francisco. Approximately 22 percent of the Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 11 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA base (6,250 acres) was developed with barracks, housing, motor pools, administrative buildings, and various other support facilities. Other military installations on the Monterey Peninsula include the Presidio of Monterey, which is the home of the Defense Language Institute (foreign language school for all branches of the armed forces); the United States Naval Post Graduate School (NPGS), and the United States Coast Guard Station. The United States Department of Interior maintains 304,035 acres in the Los Padres National Forest and 164,503 acres along the Big Sur coast in the Ventana wilderness. Fort Ord Reuse Plans After more than six years of planning, the final version of the Fort Ord reuse plan shows a closed military base converted to a huge community of new homes, businesses, schools, parks, hotels and golf courses. The four volume reuse plan, filed in public libraries in the area during the first week of June 1996 by the Fort Ord Reuse Authority, has evolved from the days when a 250 member community task force first saw the base as an educational center. Along the way, planners ruled out suggestions that Fort Ord might give way to a "Disneyland in the dunes", an industrial center with 12 story high rises sprinklered about, or an endless shopping center with no room for houses. The more realistic, final plan, which the FORA board is expected to act on in July includes market research, financing analyses, economic forecasts and population projections. Still, the numbers in the reuse plan are almost overwhelming: - -Nearly 4,000 acres of land available for private owners, an area six times the size of Carmel. - -More than 13,000 new houses to be built, half as many as now exist in Salinas. - -About 12 million square feet of industrial parks and office complexes, enough to fill an area 20 times the size of Del Monte Shopping Center in Monterey. - -More than 45,000 new jobs in those businesses, a third as many as now exist in the entire county. - -A new community of more than 71,000 people, twice as many as now live in Monterey. - -About 1,800 hotel rooms, three times as many as the Hyatt Regency in Monterey and eight times as many as Embassy Suites in Seaside. - -Development costs of $451 million over the next 20 years, as much money as it takes to run the city of Pacific Grove for 50 years. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 12 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA The plan shows development, including the 800 acre military enclave left behind as the Presidio of Monterey Annex, the 1,300 acre California State University at Monterey Bay (CSUMB), the 845 acre Marina Municipal Airport and as many as seven golf courses, covering about a third of the 44 square file base. About 18 percent of the land at Fort Ord has been developed. Another 14 percent is slated to be developed in the next 60 years, according to the reuse plan. About two-thirds of the base is to be preserved in its natural state by the U.S. Bureau of Land Management (BLM), the State Department of Parks and Recreation, the University of California Natural Reserve System, the county, and the city of Marina. The environmental impact report for the reuse plan fills one of the volumes, a 327 page document, filed in early June as FORA's proposed final plan. The environmental analysis doesn't have many specifics because a special state law allows that at Fort Ord. The reuse plan, which has taken six years and many political battles to achieve, is seen as a master sketch, with details and designs to be filled in as individual development projects emerge. Fort Ord's Impact on the Local Economy It is extremely difficult to accurately ascertain the full impact that Fort Ord's closure has had on the local economy because California was suffering through a recession during the early part of the 1990's when the base was closing. The recession has made it difficult to isolate how much of the impact the close of Fort Ord has had on the economy. What has been evident is that there was a short-term glut of rentals on the Monterey Peninsula. Surrounding communities, especially Marina, Seaside and Sand City suffered the greatest negative impact as the closure process evolved. Conversely, the prestigious residential areas such as Pebble Beach, Carmel and the more upscale areas of Monterey were not impacted by the closure. Similarly, the City of Salinas' housing market was not adversely affected to a significant degree. In the Salinas Valley the base closure has had little to no significant impact. Rather, population growth and new development in the area of Salinas continued to be most effected by issues such as the shortage of water and salt-water intrusion. In general, the Salinas Valley could be described as being somewhat of an isolated market area. As such, a Salinas Valley location became more desirable, as investor's uncertainty associated with Fort Ord's closure was primarily directed at investment properties located on the Monterey Peninsula. Overall, a somewhat stagnant to moderate housing market appears to be the continued status for the general area over the short term, although there are signs that economic conditions are improving. This is especially the case in nearby Santa Clara County ("Silicon Valley") where the housing and rental markets have exploded due to strong job growth. Little investment activity and/or new construction is anticipated in the communities adjoining Fort Ord, at least until the major issues surrounding the redevelopment/reuse of the base are resolved. As discussed, there Robert Saia & Associates 313 Avalon Avenue Santa Cruz. CA (408) 458-9095 13 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA are several issues surrounding the base closure and its reuse which need to be resolved before the prevailing atmosphere of uncertainty blanketing the local real estate market is cleared. Business / Industry Monterey County, with a full-time civilian work force of approximately 172,000 - -175,000 workers, has two major urban areas --Salinas and the Monterey Peninsula. As shown on the following page, employment in Monterey County (not including agriculture) is projected by the Employment Development Department (EDD) to average 113,100 in 1996, which will be 2,400 jobs above the 1989 annual average. At just +2.2 percent, this very small gain in jobs reflects EDD's assessment of the impact of the Fort Ord closure. Unemployment rates in Monterey County have been consistently higher than for California as a whole. The seasonal nature of the county's economy accounts for double-digit unemployment in the winter when agriculture, food processing, and tourist-oriented industries are at a lull. Agriculture While the economy of Monterey County is diversified, agriculture is the county's leading industry and the mainstay of the local economy. Agriculture provides approximately 1/4 of the county's basic income. Almost 1/ 5 of California's top-producing crop farms are located in Monterey County. With 86 farming operations, the county ranks second in the state, behind Fresno County with 97 farming operations. A farming operation is defined as a farm producing a crop with a value in excess of $4 million. The county ranks third in the state in gross dollar agricultural production, making it one of the top ten producing counties in the nation. Monterey County has a total of 976,000 acres used exclusively for agriculture and another 343,680 are combined agricultural and grazing land. The county's highly productive agricultural land is often referred to as the "fog belt" agricultural area of California. The long growing season in this area makes it possible to grow as many as three crops annually. Nationwide, the county leads in the production of lettuce, broccoli, artichokes, cauliflower, mushrooms, and strawberries. According to the county's agricultural commissioner, strawberries were the third-ranked cash crop in 1994, behind broccoli and head lettuce. Despite the damage done by the 1995 historic floods, the crop value for Monterey County agriculture surpassed the $2 billion mark, after creeping toward the milestone for several years. The 1995 crop value, $2.03 billion, market a 4.8 percent increase over 1994. Among the top 12 crops, the order in terms of dollar value remained almost identical to that of 1994. Besides breaking local production records, Monterey County surpassed Kern County in 1995 to become the third in the state in gross dollar value of agriculture. It was surpassed by only Fresno and Tulare counties. By the same measure, Monterey County also is the largest vegetable producing county in the United States. The crop value for the state of California stands at $20 billion. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 14 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Assuming water for irrigation remains sufficient, employment in agriculture is projected to increase as growers expand production of vegetables and labor-intensive strawberry and nursery crops. But because of foreign competition, the rate of growth will be slower through 1996 than over the past seven years. Foreign demand for the county's produce remains strong, however. Additional market growth is also expected as the pre-cut salad mix processing market is rapidly expanding. Agriculture continues to be effected by water availability. Even with above normal rainfall in 1993 and 1996, the effects of years of drought have brought to focus the water issue. At this time, the issue of sufficient water supply and overdrafting (saltwater intrusion) are being addressed through water conservation and other management practices which have included moratoriums on new development. Other issues facing the agriculture industry include nitrates leaching into groundwater and soil compaction. Tourism/Convention Industry Following agriculture, the health of the county's business and industry is tied to the tourism./convention industry. According to the California Office of Tourism, an estimated 5 million visitors spent $1.2 billion in 1991 in traveling to Monterey County. That total represented about 2 percent of statewide travel spending that totaled $54.1 billion. As shown in the following table, Monterey County ranked ninth among the state's counties in total travel dollars spent in 1991. TRAVEL IMPACTS BY COUNTY: 1991 (Office of Tourism, April 1993) - -------------------------------------------------------------------------------- Travel Expenditures Payroll Employment Tax Receipts ($000) County ($000) ($000) (Jobs) Local & State Los Angeles $13,617,556 $3,316,360 154,734 $221,008 $391,987 San Francisco 5,777,445 1,524,457 63,236 99,816 133,011 Santa Clara 1,816,493 414,511 26,269 39,982 62,715 Alameda 1,502,588 353,077 19,663 25,024 46,024 San Mateo 1,496,321 363,301 18,626 26,209 41,447 Monterey 1,062,686 199,309 16,210 29,922 45,087 Sonoma 571,605 117,118 8,788 9,660 26,355 Santa Cruz 385,672 80,350 5,347 7,464 13,561 Napa 321,794 67,972 5,078 7,023 13,489 San Benito 49,459 8,713 724 591 2,327 - -------------------------------------------------------------------------------- The Association of Monterey Bay Area Governments (AMBAG) estimates that 15 percent of total employment in the county and about 45 percent of all services and trade employment in the Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 15 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA county are supported by tourism. The Monterey County Hospitality Association estimates that the industry is directly responsible for creating over 16,000 jobs locally with a payroll of nearly $200 million. And including the estimated 10,000 indirect jobs, the payroll increases to $322 million. By the Monterey County Hospitality's estimates, the "trickle-down" effect of tourism puts the total impact at $4 billion to $5 billion. Restaurants, hotels and inns, retail trade, numerous publications, and a variety of other service-oriented businesses are directly dependent on the tourist trade for their welfare. Based on 1989 data, there was a total of 220 lodging facilities in Monterey County consisting of 10,381 rooms. Because the majority of the tourism industry is centered around the hotel and convention complexes, it has more of an impact on the Monterey Peninsula area. The Monterey Peninsula area provides for a plethora of recreational and cultural activities which in combination with the natural scenic beauty create a tremendous attraction for tourism. The area has a number of public beaches that cater to swimming and sunbathing as well as surfing and scuba diving. In addition to the beaches, there is boating and sailing as well as two yacht clubs servicing the Monterey Peninsula. The area also boasts a number of parks and campgrounds, including the Los Padres National Forest and State beaches and parks. Within these parks and reserves, there are facilities for riding, hiking, hunting, and fishing. There is also the renown Del Monte Forest area and its 17-Mile Drive; Cannery Row and Fisherman's Wharf as well as the Carmel-by-the-Sea and the ocean-front drives of the peninsula communities. The growth of the tourist industry is reflected in the continuous extension of the visitor season. More and more small business meetings, conventions and recreational events are now being held on a year-round basis. Although travelers and visitors to the Monterey Peninsula area come from all over the world, the primary points of origin are from within California, particularly within one day's driving distance. Again, attractions such as the Monterey Bay Aquarium and John Steinbeck's Cannery Row, as well as the Monterey Fisherman's Wharf, continue to be prime sources of vacation and tourism attractions. Paralleling the growth of the travel & lodging industry, was the development of the Monterey Bay Aquarium. The aquarium was approved by the coastal commission in 1978 and the 60,000 square foot facility was completed in 1985. The entire cost of the $50 million aquarium was absorbed by the philanthropist/businessman David Packard. The aquarium drew 2.227 million visitors in its first year and has averaged approximately 1,730,000 annually through 1991 --making it the single largest tourist attraction in the county. A substantial expansion to the facility is now underway. Upon completion of the expansion, attendance is expected to substantially increase. Occupancy for hotels and motels often reach 100 percent during peak season on the Monterey Peninsula. In fact, visitation patterns are being strongly affected by the lack of available rooms. The major limiting factor to the growth of the tourist industry in Monterey County in the future will be accommodations and facilities. According to statistics provided by the Monterey Peninsula Chamber of Commerce, the average occupancy rate has been approximately 65-75 percent, although 1996 is turning out to exceed the numbers. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 16 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA In an effort to further promote tourism, leaders in Monterey County's tourism industry are beginning an ambitious campaign to market the area. The general plan is to form an alliance among merchants, city officials and representatives of major events such as the Monterey Jazz Festival and Sports Car Racing Association of the Monterey County. The strategy for expanding tourism in the county is to spread out the times when visitors come to the county and to advertise the attractions of the region, rather than just Monterey, Pebble Beach or Carmel. Traditionally, the tourist season peaks from Memorial Day to Labor Day. Additionally, the alliance would like to also extend the average stay from two to three days in the county. To that effect, tourists would be encouraged to spend time touring the Big Sur Coast, wineries of Salinas and Carmel Valley, John Steinbeck's Salinas, and even the lesser-known missions of San Antonio and Soledad. The concept of "ecotourism" is also being promoted as a means of courting more visitors to the county. Monterey County, by virtue of its fragile ecosystem, scenic natural beauty and 20 years of "no growth" planning policy appears ideally suited to this new industry. Because the future of Monterey County may very well depend on its natural environment, "ecotourism" represents a mutual interest of both business and environmentalists. Thus the adverse impacts of increased traffic, use of precious water and growth of facilities geared to tourists are sure to be carefully weighed as community leaders look towards expanding the tourism industry in order to offset losses from the closure of Fort Ord. Monterey County's tourist season has traditionally run from Memorial Day to Labor Day, but recent patterns of hotel occupancy and retail sales show that the season starts and ends later. The summer 1995 aquarium attendance was up 10% over 1994. In June and July 1995, attendance was up 7 percent and 7.6 percent, respectively, over the same months of last year. August was expected to experience increases of up to 5 percent, according to Mr. Jim Hekkers, vice president of external affairs at the Monterey Bay Aquarium. Commercial Market The county's office market caters primarily to small local service business, while most regional and national companies located on the Garden Road/Ryan Ranch/Highway 68 corridor, drawn by newer buildings, attractive rents, better parking ratios, and large contiguous spaces. The industrial market is tight in Monterey County. Vacancies are minimal and have continued to decline. Contiguous blocks of available space over 15,000 square feet are non existent. Most knowledgeable real estate brokers expect rents to increase slightly over the next year. New development should be limited because of minimal available industrial-zoned land. The local retail market may seem crowded with large shopping complexes on the drawing boards in Salinas and Sand City, but marketing reports and consultants say there's room for more. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 17 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Housing Market Monterey County's real estate sales surged in April/May 1996 with total sales coming in 67 percent higher than for the month last year. The increased activity has promoted optimism about a recovering market. The median home price for the county is approximately $300,000. This is up slightly over the past year. Regional Description & Analysis ---Conclusion A survey of statistics on agriculture, home sales, retail sales and other indicators shows that the Monterey County economy is proving wrong the dire predictions made before Fort Ord closed down. For decades, farming and the military were the area's two economic mainstays. Today agriculture remains paramount, but other sectors are changing rapidly to fill the void created by the base closure. Jobs While unemployment estimates remain seasonally high, county business have added more than 6,000 new jobs in the past 12 months, mostly in agriculture and service related fields, according to the State Employment Development Department. Construction Although the county construction permits dropped by about 4 percent in 1995, when compared to the year before, to about $319 million, single family dwelling starts have bolstered this year's construction, which is about 20 percent ahead of last year's rate. In addition, government projects are still underway, including the $100 million Natividad Medical center in Salinas. Completion is expected in early 1997. Built around a courtyard, the new facility will offer patients an array of outpatient services devoted to the needs of families, women and children. Construction has started on the 680,000 square foot Westridge Shopping Center in Salinas. It is expected that the Wall Mart Store will open in February, 1997. Real Estate Sales Although Monterey County is considered the second least affordable area in the country, higher priced homes on the Peninsula are still attractive, particularly to the people in the 45 to 54 age range. Agriculture Monterey's total crop ranks third in the state in total dollar value, behind Fresno and Tulare counties. In terms of vegetable production,, the county is the largest in dollar value in the country. The county's crops amounted to 10 percent of the statewide crop total of $20 billion in 1995. Tourism The area's coastline, golf courses and resorts attract visitors from throughout the world. In 1995, attendance at the Monterey Bay Aquarium was 1.6 million and, with the opening of the Outer Bay wing in March, attendance is expected to go as high as 2.2 million this year, according to aquarium officials. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 18 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA CITY OF SALINAS-COMMUNITY PROFILE The City of Salinas, incorporated in 1874, is located eight miles inland from the Monterey Bay, at the head of the Salinas Valley. The level fertile floor of the valley tapers to a funnel just north of the City. The original King's Highway, now called El Camino Real and/or Highway 101, traverses the approximate center of the valley floor from the Prunedale area of rural north Monterey County to King City to the south. Other cities located in the valley south of Salinas includes Chular, Gonzales, Soledad, Greenfleld, San Lucas, and San Ardo. A map of the city appears in the Addenda. Salinas has been recognized historically as the distribution center for agricultural products from the Salinas Valley, one of the world's richest, most fertile growing areas, with approximately 1,000 square miles of land. The economic base of Salinas has always been agriculturally oriented; however, during the past decade, rising property values have helped to make the city of Salinas a bedroom community of the Monterey Peninsula. Salinas has become the population growth center of the Monterey Bay region. Recent projections show the city will continue to grow at an annual rate of 3 percent. There are 100 manufacturing firms in Salinas. The leading group classes of products are food, electronic components and electrical products. The largest manufacturing firms in the community are: Simplot Corporation, 550 employees; National Refractories, 419 employees; Integrated Device Technology, 360 employees; Radionics, 359 employees; and McCormick & Company, Inc. (Shilling), 350 employees. The city has three distinct geographical business areas: South Salinas, East Salinas, and North Salinas (where The Circles Apartments and North Plaza Apartments are located). South Salinas "Old Town" is located south of West Market Street, along Main Street in south Salinas. This area has many specialty retail stores, financial institutions and restaurants. The City is actively pursuing the redevelopment of "Old Town." Since 1974, $15 million in private investments, matched by $34 million in publicly financed improvements, have been committed to this project. This redevelopment has revitalized the area and has attracted many new commercial tenants to this part of the city. This redevelopment is to include the Steinbeck Plaza, which is anticipated to be a much-heralded showpiece of the city's downtown district. It will consist of a mixed land-use project for the blighted 100 block of South Main Street and will include a five-story, 94 room hotel with rooftop restaurant; a five story, 110,000 square foot office building with conference rooms and retail shops; a four level parking garage; restaurants with a total seating of 400; and a 33,000 square foot public plaza that will include an amphitheater. County and city government offices are located in the south Salinas area. This part of the city is generally known as the financial center. It has the highest concentration of larger office buildings. One of the largest tenants in south Salinas is the County of Monterey and its support service agencies. Salinas is the county seat of Monterey County. As the county seat, Salinas serves as the area's center for finance and agribusiness. It has captured nearly 40 percent of the county's office development. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 19 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA North Salinas The north Salinas business district of the city is located along North Main Street, south of Boronda Road and north of East Laurel Drive. The Northridge Regional Shopping Center, with over 120 specialty shops, three savings and loans, a bank, theater complex, and four major department stores, is located in this area of the city. In 1985, Northridge concluded a four year expansion, representing an investment of over $55 million. Convenience stores, financial institutions and other neighborhood stores are also located along North Main Street, which connects the north and south Salinas areas. Over the past five years, with the development of Northridge Shopping Center, north Salinas has become the retail center of the city. Office development in this part of the city has generally been directed toward smaller buildings. East Salinas The East/Alisal area of Salinas is generally described as that part of the city that is located east of Highway 101 and Natividad Road. The central commercial district is located along East Alisal. Portales de Alisal, a three level mix of retail shops and day care center, as well as medical and other professional offices, are planned on approximately eight acres located in the 500 block of East Alisal Street, in the Hebbron Heights neighborhood of the Alisal District. Neighborhood retail shops, small professional office users and trades people comprise the typical tenant profile in the east Salinas area. Vacancy in this area is low. Very few spaces are for lease. New retail space has leased very well as evidenced by the strong activity of a 19,600 square foot retail/shopping center located at 45 Sanborn Road. Population & Growth Percentage-City of Salinas vs. Monterey County - -------------------------------------------------------------------------------- Year Monterey County City of Salinas - -------------------------------------------------------------------------------- 2000 422,710 144,500 - -------------------------------------------------------------------------------- 1995 370,996 122,390 - -------------------------------------------------------------------------------- 1990 355,657 108,777 - -------------------------------------------------------------------------------- 1980 289,861 80,479 - -------------------------------------------------------------------------------- 1970 247,450 58,896 - -------------------------------------------------------------------------------- Monterey County-Employment by Industry - -------------------------------------------------------------------------------- 1992 1998 (projected) Percent Change. - -------------------------------------------------------------------------------- Agriculture 30,600 32,900 8% Services 28,300 32,000 13% Retail Trade 23,700 25,700 8% Government 27,900 26,300 -6% Manufacturing 8,900 9,800 10% Finance, Insurance, 6,300 7,000 11% Real Estate Transportation & 5,100 4,900 .4% Public Utilities Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 20 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Wholesale Trade 5,000 5,100 2% Construction 3,900 4,200 8% Mining 300 200 -33% Local Economic Developments-City of Salinas Early in 1996 the Salinas Valley Maximum Security Prison opened its new operation with its expanded correctional facilities. The new facility added nearly 700 new employees; an additional 800 new employees (the highest percentage are correctional officers) have recently been added, and by the beginning of 1997 an additional 450 new employees may be added. The recent hirings have already impacted the local apartment housing market throughout Salinas; interviews with numerous apartment managers have indicated that large numbers of newly-leased units are to correctional officers working at the Soledad State Correctional Facility; extremely limited housing within the city of Soledad have heavily impacted the demand for rental units in Salinas, considered only an approximate twenty (20) mile northerly commute from the prison. Increases in the city's services, retail trades, manufacturing, construction, and finance sector have resulted in a stronger demand for affordable multi-family housing units. The current shortage of rental units has been primarily the result of local economic activity. The expansion of the Westridge Shopping Center, a 650,000 square foot retail center, is within one-half mile of the subject property and includes a Wall Mart Store opening in February, 1997; this will also increase housing demand in the North Salinas area. Household Credit Corporation recently hired 200 new employees in 1996. Residential Growth-City of Salinas The Salinas Valley has long been an attractive area for homebuyers, especially first-time buyers who are looking for an affordable home in Monterey County. The average annual growth rate over the past 10 years was nearly 2 percent, and, as a result of continuing developments throughout both Monterey County and Salinas itself the rate should approximate 3 percent for the remaining few years to 2000. Salinas has been moving forward with several new developments that will add thousands of new people to the city by the time the next U.S. Census is taken in the year 2000. The Harden Ranch subdivision in North Salinas, for example, includes 1,683 single family homes, 719 multifamily units and an area for churches, schools and a park. Creekbridge subdivision is a mix of new homes, including 1,000 single family homes and 1,030 multifamily units. The Williams Ranch subdivision in East Salinas was planned for 1,551 homes and 519 condominiums or apartment units. If there are any restrictions to growth in Salinas it's the agricultural land that surrounds the city. The city's master plan for growth forbids city officials from considering new building projects to the south and west of the city limits because that land is some of the richest, most productive farmland in California. "Slow" of "No-Growth" policies will limit Salinas' development in the south and west portions of the city; therefore, future developments will concentrate more heavily in North Salinas, in the vicinity of The Circles Apartments and North Plaza Apartments. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 21 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA City of Salinas-Apartment Market Analysis Below is a simple chart illustrating the structural and vacancy characteristics estimated for the City of Salinas, as of September 28, 1996, the effective date of this appraisal. From a total of 35,902 housing units within the city, 13,247 units are considered multi-family (2 or more units in a structure). This equates to 36.9 percent. This estimate includes apartment units in plan check or currently under construction. All Housing Units <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------- Total 1 unit-detached 1 unit-attached 2-4 units 5-9 units 10+ units Mobile homes - ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> 35,902* 18,077 2,942 3,239 3,236 6,772 1,636 - ---------------------------------------------------------------------------------------------- </TABLE> * Information provided by the Monterey County Association of Realtors and Association of Monterey Bay Area Governments. Utilizing the number of apartment units indicated above there currently exists 13,247 apartment units. Since the end of 1992, no apartment units have been built until 1996; the overall number has remained relatively constant for a number of years. Based on the current estimated population of Salinas of 122,390 and applying a 35% multifamily ratio provides for a total renter population of approximately 42,837. Dividing the renter population by the average 3.21 household size (estimated by the Association of Monterey Bay Area Governments) suggests that the City of Salinas would need 13,345 apartment units to accommodate this demand. Comparing this to the current apartment inventory of 13,247, a deficiency of 98 units exists. If this analysis is accurate, then this explains why the market as a whole is experiencing a very low to no vacancy rate at this time as reported by various apartment building managers throughout North Salinas, South Salinas, and East Salinas. Again, this is very consistent with my findings based on interviews with on-site managers, property managers, brokers and other appraisers. The Salinas apartment market is very tight with many of the larger professionally managed complexes reporting 98%-I 00% occupancy with a waiting list. The market has tightened up because of several factors including the recent expansion of the Soledad prison facility wherein they recently hired approximately 1,200 employees. As previously indicated, Household Credit Corporation recently hired 400 new employees and a host of other ancillary businesses have been hiring in and around Salinas. Additionally, the population has been growing at approximately 3,500 new residents per year. Much of this growth is due to the migration from Santa Cruz, Los Angeles, and San Jose. Many of these people are purchasing homes in the newly-developed master plan communities and many are renting. According to many of the on-site property managers renters are coming from as far as San Jose which is approximately 3/4 of an hour drive north. Rents are significantly higher in San Jose. Rents in Salinas are estimated at between $250 and $500 below San Jose rents and therefore is attracting tenants who view making the commute an attractive alternative to paying higher rents. Below are the results of a survey performed by this appraiser of ten (10) apartment complexes within the City of Salinas as of the date of this appraisal. The average apartment building size was 146 units. The survey indicates the name of the complex, total number of units, total number of vacant units, and total number of units "on notice". Robert Saia & Associates 3)3 Avalon Avenue Santa Cruz, CA (408) 458-9095 22 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Apartment Survey-City of Salinas September 28, 1996 - -------------------------------------------------------------------------------- Name Total No. Units No. Vacant Units Units On Notice - -------------------------------------------------------------------------------- Cypress Creek Apartments 288 0 12 - -------------------------------------------------------------------------------- Cypress Landing Apartments 112 0 0 - -------------------------------------------------------------------------------- Los Padres Apartments 220 4 2 - -------------------------------------------------------------------------------- Mariner Village Apartments 176 1 3 - -------------------------------------------------------------------------------- Northridge Park Apartments 232 3 3 - -------------------------------------------------------------------------------- Kipling Manor Apartments 92 0 0 - -------------------------------------------------------------------------------- Olive Tree Apartments 34 1 0 - -------------------------------------------------------------------------------- Shadowbrook Apartments 88 3 0 - -------------------------------------------------------------------------------- Sheridan Park Apartments 116 0 10 - -------------------------------------------------------------------------------- Village Green Apartments 104 0 4 - -------------------------------------------------------------------------------- TOTALS 1,462 12 34 - -------------------------------------------------------------------------------- This particular sample surveyed represents only 11.04 percent of the total number of apartment rentals in the city of Salinas. Based on information from the above respondents a vacancy rate of .8 percent was indicated. If one includes the number of "units on notice" (tenants who plan to vacate within 30 days), the vacancy rate becomes 3.15 percent. Most of the tenants who have given notices to vacate are considered "seasonal workers" engaged primarily in the agricultural trades, according to property managers surveyed. NEIGHBORHOOD DESCRIPTION AND ANALYSIS The subject property is located in a northerly section of the North Salinas area of the city bounded by Russell Road north, U.S. 101 Freeway west, E. Boronda Road south, and San Juan Grade Road east. The area as defined is nearly trapezoidal in shape, measuring approximately 8/10 of a mile along all sides except E. Boronda Road, which forms the southerly boundary of the neighborhood along an approximate 5/10 of a mile length. In all, the neighborhood contains a total of approximately .52 square miles. Immediate Neighborhood Environs Beginning at the signalized intersection of N. Main Street and E. Boronda Road, a neighborhood commercial zone, one finds a Blockbuster Video store, World Savings Bank building, Denny's and Senor Taco restaurants. Major commercial developments south of the intersection are primarily the Northridge Regional Mall and Harden Ranch Shopping District. Continuing in a northerly direction towards The Circle Apartments are North Plaza Apartments is Boronda Plaza, a small commercial strip center containing the Steinbeck Federal Credit Union, Farmers Insurance, and Lifetime Cookware. Located across from this plaza on the corner of Castro Street and N. Main Street under construction is a Chevron Service Station including a car wash and food mart; financing for the project is being provided by the Bank of Salinas. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 23 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA On the corner of W. Lamar Street at N. Main Street is a 7-11 convenience store. Also presently under construction on N. Main Street is a new Midas Muffler Auto Service Center, supervised by San Jose Construction Company. Located at 2080 N. Main Street is the Adams Motel, an older twenty (20) unit complex. Adjacent are the Capitol Motel and a Quick Stop convenience store. On the corner of E. Bolivar Street and N. Main Street is Soto Square Park, a neighborhood city-run recreational park. Located at 2170-76 is the Northridge Manor Garden Apartments, a small complex of fifteen (15) residential units. Located at 2180 is a professional office building (1-story) occupied by Farmers Insurance as its claims office. This is considered a good quality Class C building. Located at 2210-12-14 is a small wood frame office building known as the Wright Building. An older mobile home park is located across N. Main Street from the subject property. Tracts located east of the subject property to San Juan Grade Road are primarily improved with older, detached single family residences. The Santa Rita Elementary School and Park is located within the middle portion of the neighborhood. The nearest freeway access is located either one-half mile north of the subject property at Russell Road and N. Main Street or one-half mile southwest at E. Boronda Road and U.S. 101 Freeway. SITE ANALYSIS ================================================================================ General: The Circles Apartments & North Plaza Apartments Based on a plat map furnished by our client (a copy is included in the Addenda), the site for The Circles Apartments contains a total of 17.23 acres. A survey of the site has not been made, and it is assumed that the Plat Map is correct. The site, which includes two separate and distinct legal parcels, has a rectangular shape; please refer to the County Assessor's Plat Map on the following page. For the North Plaza Apartments, the site consists of one parcel and is nearly trapezoidal in configuration, containing 6.087 acres. A Monterey County Assessor's Plat Map is also included. In total, 23.371 acres are indicated. Topography and Drainage: The topography of both of the sites is predominantly level to slightly rolling. Drainage is believed to be adequate. Access: The Circles Apartments has three (3) different access alternatives: (1) The main access is by means of N. Main Street to the west of the site; (2) the subject is accessed from the south at an entrance from Perez Street; (3) lastly, the other access is over a shared street with the North Plaza Apartments along the northern portion of the property line. The North Plaza Apartments, on the other hand, has only one access which is shared with The Circles Apartments. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 24 <PAGE> The Circle & N. Plaza Apartments, Salinas. CA Utilities: All major utility services are available and connected to the property. These utilities include sewer, water, electricity, cable television, and telephone services. Sewer service is provided by the Monterey Regional Water Pollution Agency. The capacity of the sewer plant is 30 million gallons per day. Water is provided by the Alco Water Service and California Water Service Company. For both water companies combined, the maximum daily pumping capacity is 45,383,680 gallons per day. Quantity rates are $.7091 per 100 cubic feet. Natural gas and electric power are provided by Pacific Gas & Electric (PG&E). Local telephone service is provided by Pacific Bell. The City of Salinas Department of Public Works has adopted a master plan of storm drains. Charges are assessed on all on-site costs, plus off-site fees. Site Hazards: The subject property is located in a designated FEMA Zone "B", according to Community Panel Map Number # 060202-0001D, dated November 4, 1981. The "B" designation does not require flood insurance. Earthquake Fault Zone The property is not located in any known earthquake fault zones. However, the region is subject to periodic earthquake tremors. We know of no particular reason why the site would be at a greater risk than other area properties.. Rent Control: Monterey County does not have rent control. The county does have an "inclusionary housing" program that provides for affordable "low-income" housing. Low and moderate housing assistance is available through a variety of programs offered by the Housing Authority of Monterey County, the City of Salinas and CHISPA, a non-profit housing developer. Apartment complexes for low-income families, the elderly, handicapped and farm-labor families are located throughout Salinas. The city has established a Housing Trust Fund to help increase the supply of affordable rental units as well as opportunities for home ownership. Contamination/Toxics: We have inspected the property with the due diligence expected of a professional real estate appraiser. It is important to note, however, that the appraiser(s) are not qualified to detect hazardous waste and/or toxic materials. Such a determination would require investigation by a qualified expert in the field of environmental assessment. To our knowledge, there are no potentially hazardous materials that would affect the valuation and/or marketability of the property as of the date of valuation. The appraised of both The Circles Apartments and .North Plaza Apartments is specifically predicated on the assumption that there are no hazardous. materials on or in the property that would cause a loss in value. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 25 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Easements and Restrictions: Reference is made to the preliminary title report in the Addenda for easements and restrictions. Both apartment complexes share a common 24' easement running over their common boundary line which extends to N. Main Street. Property easements for ingress-egress are considered typical and do not negatively impact marketability. Site Analysis Conclusion In summary, the combined sites consists of 23.317 acres on three parcels improved with 439 rentable units. All utilities are available, including sewer service, electricity, gas, telephone and cable television. The site lies in Flood Zone "B" (no flood insurance required). Zone "B" is typical of most of the neighborhood, with the exception of the minor Santa Rita Creek channel two blocks south of the subject property. TAXES AND ASSESSMENT ANALYSIS In the State of California, property is enrolled at 100% percent of market value, as determined by the Assessor upon transfer of ownership or significant new construction. The maximum tax rate cannot exceed one percent of the enrolled value, plus general and/or special assessment bonds and fees approved by the voters. The current assessed value for The Circles Apartments is $6,272,018, broken down as follows: Land: $ 1,882,018 Improvements: $ 4,390,800 Personal Property: $ -0- Total Assessed Value $ 6,272,818 The current assessed value for the North Plaza Apartments is $6,189,011, broken down as follows: Land: $ 2,651,500 Improvements: $ 3,269,840 Personal Property: $ 267,671 Total Assessed Value: $ 6,189,011 For The Circles Apartments, real estate taxes for the 1996-97 tax year are $67,625.32. Direct assessments of $1,262.70 are included. For the North Plaza Apartments, real estate taxes for the 1996-97 tax year are $66,496.14. Direct assessments of $1,032.62 are included. The tax rate for both properties is 1.057940 percent per $100 of frill cash value. Direct assessments are imposed Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 26 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA by the North County Water Regional Agency (.004660) and by Santa Rita School Bonds (.053280); these two rates are added, of course, to the one (1) percent base tax rate as specified by Proposition 13 for California. There are no special assessment bonds, according to the Monterey County Tax Collector Department. Both installments have not been paid for 1996-97. The reader should refer to the preliminary title insurance report for specific amounts of any unpaid previous tax installments. The first installment for 1996-97 is due November 10, 1996. The tax rate area for both The Circles Apartments and North Plaza Apartments is 005-022. Re-assessment of The Circles Apartments & North Plaza Apartments: Proposition 13 The current tax amounts for the 1996-97 tax year will not remain the same beginning on July 1, 1197. According to Proposition 13 for California, the subject property will be re-assessed, most likely based on the new sale price or market value at time of sale. The assessments will be based on full cash value using a tax rate per $100 of full cash value. The passage of Proposition 13 establishes a maximum property tax of one percent of full cash value. The mandated one percent (1%) property tax level converts to a $1.00 base tax rate. The additional rates imposed by the Water Regional Agency and Santa Rita School Bonds will be added to the $1.00 base rate. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 27 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA ZONING DESCRIPTION AND ANALYSIS The Circles Apartments and North Plaza Apartments are currently under the zoning designation of R-H-2.3 by the City of Salinas. This zoning designation specifically refers to a high density residential district. Section 37-44 addresses specific purposes of the particular district's regulations. They are as follows: (1) To provide appropriately located areas for high density multiple family dwelling units consistent with the General Plan and with standards of public health and safety established by the Salinas Municipal Code. (2) To provide adequate light, air, privacy, and open space for each dwelling unit and protect residents from the harmful effects of excessive noise, population, density, traffic congestion and other adverse environmental impacts. (3) To promote development of affordable housing by providing a density bonus for projects in which a portion of the dwellings are affordable to qualifying households. (4) To achieve design compatibility through the use of site development standards. (5) To protect adjoining low density residential districts from excessive noise or loss of sun, light, quiet, and privacy resulting from proximity to multifamily dwellings. (6) To provide sites for public and semipublic land uses needed to complement residential development or requiring a residential environment. (7) To ensure the provision of public services and facilities needed to accommodate planned population densities. For a comprehensive list of all property development regulations under the R-H-2.3 Zoning District the reader may refer to the Addenda of this report. Parking Requirements-On-site Division 18-Off-Street Parking and Loading Regulations of the City of Salinas Municipal Code lists all use classifications. For multifamily residential complexes containing over ten (10) units, the off-street parking and loading requirement is 1.6 spaces per unit. The Circles Apartments has 323 carport spaces and 176 open spaces for a combined total of 499 spaces. North Plaza Apartments has 120 garaged spaces and 125 open spaces for a combined total of 245 spaces. Conclusion It appears that the subject property meets all applicable city zoning, building and parking requirements. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 28 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA IMPROVEMENT DESCRIPTION AND ANALYSIS The Circles Apartments were constructed over a four (4) year period from 1979 to 1983 and contain a total of twenty (20) two-story buildings configured in a "circle" layout on the 17.23 acre site. There are a total of 319 rentable units in six (6) floorplans; one unit is used as a maintenance-storage room by the management company. The net rentable building area is 274,885 square feet. There is also a 1,407 square foot office manager building located in the westerly portion of the development near the security entrance gates fronting to N. Main Street. There are also four (4) separate laundry rooms each containing 294 square feet. The Circles Apartments are considered a Class D Building(s) Construction Type V (wood frame) of the Uniform Building Code. Class D buildings are characterized by combustible construction. The exterior walls are made up of closely spaced wood studs with an exterior stucco-masonry covering. The roof is supported by a wood truss system with a concrete slab floor on 1st floor area. The upper floor (2nd story) consists of plywood sheets. Also, the subject is in a class of construction referred to as protected one-hour construction. The N. Plaza Apartments were constructed in 1986 and contain a total of twenty-four (24) buildings on a site of 6.087 acres. There are a total of 120 rentable units in two (2) floorplans. The net rentable building area is 123,400 square feet. All units contain interior washer/dryer areas(stacked). The Plaza Apartments are considered a Class D Building(s) Construction Type V (wood frame) of the Uniform Building Code. Class D buildings are characterized by combustible construction. The exterior walls are made up of closely spaced wood studs with an exterior wood siding, in this case. The roof is supported by a wood truss system with a concrete slab floor on first floor area. The upper floor (2nd story) consists of plywood sheets. Also, the Plaza Apartments is in a class of construction referred to as protected one-hour construction. Unit Mix-The Circles Apartments - -------------------------------------------------------------------------------- TYPE UNITS AREA (sf) - -------------------------------------------------------------------------------- 1BR-1BA 40 715 - -------------------------------------------------------------------------------- 1BR-1BA 79 755 - -------------------------------------------------------------------------------- 1BR-1BA 40 777 - -------------------------------------------------------------------------------- 2BR-2BA 40 915 - -------------------------------------------------------------------------------- 2BR-2BA 80 983 - -------------------------------------------------------------------------------- 2BR-2BA 40 1,008 - -------------------------------------------------------------------------------- TOTAL 319 274,885 - -------------------------------------------------------------------------------- Interior Improvements: The Circles Apartments All of the units have fireplaces. Floor coverings consist of wall to wall carpeting over concrete slab in lower levels and over plywood subfloor in upper levels. Vinyl flooring is in kitchens and bathrooms. There is gas central forced air heating throughout the units. The kitchens have Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 29 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Formica countertops, free-standing gas range and ovens, garbage disposals, and dishwashers. Each of the twenty (20) buildings is served with a 250 gallon hot water heater. Bathrooms are improved with fiberglass wainscoting and cultured marble vanities. Overall condition is considered good. Many of the units have recently been upgraded with new carpeting and interior painting. Unit Mix-North Plaza Apartments - -------------------------------------------------------------------------------- TYPE UNITS AREA (sf) - -------------------------------------------------------------------------------- 1BR-1BA 52 660 - -------------------------------------------------------------------------------- 3BR-2BA 68 1,310 - -------------------------------------------------------------------------------- TOTAL 120 123,400 - -------------------------------------------------------------------------------- Note: Information regarding the individual unit sizes was made available by drawings of floorplans provided to the appraiser by Lincoln Management Company. The appraiser was provided access to representative floorplans of each particular unit and has verified the accuracy of the floorplan and gross living area, for both The Circles Apartments and North Plaza Apartments. The inspected units are considered representative of the complex. It is assumed that the condition of the interior units are similar with some variation. Interior Improvements: North Plaza Apartments All of the units have fireplaces. Floor coverings consist of wall to wall carpeting over concrete slab in lower levels and over plywood subfloor in upper levels. Vinyl flooring is in kitchens and bathrooms. There are gas wall heating elements. Free-standing gas range and ovens, Formica counters, fan and hood combinations, and dishwashers are typical kitchen amenities. There are enclosed areas for stacked washer/dryers in each unit. There are also enclosed patio yards with sliding glass door access. Recent upgrading has taken place with new exterior painting and installation of mini-blinds. The overall condition is good. Effective Age: The Circles Apartments & North Plaza Apartments The actual age of The Circles Apartments complex ranges from 13 years to 17 years, since the development was completed over a four (4) year period. An average quality Class D apartment project is estimated to have a total economic life of fifty (50) years. This is based primarily on the performance of many comparable properties built in the 1940's and 1950's still in existence in Monterey County and capable of attracting tenants due to upgrading and above-average maintenance. In addition, the Marshall and Swift Cost Valuation Service provides reasonable support for an estimated total economic life expectancy of fifty (50) years. Because The Circles Apartments has undergone substantial recent upgrading under the current management to date it is the appraiser's opinion that an estimated overall effective age often (10) years is considered reasonable and supportable. The actual age of the North Plaza Apartments is 10 years. The Plaza Apartments is also considered representative of average quality Class D apartment projects. Due to the recent complete exterior painting of North Plaza and above-average maintenance and continual upgrading and replacing of appliances it is my opinion that an effective age for this development is estimated at 8 years. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 30 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Remaing Economic Life: The remaining economic life of The Circles Apartments is estimated at 40 years, although it certainly could be longer or even shorter. This estimate is made by deducting the effective age of 10 years from total economic life of 50 years. Also, the remaining economic life of North Plaza Apartments is 42 years, based on a total economic life of 50 years. External Obsolescence Because some of the apartment units located in both The Circles and North Plaza are in relative close proximity and front to N. Main Street, considered a feeder street with moderately busy vehicular traffic, the Lincoln Property Management was consulted as to any adverse effects these rental units have experienced in attracting and maintaining tenants over a reasonable period of time. No significant problems have occurred in renting any of the few units that are located close to N. Main Street. Large lawn areas serve as a buffer zone between N. Main Street and a few of the buildings that are located along N Main Street. No measurable external inadequacies are noted in this report. There is no difference in rental rates (i.e. rent loss) between apartment units located along N. Main Street and from interior sections of the development. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 31 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA HIGHEST AND BEST USE ANALYSIS Definition Highest and best use, as used in this appraisal, is defined as that reasonable and probable use that will support the highest present value, as defined, as of the effective date of the appraisal, September 28, 1996. Alternatively, that use, from among reasonably probable and legal alternative uses, found to be physically possible, appropriately supported, financially feasible, which results in highest land value. The above definition of the "Highest and Best Use" is in reference to land that is unimproved. In cases of improved land, a determination of the contributory value of the improvements to the land must be made. The improvements found on a site may be of inappropriate use, but will continue until the land value exceeds the total value of the property in its existing use. Discussion Our opinion of the highest and best use of the subject land parcel will be supported based upon our analysis of the four tests outlined below: 1. Legally Permissible Use. This type of use is legal and conforms to the zoning assigned to property, as well as to the City's planning goals. 2. Physically Possible Use. The shape, size, and available utilities are adequate to serve this use. 3. Financially Feasible Use. Population and immediate income statistics support the feasibility of the highest and best use based upon the quantity, quality, and distribution of the income and its prospective users. 4. Maximally Possible Use. An analysis of which possible legal uses will produce a net return and/or create value to the site. All three standard appraisal approaches to value are affected by the highest and best use. Therefore, valuation is highly dependent upon the conclusions set forth by this analysis. Physically Possible Section 37-46 of the City of Salinas Municipal Code specifies a minimum lot size of 7,200 square feet in a R-H-2.3 high density residential district. Both The Circles Apartments and North Plaza Apartments contain sites of 750,539 and 265,150 square feet, respectively. A minimum of 1,800 square feet is required for each unit, according to Section 37-46 of the Regulations. Based on this requirement, therefore, both sites are physically capable of being developed with the current improvements. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 32 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Legal Permissible The subject is zoned and general plan designated to allow high density residential uses. As existing, the subject is a legal and conforming use. Financially Feasible In evaluating the most reasonable and probable use of the vacant site, we considered the demographics of the surrounding area, land use patterns, local market supply and demand, general market conditions, and the physical characteristics of the property itself The most feasible and marketable use for the subject site(s) appears to be for apartment use, given the present shortage of rental housing in Salinas, which is a result of the local economy and current growth of Salinas. Rapid changes in market conditions which were previously discussed in the Neighborhood and City Sections indicate apartment and multi-family housing as the most reasonably probable use of the subject property. Maximally Possible Use The final of the four tests in the highest and best use analysis is the use that maximizes the land value by providing the highest return. This test must be considered sequentially with the prior three tests; it makes no difference that the most probable highest value is a apartment complex, for example, if the zoning does not permit this use. The most profitable use is a multi-family or apartment use. This is largely based on the fact that the current improvements are apartments and are configured on the sites as such. At the present time, the City of Salinas Planning Department recognizes through its general plan the R-H-2.3 high density residential district of the subject's neighborhood in North Salinas and is aware of the changing market conditions and rental shortage that exists in the City of Salinas. There is virtually no availability of vacant land in South Salinas for apartment use, for example, since that area is primarily designated as agricultural land. The City is encouraging the future development of high density residential land in the North Salinas section of the city. Highest and Best Use Conclusion - As Improved In conclusion, the highest and best use of the subject site, as improved, is the existing use. Highest and Best Use Conclusion - As Vacant In conclusion, the highest and best use as vacant is a multi-family or apartment-type use. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 33 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA THE APPRAISAL PROCESS ================================================================================ The estimation of a real property's market value involves a systematic process in which the appraisal problem is defined and the data required is gathered, analyzed and interpreted into an estimate of value. Traditionally, three methods of valuation have been used in appraising: the Cost, Sales or Market Comparison and Income Approaches. In the Cost Approach, the value of the site is first estimated by comparing it to similar sites that have recently sold or are currently offered for sale. Replacement cost new of the improvements is determined by reference to actual costs of similarly constructed properties. Depreciation from all sources is then deducted from the replacement cost new of the improvements to arrive at the present value. The depreciated value of the improvements is added to the estimated land value to arrive at the total value by the cost approach. In this appraisal, however, NationsBank has requested that the cost approach be omitted from this appraisal assignment. The cost approach has been determined to have little to no significant applicability in the valuation of 10 to 30 year-old multi-family properties due largely to the subjectivity involved with estimating depreciation in older properties. Moreover, cost and value are oftentimes not the same. The Sales Comparison Approach involves comparison of the subject to similar properties that have recently sold or that are offered for sale. These sales are reviewed for differences from the subject in the date of sale, location of the site, physical characteristics and other factors. The comparable properties are then adjusted to formulate a value range for the property being appraised. The third of the three valuation techniques is the Income Capitalization Approach. This approach involves estimating net operating income, and discounting this income to a present worth through the capitalization process. For most income-producing properties, including apartments and multi-family properties, this is the better valuation technique. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 34 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA INCOME CAPITALIZATION APPROACH The first and primary approach applied to the valuation of the subject is the income capitalization method. This technique involves conversion of future anticipated income into an estimate of present value by the capitalization process. This procedure involves three steps as indicated below: 1. Estimate gross income from available rental information and the subject's operating history; 2. Estimate and deduct vacancy and collection loss allowance and operating expenses to derive net operating income; and, 3. Select an applicable capitalization method or methods, develop the appropriate capitalization rate, and complete the necessary computations to derive an economic value indicated by the income capitalization approach. Required Information Documents that are helpful to better estimate value under the Income Approach include the following: o Income/Expense statements o Proforma o Personal Financial Statements of Owner (if applicable) o Rent Roll o Lease Agreements o Other (service agreements) Income and expense statements. Operating statements provided by management over the past year and seven months are included in the Addenda. Proforma. A proforma is an estimate or projection of operations by management Proformas can be helpful in identifying possible economic trends and plans for the property in future years. Business plans are also helpful. An income and expense proforma was reviewed for the remaining months of 1996. Personal Financial Statements. The owner's personal financial statements are not required to appraise the property, but can be helpful under certain circumstances. While market value intrinsically assumes transfer to a willing and knowledgeable buyer at market price, financial statements of the owner often provides insight into the current management quality and style of the property. An undercapitalized owner, for example, may not be able to institute correction of deferred maintenance that will enhance livability. As such, occupancy and rates may suffer from inadequate level of maintenance, which results in loss of reputation. Financial statements of the subject ownership have not been reviewed. However, based on conversations with management Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 35 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA and the overall good maintenance level and high occupancy of the property, it can logically be assumed that ownership is capable of operating the property in a strong professional manner. Based on conversations with management, and inspections of other properties owned by Thysen and managed by Lincoln Property Residential, the subject has been operated in a professional manner and there appears to be no operational problems. Rent Roll: A roll of the current tenants have been provided by management as of September 28, 1996. As of this date, 16 units were vacant. Of the vacant units, two are models and one is under repair (deck). Three have been preleased. Thus, there are ten units (2.3%) that are available for rent at this time. Lease Agreements: A copy of the standard 2-page residential rental agreements have been reviewed, and have been included in the Addenda. About 360 units are on either 7, 8, 9 and 10 month short-term leases. The rental agreements are typical of others used in the marketplace. Utilities, except for water, trash and basic cable are paid for the tenant. There is a late charge of $30 if management elects to accept rent after the third of the month, and a $20 returned check fee. No pets are allowed without written consent. Use of the premises shall be for a private residence only. No more than three persons shall occupy a one bedroom unit; no more than 5 are allowed in a two bedroom; and, no more than 7 in a three bedroom unit. Occupancy limits are strongly enforced. First month and security deposits are collected prior to the tenant moving in. Capital Improvements: Capital expenditures over the past two years have also been reviewed and/or discussed with the property manager. Improvements to the property over the past year and half include the following: o Exterior paint (entire complex) o New landscaping o New appliances and carpets in most units Occupancy trends: In addition to the above, occupancy trends of the complex have been reviewed. Since Lincoln Property took over as managers approximately 1.5 years ago, occupancy has been increasing. This is due mainly to correction of deferred maintenance items and an improving rental market. The new management has also qualified tenants better which have resulted in less turnover and less evictions. As of the appraisal date, there were five pending evictions and only 7 available units for rent. This is a marked improvement from two years ago when vacancy reached an all-time high of 88 units (20%) due to tenant problems, inadequate management and deferred maintenance problems that created a negative reputation for the property. Moreover, seasonal tenancy has been reduced to virtually nothing by the implementation of leases. Other: According to management, Mission Laundry owns the some of the laundry machines (a breakdown was not available). Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 36 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Subject Asking Rents As of September 28, 1996, the following monthly rents (all unfurnished) were being charged at the subject complex: Circles I and II 1 BR (Cadiz model) 715 sf $615-625 $0.86-$0.87/sf 1 BR (Durango/Brasilia) 755 sf $650 $0.86/sf 1 BR (Altamira) 777 sf $690 $0.89/sf 2 BR (Guayaquil) 915 sf $730 $0.80/sf 2 BR (Fortiliza/Hermosillo) 983 sf $760 $0.77/sf 2 BR (Espirito) 1,008 sf $795 $0.79/sf Circles III (N. Plaza) 1 BR (Cozumel w/garage) 660 sf $615-625 $0.93-0.95/sf 3 BR (La Terraza w/ garage) 1,310 sf $925 $0.71/sf All rents include water, trash removal and basic cable. Tenants pay their own gas and electric (Pacific Gas & Electric Company), telephone, and premium cable channels. Pets are accepted with an additional $500 deposit. To qualify, prospective tenants must have three times the monthly rental rate and a positive credit report and previous rental history. There is a $25 application fee (includes credit report) and $100 holding fee. The application fee is non-reimbursable. Each unit has a fireplace with gas starter, dishwasher, refrigerator, garbage disposal and one covered parking space (carport or garage). There are also open parking spaces. Each unit also has laundry hookups. For $30 per month, management will rent the stacked washer and dryer units, or the tenant may bring in their own at no additional cost. There is no charge (included in rent) for use of the pools, tennis courts, spa, and recreation room. The complex also offers to their residents, seven days a week, use of laundry rooms and security patrol. The manager's office is also open 7 days per week. The above price list was set in August 1996. Management periodically surveys other complexes in the area in order to maintain market rental levels. At this time, there are no rental specials or concessions. In the past, management has offered 1/2 to one month "move-in" rent or $100 off first month's rent. As explained earlier, market conditions have been improving gradually over the past year, and most apartment complexes in Salinas are not offering any rental concessions at this time. As can be noted on the rent roll in the Addenda, a number of subject apartment units are at the above quoted rates. Those units with leases expiring will be moved to the new rates. At this time, there is a difference of 6.7 percent between the market and actual rents (i.e., actual rents lag about 7 percent below market). Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 37 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Rent Survey and Analysis In order to determine whether the subject rentals are at or within a market rental range, a survey of competing complexes was made. This analysis involved a comparison of amenities and facilities offered by competitive projects with those offered by the subject. The competing complexes considered most helpful in estimating the subject economic or market rental level are summarized on the following pages. All rental rates quoted in the survey are month-to-month or short-term leases. None of the complexes surveyed in this report had long-term leases. All complexes are garden style two and/or three-stories of similar vintage and design as the subject. All are located in the general subject neighborhood. Typically, rents include water and trash removal (and sometimes basic cable service). None of the complexes were offering any specials. Rental Number 1 represents "Cypress Creek," located at 162 Casentini Street, nearby the subject. This is a 288-unit complex built in 1987. It is of good quality and in good condition. Amenities include tennis courts, heated pool, sauna, racquetball, spa, laundry hookups, laundry rooms and carport parking. No promotional specials or concessions. Leases are 6 and 12 month terms. Security deposits are $300 and $400 (depending on the unit size). Pets are allowed with a $400 deposit. One bedroom units are reported at 750 square feet, and rent from $725 to $750, depending on variation of location within the complex. Two bedroom/two bath units measure 1,000 square feet and rent from $925 to $950, or $0.93 to $0.95/sf. Only four units are available. This is one of the newer and better quality complexes in Salinas and is similar in many respects to the subject. Like Rental Number 2 below, it is directly comparable to the subject. Rental 1 supports the subject rental rates. This comparable indicates, however, that the subject 3 bedroom units at $925/month are probably below market. Rental Number 2 represents the 168-unit "Fox Creek Apartments," located at 136 West Alvin Drive nearby the subject in north Salinas. The overall quality and condition are good. No promotional specials or concessions. Leases are 6 and 12 month terms. Security deposits are $250. Amenities consists of a pool, spa, weightroom, clubhouse, laundry rooms, and tennis courts. Some units have washer/dryer hookups. There are 76 one bedroom, 24 two bedroom/one bath, and 68 two bedroom/two bath units. One bedroom units are reported by management at 708 square feet, and rent at $625 per month, or $0.88/sf. Two bedroom/ one bath units are 875 square feet, and rent at $725 per month, or $0.83/sf. Two bedroom/two bath units are 986 square feet, and rent at $750 per month, or $0.76/sf Current vacancy is zero. Fox Creek is directly comparable to the subject and is perhaps the best overall comparable. The subject, however, does not have any two bedroom/one bath units. This comparable provides excellent support for the subject rental rates. As with Rental #1, this comparable indicates that the subject 3 bedroom units are priced below market potential. Rental Number 3 is the 112-unit "Cypress Landing Apartments" located at 552 Rico Street, nearby the subject in north Salinas. This is a newer complex built in 1989. It is of good quality and in good condition. There are 36 one bedroom and 76 two bedroom/ two bath units. One bedroom units measure approximately 750 square feet and are $640-665 per month. Two bedroom units are Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 38 <PAGE> RENT COMPARABLE NUMBER 1 Name: CYPRESS CREEK Location: 162 Casentini Street, Salinas Age/Type: 9 years old/ two-story garden design - 288 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $725-750 750 $0.97-l.00 2BR/2BA = $925-950 1,000 $0.925-0.95 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, racquetball, spa, w/d hookups, laundry rooms Vacancy: 0% (some units will become available in next few weeks) Comments: Nine year old project; good tenant appeal. Located off N. Main Street. Close to shopping, schools, freeway. Deposit = $300/400. $25 per month extra with lease (either 6 or 9 months). Pet deposit of $400 (cats). Good demand over past year. Source: (408) 758-3008 [GRAPHIC OMITTED] 39 <PAGE> RENT COMPARABLE NUMBER 2 Name: FOX CREEK Location: 136 W. Alvin, Salinas Age/Type: 1986/ two-story garden design - 168 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $625 708 $0.88 2BR/1BA = $725 875 $0.83 2BR/2BA = $750 986 $0.76 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, w/d hookups in all units, laundry rooms Vacancy: 0% (some units will become available in December) Comments: Ten year old project; good tenant appeal. Located off N. Main Street. Close to shopping, schools, freeway. Deposit = $250. Pet deposit of $350 (20 lbs.). Good demand over past year. No units available. Some units may become available in December. Carport parking plus open. No specials. Month-month rentals. Source: (408) 449-1800 [GRAPHIC OMITTED] 40 <PAGE> RENT COMPARABLE NUMBER 3 Name: CYPRESS LANDING Location: 552 Rico Street, Salinas Age/Type: 1989/two-story garden design - 112 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $655-690 750+/- $0.87-0.92 2BR/1BA = N/A 2BR/2BA = $765-825 975+/- $0.78-0.84\5 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, some units have fp's (all 1/br's), laundry rooms Vacancy: 0% (some units will become available in October) Comments: Good tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit = $350/450. Good demand over past year. No units available. Some units may become available in October. Carport parking plus open. No specials. 6 and 12 month leases ($15/mo. taken off 12 mo lease). Source: (408)424-4343 [GRAPHIC OMITTED] 41 <PAGE> RENT COMPARABLE NUMBER 4 Name: NORTHPOINTE Location: 196 E. Alvin Drive, Salinas Age/Type: 1976/ two-story garden design - 138 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $568 648 $0.87-0.92 2BR/1BA = $620 735 $0.84 2BR/2BA = $669 835 $0.80 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, some units have fp's (all 1/br's), laundry rooms Vacancy: 1% (only one unit available at survey time) Comments: Avg-Avg+ tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit = $300/400. Good demand over past year. Carport parking plus open. No specials. 6 month leases. Source: (408)443-1776 [GRAPHIC OMITTED] 42 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA approximately 975 square feet, and rent from $745-795 per month. Amenities include a pool, spa, clubhouse and carport parking. Some units have fireplaces. No rental concessions or specials. The property is close to shopping, freeway access and schools. The overall appeal is good. Only one unit is currently available. Rental #3 is rated slightly superior to the subject in terms of age and average unit size (larger). While only some of the units have fireplaces, the overall appeal of this complex is marginally superior indicating slightly higher rental rates (on average). In short, the subject rental rates are well supported by this comparable. Rental Number 4 is the 138-unit "Northpointe Apartments" located at 196 East Alvin in North Salinas nearby the subject. This is a two-story garden complex built in 1976. The overall quality and condition are above average to good. The location directly off N. Main is close to shopping, schools and freeway access. The complex has 1, one bedroom unit currently available at $568/month, and 1, two bedroom/one bath unit at $620/month. Two bedrooms reportedly rent as high as $669 per month. One bedrooms range from 624 to 648 square feet, and two bedrooms contain 735 to 835 square feet. Rents include water and trash. Security deposits are $300 for one bedrooms and $400 for two bedrooms. Leases of six months are required. There are no specials or concessions. Pets are not allowed. Amenities include two laundry rooms, and one swimming pool. The level and quality of amenities are inferior to the subject. The subject also has an additional advantage of having security fencing and gates as well as units having laundry hookups, garages, and fireplaces. In conclusion, the subject rents should (and are) be significantly higher than $568 for a bedroom and $620 + for the two bedrooms. Other: In addition to the above primary comparables, several other complexes including many owned by Thysen in the Salinas marketplace were considered. Thysen owns another 12 complexes in Salinas (most are in North Salinas). Although not enough to "set" the market, the number of complexes controlled by Thysen has an influence on rental levels. Thysen property managers (employees of Lincoln Property) regularly refer clientele to other Thysen complexes. Still, there are more than enough competing projects to make it difficult if not possible to "control" the market. Rental rates at these complexes are consistent with one another and with competing projects. Market Rental Conclusion The four primary comparables strongly support the current subject rental rates of $615 to $690 for one bedrooms, and $730 to $795 for two bedrooms/two bath units. On a per square foot basis, the range is $0.87 to $1.00 per square foot for the one bedroom units, and $0.76 to $0.95 per square foot for the two bedroom units. Studios typically range from $1.13 to $1.58 per square foot. Three bedroom units are not as prevalent as one and two bedroom units. The few complexes that have three bedroom units are charging a minimum of $900 per month. With the exception of the three bedroom units, the subject units are being rented at market levels at this particular time. The subject three bedroom units are currently priced below market at $925. Based on Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 43 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA market data, the economic or market rent for three bedroom units should be approximately $975 per month Of the complexes surveyed (including those not shown in this appraisal) which consisted of about 2,000 total units, overall vacancy is running between 1-2 percent. Most had no vacancy. Some had only a few units available. A few managers stated that units should become available in November and December as seasonal workers go home. When a unit does become available, it typically takes 3 to 7 days to re-rent. However, in several cases, the unit is pre-leased (rented prior to the occupant moving out). Subject Market Rental Income ((@ 100 percent Occupancy) Based on market rents, the subject would have the following monthly income at 100 percent occupancy. <TABLE> <CAPTION> Circles land II Type Size Rent/Mo. Rent/SF No. Total Rents - ---- ---- -------- ------- --- ----------- <S> <C> <C> <C> <C> <C> 1 BR (Cadiz model) 715 sf $615 $0.86/sf 40 $24,600 1 BR (Durango/Brasilia) 755 sf $650 $0.86/sf 79 $51,350 1 BR (Altamira) 777 sf $690 $0.89/sf 40 $27,600 2 BR (Guayaquil) 915 sf $730 $0 .80/sf 40 $29,200 2 BR (Fortiuiza/Hermosillo) 983 sf $760 $0.77/sf 80 $60,800 2 BR (Espirito) 1,008 sf $795 $0.79/Sf 40 $31,800 ---- -- ------- $706 avg. 319 $225,350 <CAPTION> Circles III (N. Plaza) <S> <C> <C> <C> <C> <C> <C> <C> 1 BR (Cozumel w/garage) 660 sf $615-625 $0.93-0.95/sf 52 $32,230 3 BR (La Terraza w/ garage) 1,310 sf $975 $0.74/sf 68 $66,300 ---- -- ------- $821 avg. 120 $98,530 - ---------------------------------------------------------------------------------------------------- TOTAL $736 avg. 440 $323,880 - ---------------------------------------------------------------------------------------------------- </TABLE> On an annual basis, the above translates to $3,886,560. Actual Reported Income Shown below is a table outlining revenue for 1994, through July 31, 1996. Rental income for September 1996 is also shown. Income statements are shown in the Addenda. <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------------- 1994 1995 ytd('96) Sept. 96 - ----------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> *Gross Rents: $2,577,288 ($489/un) $2,816,635 ($533/un) $1,837,106 ($596/un) $295,339 ($671/un) Laundry $ 24,932 $ 33,405 $ 11,456 N/A Other $ 116,044 $ 174,518 $ 98,074 N/A </TABLE> * - collected rents, N/A = Not available Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 44 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Rental Income Estimate: Almost all of the subject's total income is derived from rents. As shown above, rental income has increased significantly over the past two years. This is due to in part to new management and an improving rental market. The actual rental income for the month of September 1996 was $295,339, or $671 per unit. This amount does not include nine vacant units. The market rent for the vacant units total $7,200, or $800 per unit on average. Blending this with actual rental income, results in a gross scheduled rental income of $302,539, or $687 per unit. Consequently, $302,539 or $3,630,468 has been used as stabilized gross income. Laundry: The laundry income is stabilized at $20,000 per year. The actual laundry income is somewhat higher as the complex rents stacked washer and dryer units to tenants. Washer and dryers are considered personal property, and are not valued in this appraisal. It is recognized, however, that since the subject units all have laundry hookups, rental potential is greater than a comparable unit without hookups. This has been considered in the market rents of the units. Other: Other income consists of retained deposits, late charges, nsf checks, and miscellaneous charges to tenants. The large percentage of this category relates to security deposits. Although forfeited security deposits and late charges are a source of income, it is not included in the reconstructed operating statement as part of ongoing cash flows. This is largely because this type of income was not accounted for in the computation of gross and net operating incomes for the comparable sales. Total Gross Income: Total gross income is estimated at $3,650,468; rounded to $3,650,000. Vacancy and Collection Loss In estimating a stabilized vacancy factor, several factors were considered. First, vacancy has decreased over the past few years due to new management and improving market conditions. In 1993, market conditions were soft and vacancy was significantly higher than it is today. Moreover, deferred maintenance and a poor reputation resulted in as many as 88 units being available about 1.5 years ago. The property has been upgraded over the past year. Meanwhile, market conditions have improved due to an expanding economy. The resurgence of "Silicon Valley" 70 miles to the north, the new Soledad Correctional facility, and several thousand feet of regional shopping space has created many new jobs. The new Wal-Mart in this area will also expand the retail base, and bring in new jobs. It is estimated by management, for example, that about 30 to 40 percent of the tenants work for Soledad Correctional facility. As of the inspection date, the subject complex is running a 2.3 percent vacancy. This is consistent with comparable Salinas projects. In 1994, the complex was experiencing a vacancy factor in excess of 10 percent due to the reasons mentioned above, but also to some reliance on seasonal workers from Mexico. Seasonal tenancy is no longer a significant factor as management has installed a lease program that calls for a minimum length of 7 months. The tenancy is now much more stable than it has been in the past. With proper management and property upkeep, tenancy should remain stable as the subject complex is reasonably well-located and offers a variety of rental plans and a number of amenities that are not found in most complexes in this area. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 45 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA In addition, to vacancy, consideration must also be made for ongoing collection loss. In the case of the subject, collection loss has been reduced from previous years due to the stricter qualifying policies. There are five pending evictions. According to management, evictions number about 10 per year. Deposits are collected upfront, thus actual collection loss is mitigated to some degree. However, consideration should still be made for collection loss. A reasonable stabilized collection loss rate is 1 to 2 percent of gross income. Assuming continued good professional management, vacancy and collection loss should run at approximately 5 percent on average. There is the strong possibility that vacancy and collection will fall below this estimate over the next 12 to 24 months, however, longer-term, consideration should be made for construction of new units and decreased economic activity. Effective Gross Income The effective gross income is estimated by deducting five percent from estimated gross income, as shown below: - -------------------------------------------------------------------------------- Gross Annual Income: $3,650,000 Less: Allowance for Vac/Collection (5%) (182,500) --------- EFFECTIVE GROSS INCOME $3,467,500 - -------------------------------------------------------------------------------- Expense Analysis In order to estimate the value of the property by the income capitalization approach, expenses must be deducted from effective gross income to arrive at a net operating income estimate. Like other types of income property, apartment property expenses are a function of services provided as well as physical and geographical characteristics of the property itself. Operating and "fixed" expenses vary from complex to complex, but generally fall between 33 to 43 percent of revenue (gross income), including replacement reserves. Expenses can be broken down into per unit per year (or month), or as a percentage of rental revenue or effective gross income. Expenses as a percentage of income change depending on revenue levels. It can be difficult to compare apartment expenses on a line-by-line basis. No two apartment complexes are alike. Shown on the following page is a recent operating history of the subject. Expense categories are analyzed and discussed below. It should be noted that new management took over in 1995; expense records previous to 1995 are not complete and do appear to reflect current conditions. Real Estate Taxes & Direct Assessments California state law requires the reassessment of any parcel upon change of ownership. The market value of the subject property intrinsically assumes a hypothetical sale. Therefore, it is necessary to estimate real estate taxes based upon market value. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 46 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA In the State of California, property is enrolled at 100 percent of market value as determined by the County Assessor upon transfer of ownership or significant new construction. The maximum tax rate cannot exceed 1 percent of the enrolled value, plus general assessment bonds and fees approved by the voters. Enrolled value can be increased by a maximum of 2 percent per year, absent transfer, or new construction, based on the cost of living. Under Proposition 8, approved subsequent to Proposition 13, value can also be decreased to reflect current market conditions. The actual taxes are below what the new taxes would be based upon market value. According to the Monterey County Tax Collector Department, there are no special assessment bonds. The tax rate is 1.02 percent. Since market value has not yet been estimated by the income capitalization approach, a technique which adds the composite tax rate reflecting the ad valorem taxes to the capitalization rate has been used. The resulting value estimate is then multiplied by the composite tax rate to obtain the amount of new taxes. This method gives only an approximation since the assessed value may not necessarily be the sale price (or market value). In addition, the value conclusion by the sales comparison approach has been used as a guide. Applying the tax rate of 1.05 percent, results in new taxes of $221,000. - -------------------------------------------------------------------------------- SUBJECT PROPERTY OPERATING HISTORY - -------------------------------------------------------------------------------- 1994 1995 Y-T-D (8/96) ---- ---- ------------ Gross Annual Rental $2,577,288 $2,816,635 $1,837,106 Expense Item 1994 1995 1996 (ytd) - ------------ ---- ---- --------- Payroll $233,530 $396,559 $221,704 Utilities $297,344 $301,623 $171,823 Insurance N/A $ 20,175 N/A Taxes & N/A $104,279 N/A License & Permits N/A $ 5,663 $ 5,741 Management Fee $ 0 $ 79,243 $ 67,548 Administrative $ 49,722 $ 98,542 $ 34,466 Maintenance & Repair $292,851 $382,614 $191,725 Gardening/Landscaping $ 56,014 $ 80,892 $ 53,289 Cable T.V. $ 48,927 $ 43,395 $ 22,431 Security $ 5,952 $ 24,334 $ 16,231 -------- -------- -------- - -------------------------------------------------------------------------------- TOTAL N/A $1,537,319 N/A Per Unit $3,494/unit - -------------------------------------------------------------------------------- Note: Actual reported expense in 1995 was $1,782,874; the above does include carpet replacement which was $245,555. Total expense in 1994 is not applicable due to missing information and/or under-reported or over- Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 47 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA reported expense. Many of the above categories group expenses (e.g., pool supplies and maintenance is under Maintenance and Repairs). License and Permits In addition to taxes, apartment properties incur license and permit fees. These fees have been approximately $5,700 per year over the past two years. As such, the stabilized estimate is $5,700. Payroll The subject employs 11 full-time personnel. This is broken down into three administrative (leasing agent, assistant manager and manager) and eight maintenance employees. The manager lives in the complex and the unit rent is included in her compensation. Payroll expense was reported at $396,559 for 1995, or $901 per unit. This includes payroll taxes, state compensation insurance, unemployment taxes, wages for manager and office workers as well as maintenance personnel, and bonus. To date, this category is $221,704, or $865 per unit annualized. Taking the average of the two years, this expense has been stabilized at $880 per unit, or $387,000 (rounded). Utilities Utility expense includes water, trash, basic cable, sewer, electrical for exterior site lighting and for other common amenities, including laundry facilities, filtering equipment for the pool, lighting for the clubhouse, etc.; tenants pay their own telephone, electric and gas, and premium channel cable. The subject units are individually metered. Trash removal service is included in the monthly rent for all units. Utility expense can be estimated on a price per unit or on a price per square foot basis. The projects with the greatest amount of amenities and larger unit sizes generally show the highest rates of utility expenses. In 1994, utilities were reported at $677 per unit, and in 1995 it was reported at $687 per unit. The annualized projection for 1996 is $671 per unit. We have stabilized this expense at $700 per unit, which is consistent with prior years and other apartment complexes throughout the region. Insurance Insurance expense has been stabilized at $100 per unit as based on similar complexes throughout the region. Actual expense has not been reported. Management Fee (Supervisory Management) Lincoln Property Company has been managing the property over the past year and one-half. The reported fee is $79,243 for 1995. To date in 1996, the fee has been $67,548. The fee will increase with the increase in rental. Normally, management companies will charge from a low of 3 for large projects to a high of 6 percent of collected rent for smaller complexes. Given the large size of the subject, this expense is stabilized at the lower end, i.e., 3.5 percent. Maintenance and Repair This category includes on-going maintenance and repairs that include the common areas, plumbing, pool, and electric. This category also includes building/pool supplies, appliance replacement and decorating supplies. In 1995, most carpets were replaced at a cost of $245,555. Several appliances Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 48 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA were also replaced at a cost of $33,270. This level of replacement does not recur on an annual basis, thus an adjustment is required in stabilizing this expense. Normally, maintenance and repair ranges from 4 to 7 percent of effective gross income, or $400 to $600 per unit. The actual subject expense has been substantially higher due to the refurbishing of the complex over the past year. It should also be noted that this category does not include landscape/gardening and exterminating contracts or wages for maintenance personnel. Administrative This category consists of advertising and promotion, office supplies, computer expense, legal, credit check expense, and miscellaneous expense such as stationary, postage, etc. As shown in the Income & Expense Statement prepared by Lincoln Property Residential, a management fee paid to Lincoln is included under this category. In this analysis, the management fee has been separated and discussed under its own category. Gardening/Landscaping /Cable T.V. /Security Landscaping is contracted to a private landscape company. Basic cable is included in the rent, thus it is an expense to the landlord. Security patrol and exterminating are also contracted. Total expense reported in 1995 was $151,000. The total for the first eight months of 1996 is $109,840. We have stabilized this category at $150,000. Replacement Reserves Most owners do not utilize the replacement reserve account during the analysis or operation of an apartment complex. Rather, capital improvement items are often expensed as they are incurred. However, since capital expenditures affect the investor's cash flow, an analysis of the property's value must account for these expenses in the form of appropriate reserves for replacement. Reserves for replacements are estimated at two percent of EGI, which equates to $159/unit. This takes into account the current good condition, lower effective age and recently completed capital improvements of the project. Items which are commonly associated with a reserve account include repaving of drives, replacement of underground utility pipes and electrical conduit, roof and foundation, as well as resurfacing of the pool new appliances, etc. (i.e., items that are not normally expensed year to year). Net Operating Income Total stabilized expenses and collection loss allowance amount to $1,593,700, or $3,690 per unit. This also equates to 45.9 percent of effective gross income. It should be noted that as a percentage of income, expenses are higher at the subject than they are for many complexes in this region. The reasons for this include: (1) higher number of people residing at the complex due to the larger percentage of three bedroom units; (2) basic cable service included in the rent; (3) more common amenities (and security gates) than the typical complex resulting in a higher level of maintenance; (4) rents are relatively low in comparison to complexes in neighboring counties, thus as a percentage of income, expenses appear high. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 49 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Net operating income is estimated by deducting operating and fixed expenses from effective gross income, as shown below and on the following page: - -------------------------------------------------------------------------------- Effective Gross Income $3,467,500 Total Expenses (1,593,700) ----------- Net Operating Income Before $1,873,800 Income Taxes & Depreciation - -------------------------------------------------------------------------------- Capitalization Rate Analysis After net operating income is estimated, an appropriate capitalization method is selected. Of the various techniques, the one that is almost always used due to its simplicity is direct capitalization. This method employs the use of a single rate known as the overall rate. The overall rate reflects the relationship between the projection of annual net operating income and a sale price or an estimate of value. It is calculated by dividing the net operating income of the sale into the sale price. When the property is purchased all cash, which is rare for larger apartments, and there is no subsequent change in value or income, then the capitalization rate is also the rate of return on the total property investment. In the Sales Comparison Approach section of this report, there is a table in which we have summarized our analysis of capitalization rates for the comparable sales. These capitalization rates were based on actual or actual near-term potential gross annual income less expenses at time of sale. In each case, expenses included new real estate taxes at market value as opposed to actual taxes which are typically much lower. The capitalization rates derived from each of these sale properties are summarized below: Sale No. 1 2 3 4 5 6 7 8 - -------------------------------------------------------------------------------- Cap Rate (%): 8.54 8.6 9.1 9.34 9.6 10.15 7.9 9.69 The main factor influencing capitalization rates is the perception of risk. Those properties perceived to have higher risk, will sell at higher capitalization rates. The lower risk properties sell at lower capitalization rates. Apartment properties, because of their low vacancy, generally fall into the low risk category. Risk factors that should be taken into account in selecting an appropriate capitalization rate include the following: o Amount of available land zoned to allow future apartments o Upside (or downside) potential of cash flow - - o Existing or planned government restrictions on use and/or rent increases - - o Deferred maintenance and remaining life of site improvements o Marketability/liquidity o Availability of financing Availability of Land (potential of future competition) While there are several hundred acres of undeveloped land in the general area, most is zoned agriculture or has environmental issues such as sloughs/wetlands. This is not to say, however, that additional apartments could not be developed within a 50 mile radius. There has been very little apartment construction in the area over the past 9 years. One of the main reasons is the high Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 50 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA cost of land and building. So, while future construction of apartments will occur to some degree, the high cost will result in higher rents that likely will not compete with the subject. Upside Potential of Cash Flow Gross revenue projected at stabilized occupancy is based largely on the current average rate. The market rate, although close, is still lower than the actual income. And given high occupancy in almost all Salinas apartment properties, it appears certain that rents will continue to gradually increase over the next 12 to 24 months. Consequently, upside rental potential appears good at this particular time. The subject is not affected by rent control, so this would not be a limiting factor. Deferred Maintenance The subject is well-maintained without any significant repairs or deferred maintenance. Better-conditioned apartments tend to sell at lower capitalization rates. Marketability/Liquidity Appropriately priced, the subject would have good marketability (see Marketing and Exposure Estimate sections). This tends to lower the overall capitalization rate since there would be good buyer demand. At 439 units, the subject is on the larger size. Larger properties have a tendency to sell at higher rates than similarly located smaller complexes due to the drop off in potential buyers. Availability of Financing Financing should not have a significant impact on the capitalization as capital is available for this type of property. Capitalization Rate Conclusion In conclusion, the subject capitalization rate should fall between 8.75 to 9.5 percent, as evidenced by the sales. Discussions with brokers, property owners and management companies indicate that apartment capitalization rates are dropping in Santa Clara County. Although this may also occur in Salinas, there is no empirical data to support a lower than 9.0 percent rate at this particular time. Based on our analysis, the most probable subject capitalization rate is 9.0 percent. $1,873,800/ .090 = $20,820,000 - -------------------------------------------------------------------------------- Cash-on-Cash Rate Method As a check on the above estimate, cash-on-cash has been used. The cash-on-cash rate is the annual cash flow to equity as a percentage of equity investment. Cash flow is net income after deduction of debt service. This method is helpful in determining whether the appropriate capitalization rate has been used. The formula is as follows: Cash Flow (net income after debt service) ----------------------------------------- Cash-on-Cash rate = equity Apartment property loans are usually amortized over 25 to 30 years. Loan-to value ratios are typically 70 to 75 percent. Robert Saia & Associates 3)3 Avalon Avenue Santa Cruz, CA (408) 458-9095 51 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA The cash-on-cash rate is helpful in supporting value, especially when direct market information is not available. Apartment sales sometimes involve some form of seller financing, where details are often not available. As such, the cash-on-cash rate is an approach that usually takes a back seat to direct capitalization. In this appraisal, enough information to gauge what an applicable cash-on-cash rate was available. INCOME APPROACH SUMMARY - -------------------------------------------------------------------------------- INCOME Gross Annual Rental Income $3,630,000 Laundry $ 20,000 TOTAL GROSS INCOME $3,650,000 Less: Vacancy & Collection Loss Allowance (5%) (182,500) --------- Effective (collected) Gross Income $3,467,500 Stabilized Operating Expenses Per Unit (rd) ----------------------------- ------------- Payroll $ 387,000 $880 Taxes (Prop 13) $ 221,000 $505 License & Permits $ 5,700 $ 13 Utilities $ 300,000 $690 Insurance $ 44,000 $100 Management Fee $ 121,000 $273 (3.5%) *Administrative $ 75,000 $170 Maintenance + Repair $ 220,000 $500 Landscape/Cable T.V./Security $ 150,000 $342 Replacement Reserves $ 70,000 $159 --------- ---- *includes -Advertising & Promotional - -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,593,700 $3,630 (45.9%) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NET OPERATING INCOME (NOI) $1,873,800 - -------------------------------------------------------------------------------- OVERALL CAPITALIZATION RATE (Applied to NOI) .090 --- - -------------------------------------------------------------------------------- Market Value As Is: $20,820,000 - -------------------------------------------------------------------------------- Based on a 75% LTV which requires equity of $5,205,000 and a loan of $15,615,000 and a 8.0 percent (VIR) interest rate (30-yr amort), the annual subject debt service would be $1,374,928. The cash flow after debt service would be $480,000 (rounded). Dividing $5,205,000 into equity of results in a cash-on-cash rate of 9.2 percent. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 52 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA The sale properties' cash-on-cash rates ranged from a low of 6.8 percent for a San Jose complex to 11.1 percent for a 331-unit complex built in 1964/1970. The average is 9.33 percent -- slightly higher than the subject. Consequently, the subject value by the direct capitalization method is supported by the cash-on-cash method. Other Capitalization Procedures Other capitalization methods may be used in the appraisal of apartment properties, although their understanding and use falls far short of direct capitalization. The Discounted Cash Flow analysis (DCF) is one such method. In this procedure, the value of a property is equivalent to the present value of the annual before tax cash flows, over an assumed investment holding period, plus the sale (reversion) of the property at the end of the holding period, at a single discount rate. The advantage of this approach is that it identifies variability in annual cash flows, especially in a startup operation. The Discounted Cash Flow Analysis requires several assumptions that impairs its reliability. For this reason, it is oftentimes considered a secondary valuation method in the appraisal of apartment appraisals. In this appraisal, the DCF procedure has not been used as it does not provide any additional insight into the valuation of this property. There are several reasons for excluding this approach. There is nothing to suggest at this time that there will be substantial changes in income patterns, although the near-term trend appears to be continued strengthening and gradual increasing of rents.. Another reason is that there would be several assumptions that would have to be made. Perhaps the most compelling is that the sales were not purchased on a DCF approach. Employing a DCF for the subject would require that inferences be made about each sales as to applicable yield and going-out capitalization rates, as well as hold periods and annual expense and income increase (or decrease) projections. If the majority of these sales were purchased in this manner, then a DCF would have applicability; however, this is not the case. Income Approach Conclusion The Income Approach concludes a value of $20,820,000. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 53 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA SALES COMPARISON APPROACH ================================================================================ The Sales Comparison or Market Data Approach involves making an analysis of the property being appraised based on sales of similar properties. To a lesser degree, this procedure may consider the asking prices of current listings. The market data approach presumes that a prospective purchaser would pay no more for a property than the amount with which he or she could buy another of equal utility. The reliability of this procedure is determined by: 1) availability of comparable sales; 2) comparability of sales in terms of date of sale, location, size, density, or other physical characteristics; and, 3) verification of the sales data. Although there are variations, apartment property sales are often analyzed using four unit-of-comparison indicators: o Price per unit o Gross Income Multiplier or Effective Gross Income Multiplier o Price per Rentable Square Foot o Price per Room Price Per Unit Method: The price per unit method is most often affected by unit size, condition, overall functional utility, and location of a property. Sales with high average unit sizes which are situated in the most desirable locations tend to command the highest price per unit. Naturally, the existing potential rent levels also affect the sale price, thus influencing the price per unit value. Each of these factors determine the amount of net operating income that can be generated per unit which is a fundamental measurement of investor return when applying the price per unit method. Price Per Room Method: Sale price per room demonstrates the same relationship as price per unit. Applying the same logic discussed above, which considers the average unit size of the subject, existing rent levels, and location relative to the comparable sales, a value per room can be estimated for the appraised property. Price Per Square Foot Method: While size is a strong influence in sale price per unit and price per room, the rent levels attained by a property per square foot are closely related to the price per square foot it may attain in the marketplace. It is generally true that all else being equal, the rent per square foot for larger units is less than the rents per square foot for small units. Thus, apartment buildings which have larger unit sizes have lower rents per square foot and therefore have lower selling prices per square foot. Gross Income Multiplier Method: The gross income multiplier (GIM) technique is oftentimes perceived as one of the most accurate market measure of value by the Direct Sales Comparison Approach. The GIM is calculated by dividing the sale price of the sale property by its gross annual income. This method tends to equalize property differences such age, size, and number of units. In general, where there is a fee simple title, apartment properties tend to sell at 5.5 to 8 times multiple on actual income. The range is tempered by a number of factors that include location, condition, quality, and upside rental potential. The more desirable properties with good track records will typically be higher on the scale, whereas lower quality facilities in weak locations tend Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 54 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA to fall at the lower side. Since the GIM involves gross income rather than net income, the appraiser must compare the level of expenses of the comparables with the subject. This technique works best when expense operating ratios are reasonably consistent. Comparison is not straightforward, for example, when the sale property has an operating expense ratio that is significantly higher than the subjects'. Consequently, when estimating a GIM, care must be taken when comparing gross incomes. A variation of the GIM technique--effective gross income multiplier (EGIM)--is calculated by dividing the sale price by the effective gross annual income instead of the gross annual income. This technique, however, often does not result in a further refinement since apartment vacancy (and collection loss) throughout the region is very low. Comparable Sales Description & Analysis A search for apartment properties was made in Salinas and surrounding areas. No sales of larger apartment complexes (over 100 units) in Salinas during 1995 and 1996 were found. The most recent larger apartment transaction in Salinas occurred in 1994; a 60 unit complex sold in 1993 and an 112-unit property transferred in late 1991. A summary of these sales is summarized on the following pages. Additional information is included in the Addenda. To obtain more recent sales data, it was necessary to expand the search into nearby cities and counties. The strongest sales activity at this time is taking place in Santa Clara County, adjacent to the north of Monterey County. A number of larger sales have also taken place in Santa Cruz County, to the west. A brief description of each sales area and how it relates to Salinas is summarized in the following paragraphs. Santa Clara County/San Jose: This is the largest county in the region with a population of over 1.4 million. It contains the City of San Jose, the third largest city in California. "Silicon Valley" originated in Santa Clara County. The county is home to over 2000 electronic firms, including industry leaders such as Intel and Hewlett Packard. Over the past 20 months, technological employment has dramatically increased resulting in the creation of several new jobs. To fill new jobs, several thousand people have moved into "Silicon Valley" thus creating a demand for housing. As a result, apartment and other housing rents have increased substantially, nearly doubling from previous lows in some cases. Investors have now caught on to increasing rental activity, and sales activity is brisk. This market has "filtered" into nearby communities, including Santa Cruz, Alameda County, and to some lesser degree, Salinas. The resurgence of the Santa Clara County market comes after six years of sluggish performance. The last major upswing was in 1982-85 when rents increased annually by 18 to 20 percent. From 1995 to 1989, rents and vacancy were steady. In late 1989, following the Loma Prieta earthquake and a decline in economic activity, vacancy levels started to increase and rents became soft with rental concessions given in some complexes. Starting in late 1994, the market started to once again turn upward. In 1995, economic conditions improved and rents increased to reflect a landlord's market. Today, vacancy is extremely low with very units available for rent. This is expected to continue for at least the next six to 12 months as little land is available for new apartment construction Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 55 <PAGE> COMPARABLE MARKET DATA - APARTMENT SALES <TABLE> <CAPTION> Sale Project Name No. Location No. Units Sale Date (COE) Year Sale Price/ GIM Price Per Unit A.P.N. RSF-Bldg Built Price Sq. Ft OAR Cash-on-Cash ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> [ 1 ] Willow Gardens Apartments 1750 Stokes Street 186 6/14/96 1971 $13,650,000 $85.17 7.04 $73,387 San Jose, CA 160,260 8.54% 6.8% 2-story apartment garden style built in 1970. Wood frame, wood exterior. Average quality and condition. 190 covered parking spaces (carports). Amenities include pool, spa, laundry, recreation room, balconies/patios, storage lockers, a/c. 6.40 acres (29.06 du/ac). First loan $10,600,000 from St. Paul Federal Bank. Document #13330744. [ 2 ] Ocean Terrace 1630 Merrill Street 100 7/12/96 1972 $6,300,000 $78.04 6.5 $63,000 Santa Cruz, CA 80,724 sf 8.6% 8.1% 100-unit garden style built on 2.7 acres in county area of Santa Cruz. Built in 1972, there are six buildings, a pool, exercise room, sauna, three laundry rooms, and on-site manager's office. Wood frame construction. Average quality and avg+ condition. 130 on-site parking spaces. AEK kitchens. $4,725,000 first from Home Savings of America. [ 3 ] Fox Creek Village 196 West Alvin Rd., 168 9/24/94 1986 $9,350,000 $66.31 6.8 $55,650 Salinas, CA 141,856 sf 9.1% 9.87% Built in 1986, Fox Creek Village consists of 76, 1/br/1ba units measuring 708 sf; 24, 2br/1ba units measuring 875 sf, and 68, 2/br/1ba units 986 sq ft. The gross building area is 145,023; the net rentable has been reported at 141,858 sf. 36 units have wood-burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. There are laundry rooms with washers and dyers in the complex. Above average to good quality and condition. One covered parking space per unit. [ 4 ] Kingdale Oaks 1919 Fruitdale Avenue 331 8/15/95 1970 $16,760,000 $66.22 6.01 $50,634 San Jose, CA 253,098 sf 9.34% 11.1% Average quality, 1, 2 and 3-story buildings built in 1964-1970. Wood frame and stucco. Concrete slab. Average condition. 331 covered parking spaces (carport). 166 open parking. Amenities include 2 heated pools, spa, poolside grills, laundry rooms, volleyball, and recreation building. Elevator served. New first loan from St. Paul Federal Bank, and seller second. Marketing time was reported at six months. 11.76 acres (28.15 du/ac). 1, 2 and 3 bedroom units. ==================================================================================================================================== </TABLE> Note: The above date was obtained from sources deemed reliable. However, the accuracy of the data cannot be guaranteed by R. Saia, MAI Associates (9/96) 56 <PAGE> COMPARABLE MARKET DATA - APARTMENT SALES <TABLE> <CAPTION> Sale Project Name No. Location No. Units Sale Date (COE) Year Sale Price/ GIM Price Per Unit A.P.N. RSF-Bldg Built Price Sq. Ft OAR Cash-on-Cash ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> [ 5 ] Hidden Creek Apartments 200 Button Street 146 7/14/94 1973 $7,400,000 $77.81 6.78 $50,685 Santa Cruz, CA 95,100 9.60% N/A 3.8 acres (37 du/ac). 2-story, nine buildings. Garden style walk-up. Average quality and condition. 42 studios, 60 1br/1ba, 44 2br/1ba units. About half of complex is subsidized housing tenants. Financing terms n/a. Marketing time = 3 months. Amenities include pools, creek fountain and extensive landscaping. [ 6 ] North Bay Apartments 41 Granview Street 115 12/15/95 1989 $8,550,000 $81.88 6.11 $74,348 Santa Cruz 104,421 10.15% 10.8% Good quality, 2-story garden style complex built in 1989. Average to good location. Buyer had to pay $300,000 in repairs and $175,000 in commissiions. Cap Rate is somewhat high based on other sales of similar age, size, and location. Property was never exposed to open market. [ 7 ] 2186-2198 Brutus Street 60 5/26/93 1988 $3,072,000 $61.46 7.83 $51,200 Salinas 49,980 7.90% N/A Average to good quality garden complex located in north Salinas close to shopping, schools and freeway access. There are 23, 1br units, and 37, 2br/2ba units. Average unit size is 833 square feet. No rent control. Financing terms were not available. [ 8 ] Cypress Landing 552 Rico Street 112 11/1/91 1989 $5,950,000 $59.11 6.4 $53,125 Salinas, CA 100,660 9.69 Newer, garden style consisting of 36 1br/1ba and 76, 2br/2ba units. 2-story buildings. Good quality and condition. Amenities include clubhouse, spa, pool weight room, tennis courts. Carport + open spaces. Average monthly rent at time of sale = $689. Average unit size = 899 square feet. All cash to seller. ==================================================================================================================================== </TABLE> Note: The above date was obtained from sources deemed reliable. However, the accuracy of the data cannot be guaranteed by R. Saia, MAI Associates (9/96) 57 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Housing prices in San Jose are higher than they are in Salinas. Good Salinas neighborhoods, such as those found in north Salinas, can be compared to the more average/middle income areas of San Jose as well as the agricultural communities of Gilroy and Morgan Hill, in southern Santa Clara County Still, downward adjustments are required for location when comparing San Jose to Salinas. Santa Cruz: In general, rental housing in Santa Cruz is less than it is in San Jose, but higher than in Salinas. Although considered more desirable, Santa Cruz is a relatively good area to draw comparable sales for comparison to Salinas. Santa Cruz is a coastal community that relies heavily on tourism and agriculture; some technology has filtered into the area from Silicon Valley. Rents have been increasing, but not nearly at the pace of San Jose. Occupancy is also extremely high in this area. A downward location adjustment is required when comparing a Salinas property to a Santa Cruz property. Monterey: No sales over 100 units were found in Monterey. This is mainly due to the limited number of larger units in the city. Although the City of Monterey is superior to Salinas in residential desirability, nearby cities such as Seaside and Marina are overall comparable. However, no sales of larger units were found in this area as well. Adjustment Process The most common unit of comparison indicator for apartments is price per unit. As such, the subject has been adjusted to the comparable sales on this basis. A sequence for making adjustments must be followed when percentage adjustments are calculated and added together. The first adjustment is for property rights conveyed. In this case, all properties sold fee simple or leased fee (short term leases of less than one year); no leasehold sales were included. Thus, no adjustment was required. The second adjustment converts the transaction price of the comparable into its cash-equivalent or modifies it to match the financing terms projected for the subject property. No sales with financing favorable enough to significantly influence the sales price were included, no adjustment was required. The third adjustment is made for conditions of sale or other (e.g., personal property included in sale price). No REO or distressed sales were included, and no sales with furnished units were considered. Every apartment has some amount of personal property that transfers with the property; however, these items are nominal. Other adjustments considered were based on differences in market conditions, appeal, quality/density, condition, and size. No specific adjustment was made for rent control (i.e., San Jose complexes), although this is considered in the location adjustments. Shown on the following pages is a table summarizing eight apartment sales. Additional information concerning each sale, including recording data and a photograph, is in the Addenda. Apartment Sale Number 1, at $73,387 per unit, is a June 1996 sale of the Willow Gardens Apartments, an 186-unit garden style walk-up apartment located in a centrally-located middle-income neighborhood in San Jose. This is an average quality complex in average condition at time of sale. There are 162, two bedroom/two bath units, and 24, three bedroom/two bath units. The average unit size is 861 square feet. Amenities consist of a pool, spa, recreation building, and laundry rooms. The Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 58 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA project sits on 6.40 acres, indicating a density of 29.06 units per acre. The project falls under San Jose Rent Control, which limits rental increases to eight percent with pass-through for extraordinary and capital expenses. The purchase price of $13,650,000 represents a rentable per square foot indicator of $85.17, and a per room value of $17,773. The GIM on actual rental income is 7.04. On market rents, the GIM is 6.29, indicating reasonably good upside rental potential. The Overall Capitalization Rate is 8.54 percent on actual income less actual expenses adjusted for new taxes and reserves. The cash-on-cash rate is 6.8 percent. In comparison to the subject, a downward adjustment is required for location. As noted, San Jose rent levels are higher than those found in Salinas. For example, a two bedroom/two bath unit at Willow Garden is $ 1,000+, or about $200-300 per unit higher than in Salinas. A downward adjustment of 25 percent as based on rental differential appears reasonable. The subject is a somewhat newer complex with more amenities, however, this has essentially been accounted for in the 25 percent location adjustment as based on rental differential. The average unit size and the project densities are roughly similar, thus no adjustments were necessary. A further downward adjustment of 10 percent is required by the subject's much larger size. Smaller apartment properties tend to sell at higher unit values due to a larger buyer group. Adjusting downward by 35 percent, results in an indicated subject per unit value of $48,000 (rounded). Apartment Sale Number 2, at $63,000 per unit, is a July 1996 sale of the Ocean Terrace Apartments, an 100-unit garden style walk-up apartment located in an unincorporated area of Santa Cruz County between the cities of Capitola and Santa Cruz. This is an average plus quality complex in above average condition at time of sale. There are 52, two bedroom/ units, and 32, one bedroom! units. There are also 16, 3 bedroom units. The average unit size is 807 square feet. Amenities consist of a pool, sauna, exercise room, and laundry rooms. The project sits on 2.70 acres, indicating a density of 37 units per acre. The purchase price of $6,300,000 represents a rentable per square foot indicator of $78.04, and a per room value of $16,406. The GIM on actual rental income is 6.5. Market rents were about 3 percent higher than actual income during the six month marketing period. The Overall Capitalization Rate is 8.6 percent on actual income less actual expenses adjusted for new taxes and reserves. The cash-on-cash rate is 8.1 percent. In comparison to the subject, a downward adjustment is required for location. As noted, Santa Cruz rent levels are higher than those found in Salinas. For example, a two bedroom/two bath unit at Ocean Terrace is $800-850+, or about $l00-250 per unit higher than in Salinas. A downward adjustment of 15 percent as based on rental differential appears reasonable. The subject is a somewhat newer complex with more amenities, however, this has essentially been accounted for in the 15 percent location adjustment as based on rental differential. The average unit size is roughly similar, thus no adjustment was necessary. In addition, a downward adjustment of 10 percent is made for the subject's larger size. Smaller properties tend to sell at higher unit values because they appeal to a larger group of buyers. Adjusting downward by 15 percent, results in an indicated subject per unit value of $53,500 (rounded). Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 59 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Apartment Sale Number 3, at $55,655 per unit, represents Fox Creek Village, an 168-unit two-story garden complex built in 1986, located nearby the subject in north Salinas. Although somewhat newer, Sale 3 is the best comparable in terms of locational characteristics. Physical characteristics are also similar. Fox Creek includes a pool, tennis court, recreation building and laundry facilities. There are 76, one bedroom units; and, 92 two bedroom units. The average unit size is 844 square feet. Some of the units have fireplaces. Parking is by carport stalls and open spaces. The overall quality and condition are good. In comparison to the subject, a downward adjustment of 10 percent is required for size. Another adjustment of 5 percent is made for this property's lower effective age. Although there are no sales in Salinas to determine whether apartment property value has increased since the September 1994 sale date, it is logical to assume that since rents are now somewhat higher that values are likely higher as well. Consequently, an upward adjustment of 5 percent is made On balance, a negative 10 percent adjustment is required indicating a subject unit value of approximately $50,000. Apartment Sale Number 4, at $50,634 per unit, is located south of Freeway 280 near San Jose City Community College within single family and apartment neighborhood. the project is under San Jose Rent Control Ordinance. This is average quality and condition. The buildings are wood frame and stucco with flat T&G roofs built in 1964 and 1970. There are 36, studios; 264 1br/1ba units; 20, 2br/1ba units; 5, 3br/2ba; and, 6 2br/2ba units. Amenities include 2 heated pools, poolside grills, laundry rooms, recreation room, and volleyball. Elevator served. Units have either balcony or patio and are separately metered. Average condition. 1.5 parking spaces per unit (166 open spaces and 331 carport). According to selling broker Bruce Hermann with Marcus & Millichap, gross scheduled actual income at time of sale was $2,787,000, or approximately $700 per unit per month. Actual vacancy (and stabilized vacancy) was 4.38%. Factoring-in taxes at market (per Prop 13), total expenses were reported at approximately $1,100,000. Net operating income is estimated at $1,565,000. Financing consisted of a 1st from St. Paul Federal Bank of $14,850,000 (VIR) 8%, 25-yr amortization and a seller second of $556,000 @ 7%, 2 years resulting in a total annual debt service of $1,414,297. Cash flow (after debt service) is $150,703, indicating a cash-on-cash rate of 11.1% on the cash downpayment of $1,354,000. The marketing time was reported at 6 months. The sale reportedly did not involve an exchange. This sale closed in August 1995, but was negotiated several months prior. In comparison to the subject, a downward adjustment is required for location, although not nearly as great as the adjustment made for Sale 1. The subject has superior appeal, but due to the locational difference a downward adjustment of 5 percent is made. A 5 percent upward adjustment is required for market conditions, that is, rents have moved upward over the past 1.5 years. No size adjustment is required. The subject's actual rent and expense level per unit is very similar to this sale property, thus it would make sense that the adjustments tend to offset one another. As such, no adjustment has been made. This sale indicates a potential subject unit value of $50,500 (rounded). Apartment Sale Number 5, at $50,685 per unit, represents a nine building, two-story, garden style complex of average quality. The project is located near Highway I in the City of Santa Cruz. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 60 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA It is in a neighborhood of predominately small bungalow single family homes built from 1930 to 1970; a new zero-lot line SFR development is located directly across. There are 42 studio units with an average size of 550 square feet; 60, 1br/1ba units @ 650 sf and, 44, 2br/1ba units of 750 sf. The rentable area is 95,100 square feet (avg. unit = 651). There are no recreational amenities except for pool and common utility rooms. Landscaping is extensive in some areas. One-half of the units are subsidized housing units. At time of sale, "market" rents were $600 for studio, $750 for I bedrooms, and $850 for two bedrooms. The gross and net incomes are estimates based on reported actual income per MLS listing (#369018). According to assessor's office, some buildings had deferred maintenance, however, cost to repair are not known. In comparison to the subject, a downward adjustment is required by this comparable's superior location. However, the subject is newer with superior appeal and has a higher average rental rate per unit. A 5 percent upward adjustment is made for superior appeal/condition. A 10 percent downward adjustment is required for the subject's larger size. On balance, a 5 percent negative adjustment is made resulting in an indicated subject unit value of $48,000 (rounded). Apartment Sale Number 6, at $74,348 per unit, is located in west Santa Cruz off Highway 1. This is a good quality walk-up garden design built in 1989. It is the newest complex built in west Santa Cruz area. Amenities include a swimming pool and carport parking. There are no other recreational facilities, although the complex is within a short drive to beaches and three miles to Santa Cruz Beach & Boardwalk (good tenant appeal). The buyer paid $300,000 in repairs and $175,000 commission, thus actual price was somewhat higher than reported above. The property was never exposed to the open market. The higher than normal capitalization rate is reflective of this and the extra cost to the buyer of repairs and commission. There are 18, 1br/1ba units; 69, 2br/2ba units; and, 28, 2br/2.5 ba units. Market rents are about 3-5 % higher than actual. In comparison to the subject, downward adjustments are required for age, location and size. We estimate these to be 30 percent (15% location, 5% size, and 10% age). The indicated subject value per unit from this sale is $52,000 (rounded). Apartment Sale Number 7, at $51,200 per unit, represents an average to good quality garden style apartment complex located in north Salinas. There are 23, 1 bedroom units and 37, 2 bedroom units. The 60 unit complex is smaller than the subject, however, it is very similar in location. Adjusting this sale down by 15 percent for size, and upward by 5 percent for improved market conditions since date of sale results in an indicated subject value per unit of $46,000 (rounded). Although this is a nearby comparable, because of its smaller size and older sales date less emphasis was placed on it in the final analysis. Apartment Sale Number 8, at $53,125 per unit, represents the sale of the 112-unit Cypress Landing Apartments in north Salinas. One of the last complexes to have been built in Salinas, Cypress was completed in 1989. There are 12, two-story buildings. Amenities include a pool, hot tub, weight room, tennis court and recreation building. All units have patios or balconies, refrigerators, R/O and dishwashers; some have fireplaces. There are 36, 1br/1ba units; and, 76 2br/2ba units measuring between 955 to 985 square feet. Carport and open parking. The average unit size is 899 square feet. Gross annual income at time of sale was $925,740, and net operating Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 61 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA income was $573,218, indicating a cap rate of 9.690/a. Normally, a 1991 sale would not be used as part of a primary sales analysis. In this case, given the scarcity of large apartment sales in Salinas, it has been used. No adjustment is required for location. Cypress is newer than the subject, and has marginally superior appeal. It is also smaller. A 10 percent downward adjustment is reasonable for these factors. On the other hand, an upward adjustment of 5 percent is made for improved market conditions since late 1991. On balance, a negative 5 percent adjustment is applied indicating a subject unit value of S50,000 (rounded). Sales Comparison Approach Summary & Conclusion The sales analyzed in the sales comparison approach range in size from 60 to 331 spaces, and in unadjusted price from $50,634 to $74,387 per unit. After adjustment, the sales indicated the following range of value: Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Sale 6 Sale 7 - ------ ------ ------ ------ ------ ------ ------ $48,000 $53,500 $50,000 $50,500 $48,000 $52,000 $46,000 Sale 8 ------ Average = $49,750 $50,000 Median = $50,000 For one reason or another, the sales are not highly similar. They do, however, provide a reasonably narrow range of potential subject value. The sales consistently group around $50,000 per unit, all three sales in Salinas sold in the low to mid-$50,000 per unit range. Consequently, $50,000 is a reasonable and supportable per unit value to apply to the subject property. - -------------------------------------------------------------------------------- 439 units x $50,000/units = $21,950,000 - -------------------------------------------------------------------------------- Check for Reasonableness: Based on a market value of $21,950,000, the subject property would have the following unit of comparison indicators: Price Per Rentable SF: $55.00 (rd) Price Per Room: $13,954 GIM 6.01 Price Per Rentable SF: The range of the comparables is $59.11 to $85.17. The subject should fall towards the lower end since it has larger sized units (including 3 bedrooms). Consequently, the above price is reasonable by this method. Price Per Room: The range of the comparables is $14,157 to $19,344; most are in the $14,000 to $16,000 range. The subject is at the lower end, but this is to be expected given its greater number of rooms resulting from three bedroom units. As such, the price per room method supports the above estimate. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 62 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA GIM: The subject has a high expense ratio which should be considered in selecting the appropriate GIM. The range of the comparables is 6.01 to 7.83; most range from 6.01 to 6.8. At 6.01, the subject is at the lower end, but well supported by the sales especially considering the higher expense ratio. The best overall comparable is Sale 4, in part due to size and similar income and expense levels. This comparable is also 6.01. Consequently, the above value estimate is well-supported by the GIM technique. SALES COMPARISON APPROACH CONCLUSION: The Sales Comparison Approach concludes a value of $21,950,000. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 63 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA RECONCILIATION OF THE VALUE ESTIMATES The market value of the subject property has been estimated by two of the three traditional appraisal approaches. The indications given by each are summarized as follows: ================================================================================ Income Approach $20,820,000 Sales Comparison Approach $21,950,000 ================================================================================ In order to determine our final opinion of value, the reliability and relevance of each value based upon the quality of data collected, and the applicability of the assumptions underlying each approach was considered. The cost approach was not used in this appraisal. Although it may have some relevancy, it is not a primary valuation method. The Sales Comparison Approach is a more accurate method than the cost approach, but is flawed to some degree by the limited number of comparable sales in the Salinas area. The sales that were available, however, provided consistent support. The Income Capitalization Approach is the better of the two methods, but is also flawed to some degree by the lack of recent sales in Salinas. The sales provided a strong central tendency in indicating that capitalization rates are within a fairly narrow range of 8.0 to 9.5 percent; however, market conditions are improving and capitalization rates may be decreasing. Without recent empirical data in Salinas, however, it is difficult to pinpoint a specific rate for the subject property. Still, most weight has been given to the Income Approach in concluding a final value estimate. STATEMENT OF VALUE Based on the foregoing analysis, the value of the subject property, as of September 28, 1996, is estimated as follows: TWENTY ONE MILLION DOLLARS ($21,000,000) Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 64 <PAGE> The Circle & N. Plaza Apartments. Salinas, CA MARKETING PERIOD ================================================================================ The sales marketing time is the time that it should take to market and sell the property in its "as is" condition as of the date of the appraisal. This should not be confused with exposure time which is the amount of time necessary to expose a property to the open market in order to achieve a sale. Marketing time is a forward estimate of the amount of time necessary to expose a property on the open market in order to achieve a sale from the effective date of the appraisal. Indications of the marketing times associated with the "as is" market value estimates are provided by the marketing time of sale comparables, and interviews with participants in the market. The sales marketing period is a period of time that is reasonable in light of a given property's characteristics and market conditions, based on certain assumptions. To our knowledge, there have been no sales the size of the subject in the Northern Monterey County market area over the past year. Sales from other parts of Northern California indicate that the marketing time would be less than 6 months. Apartment sales that have taken place over the past 24 months indicate that marketing times rarely exceed 6 months, and usually fall between 1 to 6 months. The length of time is not only a function of physical and locational characteristics, but the marketing and pricing. Based on the subject characteristics and assuming a list price close to the estimated market value, marketing time is estimated at 2-5 months. EXPOSURE PERIOD ================================================================================ USPAP requires that an estimate of reasonable exposure time be made in the performance of an appraisal where the value being sought is "as-is In the USPAP, the Comment to Standards Rule 1-2(b) states: When estimating market value, the appraiser should be specific as to the estimate of exposure time linked to the value estimate. The Comments to Standard Rules 2-2(a)(v) and 2-2(b)(v) state: ...Defining the value to be estimated requires both an appropriately referenced definition and any comments needed to clearly indicate to the reader how the definition is being applied [See Standards Rule 1-2(b)]... The Statement issued by the Appraisal Standards Board is as follows: Reasonable exposure time is one of a series of conditions in most market value definitions. Exposure time is always presumed to precede the effective date of the appraisal. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 65 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Exposure time may be defined as follows: The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market. Exposure time is different for various types of real estate and under various market conditions. It is noted that the overall concept of reasonable exposure encompasses not only adequate, sufficient and reasonable time but also adequate, sufficient and reasonable effort. This statement focuses on that time component. The fact that exposure time is always presumed to occur prior to the effective date of the appraisal is substantiated by related facts in the appraisal process: supply/demand conditions as of the effective date of the appraisal; the use of current cost information; the analysis of historical sales information (sold after exposure and after completion of negotiations between the seller and buyer); and the analysis of future income expectancy estimated from the effective date of the appraisal. Since there are few comparable properties to the subject that have sold in this market area, estimating exposure time is based more on discussions with knowledgeable real estate professionals. All of the sales with known marketing times took less than 6 months. The exposure time period assumes that the subject is appropriately priced and marketed. Obviously, a list price that is significantly higher than what the property is worth will result in a longer than typical marketing period. Although it could be sooner or later, our best estimate of an exposure period (based on our appraised value) is 4 months. ALLOCATION OF FURNITURE, FIXTURES AND EQUIPMENT ================================================================================ For the most part, apartment in the subject region do not require significant furniture, fixtures or equipment as part of the ongoing operation of the property. In the case of the subject, FF&E is minimal and contributes only a nominal value to the overall property worth. Personal property items observed on the premises include pool equipment, furniture in the recreation/clubhouse, office furniture and equipment (e.g., computer/printer) carts, supplies, etc. The market value of the above is estimated at less than $20,000. Some of the personal property items such as the computer and copier (i.e., office equipment) would be removed upon sale. All of the comparables had similar amounts of personal property items that were included in the sale, thus there is no need for an adjustment. Although not as management intensive as a hotel, apartments require management expertise that technically creates some (minor) going-concern value. In valuing the subject, any going-concern/goodwill has effectively been removed by deducting an offsite professional management Robert Saia & Associates 313 Avalon Avenue Santa Cruz. CA (408) 458-9095 66 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA fee. The net incomes estimated from each sale comparable also had offsite management fees deducted. It is assumed that the subject will continue to operate under professional management. In conclusion, the estimated market value of the subject is of the real estate only; FF&E (personal property) is nominal and any going-concern/goodwill value would have been removed in the deduction of an offsite professional management fee. Robert Saia & Associates 313 Avalon Avenue Santa Cruz. CA (408) 458-9095 67 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA ASSUMPTIONS AND LIMITING CONDITIONS ================================================================================ The estimate of value contained herein is based upon and subject to the following assumptions and qualifying conditions, to which the addressee shall be deeded to consent by acceptance hereof: It is assumed that merchantable fee simple title, free of encumbrance, is vested in the owner of record. It is recognized that a potential purchaser would likely consider the effect of value through consideration of the maximum conventional financing available for the property type as of the date of value. It is assumed that the property is subject to lawful, competent and informed ownership and management. It is also assumed that all financial information on the business operation is correct; errors or misstatements may have a material impact on the appraised value. We reserve the right to make changes if such errors or misstatements were later discovered. It is assumed that the information supplied by the addressee as to the parcel or parcels of real estate is correct and complete, including the legal description as it appears in this report. The appraisers assume no responsibility for matters of legal nature affecting the property or the title thereto, nor does the appraisers render any opinion as to title. No attempt has been made to render an opinion of or status of easements that may exist. It is understood that exhibits included in this report are solely for the purpose of assisting the reader to visualize or understand its content and are not intended to be exact in scale or detail. It is understood that no survey has been made to render an opinion of or status of easements that may exist. It is understood that material contained herein which is stated to be or is obviously furnished by others is believed to reliable but has not been verified except as specifically stated. Such information is believed to be true and correct; however, no responsibility for accuracy can be assumed by the appraisers. We are not required to give testimony or appear in court because of having made this appraisal, with reference to the property in question, unless arrangements have been previously; made therefor. The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization. The separate valuations of land and building must not be used in conjunction with any other appraisal and are invalid if so used. If this appraisal contains a valuation relating to a geographical portion of a large parcel or tract or real estate, the value reported for such geographical portion relates to such portion only and should not be construed as applying with equal validity to other portions of the larger parcel or tract, and the value of all geographical portion may or may not equal the value to the entire parcel or tract considered as an entity. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 68 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA We assume that there are no hidden or unapparent conditions of the property, subsoil or structures which would render it more or less valuable. We assume no responsibility for such conditions or for engineering which might be required to discover such factors. The appraisers assume the mechanical equipment to be in good working order unless expressed otherwise. Unless otherwise stated in this report, the existence of hazardous materials, which may not be present on the property, was not observed by the appraisers. The appraisers have no knowledge of the existence of such materials on or in the property. The appraisers, however, are not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired. All information and comments concerning the location, neighborhood, trends, construction quality and costs, loss in value from whatever cause, condition, rents, or any other data of the property appraised herein represent the estimates and opinions of the appraisers formed after an examination and study of the property. While it is believed the information, estimated and analysis given and the opinions and conclusions drawn therefrom are correct, the appraisers do not guarantee them and assumes no liability for any errors in fact in analysis or in judgment. Disclosure of the contents of this appraisal report (especially any conclusions as to value), the identity of the appraisers or the firm with which they are connected, or any reference to the Appraisal Institute, or the SRPA/MAI designations shall not be disseminated to the public through advertising media, public relations media, news media, sales media, or any other public means of communication without the prior written consent and approval of the undersigned. The appraisers are considered the owner of the report, and delivery of same has been to addressee only for his specific intended real estate decision. Certain forms, formatting and techniques contained herein are private property and proprietary in nature. As such, they are protected under state and federal laws covering trademarks, copyrighting, etc. Copying or re-use is strictly prohibited without expressed written consent. Certain information contained herein is considered "not for public knowledge" and is provided herein "under strictest confidence." Said information shall be used only in connection with the business decision as specifically described in the function of the appraisal. No other use of any information contained herein is permitted. Said information shall not be re- used, shared, disclosed, etc., except in accordance with the certification, limiting conditions, function and purposes as contained herein. Any deviation from the above may subject the user to additional legal action for invasion of privacy. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 69 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA Acceptance and use of this report constitutes specific and implied consent to all condition, limitations, etc. Further, the client shall hold harmless the appraisers for any unpermitted use or action resulting from such use. On appraisals subject to satisfactory completion of repairs, alterations, or new construction, the appraisal report and value conclusions are contingent upon completion of the improvements in a timely and workmanlike manner, and as of the effective date of the appraisal. Any projections in income and expenses in this report are not predictions of the future. Instead, they are an estimate of current thinking of market participants of what future income and expenses will be. No warranty or representation is made that these projections will materialized. This appraisal was prepared for Home Savings as client to be used in lending decisions or any related business pertaining to its interest in the appraised property. If an informational copy has been provided to the owner it should not be utilized for other functions. The Americans with Disabilities Act (ADA) became effective January 26, 1992. The appraiser has not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 70 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA CERTIFICATION OF APPRAISAL ================================================================================ I certify, that, to the best of my knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions and conclusions. 3. I have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. 4. My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. 5. The analyses, opinions and conclusions were developed, and, this report has been prepared, in conformity with Title XI of the Federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and its regulations, as well as the Code of Professional Ethics and Standards of the Professional Conduct of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation and the Appraisal Institute. 6. Robert Saia and James Barcells, SRA have made a personal inspection of the property. Mr. Saia's General Certificate from the State of California is valid and in good standing as of the appraisal date. 7. No one other than the undersigned prepared the analyses, conclusions, and opinions concerning real estate that are set forth in this appraisal report. It should be noted that James Barcells helped with the preparation of the report. 8. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 9. Members of the Appraisal Institute are required to meet certain continuing education requirements. As of the date of this report, Mr. Saia have completed the requirements of the continuing education program of the Appraisal Institute. /s/ Robert S. Saia - ----------------------- Robert S. Saia, MAI OREA Cert. #AG003191 Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 71 <PAGE> The Circle & N. Plaza Apartments, Salinas, CA -ADDENDA - Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 72 <PAGE> The Circle & N. Plaza Apartments, Salinas CA PHOTOGRAPHS OF SUBJECT PROPERTY [PHOTO OMITTED] [PHOTO OMITTED] Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 73 <PAGE> The Circle & N. Plaza Apartments, Salinas CA PHOTOGRAPHS OF SUBJECT PROPERTY [PHOTO OMITTED] [PHOTO OMITTED] Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 74 <PAGE> REGIONAL LOCATION MAP [MAP OMITTED] <PAGE> NEIGHBORHOOD LOCATION MAP MAP OF SALINAS AND VICINITY [MAP OMITTED] <PAGE> ZONING MAP [MAP OMITTED] <PAGE> ASSESSOR PARCEL MAP COUNTY OF MONTEREY ASSESSOR'S MAP BOOK 253 PAGE 11 [MAP OMITTED] CITY OF SALINAS RECORD OF SURVEY VOL. 4, PG. 97 ASSESSORS LOT 1 & 2 SANTA RITA RANCHO (M.G.SOUZA PROPERTY) <PAGE> ASSESSOR PARCEL MAP TAX CODE AREA COUNTY OF MONTEREY ASSESSOR'S MAP BOOK 253 PAGE 12 [MAP OMITTED] ASSRS MAP 2 SANTA RITA RANCHO LOTS 50, 52 & 54 <PAGE> FLOOD MAP [MAP OMITTED] <PAGE> NATIONAL FLOOD INSURANCE PROGRAM ================================================================================ FIRM FLOOD INSURANCE RATE MAP CITY OF SALINAS, CALIFORNIA MONTEREY COUNTY PANEL 1 OF 5 (SEE MAP INDEX FOR PANELS NOT PRINTED) COMMUNITY-PANEL NUMBER 060202 0001 D EFFECTIVE DATE: NOVEMBER 4,1981 [LOGO] federal emergency management agency federal insurance administration <PAGE> RENTAL LOCATION MAP [MAP OMITTED] <PAGE> COMPARABLE SALES LOCATION MAP MAP OF SALINAS AND VICINITY [GRAPHIC OMITTED] <PAGE> COMPARABLE SALES LOCATION MAP Santa Cruz [MAP OMITTED] <PAGE> COMPARABLE SALES LOCATION MAP San Jose [MAP OMITTED] <PAGE> APARTMENT SALE NUMBER 1 Project Name: Willow Garden Apartment Location: 1750 Stokes Street, San Jose Assessor's Parcel No.: 284-24-008 Grantor: Marie Helen Pejcha Trust Grantee: Willow Gardens Ltd. Rec. Doc. #: #13330744 Sales Date: June 14, 1996 Sales Price: $13,650,000 No. of Units: 186 Condition/Quality: Average/average Site Area: 6.40 acres (29.06 du/ac) Year Built: 1971 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $73,387 Price/Room: $17,773 GIM: 7.04 Price/RSF: $85.17 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $1,165,752 - -------------------------------------------------------------------------------- OAR: 8.54% - -------------------------------------------------------------------------------- Occupancy: 99.0% (1 unit vacant @ time of sale) Financing: see comments below Comments: Average quality garden style two-story walk-up built in 1971. Average condition and appeal. There are 162, two bedroom/two bath units, and 24, three bedroom/2 bath units. Gross rentable area is 163,740 sf. Zoning is R-4, high density. Located in area of apartments, condominiums and single family homes (middle income) with commercial/retail along major arterials. Centrally-located, close to shopping, schools, employment and freeway access. Financing terms consisted of $10,600,000 first, and a seller second of $1,275,000 @ 8%, 2 yrs. The buyer put down $1,775,000. The <PAGE> market income is estimated at $2,170,200 and the actual was $1,940,052 at time of sale. The market derived GIM is 6.29, and the market derived OAR is 9.06% (actual OAR = 8.54%). Under San Jose Rent Control Ordinance which limits annual rent increases to 8 percent. Source/Confirmation: various, including public records, inspection, Comps Inc., Stan Jones Marcus & Millichap. [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 2 Project Name: Ocean Terrace Location: 1630 Merrill Street, Santa Cruz Assessor's Parcel No.: 027-274-41 Grantor: Santa Cruz Central Investments Grantee: D&M Piterman Rec. Doc. #: #8760321 Sales Date: July 12, 1996 Sales Price: $6,300,000 No. of Units: 100 Condition/Quality: Average+/Average+ Site Area: 2.7 acres (37 un/ac) Year Built: 1972 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $63,000 Price/Room: $16,406 GIM: 6.5 Price/RSF: $78.04 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $543,984 - -------------------------------------------------------------------------------- OAR: 8.6% - -------------------------------------------------------------------------------- Occupancy: 100% (0 unit vacant @ time of sale) Financing: New First from Home Savings (see below) Comments: 100 unit garden style two-story walk-up built in 1972. It is located in an unincorporated area of Santa Cruz County one mile from the city limits of Santa Cruz and two miles north of Capitola Village, a seaside tourist area. The neighborhood is predominately average quality single family and apartments with scattering of mobilehome parks and small retail/shopping centers. The ocean is approximately one-half mile south. Amenities include a pool, sauna, three laundry rooms, <PAGE> on-site manager's office, and exercise room. There are six buildings on the 2.7 acre site. Construction is wood frame and wood siding and stucco. Roofs are flat tar and gravel. Parking is 130 spaces. All units feature AEK kitchens including dishwashers, refrigerators, garbage disposals and R/O's. There are 32, 1br/1ba units containing 624 sf; 40, 2br/1ba units measuring 860 sf; 12 units are 2br/1.5 ba @ 923 sf; and, 16 are 3br/2ba units @ 955 square feet. Market rents range from $680-695 for the 1br units to $955-$980 for the 3br units. The 2 br units range from $780 to $855. Based on market rents, the monthly gross rental income is $79,950. Laundry income is $1,125 per month. The actual income for January 1996 was $77,480, or 3% below market. Based on market rental income and laundry income, gross annual income is projected (over next 12 months) at $972,900. Deducting 4 percent for vacancy and collection loss, results in EGI of $933,984. Expenses estimated by seller are approximately $390,000 (including reserves), resulting in a NOI of $543,984 and a cap rate of 8.6 percent. The Home Savings first loan has an estimated annual debt service of $416,044, yielding cash flow of $127,939 and a cash-on-cash rate of 8.1%. reportedly, the property was purchased by the seller in 1985 at $5,200,000 (unconfirmed). Source/Confirmation: Home Savings of America, South Bay Equities [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 3 Project Name: Fox Creek Village Location: 196 W. Alvin Road, Salinas Assessor's Parcel No.: 261-631-010 Grantor: Sollecito Grantee: Fox Creek Partners Rec. Doc. #: Reel 3151 pg 1419 Sales Date: September 24, 1994 Sales Price: $9,350,000 No. of Units: 168 Condition/Quality: Good/Good Site Area: 7.84 acres (21.43 du/ac) Year Built: 1986 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $55,655 Price/Room: $15,688 GIM: 6.8 Price/RSF: $66.31 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $850,850 - -------------------------------------------------------------------------------- OAR: 9.1% - -------------------------------------------------------------------------------- Occupancy: 96.5% Financing: New loan through Bank of America Comments: Well-located in north Salinas near schools and shopping. Fox Creek consists of 76, 1br/1ba units measuring 708 sf; 24, 2br/1ba units @ 875 sf; and, 68, 2br/1ba units @ 986 sf; 36 units have wood burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. Amenities include a pool, tennis court, and recreation room. Financing terms were not available, although there was a first made by Bank of America at market rate and terms. Assuming normal downpayment and market interest rate at time of sale, cash-on- <PAGE> cash is estimated at 9.87%. No rent control. Vacancy at time of sale was reported at 3.5 percent. One covered parking space plus open parking. Garden-design walk-up. Source/Confirmation: various, including public records, inspection, etc. [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 4 Project Name: Kingdale Oaks Location: 1919 Fruitdale Avenue, San Jose Assessor's Parcel No.: 282-40-022,023 Grantor: Marie Helen Pejcha Trust Grantee: Tod & Catherine Spieker Rec. Doc. #: #12983233 Sales Date: August 15, 1996 Sales Price: $16,760,000 No. of Units: 331 Condition/Quality: Average/Average Site Area: 11.76 acres (28.15/un per ac) Year Built: 1970 Value Indicators: Price/Unit: $50,634 Price/Room: $16,878 GIM: 6.01 Price/RSF: $66.22 Stabilized NOI Est.: $1,565,000 OAR: 9.3% Occupancy: 95.62% (14 units vacant @ time of sale) Financing: See Comments Below Comments: Located south of Freeway 280 near San Jose City Community College within single family and apartment neighborhood. Close to shopping, schools and freeway access. Zoned R24 and R4 (high density residential). Under San Jose Rent Control Ordinance. Average quality, wood frame and stucco buildings (flat T&G roofs) built in 1964 and 1970. There are 36, studios; 264 1br/1ba units; 20, 2br/1ba units; 5, 3br/2ba; and, 6 2br/2ba units. Amenities include 2 heated pools, poolside grills, laundry rooms, recreation room, and volleyball. Elevator served. Units have either balcony or <PAGE> patio and are separately metered. Average condition. 1.5 parking spaces per unit (166 open spaces and 331 carport). According to selling broker Bruce Hermann with Marcus & Millichap, gross scheduled actual income at time of sale was $2,787,000. Actual vacancy (and stabilized vacancy) was 4.38%. Factoring-in taxes at market (per Prop 13), total expenses were reported at approximately $1,100,000. Net operating income is estimated at $1,565,000. Financing consisted of a 1st from St. Paul Federal Bank of $14,850,000 (VIR) 8%, 25-yr amortization and a seller second of $556,000 @ 7%, 2 years resulting in a total annual debt service of $1,414,297. Cash flow (after debt service) is $150,703, indicating a cash-on-cash rate of 11.1% on the cash downpayment of $1,354,000. The marketing time was reported at 6 months. The sale reportedly did not involve an exchange. Source/Confirmation: Marcus & Millichap (415) 494-8900 [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 5 Project Name: Hidden Creek Location: 200 Button Street, Santa Cruz Assessor's Parcel No.: 008-202-026 Grantee: Hidden Creek Rec. Doc. #: #5547479 Sales Date: July 24, 1994 Sales Price: $7,400,000 No. of Units: 146 Condition/Quality: Avg/Avg Site Area: 3.8 acres (37 du/ac) Year Built: 1973 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $50,685 Price/Room: $16,818 GIM: 6.78 Price/RSF: $77.81 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $710,400 - -------------------------------------------------------------------------------- OAR: 9.6% - -------------------------------------------------------------------------------- Occupancy: 98% (est) Financing: Not available Comments: Nine two-story buildings, garden style, complex of average quality. Located near Highway 1 in City of Santa Cruz. located in neighborhood of predominately small bungalow single family homes built from 1930 to 1970; a new zero-lot line SFR development is located directly across. There are 42 studio units with an average size of 550 square feet; 60, 1br/1ba units @ 650 sf; and, 44, 2br/1ba units of 750 sf. The rentable area is 95,100 square feet (avg unit = 651).There are no recreational amenities except for pool and common utility rooms. Landscaping is extensive in some areas. One-half of the units are subsidized housing units. At time of sale, "market" rents were $600 for studio, $750 for 1 bedrooms, and $850 for two bedrooms. The gross and <PAGE> net incomes are estimates based on reported actual income per MLS listing (#369018). According to assessor's office, some buildings had deferred maintenance, however, cost to repair are not known. Source/Confirmation: various, including public records, assessor, MLS [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 6 Project Name: North Bay Apartments Location: 41 Grandview Street, Santa Cruz Assessor's Parcel No.: 002-051-65 Grantor: EQR Northbay Chicago Inc. Grantee: Sequoia Equities Rec. Doc. #: #7770608 Sales Date: December 1995 Sales Price: $8,550,000 No. of Units: 115 Condition/Quality: Good/Good Site Area: 5.17 (22.2 du/ac) Year Built: 1989 Value Indicators: Price/Unit: $ 74,348 Price/Room: $19,344 GIM: 6.11 Price/RSF: $81.88 Stabilized NOI Est.: $867,825 OAR: 10.15% Occupancy: 100% (no vacancy at time of sale) Financing: $2,425,000 down, $6,300,000 first (see below) Comments: Good quality walk-up garden design built in 1989. Newest complex built in west Santa Cruz area. Located off Highway 1 (Mission Street) in area of single family and apartments/condos. Above average to good location. Buyer paid $300,000 in repairs and $175,000 commission, thus actual price was somewhat higher than reported above. The property was never exposed to the open market. The higher than normal capitalization rate is reflective of this and the extra cost to the buyer of repairs and <PAGE> commission. There are 18, 1br/1ba units; 69, 2br/2ba units; and, 28, 2br/2.5 ba units. Market rents are about 3-5 % higher than actual. Amenities include a swimming pool and carport parking. No other recreational facilities, although the complex is within a short drive to beaches and three miles to Santa Cruz Beach & Boardwalk. Overall good tenant appeal. Source/Confirmation: various, including public records, broker [PHOTO OMITTED] <PAGE> [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 7 Location: 2186-2198 Brutus Street, Salinas Assessor's Parcel No.: 253-081-015 Grantee: Tom Favazza Rec. Doc. #: #35062 Sales Date: May 26, 1993 Sales Price: $3,072,000 No. of Units: 60 Condition/Quality: Good/Good Site Area: 1.8+/- ac (33 du ac) Year Built: 1988+/- - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $51,200 Price/Room: $14,157 GIM: 7.83 Price/RSF: $61.46 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $242,445 - -------------------------------------------------------------------------------- OAR: 7.9% - -------------------------------------------------------------------------------- Occupancy: Not available Financing: Not available Comments: Average to good garden style complex located off N. Main Street in north Salinas. Close to shopping, schools, and freeway access. There are 23, 1br/1ba units, and 37 2br/2a units. Total rentable area is 49,980 sf. Average unit size is 833 sf. Market income at time of sale was estimated at $392,445. Vacancy and expenses were estimated at $150,000, resulting in an estimated NOI of $242,445 (7.9% cap rate). Source/Confirmation: public records, damar <PAGE> APARTMENT SALE NUMBER 8 Project Name: Cypress Landing Apartments Location: 552 Rico Street, Salinas Assessor's Parcel No.: 261-201-018 Grantee: William Lewis Rec. Doc. #: Reel 2692 pg: 0774 Sales Date: November 1991 Sales Price: $5,950,000 No. of Units: 112 Condition/Quality: Good/Good Site Area: 6 acres (18.7du/ac) Year Built: 1989 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $53,125 Price/Room: $14,442 GIM: 6.4 Price/RSF: $59.11 - -------------------------------------------------------------------------------- Stabilized NOT Est.: $573,218 - -------------------------------------------------------------------------------- OAR: 9.69% - -------------------------------------------------------------------------------- Occupancy: 2.7% ( 3 units vacant @ time of sale) Financing: All cash to seller Comments: Two story, garden style apartment complex of good quality and condition, built in 1989. One of the last apartment complexes to have been built in the north Salinas area. Close to shopping, schools and freeway access. 12, two-story buildings. Amenities include pool, hot tub, weight room, tennis court and recreation building. All units have patios or balconies, refrigerators, R/O and dishwashers; some have fireplaces. There are 36, 1br/1ba units; and, 76 2br/2ba units measuring between 955 to 985 square feet. Carport and open parking. No rent control. 899 sf average unit size. <PAGE> Gross annual income was $925,740 and net operating income was $573,218, indicating a cap rate of 9.69%. Source/Confirmation: various, including public records, inspection, etc. [PHOTO OMITTED] <PAGE> ARTICLE II - BASE DISTRICT REGULATIONS Division 6 - R-H (High Density Residential District Regulations) - -------------------------------------------------------------------------------- Contents Sec. 37-44 Specific purposes ............................................ 6-1 Sec. 37-45 Use classifications .......................................... 6-2 Sec. 37-46 Property development regulations ............................. 6-5 Sec. 37-47 Zoning Certificate ........................................... 6-8 Sec. 37-48 High density residential design guidelines ................... 6-8 Sec. 37-49 Reserved ..................................................... 6-21 Sec. 37-50 Reserved ..................................................... 6-21 Sec. 37-44. Specific purposes. In addition to the general purposes listed in Division 37-1: General Provisions, the specific purposes of the High Density Residential District regulations are to: A. Provide appropriately located areas for high density multiple family dwelling units consistent with the General Plan and with standards of public health and safety established by the Salinas Municipal Code; B. Provide adequate light, air, privacy, and open space for each dwelling unit and protect residents from the harmful effects of excessive noise, population density, traffic congestion and other adverse environmental impacts; C. Promote development of affordable housing by providing a density bonus for projects in which a portion of the dwellings are affordable to qualifying households; D. Achieve design compatibility through the use of site development standards; E. Protect adjoining low density residential districts from excessive noise or loss of sun, light, quiet, and privacy resulting from proximity to multifamily dwellings; F. Provide sites for public and semipublic land uses needed to complement residential development or requiring a residential environment; and G. Ensure the provision of public services and facilities needed to accommodate planned population densities. The additional purposes of each R-H District are as follows: Page 6 - 1 <PAGE> ARTICLE II - BASE DISTRICT REGULATIONS Division 6 - R-H (High Density Residential District Regulations) - -------------------------------------------------------------------------------- Sec. 37-46. Property development regulations. The following schedule prescribes development regulations for the High Density Residential District: - -------------------------------------------------------------------------------- R-H (High Density Residential) Property Development Regulations - -------------------------------------------------------------------------------- Additional Regulations Zoning District (See footnotes Use R-H-3.6 R-H-2.3 R-H-1.9 below) - -------------------------------------------------------------------------------- Lot size (sq. ft.) 7,200 7,200 7,200 (A)(B)(C) Lot area per unit (sq. ft.): Less than 6,000 6,000 6,000 6,000 (A) 6,000 and over 3,600 2,300 1,900 With density bonus 2,900 1,800 1,500 (D)(E) Lot width (ft.) 75 75 75 Corner lots 80 80 80 Lot depth (ft.) 100 100 100 Lot frontage (ft.) 35 35 35 Yards: Front (ft.) 20 20 20 (F)(G) Side (ft. per story) 10 10 10 (F) Corner side (ft.) 20 20 20 (F)(J) Rear (ft. per story) 10 10 10 (F) Bedrooms per unit(% of total units): 3 or more bedrooms 20 20 20 4 or more bedrooms 10 10 10 Distance between 10 10 10 (H) structures (ft.) Driveway length (ft. from 23 23 23 (L) sidewalk) Maximum height (ft.) 30 30 30 (K) Maximum nonresidential 0.3 0.3 0.3 (P) FAR - -------------------------------------------------------------------------------- Page 6 - 5 <PAGE> ARTICLE IV - REGULATIONS APPLYING TO ALL DISTRICTS Division 18 Off-Street Parking and Loading Regulations - -------------------------------------------------------------------------------- References to spaces per square foot are to be computed on the basis of gross floor area unless otherwise specified, and shall include allocations of shared restroom, halls and lobby area, and mechanical equipment or maintenance areas, but shall exclude area for vertical circulation, stairs or elevators. Where the use is undetermined, or not specified herein, the Community Development Director shall determine the probable use and the number of parking and loading spaces required. In order to make this determination, the Community Development Director may require the submission of survey or other data from the applicant or have data collected at the applicant's expense. - -------------------------------------------------------------------------------- Schedule A: Off-Street Parking and Loading Spaces Required - -------------------------------------------------------------------------------- 0ff-Street Loading Use Classifications Schedule A Spaces per Group Off-Street Parking Spaces Classification on Schedule B - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Residential Day care home, large 1 per 6 children; maximum enrollment based on maximum occupancy load Interim housing 1 per steeping room plus 1 per 100 sq. ft. used for assembly purposes or for common sleeping areas. Single-family dwelling 2 per unit (covered). Multifamily 2 per unit up to 10 units. 1.6 per unit over 10 units. Condominiums 2 per unit, covered, plus .25 per unit designated on the site for guest parking. Mobile home park 2 per unit, 1 covered, plus 1 space per 8 units which must be designated for guest parking; tandem parking is permitted. Residential care 1 per 3 licensed beds B Senior housing 1 per unit Single room occupancy .25 spaces per unit housing - -------------------------------------------------------------------------------- Page 18 - 5 <PAGE> NORTH PLAZA [FLOOR PLAN OMITTED] [LOGO] THE CIRCLES 2290 North Main Street, Salinas, California, (408) 443-1740 <PAGE> MAINTENCE/STORAGE UNIT one only THE BRASILIA 1 Bedroom, 1 Bath 753 sq. ft. [FLOOR PLAN OMITTED] [LOGO] THE CIRCLES 2290 North Main Street, Salinas, California, (408) 443-1740 <PAGE> THE HERMOSILLO 2 Bedroom, 2 Bath 983 sq. ft. [FLOOR PLAN OMITTED] [LOGO] THE CIRCLES 2290 North Main Street, Salinas, California, (408) 443-1740 <PAGE> Circles Apartments ================================================================================ Telephone (408) 443-1740 Fax (408) 443-8158 North Plaza 2310 to 2348 N. Main St. One and three bedroom townhomes with garages. [FLOOR PLAN OMITTED] LOCATION MAP <PAGE> THE COZUMEL 1 Bedroom, 1 Bath 660 sq. ft. [FLOOR PLAN OMITTED] [LOGO] THE CIRCLES 2290 North Main Street, Salinas, California, (408) 443-1740 <PAGE> THE ALTAMIRA 1 Bedroom, 1 Bath 777 sq. ft. [FLOOR PLAN OMITTED] [LOGO] THE CIRCLES 2290 North Main Street, Salinas, California, (408) 443-1740 <PAGE> THE BRASILIA 1 Bedroom, 1 Bath 753 sq. ft. [FLOOR PLAN OMITTED] [LOGO] THE CIRCLES 2290 North Main Street, Salinas, California, (408) 443-1740 <PAGE> THE DURANGO 1 Bedroom, 1 Bath 755 sq. ft. [FLOOR PLAN OMITTED] [LOGO] THE CIRCLES 2290 North Main Street, Salinas, California, (408) 443-1740 <PAGE> THE CADIZ 1 Bedroom, 1 Bath 715 sq. ft. [FLOOR PLAN OMITTED] [LOGO] THE CIRCLES 2290 North Main Street, Salinas, California, (408) 443-1740 <PAGE> THE ESPIRITO 2 Bedroom, 2 Bath 1008 sq. ft. [FLOOR PLAN OMITTED] [LOGO] THE CIRCLES 2290 North Main Street, Salinas, California, (408) 443-1740 <PAGE> THE GUAYAQUIL 2 Bedroom, 2 Bath 915 sq. ft. [FLOOR PLAN OMITTED] [LOGO] THE CIRCLES 2290 North Main Street, Salinas, California, (408) 443-1740 <PAGE> THE FORTALIZA 2 Bedroom, 2 Bath 983 sq. ft. [FLOOR PLAN OMITTED] [LOGO] THE CIRCLES 2290 North Main Street, Salinas, California, (408) 443-1740 <PAGE> THE HERMOSILLO 2 Bedroom, 2 Bath 983 sq. ft. [FLOOR PLAN OMITTED] [LOGO] THE CIRCLES 2290 North Main Street, Salinas, California, (408) 443-1740 <PAGE> LA TERRAZA 3 Bedroom, 2 Bath 1310 sq. ft. [FLOOR PLAN OMITTED] [LOGO] THE CIRCLES 2290 North Main Street, Salinas, California, (408) 443-1740 <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 1 9:05 am Circles III/North Plaza ID 3.6.1 All Units <TABLE> <CAPTION> ==== Unit Profile ===== === Scheduled vs Actual Rent ==== =================== ==Moved= Current Lease Security= YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 32A AZ.1 660 615.00 0.932 6l5.00 0.932 Collins, Sandra 08/17/96 08/17/96 05/16/97 550.00 Y -- 329 AZ.1 660 615.00 0.932 535.00 0.811 Martinez, Reggie 11/11/89 10/01/95 09/30/96 400.00 Y -- 32C AZ.1 660 615.00 0.932 555.00 0.841 Martinez, Alicia 01/22/96 01/22/96 07/21/96 300.00 Y OL 34A AZ.1 660 615.00 0.932 590.00 0.894 Serasio, James D. ( 08/13/95 08/01/96 04/30/97 300.00 Y -- 349 AZ.1 660 615.00 0.932 560.00 0.848 Guerrero, Robert (T 04/01/93 09/01/96 08/31/97 300.00 Y -- 36A AZ.1 660 615.00 0.932 555.00 0.841 Mayes, Temara Ann 01/31/96 01/31/96 01/30/97 300.00 Y -- 369 AZ.1 660 615.00 0.932 535.00 0.81l Goff, Charles 04/01/95 05/01/96 01/31/97 300.00 Y -- 36C AZ.1 660 615.00 0.932 570.00 0.864 Rowsvell, Daniel ( 07/06/92 08/01/96 06/30/97 300.00 Y -- 360 AZ.1 660 615.00 0.932 505.00 0.765 Virrueta, Sylvia (h 10/21/91 10/21/91 10/20/92 149.00 Y -- 36H AZ.1 660 615.00 0.932 570.00 0.864 Wagner, Robert 09/07/95 09/01/96 08/31/97 340.00 Y -- 361 AZ.1 660 615.00 0.932 595.00 0.902 Phillips, Dedra 03/29/96 03/29/96 03/28/97 300.00 Y -- 38A AZ.1 660 615.00 0.932 625.00 0.947 Budvorth, Ronald 04/13/96 04/13/96 04/12/97 340.00 Y -- 389 AZ.1 660 615.00 0.932 555.00 0.841 Ortiz, Robert/Rosem 02/28/96 02/28/96 02/27/97 300.00 Y -- 40A AZ.1 660 615.00 0.932 590.00 0.894 Cocanour, Richard 08/20/91 08/20/91 08/19/92 400.00 Y -- 409 AZ.1 660 615.00 0.932 590.00 0.894 Guillen, Otilio (L) 03/03/95 08/01/96 07/31/97 400.00 Y -- 42A AZ.1 660 615.00 0.932 0.00 0.000 VACANT/PRELEASED 09/20/96 0.00 N VL 429 AZ.1 660 615.00 0.932 615.00 0.932 Garcia, Javier 10/16/93 11/01/95 08/31/96 300.00 Y -- 42C AZ.1 660 615.00 0.932 555.00 0.841 Gutierrez, Evangeli 01/25/96 01/25/96 07/24/96 300.00 Y -- 420 AZ.1 660 615.00 0.932 650.00 0.985 Hammond, Don 05/01/96 05/01/96 07/31/96 300.00 Y -- 42H AZ.1 660 615.00 0.932 570.00 0.864 Fematt, Selene (L 07/16/93 09/01/96 05/31/97 300.00 Y -- 421 AZ.1 660 615.00 0.932 570.00 0.864 Rodriguez, Michael 03/25/94 09/01/96 08/31/97 300.00 Y -- 42K AZ.1 660 615.00 0.932 565.00 0.856 Macias, Sheryl E. 04/23/93 04/23/93 04/30/94 300.00 Y -- 44A AZ.1 660 615.00 0.932 615.00 0.932 Smith, Bernice 01/22/94 11/01/95 08/31/96 300.00 Y -- 449 AZ.1 660 615.00 0.932 555.00 0.841 McNeill, Sharon (L) 02/15/96 02/15/96 08/14/97 200.00 Y -- 46A AZ.1 660 615.00 0.932 605.00 0.917 Moore, Bernard 07/11/96 07/11/96 07/10/97 300.00 Y -- 469 AZ.1 660 615.00 0.932 555.00 0.841 Garza, Valentine ( 10/01/94 10/01/94 03/31/95 300.00 Y -- 48A AZ.1 660 615.00 0.932 555.00 0.841 Thompson, Robert 11/05/95 11/05/95 05/04/96 300.00 Y -- ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== AZ.1: 27 17820 16605.00 0.932 14955.00 0.872 17160 SF Occupied ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== 32D AZ.2 660 625.00 0.947 535.00 0.811 Blevins, Rosemary 08/12/94 02/01/96 10/31/96 300.00 Y -- 32E AZ.2 660 625.00 0.947 535.00 0.811 Hermosiilo, Christi 6/10/88 08/01/96 06/30/97 400.00 Y -- 32F AZ.2 660 625.00 0.947 625.00 0.947 Pattillo, Wil 07/13/96 07/13/96 01/12/97 300.00 Y -- 34C AZ.2 660 625.00 0.947 595.00 0.902 Reynoso, Shannon 06/07/96 06/08/96 06/07/97 300.00 Y -- 34D AZ.2 660 625.00 0.947 570.00 0.864 Burton, Ralph EM 10/15/88 08/01/96 07/31/97 400.00 Y -- 36D AZ.2 660 625.00 0.947 555.00 0.841 Campa, Teresa (L) 11/14/95 11/14/95 08/13/96 300.00 Y -- 36E AZ.2 660 625.00 0.947 650.00 0.985 Desmond, Erryn 04/21/96 04/21/96 07/20/96 300.00 Y -- 36F AZ.2 660 625.00 0.947 625.00 0.947 Navarrete, Lorena 09/16/96 09/16/96 09/15/97 300.00 Y -- 36J AZ.2 660 625.00 0.947 555.00 0.841 Salviejo, Jennifer 01/31/96 01/31/96 07/30/96 340.00 Y -- 36K AZ.2 660 625.00 0.947 530.00 0.803 Lacy, Marvin M. 08/06/95 08/06/95 05/05/96 300.00 Y -- 36L AZ.2 660 625.00 0.947 625.00 0.947 Barrett, Brett 10/15/96 10/15/96 10/14/97 300.00 Y -- 38C AZ.2 660 625.00 0.947 565.00 0.856 Hall, Fred 04/08/95 04/08/95 11/07/95 300.00 Y -- 38D AZ.2 660 625.00 0.947 605.00 0.917 Mendoza, Fernando 08/03/95 08/03/95 05/02/96 300.00 Y -- 40C AZ.2 660 625.00 0.947 555.00 0.841 Pelton, Kenneth B 07/21/93 07/21/93 07/20/94 300.00 Y -- 40D AZ.2 660 625.00 0.947 600.00 0.909 Balenger, Ronald 05/17/96 05/17/96 05/16/97 300.00 Y -- 42D AZ.2 660 625.00 0.947 625.00 0.941 Quezada, Manuel & E 08/16/96 08/16/96 02/15/97 300.00 Y -- 42E AZ.2 660 625.00 0.947 555.00 0.841 Valverde, Harvey 05/10/93 05/10/93 05/09/94 300.00 Y -- 42F AZ.2 660 625.00 0.947 590.00 0.894 Seal, Kieth (L) 08/12/95 08/01/96 07/31/97 340.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 2 9:05 am Circles III/North Plaza ID 3.6.1 All Units <TABLE> <CAPTION> ==== Unit Profile ===== === Scheduled vs Actual Rent ==== =================== ==Moved= Current Lease Security= YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 42J AZ.2 660 625.00 0.947 535.00 0.811 Torres, Abel 07/10/93 11/01/95 10/31/96 300.00 Y -- 42L AZ.2 660 625.00 0.947 625.00 0.947 Lembert, Bill (L) 02/22/95 02/22/95 08/21/95 300.00 Y -- 44C AZ.2 660 625.00 0.947 535.00 0.811 Titoff, Helen (L) 10/28/92 08/01/96 07/31/97 400.00 Y -- 44D AZ.2 660 625.00 0.947 595.00 0.902 Dykow, Wolfgang 03/09/96 03/15/96 03/14/97 300.00 Y -- 46C AZ.2 660 625.00 0.947 555.00 0.841 Mateuhara, Christin 01/27/96 01/27/96 07/26/96 300.00 Y -- 46D AZ.2 660 625.00 0.947 535.00 0.811 Griffin, Noelle 07/01/91 08/01/95 04/30/96 400.00 Y -- 48B AZ.2 660 625.00 0.947 555.00 0.841 Herrera, Steve 11/10/95 11/10/95 03/09/05 300.00 Y -- ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== AZ.2: 25 16500 15625.00 0.947 14430.00 0.875 16500 SF Occupied ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== 10A PT 1310 925.00 0.706 850.00 0.649 Garnboa, Lena (L 11/21/94 11/21/94 05/20/95 480.00 Y -- 10B DT 1310 925.00 0.706 850.00 0.649 Estrada, Sandra 05/31/95 07/01/96 06/30/97 400.00 Y -- 10C DT 1310 925.00 0.706 850.00 0.649 Parks, Jason 11/04/95 11/05/95 03/04/05 500.00 Y -- 10D DT 1310 925.00 0.706 895.00 0.683 Nahal, Surhjit & Av 08/14/95 08/14/95 05/13/96 1290.00 Y -- 12A DT 1310 925.00 0.706 870.00 0.664 Fite, Sandy (L) 10/01/91 08/01/96 07/31/97 400.00 Y -- 12B DT 1310 925.00 0.706 850.00 0.649 Honea, Rose & Micha 02/29/96 02/29/96 08/28/96 560.00 Y -- 12C DT 1310 925.00 0.706 875.00 0.668 Walker, James 08/16/95 08/01/96 07/31/97 400.00 Y -- 12D DT 1310 925.00 0.706 925.00 0.706 Campos, Guillermina 08/12/96 08/12/96 02/11/97 500.00 Y -- 14A PT 1310 925.00 0.706 850.00 0.649 Ruiz, Rose 02/28/96 02/28/96 02/27/97 500.00 Y -- 14B DT 1310 925.00 0.706 895.00 0.683 Al-Thowiqeb, Abdull 04/29/95 04/29/95 07/28/95 400.00 Y -- 14C DT 1310 925.00 0.706 850.00 0.649 Tejeda, Rebecca&Euni 03/25/95 04/01/96 12/31/96 400.00 Y -- 14D DT 1310 925.00 0.706 875.00 0.668 Wion, Jan H. 07/13/96 07/13/96 07/12/97 500.00 Y -- 16A DT 1310 925.00 0.706 850.00 0.649 Doreika, John 04/03/95 05/01/96 01/31/97 400.00 Y -- 16B PT 1310 925.00 0.706 850.00 0.649 Madison, Linda Sher 02/04/94 02/04/94 08/03/94 400.00 Y -- 16C PT 1310 925.00 0.706 895.00 0.683 Parkhurst, Heather 04/30/96 04/30/96 04/29/97 500.00 Y -- 16D DT 1310 925.00 0.706 850.00 0.649 f George Marinescu 01/28/96 01/28/96 07/27/96 540.00 Y -- 18A PT 1310 925.00 0.706 830.00 0.634 Oliver, Robert 11/15/94 11/15/94 05/14/95 400.00 Y -- 18B DT 1310 925.00 0.706 830.00 0.634 Hatchett, Don Wayne 09/11/93 01/01/96 11/30/96 400.00 Y -- 18C DT 1310 925.00 0.706 925.00 0.706 Snoich, Sandra M 09/25/96 09/25/96 04/24/97 500.00 Y -- 18D DT 1310 925.00 0.706 0.00 0 0.000 VACANT 09/10/96 100.00 Y VA 20A PT 1310 925.00 0.706 875.00 0.668 Vega, Henry 06/01/96 06/01/96 05/31/97 500.00 Y -- 20B PT 1310 925.00 0.706 925.00 0.706 Bade, Manish Gupta 08/04/96 08/04/96 02/03/97 580.00 Y -- 20C DT 1310 925.00 0.706 830.00 0.634 Crabb, Robert 07/29/94 02/01/96 10/31/96 400.00 Y -- 20D DT 1310 925.00 0.706 830.00 0.634 Garcia, Lydia 10/30/94 03/01/96 11/30/96 400.00 Y -- 20E DT 1310 925.00 0.706 875.00 0.66B Waldrum, Norma And 06/30/96 06/30/96 06/29/97 540.00 Y -- 20F PT 1310 925.00 0.706 895.00 0.68) Manchuca. Cirilo 04/05/96 04/05/96 04/04/97 500.00 Y -- 20G DT 1310 925.00 0.706 925.00 0.706 Calderon, Nieves 09/15/96 09/15/96 06/14/97 500.00 Y -- 20H DT 1310 925.00 0.706 895.00 0.683 Lopez, Pedro & Marg 04/10/96 04/10/96 04/09/97 500.00 Y -- 20I DT 1310 925.00 0.706 0.00 0.000 VACANT 09/26/96 400.00 N VA 22A PT 1310 925.00 0.706 800.00 0.611 Daniel, Shirley (EM 05/01/95 05/01/95 12/31/99 0.00 Y -- 22B DT 1310 925.00 0.706 850.00 0.64k Taylor, Deanna N. 09/01/95 09/01/96 08/31/97 400.00 Y -- 22C DT 1310 925.00 0.706 830.00 0.634 Lopez, Vivian (T) 07/14/94 07/14/94 01/14/95 400.00 Y -- 22D DT 1310 925.00 0.706 830.00 0.634 Fonacca, Juanita 07/27/94 02/01/96 10/31/96 400.00 Y -- 22E PT 1310 925.00 0.706 870.00 0.664 Weatherly, Milton 02/06/95 02/06/95 08/05/95 400.00 Y -- 22F PT 1310 925.00 0.706 850.00 0.649 Munoz, Eduardo 12/01/95 12/01/95 05/31/96 500.00 Y -- 22G DT 1310 925.00 0.706 875.00 0.668 Scielstad, Linda & 07/08/96 07/08/96 07/07/97 1040.00 Y -- 22H DT 1310 925.00 0.706 875.00 0.668 Nadler, Jeffery 07/01/92 08/01/96 04/30/97 400.00 Y -- 221 PT 1310 925.00 0.706 875.00 0.668 Golden, James (T) 03/21/93 08/01/96 05/31/97 400.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 3 9:05 am Circles III/North Plaza ID 3.6.1 All Units <TABLE> <CAPTION> ==== Unit Profile ===== === Scheduled vs Actual Rent ==== =================== ==Moved= Current Lease Security= YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 24A DT 1310 925.00 0.706 880.00 0.672 Herring. Olga (L) 05/01/87 09/01/96 08/31/97 500.00 Y -- 24B DT 1310 925.00 0.706 850.00 0.649 Bejosano, Robert & 02/16/96 02/16/96 02/15/97 500.00 Y -- 24C DT 1310 925.00 0.706 860.00 0.656 Abbot, Vicki 05/02/94 05/02/94 10/31/94 400.00 Y -- 24D DT 1310 925.00 0.706 875.00 0.668 Terry, James (L) 08/24/95 09/01/96 08/31/97 400.00 Y -- 24E DT 1310 925.00 0.706 895.00 0.683 Serrano, Irma (L) s 02/16/96 02/16/96 02/15/97 200.00 Y -- 24F DT 1310 925.00 0.706 850.00 0.649 Dacpano, James & Da 04/04/95 04/01/96 12/31/96 400.00 Y -- 24G DT 1310 925.00 0.706 830.00 0.634 Swartz, Ernest 06/29/95 06/01/96 05/31/97 400.00 Y -- 24H DT 1310 925.00 0.706 895.00 0.683 Allen, Suzy (L) 02/01/92 02/01/92 01/31/93 400.00 Y -- 241 DT 1310 925.00 0.706 850.00 0.649 Hong, Seho 05/30/95 06/01/96 03/30/97 440.00 Y -- 26A DT 1310 925.00 0.706 920.00 0.702 Villalobos, M & Esq 04/12/96 04/12/96 07/11/96 400.00 Y -- 26B DT 1310 925.00 0.706 895.00 0.683 Holtzman, Patty 05/12/96 05/12/96 05/11/97 540.00 Y -- 26C DT 1310 925.00 0.706 925.00 0.706 Camacho, Marcos Law 10/14/95 10/14/95 07/13/96 540.00 Y -- 26D DT 1310 925.00 0.706 850.00 0.649 Galloway, Darius 11/24/95 11/24/95 08/23/96 925.00 Y -. 26E DT 1310 925.00 0.706 870.00 0.664 Holley, David 02/15/95 02/15/95 08/14/95 640.00 Y -- 26F DT 1310 925.00 0.706 895.00 0.683 Hilldreth, William & 05/15/96 05/15/96 05/14/97 500.00 Y -- 26G DT 1310 925.00 0.706 850.00 0.649 MIN, KYUNGTAE 06/08/95 06/01/96 04/30/97 400.00 Y -- 26H DT 1310 925.00 0.706 875.00 0.668 Thompson, Curt 11/15/91 08/01/96 06/30/97 400.00 Y -- 26I DT 1310 925.00 0.706 920.00 0.702 Ayala, Martin 04/22/96 04/22/96 07/21/96 540.00 Y -- 28A DT 1310 925.00 0.706 870.00 0.664 Wynn, Jacquetta Yve 03/01/95 03/01/95 08/31/95 400.00 Y -- 28B DT 1310 925.00 0.706 880.00 0.612 Albery, Kenneth (L) 05/31/95 06/01/95 05/31/96 440.00 Y -- 28C DT 1310 925.00 0.706 850.00 0.649 Brown, Maria B 10/01/95 10/01/95 08/31/01 500.00 Y -- 28D DT 1310 925.00 0.706 830.00 0.634 Reed, Patricia (L) 09/01/94 02/01/96 10/31/96 400.00 Y -- 28E DT 1310 925.00 0.706 850.00 0.649 Isenegger, James ( 11/11/94 11/11/94 05/10/95 400.00 Y -- 28F DT 1310 925.00 0.706 875.00 0.668 Foushee, Corinne ( 07/29/95 08/01/96 07/31/97 400.00 Y -- 28G DT 1310 925.00 0.706 920.00 0.702 Acuna, Daniel & Liz 03/25/96 03/25/96 03/24/97 500.00 Y -- 28H DT 1310 925.00 0.706 0.00 0.000 VACANT 09/19/96 0.00 N VA 28I DT 1310 925.00 0.706 895.00 0.683 Vasquez, Alexander 08/01/92 08/01/92 09/01/92 400.00 Y -- 30A DT 1310 925.00 0.706 850.00 0.649 Hill, Alan (L) 12/02/95 12/02/95 09/01/96 500.00 Y -- 30B DT 1310 925.00 0.706 850.00 0.649 Gutierrez, Hermelin 01/20/96 01/20/96 07/19/96 500.00 Y -- 30C DT 1310 925.00 0.706 925.00 0.706 Raymond, David 08/31/96 08/31/96 03/30/97 1040.00 Y -- ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== DT: 68 89080 62900.00 0.706 56550.00 0.664 85150 SF Occupied ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== TOTAL: 120 123400 95130.00 0.771 85935.00 0.723 118810 SF Occupied ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 1 9:02 am Circles I & II ID 3.6.1 All Units <TABLE> <CAPTION> ==== Unit Profile ===== === Scheduled vs Actual Rent ==== =================== ==Moved= Current Lease Security= YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1 AA.1 777 690.00 0.888 670.00 0.862 Dailey, Tami 08/01/96 08/01/96 01/31/97 300.00 Y -- 13 AA.1 777 690.00 0.888 585.00 0.753 Celaya*, Richard 05/31/95 06/01/96 01/31/97 300.00 Y -- 21 AA.1 777 690.00 0.888 665.00 0.856 Salopek, Christophe 04/24/96 04/24/96 04/23/97 300.00 Y -- 35 AA.1 777 690.00 0.888 670.00 0.862 Kincaid, Thomas A 07/01/96 07/01/96 06/30/97 300.00 Y -- 41 AA.1 777 690.00 0.888 615.00 0.792 Mejia*, Daniel (L) 05/13/95 09/01/96 03/01/97 300.00 Y -- 55 AA.1 777 690.00 0.888 690.00 0.888 Swanston, C. J. (L 01/12/96 01/12/96 07/11/96 300.00 Y -- 61 AA.1 777 690.00 0.888 550.00 0.708 Hudson, Kristy Ann 08/14/93 06/09/94 06/08/95 300.00 Y -- 75 AA.1 777 690.00 0.888 690.00 0.888 Gainy, Karl 09/21/96 09/21/96 04/20/97 300.00 Y -- 81 AA.1 777 690.00 0.888 690.00 0.888 Ferra, Octavio 03/21/96 03/21/96 06/20/96 300.00 Y -- 95 AA.1 777 690.00 0.888 595.00 0.766 Castaneda, La Mar 03/31/96 03/31/96 03/30/97 300.00 Y -- 101 AA.1 777 690.00 0.888 670.00 0.862 Martin, Eszard 06/01/96 06/01/96 02/28/97 300.00 Y -- 115 AA.1 777 690.00 0.888 670.00 0.862 Humphrey, Dionna A 07/06/96 07/07/96 07/06/97 300.00 Y -- 121 AA.1 777 690.00 0.888 595.00 0.766 Barrera, Samuel 03/29/96 03/29/96 03/28/97 300.00 Y -- 135 AA.1 777 690.00 0.888 625.00 0.804 Morse, William (L) 12/01/86 09/01/96 08/31/97 375.00 Y -- 141 AA.1 777 690.00 0.888 595.00 0.766 Valverde, Lydia Car 02/27/96 02/27/96 11/26/96 340.00 Y -- 155 AA.1 777 690.00 0.888 645.00 0.830 Reese, Elouise P ( 03/05/91 08/01/96 04/30/97 300.00 Y -- 161 AA.1 77~ 690.00 0.888 595.00 0.766 Martinez, Juan and 02/20/96 02/20/96 11/19/96 300.00 Y -- 175 AA.1 777 690.00 0.888 615.00 0.792 Pandya, Amit 01/06/95 01/06/95 07/05/95 300.00 Y -- 181 AA.1 777 690.00 0.888 665.00 0.856 Freisner, Vanessa 05/15/96 05/15/96 05/14/97 300.00 Y -- 195 AA.1 777 690.00 0.888 690.00 0.888 Kimbel, Greg & Sabi 08/26/96 08/26/96 03/25/97 300.00 Y -- 201 AA.1 777 690.00 0.888 690.00 0.888 Yoro, Susan 09/13/96 09/13/96 04/12/97 300.00 Y -- 215 AA.1 777 690.00 0.888 595.00 0.766 Garcia, Virginia 03/04/96 03/05/96 03/04/97 300.00 Y -- 221 AA.1 777 690.00 0.888 610.00 0.785 Tunstall, James 03/05/95 03/05/95 09/04/95 300.00 Y -- 235 AA.1 777 690.00 0.888 690.00 0.888 Castaneda, Kim & Ja 09/07/96 09/07/96 03/06/97 300.00 Y -- 241 AA.1 777 690.00 0.888 595.00 0.766 Cruz, Arturo 03/05/96 03/05/96 03/04/97 300.00 Y -- 255 AA.1 777 690.00 0.888 680.00 0.875 Taylor, Calvin 03/01/92 03/01/92 02/28/93 400.00 Y -- 261 AA.1 777 690.00 0.888 580.00 0.746 Levy, Herbert (L) 09/01/93 02/01/96 10/31/96 300.00 Y -- 275 AA.1 777 690.00 0.888 595.00 0.766 Ramirez, Lucio & Ma 02/24/96 02/24/96 11/23/96 300.00 Y -- 281 AA.1 777 690.00 0.888 690.00 0.888 McCorkle, Carol Eli 06/20/96 06/20/96 06/19/97 300.00 Y -- 295 AA.1 777 690.00 0.888 585.00 0.753 Bloom, Lillie 04/01/94 03/01/96 11/30/96 300.00 Y -- 301 AA.1 777 690.00 0.888 605.00 0.779 Cumiskey, Phillip 06/08/93 06/08/93 06/07/94 300.00 Y -. 315 AA.1 777 690.00 0.888 620.00 0.798 Mendenhall, Jerry 03/30/96 03/31/96 06/29/96 300.00 Y -- 321 AA.1 777 690.00 0.888 595.00 0.766 Rubio, Enrique & My 02/29/96 02/29/96 11/28/96 300.00 Y -- 335 AA.1 777 690.00 0.888 595.00 0.766 Barajas, Alfonso (L 02/26/96 02/26/96 11/25/96 300.00 Y -- 341 AA.1 777 690.00 0.888 670.00 0.862 Trentlemlan, Arleta 09/20/86 09/20/86 03/30/87 375.00 Y -- 355 AA.1 777 690.00 0.888 690.00 0.888 Meyers, Pamela J 09/09/96 09/09/96 04/08/97 1300.00 Y -- 361 AA.1 777 690.00 0.888 585.00 0.753 Lee, Tammy 06/09/95 06/01/96 05/31/97 300.00 Y--- 375 AA.1 777 690.00 0.888 625.00 0.804 Murray, Floyd 02/01/89 07/01/96 06/30/97 300.00 Y -- 381 AA.1 777 690.00 0.888 690.00 0.888 Hinojosa, Elizabeth 08/24/96 08/24/96 02/23/97 300.00 Y -- 395 AA.1 777 690.00 0.888 585.00 0.753 Winslow, Derricotte 07/01/95 07/01/96 06/30/97 300.00 Y -- ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== AA.1: 40 31080 27600.00 0.888 25355.00 0.816 31080 SF Occupied ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== 11 AB.1 755 650.00 0.861 565.00 0.748 Salazar, Richard 03/11/96 03/12/96 03/11/97 300.00 Y -- 23 AB.1 755 650.00 0.861 555.00 0.735 Maa, Kuci-Fen (L) 02/24/92 01/01/96 08/31/96 400.00 Y -- 33 AB.1 755 650.00 0.861 650.00 0.861 Vargus, Joel (L) 11/17/95 11/17/95 08/31/96 340.00 Y -- 43 AB.1 755 650.00 0.861 630.00 0.834 Standley, Stephen 07/02/96 07/02/96 07/01/97 615.00 Y -- 53 AB.1 755 650.00 0.861 650.00 0.861 Thompson, Scott 08/14/96 08/14/96 05/13/97 300.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 2 9:02 am Circles I & II ID 3.6.1 All Units <TABLE> <CAPTION> ==== Unit Profile ===== === Scheduled vs Actual Rent ==== =================== ==Moved= Current Lease Security= YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 63 AB.1 755 650.00 0.861 565.00 0.748 Nava, Carlos & Paul 03/31/96 03/31/96 12/30/96 340.00 Y -- 73 AB.1 755 650.00 0.861 650.00 0.861 Venegas, Claudia (L 08/02/95 08/02/95 04/30/96 300.00 Y -- 83 AB.1 755 650.00 0.861 560.00 0.742 Cisneros, Cosine (L 04/15/94 06/01/96 02/28/97 300.00 Y -- 93 AB.1 755 650.00 0.861 620.00 0.821 Nevarez, Julio 03/31/96 03/31/96 06/29/96 340.00 Y -- 103 AB.1 755 650.00 0.861 650.00 0.861 Espinoza, Sheila A. 10/29/95 10/29/95 01/28/96 300.00 Y -- 113 AB.1 755 650.00 0.861 565.00 0.748 Cabrera, Elisio & A 02/28/96 02/28/96 02/27/97 300.00 Y -- 123 AB.1 755 650.00 0.861 579.00 0.767 Taylor, Ella (L) 01/31/96 01/31/96 07/30/96 300.00 Y -- 133 AB.1 755 650.00 0.861 555.00 0.735 Mc Clellan, Cassand 07/24/93 11/01/95 08/31/96 300.00 Y -- 143 AB.1 755 650.00 0.861 630.00 0.834 Treuhaft, Jamey & R 07/18/96 07/18/96 07/17/97 930.00 Y -- 153 AB.1 755 650.00 0.861 555.00 0.735 Rodriguez, Eliseo 01/03/95 05/01/96 12/31/97 300.00 Y -- 163 AB.1 755 650.00 0.861 630.00 0.834 Rayford, Zontrel 05/25/96 05/25/96 05/24/97 300.00 Y -- 173 AB.1 755 650.00 0.861 565.00 0.748 Cruz, Alan 03/30/96 03/31/96 03/30/97 340.00 Y -- 183 AB.1 755 650.00 0.861 650.00 0.861 Doscher, Kerrie L. 08/22/95 08/22/95 05/21/96 800.00 Y -- 193 AB.1 755 650.00 0.861 595.00 0.788 Murillo, Jason 05/24/96 05/25/96 05/24/97 300.00 Y -- 203 AB.1 755 650.00 0.861 650.00 0.861 Guzman, Gloria 07/13/96 07/13/96 04/12/97 300.00 Y -- 213 AB.1 755 650.00 0.861 555.00 0.735 Gonzalez, Regina ( 11/18/94 05/01/96 01/31/97 300.00 Y -- 223 A3.1 755 650.00 0.861 565.00 0.748 Madrigal, Carmen 03/29/96 03/29/96 03/28/97 300.00 Y -- 233 AB.1 755 650.00 0.861 630.00 0.834 Fogerty, Dean F (L) 10/09/92 10/09/92 10/08/93 300.00 Y -- 243 AB.1 755 650.00 0.861 555.00 0.735 Wilkerson, Michelle 05/27/94 05/01/96 12/31/97 300.00 Y -- 253 AB.1 755 650.00 0.861 565.00 0.748 Galiste, Melissa 03/13/96 03/13/96 03/12/97 300.00 Y -- 263 AB.1 755 650.00 0.861 650.00 0.861 Eldridge, Rod 06/28/96 06/28/96 12/27/96 300.00 Y -- 273 AB.1 755 650.00 0.861 650.00 0.861 Benjamin, Vladimir 09/21/96 09/21/96 04/20/97 600.00 Y -- 283 AB.1 755 650.00 0.861 565.00 0.748 Sales, Christina se 03/22/96 03/22/96 03/21/97 220.00 Y -- 293 AB.1 755 650.00 0.861 565.00 0.748 Villalobos, Ramona 03/16/96 03/16/96 03/15/97 300.00 Y -- 303 AB.1 755 650.00 0.861 565.00 0.748 Perez, Jaime 03/31/96 03/31/96 03/30/97 300.00 Y -- 313 AB.1 755 650.00 0.861 565.00 0.748 Mccoun, Doug 03/20/96 03/20/96 03/19/97 340.00 Y -- 323 AB.1 755 650.00 0.861 580.00 0.768 Arkan, Yavuz 09/07/94 09/07/94 03/06/95 400.00 Y -- 333 AB.1 755 650.00 0.861 625.00 0.828 Garza, Hortencia 05/01/96 05/01/96 04/30/97 300.00 Y -- 343 AB.1 755 650.00 0.861 650.00 0.861 Iwamura, Glen 07/01/96 07/01/96 12/31/96 340.00 Y -- 353 AB.1 755 650.00 0.861 630.00 0.834 Gonzalez, George Lu 07/21/96 07/21/96 07/20/97 300.00 Y -- 363 AB.1 755 650.00 0.861 650.00 0.861 Castro, Ignacio 03/31/96 03/31/96 06/30/96 340.00 Y -- 373 AB.1 755 650.00 0.861 555.00 0.735 Fernandez, Ulises 05/20/95 06/01/96 05/31/97 400.00 Y -. 383 AB.1 755 650.00 0.861 600.00 0.796 Swientek,Theodor 05/30/89 07/01/96 06/30/97 400.00 Y -- 393 AB.1 755 650.00 0.861 675.00 0.894 Laws, Eddie L. Jr. 04/08/96 04/08/96 07/07/96 300.00 Y -- ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== AB.1: 39 29445 25350.00 0.861 23464.00 0.791 29445 SF Occupied ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== 3 AC.1 715 615.00 0.860 550.00 0.769 Stuart, Barbara (L 02/25/95 09/01/96 02/28/97 300.00 Y -- 9 AC.1 715 615.00 0.860 525.00 0.734 Romero, Augustin 04/29/95 05/01/96 01/31/97 340.00 Y -- 25 AC.1 715 615.00 0.860 525.00 0.734 Pardue/DeLaGarza, A 05/12/95 05/12/95 02/11/96 840.00 Y -- 31 AC.1 715 615.00 0.860 625.00 0.874 Gagnon, David M 09/09/96 09/09/96 09/08/97 300.00 Y -- 45 AC.1 715 615.00 0.860 495.00 0.692 Cole, Ann 12/03/82 05/01/96 02/28/97 350.00 Y -- 51 AC.1 715 615.00 0.860 625.00 0.874 Ralph, Felisha 06/14/96 06/14/96 02/13/97 300.00 Y -- 65 AC.1 715 615.00 0.860 595.00 0.832 Griggs, Carissa 03/29/96 03/29/96 03/28/97 300.00 Y -- 71 AC.1 715 615.00 0.860 625.00 0.874 Robinson, Marianne 01/26/96 01/26/96 07/25/96 300.00 Y -- 85 AC.1 715 615.00 0.860 615.00 0.860 Aguayo, Marcella V 09/08/96 09/08/96 04/07/97 300.00 Y -. 91 AC.1 715 615.00 0.860 555.00 0.776 Cardova, Jesus 12/09/94 12/09/94 07/05/95 300.00 Y -- 105 AC.1 715 615.00 0.860 590.00 0.825 Gutierrez, Micaela 10/27/95 10/27/95 04/26/96 300.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 3 9:02 am Circles I & II ID 3.6.1 All Units <TABLE> <CAPTION> ==== Unit Profile ===== === Scheduled vs Actual Rent ==== =================== ==Moved= Current Lease Security= YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 111 AC.1 715 615.00 0.860 525.00 0.734 Tapia, Fermin 08/12/94 05/01/96 12/31/97 300.00 Y -- 125 AC.1 715 615.00 0.860 595.00 0.832 Pearson, Janet 03/09/96 03/10/96 03/09/97 800.00 Y -- 131 AC.1 715 615.00 0.860 570.00 0.797 Jones, Amy (L) 10/29/95 08/01/96 05/31/97 300.00 Y -- 145 AC.1 715 615.00 0.860 595.00 0.832 Goodrick, Jamie 06/12/96 06/12/96 06/11/97 600.00 Y -- 151 AC.1 715 615.00 0.860 535.00 0.748 Villenueva, Marc 04/01/94 04/01/94 10/03/94 300.00 Y -- 165 AC.1 715 615.00 0.860 535.00 0.748 Watts, Linda (L) 12/15/95 12/15/95 12/14/96 300.00 Y -- 171 AC.1 715 615.00 0.860 525.00 0.734 Munerlyn, Stephanie 10/01/94 06/01/96 04/30/97 325.00 Y -- 185 AC.1 715 615.00 0.860 525.00 0.734 Ag Duy Eng, Daisy T 02/05/94 07/01/96 05/31/97 300.00 Y -- 191 AC.1 715 615.00 0.860 570.00 0.797 Romero, Minerva (L) 10/21/95 08/01/96 04/01/97 300.00 Y -- 205 AC.1 715 615.00 0.860 525.00 0.734 Seely, Teresa 05/20/95 05/01/96 01/31/97 300.00 Y -- 211 AC.1 715 615.00 0.860 570.00 0.797 Montez, Rosalinda 07/27/95 08/01/96 06/30/97 466.66 Y -- 225 AC.1 715 615.00 0.860 545.00 0.762 Hildago, Ricardo 05/20/94 05/20/94 11/19/94 300.00 Y -- 231 AC.1 715 615.00 0.860 555.00 0.776 Turner,Eric 02/01/95 02/01/95 07/31/95 300.00 Y -- 245 AC.1 715 615.00 0.860 570.00 0.797 Giles, Mary (T) 09/08/89 09/01/96 06/30/97 400.00 Y -- 251 AC.1 715 615.00 0.860 535.00 0.748 Bibbo, Nick 01/26/96 01/26/96 06/25/97 300.00 Y--- 265 AC.1 715 615.00 0.860 570.00 0.797 Wallace, Ronald (L) 09/23/95 09/01/96 05/31/97 300.00 Y -- 271 AC.1 715 615.00 0.860 570.00 0.797 Pitchford, Alicia 11/22/95 09/01/96 08/31/97 300.00 Y -- 285 AC.1 715 615.00 0.860 525.00 0.734 Fenzke, Jay 07/15/94 05/01/96 01/31/97 300.00 Y -- 291 AC.1 715 615.00 0.860 625.00 0.874 Bailon, Byron 07/31/96 07/31/96 01/30/97 300.00 Y -- 305 AC.1 715 615.00 0.860 595.00 0.832 Achanta, Srivinas 08/01/95 08/01/95 01/31/96 300.00 Y -- 311 AC.1 715 615.00 0.860 570.00 0.797 Raisanen, James (L 11/23/90 07/01/96 04/30/97 400.00 Y -- 325 AC.1 715 615.00 0.860 525.00 0.734 Kumar, Sathish (L) 03/01/94 04/01/96 12/31/96 300.00 Y -- 331 AC.1 715 615.00 0.860 625.00 0.874 Powser, Kimberely 06/16/96 06/16/96 03/15/97 300.00 Y -- 345 AQ.1 715 615.00 0.860 525.00 0.734 Dixon, Marion (L) 10/20/90 05/01/96 01/31/97 400.00 Y -- 351 AC.1 715 615.00 0.860 525.00 0.734 Gupta, Raghu 06/13/94 06/01/96 05/31/97 300.00 Y -- 365 AC.1 715 615.00 0.860 535.00 0.748 White, Janice (L) 04/18/94 04/18/94 10/17/94 300.00 Y -- 371 AC.1 715 615.00 0.860 525.00 0.734 Dung, Vo 10/21/94 06/01/96 05/31/97 300.00 Y -- 385 AC.1 715 615.00 0.860 535.00 0.748 Graut, Winnie (L 09/30/95 10/01/96 07/31/97 300.00 Y -- 391 AC.1 715 615.00 0.860 600.00 0.839 Johnson, Celeste 04/12/96 04/13/96 04/12/97 300.00 Y -- ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== AC.1: 40 28600 24600.00 0.860 22450.00 0.785 28600 SF Occupied ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== 5 AD.1 755 650.00 0.861 650.00 0.861 Ramirez, Miguel ( 03/14/96 03/14/96 06/03/96 300.00 Y -- 7 AD.1 755 650.00 0.861 560.00 0.742 Monroy*, Tony 06/15/95 06/01/96 02/28/97 300.00 Y -- 27 AD.1 755 650.00 0.861 650.00 0.861 Duener, Robert 09/14/96 09/14/96 04/13/97 300.00 Y -- 29 AD.1 755 650.00 0.861 650.00 0.861 Wafford, Leonard & 08/09/96 08/09/96 08/08/97 300.00 Y -- 47 AD.1 755 650.00 0.861 565.00 0.748 Porter, Virginia 03/08/96 03/08/96 03/07/97 340.00 Y -- 49 AD.1 755 650.00 0.861 650.00 0.861 Jordan, Christopher 05/21/96 05/21/96 05/20/97 300.00 Y -- 67 AD.1 755 650.00 0.861 650.00 0.861 Bristol, Rhett (L) 11/30/95 09/01/96 06/02/97 340.00 Y -- 69 AD.1 755 650.00 0.861 575.00 0.762 Ramirez, Maria (T) 08/01/93 08/01/93 07/31/94 300.00 Y -- 87 AD.1 755 650.00 0.861 565.00 0.748 Logan, Ray 04/01/96 03/31/96 03/30/97 300.00 Y -- 89 AD.1 755 650.00 0.861 565.00 0.748 Hirschkorn, Lalia M 03/03/96 03/03/96 03/02/97 300.00 Y -- 107 AD.1 755 650.00 0.861 0.00 0.000 VACANT 09/11/96 300.00 Y VA 109 AD.1 755 650.00 0.861 630.00 0.834 Noell, Joseph L 03/31/89 03/31/89 10/31/89 300.00 Y -- 127 AD.1 755 650.00 0.861 605.00 0.801 Goddard, Tammy O5/26/96 05/26/96 05/25/97 340.00 Y -- 129 AD.1 755 650.00 0.861 555.00 0.735 Uy, Francine 06/23/95 05/01/96 01/31/97 300.00 Y -- 147 AD.1 755 650.00 0.861 650.00 0.861 Law, Al Frank 09/26/90 09/26/90 09/26/91 400.00 Y -- 149 AD.1 755 650.00 0.861 555.00 0.735 Mucino, Frank (L) 06/01/93 06/01/93 05/31/94 300.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 4 9:02 am Circles I & II ID 3.6.1 All Units <TABLE> <CAPTION> ==== Unit Profile ===== === Scheduled vs Actual Rent ==== =================== ==Moved= Current Lease Security= YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 167 AD.1 755 650.00 0.861 565.00 0.748 Herenendez, Claudia 03/31/96 03/31/96 03/30/97 300.00 Y -- 169 AD.1 755 650.00 0.861 675.00 0.894 Bredernitz, Albert 04/12/96 04/12/96 07/11/96 300.00 Y -- 187 AD.1 755 650.00 0.861 625.00 0.828 Feather, Steve 04/17/96 04/17/96 04/16/97 300.00 Y -- 189 AD.1 755 650.00 0.861 565.00 0.748 Avila, J Trinidad & 03/29/96 03/29/96 03/28/97 300.00 Y -- 207 AD.1 755 650.00 0.861 650.00 0.861 De Guzman, Jhoric V 08/31/96 08/31/96 02/27/97 300.00 Y -- 209 AD.1 755 650.00 0.861 555.00 0.735 Conley, Michelle 02/25/95 05/01/96 12/31/97 300.00 Y -- 227 AD.1 755 650.00 0.861 580.00 0.768 Muedeking, Craig 02/14/95 05/01/96 01/31/97 300.00 Y -- 229 AD.1 755 650.00 0.861 675.00 0.894 Aristegui, Valarie 04/13/96 04/13/96 07/12/96 300.00 Y -- 247 AD.1 755 650.00 0.861 555.00 0.735 Houseman, Nancy 06/21/95 06/01/96 05/31/97 300.00 Y -- 249 AD.1 755 650.00 0.861 565.00 0.748 Pollichronakis, Lin 03/30/96 03/31/96 03/30/97 300.00 Y -- 267 AD.1 755 650.00 0.861 650.00 0.861 Gwartney, Alex 08/23/96 08/23/96 02/22/97 300.00 Y -- 269 AD.1 755 650.00 0.861 630.00 0.834 Favela, Jorge & Nel 06/15/96 06/15/96 06/14/97 300.00 Y -- 287 AD.1 755 650.00 0.861 630.00 0.834 Lewis, James (L) 08/29/87 08/29/87 02/29/88 375.00 Y -- 289 AD.1 755 650.00 0.861 575.00 0.762 Cribb, Sherwin 04/01/94 04/01/94 09/30/94 300.00 Y--- 307 AD.1 755 650.00 0.861 615.00 0.815 Elam, Kevin R. (L) 06/15/95 09/01/96 03/31/97 300.00 Y -- 309 AD.1 755 650.00 0.861 0.00 0.000 VACANT 05/11/96 0.00 A VA 327 AD.1 755 650.00 0.861 650.00 0.861 Pena, Gerardo & Mar 03/24/96 03/25/96 06/24/96 300.00 Y -- 329 AD.1 755 650.00 0.861 650.00 0.861 Carr, Brian 08/31/96 08/31/96 02/27/97 340.00 Y -- 347 AD.1 755 650.00 0.861 555.00 0.735 Flores, David (L) 09/16/92 12/01/95 09/30/96 400.00 Y -- 349 AD.1 755 650.00 0.861 565.00 0.748 Mancilla, Monica 03/31/96 03/31/96 03/30/97 300.00 Y -- 367 AD.1 755 650.00 0.861 590.00 0.781 Frias, Edy 08/19/94 08/19/94 02/18/95 300.00 Y -- 369 AD.1 755 650.00 0.861 650.00 0.861 BOWER , Brenda & Bl 08/24/96 08/24/96 02/23/97 300.00 Y -- 387 AD.1 755 650.00 0.861 650.00 0.861 Mora, Jose & Norma 08/30/96 08/30/96 06/29/97 300.00 Y -- 389 AD.1 755 650.00 0.861 0.00 0.000 VACANT 09/15/96 0.00 Y VA ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== AD.1: 40 30200 26000.00 0.861 22495.00 0.805 27935 SF Occupied ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== 2 CE.2 1008 795.00 0.789 795.00 0.789 Mikhaylov, Nataliya 09/25/96 09/25/96 04/24/97 400.00 Y -- 16 CE.2 1008 795.00 0.789 795.00 0.789 Silva, Daniel ( 09/30/95 10/01/95 12/31/95 140.00 Y -- 20 CE.2 1008 795.00 0.789 795.00 0.789 Lefler, Michelle 09/09/96 09/09/96 06/08/97 400.00 Y -- 34 CE.2 1008 795.00 0.789 795.00 0.789 Miller, Richard 07/13/96 07/13/96 01/12/97 440.00 Y -- 40 CE.2 1008 795.00 0.789 795.00 0.789 Lekaren Williams 04/12/96 04/12/96 04/11/97 400.00 Y -- 54 CE.2 1008 795.00 0.789 705.00 0.699 Knight, Diana (L) 03/01/90 07/01/96 04/30/97 400.00 Y -- 60 CE.2 1008 795.00 0.789 795.00 0.789 Zamora, Tony 08/31/96 08/31/96 02/27/97 400.00 Y -- 74 CE.2 1008 795.00 0.789 775.00 0.769 Conrad, Lothar & Co 11/08/90 08/01/96 07/31/97 400.00 Y -- 80 CE.2 1008 795.00 0.789 775.00 0.769 Marable, Steve (L 05/26/95 05/26/95 02/25/96 440.00 Y -- 94 CE.2 1008 795.00 0.789 795.00 0.789 Smith, Linda (L) 01/27/96 01/27/96 01/26/97 440.00 Y -- 100 CE.2 1008 795.00 0.789 760.00 0.754 Garcia, Peter 05/08/95 06/01/96 06/01/97 400.00 Y -- 114 CE.2 1008 795.00 0.789 795.00 0.789 Turner, Melissa 02/12/96 02/12/96 11/11/96 440.00 Y -- 120 CE.2 1008 795.00 0.789 775.00 0.769 Anderson, Stan (L) 10/01/87 08/01/96 03/31/97 400.00 Y -- 134 CE.2 1008 795.00 0.789 760.00 0.754 Penrod, Stephen 05/08/89 06/01/96 05/31/97 300.00 Y -- 140 CE.2 1008 795.00 0.789 665.00 0.660 Rogers, Terry (EMP) 09/30/94 09/30/94 12/31/99 300.00 Y -- 154 CE.2 1008 795.00 0.789 755.00 0.749 Anaya,Lupe (L) 06/14/95 08/01/96 05/31/97 400.00 Y -- 160 CE.2 1008 795.00 0.789 775.00 0.769 Morfa, Luis 06/18/96 06/18/96 06/17/97 400.00 Y -- 174 CE.2 1008 795.00 0.789 795.00 0.789 Gee, Harold J. 08/09/96 08/09/96 05/08/97 900.00 Y -- 180 CE.2 1008 795.00 0.789 705.00 0.699 Washington, Landry 01/04/92 06/01/96 02/28/97 400.00 Y -- 194 CE.2 1008 795.00 0.789 795.00 0.789 Darnell, Chris 08/15/96 08/15/96 05/14/97 400.00 Y -- 200 CE.2 1008 795.00 0.789 795.00 0.789 Ramirez, Esteban 03/16/96 03/16/96 03/15/97 400.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 5 9:02 am Circles I & II ID 3.6.1 All Units <TABLE> <CAPTION> ==== Unit Profile ===== === Scheduled vs Actual Rent ==== =================== ==Moved= Current Lease Security= YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 214 CE.2 1008 795.00 0.789 760.00 0.754 Shaw, Ilonka 06/01/95 06/01/96 05/31/97 400.00 Y -- 220 CE.2 1008 795.00 0.789 795.00 0.789 Leyva, Arturo 01/27/96 01/27/96 01/26/97 400.00 Y -- 234 CE.2 1008 795.00 0.789 775.00 0.769 De Leon, Claudia 06/10/96 06/10/96 06/09/97 400.00 Y -- 240 CE.2 1008 795.00 0.789 795.00 0.789 Perez, Jose & Maria 08/07/96 08/07/96 02/06/97 400.00 Y -- 254 CE.2 1008 795.00 0.789 795.00 0.789 Hillard, Karen A 09/01/96 09/01/96 07/31/97 400.00 Y -- 260 CE.2 1008 795.00 0.789 795.00 0.789 Menebroker, Wayne 08/14/95 08/14/95 05/13/96 400.00 Y -- 274 CE.2 1008 795.00 0.789 760.00 0.754 Richardson, Kenneth 02/18/95 06/01/96 05/31/97 400.00 Y -- 280 CE.2 1008 795.00 0.789 775.00 0.769 Johnson, Evelyn And 07/27/96 07/27/96 07/26/97 1043.33 Y -- 294 CE.2 1008 795.00 0.789 755.00 0.749 Garcia, Hector (L) 05/30/95 06/05/95 04/04/96 440.00 Y -- 300 CE.2 1008 795.00 0.789 755.00 0.749 Horsley, Cecil (L) 07/08/85 08/01/96 04/30/97 400.00 Y -- 314 CE.2 1008 795.00 0.789 820.00 0.813 Munoz, Julio and Ma 04/15/96 04/15/96 07/14/96 400.00 Y -- 320 CE.2 1008 795.00 0.789 795.00 0.789 Pardo, Mary Lou 01/26/96 01/26/96 06/25/96 400.00 Y -- 334 CE.2 1008 795.00 0.789 775.00 0.769 Obemesser, Peter 05/26/96 05/26/96 05/25/97 400.00 Y -- 340 CE.2 1008 795.00 0.789 775.00 0.769 Wendt, Shannon 07/14/96 07/14/96 07/13/97 400.00 Y -- 354 CE.2 1008 795.00 0.789 795.00 0.789 Johnson, Jerutha 07/01/96 07/01/96 06/30/97 400.00 Y -- 360 CE.2 1008 795.00 0.789 0.00 0.000 VACAWT/PRELEASED 09/16/96 0.00 Y VL 374 CE.2 1008 795.00 0.789 775.00 0.769 Miller, Lourdes 05/17/96 05/17/96 05/16/97 400.00 Y -- 380 CE.2 1008 795.00 0.789 695.00 0.689 Palmer, Paul 06/01/96 06/01/96 05/31/97 400.00 Y -- 394 CE.2 1008 795.00 0.789 795.00 0.789 Hernandez, Marc 02/15/96 02/15/96 11/14/96 400.00 Y -- ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== CE.2: 40 40320 31800.00 0.789 30180.00 0.768 39312 SF Occupied ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== 4 CF.2 983 760.00 0.773 740.00 0.753 Escobar, Xochitl & 03/06/96 07/01/96 03/31/97 440.00 Y -- 14 CF.2 983 760.00 0.773 760.00 0.773 Schifler*, Doreen 08/26/95 08/26/95 05/25/96 400.00 Y -- 22 CF.2 983 760.00 0.773 760.00 0.773 Garcia, Lupe Garcia 09/21/96 09/21/96 04/20/97 400.00 Y -- 32 CF.2 983 760.00 0.773 760.00 0.773 Salgado, Patrick 08/10/96 08/10/96 08/09/97 900.00 Y -- 42 CF.2 983 760.00 0.773 740.00 0.753 Melendez, Robin 07/18/96 07/18/96 07/17/97 400.00 Y -- 52 CF.2 983 760.00 0.773 760.00 0.773 Moreno, John & Rita 07/03/96 07/03/96 07/02/97 940.00 Y -- 62 CF.2 983 760.00 0.773 725.00 0.738 Maurisio, Jose Juan 04/29/96 04/28/96 04/27/97 400.00 Y -- 72 CF.2 983 760.00 0.773 745.00 0.758 Aceves, Jose & Lili 06/01/93 06/01/93 05/29/94 400.00 Y -- 82 CF.2 983 760.00 0.773 705.00 0.717 St.George, Ami 06/11/96 06/11/96 06/10/97 400.00 Y -- 92 CF.2 983 760.00 0.773 760.00 0.773 Loven, Andre & Rosa 09/25/96 09/25/96 03/24/97 400.00 Y -- 102 CF.2 983 760.00 0.773 725.00 0.738 Orozco,** Luis 04/20/95 04/20/95 01/19/96 400.00 Y -- 112 CF.2 983 760.00 0.773 725.00 0.738 Haran, Kyle & Haran 01/15/96 01/15/96 08/14/96 440.00 Y -- 122 CF.2 983 760.00 0.773 725.00 0.738 Markovic, Aleksande 02/10/95 02/10/95 08/09/95 440.00 Y -- 132 CF.2 983 760.00 0.773 725.00 0.738 Smith, Ray (L) 05/15/95 05/15/95 02/14/96 400.00 Y -- 142 CF.2 983 760.00 0.773 760.00 0.773 Arana, Marco (L) 10/23/95 10/23/95 04/22/96 400.00 Y -- 152 CF.2 983 760.00 0.773 740.00 0.753 Stratton, Amelia ( 08/02/95 09/01/96 05/31/97 100.00 Y -- 162 CF.2 983 760.00 0.773 740.00 0.753 Pedrick, Sandra 07/16/96 07/16/96 07/15/97 400.00 Y -- 172 CF.2 983 760.00 0.773 760.00 0.773 Lewis, Randy & Pyon 09/01/96 09/01/96 03/31/97 500.00 Y OL 182 CF.2 983 760.00 0.773 760.00 0.773 Torres, Manuela A 08/30/96 08/30/96 05/29/97 400.00 Y -- 192 CF.2 983 760.00 0.773 730.00 0.743 Rivas, Sharon (L) 08/29/94 08/01/96 04/30/97 400.00 Y -- 202 CF.2 983 760.00 0.773 760.00 0.773 Grisby, Doreen 07/16/95 07/16/95 04/15/96 400.00 Y -- 212 CF.2 983 760.00 0.773 760.00 0.773 Rehn, Ronnie 09/23/96 09/23/96 09/22/97 400.00 Y -- 222 CF.2 983 760.00 0.773 725.00 0.738 Burnett, Melissa 03/08/96 03/09/96 03/08/97 400.00 Y -- 232 CF.2 983 760.00 0.773 740.00 0.753 Mefford, Gregory 07/31/96 08/01/96 07/31/97 440.00 Y -- 242 CF.2 983 760.00 0.773 760.00 0.773 Lepe, Armida 09/30/95 10/01/95 06/30/96 400.00 Y OL 252 CF.2 983 760.00 0.773 705.00 0.717 Hurlbert, Ben 05/23/96 05/23/96 05/22/97 940.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 6 9:03 am Circles I & II ID 3.6.1 All Units <TABLE> <CAPTION> ==== Unit Profile ===== === Scheduled vs Actual Rent ==== =================== ==Moved= Current Lease Security= YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 262 CF.2 983 760.00 0.773 725.00 0.738 Mora, Saul CL) 01/31/96 09/01/96 03/31/97 400.00 Y -- 272 CF.2 983 760.00 0.773 725.00 0.738 Camacho, Josephina 03/31/96 03/31/96 09/30/96 440.00 Y -- 282 CF.2 983 760.00 0.773 760.00 0.773 Ocegura, Michael 08/10/96 08/10/96 02/09/97 400.00 Y -- 292 CF.2 983 760.00 0.773 725.00 0.738 Torres, Andrew/Wong 12/28/94 12/28/94 06/27/95 440.00 Y -- 302 CF.2 983 760.00 0.773 725.00 0.738 Aunchamn, Sherrie 03/16/96 03/16/96 03/15/97 940.00 Y -- 312 CF.2 983 760.00 0.773 670.00 0.682 Solis, Eduardo 03/12/93 02/01/96 10/31/96 400.00 Y -- 322 CF.2 983 760.00 0.773 760.00 0.773 Lopez, Sandra 09/02/95 09/02/95 06/01/96 300.00 Y -- 332 CF.2 983 760.00 0.773 725.00 0.738 Feldman, Marlena (L 08/10/94 08/10/94 02/09/95 400.00 Y -- 342 CF.2 983 760.00 0.773 690.00 0.702 Bolanos,Guillermo ( 05/14/95 05/14/95 02/13/96 0.00 Y -- 352 CF.2 983 760.00 0.773 670.00 0.682 Bernadino, Rogue (L 03/25/93 12/01/95 08/31/96 440.00 Y -- 362 CF.2 983 760.00 0.773 760.00 0.773 Electric, Grass Val 09/23/96 09/23/96 03/22/97 480.00 Y--- 372 CF.2 983 760.00 0.773 750.00 0.763 Marsh, Richard 06/20/95 06/20/95 03/19/96 400.00 Y OL 382 CF.2 983 760.00 0.773 750.00 0.763 Zazueta, Manuel/Mar 04/17/96 04/17/96 07/16/96 440.00 Y -- 392 CF.2 983 760.00 0.773 680.00 0.692 Stocker, Herbert (L 08/01/90 08/01/96 05/31/97 400.00 Y -- ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== CF.2: 40 39320 30400.00 0.773 29410.00 0.748 39320 SF Occupied ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== 6 CG.2 915 730.00 0.798 710.00 0.776 Hernandez, Ramiro 07/09/96 07/09/96 07/08/97 400.00 Y -- 12 CG.2 915 730.00 0.798 0.00 0.000 VACANT/PRELEASED 09/16/96 0.00 N VL 24 CG.2 915 730.00 0.798 690.00 0.754 Pendragon, Derek A. 05/12/96 05/12/96 05/11/97 100.00 Y -- 30 CG.2 915 730.00 0.798 690.00 0.754 Doreika, Paul and L 07/01/96 07/01/96 06/30/97 440.00 Y -- 44 CG.2 915 730.00 0.798 720.00 0.787 Palacios, Erlinda & 03/21/96 03/21/96 06/20/96 440.00 Y -- 50 CG.2 915 730.00 0.798 730.00 0.798 Solis, Angela (L) 07/13/96 08/01/96 07/31/97 400.00 Y -- 64 CG.2 915 730.00 0.798 630.00 0.689 Ruiz, Nellie (L) 06/14/95 06/01/96 02/28/97 400.00 Y -- 70 CC.2 915 730.00 0.798 735.00 0.803 Villarreal, Margari 04/16/96 04/16/96 07/15/96 400.00 Y -- 84 CG.2 915 730.00 0.798 715.00 0.781 Shabazz, Davida 08/15/92 07/01/96 06/30/97 400.00 Y -- 90 CG.2 915 730.00 0.798 710.00 0.776 Tukay, Alexis (L) 09/02/95 09/02/95 06/01/96 200.00 Y -- 104 CG.2 915 730.00 0.798 710.00 0.776 Adorno, Irene 01/30/96 01/31/96 10/30/96 400.00 Y -- 110 CG.2 915 730.00 0.798 710.00 0.776 Atkins, Shirley T. 01/09/93 08/01/96 03/30/97 400.00 Y -- 124 CG.2 915 730.00 0.798 0.00 0.000 VACANT 08/02/96 0.00 D VA 130 CG.2 915 730.00 0.798 730.00 0.798 Craft, David (L) 04/01/85 04/01/85 09/30/85 700.00 Y -- 144 CG.2 915 730.00 0.798 695.00 0.760 SMITH, Christine 05/19/95 06/01/96 01/31/97 400.00 Y -- 150 CG.2 915 730.00 0.798 675.00 0.738 Pettis, Michael 05/15/95 05/15/95 02/14/00 400.00 Y -- 164 CG.2 915 730.00 0.798 710.00 0.776 Lewis, Micheal 12/10/94 12/10/94 06/09/95 400.00 Y -- 170 CG.2 915 730.00 0.798 730.00 0.798 Head, Scott 07/14/96 07/14/96 01/13/97 400.00 Y -- 184 CG.2 915 730.00 0.798 730.00 0.798 Gill, Gurbrinder S 03/01/94 03/01/94 09/30/94 400.00 Y -- 190 CG.2 915 730.00 0.798 690.00 0.754 Garcia, Xavier (L) 08/04/92 06/01/96 03/30/97 400.00 Y -- 204 CG.2 915 730.00 0.798 710.00 0.776 Ehmka, Greg (L) 01/22/96 01/22/96 07/21/96 440.00 Y OL 210 CG.2 915 730.00 0.798 690.00 0.754 Rosadovelasquez, Ef 07/30/93 02/01/96 10/31/96 400.00 Y -- 224 CG.2 915 730.00 0.798 730.00 0.798 Hernandez, Francise 08/07/96 08/07/96 05/06/97 400.00 Y -- 230 CG.2 915 730.00 0.798 710.00 0.776 Garza, Lee 03/14/96 03/15/96 03/14/97 400.00 Y -- 244 CG.2 915 730.00 0.798 710.00 0.776 Cotta, Todd 03/21/96 03/21/96 03/20/97 440.00 Y -- 250 CG.2 915 730.00 0.798 710.00 0.776 Cholimakjian, Charl 07/21/93 07/21/93 07/20/94 400.00 Y -- 264 CG.2 915 730.00 0.798 695.00 0.760 Villalobos, Raul 02/02/95 07/01/96 06/01/97 400.00 Y -- 270 CG.2 915 730.00 0.798 710.00 0.776 Fulgham, Jamal & Ta 03/22/96 03/23/96 03/22/97 400.00 Y -- 284 CG.2 915 730.00 0.798 690.00 0.754 Koflanovich, Diana 06/09/96 06/09/96 03/08/97 440.00 Y -- 290 CG.2 915 730.00 0.798 665.00 0.727 Santistevan, Leroy 02/01/91 06/01/96 01/31/97 440.00 Y -- 304 CG.2 915 730.00 0.798 710.00 0.776 Sankey, Johanna (Jo 10/01/88 10/01/88 09/30/89 400.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 7 9:03 am Circles I & II ID 3.6.1 All Units <TABLE> <CAPTION> ==== Unit Profile ===== === Scheduled vs Actual Rent ==== =================== ==Moved= Current Lease Security= YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 310 CG.2 915 730.00 0.798 710.00 0.776 Maiman, Bruce 03/20/96 03/20/96 03/19/97 400.00 Y--- 324 CG.2 915 730.00 0.798 690.00 0.754 Neal, Eva (L) 04/01/88 04/01/88 09/30/88 400.00 Y -- 330 CG.2 915 730.00 0.798 710.00 0.776 Casilles, Victor & 09/23/95 09/23/95 06/22/96 440.00 Y -- 344 CG.2 915 730.00 0.798 710.00 0.776 Cisneros, Anthony 06/24/95 07/01/96 04/30/97 445.00 Y -- 350 CG.2 915 730.00 0.798 685.00 0.749 Hennington, Glen 06/06/87 06/06/87 06/05/88 375.00 Y -- 364 CG.2 915 730.00 0.798 710.00 0.776 Airhart, Rena (L 09/20/91 08/01/96 07/31/97 400.00 Y -- 370 CG.2 915 730.00 0.798 715.00 0.781 Wilson, Joann 07/01/94 07/01/96 06/30/97 400.00 Y -- 384 CG.2 915 730.00 0.798 710.00 0.776 Saban, Zeljko (L) 01/28/93 07/01/96 06/30/97 400.00 Y -- 390 CG.2 915 730.00 0.798 730.00 0.798 Graffagnino, Anthon 09/01/96 09/01/96 03/31/97 440.00 Y -- ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== CC.2: 40 36600 29200.00 0.798 26810.00 0.771 34770 SF Occupied ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== 8 CH.2 983 760.00 0.773 730.00 0.743 Gomez*, Arturo 06/30/95 07/01/96 06/30/97 400.00 Y -- 10 CH.2 983 760.00 0.773 705.00 0.717 Bennett, Tim 05/18/96 05/18/96 05/17/97 400.00 Y -- 26 CH.2 983 760.00 0.773 705.00 0.717 Van Treek, Tammy 02/18/95 06/01/96 05/31/97 440.00 Y -- 28 CH.2 983 760.00 0.773 705.00 0.717 Luna, Abel Jr. 05/18/96 05/22/96 05/21/97 440.00 Y -- 46 CH.2 983 760.00 0.773 760.00 0.773 Le, Jessica Thu 09/07/96 09/07/96 03/06/97 440.00 Y -- 48 CH.2 983 760.00 0.773 705.00 0.717 Logsdon, Michael 05/08/96 05/08/96 05/07/97 900.00 Y -- 66 CH.2 983 760.00 0.773 705.00 0.717 Gianelli, Chris 05/18/96 05/18/96 05/17/97 400.00 Y -- 68 CH.2 983 760.00 0.773 705.00 0.717 Engelbrite, Shawn ( 06/16/95 06/01/96 02/28/97 440.00 Y -- 86 CH.2 983 760.00 0.773 760.00 0.773 Young, George & Ree 09/07/96 09/07/96 09/06/97 400.00 Y -- 88 CH.2 983 760.00 0.773 725.00 0.738 Samuel, Catherine 03/30/94 09/01/96 05/31/97 400.00 Y -- 106 CH.2 983 760.00 0.773 740.00 0.753 Dunn, Brenda 06/13/96 06/13/96 06/12/97 400.00 Y -- 108 CH.2 983 760.00 0.773 725.00 0.738 Young, Michelle 04/18/96 04/18/96 04/17/97 440.00 Y -- 126 CH.2 983 760.00 0.773 725.00 0.738 Kurtzman, Ed 01/30/96 09/01/96 03/31/97 440.00 Y -- 128 CH.2 983 760.00 0.773 0.00 0.000 VACANT 04/23/96 0.00 A VA 146 CH.2 983 760.00 0.773 760.00 0.773 Johnson JOANN (L) 12/12/91 12/12/91 12/12/92 400.00 Y -- 148 CH.2 983 760.00 0.773 725.00 0.736 Nunez, Dina (L) 01/25/96 01/25/96 08/24/96 400.00 Y -- 166 CH.2 983 760.00 0.773 760.00 0.773 Singh, Reeta 09/21/96 09/21/96 04/20/97 400.00 Y -- 168 CH.2 983 760.00 0.773 725.00 0.736 Northern Sun Associ 06/11/96 06/11/96 06/10/97 500.00 Y -- 186 CH.2 983 760.00 0.773 700.00 0.713 Sanders, Lewis 07/01/88 06/01/96 02/28/97 400.00 Y -- 188 CH.2 983 760.00 0.773 760.00 0.773 Aranda, Trisha 08/10/96 08/10/96 05/09/97 400.00 Y -- 206 CH.2 983 760.00 0.773 725.00 0.738 Rodriguez, Miguel 02/15/96 04/24/96 08/23/96 400.00 Y -- 208 CH.2 983 760.00 0.773 690.00 0.702 MENCHACA, EDUVINA 05/20/92 05/20/92 06/20/92 400.00 Y -- 226 CH.2 983 760.00 0.773 760.00 0.773 Mason, Deyara (L) 11/22/95 11/22/95 08/21/96 400.00 Y -- 228 CH.2 983 760.00 0.773 750.00 0.763 Beltran, Rene 04/12/96 04/12/96 07/11/96 440.00 Y -- 246 CH.2 983 760.00 0.773 630.00 0.641 Reyes, Guillermo (L 05/31/95 06/01/96 05/31/97 400.00 Y -- 248 CH.2 983 760.00 0.773 710.00 0.722 Mendoza, Olga 06/10/95 07/01/96 06/30/97 400.00 Y -- 266 CH.2 983 760.00 0.773 730.00 0.743 Jimenez, Maria Luis 06/18/95 07/01/96 06/30/97 400.00 Y -- 268 CH.2 983 760.00 0.773 690.00 0.702 Castro, Rosa sect. 07/14/94 07/14/94 08/13/95 400.00 Y -- 286 CH.2 983 760.00 0.773 705.00 0.717 Elliot, Charles 06/24/96 06/24/96 06/23/97 440.00 Y -- 288 CH.2 983 760.00 0.773 750.00 0.763 Fierro, Jesus 04/13/96 04/15/96 07/14/96 400.00 Y -- 306 CH.2 983 760.00 0.773 725.00 0.738 Aguirre, Lluvia 08/08/94 08/08/94 02/07/95 400.00 Y -- 308 CH.2 983 760.00 0.773 760.00 0.773 Garcia, Rosa 08/22/96 08/22/96 02/21/97 400.00 Y -- 326 CH.2 983 760.00 0.773 725.00 0.738 Ellis, Julia, Walte 07/01/93 01/01/96 08/31/96 400.00 Y -- 328 CH.2 983 760.00 0.773 595.00 0.605 Mahannah, Paul ( 06/16/95 06/16/95 03/15/96 400.00 Y -- 346 CH.2 983 760.00 0.773 705.00 0.717 Malloy, Ray 04/07/95 06/01/96 05/31/97 440.00 Y -- 348 CH.2 983 760.00 0.773 740.00 0.753 Dal-Tiboni, Vivian 09/28/95 08/01/96 06/03/99 400.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 8 9:03 am Circles I & II ID 3.6.1 All Units <TABLE> <CAPTION> ==== Unit Profile ===== === Scheduled vs Actual Rent ==== =================== ==Moved= Current Lease Security= YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 366 CH.2 983 760.00 0.773 710.00 0.722 Olea, Ralph 07/01/91 07/01/96 06/30/97 440.00 Y -- 368 CH.2 983 760.00 0.773 740.00 0.753 Durigon, Joseph P. 06/25/96 06/25/96 06/24/97 440.00 Y -- 386 CH.2 983 760.00 0.773 740.00 0.753 Bailey, Natalie 08/01/96 08/01/96 07/31/97 400.00 Y -- 388 CH.2 983 760.00 0.773 740.00 0.753 Proximo, Kumogi 07/10/87 08/01/96 04/30/97 400.00 Y -- ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== CH.2: 40 39320 30400.00 0.773 28145.00 0.734 38337 SF Occupied ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== H2 Dl 1300 1095.00 0.842 1095.00 0.842 Mims, Rhonda 08/01/96 08/01/96 07/31/97 1200.00 Y -- ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== Dl: 1 1300 1095.00 0.842 1095.00 0.842 1300 SF Occupied ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== TOTAL: 320 276185 226445.00 0.820 209404.00 0.775 270099 SF Occupied ====== ========= ====== ====== ===== ====== ===== =================== ======== ======== ======== ========= ==== </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 1 8:50 am Circles I & II ID F:106 Available Units As Of 09/27/96 Make-ready categories are: TRASH, DAMAG, HVAC, ELECT, APPLI, PAINT, FLOOR, CLEAN. <TABLE> <CAPTION> ============================================================================================================================= Type Unit Mk. Ready Vac. Unit rent Unit Notes Applicant Applied Due in Make Ready Assessment Code ========= ==== ========== ==== ========= ============ ============= ========= ========= ======================== ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> VACANT UNITS, MAKE-READY COMPLETED: ==================================== AD.1 107 YYYYYYYYY 16 650.00 GRY/05/95 _____________ ________ _______ ____________________ AD.1 389 YYYYYYYYY 12 650.00 BEIGE 96 _____________ ________ ________ ____________________ CE.2 360 YYYYYYYYY 11 795.00 BEIGE 96 Lewis, Randy 08/19/96 10/10/96 ____________________ VACANT UNITS, MAKE-READY NOT COMPLETED: ======================================= CE.2 12 YYYYYYYNN 11 730.00 BEIGE 96 Estrada, Sand 08/14/96 10/01/96 ____________________ VACANT UNITS. OFF-LINE ADMINISTRATIVE OR OFF-LINE DOWN (OUT OF SERVICE): ======================================================================== AD.1 309 YYYYYYYYA 139 650.00 GRY/95 _____________ _________ ________ W/D ST.MODEL CG.2 124 NNNNNNNND 56 730.00 GRY 09/95 _____________ _________ ________ deck repair/trf frm 10B CH.2 128 YYYYYYYYA 157 760.00 BEN 06/95 _____________ _________ ________ washer/dryer stack <CAPTION> ============================================================================================================================= Type Unit Due Out Vac. Unit rent Unit Notes Applicant Applied Due in Make Ready Assessment Code ========= ==== ========== ==== ========= ============ ============= ========= ========= ======================== ==== OCCUPIED UNITS, CURRENT Resident ON NOTICE TO VACATE: ===================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> AA.1 115 10/24/96 -27 690.00 TAN/94 _____________ _________ ________ EVICTION PENDING AA.1 315 10/04/96 -7 690.00 TAN 1994 _____________ _________ ________ 2280 Perez AA.1 335 10/15/96 -18 690.00 TAN 1994 _____________ _________ ________ 2281 Perez W/D S/S AB.1 103 10/24/96 -27 650.00 LTBRN/95 _____________ _________ ________ EVICTION PENDING AB.1 133 10/04/96 -7 650.00 AD.1 69 10/01/96 -4 650.00 ____________ _____________ _________ ________ ____________________ CF.2 172 10/10/96 -13 760.00 BRN 93 Disano, Darry 09/24/96 10/30/96 ____________________ CF.2 242 10/18/96 -21 760.00 GRY Deon, Leslie 09/17/96 11/01/96 ____________________ CF.2 372 09/30/96 -3 760.00 BRN/06/95 Oneal, Denny 09/09/96 10/10/96 ____________________ CG.2 70 10/20/96 -23 730.00 BRN/93/ _____________ _________ ________ w/d stack 2296 Main CG.2 130 10/15/96 -18 730.00 ____________ _____________ _________ ________ ____________________ CG.2 164 09/30/96 -3 730.00 ____________ _____________ _________ ________ ____________________ CG.2 204 10/04/96 -7 730.00 GRY/05/95 Siah, Victor 09/23/96 10/15/96 2270 Perez w/d stack ============================================================================================================================= </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 1 8:54 am Circles I & II ID F:106 Available Units As Of 09/27/96 Make-ready categories are: TRASH, DAMAG, HVAC, ELECT, APPLI, PAINT, FLOOR, CLEAN. <TABLE> <CAPTION> ============================================================================================================================= Type Unit Mk. Ready Vac. Unit rent Unit Notes Applicant Applied Due in Make Ready Assessment Code ========= ==== ========== ==== ========= ============ ============= ========= ========= ======================== ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> VACANT UNITS, MAKE-READY COMPLETED: =================================== DT 18D YYYYYYYYY 17 925.00 BRN/10/08/95 _____________ _________ ________ ____________________ VACANT UNITS, MAKE-READY NOT COMPLETED: ========================================= AZ.1 42A NNNNNNNNNN 7 615.00 LAWSON, JR., 08/22/96 10/01/96 _________ _____________ DT 20I NNNNNNNNNN 1 925.00 _____________ _________ ________ ____________________ DT 28H NNNNNNNNNN 8 925.00 BRN 9/95 _____________ _________ ________ ____________________ <CAPTION> ============================================================================================================================= Type Unit Due Out Vac. Unit rent Unit Notes Applicant Applied Due in Make Ready Assessment Code ========= ==== ========== ==== ========= ============ ============= ========= ========= ======================== ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> OCCUPIED UNITS, CURRENT Resident ON NOTICE TO VACATE: ===================================================== AZ.1 32C 09/27/96 0 615.00 TAN/95 Burnes, Dwayn 09/21/96 10/13/96 HOLD BMR AZ.1 42B 10/24/96 -27 615.00 ____________ _____________ _________ ________ eviction pending AZ.1 44A 10/03/96 -6 615.00 ____________ _____________ _________ ________ HOLD BMR AZ.2 46C 10/24/96 -27 625.00 GRAY 95 _____________ _________ ________ eviction pending DT 10B 09/30/96 -3 925.00 BRN 05/95 _____________ _________ ________ ____________________ DT 22F 10/24/96 -27 925.00 TAN/95 _____________ _________ ________ eviction pending ============================================================================================================================= </TABLE> <PAGE> PRICE LIST CIRCLES I & II 1 Bedroom Cadiz....(715 sq ft)............$615.00-$625.00 1 Bedroom Durango/Brasi1ia....(755 sq ft)........$650.00 1 Bedroom Altamira....(777 sq ft)........$690.00 2 Bedroom, Guayaquil....(915 sq ft)........$730.00 2 Bedroom Fortiliza/Hermosillo....(983 sq ft)........$760.00 2 Bedroom Espirito....(1008 sq ft)........$795.00 Deposits........1 bdrm $300.00 & 2 bdrm $400.00 CIRCLES III NORTH PLAZA 1 Bedroom Cozumel w/Garage....(660 sq ft)........$615.00-$625.00 3 Bedroom La Terraza w/Garage....(1310 sq ft)........$925.00 Deposits........1 bdrm $300.00 & 3 bdrm $500.00 Amenities: Fireplaces, Washer/Dryer Hook-ups, Gas Appliances, Dishwasher, Garbage Disposal, Covered Parking, Privacy Gates, Courtesy Patrol, Laundry Facilities, two Swimming Pools, Jacuzzi, Tennis Courts, water, garbage, and basic cable. Pets accepted with an additional $500.00 Deposit. To Qualify: * Applicants must have been employed for at least 6 months with current employer. * Applicants must have positive credit and previous rental history. * Applicants income must be three times the monthly rental rate. * Application fee $25.00 and Holding fee $100.00. <PAGE> CIRCLES APT INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 564,883.08 (564,883.08) RENTAL. INCOME VARIANCE (138,997.90) 138,997.90 ---------- ---------- ------------ ------------ ---------- NET CURRENT RENT 200,738.96 178,272.42 1,482,260.71 1,219,256.96 263,003.73 OTHER RENTAL INCOME SECURITY DEPOSITS 9,765.00 6,122.83 64,982.93 59,687.63 5,295.10 FORFEITED SECURITY DEPOSITS 2,336.36 742.63 15,082.25 3,973.12 11,109.13 LAUNDRY INCOME 1,304.40 2,069.70 10,993.65 14,455.10 (3,461.45) CHARGES TO TENANTS 3,392.61 925.00 15,425.10 5,009.39 10,415.71 MISCELLANEOUS INCOME (227.56) (227.56) MISCELLANEOUS 1,411.50 1,654.97 12,689.17 15,573.21 (2,884.04) SOFT DRINK INCOME 29.76 81.84 (81.34) UTILITIES 60.03 (60.03) DAMAGE 22.50 618.02 118.00 500.02 LATE CHARGES 1,255.00 1,275.00 8,326.00 7,997.01 328.99 NSF FEES 57.34 100.00 660.00 391.37 268.63 CREDIT CHECK 925.00 825.00 3,550.00 7,567.67 (4,017.67) ---------- ---------- ------------ ------------ ---------- TOTAL OTHER EDIT INCOME 20,469.71 13,744.89 132,099.56 114,914.57 17,184.99 TOTAL RENTAL INCOME 221,206.67 192,017.31 1,614,360.27 1,334,171.55 280,188.72 OTHER INCOME REFUDED DEPOSITS (7,820.00) (4,120.00) (53,254.34) (28,961.44) (24,292.90) INTEREST INCOME 118.33 127.94 1,146.23 633.83 514.40 OTHER INCOME 9,600.00 (9,600.00) ---------- ---------- ------------ ------------ ---------- TOTAL OTHER INCOME (7,701.67) (3,992.06) (52,106.11) (18,727.61) (33,378.50) TOTAL INCOME 213,507.00 188,025.25 1,562,254.16 1,315,443.94 246,810.22 ========== ========== ============ ============ ========== TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 1,435.00 8,708.10 3,683.00 5,025.10 CLEANING PAYROLL 882.08 2,460.36 9,957.85 15,695.96 (5,738.11) REPAIRS/MAINT. PAYROLI, 7,548.79 8,158.82 65,705.32 71,148.36 (5,443.54) MANAGERS SALARIES 2,646.42 2,627.78 22,200.89 12,554.90 9,645.99 OFFICE SALARIES 3,206.01 3,192.34 29,936.79 24,764.73 5,172.06 GROUNDS PAYROLL 237.75 (237.75) DECORATING PAYROLL 840.60 1,800.09 11,524.35 20,755.52 (9,231.17) STATE COMP. INS.-PAYROLL 1,068.23 1,171.39 9,666.31 11,359.84 (1,693.53) PAYROLL-HOSPITAL INS 1,988.09 2,342.82 17,990.00 14,970.28 3,019.72 PICA - PAYROLL TAX 1,127.57 1,236.49 10,203.31 10,801.90 (598.59) FUTA - PAYROLL TAX 118.69 130.16 1,074.03 684.98 389.05 </TABLE> <PAGE> CIRCLES APT INCOME STATEMENT FOR THE 8 Mos. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> SDI TAX-PAYROLL-UNEMPLOY 148.37 162.70 1,342.54 3,146.54 (1,804.00) ---------- ---------- ---------- ---------- ---------- PAYROLL EXPENSES 21,009.85 23,282.95 188,309.49 189,804.26 (1,494.77) ADMINISTRATIVE EXPENSES PROMOTIONS (38.87) 1,590.65 1,438.44 1,749.44 (311.00) ADVERTISING 1,074.61 1,529.90 7,458.99 10,914.24 (3,455.25) SIGNS, FLAGS, BANNERS 569.76 139.94 1,443.89 (1,303.95) BROCHURES 123.19 123.19 OFFICE SUPPLIES 112.24 3,029.58 1,331.32 5,528.02 (4,196.70) FURNITURE RENTAL 454.63 496.57 3,673.31 1,032.99 2,640.32 COMPUTER EXPENSES 231.18 (231.18) LEGAL EXPENSES 362.00 626.75 3,988.00 2,118.42 1,869.58 MISCELLANEOUS 62.85 2,401.86 912.55 8,778.60 (7,866.85) CREDIT CHECK EXPENSE 756.87 864.32 3,183.97 4,789.32 (1,605.35) RANK CHARGES 50.12 (92.00) 364.50 107.31 257.19 PETTY CASE REIMB 359.79 359.79) POSTAGE 135.30 234.76 1,139.85 833.92 305.93 DUES & EDUCRIPTIONS (24.15) 1,028.92 (1,053.07) CONTRIBUTIONS (950.01) LINCOLN FEE 7,292.64 6,687.19 54,125.37 29,047.27 25,078.10 RELOCATION EXPENSE (446.83) 1,548.32 (1,548.32) EMPLOYEE TRAINING 87.60 423.40 176.57 246.83 OUTSIDE STATIONARY MISC 271.74 785.63 1,427.09 3,655.00 (2,227.91) ---------- ---------- ---------- ---------- ---------- ADMINISTRATIVE EXPENSE 10,621.73 17,328.13 79,705.77 73,343.70 6,362.07 CONTRACT SERVICES SEC SUP/EXP-FIRE PROTECT 1,405.35 2,684.08 15,310.33 11,739.06 3,571.77 EXTERMINATING CONTRACT 195.00 195.00 2,379.50 1,040.00 1,339.90 CABLE T.V 1,439.85 2,692.42 21,538.87 18,846.94 2,691.93 GARDENING CONTRACT 5,041.69 7,014.80 45,718.06 46,234.65 (516.59) DECORATING CONTRACT 37.96 (37.36) ---------- ---------- ---------- ---------- ---------- CONTRACT SERVICES 8,081.89 12,586.30 84,947.66 77,898.61 7,049.05 UTILITY SERVICES TELEPHONE EXPENSE 511.29 442.23 2,315.90 2,734.20 (418.20) TRASH REMOVAL 3,979.65 10,477.84 48,036.80 55,371.41 (7,334.61) PGE-- HOUSE 3,060.72 1,676.83 15,042.23 27,648.92 (12,606.69) GAS HOUSE 7,458.66 4,424.86 30,329.55 13,459.39 16,870.16 PFE APARTMENT METERS 4,446.71 287.34 6,612.92 3,454.92 3,158.00 WATER 130.73 3,950.83 21,884.63 21,736.45 148.18 SEWER CHARGES -- 3,443.79 27,464.68 27,731.42 (266.74) ---------- ---------- ---------- ---------- ---------- UTILITY SERVICES 19,587.77 24,704.22 151,686.71 152,136.71 (450.00) </TABLE> <PAGE> CIRCLES APT INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> MAINTENANCE EXPENSES CARPET REPAIRS/MAINT 1,435.00 767.00 9,721.54 2,587.50 7,134.04 CARPET REPLACEMENT 7,084.91 112,175.89 33,165.60 196,942.61 (163,777.01) GROUNDS SUPPLY/REPLACEMENT 4,864.54 (4,864.54) EQUIPMENT RENTAL 345.31 835.82 (490.51) POOL SUPPLY/REPLACEMENT 1,173.92 1,095.40 6,600.28 6,409.61 190.67 DECORATING SUPPLIES 2,576.87 904.87 17,222.94 28,291.38 (11,068.44) CLEANING SUPPLIES/SERV. 2,337.41 760.37 8,858.32 13,410.21 (4,551.89) EXTERMINATING SUPPLIES 130.00 (130.00) BLDG MAINT SUPPLIES 4,396.10 9,846.12 24,659.54 63,163.17 (38,503.63) PLUMBING MAINTENANCE 316.20 1,069.14 10,735.95 9,926.99 808.96 APPLIANCE REPLACEMENT 376.36 1,168.90 10,772.78 18,010.78 (7,238.00) BLDG MAINT SVC/CONTRACT 2,174.29 4,822.02 14,820.68 (9,998.66) ELECTRIC MAINTENANCE 134.90 125.32 1,603.28 1,728.08 (124.80) MISCELLANEOUS MAINT. EXP 9.77 39.62 127.38 (87.76) ---------- ---------- ---------- ---------- ---------- MAINTENANCE EXPENSES 19,841.44 30,087.30 128,547.18 361,248.75 (232,701.57) CONTROLLABLE EXPENSES 79,142.73 107,988.90 633,196.81 854,432.03 (221,235.22) ---------- ---------- ---------- ---------- ---------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE 119.26 465.70 (346.44) PROPERTY TAXES 69,601.74 69,601.74 LICENSES & PERMITS 4,177.26 4,020.40 156.86 ---------- ---------- ---------- ---------- ---------- FIXED EXPENSES 73,898.26 4,486.10 69,412.16 NET OPERATING INCOME (NOI) 134,364.27 80,036.35 855,159.09 456,525.81 398,633.28 ========== ========== ========== ========== ========== DEBT SERVICE INTEREST ON 1ST MORTGAGE 65,823.04 70,931.85 514,977.02 550,669.14 (35,692.12) PRINCIPAL-1ST MORTGAGE 6,380.00 5,830.00 51,040.00 46,640.00 4,400.00 INTEREST EXPENSE 24,927.87 (24,927.87) ---------- ---------- ---------- ---------- ---------- DEBT SERVICE 72,203.04 76,761.85 566,017.02 622,237.01 (56,219.99) OPERATING CASH FLOW 62,161.23 3,274.50 289,142.07 (165,711.20) 454,853.27 ========== ========== ========== ========== ========== NON OPERATING EXPENSES REFURBISHMENT & DEFERRAL 5,000.00 4,022.28 5,292.00 91,109.43 (85,817.43) ---------- ---------- ---------- ---------- ---------- NON OPERATING EXPENSES 5,000.00 4,022.28 5,292.00 91,109.43 (85,817.43) PROFIT/LOSS 57,161.23 (747.78) 283,850.07 (256,820.63) 540,670.70 </TABLE> <PAGE> NORTH PLAZA INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 237,222.67 (237,222.67) RENTAL INCOME VARIANCE (41,677.55) 41,677.55 ---------- ---------- ---------- ---------- ---------- NET CURRENT RENT 84,957.74 77,631.24 640,541.52 562,853.83 77,687.69 OTHER RENTAL INCOME SECURITY DEPOSITS 1,280.00 3,738.31 17,100.00 17,372.31 (272.31) FORFEITED SECURITY DEPOSITS 791.67 182.58 4,382.63 917.17 3,465.46 CHARGES TO TENANTS 670.00 585.00 3,949.18 2,111.64 1,837.54 MISCELLANEOUS INCOME (392.20) (392.20) MISCELLANEOUS 530.00 470.00 4,516.24 5,566.67 (1,050.43) UTILITIES 924.90 1,766.92 9,836.90 (8,069.98) DAMAGE 385.00 19.62 365.38 LATE CHARGES 755.00 670.00 3,326.00 3,910.00 (584.00) NSF FEES 40.00 10.00 240.00 248.13 (8.13) CREDIT CHECK 225.00 250.00 900.00 930.00 (30.00) TRANSFER CHARGE 135.00 135.00 ---------- ---------- ---------- ---------- ---------- TOTAL OTHER RENT INCOME 4,291.67 6,830.79 36,308.77 40,912.44 (4,603.67) TOTAL RENTAL INCOME 89,249.41 84,462.03 676,850.29 603,766.27 73,084.02 ---------- ---------- ---------- ---------- ---------- OTHER INCOME REFUNDED DEPOSITS (2,200.00) (2,880.00) (13,709.13) (12,464.74) (1,244.39) INTEREST INCOME 42.48 58.31 2,402.15 1,783.78 618.37 US BOND INTEREST INCOME 19,436.00 19,436.25 (0.25) ---------- ---------- ---------- ---------- ---------- TOTAL OTHER INCOME (2,157.52) (2,821.69) 8,129.02 8,755.29 (626.27) TOTAL INCOME 87,091.89 81,640.34 684,979.31 612,521.56 72,457.75 ========== ========== ========== ========== ========== TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 560.00 2,450.00 27.00 2,423.00 CLEANING PAYROLL 326.24 910.05 3,683.05 5,703.26 (2,020.21) REPAIRS/MAINT.PAYROLL 2,091.08 2,877.60 21,808.05 26,586.44 (4,778.39) MANAGERS SALARIES 978.80 971.94 8,211.28 4,643.70 3,567.58 OFFICE SALARIES 736.76 1,180.75 7,467.68 8,526.25 (1,058.57) DECORATING PAYROLL 310.90 665.81 4,262.40 7,888.42 (3,626.02) STATE COME. INS.-PAYROLL 314.38 423.16 3,080.40 4,071.70 (991.30) PAYROLL-HOSPITAL INS 585.12 846.33 5,733.08 5,377.32 355.76 FICA - PAYROLL TAX 331.85 446.67 3,251.55 3,876.04 (624.49) FUTA - PAYROLL TAX 34.93 47.02 342.27 411.04 (68.77) SDI TAX-PAYROLL-UNEMPLOY 43.66 56.77 427.84 1,331.46 (903.62) ---------- ---------- ---------- ---------- ---------- </TABLE> <PAGE> NORTH PLAZA INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> PAYROLL EXPENSES 6,313.72 8,428.10 60,717.60 68,442.63 (7,725.03) ADMINISTRATIVE EXPENSES PROMOTIONS 18.03 556.52 525.24 615.26 (90.02) ADVERTISING 347.63 568.46 2,594.86 3,896.43 (1,301.57) SIGNS, FLAGS. BANNERS 210.73 51.76 510.41 (458.65) BROCHURES 46.20 46.20 OFFICE SUPPLIES 85.98 1,117.02 511.84 1,773.06 (1,261.22) FURNITURE RENTAL 168.14 183.66 1,358.58 382.07 976.51 COMPUTER EXPENSES 58.71 (58.71) LEGAL EXPENSES (355.00) 324.12 (284.57) 797.97 (1,082.54) MISCELLANEOUS 23.25 894.52 265.91 3,274.25 (3,008.34) CREDIT CHECK EXPENSE 279.93 367.71 1,177.63 838.71 338.92 BANK CHARGES 8.00 (72.00) 94.24 94.24 PETTY CASH REIMB 133.07 (133.07) POSTAGE 87.46 366.43 308.95 57.48 DUES & SUBCRIPTIONS (4.09) 426.96 (431.05) LINCOLN FEE 3,101.53 2,830.89 23,824.13 13,324.32 10,499.81 RELOCATION EXPENSE (165.27) 572.66 (572.66) EMPLOYEE TRAINING 124.20 130.18 (5.98) OUTSIDE STATIONARY MISC 100.50 290.57 527.83 1,180.72 (652.89) ---------- ---------- ---------- ---------- ---------- ADMINISTRATIVE EXPENSE 3,777.99 7,194.39 31,180.19 28,223.73 2,956.46 CONTRACT SERVICES SEC SUP/EXP-FIRE PROTECT 2,762.22 853.02 7,120.60 4,492.79 2,627.81 EXTERMINATING CONTRACT 65.00 490.10 325.00 165.10 CABLE T.V 2,503.93 2,504.16 10,019.56 8,764.56 1,255.00 GARDENING CONTRACT 1,908.52 1,760.00 7,263.49 7,055.00 208.49 DECORATING CONTRACT 14.04 (14.04) ---------- ---------- ---------- ---------- ---------- CONTRACT SERVICES 7,174.67 5,182.18 24,893.75 20,651.39 4,242.36 UTILITY SERVICES TELEPHONE EXPENSE 334.38 177.32 837.60 1,092.32 (254.72) TRASH REMOVAL (1,028.70) 520.24 15,944.75 15,511.42 433.33 PGE - HOUSE 486.64 1,064.11 813.00 251.11 GAS - HOUSE 58.12 74.72 485.44 426.28 59.16 PGE APARTMENT METERS 37.47 131.13 689.79 1,332.26 (642.47) WATER 1,756.49 1,597.86 12,079.48 9,759.59 2,319.89 SEWER CHARGES 2,566.80 10,267.28 10,000.54 266.74 ---------- ---------- ---------- ---------- ---------- UTILITY SERVICES 1,644.40 5,068.07 41,368.45 38,935.41 2,433.04 MAINTENANCE EXPENSES CARPET REPAIRS/MAINT 325.00 290.00 1,916.81 1,107.50 809.31 CARPET REPLACEMENT 1,708.00 7,426.38 23,989.10 47,642.15 (23,653.05) </TABLE> <PAGE> NORTH PLAZA INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> GROUNDS SUPPLY/REPLACEMENT 140.70 (140.70) EQUIPMENT RENTAL 127.72 309.10 (181.38) POOL SUPPLY/REPLACEMENT 434.19 405.15 2,441.20 2,370.67 70.53 DECORATING SUPPLIES 1,089.31 2,967.97 4,888.79 6,238.73 (1,349.94) CLEANING SUPPLIES/SERV. 359.18 246.10 2,804.54 4,686.73 (1,882.19) EXTERMINATING SUPPLIES 75.00 (75.00) BLDG MAINT SUPPLIES 1,329.54 3,474.73 7,957.80 25,694.15 (17,736.35) PLUMBING MAINTENANCE 116.96 375.45 5,725.93 1,755.69 3,970.24 APPLIANCE REPLACEMENT 433.64 1,168.90 3,095.34 5,189.39 (2,094.05) BLDG MAINT SVC/CONTRACT 844.04 1,259.80 2,312.69 (1,052.89) ELECTRIC MAINTENANCE 48.44 46.34 1,386.66 451.14 935.52 MISC. MAINT. EXPENSES 3.61 14.65 47.12 (32.47) ---------- ---------- ---------- ---------- ---------- MAINTENANCE EXPENSES 5,847.87 17,245.06 55,608.34 98,020.76 (42,412.42) CONTROLLABLE EXPENSES 24,758.65 43,117.80 213,761.33 254,273.92 (40,505.59) ---------- ---------- ---------- ---------- ---------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE (207.17) 179.00 (386.17) PROPERTY TAXES 34,678.23 34,678.23 LICENSES & PERMITS 1,564.74 1,643.60 (78.86) ---------- ---------- ---------- ---------- ---------- FIXED EXPENSES 36,035.80 1,822.60 34,213.20 NET OPERATING INCOME (NOI) 62,333.24 38,532.54 435,175.18 356,425.04 78,750.14 ========== ========== ========== ========== ========== DEBT SERVICE INT. ON 1ST MORTGAGE 189,158.00 197,388.00 (8,230.00) INTEREST EXPENSE 260.39 (260.39) LOAN EXPENSES 7,897.56 6,627.27 1,270.29 ---------- ---------- ---------- ---------- ---------- DEBT SERVICE 197,055.56 204,275.66 (7,220.10) OPERATING CASH FLOW 62,333.24 38,522.54 238,119.62 152,149.38 85,970.24 ========== ========== ========== ========== ========== NON OPERATING EXPENSES REFURBISHMENT & DEFERRAL (2,400.00) 1,245.99 8,946.00 11,849.28 (2,903.28) ---------- ---------- ---------- ---------- ---------- NON OPERATING EXPENSES (2,400.00) 1,245.99 8,946.00 11,849.28 (2,903.28) PROFIT/LOSS 64,733.24 37,216.55 229,173.62 140,300.10 88,873.52 ========== ========== ========== ========== ========== </TABLE> <PAGE> CIRCLES INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 188,446.76 564,883.00 2,275,985.86 (1,711,102.78) RENTAL INCOME VARIANCE (42,920.35) (130,997.90) (524,878.12) 385,880.22 ---------- ---------- ------------ ------------ ------------ NET CURRENT RENT 172,464.10 145,526.41 1,931,335.58 1,751,107.74 180,227.04 OTHER RENTAL INCOME SECURITY DEPOSITS 5,457.17 5,829.00 78,390.00 66,849.03 11,540.97 FORFEITED SECURITY DEPOSITS 3,586.30 15,041.41 15,041.41 LAUNDRY INCOME 1,335.45 20,926.55 13,276.75 7,649.80 CHARGES TO TENANTS 982.33 1,130.00 9,395.14 17,780.51 (8,385.37) MISCELLANEOUS INCOME 465.93 MISCELLANEOUS 1,649.16 2,047.58 22,428.04 26,729.38 (4,301.34) SOFT DRINK INCOME 178.56 193.44 (14.88) PHONE INCOME 8.13 (8.13) UTILITIES 13.90 60.03 67.00 (6.97) DAMAGE 118.00 2,434.78 (2,316.78) LATE CHARGES 1,055.00 745.32 12,482.01 6,513.02 5,968.99 NSF FEES 110.00 640.00 796.37 1,000.00 (203.63) CREDIT CHECK 615.00 520.00 9,782.67 5,035.00 4,747.67 ---------- ---------- ------------ ------------ ------------ TOTAL OTHER RENT INCOME 15,256.34 10,925.88 169,598.78 139,887.04 29,711.74 TOTAL RENTAL INCOME 187,720.44 156,452.29 2,100,934.36 1,890,994.78 209,939.58 ---------- ---------- ------------ ------------ ------------ OTHER INCOME REFUNDED DEPOSITS (7,875.00) (6,077.93) (57,121.44) (76,537.16) 19,415.72 INTEREST INCOME 398.47 0.50 1,983.70 58.00 1,925.78 OTHER INCOME 9,600.00 9,600.00 ---------- ---------- ------------ ------------ ------------ TOTAL OTHER INCOME (7,476.53) (6,077.43) (45,537.66) (76,479.16) 30,941.50 TOTAL INCOME 180,243.91 150,374.86 2,055,396.70 1,814,515.62 240,881.08 ========== ========== ============ ============ ============ TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 996.78 3,500.00 6,884.70 3,500.00 3.384,78 CLEANING PAYROLL 2,399.12 1,366.55 22,753.78 10,921.08 11,832.70 REPAIRS/MAINT.PAYROLL 10,674.87 8,799.88 103,506.05 70,637.77 32,868.28 MANAGERS SALARIES 3.668,49 24,124.85 6,686.49 17,438.36 OFFICE SALARIES 5,892.28 2,685.25 41,789.85 22,086.50 19,703.35 GROUNDS PAYROLL 55.40 237.75 8,269.40 (8,031.65) DECORATING PAYROLL 2,869.28 1,826.50 28,597.43 17,984.44 10,612.99 STATE COMP. INS.-PAYROLL 1,784.05 1,756.23 16,563.54 13,755.45 2,808.09 WORKERS COMP. MEDICAL 176.51 (176.51) PAYROLL-HOSPITAL INS 3,568.09 454.94 25,377.67 4,193.21 21,184.46 </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> FICA - PAYROLL TAX 1,883.16 922.08 16,312.83 10,756.81 5,556.02 FUTA - PAYROLL TAX 198.23 387.33 934.26 1,149.92 (215.66) SDI TAX-PAYROLL-UNEMPLOY 247.78 58.45 4,436.68 5,110.72 (674.04) ---------- ---------- ---------- ---------- ---------- PAYROLL EXPENSES 34,182.13 21,812.61 291,519.47 175,228.30 116,291.17 ADMINISTRATIVE EXPENSES PROMOTIONS 390.53 -- 3,180.39 -- 3,180.39 ADVERTISING 848.93 2,230.57 20,163.33 16,471.70 3,691.63 SIGNS, FLAGS, BANNERS 209.85 -- 2,645.62 -- 2,645.62 OFFICE SUPPLIES 647.42 879.65 7,011.14 2,199.52 4,811.62 FURNITURE RENTAL 1,095.81 -- 4,190.12 -- 4,190.12 COMPUTER EXPENSES -- -- 231.18 -- 231.18 LEGAL EXPENSES 67.00 -- 4,879.06 4,921.58 (42.52) MISCELLANEOUS 97.32 60.43 11,926.41 1,009.78 10,916.63 CREDIT CHECK EXPENSE 292.00 166.25 5,958.99 2,252.66 3,706.33 BANK CHARGES 73.08 2.71 262.51 638.46 (375.95) PETTY CASH REIMB -- -- 359.79 9,250.57 (8,890.78) POSTAGE 469.26 -- 1,246.66 -- 1,249.66 DUES & SUBCRIPTIONS 20.99 -- 672.73 -- 672.73 LINCOLN FEE 6,024.13 -- 54,655.91 -- 54,655.91 NSF CHECK -- (1,698.39) -- 311.61 (331.61) RELOCATION EXPENSE -- -- 1,548.32 -- 1,548.32 EMPLOYEE TRAINING 73.00 -- 641.57 -- 641.57 OUTSIDE STATIONARY MISC 84.38 -- 4,435.49 153.39 4,282.10 ---------- ---------- ---------- ---------- ---------- ADMINISTRATIVE EXPENSE 10,393.70 1,641.22 124,009.22 37,209.27 86,799.95 CONTRACT SERVICES SEC SUP/EXP-FIRE PROTECT 2,091.90 -- 17,929.45 4,036.64 13,892.81 EXTERMINATING CONTRACT 65.00 -- 2,210.00 2,210.00 CABLE T.V, 2,692.42 5,384.84 29,619.77 32,381.78 (2,762.01) GARDENING CONTRACT 7,353.05 3,904.00 70,427.70 41,574.90 28,852.80 WATER SOFTENER 22.68 DECORATING CONTRACT -- (4,088.00) 37.96 -- 37.96 ---------- ---------- ---------- ---------- ---------- CONTRACT SERVICES 12,225.05 5,200.84 120,224.88 77,993.32 42,231.56 UTILITY SERVICES TELEPHONE EXPENSE 143.57 145.09 4,016.85 2,017.92 1,998.93 TRASH REMOVAL 6,042.95 6,680.80 80,625.89 78,807.41 1,818.48 POE - HOUSE 2,015.50 11,847.69 35,155.66 64,228.17 (29,072.51) GAS - HOUSE 5,021.20 -- 30,755.97 -- 30,755.97 PGE APARTMENT METERS 256.78 1,020.83 4,715.79 5,770.50 (1,054.71) WATER -- 2,987.09 42,145.30 42,108.60 36.70 SEWER CHARGES -- -- 41,463.80 41,197.14 266.66 ---------- ---------- ---------- ---------- ---------- </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> UTILITY SERVICES 13,480.00 22,681.50 238,879.26 234,129.74 4,749.52 MAINTENANCE EXPENSES CARPET REPAIRS/MAINT 2,355.00 740.00 6,897.50 5,179.66 1,717.84 CARPET REPLACEMENT 1,922.20 1,396.13 245,555.47 20,952.95 224,602.52 GROUNDS SUPPLY/REPLACEMENT -- 29.17 7,509.54 5,161.29 2,348.25 EQUIPMENT RENTAL (234.76) -- 952.90 136.48 816.42 POOL SUPPLY/REPLACEMENT 617.95 338.66 10,017.09 2,726.69 7,290.40 DECORATING SUPPLIES 1,455.68 693.94 33,307.69 14,904.33 18,403.36 CLEANING SUPPLIES/SERV. 804.40 810.00 16,316.41 11,200.00 5,116.41 EXTERMINATING SUPPLIES -- -- 130.00 1,469.00 (1,339.00) BLDG MAINT SUPPLIES 6,991.48 15,812.28 87,484.91 73,123.12 14,361.79 PLUMBING MAINTENANCE 252.41 -- 15,113.29 964.64 14,148.65 APPLIANCE REPLACEMENT 420.44 -- 26,578.49 1,035.11 25,543.38 BLDG MAINT SVC/CONTRACT (668.57) (162,794.96) 21,137.88 8,223.90 12,913.98 ELECTRIC MAINTENANCE (556.81) -- 4,343.91 647.87 3,696.04 MISCELLANEOUS MAINT. EXP -- -- 127.38 46.09 81.29 ---------- ---------- ---------- ---------- ---------- MAINTENANCE EXPENSES 13,359.42 (142,974.78) 475,472.46 145,771.13 329,701.33 CONTROLLABLE EXPENSES 83,640.30 (91,638.61) 1,250,105.29 670,331.76 579,773.53 ---------- ---------- ---------- ---------- ---------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE 6,995.90 75,569.86 14,733.20 223,188.66 (208,455.46) PROPERTY TAXES -- 80,027.74 69,601.74 160,055.48 (90,453.74) LICENSES & PERMITS -- -- 4,020.40 306.60 3,713.80 ---------- ---------- ---------- ---------- ---------- FIXED EXPENSES 6,995.90 155,597.60 88,355.34 383,550.74 (295,195.40) NET OPERATING INCOME (NOI) 89,607.71 86,415.87 716,936.07 760,633.12 (43,697.05) ========== ========== ========== ========== ========== DEBT SERVICE INTEREST ON 1ST MORTGAGE 66,839.38 58,858.72 823,373.85 899,182.48 (75,808.63) PRINCIPAL-1ST MORTGAGE (64,130.00) INTEREST EXPENSE -- 5,492.95 24,927.87 5,492.95 19,434.92 ---------- ---------- ---------- ---------- ---------- DEBT SERVICE 2,709.18 64,351.67 848,301.72 904,675.43 (56,373.71) OPERATING CASH FLOW 86,898.53 22,064.20 (131,365.65) (144,042.31) 12,676.66 ========== ========== ========== ========== ========== NON OPERATING EXPENSES DEPRECIATION EXPENSE 487,309.00 486,916.00 487,309.00 486,916.00 393.00 DEFERRED INT. AMORTIZ 127,999.22 21,333.32 127,999.22 33,395.58 94,603.64 REFURBISHMENT & DEFERRAL (1,294.08) 182,134.50 118,930.21 182,134.50 (63,204.29) </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME -- 79,023.71 237,222.67 946,726.11 (709,503.44) RENTAL INCOME VARIANCE -- 5,882.48 (41,677.55) (120,545.81) 78,868.26 ---------- ---------- ---------- ---------- ---------- NET CURRENT RENT 91,526.39 84,906.19 885,299.30 826,180.30 59,119.00 OTHER RENTAL INCOME SECURITY DEPOSITS 3,125.00 2,850.00 27,382.31 31,436.35 (4,054.04) FORFEITED SECURITY DEPOSITS 729.16 -- 4,578.56 -- 4,578.56 CHARGES TO TENANTS 1,443.32 3,181.64 8,102.14 -- (4,920.50) MISCELLANEOUS INCOME 196.10 MISCELLANEOUS 535.27 1,054.34 7,582.45 13,447.53 (5,865.08) UTILITIES 592.43 1,076.47 12,478.84 11,654.77 824.07 DAMAGE -- 39.14 19.62 1,132.11 (1,112.49) LATE CHARGES 560.00 184.99 5,730.00 2,561.46 3,168.54 NSF FEES 80.00 21.73 348.13 199.23 148.90 CREDIT CHECK 183.84 -- 1,813.00 140.00 1,673.00 ---------- ---------- ---------- ---------- ---------- TOTAL OTHER RENT INCOME 6,001.80 6,669.99 63,114.55 68,673.59 (5,559.04) TOTAL RENTAL INCOME 97,528.19 91,576.18 948,413.85 894,853.89 53,559.96 ---------- ---------- ---------- ---------- ---------- OTHER INCOME REFUNDED DEPOSITS (1,400.00) (5,240.00) (20,654.74) (30,488.24) 9,833.50 INTEREST INCOME 560.21 45.68 2,528.84 509.84 2,019.00 US BOND INTEREST INCOME (564.88) (343.74) 38,872.50 38,872.50 ---------- ---------- ---------- ---------- ---------- TOTAL OTHER INCOME (1,404.67) (5,538.06) 20,746.60 8,894.10 11,852.50 TOTAL INCOME 96,123.52 86,038.12 969,160.45 903,747.99 65,412.46 ========== ========== ========== ========== ========== TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 560.00 -- 1,112.00 1,112.00 CLEANING PAYROLL 887.33 505.85 8,313.70 3,778.78 4,534.92 REPAIRS/MAINT.PAYROLL 3,949.62 3,389.62 38,559.36 21,539.11 17,020.25 MANAGERS SALARIES 1,423.18 -- 8,989.36 1,948.53 7,040.83 OFFICE SALARIES 1,497.84 1,000.25 14,141.68 7,281.00 6,860.68 GROUNDS PAYROLL -- -- -- 3,120.00 (3,120.00) DECORATING PAYROLL 1,061.22 1,553.50 10,788.84 8,965.60 1,823.24 STATE COMP. INS-PAYROLL 629.41 625.73 5,945.19 4,674.20 1,270.99 PAYROLL-HOSPITAL INS 1,258.84 168.26 9,124.35 1,550.84 7,573.51 FICA - PAYROLL TAX 664.38 384.07 5,853.63 3,576.41 2,277.22 FUTA - PAYROLL TAX 69.93 143.79 619.21 366.99 252.22 501 TAX-PAYROLL-UNEMPLOY 87.42 21.70 1,591.68 1,500.32 91.36 ---------- ---------- ---------- ---------- ---------- </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 a <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> PAYROLL EXPENSES 12,089.17 7,792.77 105,039.00 58,301.78 46,737.22 ADMINISTRATIVE EXPENSES PROMOTIONS 143.81 1,141.28 1,141.28 ADVERTISING 226.38 824.99 7,239.02 5,778.42 1,460.60 SIGNS, FLAGS, BANNERS 101.25 978.28 978.28 OFFICE SUPPLIES 158.53 340.68 2,217.72 828.13 1,389.59 FURNITURE RENTAL 485.03 1,629.50 1,629.50 COMPUTER EXPENSES 58.71 58.71 LEGAL EXPENSES (427.50) 1,398.22 1,321.70 76.52 MISCELLANEOUS 36.00 22.34 4,361.88 703.41 3,658.47 CREDIT CHECK EXPENSE 108.00 121.50 1,271.14 744.94 526.20 BANK CHARGES 24.00 47.00 (0.03) 47.03 PETTY CASH REIMB 133.07 731.21 (599.14) POSTAGE 175.79 445.27 445.27 DUES & SUBCRIPTIONS 7.77 295.23 295.23 LINCOLN FEE 2,776.09 24,575.73 24,575.73 NSF CHECK 1,069.61 1,929.63 (1,929.63) RELOCATION EXPENSE 572.66 572.66 EMPLOYEE TRAINING 27.00 265.18 265.18 OUTSIDE STATIONARY MISC 31.22 1,469.41 56.73 1,412.68 ---------- ---------- ---------- ---------- ---------- ADMINISTRATIVE EXPENSE 3,873.37 2,379.12 48,099.30 12,094.14 36,005.16 CONTRACT SERVICES SEC SUP/EXP. FIRE PROTECT 923.73 6,404.88 1,916.15 4,488.73 EXTERMINATING CONTRACT 910.00 910.00 CABLE T.V 0.30 3,968.17 13,776.33 16,546.88 (2,770.55) GARDENING CONTRACT 860.60 65.00 10,465.60 14,440.09 (3,974.49) DECORATING CONTRACT (1,512.00) 14.04 14.04 ---------- ---------- ---------- ---------- ---------- CONTRACT SERVICES 1,784.63 2,521.17 31,570.85 32,903.12 (1,332.27) UTILITY SERVICES TELEPHONE EXPENSE 105.38 131.74 1,488.33 1,266.83 221.50 TRASH REMOVAL 1,961.55 2,205.70 24,109.48 26,383.69 (2,274.21) POE - HOUSE 88.81 506.72 1,566.59 2,111.06 (544.47) GAS - HOUSE 74.85 1,064.53 1,064.53 PGE APARTMENT METERS 90.73 213.57 1,801.07 2,103.57 (302.50) WATER 1,205.67 17,580.07 15,947.90 1,632.17 SEWER CHARGES 15,134.14 15,400.80 (266.66) ---------- ---------- ---------- ---------- ---------- UTILITY SERVICES 2,321.32 4,263.40 62,744.21 63,213.85 (469.64) MAINTENANCE EXPENSES CARPET REPAIRS/MAINT 855.00 510.00 3,065.50 3,277.01 (211.51) CARPET REPLACEMENT 1,865.60 643.49 78,167.95 8,930.03 69,237.92 </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> GROUNDS SUPPLY/REPLACEMENT 140.70 1,847.79 1,707.09) EQUIPMENT RENTAL (5.92) 352.40 60.90 291.50 POOL SUPPLY/REPLACEMENT 228.56 125.25 3,704.95 993.46 2,711.49 DECORATING SUPPLIES 628.41 491.29 8,184.33 7,514.49 669.84 CLEANING SUPPLIES/SERV. 208.62 850.00 5,883.22 6,015.00 (131.78) EXTERMINATING SUPPLIES 75.00 290.00 (215.00) BLDG MAINT SUPPLIES 2,848.08 3,281.98 35,230.23 33,993.19 1,237.04 PLUMBING MAINTENANCE 93.35 84.00 2,868.71 84.00 2,784.71 APPLIANCE REPLACEMENT 420.44 6.692,80 382.85 6,309.95 BLDG MAIN SVC/CONTRACT (248.13) (47,854.19) 6,224.03 4,029.06 2,194.97 ELECTRIC MAINTENANCE (170.09) 2,061.01 113.92 1,947.09 MISC. MAINT. EXPENSES 47.12 47.12 ---------- ---------- ---------- ---------- ---------- MAINTENANCE EXPENSES 6,724.12 (41,868.19) 152,697.95 67,531.70 85,166.25 CONTROLLABLE EXPENSES 26,792.61 (24,911.72) 400,151.31 234,044.59 166,106.72 TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE 2,631.68 38,310.65 5,442.36 38,476.65 (33,034.29) PROPERTY TAXES 37,850.83 34,678.23 75,701.66 (41,023.43) LICENSES & PERMITS 1,643.60 113.40 1,530.20 ---------- ---------- ---------- ---------- ---------- FIXED EXPENSES 2,631.68 76,161.48 41,764.19 114,291.71 (72,527.52) NET OPERATING INCOME (NOI) 66,699.23 34,788.36 527,244.95 555,411.69 (28,166.74) ========== ========== ========== ========== ========== DEBT SERVICE INT. ON 1ST MORTGAGE 394,776.35 407,041.00 (12,264.65) INTEREST EXPENSE 260.39 260.39 LOAN EXPENSES 6,627.27 13,337.62 (6,710.35) ---------- ---------- ---------- ---------- ---------- DEBT SERVICE 401,664.01 420,378.62 (18,714.61) OPERATING CASH FLOW 66,699.23 34,788.36 125,580.94 135,033.07 (9,452.13) ========== ========== ========== ========== ========== NON OPERATING EXPENSES DEPRECIATION EXPENSE 201,798.00 201,798.00 201,798.00 201,798.00 DEFERRED INT. AMORTIZ 7,292.01 7,292.16 7,292.01 7,292.16 (0.15) REFURBISHMENT & DEFERRAL 13,012.88 52,341.60 42,215.89 52,341.60 (10,125.71) ---------- ---------- ---------- ---------- ---------- NON OPERATING EXPENSES 222,102.89 261,431.76 251,305.90 261,431.76 (10,125.86) PROFIT/LOSS (155,403.66) (226,643.40) (125,724.96) (126,398.69) 673.73 ========== ========== ========== ========== ========== </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ---------- <S> <C> <C> <C> <C> <C> NON OPERATING EXPENSES 614,014.14 690,383.82 734,238.43 702,446.08 31,792.35 PROFIT/LOSS (527,115.61) (668,319.62) (865,604.08) (846,488.39) (19,115.69) ========== ========== ========== ========== ========== </TABLE> <PAGE> - -------------------------------------------------------------------------------- QUALIFICATIONS OF ROBERT SAIA, MAI, SRA Calif. OREA Certificate #AG003191 - -------------------------------------------------------------------------------- EXPERIENCE Independent real estate appraiser since 1981. EDUCATION Associate Arts Degree from West Valley College. Major in Real Estate. Bachelor of Arts Degree in Economics from San Jose State University. Graduated with distinction. Graduate Studies in the Master of Business Administration Program at Golden Gate University, San Francisco. Advanced courses in appraisal taken at California State University, Hayward, University of San Francisco and San Jose State University, through the Appraisal Institute. MEMBERSHIPS Former Member of the Society of Real Estate Appraiser (SRPA designation) Current Member of the Appraisal Institute, MAI #8841 Current Member of Admissions Committee Appraisal Institute Board of Directors, South Bay Chapter Appraisal Institute 1993-95. National admissions board member. STATE CERTIFICATES AND LICENSES State of California "Certified-General" Appraiser Certificate No. AG003191 State of California Real Estate License (non-active) State of Nevada "Certified-General" Appraiser Certificate No. 00621 APPRAISAL ASSIGNMENTS Some of the types of properties appraised in the past are outlined below: Commercial: Retail stores, office buildings, service stations, vacant land, Residential: Single family, multi-family, townhouse/condominium, vacant land, subdivision, apartments and mobile home parks. Industrial: Vacant land, warehouses, research and development facilities, industrial condominiums and manufacturing facilities, mini-storage warehouses, food processing facilities, truck terminals. <PAGE> Special Use: Airport, carwash, landfill, right-of-way, easement valuation, commercial nursery, and golf courses. Lodging Facilities: Motels, hotels, inns, SRO, Recreational vehicle parks CLIENTS A brief partial list of past clients with whom Mr. Saia has worked with includes: American Savings Bank County of Santa Clara Comerica Bank Bank of America NT&SA First National Bank of Central California Bank of Salinas Home Savings of America Metropolitan Securities & Trust City of Monterey City of San Jose City of Palo Alto Imperial Thrift & Mortgage NationsBank Pacific Western Bank Bay View Federal Bank Wells Fargo Bank Phoenix Home Life DISCLAIMER The appraisal report appearing below is addressed to NationsBank of Texas, N.A. ("NationsBank"). NationsBank does not represent that the presumptions or conclusions in the appraisals are relevant or accurate and does not endorse the conclusions set forth in the appraisal. Any value, presumption, or conclusion regarding the property or properties appraised in the report must be verified independently of NationsBank. This appraisal has not been approved by NationsBank and is being transmitted without representation and warranty of NationsBank. <PAGE> ================================================================================ APPRAISAL REPORT Westlake Apartments 25-82 Stephanie Drive Salinas, California 93901 Effective Date of Appraisal: September 28, 1996 APPRAISED FOR: NationsBank of Texas, N.A. Real Estate Risk Assessment 901 Main Street, 51st Floor Dallas, Texas 75202-3714 APPRAISED BY: ROBERT SAIA & ASSOCIATES 313 Avalon Avenue Santa Cruz, California 95060 ================================================================================ <PAGE> ROBERT SAIA, MAI & ASSOCIATES Property Appraisers & Consultants - -------------------------------------------------------------------------------- September 28, 1996 Mr. Gary D. Long Real Estate Risk Assessment NationsBank of Texas, N.A. 901 Main Street, 51st Floor Dallas, Texas 75202-37 14 Dear Mr. Long: As requested, Robert Saia & Associates has completed a market value "as is" appraisal of the 139-unit apartment complex known as "Westlake Apartments" located at 25-82 Stephanie Drive in Salinas, California. The Westlake Apartments were first constructed in 1972 and completed in 1976 after some additions were made. There are a total of seven (7) buildings configured on three separate and distinct legal parcels comprising 3.68 acres. The property rights appraised are those of the leased fee interest. Many of the units are on short-term leases (less than one year), thus there is no leasehold or leased fee bonus values to consider. In other words, the fee simple and leased fee values are the same. The function of this appraisal is to aid in proper underwriting, loan classification and/or disposition of the subject property in conjunction with a pending multi-property portfolio purchase that includes the subject property. The effective date of the appraisal is September 28, 1996, the first inspection date of the property. This report was prepared as a Complete Appraisal, Summary Report" following generally accepted and established appraisal practices that comply with the Uniform Standards of Professional Appraisal Practice (USPAP) and also in accordance with the NationsBank Appraisal/Evaluation Guidelines for Appraisers. As instructed, the cost approach has been omitted. Although the cost approach has very little relevancy in the appraisal of apartment complexes in this area, its omission may be considered by some to invoke the Departure Provision. The Limiting Conditions and Assumptions contained at the conclusion of this report are a vital part of the appraisal. There are no extraordinary assumptions that affects the appraisal. The market value estimate is based on an exposure time of four months. Based on our analysis and investigation, as discussed in the attached summary appraisal report, the Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Page 2 Mr. Gary Long Market Value "As Is" of the Westlake Apartments, as of September 28, 1996, is as follows: - -------------------------------------------------------------------------------- FIVE MILLION FOUR HUNDRED THOUSAND DOLLARS $5,400,000 - -------------------------------------------------------------------------------- The above is the value of the real estate only. Personal property value is nominal, and plays no significant role in the operation of the apartments. If you should have any questions, please contact our office. Respectfully Submitted, /s/ Robert Saia Robert Saia, MAI OREA Cert. #AG003191 (exp. 12/7/96) <PAGE> The Westlake Apartments, Salinas, CA TABLE OF CONTENTS Summary of Salient Facts ................................................ 2 Purpose of the Appraisal ................................................ 4 Function of the Report .................................................. 4 Valuation Date .......................................................... 4 Property Right Appraised ................................................ 5 Location and Property Identification .................................... 5 Property History & Ownership ............................................ 5 Project Overview ........................................................ 5 The Extent of the Appraisal Process ..................................... 6 Competency Statement .................................................... 7 Regional Description .................................................... 8 City of Salinas ......................................................... 19 Salinas Apartment Market ................................................ 22 Neighborhood Description ................................................ 24 Site Analysis ........................................................... 24 Current Taxes & Assessments ............................................. 26 Improvement Description ................................................. 28 Highest and Best Use Analysis ........................................... 29 The Appraisal Process ................................................... 32 Income Capitalization Approach .......................................... 33 Sales Comparison Approach ............................................... 52 Reconciliation of the Value Estimates ................................... 62 Marketing Period Estimate ............................................... 63 Exposure Period Estimate ................................................ 63 Allocation of F,F&E ..................................................... 64 Assumptions and Limiting Conditions ..................................... 65 Certification of Appraisal .............................................. 68 ADDENDA Photographs of the Subject Property Maps Floor Plans Apartment Building Sales Sheets Rent Roll and Operating Statements Qualifications Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> The Westlake Apartments, Salinas, CA SUMMARY OF SALIENT FACTS - -------------------------------------------------------------------------------- CLIENT: NationsBank PROJECT NAME: Westlake Apartments NO. OF UNITS: 139 ADDRESS: 25-82 Stephanie Drive, Salinas, CA LOCATION: South Salinas A.P.N.: 207-101-030,034, & 035 THOMAS BROS. MAP: T.B. 234 F3 (Monterey County) CENSUS TRACT NO.: 106.01 ZONING: R-H-2.3 (High Density Residential District) RENT CONTROL: None (No pending) HIGHEST & BEST USE: -As improved... existing apartments -As vacant... high density residential development PROPERTY RIGHTS APPRAISED: Leased Fee Interest SALE HISTORY OVER PAST 5 YEARS: None CURRENT OWNERSHIP: Paul M. Thysen and Betty O. Thysen Trust UTILITIES: Municipal services (water, electricity and sewer) are available and connected. SITE SIZE: 3.68 acres SITE DENSITY: 37.8 units per acre FLOOD ZONE: Zone B per Panel #060202-0002 D (11/4/81) YEAR BUILT: 1972-1976 NET RENTABLE BUILDING AREA (sf): 88,372 COMMON AREA AMENITIES: Greenbelts, asphalt driveways, walks, 1 swimming pool, 14 laundry rooms. OCCUPANCY CHARACTERISTICS: No. of Vacant Unleased Units: 0 (as of inspection date) No. of Pending Evictions: 0 ACTUAL NUMBER OCCUPIED UNITS: on 9/28/96 and OCCUPANCY RATE: 139 (100%) PROJECTED AVERAGE OCCUPANCY for the YEAR ENDING 1996: 96-98.0% Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 2 <PAGE> The Westlake Apartments, Salinas, CA GROSS ACTUAL REVENUE as reported for 1995: $813,068 (includes "other" income) ACTUAL MONTHLY RENTAL INCOME as reported as of 8/28-96: $74,643 STABILIZED NET INCOME EST. as of APPRAISAL DATE: $448,468 EST. EXPOSURE and MARKETING TIME: 2-6 months marketing/4 month exposure CONDITIONS TO APPRAISAL: No unusual conditions. Reference is made to Assumptions & Limiting Conditions in Addenda ================================================================================ MARKET VALUE "as is": $5,400,000 September 28, 1996 (4 month exposure period) ================================================================================ Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 3 <PAGE> The Westlake Apartments, Salinas, CA PURPOSE OF THE APPRAISAL ================================================================================ The purpose of this appraisal is to estimate the market value "as is" of the fee interest for the real estate only. "Market Value," as used in this appraisal, is defined as "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: o Buyer and seller are typically motivated; o Both parties are well informed or well advised, each acting in what he considers his own best interests; o A reasonable time is allowed for exposure in the open market; o Payment is made in terms of cash in U.S. dollars, or in terms of financial arrangement comparable thereto; and, o The price represents the normal consideration for the property sold unaffected by special or creative financing or sale concessions granted by anyone associated with the sale." (*Source: Office of the Comptroller under 12 CFR, Part 34, Subpart Appraisals, 34.42 Definitions [f]) "Market value 'as is' "means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date of inspection.." FUNCTION OF THE APPRAISAL ================================================================================ The function of this appraisal is for the exclusive use of NationsBank, its subsidiaries, and/or affiliates, for loan underwriting purposes in conjunction with a portfolio purchase that includes this property. It may be used in connection with the acquisition, disposition and financing of the sale of the property. VALUATION DATE ================================================================================ The date of valuation is September 28, 1996. This is the date of the last property inspection. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 4 <PAGE> The Westlake Apartments, Salinas, CA PROPERTY RIGHTS APPRAISED and DEFINED ================================================================================ The unencumbered fee simple estate of the property has been valued. This ownership interest is defined as: "Absolute Ownership Unencumbered by any other interest or estate; subject only to the limitations of eminent domain, escheat, police power, and taxation". Leases of seven to twelve months are considered short in duration and do not create any favorable leaseholds by the tenants. Technically speaking, the leased fee interest is being valued, although a percentage of the rental units are on a month-to-month basis. Because of the nature of a short term lease, as well as a strong correlation between contract and market rent, the value estimated for the subject property is essentially reflective of the fee simple interest. IDENTIFICATION and LOCATION OF SUBJECT PROPERTY ================================================================================ The subject property in this appraisal consists of the Westlake Apartments located in the southern-most section of the city limits of Salinas. The Westlake Apartments are located one block south of Blanco Road and within one block west of State Highway 68. The mailing address is 25-82 Stephanie Drive in Salinas, California, 93901. The Monterey County Assessor Parcel Numbers are 207-101-030, 207-101-034 and 207-101-035. A legal description is included in the preliminary title report which is made a part of this appraisal. PROPERTY HISTORY and OWNERSHIP ================================================================================ Title to the property is vested in: Paul M. Thysen Trust The property has not transferred over the required reporting period. It is currently in escrow as part of a multi property portfolio sale. THE WESTLAKE APARTMENTS-OVERVIEW ================================================================================ The Westlake Apartments is a 139-unit apartment complex located on three (3) separate and legal parcels comprising 3.68 acres and configured in seven (7) 2&3 story buildings. Not included is the on-site manager's office located at 60 Stephanie Drive. Two of the seven buildings are located on one parcel (APN# 207-101-030) at the westerly portion of the development across the street from the major portion of the complex that contains five buildings on two parcels (APN# 207-101-034 & 035). The Westlake Apartments were built beginning in 1972 and, after some additions, were finally completed in 1976. The two 3-story buildings that are located within the cluster of five on the south side of Stephanie Drive contain elevators. The two 3-story buildings located at the westerly-most section of the complex across the street also have an elevator system. The interiors of the two buildings have common hallways. Some of the units are afforded views of the large agricultural tracts of South Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 5 <PAGE> The Westlake Apartments, Salinas, CA Salinas to the south and east. Only eight (8) of the 139 units have fireplaces; these are the 624 sf plan (3 units) and the 720 sf plan (5 units). The Westlake Apartments complex has a total of 197 parking spaces of which 134 are covered. Amenities offered by the Westlake Apartments include lawn-greenbelt areas, one swimming pool, and (14) laundry rooms. Utilities provided by the landlord include water, trash removal, sewer, and basic cable television for all of the units. In conclusion, the overall exterior appearance of the subject property (Westlake Apartments) is considered above average to good and reflective of other more recently constructed and competing high density residential developments within the North Salinas area. The reader is directed to the Improvement Description of this report for further comments regarding the individual units and their respective interior improvements. THE EXTENT of THE APPRAISAL PROCESS ================================================================================ The extent of the appraisal process encompasses the necessary research and analysis to prepare a report in accordance with the intended use, the Uniform Standards of Professional Appraisal Practice as set forth by the Appraisal Foundation, and the Standards of Professional Practice of the Appraisal Institute. With regard to the valuation of the subject property, the following steps were involved: 1. The property was last inspected and photographed on September 28, 1996. This date is considered the "effective date" of this appraisal. 2. The overall exterior site and buildings of the Westlake Apartments (subject property) was personally inspected by the appraiser. The on-site office manager provided interior access to each of the various unit types within the developments. The appraiser was able to physically measure a representative unit of a studio, one bedroom and two bedroom floorplan.. The subject is valued assuming that the net rentable areas of the typical unit sizes are representative of the complex as indicated by Lincoln Residential Services. 3. Regional, county, city, and neighborhood data were based on information taken from a variety of sources, including, but not limited to, City of Salinas Planning Department, Monterey County Tax Assessor's Office, City of Salinas Public Works Department, City of Salinas Building Department, the Association of Monterey Bay Area Governments, Salinas Chamber of Commerce, independent private studies, newspaper articles and my own files. 4. Research and investigation of current market conditions for apartment properties in the city of Salinas. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 6 <PAGE> The Westlake Apartments, Salinas, CA 5. Interviews with brokers, appraisers, property owners and/or managers and lenders, as well as the relevant public agencies as described above. 6. The highest and best use was formed by information gathered in the previous steps. 7. After assembling and analyzing information defined in this extent of the appraisal process, final estimates of market value by each applicable valuation method were made. 8. And, finally, a single value estimate from within the concluded value by each approach was made. Greatest weight was given to those approaches felt to have the most influence on the purchasing decision. Unless otherwise stated in the report, the existence of hazardous materials, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser is not qualified, however, to detect such substances. The presence of toxic or caustic substances or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there are not such materials on or in the property that would cause a loss in value. Any such findings which would indicate otherwise could result in a decrease in value. COMPETENCY STATEMENT ================================================================================ In accordance with the competency provision in the USPAP, the appraiser certifies that his education, experience and knowledge is sufficient to appraise the type of property being valued (apartment complex) and that no appraiser has provided significant professional assistance to the person inspecting the subject property in the completion of the analysis other than those mentioned in the Certification of Appraisal (see Addenda). Robert Saia, MAI has appraised this property type in the past and has the knowledge and experience necessary to complete this appraisal assignment. See Appraiser's Qualifications in the Addenda for additional information. The appraiser's analyses, opinions and conclusions were developed and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) Standards 1-3, and NationsBank appraisal policy. This appraisal assignment was not based on a requested minimum valuation, a specific valuation or the approval of a loan. The Departure Provision in the USPAP was not utilized in the preparation of this report. The appraiser's compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimated, the attainment of a stipulated result or the occurrence of a subsequent event. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 7 <PAGE> The Westlake Apartments, Salinas, CA REGIONAL ANALYSIS ================================================================================ Market value is affected by a number of externalities; e.g., geographic, economic and environmental, governmental forces, utility, supply & demand and effective purchasing power. Real estate is affected by externalities more than any other economic good, service, or commodity. It is imperative that an appraiser observe and analyze external influences in order to identify patterns and trends, and how they relate to the subject property. Trends such as population shifts, declining apartment occupancy rates, or increased housing sales in an area are relevant in order to understand the real estate marketplace. Thus the Regional Description & Analysis is important in this appraisal because it establishes the basis for determining the highest & best use of a property as well as information used in applying the three approaches to value. The scope of this regional analysis relates to the type of property being appraised, its complexity and the approaches used to estimate value. Monterey County is located in a portion of California that is often referred to as the "Central Coast," which encompasses the area known as the "Monterey Peninsula." The county is oriented northwest to southwest, and runs parallel to the Pacific Ocean. The county has a relatively long and narrow shape, with an average of only 30 miles; elevations range from sea level to 5,844 feet atop Junipero Sierra Peak, located 12 miles inland in the Santa Lucia Range. Monterey County is bounded by the Pacific Ocean on the west, Santa Cruz County to the north, San Luis Obispo county to the south, and San Benito, Kings and Fresno counties to the east. The area is located approximately 125 miles south of San Francisco and 350 miles north of Los Angeles. Approximately 105 miles of California's 840 miles of coastline lie along the westerly boundary of Monterey County. On the whole, Monterey County has a rural orientation, with substantial tracts of land devoted to agriculture and open space uses. The county encompasses 3,784 square miles, or approximately 2,127,400 acres of land area. An interesting statistic is that nearly 27 percent of this total county area is government-owned. Twenty-five percent is owned by the federal government with major holdings such as Fort Hunter Liggett, Fort Ord, Los Padres National Forest and Camp Roberts. The remaining two percent is controlled by the state and county. Geographical location and features exhibit strong influences on the county's climate. The Pacific Ocean is responsible for the county's Mediterranean climate, characterized by year round moderate temperatures, cool, dry summers, and short, rainy seasons. Pacific winter storms are blocked by the Santa Lucia Range, allowing considerably less rain to fall on the Salinas Valley. Temperature and rainfall have important implications for the county's two major economic staples, agriculture and tourism. Mild temperatures allow for exceptionally long growing seasons for farming. Rainfall patterns, while following predictably dry weather, require reservoir and ground water storage to meet year round irrigation needs. Population Approximately one half of the county's population lives within the seven incorporated cities and adjoining unincorporated areas of the Monterey Peninsula. The eight principal cities are Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 8 <PAGE> The Westlake Apartments, Salinas, CA Monterey, Marina, Seaside, Sand City, Del Rey Oaks, Pacific Grove, Cannel-by-the Sea and Salinas. The incorporated areas consist of 31.5 square miles, or about one percent of the county's total land area. The major factor for the high population density of the Monterey Peninsula vis-a-vis the rest of the county, is the unsurpassed natural beauty of the area --especially the coastline and beaches. Based on the most recent U.S. Census (January 1, 1990), the population of Monterey County grew by approximately 24 percent during the last decade. This growth has helped push the county's total population up to approximately 382,547 in 1994. For reference, the county's growth rate over the preceding decade was just under the state's overall gain of 26 percent. In the previous census period (1970-1980) the county's total population grew 17 percent, from 247,450 to 290,444. While county's growth has been strong, the level varies from area to area. As shown below, the population of Salinas, the largest city and the county seat, increased by 35.2 percent between 1980-`90. The growth in Salinas constitutes approximately 43 percent of the county's total population increase during that period. In contrast, the population of the city of Monterey increased by a more modest 16 percent over that census period. As shown, not all communities in the county experienced tremendous population growth. Population growth was much steadier in the cities of Seaside, Pacific Grove and Del Rey. In large part, growth in these communities is limited due to a lack of developable land. MONTEREY COUNTY: Population Growth 1980 - '90 (1990 U.S. Census) - -------------------------------------------------------------------------------- City/Area 1980 1990 Total No. % Change - --------- ---- ---- --------- -------- Salinas 80,479 108,777 28,248 +35.2% Seaside 36,567 38,901 2,334 +6.4% Monterey 27,558 31,954 4,396 +16.0% Marina 20,647 26,436 5,789 +28.0% Pacific Grove 15,755 16,117 362 +2.3% King City 5,495 7,634 2,139 +38.9% Greenfield 4,181 7,464 3,283 +78.5% Soledad 5,928 7,146 1,218 +20.5% Gonzales 2,891 4,660 1,769 +61.2% Carmel-by-the-Sea 4,707 4,239 (468) -9.9% Del Rey Oaks 1,557 1,661 104 +6.7% Unincorporated Areas 84,679 105,252 20,573 +24.3% - -------------------------------------------------------------------------------- The most recent population estimates show that the population of Monterey County, based on the January 1, 1995 estimates for California cities and counties prepared by the State of California Department of Finance, was 382,547. Recent trends show most of the increase occurring in the Salinas Valley cities rather than on the Monterey Peninsula. For example, in 1993, the fastest growing city in the county was Soledad (+6.1%), with nearby Greenfleld (+5.3%) and Sand City tying for second place. Population growth in Soledad is largely attributable to an expansion of the state Correctional Facility and the development of two large residential subdivisions. Greenfield's city manager reported that population growth has been spurred by reasonable prices for single family detached housing but that future growth is limited due to a lack of land. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 9 <PAGE> The Westlake Apartments, Salinas, CA Based on projections by the State Finance Department, released in April 1993, Monterey County is projected to post a 15.6 percent gain in population by the year 2000 --representing an increase to approximately 414,000 people. In contrast, San Benito's population is projected to increase by 37 percent by the year 2000; Santa Clara County's by 13.4%; 14.4% for Santa Cruz County; and, 21.6% statewide. Below are the Finance Department's projections by county through the year 2030. PROJECTED POPULATION GROWTH (Calif. Dept. of Finance) - -------------------------------------------------------------------------------- County 1990 2000 2010 2020 2030 - ------ ---- ---- ---- ---- ---- Monterey 356,000 414,000 485,300 574,100 670,900 San Benito 37,000 50,700 66,500 83,200 100,900 Santa Clara 1,502,200 1,703,900 1,839,700 1,958,600 2,064,100 Santa Cruz 230,800 264,000 291,800 322,300 354,100 Statewide 29,976,000 36,444,000 42,408,000 48,977,000 56,100,000 - -------------------------------------------------------------------------------- Transportation The major passenger transportation system in the county is via private automobile. The freeway system consists of Highways 101, 1 and 183; and, State Routes 156 and 68. Highway 101 runs north and south from San Francisco, along the West Bay, and through San Jose toward Los Angeles. Highway 1, the Coast Highway, runs north and south from the coastal region of San Francisco and through Santa Cruz toward San Luis Obispo County. Highway 68, the Salinas-Monterey Highway, intersects with Highway 1 and connects the Monterey Peninsula with the Salinas Valley to the south and Highway 101 to the north. There are 1,300 miles of county roads and approximately 500 miles of city streets for a total of 2,000 road miles in the county. In Monterey County, AMTRAK provides rail passenger service, and the Southern Pacific Transportation Company provides rail freight service. Salinas is the only city in the county that now has rail passenger service. SPRR is the main line between Los Angeles and San Francisco. The Monterey Peninsula Airport provides air freight and passenger service in and out of the county. Over the past 20 years, the airport has shown a moderate growth pattern. In 1970, the number of passengers totaled 411,497. In comparison, the number of passengers had grown to 523,040 by 1989 (+1.4% per annum). Today, passenger service is provided by United, Wings West, Pacific Coast Air and West Air. The cities of Salinas and King City both have municipal airports. And with the closure of Fort Ord, Marina has discussed plans to convert Fritzsche Army Airfield into its own municipal airport. There are harbors at Monterey and Moss Landing (4 miles from the subject) which have boating facilities with a reported 2,000 small crafts launching from its ramps every month. Approximately 1,800 transient crafts visit the harbors annually. Monterey Bay and Monterey harbor areas attract a significant portion of the tourism industry that provides jobs and an economic base for the Monterey Peninsula area and the county as a whole. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 10 <PAGE> The Westlake Apartments, Salinas, CA Fort Ord and the Military Influence With its various military installations located throughout the Monterey Peninsula area, including control of approximately 27 percent of all of the land in the county, the influence of the military on Monterey County has been significant. This influence has had a considerable financial impact, including military and civilian payrolls, local purchase and contracts, construction in the area, as well as the increase in government aid to local schools due to the military population in the area. The local housing market has also been significantly effected by the presence of the military. This impact, however, has been primarily on the apartment rental market in the communities of Marina and Seaside. In addition, it has had some minor negative impact on mobile home parks in the general area. Being approximately 20 miles northeast of Fort Ord, impact from the base closure has been minimal and not measurable. Given that the Ford Ord area is not in the immediate environs of the subject property, the effect of the base closure on the Boronda Manor Apartments has not been minimal. The closure of Fort Ord was the dominant economic news for the county during 1994. The closing was the single largest national closure to date, with most of the base's 35,000 residents and $600 million payroll moving to other bases. Currently, the base's 44 square miles of land is being administered by the Fort Ord Reuse Authority. Local communities formed the Fort Ord Reuse Authority as an advisory planning committee which under an agreement formed a Fort Ord Joint Powers Agency (JPA). The JPA agreement gave voting membership to the cities of Marina, Seaside, Sand City, Del Rey Oaks, Monterey, and Salinas and extended non-voting status to Pacific Grove and Carmel. The county is also a voting member. The premise of the JPA was to create a forum for discussing reuse issues; to facilitate community involvement and to speed up the decision process via a cohesive voting unit. Initially, the base closure stirred dire predictions about the short-term impact on the county. However, as the closure set in, the immediate economic impact was much less severe than expected, and limited primarily to the adjacent communities. Fort Ord was so large that much of the base was self-contained with its own housing, stores, services, and restaurants. The long-term prospects after closure are encouraging, assuming the base's land can be opened to large scale private sector development. In fact, the first major reuse of the base was the opening of the California State University-Monterey Bay which opened its doors on August 28, 1995 to 633 students. The state university at Fort Ord "is expected to grow substantially over the years, attracting students, well paid employees, research dollars and private businesses," according to the 1995 BT Commercial Real Overview published in April 1995. The Fort Ord complex was the largest military installation in the county with a total of 28,057 acres --nearly the size of the city and county of San Francisco. Approximately 22 percent of the base (6,250 acres) was developed with barracks, housing, motor pools, administrative buildings, and various other support facilities. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 11 <PAGE> The Westlake Apartments, Salinas, CA Other military installations on the Monterey Peninsula include the Presidio of Monterey, which is the home of the Defense Language Institute (foreign language school for all branches of the armed forces); the United States Naval Post Graduate School (NPGS), and the United States Coast Guard Station. The United States Department of Interior maintains 304,035 acres in the Los Padres National Forest and 164,503 acres along the Big Sur coast in the Ventana wilderness. Fort Ord Reuse Plans After more than six years of planning, the final version of the Fort Ord reuse plan shows a closed military base converted to a huge community of new homes, businesses, schools, parks, hotels and golf courses. The four volume reuse plan, filed in public libraries in the area during the first week of June 1996 by the Fort Ord Reuse Authority, has evolved from the days when a 250 member community task force first saw the base as an educational center. Along the way, planners ruled out suggestions that Fort Ord might give way to a "Disneyland in the dunes", an industrial center with 12 story high rises sprinklered about, or an endless shopping center with no room for houses. The more realistic, final plan, which the FORA board is expected to act on in July includes market research, financing analyses, economic forecasts and population projections. Still, the numbers in the reuse plan are almost overwhelming: - -Nearly 4,000 acres of land available for private owners, an area six times the size of Carmel. - -More than 13,000 new houses to be built, half as many as now exist in Salinas. - -About 12 million square feet of industrial parks and office complexes, enough to fill an area 20 times the size of Del Monte Shopping Center in Monterey. - -More than 45,000 new jobs in those businesses, a third as many as now exist in the entire county. - -A new community of more than 71,000 people, twice as many as now live in Monterey. - -About 1,800 hotel rooms, three times as many as the Hyatt Regency in Monterey and eight times as many as Embassy Suites in Seaside. - -Development costs of $451 million over the next 20 years, as much money as it takes to run the city of Pacific Grove for 50 years. The plan shows development, including the 800 acre military enclave left behind as the Presidio of Monterey Annex, the 1,300 acre California State University at Monterey Bay (CSUMB), the 845 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 12 <PAGE> The Westlake Apartments, Salinas, CA acre Marina Municipal Airport and as many as seven golf courses, covering about a third of the 44 square file base. About 18 percent of the land at Fort Ord has been developed. Another 14 percent is slated to be developed in the next 60 years, according to the reuse plan. About two-thirds of the base is to be preserved in its natural state by the U.S. Bureau of Land Management (BLM), the State Department of Parks and Recreation, the University of California Natural Reserve System, the county, and the city of Marina. The environmental impact report for the reuse plan fills one of the volumes, a 327 page document, filed in early June as FORA's proposed final plan. The environmental analysis doesn't have many specifics because a special state law allows that at Fort Ord. The reuse plan, which has taken six years and many political battles to achieve, is seen as a master sketch, with details and designs to be filled in as individual development projects emerge. Fort Ord's Impact on the Local Economy It is extremely difficult to accurately ascertain the full impact that Fort Ord's closure has had on the local economy because California was suffering through a recession during the early part of the 1990's when the base was closing. The recession has made it difficult to isolate how much of the impact the close of Fort Ord has had on the economy. What has been evident is that there was a short-term glut of rentals on the Monterey Peninsula. Surrounding communities, especially Marina, Seaside and Sand City suffered the greatest negative impact as the closure process evolved. Conversely, the prestigious residential areas such as Pebble Beach, Carmel and the more upscale areas of Monterey were not impacted by the closure. Similarly, the City of Salinas' housing market was not adversely affected to a significant degree. In the Salinas Valley the base closure has had little to no significant impact. Rather, population growth and new development in the area of Salinas continued to be most effected by issues such as the shortage of water and salt-water intrusion. In general, the Salinas Valley could be described as being somewhat of an isolated market area. As such, a Salinas Valley location became more desirable, as investor's uncertainty associated with Fort Ord's closure was primarily directed at investment properties located on the Monterey Peninsula. Overall, a somewhat stagnant to moderate housing market appears to be the continued status for the general area over the short term, although there are signs that economic conditions are improving. This is especially the case in nearby Santa Clara County ("Silicon Valley") where the housing and rental markets have exploded due to strong job growth. Little investment activity and/or new construction is anticipated in the communities adjoining Fort Ord, at least until the major issues surrounding the redevelopment/reuse of the base are resolved. As discussed, there are several issues surrounding the base closure and its reuse which need to be resolved before the prevailing atmosphere of uncertainty blanketing the local real estate market is cleared. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 13 <PAGE> The Westlake Apartments, Salinas, CA Business / Industry Monterey County, with a full-time civilian work force of approximately 172,000 - -175,000 workers, has two major urban areas --Salinas and the Monterey Peninsula. As shown on the following page, employment in Monterey County (not including agriculture) is projected by the Employment Development Department (EDD) to average 113,100 in 1996, which will be 2,400 jobs above the 1989 annual average. At just +2.2 percent, this very small gain in jobs reflects EDD's assessment of the impact of the Fort Ord closure. Unemployment rates in Monterey County have been consistently higher than for California as a whole. The seasonal nature of the county's economy accounts for double-digit unemployment in the winter when agriculture, food processing, and tourist-oriented industries are at a lull. Agriculture While the economy of Monterey County is diversified, agriculture is the county's leading industry and the mainstay of the local economy. Agriculture provides approximately 1/4 of the county's basic income. Almost 1/5 of California's top-producing crop farms are located in Monterey County. With 86 fanning operations, the county ranks second in the state, behind Fresno County with 97 farming operations. A farming operation is defined as a farm producing a crop with a value in excess of $4 million. The county ranks third in the state in gross dollar agricultural production, making it one of the top ten producing counties in the nation. Monterey County has a total of 976,000 acres used exclusively for agriculture and another 343,680 are combined agricultural and grazing land. The county's highly productive agricultural land is often referred to as the "fog belt" agricultural area of California. The long growing season in this area makes it possible to grow as many as three crops annually. Nationwide, the county leads in the production of lettuce, broccoli, artichokes, cauliflower, mushrooms, and strawberries. According to the county's agricultural commissioner, strawberries were the third-ranked cash crop in 1994, behind broccoli and head lettuce. Despite the damage done by the 1995 historic floods, the crop value for Monterey County agriculture surpassed the $2 billion mark, after creeping toward the milestone for several years. The 1995 crop value, $2.03 billion, market a 4.8 percent increase over 1994. Among the top 12 crops, the order in terms of dollar value remained almost identical to that of 1994. Besides breaking local production records, Monterey County surpassed Kern County in 1995 to become the third in the state in gross dollar value of agriculture. It was surpassed by only Fresno and Tulare counties. By the same measure, Monterey County also is the largest vegetable producing county in the United States. The crop value for the state of California stands at $20 billion. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 14 <PAGE> The Westlake Apartments, Salinas, CA Assuming water for irrigation remains sufficient, employment in agriculture is projected to increase as growers expand production of vegetables and labor-intensive strawberry and nursery crops. But because of foreign competition, the rate of growth will be slower through 1996 than over the past seven years. Foreign demand for the county's produce remains strong, however. Additional market growth is also expected as the pre-cut salad mix processing market is rapidly expanding. Agriculture continues to be effected by water availability. Even with above normal rainfall in 1993 and 1996, the effects of years of drought have brought to focus the water issue. At this time, the issue of sufficient water supply and overdrafting (saltwater intrusion) are being addressed through water conservation and other management practices which have included moratoriums on new development. Other issues facing the agriculture industry include nitrates leaching into groundwater and soil compaction. Tourism/Convention Industry Following agriculture, the health of the county's business and industry is tied to the tourism/convention industry. According to the California Office of Tourism, an estimated 5 million visitors spent $1.2 billion in 1991 in traveling to Monterey County. That total represented about 2 percent of statewide travel spending that totaled $54.1 billion. As shown in the following table, Monterey County ranked ninth among the state's counties in total travel dollars spent in 1991. TRAVEL IMPACTS BY COUNTY (Office of Tourism) - -------------------------------------------------------------------------------- Travel Expenditures Payroll Employment Tax Receipts ($000) County ($000) ($000) (Jobs) Local & State Los Angeles $13,617,556 $3,316,360 $154,734 $221,008 $391,987 San Francisco 5,777,445 1,524,457 63,236 99,816 133,011 Santa Clara 1,816,493 414,511 26,269 39,982 62,715 Alameda 1,502,588 353,077 19,663 25,024 46,024 San Mateo 1,496,321 363,301 18,626 26,209 41,447 Monterey 1,062,686 199,309 16,210 29,922 45,087 Sonoma 571,605 117,118 8,788 9,660 26,355 Santa Cruz 385,672 80,350 5,347 7,464 13,561 Napa 321,794 67,972 5,078 7,023 13,489 San Benito 49,459 8,713 724 591 2,327 - -------------------------------------------------------------------------------- The Association of Monterey Bay Area Governments (AMBAG) estimates that 15 percent of total employment in the county and about 45 percent of all services and trade employment in the county are supported by tourism. The Monterey County Hospitality Association estimates that Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 15 <PAGE> The Westlake Apartments, Salinas, CA the industry is directly responsible for creating over 16,000 jobs locally with a payroll of nearly $200 million. And including the estimated 10,000 indirect jobs, the payroll increases to $322 million. By the Monterey County Hospitality's estimates, the "trickle-down" effect of tourism puts the total impact at $4 billion to $5 billion. Restaurants, hotels and inns, retail trade, numerous publications, and a variety of other service-oriented businesses are directly dependent on the tourist trade for their welfare. Based on 1989 data, there was a total of 220 lodging facilities in Monterey County consisting of 10,381 rooms. Because the majority of the tourism industry is centered around the hotel and convention complexes, it has more of an impact on the Monterey Peninsula area. The Monterey Peninsula area provides for a plethora of recreational and cultural activities which in combination with the natural scenic beauty create a tremendous attraction for tourism. The area has a number of public beaches that cater to swimming and sunbathing as well as surfing and scuba diving. In addition to the beaches, there is boating and sailing as well as two yacht clubs servicing the Monterey Peninsula. The area also boasts a number of parks and campgrounds, including the Los Padres National Forest and State beaches and parks. Within these parks and reserves, there are facilities for riding, hiking, hunting, and fishing. There is also the renown Del Monte Forest area and its 17-Mile Drive; Cannery Row and Fisherman's Wharf, as well as the Carmel-by-the-Sea and the ocean-front drives of the peninsula communities. The growth of the tourist industry is reflected in the continuous extension of the visitor season. More and more small business meetings, conventions and recreational events are now being held on a year-round basis. Although travelers and visitors to the Monterey Peninsula area come from all over the world, the primary points of origin are from within California, particularly within one day's driving distance. Again, attractions such as the Monterey Bay Aquarium and John Steinbeck's Cannery Row, as well as the Monterey Fisherman's Wharf, continue to be prime sources of vacation and tourism attractions. Paralleling the growth of the travel & lodging industry, was the development of the Monterey Bay Aquarium. The aquarium was approved by the coastal commission in 1978 and the 60,000 square foot facility was completed in 1985. The entire cost of the $50 million aquarium was absorbed by the philanthropist/businessman David Packard. The aquarium drew 2.227 million visitors in its first year and has averaged approximately 1,730,000 annually through 1991 --making it the single largest tourist attraction in the county. A substantial expansion to the facility is now underway. Upon completion of the expansion, attendance is expected to substantially increase. Occupancy for hotels and motels often reach 100 percent during peak season on the Monterey Peninsula. In fact, visitation patterns are being strongly affected by the lack of available rooms. The major limiting factor to the growth of the tourist industry in Monterey County in the future will be accommodations and facilities. According to statistics provided by the Monterey Peninsula Chamber of Commerce, the average occupancy rate has been approximately 65-75 percent, although 1996 is turning out to exceed those numbers. In an effort to further promote tourism, leaders in Monterey County's tourism industry are beginning an ambitious campaign to market the area. The general plan is to form an alliance Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 16 <PAGE> The Westlake Apartments, Salinas, CA among merchants, city officials and representatives of major events such as the Monterey Jazz Festival and Sports Car Racing Association of the Monterey County. The strategy for expanding tourism in the county is to spread out the times when visitors come to the county and to advertise the attractions of the region, rather than just Monterey, Pebble Beach or Carmel. Traditionally, the tourist season peaks from Memorial Day to Labor Day. Additionally, the alliance would like to also extend the average stay from two to three days in the county. To that effect, tourists would be encouraged to spend time touring the Big Sur Coast, wineries of Salinas and Carmel Valley, John Steinbeck's Salinas, and even the lesser-known missions of San Antonio and Soledad. The concept of "ecotourism" is also being promoted as a means of courting more visitors to the county. Monterey County, by virtue of its fragile ecosystem, scenic natural beauty and 20 years of "no growth" planning policy appears ideally suited to this new industry. Because the future of Monterey County may very well depend on its natural environment, "ecotourism" represents a mutual interest of both business and environmentalists. Thus the adverse impacts of increased traffic, use of precious water and growth of facilities geared to tourists are sure to be carefully weighed as community leaders look towards expanding the tourism industry in order to offset losses from the closure of Fort Ord. Monterey County's tourist season has traditionally run from Memorial Day to Labor Day, but recent patterns of hotel occupancy and retail sales show that the season starts and ends later. The summer 1995 aquarium attendance was up 10% over 1994. In June and July 1995, attendance was up 7 percent and 7.6 percent, respectively, over the same months of last year. August was expected to experience increases of up to 5 percent, according to Mr. Jim Hekkers, vice president of external affairs at the Monterey Bay Aquarium. Commercial Market The county's office market caters primarily to small local service business, while most regional and national companies are located on the Garden Road/Ryan Ranch/Highway 68 corridor, drawn by newer buildings, attractive rents, better parking ratios, and large contiguous spaces. The industrial market is "tight" in Monterey County. Vacancies are minimal and have continued to decline. Contiguous blocks of available space over 15,000 square feet are non existent. Most knowledgeable real estate brokers expect rents to increase slightly over the next year. New development should be limited because of minimal available industrial-zoned land. The local retail market may seem crowded with large shopping complexes on the drawing boards in Salinas and Sand City, but marketing reports and consultants say there's room for more. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 17 <PAGE> The Westlake Apartments, Salinas, CA Housing Market Monterey County's real estate sales surged in April/May 1996 with total sales coming in 67 percent higher than for the month last year. The increased activity has promoted optimism about a recovering market. The median home price for the county is approximately $300,000. This is up slightly over the past year. Regional Description & Analysis --Conclusion A survey of statistics on agriculture, home sales, retail sales and other indicators shows that the Monterey County economy is proving wrong the dire predictions made before Fort Ord closed down. For decades, farming and the military were the area's two economic mainstays. Today agriculture remains paramount, but other sectors are changing rapidly to fill the void created by the base closure. Jobs While unemployment estimates remain seasonally high, county business have added more than 6,000 new jobs in the past 12 months, mostly in agriculture and service related fields, according to the State Employment Development Department. Construction Although the county construction permits dropped by about 4 percent in 1995, when compared to the year before, to about $319 million, single family dwelling starts have bolstered this year's construction, which is about 20 percent ahead of last year's rate. In addition, government projects are still underway, including the $100 million Natividad Medical Center in Salinas. Completion is expected in early 1997. Built around a courtyard, the new facility will offer patients an array of outpatient services devoted to the needs of families, women and children. Construction has started on the 680,000 square foot Westridge Shopping Center in Salinas. It is expected that the Wall Mart Store will open in February 1997. Real Estate Sales Although Monterey County is considered the second least affordable area in the country, higher priced homes on the Peninsula are still attractive, particularly to the people in the 45 to 54 age range. Agriculture Monterey's total crop ranks third in the state in total dollar value, behind Fresno and Tulare counties. In terms of vegetable production,, the county is the largest in dollar value in the country. The county's crops amounted to 10 percent of the statewide crop total of $20 billion in 1995. Tourism The area's coastline, golf courses and resorts attract visitors from throughout the world. In 1995, attendance at the Monterey Bay Aquarium was 1.6 million and, with the opening of the Outer Bay wing in March, attendance is expected to go as high as 2.2 million this year, according to aquarium officials. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 18 <PAGE> The Westlake Apartments, Salinas, CA CITY OF SALINAS-COMMUNITY PROFILE ================================================================================ The City of Salinas, incorporated in 1874, is located eight miles inland from the Monterey Bay, at the head of the Salinas Valley. The level fertile floor of the valley tapers to a funnel just north of the City. The original King's Highway, now called El Camino Real and/or Highway 101, traverses the approximate center of the valley floor from the Prunedale area of rural north Monterey County to King City to the south. Other cities located in the valley south of Salinas includes Chular, Gonzales, Soledad, Greenfleld, San Lucas, and San Ardo. A map of the city appears in the Addenda. Salinas has been recognized historically as the distribution center for agricultural products from the Salinas Valley, one of the world's richest, most fertile growing areas, with approximately 1,000 square miles of land. The economic base of Salinas has always been agriculturally oriented; however, during the past decade, rising property values have helped to make the city of Salinas a bedroom community of the Monterey Peninsula. Salinas has become the population growth center of the Monterey Bay region. Recent projections show the city will continue to grow at an annual rate of 3 percent. There are 100 manufacturing firms in Salinas. The leading group classes of products are food, electronic components and electrical products. The largest manufacturing firms in the community are: Simplot Corporation, 550 employees; National Refractories, 419 employees; Integrated Device Technology, 360 employees; Radionics, 359 employees; and McCormick & Company, Inc. (Shilling), 350 employees. The city has three distinct geographical business areas: North Salinas, East Salinas, and South Salinas (where the Westlake Apartments are located). South Salinas County and city government offices are located in the south Salinas area. This part of the city is generally known as the financial center. It has the highest concentration of larger office buildings. One of the largest tenants in south Salinas is the County of Monterey and its support service agencies. Salinas is the county seat of Monterey County. As the county seat, Salinas serves as the area's center for finance and agribusiness. It has captured nearly 40 percent of the county's office development. South Salinas also has the city hospital, Salinas Valley Memorial Hospital and the downtown area. The hospital is surrounded by medical offices and single family homes interspersed with multifamily units. There is little remaining developable land in south Salinas; land that is undeveloped is agriculturally-zoned and is typically being farmed. No new apartment construction has taken place for the past several years; most complexes in south Salinas were built from 1960 to 1975. New apartment construction will occur in the northern part of the city, unless the city and county allow agricultural land to be converted to residential (unlikely given the anti-conversion stance taken by the county). Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 19 <PAGE> The Westlake Apartments, Salinas, CA Another area in south Salinas is "Old Town," which is located south of West Market Street, along Main Street in the downtown district. This area has many specialty retail stores, financial institutions and restaurants. The City is actively pursuing the redevelopment of "Old Town." Since 1974, $15 million in private investments, matched by $34 million in publicly financed improvements, have been committed to this project. This redevelopment has revitalized the area and has attracted many new commercial tenants to this part of the city. This redevelopment is to include the Steinbeck Plaza, which is anticipated to be a much-heralded showpiece of the city's downtown district. It will consist of a mixed land-use project for the blighted 100 block of South Main Street and will include a five-story, 94 room hotel with rooftop restaurant; a five story, 110,000 square foot office building with conference rooms and retail shops; a four level parking garage; restaurants with a total seating of 400; and a 33,000 square foot public plaza that will include an amphitheater. North Salinas The north Salinas business district of the city is located along North Main Street, south of Boronda Road and north of East Laurel Drive. The Northridge Regional Shopping Center, with over 120 specialty shops, three savings and loans, a bank, theater complex, and four major department stores, is located in this area of the city. In 1985, Northridge concluded a four year expansion, representing an investment of over $55 million. Convenience stores, financial institutions and other neighborhood stores are also located along North Main Street, which connects the north and south Salinas areas. Over the past five years, with the development of Northridge Shopping Center, north Salinas has become the retail center of the city. Office development in this part of the city has generally been directed toward smaller buildings. North Salinas is where most of the city's growth has taken place over the past 10 years, and it is where it will likely continue over the foreseeable future. East Salinas The East/Alisal area of Salinas is generally described as that part of the city that is located east of Highway 101 and Natividad Road. The central commercial district is located along East Alisal. Portales de Alisal, a three level mix of retail shops and day care center, as well as medical and other professional offices, are planned on approximately eight acres located in the 500 block of East Alisal Street, in the Hebron Heights neighborhood of the Alisal District. Neighborhood retail shops, small professional office users and trades people comprise the typical tenant profile in the east Salinas area. Vacancy in this area is low. Very few spaces and apartments are for lease. New retail space has leased very well as evidenced by the strong activity of a 19,600 square foot retail/shopping center located at 45 Sanborn Road. Some new construction will occur in this part of the city, however, to a lesser degree as compared to northern Salinas. Population & Growth Percentage-City of Salinas vs. Monterey County - -------------------------------------------------------------------------------- Year Monterey County City of Salinas - -------------------------------------------------------------------------------- 2000 422,710 144,500 - -------------------------------------------------------------------------------- Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 20 <PAGE> The Westlake Apartments, Salinas, CA - -------------------------------------------------------------------------------- 1995 370,996 122,390 - -------------------------------------------------------------------------------- 1990 355,657 108,777 - -------------------------------------------------------------------------------- 1980 289,861 80,479 - -------------------------------------------------------------------------------- 1970 247,450 58,896 - -------------------------------------------------------------------------------- Monterey County-Employment by Industry - -------------------------------------------------------------------------------- 1992 1998 (projected) Percent Change - -------------------------------------------------------------------------------- Agriculture 30,600 32,900 8% Services 28,300 32,000 13% Retail Trade 23,700 25,700 8% Government 27,900 26,300 -6% Manufacturing 8,900 9,800 10% Finance, Insurance, 6,300 7,000 11% Real Estate Transportation & 5,100 4,900 -4% Public Utilities Wholesale Trade 5,000 5,100 2% Construction 3,900 4,200 8% Mining 300 200 -33% Local Economic Developments-City of Salinas Early in 1996 the Salinas Valley Maximum Security Prison opened its new operation with its expanded correctional facilities. The new facility added nearly 700 new employees; an additional 800 new employees (the highest percentage are correctional officers) have recently been added, and by the beginning of 1997 an additional 450 new employees may be added. The recent hirings have already impacted the local apartment housing market throughout Salinas; interviews with numerous apartment managers have indicated that large numbers of newly-leased units are to correctional officers working at the Soledad State Correctional Facility; extremely limited housing within the city of Soledad have heavily impacted the demand for rental units in Salinas, considered only an approximate twenty (20) mile northerly commute from the prison. Increases in the city's services, retail trades, manufacturing, construction, and finance sector have resulted in a stronger demand for affordable multi-family housing units. The current shortage of rental units has been primarily the result of local economic activity. The expansion of the Westridge Shopping Center, a 650,000 square foot retail center, and includes a Wall Mart Store opening in February, 1997; this will also increase housing demand in the North Salinas area. Household Credit Corporation recently hired 200 new employees in 1996. Residential Growth-City of Salinas The Salinas Valley has long been an attractive area for homebuyers, especially first-time buyers who are looking for an affordable home in Monterey County. The average annual growth rate over the past 10 years was nearly 2 percent, and, as a result of continuing developments throughout both Monterey County and Salinas itself the rate should approximate 3 percent for the remaining few years to 2000. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 21 <PAGE> The Westlake Apartments, Salinas, CA Salinas has been moving forward with several new developments that will add thousands of new people to the city by the time the next U.S. Census is taken in the year 2000. The Harden Ranch subdivision in North Salinas, for example, includes 1,683 single family homes, 719 multifamily units and an area for churches, schools and a park. Creekbridge subdivision is a mix of new homes, including 1,000 single family homes and 1,030 multifamily units. The Williams Ranch subdivision in East Salinas was planned for 1,551 homes and 519 condominiums or apartment units. If there are any restrictions to growth in Salinas it's the agricultural land that surrounds the city. The city's master plan for growth forbids city officials from considering new building projects to the south and west of the city limits because that land is some of the richest, most productive farmland in California. "Slow" of "No-Growth" policies will limit Salinas' development in the south and west portions of the city; therefore, future developments will concentrate more heavily in North Salinas. City of Salinas-Apartment Market Analysis Below is a simple chart illustrating the structural and vacancy characteristics estimated for the City of Salinas, as of September 28, 1996, the effective date of this appraisal. From a total of 35,902 housing units within the city, 13,247 units are considered multi-family (2 or more units in a structure). This equates to 36.9 percent. This estimate includes apartment units in plan check or currently under construction. All Housing Units <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------- Total 1 unit-detached 1 unit-attached 2-4 units 5-9 units 10+ units Mobile homes <S> <C> <C> <C> <C> <C> <C> - ----------------------------------------------------------------------------------------- 35,902* 18,077 2,942 3,239 3,236 6,772 1,636 - ----------------------------------------------------------------------------------------- </TABLE> * Information provided by the Monterey County Association of Realtors and Association of Monterey Bay Area Governments. Utilizing the number of apartment units indicated above there currently exists 13,247 apartment units. Since the end of 1992, no apartment units have been built until 1996 (200 units are currently under construction and another 200 have been approved); the overall number has remained relatively constant for a number of years. Based on the current estimated population of Salinas of 122,390 and applying a 35% multifamily ratio provides for a total renter population of approximately 42,837. Dividing the renter population by the average 3.21 household size (estimated by the Association of Monterey Bay Area Governments) suggests that the City of Salinas would need 13,345 apartment units to accommodate this demand. Comparing this to the current apartment inventory of 13,247, a deficiency of 98 units exists. If this analysis is accurate, then this gives at least one explanation why the market as a whole is experiencing a very low to no vacancy rate at this time as reported by various apartment building managers throughout North Salinas, South Salinas, and East Salinas. Again, this is very consistent with our findings based on interviews with on-site managers, property managers, brokers and other appraisers. The Salinas apartment market is very tight with many of the larger professionally managed complexes reporting 98%-100% occupancy with a waiting list. The market has tightened up Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 22 <PAGE> The Westlake Apartments, Salinas, CA because of several factors including the recent expansion of the Soledad prison facility wherein they recently hired approximately 1,200 employees. As previously indicated, Household Credit Corporation recently hired 400 new employees and a host of other ancillary businesses have been hiring in and around Salinas. Additionally, the population has been growing at approximately 3,500 new residents per year. Much of this growth is due to the migration from Santa Cruz, Los Angeles, and San Jose. Many of these people are purchasing homes in the newly-developed master plan communities and many are renting. According to many of the on-site property managers renters are coming from as far as San Jose which is approximately 3/4 of an hour drive north. Rents are significantly higher in San Jose. Rents in Salinas are estimated at between $250 and $500+ below San Jose rents and therefore is attracting tenants who view making the commute an attractive alternative to paying higher rents. Below are the results of a survey performed by this appraiser of ten (10) apartment complexes within the City of Salinas as of the date of this appraisal. The average apartment building size was 146 units. The survey indicates the name of the complex, total number of units, total number of vacant units, and total number of units "on notice". Apartment Survey-City of Salinas September 28. 1996 - -------------------------------------------------------------------------------- Name Total No. Units No. Vacant Lots Units on Notice - -------------------------------------------------------------------------------- Cypress Creek Apartments 288 0 12 - -------------------------------------------------------------------------------- Cypress Landing Apartments 112 0 0 - -------------------------------------------------------------------------------- Los Padres Apartments 220 4 2 - -------------------------------------------------------------------------------- Mariner Village Apartments 176 1 3 - -------------------------------------------------------------------------------- Northridge Park Apartments 232 3 3 - -------------------------------------------------------------------------------- Kipling Manor Apartments 92 0 0 - -------------------------------------------------------------------------------- Olive Tree Apartments 34 1 0 - -------------------------------------------------------------------------------- Shadowbrook Apartments 88 3 0 - -------------------------------------------------------------------------------- Sheridan Park Apartments 116 0 10 - -------------------------------------------------------------------------------- Village Green Apartments 104 0 4 - -------------------------------------------------------------------------------- TOTALS 1,462 12 34 - -------------------------------------------------------------------------------- This particular sample surveyed represents only 11.04 percent of the total number of apartment rentals in the city of Salinas. Based on information from the above respondents a vacancy rate of .8 percent was indicated. If one includes the number of "units on notice" (tenants who plan to vacate within 30 days), the vacancy rate becomes 3.15 percent. Most of the tenants who have given notices to vacate are considered "seasonal workers" engaged primarily in the agricultural trades, according to property managers surveyed. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 23 <PAGE> The Westlake Apartments, Salinas, CA NEIGHBORHOOD DESCRIPTION AND ANALYSIS The subject property is located in the southernmost section of the city limits of Salinas in a relatively small neighborhood bounded by agricultural lands on the south, State Highway 68 on the east, Blanco Road on the north, and Byron Drive on the immediate west. The area as defined is basically rectangular in shape and contains a total of less than .25 square miles. Immediate Neighborhood Environs The subject property is located in the southern-most section of the city limits of Salinas. The only other competing apartment development within the small "neighborhood" as defined is known as the Villa Serra Apartments, located at 1320 Padre Drive adjacent to the westerly portion of the Westlake Apartments. This property is similar to the subject in style and location, but is a senior care facility which rents start at $1,050 per month for one bedroom units. Average quality single family tracts generally make up the areas lying to the west of Byron Drive and south of West Blanco Road. The lands located to the immediate south of the subject are agricultural and are expected to continue as such. Directly across the street to the north of the subject property are two commercial office buildings occupied by the Monterey County Election Department and by the Hayashi & Wayland Accountancy Corporation. The intersection of Blanco Road and State Highway 68-SMain Street is devoted to neighborhood commercial uses. Located nearest to the Westlake Apartments on the southwest corner are Thrifty Drug Store, Shell service station, Nob Hill Foods, Wells Fargo Bank, Der Wienerschnitzel, Me and the Gringo-a Mostly Mexican Restaurant, Hair West, and Dry Cleaners. On the northwest corner of the intersection is Lyon's Restaurant. Located adjacent to Lyon's is a 15,400 square foot commercial retail building that was purchased in 1994 and subsequently remodelled. Current tenants include both Hollywood Video and CellularOne. The southeast corner(section) of East Blanco Road and S. Main Street is land devoted to agricultural use. The northeast corner of the intersection the "Star Center", a neighborhood commercial center with the Star Market as anchor tenant. Other tenants include Star Video, Star Care Pharmacy, Star Deli, Linda's Wash & Dry, Martinizing-Dry Cleaners, Hair Unlimited, Kirby Authorized Sales and Service, Kragen's Automoitve Parts and Poor Richard's Almanac. A separate detached building that fronts to S. Main Street on the corner site is occupied by a McDonald's fast food restaurant. The Westlake Apartments are accessed from either West Blanco Road by means of Chaucer Drive and Byron Drive or from State Highway 68 approximately 150 feet east. Freeway access to U.S. 101 is within 1.5 miles east of the subject property. SITE ANALYSIS ================================================================================ General: Westlake Apartments Based on a plat map furnished by our client (a copy is included in the Addenda), the site for the Westlake Apartments contains a total of 3.68 acres. A survey of the site has not been made, and it is assumed that the Plat Map is correct. The parcels that comprise the subject site are irregularly configured. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 24 <PAGE> The Westlake Apartments, Salinas, CA Topography and Drainage: The topography of the sites is predominantly level to slightly rolling. Drainage is believed to be adequate. Access: The Westlake Apartments has two access driveways fronting to Stephanie Drive. Utilities: All major utility services are available and connected to the property. These utilities include sewer, water, electricity, cable television, and telephone services. Sewer service is provided by the Monterey Regional Water Pollution Agency. The capacity of the sewer plant is 30 million gallons per day. Water is provided by the Alco Water Service and California Water Service Company. For both water companies combined, the maximum daily pumping capacity is 45,383,680 gallons per day. Quantity rates are $.7091 per 100 cubic feet. Natural gas and electric power are provided by Pacific Gas & Electric (PG&E) Local telephone service is provided by Pacific Bell. The City of Salinas Department of Public Works has adopted a master plan of storm drains. Site Hazards: The subject property is located in a designated FEMA Zone "B", according to Community Panel Map Number #060202-0004 D, dated November 4, 1981. The "B" designation does not require flood insurance. Earthquake Fault Zone The property is not located in any known earthquake fault zones. However, the region is subject to periodic earthquake tremors. We know of no particular reason why the site would be at a greater risk than other area properties. Rent Control: Monterey County does not have rent control. The county does have an "inclusionary housing" program that provides for affordable "low-income" housing. Low and moderate housing assistance is available through a variety of programs offered by the Housing Authority of Monterey County, the City of Salinas and CHISPA, a non-profit housing developer. Apartment complexes for low-income families, the elderly, handicapped and farm-labor families are located throughout Salinas. The city has established a Housing Trust Fund to help increase the supply of affordable rental units as well as opportunities for home ownership. The subject does not have any "assisted" or "low" income units. Contamination/Toxics: We have inspected the property with the due diligence expected of a professional real estate appraiser. It is important to note, however, that the appraiser(s) are not qualified to detect hazardous waste and/or toxic materials. Such a determination would require investigation by a qualified expert in the Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 25 <PAGE> The Westlake Apartments, Salinas, CA field of environmental assessment. To our knowledge, there are no potentially hazardous materials that would affect the valuation and/or marketability of the property as of the date of valuation. The appraised value of the Westlake Apartments is specifically predicated on the assumption that there are no hazardous materials on or in the property that would cause a loss in value. Easements and Restrictions: Normal public utility easements are assumed that are not considered to adversely affect marketability. Site Analysis Conclusion In summary, the Westlake Apartments complex has a site consisting of 3.68 acres configured on three parcels that are improved with 139 rentable units. All utilities are available, including sewer service, electricity, gas, telephone and cable television. The site lies in Flood Zone "B" (no flood insurance required). Zone "B" is typical of the neighborhood. TAXES AND ASSESSMENT ANALYSIS In the State of California, property is enrolled at 100% percent of market value, as determined by the Assessor upon transfer of ownership or significant new construction. The maximum tax rate cannot exceed one percent of the enrolled value, plus general and/or special assessment bonds and fees approved by the voters. The Monterey County Assessor Parcel Numbers for the Westlake Apartments are 207-101-030, 207-101-034 and 035. The assessed values allocated between land and improvements, for the tax year 1996-97, are as follows: - -------------------------------------------------------------------------------- APN# 207-101-030 207-101-034 207-101-035 - -------------------------------------------------------------------------------- LAND $712,500 $745,900 $48,370 - -------------------------------------------------------------------------------- IMPROVEMENTS $1,662,610 $1,740,540 $279,349 - -------------------------------------------------------------------------------- PERS. PROPERTY $38,000 $38,400 $2,800 - -------------------------------------------------------------------------------- TOTAL $2,413,110 $2,524,840 $330,519 - -------------------------------------------------------------------------------- For the Westlake Apartments, real estate taxes for the 1996-97 tax year are $53,975.86. Direct assessments of $1,359.10 are included. The tax rate for the Westlake Apartments is 1.004660 percent per $100 of full cash value. A direct assessment, considered typical of South Salinas, is imposed by the North County Water Regional Agency (.004660) and added to the one (1) percent base tax rate as specified by Proposition 13 for California. There are no special assessment bonds, according to the Monterey County Tax Collector Department. Both installments have not been paid for 1996-97. The reader should refer to the preliminary title insurance report for specific amounts (if any) of any unpaid previous tax installments. The first installment for 1996-97 is due November 10, 1996. The tax rate area is 005-007. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 26 <PAGE> The Westlake Apartments, Salinas, CA Re-assessment of the Westlake Apartments: Proposition 13 The current tax amounts for the 1996-97 tax year will not remain the same beginning on July 1, 1197. According to Proposition 13 for California, the subject property will be re-assessed, most likely based on the new sale price or market value at time of sale. The assessments will be based on full cash value using a tax rate per $100 of full cash value. The passage of Proposition 13 establishes a maximum property tax of one percent of full cash value. The mandated one percent (1%) property tax level converts to a $1.00 base tax rate. The additional rate imposed by the Water Regional Agency will be added to the $1.00 base rate. ZONING DESCRIPTION AND ANALYSIS The Westlake Apartments complex is currently under the zoning designation of R-H-2.3 by the City of Salinas. This zoning designation specifically refers to a high density residential district. Section 37-44 addresses specific purposes of the particular district's regulations. They are as follows: (1) To provide appropriately located areas for high density multiple family dwelling units consistent with the General Plan and with standards of public health and safety established by the Salinas Municipal Code. (2) To provide adequate light, air, privacy, and open space for each dwelling unit and protect residents from the harmful effects of excessive noise, population, density, traffic congestion and other adverse environmental impacts. (3) To promote development of affordable housing by providing a density bonus for projects in which a portion of the dwellings are affordable to qualifying households. (4) To achieve design compatibility through the use of site development standards. (5) To protect adjoining low density residential districts from excessive noise or loss of sun, light, quiet, and privacy resulting from proximity to multifamily dwellings. (6) To provide sites for public and semipublic land uses needed to complement residential development or requiring a residential environment. (7) To ensure the provision of public services and facilities needed to accommodate planned population densities. For a comprehensive list of all property development regulations under the R-H-2.3 Zoning District the reader may refer to the Addenda of this report. Parking Requirements-On-site Division 18-Off-Street Parking and Loading Regulations of the City of Salinas Municipal Code lists all use classifications. For multi-family residential complexes containing over ten (10) units, the off-street parking and loading requirement is 1.6 spaces per unit. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 27 <PAGE> The Westlake Apartments, Salinas, CA The Westlake Apartments has 134 carport spaces and 63 open spaces for a combined total of 197 spaces. This equates to a 1.42 (rounded to 1.4) parking ratio, considered to meet code requirements as a legal non-conforming use according to the zoning ordinance adopted in 1960. Pre-1993 parking requirements were last enacted in 1960; the subject property, built from 1972 to 1976, conformed to the code requirements previously adopted in 1960. The parking requirement was amended in 1993 to 1.6 spaces per unit. Although slightly less than currently required, Westlake has adequate parking for its tenancy. Conclusion It appears that the subject property meets all applicable city zoning, building and parking requirements (grandfathered-in according to 1960 requirements). IMPROVEMENT DESCRIPTION AND ANALYSIS The Westlake Apartments were constructed from 1972 to 1976. There are a total of 139 rentable units located on 3.68 acres (a combination of 3 parcels) configured with seven (7) 2&3 story buildings on 3.68 acres. The Westlake Apartments contain a total of 88,372 square feet of net rentable building area. There are also fourteen (14) laundry rooms and one (1) swimming pool. The Westlake Apartments are considered Class D Building(s) Construction Type V (wood frame) of the Uniform Building Code. Class D buildings are characterized by combustible construction. The exterior walls are made up of closely spaced wood studs with an exterior wood siding. The roof, of asphalt shingle composition, is supported by a wood truss system with a concrete slab floor on 1st floor area. The upper floor (2nd story) consists of plywood sheets. Also, the subject is in a class of construction referred to as protected one-hour construction. Unit Mix-Westlake Apartments - -------------------------------------------------------------------------------- TYPE UNITS AREA (sf) - -------------------------------------------------------------------------------- STUDIO 27 480 - -------------------------------------------------------------------------------- JUNIOR 1BR 26 520 - -------------------------------------------------------------------------------- 1BR/1BA 3* 624 - -------------------------------------------------------------------------------- 1BR/1BA 56 650 - -------------------------------------------------------------------------------- 2BR/1BA 5* 720 - -------------------------------------------------------------------------------- 2BR/2BA 22 910 - -------------------------------------------------------------------------------- Note:Information regarding the individual unit sizes was provided by the on-site Lincoln Residential Services Management Company. The appraiser was provided interior access to one unit of each type with the exception of the 2br/1ba floorplan (based on size indicated by management only). The gross living area estimates for the units indicated above are based on exterior wall measurement taken by the appraiser. It is assumed that the interior conditions of all units are similar to those inspected. *Note: These units contain fireplaces. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 28 <PAGE> The Westlake Apartments, Salinas, CA Interior Improvements: Westlake Apartments Floor coverings consist of wall to wall carpeting over concrete slab in lower levels and over plywood subfloor in upper levels. Vinyl flooring is in kitchens and bathrooms. Electric baseboard heating is included in all units. The kitchens have formica countertops, built-in electric range and ovens, garbage disposals and stainless steel sinks. Dishwashers are included in all units with the exception of the studios. Each of the units are served with individual hot water heaters. Bathrooms are improved with fiberglass tub and shower enclosures and cultured marble vanities. Overall condition is considered good. Many of the units have recently been upgraded with new carpeting and interior painting. Effective Age: Westlake Apartments The actual ages of the Westlake Apartments complex range from 20 years to 24 years. An average quality Class D apartment project is estimated to have a total economic life of fifty (50) years. This is based primarily on the performance of many comparable properties built in the 1940's and 1950's still in existence in Monterey County and capable of attracting tenants due to upgrading and above-average maintenance. In addition, the Marshall and Swift Cost Valuation Service provides reasonable support for an estimated total economic life expectancy of fifty (50) years. Because the Westlake Apartments has undergone recent upgrading as needed under the current management to date it is the appraiser's opinion that an estimated overall effective age of sixteen (16) years is considered reasonable and supportable.. Remaining Economic Life: The remaining economic life of the Westlake Apartments is estimated at 34 years, although it certainly could be longer or even shorter. This estimate is made by deducting the effective age of 16 years from total economic life of 50 years. HIGHEST AND BEST USE ANALYSIS Definition Highest and best use, as used in this appraisal, is defined as that reasonable and probable use that will support the highest present value, as defined, as of the effective date of the appraisal, September 28, 1996. Alternatively, that use, from among reasonably probable and legal alternative uses, found to be physically possible, appropriately supported, financially feasible, which results in highest land value. The above definition of the "Highest and Best Use" is in reference to land that is unimproved. In cases of improved land, a determination of the contributory value of the improvements to the land must be made. The improvements found on a site may be of inappropriate use, but will continue until the land value exceeds the total value of the property in its existing use. Discussion Our opinion of the highest and best use of the subject land parcel will be supported based upon our analysis of the four tests outlined below: Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 29 <PAGE> The Westlake Apartments, Salinas, CA 1. Legally Permissible Use. This type of use is legal and conforms to the zoning assigned to property, as well as to the City's planning goals. 2. Physically Possible Use. The shape, size, and available utilities are adequate to serve this use. 3. Financially Feasible Use. Population and immediate income statistics support the feasibility of the highest and best use based upon the quantity, quality, and distribution of the income and its prospective users. 4. Maximally Possible Use. An analysis of which possible legal uses will produce a net return and/or create value to the site. All three standard appraisal approaches to value are affected by the highest and best use. Therefore, valuation is highly dependent upon the conclusions set forth by this analysis. Physically Possible Section 37-46 of the City of Salinas Municipal Code specifies a minimum lot size of 7,200 square feet in a R-H-2.3 high density residential district. The subject property has a combined site size of 160,301 square feet. Based on this requirement, therefore, the site is physically capable of being developed with the current apartment improvements as well as other multi-family configurations. Legally Permissible The subject is zoned and general plan designated to allow high density residential uses. As existing, the subject is a legal and conforming use. The Westlake Apartments complex is legally permissible under the current zoning regulations. Financially Feasible In evaluating the most reasonable and probable use of the vacant site, we considered the demographics of the surrounding area, land use patterns, local market supply and demand, general market conditions, and the physical characteristics of the property itself. The most feasible and marketable use for the subject site appears to be for apartment use, given the present shortage of rental housing in Salinas, which is a result of the local economy and current growth of Salinas. Rapid changes in market conditions which were previously discussed in the Neighborhood and City Sections indicate apartment and multi-family housing as the most reasonably probable use of the subject property. Maximally Possible Use The final of the four tests in the highest and best use analysis is the use that maximizes the land value by providing the highest return. This test must be considered sequentially with the prior three tests; it makes no difference that the most probable highest value is a apartment complex, for example, if the zoning does not permit this use. The most profitable use is a multi-family or apartment use. This is Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 30 <PAGE> The Westlake Apartments, Salinas, CA largely based on the fact that the current improvements are apartments and are configured on the sites as such. At the present time, the City of Salinas Planning Department recognizes through its general plan the R-H-2.3 high density residential district of the subject's neighborhood in North Salinas and is aware of the changing market conditions and rental shortage that exists in the City of Salinas. There is virtually no availability of vacant land in South Salinas for apartment use, for example, since that area is primarily designated as agricultural land. The City is encouraging the future development of high density residential land in the South Salinas section of the city. Highest and Best Use Conclusion - As Improved In conclusion, the highest and best use of the Westlake Apartments, as improved, is apartment use. Highest and Best Use Conclusion - As Vacant In conclusion, the highest and best use as vacant is a multi-family or apartment-type use. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 31 <PAGE> The Westlake Apartments, Salinas, CA THE APPRAISAL PROCESS ================================================================================ The estimation of a real property's market value involves a systematic process in which the appraisal problem is defined and the data required is gathered, analyzed and interpreted into an estimate of value. Traditionally, three methods of valuation have been used in appraising: the Cost, Sales or Market Comparison and Income Approaches. In the Cost Approach, the value of the site is first estimated by comparing it to similar sites that have recently sold or are currently offered for sale. Replacement cost new of the improvements is determined by reference to actual costs of similarly constructed properties. Depreciation from all sources is then deducted from the replacement cost new of the improvements to arrive at the present value. The depredated value of the improvements is added to the estimated land value to arrive at the total value by the cost approach. In this appraisal, however, NationsBank has requested that the cost approach be omitted from this appraisal assignment. The cost approach has been determined to have little to no significant applicability in the valuation of 10 to 30 year-old multi-family properties due largely to the subjectivity involved with estimating depreciation in older properties. Moreover, cost and value are oftentimes not the same. The Sales Comparison Approach involves comparison of the subject to similar properties that have recently sold or that are offered for sale. These sales are reviewed for differences from the subject in the date of sale, location of the site, physical characteristics and other factors. The comparable properties are then adjusted to formulate a value range for the property being appraised. The third of the three valuation techniques is the Income Capitalization Approach. This approach involves estimating net operating income, and discounting this income to a present worth through the capitalization process. For most income-producing properties, including apartments and multi-family properties, this is the better valuation technique. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 32 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ The first and primary approach applied to the valuation of the subject is the income capitalization method. This technique involves conversion of future anticipated income into an estimate of present value by the capitalization process. This procedure involves three steps as indicated below: 1. Estimate gross income from available rental information and the subject's operating history; 2. Estimate and deduct vacancy and collection loss allowance and operating expenses to derive net operating income; and, 3. Select an applicable capitalization method or methods, develop the appropriate capitalization rate, and complete the necessary computations to derive an economic value indicated by the income capitalization approach. Required Information Documents that are helpful to better estimate value under the Income Approach include the following: o Income/Expense statements o Personal Financial Statements of Owner (if applicable) o Rent Roll o Lease Agreements o Other (service agreements) Income and expense statements. Operating statements provided by management over the past two years and eight months are included in the Addenda. Personal Financial Statements. The owner's personal financial statements are not required to appraise the property, but can be helpful under certain circumstances. While market value intrinsically assumes transfer to a willing and knowledgeable buyer at market price, financial statements of the owner often provides insight into the current management quality and style of the property. An undercapitalized owner, for example, may not be able to institute correction of deferred maintenance that will enhance livability. As such, occupancy and rates may suffer from inadequate level of maintenance, which results in loss of reputation. Financial statements of the subject ownership have not been reviewed. However, based on conversations with management and the overall good maintenance level and high occupancy of the property, it can logically be assumed that ownership is capable of operating the property in a strong professional manner. Based on conversations with management, and inspections of other properties owned by Thysen and managed by Lincoln Residential Services, the subject has been operated in a professional manner and there appears to be no operational problems. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 33 <PAGE> Rent Roll: A roll of the current tenants has been provided by management as of September 28, 1996. As of this date, 1 unit was vacant, but it has been preleased. Thus, there is no vacancy at this particular time. Lease Agreements: A copy of the standard 2-page residential rental agreements has been reviewed. Units are on either 7, 8, 9 and 10 month short-term leases. The rental agreements are typical of others used in the marketplace. Utilities, except for water, trash and basic cable are paid for by the tenants. The residents pay for electricity in all units. There is a late charge of $30 if management elects to accept rent after the third of the month, and a $20 returned check fee. No pets are allowed without written consent. Use of the premises shall be for a private residence only. No more than three persons shall occupy a one bedroom unit; no more than 5 are allowed in a two bedroom. Occupancy limits are strongly enforced. First month and security deposits are collected prior to the tenant moving in. Capital Improvements: Capital expenditures over the past two years have also been reviewed and/or discussed with the property manager. Improvements to the property over the past year and half include the following: o Asphalt repair, seal and striping o Carpets in common hallways; landscaping upgrades o New appliances and carpets in most units (ongoing) o Reroofing o Office Remodel Occupancy trends: In addition to the above, occupancy trends of the complex have been reviewed. Since Lincoln Property took over as managers approximately 1.5 years ago, occupancy has been increasing. This is due mainly to correction of deferred maintenance items and an improving rental market. The new management has also qualified tenants better which have resulted in less turnover and less evictions. Moreover, seasonal tenancy has been reduced by the implementation of leases. Other. According to management, laundry equipment is owned by the service company. Subject Asking Rents As of September 28, 1996, the following monthly rents (all unfurnished) were being charged at the subject complex: 26 Jr. 1Br 520 sf $540 $1.11/sf $14,040 3 1BR/1BA fp 624 sf $625 $1.00/sf $ 1,875 56 1BR/1BA 650 sf $580 $0.89/sf $32,480 5 2BR/1BA fp 720 sf $750 $1.04/sf $ 3,750 22 2BR/2BA 910 sf $750 $0.82/sf $16,500 27 STUDIOS 480 sf $520 $1.08/sf $14.040 ------ ---- -------- ------- 139 635 avg. $594/avg. $0.94/sf avg. $82,685 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 34 <PAGE> All rents include water, trash removal and basic cable. Tenants pay their own electric and gas (Pacific Gas & Electric Company), telephone, and premium cable channels. To qualify, prospective tenants must have three times the monthly rental rate and a positive credit report and previous rental history. There is a $25 application fee (includes credit report). The application fee is non-reimbursable. The above price list was set in September 1996. Management periodically surveys other complexes in the area in order to maintain market rental levels. At this time, there are no rental specials or concessions. As explained earlier, market conditions have been improving gradually over the past year, and most apartment complexes in Salinas are not offering any rental concessions at this time. As can be noted on the rent roll in the Addenda, a number of subject apartment units are at the above quoted rates. Those units with leases expiring will be moved to the new rates. At this time, there is a difference of approximately 6 percent between the market and actual rents. Rent Survey and Analysis In order to determine whether the subject rentals are at or within a market rental range, a survey of competing complexes was made. This analysis involved a comparison of amenities and facilities offered by competitive projects with those offered by the subject. The competing complexes considered most helpful in estimating the subject economic or market rental level are summarized on the following pages. All rental rates quoted in the survey are month-to-month or short-term leases. None of the complexes surveyed in this report had long-term leases. All complexes are garden style two and/or three-stories of similar vintage and design as the subject. All are located in the general subject neighborhood. Typically, rents include water and trash removal (and sometimes basic cable service). None of the complexes were offering any specials. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 35 <PAGE> RENT COMPARABLE NUMBER 1 Name: VILLAGE GREEN APARTMENTS Location: 1330 Byron Drive, Salinas Age/Type: 1968/ garden design - 104 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $540-605 650 $0.93 2BR/1BA = $680-725 825 $0.82-0.88 Studio = $475 300+/- $1.58 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: pool only Vacancy: 0% (none at time of survey; waiting list) Comments: Avg+ to good tenant appeal. Located in south Salinas. Close to shopping, schools, freeway. Deposit = $500. Carport parking plus open. No specials. 1-yr lease. Waiting list of 10 people. Source: (408) 422-7171 [photo omitted] 36 <PAGE> RENT COMPARABLE NUMBER 2 Name: PLAZA TERRACE APARTMENTS Location: 43 Plaza Circle, Salinas Age/Type: 1973/ garden design - 19 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $525 N/A N/A 2BR/1.5BA = $675-695 N/A N/A Studio = N/A N/A N/A - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash. Recreational Amenities: None Vacancy: 0% (none at time of survey) Comments: Avg. tenant appeal. Located in south Salinas. Close to shopping. Deposit same as first month rent. Carport under buildings. No specials. 1-yr and 6-month lease. All one bedroom units are on second floor. One studio in complex, but has been rented to same tenant for 13 years and is not available to market. Source: (408) 422-7018 [Photo omitted] 37 <PAGE> RENT COMPARABLE NUMBER 3 Name: PARK TERRACE APARTMENTS Location: 619 E. Romie Lane, Salinas Age/Type: 1962/ garden design - 52 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $525 550 $0.95/sf 2BR/1BA = $625 825 $0.76/sf Studio = N/A - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash, and gas for heater Recreational Amenities: pool Vacancy: 3.8% (2 units vacant at time of survey) Comments: Avg. tenant appeal. Located in south Salinas. Close to shopping. Carport parking. Deposit same as first month rent. No specials. Leases neg.. Source: (408) 422-3041 [photo omitted] 38 <PAGE> RENT COMPARABLE NUMBER 4 Name: NORTHPOINTE Location: 196 E. Alvin Drive, Salinas Age/Type: 1976/ two-story garden design - 138 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $568 648 $0.87-0.92 2BR/1BA = $620 735 $0.84 2BR/1BA = $669 835 $0.80 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, some units have fp's (all 1/br's), laundry rooms Vacancy: 1% (only one unit available at survey time) Comments: Avg-Avg+ tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit = $300/400. Good demand over past year. Carport parking plus open. No specials. 6 month leases. Source: (408) 443-1776 [photo omitted] 39 <PAGE> RENT COMPARABLE NUMBER 5 Name: SHERIDAN PARK Location: 1450 N. First Street, Salinas Age/Type: 1983+/ two-story garden design - 116 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $570 630 $0.90 2BR/1BA = $620 800 $650 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Heated pool, 2 sauna, spa, laundry rooms, security gates Vacancy: 0% (none at time of survey) Comments: Avg-Avg+ tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit = first month's rent plus key deposit. Carport parking plus open. No specials. No units available, but 10 units will be in November. Source: (408) 449-8203 [photo omitted] 40 <PAGE> All rental rates quoted in the survey are month-to-month or short-term leases. None of the complexes surveyed in this report had long-term leases. All complexes are garden style two and/or three-stories of similar vintage and design as the subject. All are located in the general subject neighborhood. Typically, rents include water and trash removal. None of the complexes were offering any specials. Rental Number 1 represents the 104-unit Village Green Apartments located at 1330 Byron Drive, in south Salinas. This is an average+ quality, garden-style complex built in 1968. The only recreational amenity is a pool. One bedroom units are renting at $540 to $605 ($0.93/sf+/-) per month, and two bedroom units are at $680 to $825 per month, or $0.82 to $0.88 per square foot. Studios are being rented at $475 per month, or over $1.50 per square foot. Water and trash removal are included in the rent. As of the inspection date, management reports that there are no available units and a waiting list. The subject is similar in many respects to Comparable Number 1 and this is evidenced by comparable rents for one bedroom units. The subject two bedroom units are superior in that they either have fireplaces or are larger than the two bedroom units in this complex. The subject studios are much larger in size than the studios in Village Green, and thus, rent higher. Overall, Village Green provides good support for the subject "market" rents. Rental Number 2 represents the 19-unit Plaza Terrace Apartments, located at 43 Plaza Circle, in south Salinas. This complex is in the immediate subject neighborhood. Built in 1973, Plaza Terrace is an average quality and condition, garden walk-up offering one bedroom and two bedroom units. There is one studio unit, but this unit has been rented to the same person for 13 years. One bedroom units are located on the second floor and are being rented at $525 per month (size is unknown). Two bedroom/1.5 bath units are townhouse style with the half bath downstairs. These units rent at $675-695 per month (a slight deduction is made for one year leases). Currently, there are no available units although one unit will become available in November. The subject is a superior project and should continue to rent at higher rates. Plaza Terrace is helpful, however, in setting the lower rental range. Rental Number 3 represents the 52-unit Park Terrace Apartments located at 619 E. Romie Lane near Salinas Valley Memorial Hospital. This is an average quality older project that currently has a few units available. The one bedroom units rent for $525 and the two bedroom/one baths at $625 per month. The rents include water, trash and gas for the heater; tenants pay electrical. The project includes a pool and carport parking. Management prefers one year leases, but will negotiate leases as low as six months depending on credit and rental history. Currently, there are no specials. The overall appeal is inferior to the subject, as is the condition. The subject units should continue to rent higher. Rental Number 4 is the 138-unit Northpointe Apartments located at 196 East Alvin in north Salinas four miles north of the subject. This is a two-story garden complex built in 1976. The overall quality and condition are above average to good. The location directly off N. Main is close to shopping, schools and freeway access. The complex has 1, one bedroom unit currently available at $568/month, and 1, two bedroom/one bath unit at $620/month. Two bedrooms reportedly rent as high as $669 per month. One bedrooms range from 624 to 648 square feet, and two bedrooms contain 735 to 835 square feet. Rents include water and trash. Security deposits are $300 for one bedrooms and $400 for two bedrooms. Leases of six months are required. There are no specials or concessions. Pets are not allowed. Amenities include two laundry rooms, and one swimming pool. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 41 <PAGE> The appeal, age and level and quality of amenities are similar to the subject. The subject has an advantage of having security hallways. Overall, this comparable supports the subject market rates. Rental Number 5 represents Sheridan Park, located in north Salinas. This is an average quality property that features security gates. Rents are $570 for one bedrooms and $620 per month for two bedroom/one bath units. Water and trash removal are included in the rent, but basic cable is not. The overall quality and appeal are similar to the subject. According to management, there are no available units at this time. Overall, this comparable provides good support for the subject units. Other: In addition to the above primary comparables, several other complexes including many owned by Thysen in the Salinas marketplace were considered. Thysen owns another 12 complexes in Salinas (most are in North Salinas). Although not enough to "set" the market, the number of complexes controlled by Thysen has an influence on rental levels. Thysen property managers (employees of Lincoln Property) regularly refer clientele to other Thysen complexes. Still, there are more than enough competing projects to make it difficult if not possible to "control" the market. Rental rates at these complexes are consistent with one another and with competing projects. Market Rental Conclusion The comparables surveyed support the "market" rents currently being attained at the subject. It appears, however, that 2 bedroom/ two bath units could rent for $10 to $25 per month more than the current $750 per month based on the smaller two bedroom one bath units that have fireplaces (also rented at $750/mo.). While this may be the case, we have considered the market rents to be those currently being quoted by management. Of the complexes surveyed (including those not shown in this appraisal) which consisted of about 2,000 total units, overall vacancy is running between 1-2 percent. Most had no vacancy. Some had only a few units available. A few managers stated that units should become available in November and December as seasonal workers go home. When a unit does become available, it typically takes 3 to 7 days to re-rent. However, in several cases, the unit is pre-leased (rented prior to the occupant moving out). Subject Market Rental Income (@100 percent Occupancy) Based on market rents, the subject would have the following monthly income at 100 percent occupancy. 26 Jr. 1Br $540 $14,040 3 1BR/1BA fp $625 $ 1,875 56 1BR/1BA $580 $32,480 5 2BR/1BA fp $750 $ 3,750 *22 2BR/2BA $750 $16,500 27 STUDIOS $520 $14,040 ------- 139 $82,685 * - the market rate for these units may be somewhat higher Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 42 <PAGE> Actual Reported Income Shown below is a table outlining revenue for 1994, through August 31, 1996. Rental income for September 1996 is also shown. Income statements are shown in the Addenda. <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------- 1994 1995 YTD (`96) Aug. 96 - ------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> *Gross Rents: $671,633 ($403/unit) $754,896($453/un) $554,931 ($499/un) $74,643 ($537/un) Laundry $7,015 $14,742 $8,889 N/A **Other $29,368 $43,430 $37,129 N/A </TABLE> * - collected rents * - includes deposits ($24,605 refunded in 1995; $19,515 refunded in 1996) N/A = Not available Rental Income Estimate: Almost all of the subject's total income is derived from rents. As shown above, rental income has increased significantly over the past year. This is due to in part to new management and an improving rental market. The actual rental income for the month of August 1996 was $74,643, or $537 per unit. This amount does not include vacant-preleased units. The market rent for the preleased/vacant units total $1,170. Blending this with actual rental income, results in a gross scheduled rental income of $75,813, or $545 per unit. This amount is supported by actual and comparable rents, and is achievable over the near term. Consequently, $75,813, or $909,756/ annual has been used as a stabilized gross income figure. Laundry: The laundry income is stabilized at $16,000 per year. Other: Other income consists of retained deposits, late charges, nsf checks, and miscellaneous charges to tenants. The large percentage of this category relates to security deposits. Although forfeited security deposits and late charges are a source of income, it is not included in the reconstructed operating statement as part of ongoing cash flows. This is because this type of income was not accounted for in the computation of gross and net operating incomes for the comparable sales. Total Gross Income: Total gross income is estimated at $925,756. Vacancy and Collection Loss In estimating a stabilized vacancy factor, several factors were considered. First, vacancy has decreased over the past few years due to new management and improving market conditions. In 1993, market conditions were soft and vacancy was higher than it is today. The property has been upgraded over the past two years. Meanwhile, market conditions have improved due to an expanding economy. The resurgence of "Silicon Valley" 70 miles to the north, the new Soledad Correctional facility, and several thousand feet of regional shopping space has created many new jobs. The new Wal-Mart in this area will also expand the retail base, and bring in new jobs. As of the inspection date, the subject complex was fully occupied. This is consistent with comparable Salinas projects at this time. There may be some seasonal variance as workers leave agricultural jobs in Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 43 <PAGE> November, but the overall affect on the subject should be minimal as the subject does not rely on this type of tenancy. In addition to vacancy, consideration must also be made for ongoing collection loss. In the case of the subject, collection loss has been reduced from previous years due to the stricter qualifying policies. Deposits are collected upfront, thus actual collection loss is mitigated to some degree by any evictions that may occur during the year. However, consideration should still be made for collection loss. A reasonable stabilized collection loss rate is 1 to 2 percent of gross income. Assuming continued good professional management, stabilized vacancy and collection loss should run at approximately 5 percent on average. There is the strong possibility that vacancy and collection will fall below this estimate over the next 12 to 24 months, however, longer-term, consideration should be made for construction of new units and decreased economic activity. Effective Gross Income The effective gross income is estimated by deducting five percent from estimated gross income, as shown below: - -------------------------------------------------------------------------------- Gross Annual Income: $925,756 Less: Allowance for Vac/Collection (5%) (46,288) ------- EFFECTIVE GROSS INCOME $879,468 - -------------------------------------------------------------------------------- Expense Analysis In order to estimate the value of the property by the income capitalization approach, expenses must be deducted from effective gross income to arrive at a net operating income estimate. Like other types of income property, apartment property expenses are a function of services provided as well as physical and geographical characteristics of the property itself. Operating and `fixed" expenses vary from complex to complex, but generally fall between 33 to 45+ percent of revenue (gross income), including replacement reserves. Expenses can be broken down into per unit per year (or month), or as a percentage of rental revenue or effective gross income. Expenses as a percentage of income change depending on revenue levels. It can be difficult to compare apartment expenses on a line-by-line basis. No two apartment complexes are alike. Shown on the following page is a recent operating history of the subject. Expense categories are analyzed and discussed below. It should be noted that new management took over in 1995; expense records previous to 1995 are not complete and do appear to reflect current conditions. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 44 <PAGE> Real Estate Taxes & Direct Assessments California state law requires the reassessment of any parcel upon change of ownership. The market value of the subject property intrinsically assumes a hypothetical sale. Therefore, it is necessary to estimate real estate taxes based upon market value. In the State of California, property is enrolled at 100 percent of market value as determined by the County Assessor upon transfer of ownership or significant new construction. The maximum tax rate cannot exceed 1 percent of the enrolled value, plus general assessment bonds and fees approved by the voters. Enrolled value can be increased by a maximum of 2 percent per year, absent transfer, or new construction, based on the cost of living. Under Proposition 8, approved subsequent to Proposition 13, value can also be decreased to reflect current market conditions. The actual taxes are below what the new taxes would be based upon market value. According to the Monterey County Tax Collector Department, there are no special assessment bonds. The tax rate is approximately 1.05 percent. Since market value has not yet been estimated by the income capitalization approach, a technique which adds the composite tax rate reflecting the ad valorem taxes to the capitalization rate has been used. The resulting value estimate is then multiplied by the composite tax rate to obtain the amount of new taxes. This method gives only an approximation since the assessed value may not necessarily be the sale price (or market value). In addition, the value conclusion by the sales comparison approach has been used as a guide. Applying the tax rate of 1.05 percent, results in new taxes of $57,000. - -------------------------------------------------------------------------------- SUBJECT PROPERTY OPERATING HISTORY - -------------------------------------------------------------------------------- Expense Item 1994 1995 1996 (ytd) - ------------ ---- ---- --------- Payroll $56,263 $104,136 $57,515 Utilities $82,930 $ 88,008 $52,150 Insurance $44,376 $ 6,097 $ 240 Taxes & $90,154 $ 30,845 $30,610 License & Permits $ 360 $ 2,028 $ 1,668 Management Fee $ N/A $ 20,653 $20,131 Administrative $ 6,796 $ 25,672 $12,783 Maintenance & Repair $30,412 $177,422 $56,803 Gardening/Landscaping $ 7,200 $ 8,562 $ 9,483 Cable T.V. $13,361 $ 11,112 $ 9,998 Security $ 366 $ 4,918 $ 2,805 ------- -------- ------- - -------------------------------------------------------------------------------- TOTAL $332,218 $479,453 $254,186 Per Unit $2,390/unit $3,449/unit *$2,743/unit * - annualized - -------------------------------------------------------------------------------- Note: Maintenance & Repair in 1995-96 include carpet replacement at a cost of $82,797. This is not an annually recurring expense and has not been treated as such. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 45 <PAGE> License and Permits In addition to taxes, apartment properties incur license and permit fees. Based on $15 per unit, the stabilized annual estimated is $1,700 (rounded). Payroll The manager lives in the complex and the unit rent is included as part of her compensation. Payroll expense was reported at $49,950 for 1994. In 1995, it increased to $90,132. This category includes payroll taxes, state compensation insurance, unemployment taxes, wages for manager and office workers as well as maintenance personnel, and bonus. It should also include the loss of rent for the manager's unit. To date, this category is $51,565, or $678 per unit annualized. Based on payroll at other complexes, this expense has been stabilized at $75,000, or $658 per unit. Utilities Utility expense includes water, trash, basic cable, sewer, electrical for exterior site lighting and for other common amenities, including laundry facilities, filtering equipment for the pool, lighting for the clubhouse, etc.; tenants pay their own telephone, electric, and premium channel cable. Trash removal service is included in the monthly rent for all units. Utility expense can be estimated on a price per unit or on a price per square foot basis. The projects with the greatest amount of amenities and larger unit sizes generally show the highest rates of utility expenses. In 1994, utilities were reported at $801 per unit, and in 1995 it was reported at $898 per unit. The annualized projection for 1996 is $1,050 per unit. We have stabilized this expense at $103,000, which is consistent with prior years and other apartment complexes throughout the region. Insurance Insurance expense has been stabilized at $120 per unit as based on similar complexes throughout the region. Actual expense has not been reported. Management fee (Supervisory Management) Lincoln Property Company has been managing the property over the past year and one-half. The reported fee was $17,403 for 1995. To date in 1996, the fee totals $16,865. The fee will increase with the increase in rental. Normally, management companies will charge from a low of 3 for large projects to a high of 6 percent of collected rent for smaller complexes. A rate of 4.0 percent on collected rents is reasonable for this project. Maintenance and Repair This category includes on-going maintenance and repairs that include the common areas, plumbing, pool, and electric. This category also includes building/pool supplies, appliance replacement and decorating supplies. In 1995, several carpets were replaced. Carpets have also been replaced in 1996 as tenants move out. Appliances were also replaced. This level of replacement does not recur on an annual basis, thus an adjustment is required in stabilizing this expense. Normally, maintenance and repair ranges from $400 to $600 per unit. The actual subject expense has been substantially higher due to the refurbishing of the complex over the past year. It should also be noted that this category does not include landscape/gardening and exterminating contracts or wages for maintenance personnel. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 46 <PAGE> Administrative This category consists of advertising and promotion, office supplies, computer expense, legal, credit check expense, and miscellaneous expense such as stationary, postage, etc. As shown in the Income & Expense Statement prepared by Lincoln Property Residential, a management fee paid to Lincoln is included under this category. In this analysis, the management fee has been separated and discussed under its own category. Gardening/Landscaping /Cable T.V./ Security Landscaping is contracted to a private landscape company (recently hired). Basic cable is included in the rent, thus it is an expense to the landlord. Security patrol and exterminating are also contracted. Total expense reported in 1995 was $28,547. The total for the first eight months of 1996 is $17,889. We have stabilized this category at $25,000 per year. Replacement Reserves Most owners do not utilize the replacement reserve account during the analysis or operation of an apartment complex. Rather, capital improvement items are often expensed as they are incurred. However, since capital expenditures affect the investor's cash flow, an analysis of the property's value must account for these expenses in the form of appropriate reserves for replacement. Reserves for replacements are estimated at 2.5 percent of EGI, which equates to $160/unit. This takes into account the current good condition, lower effective age and recently completed capital improvements of the project. Items which are commonly associated with a reserve account include repaving of drives, replacement of underground utility pipes and electrical conduit, roof and foundation, as well as resurfacing of the pool new appliances, etc. (i.e., items that are not normally expensed year to year). Net Operating Income Total stabilized expenses and collection loss allowance amount to $387,700, or $3,400 per unit. This also equates to 54 percent of effective gross income. It should be noted that as a percentage of income, expenses are higher at the subject than they are for many complexes in this region. The reasons for this include: (1) basic cable service included in the rent; (2) more common amenities (hallways) than the typical complex resulting in a higher level of maintenance; (3) rents are relatively low in comparison to complexes in neighboring counties, thus as a percentage of income, expenses appear high. In terms of per unit cost. the subject is well supported by other complexes throughout the region. Net operating income is estimated by deducting operating and fixed expenses from effective gross income, as shown below and on the following page: - -------------------------------------------------------------------------------- Effective Gross Income $879,468 Total Expenses (431,000) -------- Net Operating Income Before Income Taxes & Depreciation $448,468 - -------------------------------------------------------------------------------- Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 47 <PAGE> Capitalization Rate Analysis After net operating income is estimated, an appropriate capitalization method is selected. Of the various techniques, the one that is almost always used due to its simplicity is direct capitalization. This method employs the use of a single rate known as the overall rate. The overall rate reflects the relationship between the projection of annual net operating income and a sale price or an estimate of value. It is calculated by dividing the net operating income of the sale into the sale price. When the property is purchased all cash, which is rare for larger apartments, and there is no subsequent change in value or income, then the capitalization rate is also the rate of return on the total property investment. In the Sales Comparison Approach section of this report, there is a table in which we have summarized our analysis of capitalization rates for the comparable sales. These capitalization rates were based on actual or actual near-term potential gross annual income less expenses at time of sale. In each case, expenses included new real estate taxes at market value as opposed to actual taxes which are typically much lower. The capitalization rates derived from each of these sale properties are summarized below: Sale No. 1 2 3 4 5 6 7 8 - -------------------------------------------------------------------------------- Cap Rate (%): 8.54 8.6 9.1 9.34 9.6 10.15 7.9 9.69 The main factor influencing capitalization rates is the perception of risk. Those properties perceived to have higher risk; will sell at higher capitalization rates. The lower risk properties sell at lower capitalization rates. Apartment properties, because of their low vacancy, generally fall into the low risk category. Risk factors that should be taken into account in selecting an appropriate capitalization rate include the following: o Amount of available land zoned to allow future apartments o Upside (or downside) potential of cash flow o Existing or planned government restrictions on use and/or rent increases o Deferred maintenance and remaining life of site improvements o Marketability/liquidity o Availability of financing Availability of Land (Potential of future competition) While there are several hundred acres of undeveloped land in the general area, most is zoned agriculture or has environmental issues such as sloughs/wetlands. This is not to say, however, that additional apartments could not be developed within a 50 mile radius. There has been very little apartment construction in the area over the past 9 years. One of the main reasons is the high cost of land and building. So, while future construction of apartments will occur to some degree, the high cost will result in higher rents that likely will not compete with the subject. Upside Potential of Cash Flow Gross revenue projected at stabilized occupancy is based largely on the current average rate. The market rate, although close, is still lower than the actual income. And given high occupancy in almost all Salinas apartment properties, it appears certain that rents will continue to gradually Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 48 <PAGE> increase over the next 12 to 24 months. Consequently, upside rental potential appears good at this particular time. The subject is not affected by rent control, so this would not be a limiting factor. Deferred Maintenance The subject is well-maintained without any significant repairs or deferred maintenance. Better-conditioned apartments tend to sell at lower capitalization rates. Marketability/Liquidity Appropriately priced, the subject would have reasonably good marketability (see Marketing and Exposure Estimate sections). This tends to lower the overall capitalization rate since there would be good buyer demand. Availability of Financing Financing should not have a significant impact on the capitalization as capital is available for this type of property. Capitalization Rate Conclusion In conclusion, the subject capitalization rate should fall between 8.5 to 9.0 percent, as evidenced by the sales. Discussions with brokers, property owners and management companies indicate that apartment capitalization rates are dropping in Santa Clara and Santa Cruz Counties. The subject has good upside potential. Based on our analysis, the most probable subject capitalization rate is at the lower end of the above range, or 8.5 percent. $448,468/ .085= $5,280,000 (rounded) Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 49 <PAGE> INCOME APPROACH SUMMARY - -------------------------------------------------------------------------------- INCOME Gross Annual Rental Income $909,756 Laundry $ 16,000 TOTAL GROSS INCOME $925,756 Less: Vacancy & Collection Loss Allowance (5%) (46,288) -------- EFFECTIVE (COLLECTED) GROSS INCOME $879,468 Stabilized Operating Expenses Per Unit (rd) ----------------------------- ----------- Payroll $ 90,000 $650 Taxes (Prop 13) $ 57,000 $395 License & Permits $ 2,000 $ 14 Utilities $ 90,000 $647 Insurance $ 14,000 $100 Management Fee $ 35,000 4% *Administrative $ 18,000 $130 Maintenance + Repair $ 76,000 $550 Landscape/Cable T.V./Security $ 27,000 $194 Replacement Reserves $ 22,000 $160 -------- ---- *includes -Advertising & Promotional TOTAL OPERATING EXPENSES $431,000 $3,100 (49%) NET OPERATING INCOME (NOI) $448,468 OVERALL CAPITALIZATION RATE (Applied to NOI) .085 ---- - -------------------------------------------------------------------------------- Market Value As Is: $5,276,094 Rounded: $5,280,000 - -------------------------------------------------------------------------------- Other Capitalization Procedures Other capitalization methods may be used in the appraisal of apartment properties, although their understanding and use falls far short of direct capitalization. The Discounted Cash Flow analysis (DCF) is one such method. In this procedure, the value of a property is equivalent to the present value of the annual before tax cash flows, over an assumed investment holding period, plus the sale (reversion) of the property at the end of the holding period, at a single discount rate. The Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 50 <PAGE> advantage of this approach is that it identifies variability in annual cash flows, especially in a startup operation. The Discounted Cash Flow Analysis requires several assumptions that impairs its reliability. For this reason, it is oftentimes considered a secondary valuation method in the appraisal of apartment appraisals. In this appraisal, the DCF procedure has not been used as it does not provide any additional insight into the valuation of this property. There are several reasons for excluding this approach. There is nothing to suggest at this time that there will be substantial changes in income patterns, although the near-term trend appears to be continued strengthening and gradual increasing of rents. Another reason is that there would be several assumptions that would have to be made. Perhaps the most compelling is that the sales were not purchased on a DCF approach. Employing a DCF for the subject would require that inferences be made about each sales as to applicable yield and going-out capitalization rates, as well as hold periods and annual expense and income increase (or decrease) projections. If the majority of these sales were purchased in this manner, then a DCF would have applicability however, this is not the case. Income Approach Conclusion The Income Approach concludes a value of $5,280,000. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 51 <PAGE> SALES COMPARISON APPROACH ================================================================================ The Sales Comparison or Market Data Approach involves making an analysis of the property being appraised based on sales of similar properties. To a lesser degree, this procedure may consider the asking prices of current listings. The market data approach presumes that a prospective purchaser would pay no more for a property than the amount with which he or she could buy another of equal utility. The reliability of this procedure is determined by: 1) availability of comparable sales; 2) comparability of sales in terms of date of sale, location, size, density, or other physical characteristics; and, 3) verification of the sales data. Although there are variations, apartment property sales are often analyzed using four unit-of-comparison indicators: o Price per unit o Gross Income Multiplier or Effective Gross Income Multiplier o Price per Rentable Square Foot o Price per Room Price Per Unit Method: The price per unit method is most often affected by unit size, condition, overall functional utility, and location of a property. Sales with high average unit sizes which are situated in the most desirable locations tend to command the highest price per unit. Naturally, the existing potential rent levels also affect the sale price, thus influencing the price per unit value. Each of these factors determine the amount of net operating income that can be generated per unit which is a fundamental measurement of investor return when applying the price per unit method. Price Per Room Method Sale price per room demonstrates the same relationship as price per unit. Applying the same logic discussed above, which considers the average unit size of the subject, existing rent levels, and location relative to the comparable sales, a value per room can be estimated for the appraised property. Price Per Square Foot Method: While size is a strong influence in sale price per unit and price per room, the rent levels attained by a property per square foot are closely related to the price per square foot it may attain in the marketplace. It is generally true that all else being equal, the rent per square foot for larger units is less than the rents per square foot for small units. Thus, apartment buildings which have larger unit sizes have lower rents per square foot and therefore have lower selling prices per square foot. Gross Income Multiplier Method: The gross income multiplier (GIM) technique is oftentimes perceived as one of the most accurate market measure of value by the Direct Sales Comparison Approach. The GIM is calculated by dividing the sale price of the sale property by its gross annual income. This method tends to equalize property differences such age, size, and number of units. In general, where there is a fee simple title, apartment properties tend to sell at 5.5 to 8 times multiple on actual income. The range is tempered by a number of factors that include location, condition, quality, and upside rental potential. The more desirable properties with good track records will typically be higher on the scale, whereas lower quality facilities in weak locations tend Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 52 <PAGE> to fall at the lower side. Since the GIM involves gross income rather than net income, the appraiser must compare the level of expenses of the comparables with the subject. This technique works best when expense operating ratios are reasonably consistent. Comparison is not straightforward, for example, when the sale property has an operating expense ratio that is significantly higher than the subjects'. Consequently, when estimating a GIM, care must be taken when comparing gross incomes. A variation of the GIM technique--effective gross income multiplier (EGIM)--is calculated by dividing the sale price by the effective gross annual income instead of the gross annual income. This technique, however, often does not result in a further refinement since apartment vacancy (and collection loss) throughout the region is very low. Comparable Sales Description & Analysis A search for apartment properties was made in Salinas and surrounding areas. No sales of larger apartment complexes (over 100 units) in Salinas during 1995 and 1996 were found. The most recent larger apartment transaction in Salinas occurred in 1994; a 60 unit complex sold in 1993 and an 112-unit property transferred in late 1991. A summary of these sales is summarized on the following pages. Additional information is included in the Addenda. To obtain more recent sales data, it was necessary to expand the search into nearby cities and counties. The strongest sales activity at this time is taking place in Santa Clara County, adjacent to the north of Monterey County. A number of larger sales have also taken place in Santa Cruz County, to the west. A brief description of each sales area and how it relates to Salinas is summarized in the following paragraphs. Santa Clara County/San Jose: This is the largest county in the region with a population of over 1.4 million. It contains the City of San Jose, the third largest city in California. "Silicon Valley" originated in Santa Clara County. The county is home to over 2000 electronic firms, including industry leaders such as Intel and Hewlett-Packard. Over the past 20 months, technological employment has dramatically increased resulting in the creation of several new jobs. To fill new jobs, several thousand people have moved into "Silicon Valley" thus creating a demand for housing. As a result, apartment and other housing rents have increased substantially, nearly doubling from previous lows in some cases. Investors have now caught on to increasing rental activity, and sales activity is brisk. This market has "filtered" into nearby communities, including Santa Cruz, Alameda County, and to some lesser degree, Salinas. The resurgence of the Santa Clara County market comes after six years of sluggish performance. The last major upswing was in 1982-85 when rents increased annually by 18 to 20 percent. From 1995 to 1989, rents and vacancy were steady. In late 1989, following the Loma Prieta earthquake and a decline in economic activity, vacancy levels started to increase and rents became soft with rental concessions given in some complexes. Starting in late 1994, the market started to once again turn upward. In 1995, economic conditions improved and rents increased to reflect a landlord's market. Today, vacancy is extremely low with very units available for rent. This is expected to continue for at least the next six to 12 months as little land is available for new apartment construction. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 53 <PAGE> COMPARABLE MARKET DATA - APARTMENT SALES <TABLE> <CAPTION> Project Name Sale Location No. Units Sale Date (COE) Year Sale Price/ GIM Price Per Unit No. A.P.N. RSF-Bldg Built Price Sq. Ft OAR Cash-on-Cash ======================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> [1] Willow Garden Apartments 1750 Stokes Street 186 6/14/96 1971 $13,650,000 $85.17 7.04 $73,387 San Jose, CA 160,260 8.54% 6.8% - ------------------------------------------------------------------------------------------------------------------------ 2-story apartment garden style built in 1970. Wood frame, wood exterior. Average quality and condition. 190 covered parking spaces (carports). Amenities include pool, spa, laundry, recreation room, balconies/patios, storage lockers, a/c. 6.40 acres (29.06 du/ac). First loan $10,600,000 from St. Paul Federal Bank. Document #13330744. - ------------------------------------------------------------------------------------------------------------------------ [2] Ocean Terrace 1630 Merrill Street 100 Santa Cruz, CA 80,724 sf 7/12/96 1972 $6,300,000 $78.04 6.5 $63,000 8.6% 8.1% - ------------------------------------------------------------------------------------------------------------------------ 100-unit garden style built on 2.7 acres in county area of Santa Cruz. Built in 1972 there are six buildings, a pool, exercise room, sauna, three laundry rooms, and on-site manager's office. Wood frame construction. Average quality and avg+ condition. 130 on-site parking spaces. AEK kitchens. $4,725,00 first from Home Savings of America - ------------------------------------------------------------------------------------------------------------------------ [3] Fox Creek Village 196 West Alvin Rd., 168 9/24/94 1986 $9,350,000 $66.31 6.8 $55,650 Salinas, CA 141,856 9.1% 9.87% - ------------------------------------------------------------------------------------------------------------------------ Built in 1986, Fox Creek Village consists of 76, 1/br/1ba units measuring 708 sf; 24, 2br/1ba units measuring 875 sf, and 68, 2/br/1ba units 986 sq ft. The gross building area is 145,023; the net rentable has been reported at 141,856 sf. 36 units have wood-burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. There are laundry rooms with washers and dryers in the complex. Above average to good quality and condition. One covered parking space per unit. - ------------------------------------------------------------------------------------------------------------------------ [4] Kingdale Oaks 1919 Fruitdale Avenue 331 8/15/95 1970 $16,760,000 $66.22 6.01 $50,634 San Jose, CA 253,098 sf 9.34% 11.1% - ------------------------------------------------------------------------------------------------------------------------ Average quality, 1, 2 and 3-story buildings built in 1964-1970 Wood frame and stucco. Concrete slab. Average condition. 331 covered parking spaces (carport). 166 open parking. Amenities include 2 heated pools, spa, poolside grills, laundry rooms, volleyball, and recreation building. Elevator served. New first loan from St. Paul Federal Bank, and seller second. Marketing time was reported at six months. 11.76 acres (28.15 du/ac), 1, 2 and 3 bedroom units. - ------------------------------------------------------------------------------------------------------------------------ ======================================================================================================================== </TABLE> Note: The above data was obtained from sources deemed reliable. However, the accuracy of the data cannot be guaranteed by R. Saia, MAI Associates (9/96) 54 <PAGE> COMPARABLE MARKET DATA - APARTMENT SALES <TABLE> <CAPTION> Project Name Sale Location No. Units Sale Date (COE) Year Sale Price/ GIM Price Per Unit No. A.P.N. RSF-Bldg Built Price Sq. Ft OAR Cash-on-Cash ======================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> [1] Willow Garden Apartments 1750 Stokes Street 186 6/14/96 1971 $13,650,000 $85.17 7.04 $73,387 San Jose, CA 160,260 8.54% 6.8% - ------------------------------------------------------------------------------------------------------------------------ 2-story apartment garden style built In 1970. Wood frame, wood exterior. Average quality and condition. 190 covered parking spaces (carports). Amenities include pool, spa, laundry, recreation room, balconies/patios, storage lockers, a/c. 6.40 acres (29.06 du/ac). First loan $10,600,000 from St. Paul Federal Bank. Document #13330744. - ------------------------------------------------------------------------------------------------------------------------ [2] Ocean Terrace 1630 Merrill Street 100 Santa Cruz, CA 80,724 sf 7/12/96 1972 $6,300,000 $78.04 6.5 $63,000 8.6% 8.1% - ------------------------------------------------------------------------------------------------------------------------ 100-unit garden style built on 2.7 acres in county area of Santa Cruz. Built in 1972 there are six buildings, a pool, exercise room, sauna, three laundry rooms, and on-site manager's office. Wood frame construction. Average quality and avg+ condition. 130 on-site parking spaces. AEK kitchens. $4,725,00 first from Home Savings of America - ------------------------------------------------------------------------------------------------------------------------ [3] Fox Creek Village 196 West Alvin Rd., 168 9/24/94 1986 $9,350,000 $66.31 6.8 $55,650 Salinas, CA 141,856 9.1% 9.87% - ------------------------------------------------------------------------------------------------------------------------ Built in 1986, Fox Creek Village consists of 76, 1/br/1ba units measuring 708 sf; 24, 2br/1ba units measuring 875 sf, and 68, 2/br/1ba units 986 sq ft. The gross building area is 145,023; the net rentable has been reported at 141,856 sf. 36 units have wood-burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. There are laundry rooms with washers and dryers in the complex. Above average to good quality and condition. One covered parking space per unit. - ------------------------------------------------------------------------------------------------------------------------ [4] Kingdale Oaks 1919 Fruitdale Avenue 331 8/15/95 1970 $16,760,000 $66.22 6.01 $50,634 San Jose, CA 253,098 sf 9.34% 11.1% - ------------------------------------------------------------------------------------------------------------------------ Average quality, 1, 2 and 3-story buildings built in 1964-1970 Wood frame and stucco. Concrete slab. Average condition. 331 covered parking spaces (carport). 166 open parking. Amenities include 2 heated pools, spa, poolside grills, laundry rooms, volleyball, and recreation building. Elevator served. New first loan from St. Paul Federal Bank, and seller second. Marketing time was reported at six months. 11.76 acres (28.15 du/ac), 1, 2 and 3 bedroom units. - ------------------------------------------------------------------------------------------------------------------------ ======================================================================================================================== </TABLE> Note: The above data was obtained from sources deemed reliable. However, the accuracy of the data cannot be guaranteed by R. Saia, MAI Associates (9/96) 55 <PAGE> Housing prices in San Jose are higher than they are in Salinas. Good Salinas neighborhoods, such as those found in north Salinas, can be compared to the more average/middle income areas of San Jose as well as the agricultural communities of Gilroy and Morgan Hill, in southern Santa Clara County. Still, downward adjustments are required for location when comparing San Jose to Salinas. Santa Cruz: In general, rental housing in Santa Cruz is less than it is in San Jose, but higher than in Salinas. Although considered more desirable, Santa Cruz is a relatively good area to draw comparable sales for comparison to Salinas. Santa Cruz is a coastal community that relies heavily on tourism and agriculture; some technology has filtered into the area from Silicon Valley. Rents have been increasing, but not nearly at the pace of San Jose. Occupancy is also extremely high in this area. A downward location adjustment is required when comparing a Salinas property to a Santa Cruz property. Monterey: No sales over 100 units were found in Monterey. This is mainly due to the limited number of larger units in the city. Although the City of Monterey is superior to Salinas in residential desirability, nearby cities such as Seaside and Marina are overall comparable. However, no sales of larger units were found in this area as well. Adjustment Process The most common unit of comparison indicator for apartments is price per unit. As such, the subject has been adjusted to the comparable sales on this basis. A sequence for making adjustments must be followed when percentage adjustments are calculated and added together. The first adjustment is for property rights conveyed. In this case, all properties sold fee simple or leased fee (short term leases of less than one year); no leasehold sales were included. Thus, no adjustment was required. The second adjustment converts the transaction price of the comparable into its cash-equivalent or modifies it to match the financing terms projected for the subject property. No sales with financing favorable enough to significantly influence the sales price were included, no adjustment was required. The third adjustment is made for conditions of sale or other (e.g., personal property included in sale price). No REO or distressed sales were included, and no sales with furnished units were considered. Every apartment has some amount of personal property that transfers with the property, however, these items are nominal. Other adjustments considered were based on differences in market conditions, appeal, quality/density, condition, and size. No specific adjustment was made for rent control (i.e., San Jose complexes), although this is considered in the location adjustments. Shown on the following pages is a table summarizing eight apartment sales. Additional information concerning each sale, including recording data and a photograph, is in the Addenda. Apartment Sale Number 1, at $73,387 per unit, is a June 1996 sale of the Willow Gardens Apartments, an 186-unit garden style walk-up apartment located in a centrally-located middle-income neighborhood in San Jose. This is an average quality complex in average condition at time of sale. There are 162, two bedroom/two bath units, and 24, three bedroom/two bath units. The average unit size is 861 square feet. Amenities consist of a pool, spa, recreation building, and laundry rooms. The Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 56 <PAGE> project sits on 6.40 acres, indicating a density of 29.06 units per acre. The project falls under San Jose Rent Control, which limits rental increases to eight percent with pass-through for extraordinary and capital expenses. The purchase price of $13,650,000 represents a rentable per square foot indicator of $85.17, and a per room value of $17,773. The GIM on actual rental income is 7.04. On market rents, the GIM is 6.29, indicating reasonably good upside rental potential. The Overall Capitalization Rate is 8.54 percent on actual income less actual expenses adjusted for new taxes and reserves. The cash-on-cash rate is 6.8 percent. In comparison to the subject, a downward adjustment is required for location. As noted, San Jose rent levels are higher than those found in Salinas. For example, a two bedroom/two bath unit at Willow Garden is $ 1,000+, or about $300 per month per unit higher than in Salinas. A downward adjustment of 25 percent as based on rental differential appears reasonable. The subject's average unit size at only 676 square feet is well below the comparable, resulting in a 15 percent downward adjustment. The quality and condition are similar, the subject has a lower density, but this has already been reflected in the location adjustment. Adjusting this comparable by 40 percent, results in an indicated subject per unit value of $44,000 (rounded). Apartment Sale Number 2, at $63,000 per unit, is a July 1996 sale of the Ocean Terrace Apartments, an 100-unit garden style walk-up apartment located in an unincorporated area of Santa Cruz County between the cities of Capitola and Santa Cruz. This is an average plus quality complex in above average condition at time of sale. There are 52, two bedroom/units, and 32, one bedroom/ units. There are also 16, 3 bedroom units. The average unit size is 807 square feet. Amenities consist of a pool, sauna, exercise room, and laundry rooms. The project sits on 2.70 acres, indicating a density of 37 units per acre. The purchase price of $6,300,000 represents a rentable per square foot indicator of $78.04, and a per room value of $16,406. The GIM on actual rental income is 6.5. Market rents were about 3 percent higher than actual income during the six month marketing period. The Overall Capitalization Rate is 8.6 percent on actual income less actual expenses adjusted for new taxes and reserves. The cash-on-cash rate is 8.1 percent. In comparison to the subject, a downward adjustment is required for location, As noted, Santa Cruz rent levels are higher than those found in Salinas. For example, a two bedroom/two bath unit at Ocean Terrace is $800-850+, or about $100-250 per unit higher than in Salinas as compared to a similar complex. A downward adjustment of 15 percent as based on rental differential appears reasonable. The subject's average unit size is smaller, resulting in a 10 percent downward adjustment. In addition, a downward adjustment of 10 percent is made for the subject's larger size. Smaller properties tend to sell at higher unit values because they appeal to a larger group of buyers. Adjusting downward by a total of 35 percent, results in an indicated subject per unit value of $41,000 (rounded). Apartment Sale Number 3, at $55,655 per unit, represents Fox Creek Village, an 168-unit two-story garden complex built in 1986, located nearby the subject in north Salinas. Fox Creek includes a pool, tennis court, recreation building and laundry facilities. There are 76, one bedroom units; and, 92 two Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 57 <PAGE> bedroom units. The average unit size is 844 square feet - almost 25 percent higher than the subject. Some of the units have fireplaces. Parking is by carport stalls and open spaces. The overall quality and condition are good, superior to the subject. In comparison to the subject, a downward adjustment of 10 percent is required for size. Another adjustment of 20 percent is made for this property's lower effective age and superior quality and amenities. Although there are no sales in Salinas to determine whether apartment property value has increased since the September 1994 sale date, it is logical to assume that since rents are now somewhat higher that values are likely higher as well. Consequently, an upward adjustment of 5 percent is made. Overall, the adjustments total downward by 25 percent, indicating a subject unit value of $42,000 (rounded). Apartment Sale Number 4, at $50,634 per unit, is located south of Freeway 280 near San Jose City Community College within single family and apartment neighborhood. the project is under San Jose Rent Control Ordinance. This is average quality and condition. The buildings are wood frame and stucco with flat T&G roofs built in 1964 and 1970. There are 36, studios; 264 1br/1ba units; 20, 2br/1ba units; 5, 3br/2ba; and, 6 2br/2ba units. Amenities include 2 heated pools, poolside grills, laundry rooms, recreation room, and volleyball. Elevator served. Units have either balcony or patio and are separately metered. Average condition. 1.5 parking spaces per unit (166 open spaces and 331 carport). According to selling broker Bruce Hermann with Marcus & Millichap, gross scheduled actual income at time of sale was $2,787,000, or approximately $700 per unit per month. Actual vacancy (and stabilized vacancy) was 4.38%. Factoring-in taxes at market (per Prop 13), total expenses were reported at approximately $1,100,000. Net operating income is estimated at $1,565,000. Financing consisted of a 1st from St. Paul Federal Bank of $14,850,000 (VIR) 8%, 25-yr amortization and a seller second of $556,000 @ 7%, 2 years resulting in a total annual debt service of $1,414,297. Cash flow (after debt service) is $150,703, indicating a cash-on-cash rate of 11.1% on the cash downpayment of $1,354,000. The marketing time was reported at 6 months. The sale reportedly did not involve an exchange. This sale closed in August 1995, but was negotiated several months prior. In comparison to the subject, a downward adjustment is required for location, although not as great as the adjustment made for Sale 1. The subject has superior appeal, but due to the locational difference a downward adjustment of 15 percent is made. A 5 percent upward adjustment is required for market conditions, that is, rents have moved upward over the past 1.5 years. A 5 percent upward size adjustment was since the subject is a smaller project. The subject's average unit size is smaller, thus requiring a 10 percent downward adjustment. In total, a 15 percent downward adjustment is made resulting in an indicated subject value of $43,000 (rounded). Apartment Sale Number 5, at $50,685 per unit, represents a nine building, two-story, garden style complex of average quality. The project is located near Highway 1 in the City of Santa Cruz. It is in a neighborhood of predominately small bungalow single family homes built from 1930 to 1970; a new zero-lot line SFR development is located directly across. There are 42 studio units with an average size of 550 square feet; 60, 1br/1ba units @ 650 sf and, 44, 2br/1ba units of 750 sf. The rentable area is 95,100 square feet (avg. unit = 651). There are no recreational amenities except for pool and common utility rooms. Landscaping is extensive in some areas. One-half of Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 58 <PAGE> the units are subsidized housing units. At time of sale, "market" rents were $600 for studio, $750 for 1 bedrooms, and $850 for two bedrooms. The gross and net incomes are estimates based on reported actual income per MLS listing (#369018). According to assessor's office, some buildings had deferred maintenance, however, the cost to repair is not known. In comparison to the subject, a downward adjustment of 20 percent is required by this comparable's superior location. No adjustment are required for average unit size, quality and condition. Applying the 20 percent downward location adjustment, results in an indicated subject unit value of $40,500 (rounded). Apartment Sale Number 6, at $74,348 per unit, is located in west Santa Cruz off Highway 1. This is a good quality walk-up garden design built in 1989. It is the newest complex built in west Santa Cruz area. Amenities include a swimming pool and carport parking. There are no other recreational facilities, although the complex is within a short drive to beaches and three miles to Santa Cruz Beach & Boardwalk (good tenant appeal). The buyer paid $300,000 in repairs and $175,000 commission, thus actual price was somewhat higher than reported above. The property was never exposed to the open market. The higher than normal capitalization rate is reflective of this and the extra cost to the buyer of repairs and commission. There are 18, 1br/1ba units; 69, 2br/2ba units; and, 28, 2br/2.5 ba units. Market rents are about 3-5 % higher than actual. In comparison to the subject, downward adjustments are required for age, location, average unit size and size. We estimate these to be 40 percent. The indicated subject value per unit from this sale is $44,500 (rounded). Apartment Sale Number 7, at $51,200 per unit, represents an average to good quality garden style apartment complex located in north Salinas. There are 23, 1 bedroom units and 37, 2 bedroom units. The 60 unit complex is smaller and newer than the subject, however, it is very similar in location. The subject's average unit size is significantly smaller, thus requiring a 10 percent downward adjustment. In addition, adjusting this sale down by 20 percent for size and effective age, and upward by 5 percent for improved market conditions since date of sale results in an indicated subject value per unit of $38,500 (rounded). Although this is a nearby comparable, because of its smaller size and older sales date less emphasis was placed on it in the final analysis. Apartment Sale Number 8, at $53,125 per unit, represents the sale of the 112-unit Cypress Landing Apartments in north Salinas. One of the last complexes to have been built in Salinas, Cypress was completed in 1989. There are 12, two-story buildings. Amenities include a pool, hot tub, weight room, tennis court and recreation building. All units have patios or balconies, refrigerators, R/O and dishwashers; some have fireplaces. There are 36, 1br/1ba units; and, 76 2br/2ba units measuring between 955 to 985 square feet. Carport and open parking. The average unit size is 899 square feet. Gross annual income at time of sale was $925,740, and net operating income was $573,218, indicating a cap rate of 9.69%. Normally, a 1991 sale would not be used as part of a primary sales analysis. In this case, given the scarcity of large apartment sales in Salinas, it has been used. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 59 <PAGE> No adjustment is required for location. Cypress is newer than the subject, and has superior appeal. It is also smaller, and has a significantly higher average unit size. A 35 percent downward adjustment is reasonable for these factors. On the other hand, an upward adjustment of 5 percent is made for improved market conditions since late 1991. On balance, a negative 30 percent adjustment is applied indicating a subject unit value of $37,000 (rounded). Sales Comparison Approach Summary & Conclusion The sales analyzed in the sales comparison approach range in size from 60 to 331 spaces, and in unadjusted price from $50,634 to $74,387 per unit. After adjustment, the sales indicated the following range of value: Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Sale 6 Sale 7 - ------ ------ ------ ------ ------ ------ ------ $44,000 $41,000 $42,000 $43,000 $40,500 $44,500 $38,500 Sale 8 ------ $37,000 For one reason or another, the sales are not highly similar. They do, however, provide a reasonably narrow range of potential subject value. The sales consistently group around $40,000. As such, the subject's indicated per unit value is $40,000, or as outlined below. - -------------------------------------------------------------------------------- 139 units x $40,000/unit = $5,560,000 - -------------------------------------------------------------------------------- Check for Reasonableness: Based on a market value of $5,560,000, the subject property would have the following unit of comparison indicators: Price Per Rentable SF: $62.92 Price Per Room: $13,333 GIM: 6.0 Price Per Rentable SF: The unadjusted range of the comparables is $59.11 to $85.17. Although towards the lower end, the indicated $61.33 per square foot value is supported by this range. Price Per Room: The unadjusted range of the comparables is $14,157 to $19,344; most are in the $14,000 to $16,000 range. The subject is below the lower end. As such, the price per room method is not supported, but is not entirely out-of-line either. GIM: The subject has a high expense ratio (in comparison to gross income) which should be considered in selecting the appropriate GIM. The range of the comparables is 6.01 to 7.83; most range from 6.01 to 6.8. At 6.0, the subject is supported by the sales when considering its higher expense ratio. Consequently, it is our opinion that the above value estimate is adequately supported by the GIM technique. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 60 <PAGE> Two of the three sales comparison unit-of-comparison indicators support the per unit value conclusion. The most important of the three--GIM--supports the conclusion, therefore we have concluded the following Sales Comparison Method value: CONCLUSION: $5,560,000 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 61 <PAGE> RECONCILIATION OF THE VALUE ESTIMATES The market value of the subject property has been estimated by two of the three traditional appraisal approaches. The indications given by each are summarized as follows: ================================================================================ Income Approach $5,280,000 Sales Comparison Approach $5,560,000 ================================================================================ In order to determine our final opinion of value, the reliability and relevance of each value based upon the quality of data collected, and the applicability of the assumptions underlying each approach was considered. The cost approach was not used in this appraisal. Although it may have some relevancy, it is not a primary valuation method. The Sales Comparison Approach is a more accurate method than the Cost Approach, but is flawed to some degree by the limited number of comparable sales in the Salinas area. The sales that were available, however, provided consistent support. The Income Capitalization Approach is the better of the two methods, but is also flawed to some degree by the lack of recent sales in Salinas. The sales provided a strong central tendency in indicating that capitalization rates are within a range of 8.0 to 9.5 percent; however, market conditions are improving and capitalization rates may be decreasing. Without recent empirical data in Salinas, however, it is difficult to pinpoint a specific rate for the subject property. Still, most weight has been given to the Income Approach in concluding a final value estimate. STATEMENT OF VALUE Based on the foregoing analysis, the value of the subject property, as of September 28, 1996, is estimated as follows: FIVE MILLION FOUR HUNDRED THOUSAND DOLLARS ($5,400,000) Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 62 <PAGE> MARKETING PERIOD ================================================================================ The sales marketing time is the time that it should take to market and sell the property in its "as is" condition as of the date of the appraisal. This should not be confused with exposure time which is the amount of time necessary to expose a property to the open market in order to achieve a sale. Marketing time is a forward estimate of the amount of time necessary to expose a property on the open market in order to achieve a sale from the effective date of the appraisal. Indications of the marketing times associated with the "as is" market value estimates are provided by the marketing time of sale comparables, and interviews with participants in the market. The sales marketing period is a period of time that is reasonable in light of a given property's characteristics and market conditions, based on certain assumptions. To our knowledge, there have been no sales the size of the subject in the Northern Monterey County market area over the past year. Sales from other parts of Northern California indicate that the marketing time would be less than 6 months. Apartment sales that have taken place over the past 24 months indicate that marketing times rarely exceed 6 months, and usually fall between 1 to 6 months. The length of time is not only a function of physical and locational characteristics, but the marketing and pricing. Based on the subject characteristics and assuming a list price close to the estimated market value, marketing time is estimated at 2-5 months. EXPOSURE PERIOD ================================================================================ USPAP requires that an estimate of reasonable exposure time be made in the performance of an appraisal where the value being sought is "as-is". In the USPAP, the Comment to Standards Rule 1-2(b) states: When estimating market value, the appraiser should be specific as to the estimate of exposure time linked to the value estimate. The Comments to Standard Rules 2-2(a)(v) and 2-2(b)(v) state: ...Defining the value to be estimated requires both an appropriately referenced definition and any comments needed to clearly indicate to the reader how the definition is being applied [See Standards Rule 1-2(b)]... The Statement issued by the Appraisal Standards Board is as follows: Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 63 <PAGE> Reasonable exposure time is one of a series of conditions in most market value definitions. Exposure time is always presumed to precede the effective date of the appraisal. Exposure time may be defined as follows: The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market. Exposure time is different for various types of real estate and under various market conditions. It is noted that the overall concept of reasonable exposure encompasses not only adequate, sufficient and reasonable time but also adequate, sufficient and reasonable effort. This statement focuses on that time component. The fact that exposure time is always presumed to occur prior to the effective date of the appraisal is substantiated by related facts in the appraisal process: supply/demand conditions as of the effective date of the appraisal; the use of current cost information; the analysis of historical sales information (sold after exposure and after completion of negotiations between the seller and buyer); and the analysis of future income expectancy estimated from the effective date of the appraisal. Since there are few comparable properties to the subject that have sold in this market area, estimating exposure time is based more on discussions with knowledgeable real estate professionals. All of the sales with known marketing times took less than 6 months. The exposure time period assumes that the subject is appropriately priced and marketed. Obviously, a list price that is significantly higher than what the property is worth will result in a longer than typical marketing period. Although it could be sooner or later, our best estimate of an exposure period (based on our appraised value) is 4 months. ALLOCATION OF FURNITURE, FIXTURES AND EQUIPMENT ================================================================================ For the most part, apartment in the subject region do not require significant furniture, fixtures or equipment as part of the ongoing operation of the property. In the case of the subject, FF&E is minimal and contributes only a nominal value to the overall property worth. Personal property items observed on the premises include pool equipment, furniture in the recreation/clubhouse, office furniture and equipment (e.g., computer/printer) carts, supplies, etc. The market value of the above is estimated at less than $15,000. Some of the personal property items such as the computer and copier (i.e., office equipment) would be removed upon sale. All of the comparables had similar amounts of personal property items that were included in the sale, thus there is no need for an adjustment. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 64 <PAGE> Although not as management intensive as a hotel, apartments require management expertise that technically creates some (minor) going-concern value. In valuing the subject, any going-concern/goodwill has effectively been removed by deducting an offsite professional management fee. The net incomes estimated from each sale comparable also had offsite management fees deducted. It is assumed that the subject will continue to operate under professional management. In conclusion, the estimated market value of the subject is of the real estate only; FF&E (personal property) is nominal and any going-concern/goodwill value would have been removed in the deduction of an offsite professional management fee. ASSUMPTIONS AND LIMITING CONDITIONS ================================================================================ The estimate of value contained herein is based upon and subject to the following assumptions and qualifying conditions, to which the addressee shall be deeded to consent by acceptance hereof: It is assumed that merchantable fee simple title, free of encumbrance, is vested in the owner of record. It is recognized that a potential purchaser would likely consider the effect of value through consideration of the maximum conventional financing available for the property type as of the date of value. It is assumed that the property is subject to lawful, competent and informed ownership and management. It is also assumed that all financial information on the business operation is correct; errors or misstatements may have a material impact on the appraised value. We reserve the right to make changes if such errors or misstatements were later discovered. It is assumed that the information supplied by the addressee as to the parcel or parcels of real estate is correct and complete, including the legal description as it appears in this report. The appraisers assume no responsibility for matters of legal nature affecting the property or the title thereto, nor does the appraisers render any opinion as to title. No attempt has been made to render an opinion of or status of easements that may exist. It is understood that exhibits included in this report are solely for the purpose of assisting the reader to visualize or understand its content and are not intended to be exact in scale or detail. It is understood that no survey has been made to render an opinion of or status of easements that may exist. It is understood that material contained herein which is stated to be or is obviously furnished by others is believed to reliable but has not been verified except as specifically stated. Such information is believed to be true and correct; however, no responsibility for accuracy can be assumed by the appraisers. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 65 <PAGE> We are not required to give testimony or appear in court because of having made this appraisal, with reference to the property in question, unless arrangements have been previously; made therefor. The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization. The separate valuations of land and building must not be used in conjunction with any other appraisal and are invalid if so used. If this appraisal contains a valuation relating to a geographical portion of a large parcel or tract or real estate, the value reported for such geographical portion relates to such portion only and should not be construed as applying with equal validity to other portions of the larger parcel or tract, and the value of all geographical portion may or may not equal the value to the entire parcel or tract considered as an entity. We assume that there are no hidden or unapparent conditions of the property, subsoil or structures which would render it more or less valuable. We assume no responsibility for such conditions or for engineering which might be required to discover such factors. The appraisers assume the mechanical equipment to be in good working order unless expressed otherwise. Unless otherwise stated in this report, the existence of hazardous materials, which may not be present on the property, was not observed by the appraisers. The appraisers have no knowledge of the existence of such materials on or in the property. The appraisers, however, are not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired. All information and comments concerning the location, neighborhood, trends, construction quality and costs, loss in value from whatever cause, condition, rents, or any other data of the property appraised herein represent the estimates and opinions of the appraisers formed after an examination and study of the property. While it is believed the information, estimated and analysis given and the opinions and conclusions drawn therefrom are correct, the appraisers do not guarantee them and assumes no liability for any errors in fact in analysis or in judgment. Disclosure of the contents of this appraisal report (especially any conclusions as to value), the identity of the appraisers or the firm with which they are connected, or any reference to the Appraisal Institute, or the SRPA/MAJ designations shall not be disseminated to the public through advertising media, public relations media, news media, sales media, or any Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 66 <PAGE> other public means of communication without the prior written consent and approval of the undersigned. The appraisers are considered the owner of the report, and delivery of same has been to addressee only for his specific intended real estate decision. Certain forms, formatting and techniques contained herein are private property and proprietary in nature. As such, they are protected under state and federal laws covering trademarks, copyrighting, etc. Copying or re-use is strictly prohibited without expressed written consent. Certain information contained herein is considered "not for public knowledge" and is provided herein "under strictest confidence." Said information shall be used only in connection with the business decision as specifically described in the function of the appraisal. No other use of any information contained herein is permitted. Said information shall not be re-used, shared, disclosed, etc., except in accordance with the certification, limiting conditions, function and purposes as contained herein. Any deviation from the above may subject the user to additional legal action for invasion of privacy. Acceptance and use of this report constitutes specific and implied consent to all condition, limitations, etc. Further, the client shall hold harmless the appraisers for any unpermitted use or action resulting from such use. On appraisals subject to satisfactory completion of repairs, alterations, or new construction, the appraisal report and value conclusions are contingent upon completion of the improvements in a timely and workmanlike manner, and as of the effective date of the appraisal. Any projections in income and expenses in this report are not predictions of the future. Instead, they are an estimate of current thinking of market participants of what future income and expenses will be. No warranty or representation is made that these projections will materialized. This appraisal was prepared for Home Savings as client to be used in lending decisions or any related business pertaining to its interest in the appraised property. If an informational copy has been provided to the owner it should not be utilized for other functions. The Americans with Disabilities Act (ADA) became effective January 26, 1992. The appraiser has not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 67 <PAGE> CERTIFICATION OF APPRAISAL ================================================================================ I certify that, to the best of my knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions and conclusions. 3. I have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. 4. My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. 5. The analyses, opinions and conclusions were developed, and, this report has been prepared, in conformity with Title XI of the Federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FLRREA) and its regulations, as well as the Code of Professional Ethics and Standards of the Professional Conduct of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation and the Appraisal Institute. 6. Robert Saia and James Barcells, SRA have made a personal inspection of the property. Mr. Saia's General Certificate from the State of California is valid and in good standing as of the appraisal date. 7. No one other than the undersigned prepared the analyses, conclusions, and opinions concerning real estate that are set forth in this appraisal report. It should be noted that James Barcells helped with the preparation of the report. 8. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 9. Members of the Appraisal Institute are required to meet certain continuing education requirements. As of date of this report, Mr. Saia have completed the requirements of the continuing education program of the Appraisal Institute. /s/ Robert S. Saia - ------------------- Robert S. Saia, MAI OREA Cert #AG003191 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 68 <PAGE> -ADDENDA-- Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 69 <PAGE> PHOTOGRAPHS OF SUBJECT PROPERTY [PHOTO OMITTED] [PHOTO OMITTED] Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> PHOTOGRAPHS OF SUBJECT PROPERTY [PHOTO OMITTED] [PHOTO OMITTED] Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> NEIGHBORHOOD LOCATION MAP [NEIGHBORHOOD MAP OMITTED] <PAGE> ZONING MAP [ZONING MAP OMITTED] <PAGE> PLAT MAP [PLAT MAP OMITTED] <PAGE> RENTAL LOCATION MAP [RENTAL LOCATION MAP OMITTED] <PAGE> COMPARABLE SALES LOCATION MAP [COMPARABLE SALES LOCATION MAP OMITTED] <PAGE> COMPARABLE SALES LOCATION MAP Santa Cruz [COMPARABLE SALES LOCATION MAP Santa Cruz OMITTED] <PAGE> COMPARABLE SALES LOCATION MAP San Jose [COMPARABLE SALES LOCATION MAP San Jose OMITTED] <PAGE> APARTMENT SALE NUMBER 1 Project Name: Willow Garden Apartments Location: 1750 Stokes Street, San Jose Assessor's Parcel No.: 284-24-008 Grantor: Marie Helen Pejcha Trust Grantee: Willow Gardens Ltd. Rec. Doc. #: #13330744 Sales Date: June 14, 1996 Sales Price: $13,650,000 No. of Units: 186 Condition/Quality: Average/average Site Area: 6.40 acres (29.06 du/ac) Year Built: 1971 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $73,387 Price/Room: $17,773 GIM: 7.04 Price/RSF: $85.17 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $1,165,752 - -------------------------------------------------------------------------------- OAR: 8.54% - -------------------------------------------------------------------------------- Occupancy: 99.0% (1 unit vacant @ time of sale) Financing: see comments below Comments: Average quality garden style two-story walk-up built in 1971. Average condition and appeal. There are 162, two bedroom/two bath units, and 24, three bedroom/2 bath units. Gross rentable area is 163,740 sf. Zoning is R-4, high density. Located in area of apartments, condominiums and single family homes (middle income) with commercial/retail along major arterials. Centrally-located, close to shopping, schools, employment and freeway access. Financing terms consisted of $10,600,000 first, and a seller second of $1,275,000 @ 8%, 2 yrs. The buyer put down $1,775,000. The <PAGE> market income is estimated at $2,170,200 and the actual was $1,940,052 at time of sale. The market derived GIM is 6.29, and the market derived OAR is 9.06% (actual OAR = 8.54%). Under San Jose Rent Control Ordinance which limits annual rent increases to 8 percent. Source/Confirmation: various, including public records, inspection, Comps Inc., Stan Jones Marcus & Millichap. [photo omitted] <PAGE> APARTMENT SALE NUMBER 2 Project Name: Ocean Terrace Location: 1630 Merrill Street, Santa Cruz Assessor's Parcel No.: 027-274-41 Grantor: Santa Cruz Central Investments Grantee: D&M Piterman Rec. Doc. #: #8760321 Sales Date: July 12, 1996 Sales Price: $6,300,000 No. of Units: 100 Condition/Quality: Average+/Average+ Site Area: 2.7 acres (37 un/ac) Year Built: 1972 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $63,000 Price/Room: $16,406 GIM : 65 Price/RSF: $78.04 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $543,984 - -------------------------------------------------------------------------------- OAR: 8.6% - -------------------------------------------------------------------------------- Occupancy: 100% (0 unit vacant @ time of sale) Financing: New First from Home Savings (see below) Comments: 100 unit garden style two-story walk-up built in 1972. It is located in an unincorporated area of Santa Cruz County one mile from the city limits of Santa Cruz and two miles north of Capitola Village, a seaside tourist area. The neighborhood is predominately average quality single family and apartments with scattering of mobile home parks and small retail/shopping centers. The ocean is approximately one-half mile south. Amenities include a pool, sauna, three laundry rooms, <PAGE> on-site manager's office, and exercise room. There are six buildings on the 2.7 acre site. Construction is wood frame and wood siding and stucco. Roofs are flat tar and gravel. Parking is 130 spaces. All units feature AEK kitchens including dishwashers, refrigerators, garbage disposals and R/O's. There are 32, 1br/1ba units containing 624 sf 40, 2br/1ba units measuring 860 sf, 12 units are 2br/1.5 ba @ 923 sf, and, 16 are 3br/2ba units @ 955 square feet. Market rents range from $680-695 for the 1br units to $955-$980 for the 3br units. The 2 br units range from $780 to $855. Based on market rents, the monthly gross rental income is $79,950. Laundry income is $1,125 per month. The actual income for January 1996 was $77,480, or 3% below market. Based on market rental income and laundry income, gross annual income is projected (over next 12 months) at $972,900. Deducting 4 percent for vacancy and collection loss, results in EGI of $933,984. Expenses estimated by seller are approximately $390,000 (including reserves), resulting in a NOI of $543,984 and a cap rate of 8.6 percent. The Home Savings first loan has an estimated annual debt service of $416,044, yielding cash flow of $127,939 and a cash-on-cash rate of 8.1%. reportedly, the property was purchased by the seller in 1985 at $5,200,000 (unconfirmed). Source/Confirmation: Home Savings of America, South Bay Equities [photo omitted] <PAGE> APARTMENT SALE NUMBER 3 Project Name: Fox Creek Village Location: 196 W. Alvin Road, Salinas Assessor's Parcel No.: 261-631-010 Grantor: Sollecito Grantee: Fox Creek Partners Rec. Doc. #: Reel 3l51 pg 1419 Sales Date: September 24, 1994 Sales Price: $9,350,000 No. of Units: 168 Condition/Quality: Good/Good Site Area: 7.84 acres (21.43 du/ac) Year Built: 1986 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $55,655 Price/Room: $15,688 GIM: 6.8 Price/RSF: $66.31 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $850,850 - -------------------------------------------------------------------------------- OAR: 9.1% - -------------------------------------------------------------------------------- Occupancy: 96.5% Financing: New loan through Bank of America Comments: Well-located in north Salinas near schools and shopping. Fox Creek consists of 76, 1br/1ba units measuring 708 sf, 24, 2br/1ba units @ 875 sf; and, 68, 2br/1ba units @ 986 sf. 36 units have wood burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. Amenities include a pool, tennis court, and recreation room. Financing terms were not available, although there was a first made by Bank of America at market rate and terms. Assuming normal downpayment and market interest rate at time of sale, cash-on- <PAGE> cash is estimated at 9.87%. No rent control. Vacancy at time of sale was reported at 3.5 percent. One covered parking space plus open parking. Garden-design walk-up. Source/Confirmation: various, including public records, inspection, etc. [photo omitted] <PAGE> APARTMENT SALE NUMBER 4 Project Name: Kingdale Oaks Location: 1919 Fruitdale Avenue, San Jose Assessor's Parcel No.: 282-40-022,023 Grantor: Marie Helen Pejcha Trust Grantee: Tod & Catherine Spieker Rec. Doc. #: #12983233 Sales Date: August 15, 1996 Sales Price: $16,760,000 No. of Units: 331 Condition/Quality: Average/Average Site Area: 11.76 acres (28.15/un per ac) Year Built: 1970 Value Indicators: Price/Unit: $50,634 Price/Room: $16,878 GIM: 6.01 Price/RSF: $66.22 Stabilized NOI Est.: $1,565,000 OAR: 9.3% Occupancy: 95.62% (14 units vacant @ time of sale) Financing: See Comments Below Comments: Located south of Freeway 280 near San Jose City Community College within single family and apartment neighborhood. Close to shopping, schools and freeway access. Zoned R24 and R4 (high density residential). Under San Jose Rent Control Ordinance. Average quality, wood frame and stucco buildings (flat T&G roofs) built in 1964 and 1970. There are 36, studios; 264 1br/1ba units; 20, 2br/1ba units; 5, 3br/2ba; and, 6 2br/2ba units. Amenities include 2 heated pools, poolside grills, laundry rooms, recreation room, and volleyball. Elevator served. Units have either balcony or <PAGE> patio and are separately metered. Average condition. 1.5 parking spaces per unit (166 open spaces and 331 carport). According to selling broker Bruce Hermann with Marcus & Millichap, gross scheduled actual income at time of sale was $2,787,000. Actual vacancy (and stabilized vacancy) was 4.38%. Factoring-in taxes at market (per Prop 13), total expenses were reported at approximately $1,100,000. Net operating income is estimated at $1,565,000. Financing consisted of a 1st from St. Paul Federal Bank of $14,850,000 (VIR) 8%, 25-yr amortization and a seller second of $556,000 @ 7%, 2 years resulting in a total annual debt service of $1,414,297. Cash flow (after debt service) is $150,703, indicating a cash-on-cash rate of 11.1% on the cash downpayment of $1,354,000. The marketing time was reported at 6 months. The sale reportedly did not involve an exchange. Source/Confirmation: Marcus & Millichap (415) 494-8900 [photo omitted] <PAGE> APARTMENT SALE NUMBER 5 Project Name: Hidden Creek Apartments Location: 200 Button Street, Santa Cruz Assessor's Parcel No.: 008-202-026 Grantee: Hidden Creek Rec. Doc. #: #5547479 Sales Date: July 24, 1994 Sales Price: $7,400,000 No. of Units: 146 Condition/Quality: Avg/Avg Site Area: 3.8 acres (37 du/ac) Year Built: 1973 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $50,685 Price/Room: $16,818 GIM: 6.78 Price/RSF: $77.81 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $710,400 - -------------------------------------------------------------------------------- OAR: 9.6% - -------------------------------------------------------------------------------- Occupancy: 98% (est) Financing: Not available Comments: Nine two-story buildings, garden style, complex of average quality. Located near Highway 1 in City of Santa Cruz. located in neighborhood of predominately small bungalow single family homes built from 1930 to 1970; a new zero-lot line SFR development is located directly across. There are 42 studio units with an average size of 550 square feet; 60, 1br/1ba units @ 650 sf, and, 44, 2br/1ba units of 750 sf. The rentable area is 95,100 square feet (avg unit = 651).There are no recreational amenities except for pool and common utility rooms. Landscaping is extensive in some areas. One-half of the units are subsidized housing units. At time of sale, "market" rents were $600 for studio, $750 for 1 bedrooms, and $850 for two bedrooms. The gross and <PAGE> net incomes are estimates based on reported actual income per MLS listing (#369018). According to assessor's office, some buildings had deferred maintenance, however, cost to repair are not known. Source/Confirmation: various, including public records, assessor, MLS [photo omitted] <PAGE> APARTMENT SALE NUMBER 6 Project Name: North Bay Apartments Location: 41 Grandview Street, Santa Cruz Assessor's Parcel No.: 002-051-65 Grantor: EQR Northbay Chicago Inc. Grantee: Sequoia Equities Rec. Doc. #: #7770608 Sales Date: December 1995 Sales Price: $8,550,000 No. of Units: 115 Condition/Quality: Good/Good Site Area: 5.17 (22.2 du/ac) Year Built: 1989 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $ 74,348 Price/Room: $19,344 GUI: 6.11 Price/RSF: $81.88 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $867,825 - -------------------------------------------------------------------------------- OAR: 10.15% - -------------------------------------------------------------------------------- Occupancy: 100% (no vacancy at time of sale) Financing: $2,425,000 down, $6,300,000 first (see below) Comments: Good quality walk-up garden design built in 1989. Newest complex built in west Santa Cruz area. Located off Highway I (Mission Street) in area of single family and apartments/condos. Above average to good location. Buyer paid $300,000 in repairs and $175,000 commission, thus actual price was somewhat higher than reported above. The property was never exposed to the open market. The higher than normal capitalization rate is reflective of this and the extra cost to the buyer of repairs and <PAGE> commission. There are 18, 1br/1ba units; 69, 2br/2ba units; and, 28, 2br/2.5 ba units. Market rents are about 3-5 % higher than actual. Amenities include a swimming pool and carport parking. No other recreational facilities, although the complex is within a short drive to beaches and three miles to Santa Cruz Beach & Boardwalk. Overall good tenant appeal. Source/Confirmation: various, including public records, broker [photo omitted] <PAGE> [photo omitted] <PAGE> APARTMENT SALE NUMBER 7 Location: 2186-2198 Brutus Street, Salinas Assessor's Parcel No.: 253-081-015 Grantee: Tom Favazza Rec. Doc. #: #35062 Sales Date: May 26, 1993 Sales Price: $3,072,000 No. of Units: 60 Condition/Quality: Good/Good Site Area: 1.8+/- ac (33 du ac) Year Built: 1988+/- - -------------------------------------------------------------------------------- Value. Indicators: Price/Unit: $51,200 Price/Room: $14,157 GIM: 7.83 Price/RSF: $61.46 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $242,445 - -------------------------------------------------------------------------------- OAR: 7.9% - -------------------------------------------------------------------------------- Occupancy: Not available Financing: Not available Comments: Average to good garden style complex located off N. Main Street in north Salinas. Close to shopping, schools, and freeway access. There are 23, 1br/1ba units, and 37 2br/2a units. Total rentable area is 49,980 sf. Average unit size is 833 sf. Market income at time of sale was estimated at $392,445. Vacancy and expenses were estimated at $150,000, resulting in an estimated NOI of $242,445 (7.9% cap rate). Source/Confirmation: public records, damar <PAGE> [photo omitted] <PAGE> APARTMENT SALE NUMBER 8 Project Name: Cypress Landing Apartments Location: 552 Rico Street, Salinas Assessor's Parcel No.: 261-201-018 Grantee: William Lewis Rec. Doc. #: Reel 2692 pg: 0774 Sales Date: November 1991 Sales Price: $5,950,000 No. of Units: 112 Condition/Quality: Good/Good Site Area: 6 acres (18.7du/ac) Year Built: 1989 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $53,125 Price/Room: $14,442 GIM: 6.4 Price/RSF: $59.11 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $573,218 - -------------------------------------------------------------------------------- OAR: 9.69% - -------------------------------------------------------------------------------- Occupancy: 2.7% (3 units vacant @ time of sale) Financing: All cash to seller Comments: Two story, garden style apartment complex of good quality and condition, built in 1989. One of the last apartment complexes to have been built in the north Salinas area. Close to shopping, schools and freeway access. 12, two-story buildings. Amenities include pool, hot tub, weight room, tennis court and recreation building. All units have patios or balconies, refrigerators, R/O and dishwashers; some have fireplaces. There are 36, 1br/1ba units; and, 76 2br/2ba units measuring between 955 to 985 square feet. Carport and open parking. No rent control. 899 sf average unit size. <PAGE> SKETCH ADDENDUM File STEPHANI.SK - -------------------------------------------------------------------------------- Borrower/Client J.H. Real Estate Partners Property Address 25-82 Stephanie Drive City Salinas County Monterey State CA Zip Code 93901 Lender NationsBank Remarks Improvement Plat ================================================================================ [GRAPHICAL FLOORPLANS OMITTED] <PAGE> SKETCH ADDENDUM File WESTLAKE.SK - -------------------------------------------------------------------------------- Borrower/Client J.H. Real Estate Partners Property Address 25-82 Stephanie Drive City Salinas County Monterey State CA Zip Code 93901 Lender NationsBank Remarks Improvement Plat ================================================================================ [GRAPHICAL FLOORPLANS OMITTED] <PAGE> ARTICLE II - BASE DISTRICT REGULATIONS Division 6 - R-H (High Density Residential District Regulations) - -------------------------------------------------------------------------------- Sec. 37-46. Property development regulations. The following schedule prescribes development regulations for the High Density Residential District: - -------------------------------------------------------------------------------- R-H (High Density Residential) Property Development Regulations - -------------------------------------------------------------------------------- Additional Zoning District Regulations ------------------------------ (See footnotes Use R-H-3.6 R-H-2.3 R-H-1.9 below) - -------------------------------------------------------------------------------- Lot size (sq. ft.) 7,200 7,200 7,200 (A)(B)(C) Lot area per unit (sq. ft.): Less than 6,000 6,000 6,000 6,000 (A) 6,000 and over 3,600 2,300 1,900 With density bonus 2,900 1,800 1,500 (D)(E) Lot width (ft.) 75 75 75 Corner lots 80 80 80 Lot depth (ft.) 100 100 100 Lot frontage (ft.) 35 35 35 Yards: Front (ft.) 20 20 20 (F)(G) Side (ft. per story) 10 10 10 (F) Corner side (ft.) 20 20 20 (F)(J) Rear (ft. per story) 10 10 10 (F) Bedrooms per unit(% of total units): 3 or more bedrooms 20 20 20 4 or more bedrooms 10 10 10 Distance between 10 10 10 (H) structures (ft.) Driveway length (ft. from 23 23 23 (L) sidewalk) Maximum height (ft.) 30 30 30 (K) Maximum nonresidential 0.3 0.3 0.3 (P) FAR - -------------------------------------------------------------------------------- Page 6 - 5 <PAGE> ARTICLE II - BASE DISTRICT REGULATIONS Division 6 - R-H (High Density Residential District Regulations) - -------------------------------------------------------------------------------- Contents Sec. 37-44 Specific purposes ......................................... 6-1 Sec. 37-45 Use classifications ....................................... 6-2 Sec. 37-46 Property development regulations .......................... 6-5 Sec. 37-47 Zoning Certificate ........................................ 6-8 Sec. 37-48 High density residential design guidelines ................ 6-8 Sec. 37-49 Reserved .................................................. 6-21 Sec. 37-50 Reserved .................................................. 6-21 Sec. 37-44. Specific purposes. In addition to the general purposes listed in Division 37-1: General Provisions, the specific purposes of the High Density Residential District regulations are to: A. Provide appropriately located areas for high density multiple family dwelling units consistent with the General Plan and with standards of public health and safety established by the Salinas Municipal Code; B. Provide adequate light, air, privacy, and open space for each dwelling unit and protect residents from the harmful effects of excessive noise, population density, traffic congestion and other adverse environmental impacts; C. Promote development of affordable housing by providing a density bonus for projects in which a portion of the dwellings are affordable to qualifying households; D. Achieve design compatibility through the use of site development standards; E. Protect adjoining low density residential districts from excessive noise or loss of sun, light, quiet, and privacy resulting from proximity to multifamily dwellings; F. Provide sites for public and semipublic land uses needed to complement residential development or requiring a residential environment; and G. Ensure the provision of public services and facilities needed to accommodate planned population densities. The additional purposes of each R-H District are as follows: Page 6 - 1 <PAGE> ARTICLE IV - REGULATIONS APPLYING TO ALL DISTRICTS Division 18 Off-Street Parking and Loading Regulations - -------------------------------------------------------------------------------- References to spaces per square foot are to be computed on the basis of gross floor area unless otherwise specified, and shall include allocations of shared restroom, halls and lobby area, and mechanical equipment or maintenance areas, but shall exclude area for vertical circulation, stairs or elevators. Where the use is undetermined, or not specified herein, the Community Development Director shall determine the probable use and the number of parking and loading spaces required. In order to make this determination, the Community Development Director may require the submission of survey or other data from the applicant or have data collected at the applicant's expense. - -------------------------------------------------------------------------------- Schedule A Off-Street Parking and Loading Spaces Required - -------------------------------------------------------------------------------- Off-Street Loading Use classifications Schedule A Spaces per Group Off-Street Parking Spaces Classification on Schedule B - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Residential - ----------- Day care home, large 1 per 6 children; maximum enrollment based on maximum occupancy load Interim housing 1 per sleeping room plus 1 per 100 sq. ft. used for assembly purposes or for common sleeping areas. Single-family dwelling 2 per unit (covered). Multifamily 2 per unit up to 10 units. 1.6 per unit over 10 units. Condominiums 2 per unit, covered, plus .25 per unit designated on the site for guest parking. Mobile home park 2 per unit, 1 covered, plus 1 space per 8 units which must be designated for guest parking; tandem parking is permitted. Residential care 1 per 3 licensed beds B Senior housing 1 per unit Single room occupancy .25 spaces per unit housing - -------------------------------------------------------------------------------- Page 18 - 5 <PAGE> WESTLAKE APARTMENTS CAPITAL IMPROVEMENTS STATUS Reroofing Bldg 2 Remaining Exterior Painting Completed Landscape Upgrades Completed Paint Interior Hallways Completed Carpet Interior Hallways Completed Trash Enclosures Completed Bring Pool Fencing to Code Completed Asphalt Repair, Seal & Stripe Completed Replace Fencing/Patio Enclosures Budgeted Office Remodel Completed Signage Budgeted Carpets Ongoing Appliances Ongoing <PAGE> WESTLAKE LPC - Employee Compensation Report 05 SEP 1996 Page 20 <TABLE> <CAPTION> CO# LOC HOME RC EMPL# EMP NAME........ RT HIRE.. MONTHLY HOURLY MONTHLY MONTHLY AUTO MONTHLY 100 PERCENT.. MULTIPLE DIST PER- PROJ DATE CASH CASH NONCASH SALARY ALLOW RENT DISTRIBUTION CENT PROJ ACCT SUB <C> <C> <C> <C><C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> LP6 939 1791 SC 61886 DIRICKSON,PAMELA L R 05/17/95 1500.00 8.65 450.00 1,950.00 675.00 1791 0501 0008 LP6 939 1791 SC 63561 HENNEFORTH,LESTER R 07/26/95 1127.00 6.50 1,127.00 1791 0503 0002 LP6 939 1791 SC 68199 SWETLAND,DONNA A R 10/30/95 1600.00 9.23 1,600.00 1791 0501 0001 LP6 939 1791 SC 68226 TENCH,DOUGLAS W R 06/03/96 1516.75 8.75 1,516.00 1791 0503 0004 -------- ------- -------- ----- ------ 1791 5743.75 450.00 6,193.75 .00 675.00 </TABLE> <PAGE> WESTLAKE INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- -------------- -------------- -------------- -------------- -------------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 209,004.49 ( 209,004.49) RENTAL INCOME VARIANCE ( 38,248.71) 38,248.71 -------------- -------------- -------------- -------------- -------------- NET CURRENT RENT 75,749.30 67,037.73 554,930.82 479,682.14 75,048.68 OTHER RENTAL INCOME SECURITY DEPOSITS 3,850.00 4,702.50 24,460.00 22,271.71 2,188.29 FORFEITED SECURITY DEPOSITS 230.33 495.96 5,492.80 953.82 4,538.98 LAUNDRY INCOME 1,173.45 1,828.00 8,888.85 8,971.80 ( 82.95) CHARGES TO TENANTS 615.00 381.17 3,792.00 581.17 3,210.83 MISCELLANEOUS 1.00 ( 1.00) SOFT DRINK INCOME 27.96 30.24 53.64 ( 23.40) DAMAGE 45.00 45.00 LATE CHARGES 65.00 510.00 1,890.00 1,428.00 462.00 NSF FEES 10.00 260.00 172.00 88.00 CREDIT CHECK 310.00 400.00 1,160.0O 2,126.61 ( 966.61) -------------- -------------- -------------- -------------- -------------- TOTAL OTHER RENT INCOME 6,243.78 8,355.59 46,018.89 36,559.75 9,459.14 TOTAL RENTAL INCOME 81,993.08 75,393.32 600,949.71 516,441.59 84,507.82 -------------- -------------- -------------- -------------- -------------- OTHER INCOME REFUNDED DEPOSITS ( 2,975.00) ( 5,297.00) ( 19,515.00) ( 12,952.00) ( 6,563.00) INTEREST INCOME 35.86 43.00 319.55 231.50 88.05 OTHER INCOME 10,400.00 ( 10,400.00) TOTAL OTHER INCOME ( 2,939.14) ( 5,254.00) ( 19,195.45) ( 2,320.50) ( 16,874.95) -------------- -------------- -------------- -------------- -------------- TOTAL INCOME 79,053.94 70,139.32 581,754.26 514,121.39 67,632.87 ============== ============== ============== ============== ============== TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 412.23 3,253.47 1,785.00 1,468.47 CLEANING PAYROLL 726.00 5,137.01 ( 5,137.01) REPAIRS/MAINT.PAYROLL 2,506.49 3,499.95 26,179.98 19,066.71 7,113.27 MANAGERS SALARIES 1,476.92 1,360.58 22,172.32 2,648.80 19,523.52 OFFICE SALARIES 1,405.07 1,945.08 5,786.85 14,086.43 ( 8,299.58) GROUNDS PAYROLL ( 1,152.00) 1,269.15 ( 1,269.15) STATE COME. INS.-PAYROLL 414.70 416.46 3,734.29 4,230.97 ( 496.68) PAYROLL-HOSPITAL INS. 771.83 832.92 6,919.33 5,090.89 1,828.44 FICA - PAYROLL TAX 437.74 439.60 3,941.74 2,919.79 1,021.95 IOTA - PAYROLL TAX 46.08 46.27 414.93 316.50 98.43 SDI TAX-PAYROLL-UNEMPLOY 57.60 57.84 549.25 963.53 ( 414.28) -------------- -------------- -------------- -------------- -------------- PAYROLL EXPENSES 7,528.66 8,172.70 72,952.16 57,514.78 15,437.38 </TABLE> <PAGE> WESTLAKE INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- -------------- -------------- -------------- -------------- -------------- <S> <C> <C> <C> <C> <C> ADMINISTRATIVE EXPENSES PROMOTIONS ( 17.15) 271.73 180.21 91.52 ADVERTISING 813.66 798.72 4,150.35 5,579.03 ( 1,428.68) SIGNS. FLAGS, BANNERS 480.49 200.00 928.86 ( 728.86) BROCHURES 53.51 377.65 ( 324.14) OFFICE SUPPLIES 81.38 145.23 1,273.13 2,900.57 ( 1,627.44) FURNITURE RENTAL 726.12 1,192.62 726.12 466.50 LEGAL EXPENSES 688.19 2,209.40 683.19 1,521.21 MISCELLANEOUS 59.00 114.40 208.20 207.19 1.01 CREDIT CHECK EXPENSE 379.20 371.00 1,125.05 1,229.50 ( 104.45) BANK CHARGES 10.00 ( 50.00) 125.64 125.64 POSTAGE 87.49 51.69 580.83 237.69 343.14 DUES & SUBCRIPTIONS ( 150.46) 440.30 ( 590.76) LINCOLN FEE 2,729.44 2,455.55 20,130.51 11,013.29 9,117.22 EMPLOYEE TRAINING 100.00 281.37 ( 181.37) OUSTIDE STATIONARY MISC 317.06 27.98 1,443.21 1,144.46 298.75 -------------- -------------- -------------- -------------- -------------- ADMINISTRATIVE EXPENSE 4,477.23 5,792.22 32,913.72 25,934.43 6,979.29 CONTRACT SERVICES SEC SUP/EXP-FIRE PROTECT 387.82 1,855.78 2,805.45 2,619.17 186.28 EXTERMINATING CONTRACT 185.00 590.00 1,860.00 1,196.79 663.21 CABLE T.V. 1,110.89 9,997.97 7,776.23 2,221.74 GARDENING CONTRACT 1,312.09 1,050.00 9,482.89 4,067.60 5,415.29 ELVATOR MAINT./CONT. 825.68 1,999.62 194.06 1,805.56 -------------- -------------- -------------- -------------- -------------- CONTRACT SERVICES 2,710.59 4,606.67 26,145.93 15,853.85 10,292.08 UTILITY SERVICES TELEPHONE EXPENSE 184.25 512.11 1,366.61 1,311.52 55.09 TRASH REMOVAL 2,213.55 810.25 17,708.40 14,466.65 3,241.75 PGE - HOUSE 2,371.79 1,151.41 10,253.39 14,231.20 ( 3,977.81) GAS - HOUSE 2,512.15 2,075.73 10,935.59 5,834.72 5,100.87 PGE APARTMENT METERS 19.81 127.77 728.41 743.30 ( 14.89) WATER ( 1,948.42) 937.38 10,272.13 4,739.69 5,532.44 SEWER CHARGES 2,973.21 1,903.71 8,919.63 10,823.34 ( 1,903.71) -------------- -------------- -------------- -------------- -------------- UTILITY SERVICES 8,326.34 7,518.36 60,184.16 52,150.42 8,033.74 MAINTENANCE EXPENSES CARPET REPAIRS/MAINT. 440.00 ( 191.96) 3,680.00 457.50 3,222.50 CARPET REPLACEMENT 2,621.26 5,746.58 10,240.98 33,569.45 ( 23,328.47) GROUNDS SUPPLY/REPLACEMENT 42.36 42.36 ( 42.36) EQUIPMENT RENTAL ( 59.00) 189.69 ( 189.63) POOL SUPPLY/REPLACEMENT 470.97 3,878.50 320.27 3,558.23 DECORATING SUPPLIES 955.00 2,243.86 4,589.87 7,769.83 ( 3,179.96) </TABLE> <PAGE> WESTLAKE INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- -------------- -------------- -------------- -------------- -------------- <S> <C> <C> <C> <C> <C> CLEANING SUPPLIES/SERV. 1,244.69 1,238.17 5,452.14 4,520.94 931.20 EXTERMINATING SUPPLIES 42.82 185.00 ( 142.18) BLDG MAINT SUPPLIES 758.19 7,058.72 10,138.07 29,693.39 ( 19,555.32) PLUMBING MAINTENANCE 823.98 1,199.52 6,224.98 3,818.02 2,406.96 APPLIANCE REPLACEMENT 551.04 3,032.68 6,191.54 19,932.39 ( 13,740.85) BLDG MAINT SVC/CONTRACT ( 127.87) ( 186.65) 4,863.36 121.46 4,741.90 ELECTRIC MAINTENANCE 839.35 1,032.71 1,406.19 4,073.94 ( 2,667.75) MISC. MAINT. EXPENSES 21.29 10.50 94.35 54.91 39.44 -------------- -------------- -------------- -------------- -------------- MAINTENANCE EXPENSES 8,538.90 21,226.49 56,802.80 104,749.15 ( 47,946.35) CONTROLLABLE EXPENSES 31,581.72 47,316.44 248,998.77 256,202.63 ( 7,203.86) -------------- -------------- -------------- -------------- -------------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE ( 239.98) ( 239.98) PROPERTY TAXES 30,609.56 30,609.56 LICENSES & PERMITS 1,668.00 1,808.00 ( 140.00) -------------- -------------- -------------- -------------- -------------- FIXED EXPENSES 32,037.58 1,808.00 30,229.58 NET OPERATING INCOME (NOI) 47,472.22 22,822.88 300,717.91 256,110.76 44,607.15 ============== ============== ============== ============== ============== DEBT SERVICE -------------- -------------- -------------- -------------- -------------- OPERATING CASH FLOW 47,472.22 22,822.88 300,717.91 256,110.76 44,607.15 ============== ============== ============== ============== ============== NON OPERATING EXPENSES REFURBISHMENT & DEFERRAL ( 9,654.12) 18,308.50 ( 11,949.45) 38,961.29 ( 50,910.74) -------------- -------------- -------------- -------------- -------------- NON OPERATING EXPENSES ( 9,654.12) 18,308.50 ( 11,949.45) 38,961.29 ( 50,910.74) PROFIT/LOSS 57,126.34 4,514.38 312,667.36 217,149.47 95,517.89 ============== ============== ============== ============== ============== </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> 95 94 MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- --------------- -------------- --------------- --------------- -------------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 69,509.84 209,004.49 831,006.15 ( 622,001.66) RENTAL INCOME VARIANCE ( 11,104.44) ( 38,248.71) ( 159,151.95) 120,903.24 --------------- -------------- --------------- --------------- -------------- NET CURRENT RENT 69,222.06 58,184.40 754,895.78 671,633.20 83,262.58 OTHER RENTAL INCOME SECURITY DEPOSITS 2,350.00 2,045.00 30,771.71 24,846.01 5,925.70 FORFEITED SECURITY DEPOSITS 1,604.00 3,808.67 3,808.67 LAUNDRY INCOME 2,126.40 14,742.15 7,015.26 7,726.89 CHARGES TO TENANTS 1,010.00 225.00 2,566.17 3,225.00 ( 658.83) MISCELLANEOUS 3.00 1.00 38.00 ( 37.00) SOFT DRINK INCOME 21.72 75.36 53.64 21.72 UTILITIES 2.11 ( 2.11) DAMAGE 75.00 60.95 75.00 238.82 ( 163.82) LATE CHARGES 245.00 100.00 2,963.00 329.50 2,633.50 NSF FEES 20,00 18.00 292.00 143.50 148.50 CREDIT CHECK 225.00 130.00 2,876.61 470.00 2,406.61 TENANT CABLE TV CHARGE 21.00 ( 21.00) --------------- -------------- --------------- --------------- -------------- TOTAL OTHER RENT INCOME 7,677,12 2,581.95 58,171.67 36,382.84 21,788.83 TOTAL RENTAL INCOME 76,899.18 60,766.35 813,067.45 708,016.04 105,051.41 --------------- -------------- --------------- --------------- -------------- OTHER INCOME REFUNDED DEPOSITS ( 4,450.00) ( 840.00) ( 24,604.50) ( 25,322.01) 717.51 INTEREST INCOME 65.93 442.37 442.37 OTHER INCOME 10,400.00 10,400.00 --------------- -------------- --------------- --------------- -------------- TOTAL OTHER INCOME ( 4,384.07) ( 840.00) ( 13,762.13) ( 25,322.01) 11,559.88 --------------- -------------- --------------- --------------- -------------- TOTAL INCOME 72,515.11 59,926.35 799,305.32 682,694.03 116,611.29 =============== ============== =============== =============== ============== TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 835.31 1,400.00 3,465.76 1,400.00 2,065.76 CLEANING PAYROLL 627.00 7,409.61 4,863,00 2,546.61 REPAIRS/MAINT.PAYROLL 6,300.22 2,829.00 34,070.81 22,158.00 11,912.81 MANAGERS SALARIES 4,283.57 11,695.06 11,695.06 OFFICE SALARIES 3,930.31 1,545.00 22,132.41 12,035.00 10,097.41 SECURITY PAYROLL 1,584.20 ( 1,584.20) GROUNDS PAYROLL 1,269.15 40.50 1,228.65 DECORATING PAYROLL 473.40 ( 473.40) STATE COMP. INS. -PAYROLL 1,081.51 621.19 6,693.50 4,221.48 2,472.02 PAYROLL-HOSPITAL INS. 2,163.03 417.45 10,015.97 4,805.30 5,210.67 FICA - PAYROLL TAX 1,141.59 376.01 5,519.13 3,253.52 2,265.61 </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> 95 94 MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- --------------- -------------- --------------- --------------- -------------- <S> <C> <C> <C> <C> <C> FUTA - PAYROLL TAX 120.16 38.53 590.11 220.13 369.98 SDI TAX-PAYROLL-UNEMPLOY 119.61 5.82 1,274.96 1,208.94 66.02 --------------- -------------- --------------- --------------- -------------- PAYROLL EXPENSES 19,975.31 7,860.00 104,136.47 56,263.47 47,873.00 ADMINISTRATIVE EXPENSES PROMOTIONS ( 14.40) 312.71 312.71 ADVERTISING 360.51 522.45 11,536.83 4,477.46 7,059.37 SIGNS, FLAGS, BANNERS 182.80 1,450.06 1,450.06 BROCHURES 377.65 377.65 OFFICE SUPPLIES 297.99 76.76 4,500.62 913.90 3,586.73 FURNITURE RENTAL 1,377.24 1,377.24 LEGAL EXPENSES 471.64 1,678.53 148.12 1,530.41 MISCELLANEOUS 3.63 250.89 65.00 185.89 CREDIT CHECK EXPENSE 27.25 1,673.75 224.05 1,449.70 BANK CHARGES 8.00 30.41 42.00 30.41 11.59 POSTAGE 204.20 559.50 559.50 DUES & SUBCRIPTIONS ( 4.73) ( 4.73) LINCOLN FEE 2,308.88 20,653.16 20,653.16 NSF CHECK 388.00 937.00 ( 937.00) EMPLOYEE TRAINING 100.00 881.37 881.37 OUSTIDE STATIONARY MISC 1,035.70 1,035.70 --------------- -------------- --------------- --------------- -------------- ADMINISTRATIVE EXPENSE 3,923.25 1,044.87 46,325.28 6,795.94 39,529.34 CONTRACT SERVICES SEC SUP/EXP-FIRE PROTECT 63.58 4,917.85 366.64 4,551.21 EXTERMINATING CONTRACT 185.00 1,816.79 1,816.79 CABLE T.V. 2,221.78 11,112.05 13,360.69 ( 2,248.64) GARDENING CONTRACT 1,050.00 600.00 8,562.02 7,200.00 1,362.02 ELVATOR MAINT. /CONT. 97.03 3,740.66 1,164.36 2,576.30 --------------- -------------- --------------- --------------- -------------- CONTRACT SERVICES 1,298.58 2,918.81 30,149.37 22,091.69 8,057.68 UTILITY SERVICES TELEPHONE EXPENSE 33.31 86.01 1,958.23 729.34 1,228.89 TRASH REMOVAL 2,213.55 2,205.70 25,664.00 24,902.55 761.45 PGE - HOUSE 1,248.51 2,475.86 19,359.63 30,536.39 ( 11,176.76) GAS - HOUSE 1,542.56 13,167.83 13,167.83 PGE APARTMENT METERS 46.97 112.25 971.68 1,172,96 ( 201.28) WATER 596.80 8,924.97 7.749,29 1,175.68 SEWER CHARGES 17,962.25 17,839.26 122.99 --------------- -------------- --------------- --------------- -------------- UTILITY SERVICES 5,084.90 5,476.62 88,008.59 82,929.79 5,078.80 MAINTENANCE EXPENSES CARPET REPAIRS/MAINT. 802.00 1,809.50 916.67 892.83 </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> 95 94 MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- --------------- -------------- --------------- --------------- -------------- <S> <C> <C> <C> <C> <C> CARPET REPLACEMENT 289.00 643.49 72,557.33 7,765.37 64,791.96 GROUNDS SUPPLY/ REPLACEMENT 137.92 137.92 EQUIPMENT RENTAL 750.42 189.69 2,413.11 ( 2,223.42) POOL SUPPLY/REPLACEMENT 2,389.22 886.59 1,502.63 DECORATING SUPPLIES 4,564.29 197.20 18,368.85 1,971.07 16,397.78 CLEANING SUPPLIES/SERV. 675.25 60.00 6,307.42 3,860.00 2,447.42 EXTERMINATING SUPPLIES 185.00 186.00 BLDG MAINT SUPPLIES 2,517,37 1,064.53 36,860.15 6,336.25 30,523.90 PLUMBING MAINTENANCE 1,201.18 52.00 8,593.05 598.00 7,995.05 APPLIANCE REPLACEMENT 1,562.66 25,867.53 2,574.54 23,292.99 BLDG MAINT SVC/CONTRACT 28.50 ( 38,037.00) 191.31 232.50 ( 41.19) ELECTRIC MAINTENANCE 534.01 3,885.99 2,858.17 1,027.82 --------------- -------------- --------------- --------------- -------------- MISC. MAINT. EXPENSES 79.76 79.76 MAINTENANCE EXPENSES 12,174.26 ( 35,269.36) 177,422.72 30,412.27 147,010.45 CONTROLLABLE EXPENSES 42,456.30 ( 17,969.06) 446,042.43 198,493.16 247,549.27 --------------- -------------- --------------- --------------- -------------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE 3,048.37 44,376.52 6,096.74 44,376.52 ( 38,279.78) PROPERTY TAXES 3,442.88 30,844.94 90,154.04 ( 59,309.10) LICENSES & PERMITS 220.00 2,028.00 360.00 1,668.00 --------------- -------------- --------------- --------------- -------------- FIXED EXPENSES 3,268.37 47,819.40 38,969.68 134,890.56 ( 95,920.88) NET OPERATING INCOME (NOI) 26,790.44 30,076.01 314,293.21 349,310.31 ( 35,017.10) =============== ============== =============== =============== ============== DEBT SERVICE INTEREST ON 1ST MORTGAGE 3,922.34 ( 3.922.34) --------------- -------------- --------------- --------------- -------------- DEBT SERVICE 3,922.34 ( 3.922.34) OPERATING CASH FLOW 26,790.44 30,076.01 314,293.21 345,387.97 ( 31.094.76) =============== ============== =============== =============== ============== NON OPERATING EXPENSES DEPRECIATION EXPENSE 149,076.00 149,076.00 149,076.00 149,076.00 REFURBISHMENT & DEFERRAL 85,228.85 38,067.00 149,033.27 38,067.00 110,966.27 --------------- -------------- --------------- --------------- -------------- NON OPERATING EXPENSES 234,304.85 187,143.00 298,109.27 187,143.00 110,966.27 PROFIT/LOSS ( 207,514.41) ( 157,066.99) 16,183.94 158,244.97 ( 142,061.03) =============== ============== =============== =============== ============== </TABLE> <PAGE> 09/30/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 2 2:51 pm Westlake ID 3.6.1 All Units <TABLE> <CAPTION> === Unit Profile ===== ==== Scheduled vs Actual Rent = ===================== ==Moved== ===Current Lease===== =Escrow= YNAD= I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ===== ======== ======= ======== ===== ====== ====== ===================== ========= =========== ======== ======== ==== <C> <C> <C> <C> <C> <C> <C> <S> <C> <C> <C> <C> <C><C> A305 A.3 575 580.00 1.009 535.00 0.930 Palafox, Peter 03/01/96 03/01/96 02/28/97 375.00 Y -- A306 A.3 575 580.00 1.009 565.00 0.983 Hunter, Florence 02/06/85 07/31/96 350.00 Y -- A307 A.3 575 580.00 1.009 535.00 0.930 Leiterman, George 02/19/96 02/19/96 11/18/96 575.00 Y -- A308 A.3 575 580.00 1.009 535.00 0.930 Sanchez, Frank 01/31/96 02/01/96 07/31/96 375.00 Y -- A309 A.3 575 580.00 1.009 545.00 0.948 Rivera, Lucy 12/01/94 12/01/94 06/01/95 375.00 Y -- A310 A.3 575 580.00 1.009 525.00 0.913 Weisberg, Jack 02/20/95 09/01/96 03/31/97 375.00 Y -- A311 A.3 575 580.00 1.009 565.00 0.983 Patton, Anthony 04/13/95 04/13/95 10/12/95 375.00 Y -- A312 A.3 575 580.00 1.009 535.00 0.930 Label, Priscilla 01/31/96 02/01/96 01/31/97 375.00 Y -- A313 A.3 575 580.00 1.009 560.00 0.974 Steinbach, Marie 01/13/90 09/11/96 03/10/97 350.00 Y -- B101 EJR.1 480 540.00 1.125 470.00 0.979 Goldkrantz, Simon 11/15/93 06/14/95 12/13/95 375.00 Y -- B102 EJR.1 480 540.00 1.125 475.00 0.990 Mora, Alejandro 09/26/95 10/01/96 06/30/97 375.00 Y -- B103 EJR.1 480 540.00 1.125 510.00 1.063 Williamson, Jeffery 07/02/88 10/01/96 06/30/97 550.00 Y -- B104 EJR.1 480 540.00 1.125 510.00 1.063 Shingle, Belford O. 06/23/95 06/23/95 12/31/95 475.00 Y OL B105 EJR.1 480 540.00 1.125 520.00 1.083 Farahmand, Parviz 06/25/96 06/25/96 03/24/97 375.00 Y -- B106 EJR.1 480 540.00 1.125 520.00 1.083 Backus, Allen 06/09/96 06/09/96 06/08/97 375.00 Y -- B107 EJR.1 480 540.00 1.125 495.00 1.031 Gutierrez, Phillip 12/01/95 12/01/95 08/31/97 375.00 Y -- B201 EJR.2 480 540.00 1.125 500.00 1.042 Sanduan, Lawrence 08/24/87 05/13/95 12/12/95 350.00 Y -- B202 EJR.2 480 540.00 1.125 520.00 1.083 Taniguchi, Robert 09/21/96 09/21/96 04/20/97 375.00 Y -- B203 EJR.2 480 540.00 1.125 520.00 1.083 Lumsden, Richard 08/06/96 08/06/96 08/05/97 375.00 Y -- B204 EJR.2 480 540.00 1.125 500.00 1.042 Williams, Larry 12/01/83 10/01/96 03/31/97 200.00 Y -- B205 EJR.2 480 540.00 0.000 520.00 0.000 Dodd, Aaron 08/26/96 08/26/96 08/25/97 375.00 Y -- B206 EJR.3 480 540.00 1.125 475.00 0.990 Kim, John 03/03/96 03/03/96 09/03/96 375.00 Y -- B207 EJR.2 480 540.00 1.125 520.00 1.083 Garcia, Lucio 07/10/96 07/10/96 07/09/97 375.00 Y -- B208 A.2 575 580.00 1.009 545.00 0.948 Sabado, Joanne 11/14/94 08/01/96 01/31/97 375.00 Y -- B209 C.2 960 750.00 0.781 620.00 0.646 Wojnar, Alex P. 03/09/84 06/01/96 05/31/97 625.00 Y -- B210 C.2 960 750.00 0.781 720.00 0.750 Rodriguez, Salvador 03/21/96 03/21/96 06/20/96 375.00 Y -- B211 C.2 960 750.00 0.781 630.00 0.656 Johnson, Arthur 04/18/74 06/01/96 05/31/97 100.00 Y -- B212 C.2 960 750.00 0.781 695.00 0.724 Funk, Sharon 03/22/96 03/22/96 03/21/97 375.00 Y -- B301 EJR.3 480 540.00 1.125 540.00 1.125 Dunbar, Christian 09/25/96 09/25/96 05/34/97 375.00 Y -- B302 EJR.3 480 540.00 1.125 475.00 0.990 Miles, Christopher 09/02/95 09/02/95 06/01/96 375.00 Y -- B303 EJR.3 480 540.00 1.125 520.00 1.083 Ferrante, Patricia 07/01/96 07/01/96 06/30/97 375.00 Y -- B304 EJR.3 480 540.00 1.125 520.00 1.083 Southerland, Scott 07/13/96 07/13/96 04/06/97 375.00 Y -- B305 EJR.3 480 540.00 1.125 510.00 1.063 Fernandez, Angela 07/01/94 06/15/95 12/15/95 375.00 Y -- B306 EJR.3 480 540.00 1.125 520.00 1.083 Kallenberger, Bruce 07/17/96 07/17/96 07/16/97 375.00 Y -- B307 EJR.3 480 540.00 1.125 470.00 0.979 Banez, Mercedes 01/06/95 09/01/96 05/31/97 375.00 Y -- B308 A.3 575 580.00 1.009 535.00 0.930 Conley, Christina 01/22/96 02/01/96 01/21/97 375.00 Y -- B309 C.3 960 695.00 0.724 695.00 0.724 Sanchez, Adrian 05/18/96 05/18/96 05/17/97 375.00 Y -- B310 C.3 960 695.00 0.724 630.00 0.656 Rapacon, Geraldine 03/14/92 06/16/95 06/15/96 375.00 Y -- B311 C.3 960 695.00 0.724 630.00 0.656 Loveless, Charles & 09/07/90 09/01/96 05/31/97 375.00 Y -- B212 C.3 960 695.00 0.724 620.00 0.646 Kennemer, Joseph 11/15/82 08/01/96 07/31/97 150.00 Y -- C101 C.1 960 750.00 0.781 630.00 0.656 Terabsyashi,Toshiak 05/19/95 05/17/95 11/16/99 375.00 Y -- C102 C.1 960 750.00 0.781 670.00 0.698 Camarena, Miguel an 07/31/95 06/01/96 02/28/97 375.00 Y -- C103 C.1 960 750.00 0.781 630.00 0.656 Doss, Frank 07/07/92 300.00 Y -- C104 C.1 960 750.00 0.781 690.00 0.719 Valdez, Eve 08/19/95 08/01/96 07/31/97 375.00 Y -- C201 C.2 960 750.00 0.781 0.00 0.000 VACANT 09/27/96 0.00 N VA C202 C.2 960 750.00 0.781 695.00 0.724 Lybbert, Richard 04/20/96 Q4/20/96 04/19/97 375.00 Y -- C203 C.2 960 750.00 0.781 750.00 0.781 Maryanne Geddes 08/10/96 08/10/96 02/09/97 375.00 Y -- C204 C.2 960 750.00 0.781 695.00 0.724 Dhar, Amitava 03/22/96 03/22/96 03/21/97 375.00 Y -- C205 C.2 960 750.00 0.781 650.00 0.677 Carrillo, Monica 01/16/94 08/01/96 07/31/97 375.00 Y -- </TABLE> <PAGE> 09/30/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 3 2:51 pm Westlake ID 3.6.1 All Units <TABLE> <CAPTION> === Unit Profile ===== ==== Scheduled vs Actual Rent = ===================== ==Moved== ===Current Lease===== =Escrow= YNAD= I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ===== ======== ======= ======== ===== ====== ====== ===================== ========= =========== ======== ======== ==== <C> <C> <C> <C> <C> <C> <C> <S> <C> <C> <C> <C> <C><C> C206 A.2 575 580.00 1.009 525.00 0.913 Cueto, Lorena 08/23/93 09/01/96 03/31/97 375.00 Y -- C207 A.2 575 580.00 1.009 585.00 1.017 Gonzales, Gustavo 04/15/96 04/15/96 07/14/96 375.00 Y -- C208 A.2 575 580.00 1.009 545.00 0.948 Childer, Richard 06/10/77 09/01/96 02/28/97 100.00 Y -- C209 A.2 575 580.00 1.009 545.00 0.948 Madriz, Jose 05/04/95 06/01/96 05/31/97 375.00 Y -- C301 C.3 960 695.00 0.724 620.00 0.646 Guinn, Clifford & J 09/22/86 06/01/96 06/01/97 350.00 Y -- C302 C.3 960 695.00 0.724 620.00 0.646 Draper, John 09/23/76 06/01/96 05/31/97 100.00 Y -- C303 C.3 960 695.00 0.724 675.00 0.703 Chicano, Jay 12/18/95 10/01/96 04/30/97 375.00 Y -- C304 C.3 960 695.00 0.724 650.00 0.677 Cannon, Joanna 11/20/92 06/01/96 05/31/97 375.00 Y -- C305 C.3 960 695.00 0.724 650.00 0.677 Jones, Lori J. & 01/21/95 05/01/95 03/31/97 375.00 Y -- C306 A.3 575 580.00 1.009 580.00 1.009 J H EQUITIES 09/20/96 10/02/96 03/30/97 375.00 Y -- C307 A.3 575 580.00 1.009 545.00 0.948 Davis, Doyle 01/15/92 06/01/96 06/01/97 375.00 Y -- C308 A.3 575 580.00 1.009 555.00 0.965 Henderson. Kevyn 02/02/96 02/02/96 04/30/96 535.00 Y -- C309 A.3 575 580.00 1.009 560.00 0.974 Hennessy, Patricia 05/24/96 05/24/96 05/23/97 375.00 Y -- D101 A.1 575 580.00 1.009 435.00 0.757 Rhines, Danny 02/03/89 05/01/95 06/01/97 350.00 Y -- D102 EJR.1 480 540.00 1.125 490.00 1.021 Olin, Tim 06/08/90 06/01/96 06/01/97 350.00 Y -- D103 EJR.1 480 540.00 1.125 490.00 1.021 Cherry, Jean Elizab 11/10/95 11/10/95 06/30/97 375.00 Y -- D104 EJR.1 480 540.00 1.125 520.00 1.083 Moreno, David/Arnie 06/09/96 06/09/96 06/08/97 375.00 Y -- D105 EJR.1 480 540.00 1.125 520.00 1.083 Rascon, Mary 04/05/96 04/05/96 10/04/96 375.00 Y -- D106 EJR.1 480 540.00 1.125 480.00 1.000 Harris, Leon 08/17/92 09/01/96 08/31/97 375.00 Y -- D201 A.2 575 580.00 1.009 555.00 0.965 Lockhart, Doy 05/01/95 09/01/96 03/31/97 375.00 Y -- D202 E.2 420 490.00 1.167 475.00 1.131 Waidelich, Manuel 08/12/95 08/12/95 08/11/96 375.00 Y -- D203 E.2 420 490.00 1.167 520.00 1.238 Gyant, Leonard 09/25/96 09/25/96 05/24/97 375.00 Y -- D204 E.2 420 490.00 1.167 490.00 1.167 Dorsey, Valdinia 05/07/96 05/07/96 05/06/97 375.00 Y -- D205 E.2 420 490.00 1.167 490.00 1.167 Funkhouser, Robert 07/10/96 07/10/96 04/09/97 375.00 Y -- D206 E.2 420 490.00 1.167 475.00 1.131 Moore, Marshall N. 04/01/96 04/01/96 03/31/97 375.00 Y -- D207 A.2 575 580.00 1.009 535.00 0.930 Phillips, Chris 01/01/96 01/01/96 10/31/96 575.00 Y -- D208 A.2 575 580.00 1.009 523.00 0.910 Correa, Jennie 12/07/92 179.00 Y -- D209 A.2 575 580.00 1.009 515.00 0.896 Sandoval, Silvia 02/22/93 09/01/96 03/31/97 375.00 Y -- D210 A.2 575 580.00 1.009 560.00 0.974 Worman, Mari 09/21/96 09/25/96 09/24/97 375.00 Y -- D211 A.2 575 580.00 1.009 535.00 0.930 Teugawa, Tono 07/29/95 10/01/96 05/31/97 375.00 Y -- D301 A.3 575 580.00 1.009 555.00 0.965 Johnson, Lora 08/11/95 08/11/95 05/31/97 375.00 Y -- D302 E.3 420 490.00 1.167 445.00 1.060 Turner, Sandra 01/05/96 01/05/96 01/04/97 375.00 Y -- D303 E.3 420 490.00 1.167 490.00 1.167 Guzman, Arnalia 05/25/96 05/25/96 05/24/97 375.00 Y -- D304 E.3 480 490.00 1.167 490.00 1.167 Gunter, Lester 06/18/96 06/18/96 03/17/97 375.00 Y -- D305 E.3 420 490.00 1.167 445.00 1.060 Takahasi, Yoko 10/08/95 07/01/96 03/31/97 375.00 Y -- D306 E.3 420 490.00 1.167 445.00 1.060 Freierauth, Harry 01/31/96 01/31/96 01/31/97 375.00 Y -- D307 A.3 575 580.00 1.009 560.00 0.974 Martinez, Roy 08/10/96 08/10/96 08/09/97 375.00 Y -- D308 A.3 575 580.00 1.009 560.00 0.974 Manriquez, Maria 04/06/96 04/06/96 04/05/97 375.00 Y -- D309 A.3 575 580.00 1.009 545.00 0.948 Soto, Blanco 05/22/95 09/01/96 08/31/97 375.00 Y -- D310 A.3 575 580.00 1.009 560.00 0.974 Valdez, John 05/20/96 05/20/96 05/19/97 375.00 Y -- D311 A.3 575 580.00 1.009 535.00 0.930 Wright, Sharon 10/25/95 10/21/95 04/30/96 375.00 Y -- ===== ======== ======= ======== ===== ====== ====== ===================== ========= =========== ======== ======== ==== TOTAL: 139 81985 81395.00 0.993 75353.00 0.930 81025 SF Occupied ===== ======== ======= ======== ===== ======== ====== ===================== ========= =========== ======== ======== ==== </TABLE> <PAGE> 09/30/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 4 2:51 pm Westlake ID 3.6.1 All Units <TABLE> <CAPTION> PHYSICAL OCCUPANCY: Occupied Pct Vacant Pct Total OCCUPANCY PERCENT: Excl. Off-Line Incl. 0ff-Line ================== ========= ====== ======= ====== ======== =================== ============== ============== <S> <C> <C> <C> <C> <C> <C> <C> <C> Square Footage.: 81,025 98.8% 960 1.2% 81,985 Incl. Vac. Leased.: 99.3% 99.3% Unit Count.: 138 99.3% 1 0.7% 139 Excl. Vac. Leased.: 99.3% 99.3% </TABLE> <TABLE> <CAPTION> EXPOSURE TO VACANCY: Number Pct MOVES /TRANSPERS: MAKE-READY STATUS.: Number Pct ============================ ========= ======= ================= ======================= ======== ======= <S> <C> <C> <C> <C> <C> <C> Currently Vacant Units.: 1 0.7% Oct In.: 5 Total Vacant Units.: 1 100.0% Less Vacant Leased.: 0 0.0% Oct Out.: 4 Ready To Rent (Y).: 0 0.0% Lees Occupied Pre-Leased.: -1 0.7% Need Make-Ready (N).: 1 100.0% Plus Occupied On Notice.: 2 1.4% Off-Line Down (D).: 0 0.0% Occupied But Skipped.: 0 0.0% Off-Line Admin (A).: 0 0.0% ============================ ========= ====== Net Exposure To Vacancy.: 2 1.4% </TABLE> <TABLE> <CAPTION> RENTAL RATES: Occupied /SqFt Pct Vacant /SqFt Pct Total /SqFt Pct ======================= ========= ====== ====== ========= ======= ====== ========== ====== ========== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Scheduled Rent.: 80,645.00 0.995 99.1% 750.00 0.781 0.9% 81,395.00 0.993 100.0% Actual Status.: 75,353.00 0.930 92.6% 750.00 0.781 0.9% 76,103.00 0.928 93.5% Loss To Lease.: 5,292.00 0.065 6.5% </TABLE> STATUS OF UNIT TYPES, SUBTOTALED BY FIRST 8 CHARACTERS OF UNIT TYPE: ================================================================================ <TABLE> <CAPTION> Unit Total # % Avg. Occup. Total Sch. $ Avg. $ Act. $ Rent Sched. Loss to Made Not OffLn OffLn Type Units 0cc. 0cc. SqFt SqFt SqFt /Unit /SqFt /Unit /SqFt Rent Lease Rdy. Rdy. Adm. Down ==== ===== ==== ==== === ===== ===== ====== ===== ====== ===== ======== ======= ==== ==== ==== ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> .1 9 9 100% 575 5175 5175 580.00 1.009 530.56 0.923 5220.00 445.00 0 0 0 0 A.2 26 26 100% 575 14950 14950 580.00 1.009 551.65 0.959 15080.00 737.00 0 0 0 0 A.3 24 24 100% 575 13800 13800 580.00 1.009 549.79 0.956 13920.00 725.00 0 0 0 0 .1 2 2 100% 720 1440 1440 750.00 1.042 700.00 0.972 1500.00 100.00 0 0 0 0 B.2 3 3 100% 720 2160 2160 750.00 1.042 663.33 0.921 2250.00 260.00 0 0 0 0 C.1 4 4 100% 960 3840 3840 750.00 0.781 655.00 0.682 3000.00 380.00 0 0 0 0 .2 9 8 89% 960 7680 8640 750.00 0.781 681.88 0.710 6750.00 545.00 0 1 0 0 .3 9 9 100% 960 8640 8640 695.00 0.724 643.33 0.670 6255.00 465.00 0 0 0 0 E.1 3 3 100% 420 1260 1260 490.00 1.167 481.67 1.147 1470.00 25.00 0 0 0 0 E.2 14 14 100% 480 5880 5880 490.00 1.167 472.86 1.126 6860.00 240.00 0 0 0 0 E.3 5 5 100% 480 2100 2100 490.00 1.167 463.00 1.102 2450.00 135.00 0 0 0 0 EF.1 1 1 100% 480 420 420 520.00 1.238 490.00 1.167 520.00 30.00 0 0 0 0 EF.2 4 4 100% 480 1680 1680 520.00 1.238 451.25 1.074 2080.00 275.00 0 0 0 0 JR.1 12 12 100% 480 S760 S760 540.00 1.125 500.00 1.042 6480.00 480.00 0 0 0 0 JR.2 7 7 100% 480 2880 2880 490.00 1.314 507.86 1.234 3780.00 225.00 0 0 0 0 EJR.3 7 7 100% 480 3360 3360 540.00 1.125 507.86 1.058 3780.00 225.00 0 0 0 0 ==== ===== ==== ==== === ===== ===== ====== ===== ====== ===== ======== ======= ==== ==== ==== ==== 16 139 138 99% 590 81025 81985 585.58 0.993 546.04 0.930 81395.00 5292.00 0 1 0 0 </TABLE> <PAGE> 09/30/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 1 2:51 pm Westlake ID 3.6.1 All Units <TABLE> <CAPTION> === Unit Profile ===== ==== Scheduled vs Actual Rent = ===================== ==Moved== ===Current Lease===== =Escrow= YNAD= I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ===== ======== ======= ======== ===== ====== ====== ===================== ========= =========== ======== ======== ==== <C> <C> <C> <C> <C> <C> <C> <S> <C> <C> <C> <C> <C><C> E1 E.1 420 490.00 1.167 465.00 1.107 Peredia, Ryan 03/21/94 08/01/96 01/31/97 375.00 Y -- E2 E.1 420 490.00 1.167 490.00 1.167 Worthy, Tara 08/09/96 08/09/96 02/08/97 375.00 Y -- E3 E.1 420 490.00 1.167 490.00 1.167 Sisemore, Glenn 09/07/96 09/07/96 06/06/97 375.00 Y -- E4 E.2 420 490.00 1.167 490.00 1.167 Lemucci, Angi 07/06/96 07/06/96 07/05/97 375.00 Y -- E5 E.2 420 490.00 1.167 490.00 1.167 Moreno, Roberto 09/07/96 09/07/96 09/06/97 375.00 Y -- E6 E.2 420 490.00 1.167 415.00 0.988 Perez, Paul 05/19/95 07/01/96 03/31/97 375.00 Y -- E7 E.2 420 490.00 1.167 465.00 1.107 Garcia, Marion K. 06/07/95 06/01/96 02/28/97 940.00 Y -- E8 E.2 420 490.00 1.167 415.00 0.988 Valeapino, Martha 05/01/95 07/01/96 03/31/97 375.00 Y -- E9 E.2 420 490.00 1.167 495.00 1.179 Carreras, Delphino 07/05/95 06/01/96 02/28/97 375.00 Y -- F1 EF.1 420 520.00 1.238 490.00 1.167 Valazquez, Anna 08/15/96 08/15/96 04/30/97 375.00 Y -- F2 EF.2 420 520.00 1.238 415.00 0.988 Schell, Brett 11/01/94 06/01/96 05/31/97 375.00 Y -- F3 EF.2 420 520.00 1.238 490.00 1.167 Heflin, Ralph 06/25/96 06/25/96 03/24/97 375.00 Y -- F5 EF.2 420 520.00 1.238 485.00 1.155 Cone, Letha 12/01/77 100.00 Y -- FS EF.2 420 520.00 1.238 415.00 0.988 Williams, Todd 01/01/95 06/01/96 05/31/97 375.00 Y -- G6 A.1 575 580.00 1.009 535.00 0.930 Green, Peggy 10/01/89 08/01/96 04/30/97 350.00 Y -- G7 B.1 720 750.00 1.042 650.00 0.903 Black, Carol 06/05/93 375.00 Y -- GB B.1 720 750.00 1.042 750.00 1.042 Breechini, Gloria 01/06/89 09/01/96 08/31/97 375.00 Y -- G9 A.2 575 580.00 1.009 625.00 1.087 Nelson, Dave 08/04/96 08/04/96 08/03/97 375.00 Y -- E10 E.2 420 490.00 1.167 490.00 1.167 McCoy, Timothy Alan 05/04/96 05/04/96 05/03/97 375.00 Y -- E11 E.2 420 490.00 1.167 465.00 1.107 Griffin, Todd 06/01/93 06/01/96 06/01/97 375.00 Y -- E12 E.2 420 490.00 1.167 445.00 1.060 Cunha, Mario 01/31/96 02/01/96 01/31/97 375,00 Y -- G1O B.2 720 750.00 1.042 630.00 0.875 Corey, Nadine 07/08/95 10/01/96 07/31/97 450.00 Y -- G11 B.2 720 750.00 1.042 610.00 0.847 Perez, Martin 06/14/95 09/01/96 05/31/97 375.00 Y -- G12 B.2 720 750.00 1.042 750.00 1.042 Williams, Mike 08/01/96 08/01/96 04/30/97 575.00 Y -- G14 A.2 575 580.00 1.009 545.00 0.948 Hughes, Ronald 12/05/94 12/05/94 07/06/95 375.00 Y -- A1O1 A.1 575 580.00 1.009 515.00 0.896 Doss, Georgiana 03/06/92 179.00 Y -- A102 A.1 575 580.00 1.009 560.00 0.974 Cronn, CHANDRA & JO 08/01/95 08/01/95 06/13/97 375.00 Y -- A103 A.1 575 580.00 1.009 535.00 0.930 Pearson, Isiah 03/10/95 10/04/96 07/03/97 375.00 Y -- A104 A.1 575 580.00 1.009 590.00 1.026 Urzua, Norma 09/06/96 09/05/96 09/05/97 375.00 Y -- A105 A.1 575 580.00 1.009 545.00 0.948 Hernandez, Amilear 12/01/93 07/01/96 03/31/97 375.00 Y -- A1O6 A.1 575 580.00 1.009 535.00 0.930 Barreras, Efren 01/15/96 09/01/96 05/31/97 375.00 Y -- A1O7 A.1 575 580.00 1.009 525.00 0.913 Nuki, Chiyoka & Kay 02/10/85 05/01/95 05/15/96 350.00 Y -- A201 A.2 575 580.00 1.009 545.00 0.948 Diane Jones 02/01/88 05/01/95 02/28/97 350.00 Y -- A202 A.2 575 580.00 1.009 545.00 0.948 Pieratt, Johnie 10/14/94 06/01/96 03/01/97 375.00 Y -- A203 A.2 575 580.00 1.009 545.00 0.948 Brinton, Martha 05/01/82 150.00 Y -- A204 A.2 575 580.00 1.009 555.00 0.965 Porter, Jeff 07/16/77 05/01/95 05/01/96 100.00 Y -- A205 A.2 575 580.00 1.009 560.00 0.974 Anderson, Mark 07/20/96 07/20/96 05/19/98 375.00 Y -- A206 A.2 575 580.00 1.009 555.00 0.965 Guiterrez, Felix 05/04/95 09/01/96 08/31/97 375.00 Y -- A207 A.2 575 580.00 1.009 565.00 0.983 Vong, Kim 04/18/95 04/18/95 12/01/95 375.00 Y -- A208 A.2 575 580.00 1.009 560.00 0.974 Herrera, Debra 05/25/96 05/25/96 05/24/97 375.00 Y -- A209 A.2 575 580.00 1.009 560.00 0.974 Rizzo, Jimmy 06/27/96 06/27/96 06/26/97 375.00 Y -- A210 A.2 575 580.00 1.009 535.00 0.930 Vona, Paula 01/31/96 01/27/96 01/31/97 375.00 Y -- A211 A.2 575 580.00 1.009 565.00 0.983 Hicks, Thomas 02/06/92 07/31/96 375.00 Y -- A212 A.2 575 580.00 1.009 560.00 0.974 Austin, Ron 09/01/95 09/01/96 08/31/97 375.00 Y -- A213 A.2 575 580.00 1.009 555.00 0.965 Horton, Marcus 10/10/95 06/01/96 05/31/97 375.00 Y -- A301 A.3 575 580.00 1.009 560.00 0.974 Glick, Julie 05/01/96 05/01/96 04/30/97 375.00 Y -- A302 A.3 575 580.00 1.009 525.00 0.913 Castle, Charles Edw 09/26/90 05/14/95 12/13/95 375.00 Y -- A203 A.3 575 580.00 1.009 560.00 0.974 Sampaga, Consuelo 08/07/96 08/07/96 08/06/97 37S.00 Y -- A304 A.3 575 580.00 1.009 560.00 0.974 Martellaro, Dominic 07/20/96 07/20/96 05/19/98 375.00 Y -- </TABLE> <PAGE> 09/30/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 1 12:41 pm Westlake ID 3.6.6 All Units Rent Roll As Of 27 Sep 1996 Grouping codes included: ABCDEFGHIJKLOPQRSTUVWXY <TABLE> <CAPTION> ========================================================================================================================= Unit # Name Type Sq.Ft. Autobill Deposit Moved In Lease Ends Status ====== =============================== ======== ======== ========== ========== ============ ============ ====== <C> <S> <C> <C> <C> <C> <C> <C> <C> E1 Peredia, Ryan E.1 420 465.00 375.00 21 Mar 1994 31 Jan 1997 O E2 Worthy, Tara E.1 420 490.00 375.00 9 Aug 1996 8 Feb 1997 O E3 Sisemore, Glenn E.1 420 490.00 375.00 7 Sep 1996 6 Jun 1997 O E4 Lemucci, Angi E.2 420 490.00 375.00 6 Jul 1996 5 Jul 1997 O E5 Moreno, Roberto E.2 420 490.00 375.00 7 Sep 1996 6 Sep 1997 O E6 Perez, Paul E.2 420 415.00 375.00 19 May 1995 31 Mar 1997 0 E7 Garcia, Marion K. E.2 420 465.00 940.00 7 Jun 1995 28 Feb 1997 0 E8 Valespino, Martha E.2 420 415.00 375.00 1 May 1995 31 Mar 1997 0 E9 Carreras, Delphino E.2 420 495.00 375.00 5 Jul 1995 28 Feb 1997 0 F1 Valazquez, Anna EF.1 420 490.00 375.00 15 Aug 1996 30 Apr 1997 0 F2 Schell, Brett EF.2 420 415.00 375.00 1 Nov 1994 31 May 1997 0 F3 Heflin, Ralph EF.2 420 490.00 375.00 25 Jun 1996 24 Mar 1997 0 F4 Cone, Letha EF.2 420 485.00 100.00 1 Dec 1977 Monthly 0 F5 Williams, Todd EF.2 420 415.00 375.00 1 Jan 1995 31 May 1997 0 G6 Green, Peggy A.1 575 535.00 350.00 1 Oct 1989 30 Apr 1997 0 G7 Black, Carol B.1 720 650.00 375.00 5 Jun 1993 Monthly 0 G8 Breschini, Gloria B.1 720 750.00 375.00 6 Jan 1989 31 Aug 1997 0 G9 Nelson, Dave A.2 575 625.00 375.00 4 Aug 1996 3 Aug 1997 0 E10 McCoy, Timothy Alan E.2 420 490.00 375.00 4 May 1996 3 May 1997 0 E11 Griffin, Todd E.2 420 465.00 375.00 1 Jun 1993 1 Jun 1997 0 E12 Cunha, Mario E.2 420 445.00 375.00 31 Jan 1996 31 Jan 1997 0 G10 Corey, Nadine B.2 720 630.00 450.00 8 Jul 1995 31 Jul 1997 0 G11 Perez, Martin B.2 720 610.00 375.00 14 Jun 1995 31 May 1997 0 G12 Williams, Mike B.2 720 750.00 575.00 1 Aug 1996 30 Apr 1997 0 G14 Hughes, Ronald A.2 575 545.00 375.00 5 Dec 1994 Monthly 0 A101 Doss, Georgians A.1 575 515.00 179.00 6 Mar 1992 Monthly 0 A102 Cronn, CHANDRA & JOSEPH A.1 575 560.00 375.00 1 Aug 1995 13 Jun 1997 O A103 Pearson, Isiah A.1 575 535.00 375.00 10 Mar 1995 3 Jul 1997 0 A104 Urzua, Norma A.1 575 590.00 375.00 6 Sep 1996 5 Sep 1997 0 A105 Hernander, Amilear & Esther A.1 575 545.00 375.00 1 Dec 1993 31 Mar 1997 0 A106 Barreras, Efren A.1 575 535.00 375.00 15 Jan 1996 31 May 1997 0 A107 Muki, Chiyoka & Kay A.1 575 525.00 350.00 10 Feb 1985 Monthly 0 A201 Diane Jones A.2 575 545.00 350.00 1 Feb 1988 28 Feb 1997 0 A202 Pieratt, Johnie A.2 575 545.00 375.00 14 Oct 1994 1 Mar 1997 0 A203 Brinton, Martha A.2 575 545.00 150.00 1 May 1982 Monthly 0 A204 Porter, Jeff A.2 575 555.00 100.00 16 Jul 1977 Monthly 0 A205 Anderson, Mark A.2 575 560.00 375.00 20 Jul 1996 19 May 1998 0 A206 Guiterrez, Felix A.2 575 555.00 375.00 4 May 1995 31 Aug 1997 0 A207 Yong, Kim A.2 575 565.00 375.00 18 Apr 1995 Monthly 0 A208 Herrera, Debra A.2 575 560.00 375.00 25 May 1996 24 May 1997 0 A209 Rizzo, Jimmy A.2 575 560.00 375.00 27 Jun 1996 26 Jun 1997 0 A210 Vona, Paula A.2 575 535.00 375.00 31 Jan 1996 31 Jan 1997 0 A211 Hicks, Thomas A.2 575 565.00 375.00 6 Feb 1992 Monthly 0 A212 Austin, Ron A.2 575 560.00 375.00 1 Sep 1996 31 Aug 1997 0 A213 Horton, Marcus A.2 575 555.00 375.00 10 Oct 1995 31 May 1997 0 A301 Glick, Julie A.3 575 560.00 375.00 1 May 1996 30 Apr 1997 0 A302 Castle, Charles Edward A.3 575 525.00 375.00 26 Sep 1990 Monthly 0 </TABLE> <PAGE> 09/30/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 2 12:41 pm Westlake ID 3.6.6 All Units Rent Roll As Of 27 Sep 1996 Grouping codes included: ABCDEFGHIJKLOPQRSTUVWXY <TABLE> <CAPTION> ========================================================================================================================= Unit # Name Type Sq.Ft. Autobill Deposit Moved In Lease Ends Status ====== =============================== ======== ======== ========== ========== ============ ============ ====== <C> <S> <C> <C> <C> <C> <C> <C> <C> A303 Sampaga, Conauclo A.3 575 560.00 375.00 7 Aug 1996 6 Aug 1997 0 A304 Martellaro, Dominic A.3 575 560.00 375.00 20 Jul 1996 19 May 1998 0 A305 Palafox, Peter A.3 575 535.00 375.00 1 Mar 1996 28 Feb 1997 0 A306 Hunter, Florence A.3 575 565.00 350.00 6 Feb 1985 Monthly 0 A307 Leiterman, George A.3 575 535.00 575.00 19 Feb 1996 18 Nov 1996 0 A3O8 Sanchez, Frank A.3 575 535.00 375.00 31 Jan 1996 Monthly 0 A309 Rivera, Lucy A.3 575 545.00 375.00 1 Dec 1994 Monthly 0 A31O Weisberg, Jack A.3 575 525.00 375.00 20 Feb 1995 31 Mar 1997 0 A311 Patton, Anthony A.3 575 565.00 375.00 13 Apr 1995 Monthly 0 A312 Label, Priscilla A.3 575 535.00 375.00 31 Jan 1996 31 Jan 1997 0 A213 Steinbach, Marie A.3 575 560.00 350.00 13 Jan 1990 10 Mar 1997 0 B101 Goldkrantz, Simon EJR.1 480 470.00 375.00 15 Nov 1993 Monthly 0 B102 Mora, Alejandro EJR.1 480 475.00 375.00 26 Sep 1995 30 Jun 1997 0 B1O3 Williamson, Jeffery EJR.1 480 510.00 550.00 2 Jul 1988 30 Jun 1997 0 B104 Shingle, Belford 0. EJR.1 480 510.00 375.00 23 Jun 1995 Monthly NR B1O5 Farahmand, Parviz EJR.1 480 520.00 375.00 25 Jun 1996 24 Mar 1997 0 B106 Backus, Allen EJR.1 480 520.00 375.00 9 Jun 1996 8 Jun 1997 0 B107 Gutierrez, Phillip EJR.1 480 495.00 375.00 1 Dec 1995 31 Aug 1997 0 B201 Sandman, Lawrence EJR.2 480 500.00 350.00 24 Aug 1987 Monthly 0 B202 Taniguchi, Robert EJR.2 480 520.00 375.00 21 Sep 1996 20 Apr 1997 0 B203 Lurmsden, Richard EJR.2 480 520.00 375.00 6 Aug 1996 5 Aug 1997 0 B204 Williams, Larry EJR.2 480 500.00 200.00 1 Dec 1983 31 Mar 1997 0 B205 Dodd, Aaron EJR.2 409 520.00 375.00 26 Aug 1996 25 Aug 1997 0 B206 Kim, John EJR.2 480 475.00 375.00 3 Mar 1996 Monthly 0 B207 Garcia, Lucio EJR.2 480 520.00 375.00 10 Jul 1996 9 Jul 1997 0 B208 Sabado, Joanne A.2 575 545.00 375.00 14 Nov 1994 31 Jan 1997 0 B209 Wojnar, Alex P. C.2 960 620.00 625.00 9 Mar 1984 31 May 1997 0 B210 Rodriguez, Salvador C.2 960 720.00 375.00 21 Mar 1996 Monthly 0 B211 Johnson, Arthur C.2 960 630.00 100.00 18 Apr 1974 31 May 1997 0 B212 Funk, Sharon C.2 960 695.00 375.00 22 Mar 1996 21 Mar 1997 0 B301 Dunbar, Christian EJR.3 480 540.00 375.00 25 Sep 1996 24 May 1997 0 B302 Miles, Christopher EJR.3 480 475.00 375.00 2 Sep 1995 Monthly 0 B303 Ferrante, Patricia EJR.3 480 520.00 375.00 1 Jul 1996 30 Jun 1997 0 B304 Southerland, Scott EJR.3 480 520.00 375.00 13 Jul 1996 6 Apr 1997 0 B305 Fernandez, Angela EJR.3 480 510.00 375.00 1 Jul 1994 Monthly 0 B306 Kallenberger, Bruce EJR.3 480 520.00 375.00 17 Jul 1996 16 Jul 1997 0 B307 Banez, Mercedes EJR.3 480 470.00 375.00 6 Jan 1995 31 May 1997 0 B308 Conley, Christina A.3 575 535.00 375.00 22 Jan 1996 21 Jan 1997 0 B309 Sanchez, Adrian C.3 960 695.00 375.00 18 May 1996 17 May 1997 0 B310 Rapacon, Geraldine & Gail C.3 960 630.00 375.00 14 Mar 1992 Monthly 0 B311 Loveless, Charles & Sheila C.3 960 630.00 375.00 7 Sep 1990 31 May 1997 0 B312 Kennemer, Joseph C.3 960 620.00 150.00 15 Nov 1982 31 Jul 1997 0 C1O1 Terabayashi,Toshiaki C.1 960 630.00 375.00 19 May 1995 16 Nov 1999 0 C102 Camarena, Miguel and Carmen C.1 960 670.00 375.00 31 Jul 1995 28 Feb 1997 0 C1O3 Doss, Prank C.1 960 630.00 300.00 7 Jul 1992 Monthly 0 C104 Valder, Eve C.1 960 690.00 375.00 19 Aug 1995 31 Jul 1997 0 C201 Vacant C.2 960 750.00 0.00 VU </TABLE> <PAGE> 09/30/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 3 12:41 pm Westlake ID 3.6.6 All Units Rent Roll As Of 27 Sep 1996 Grouping codes included: ABCDEFGHIJKLOPQRSTUVWXY <TABLE> <CAPTION> ========================================================================================================================= Unit # Name Type Sq.Ft. Autobill Deposit Moved In Lease Ends Status ====== =============================== ======== ======== ========== ========== ============ ============ ====== <C> <S> <C> <C> <C> <C> <C> <C> <C> C202 Lybbert, Richard C.2 960 695.00 375.00 20 Apr 1996 19 Apr 1997 O C203 Maryanne Geddes C.2 960 750.00 375.00 10 Aug 1996 9 Feb 1997 0 C204 Dhar, Amitava C.2 960 695.00 375.00 22 Mar 1996 21 Mar 1997 0 C205 Carrillo, Monica C.2 960 650.00 375.00 16 Jan 1994 31 Jul 1997 O C206 Cueto, Lorena A.2 575 525.00 375.00 23 Aug 1993 31 Mar 1997 0 C207 Gonzales, Gustavo A.2 575 585.00 375.00 15 Apr 1996 Monthly NU C2O8 Childer, Richard A.2 575 545.00 100.00 10 Jun 1977 28 Feb 1997 0 C209 Madriz, Jose A.2 575 545.00 375.00 4 May 1995 31 May 1997 0 C3O1 Guinn, Clifford & Jackie C.3 960 620.00 350.00 22 Sep 1986 1 Jun 1997 0 C302 Draper, John C.3 960 620.00 100.00 23 Sep 1976 31 May 1997 0 C303 Chicano, Jay C.3 960 675.00 375.00 18 Dec 1995 30 Apr 1997 0 C304 Cannon, Joanna C.3 960 650.00 375.00 20 Nov 1992 31 May 1997 0 C305 Jones, Lori J. & C.3 960 650.00 375.00 21 Jan 1995 31 Mar 1997 0 C306 J H EQUITIES A.3 575 580.00 375.00 20 Sep 1996 30 Mar 1997 0 C307 Davis, Doyle A.3 575 545.00 375.00 15 Jan 1992 1 Jun 1997 0 C3O8 Henderson, Kevyn A.3 575 555.00 535.00 2 Feb 1996 Monthly 0 C309 Henneesy, Patricia A.3 575 560.00 375.00 24 May 1996 23 May 1997 0 D101 Rhines, Danny A.1 575 435.00 350.00 3 Feb 1989 1 Jun 1997 0 D102 Olin, Tim EJR.1 480 490.00 350.00 8 Jun 1990 1 Jun 1997 O D103 Cherry, Jean Elizabeth EJR.1 480 490.00 375.00 10 Nov 1995 30 Jun 1997 0 D104 Moreno, David/Amie EJR.l 480 520.00 375.00 9 Jun 1996 8 Jun 1997 0 D105 Rascon, Mary EJR.1 480 520.00 375.00 5 Apr 1996 4 Oct 1996 0 D106 Harris, Leon EJR.1 480 480.00 375.00 17 Aug 1992 31 Aug 1997 0 D201 Lockhart, Doy A.2 575 555.00 375.00 1 May 1995 31 Mar 1997 0 D202 Waidelich, Manuel E.2 420 475.00 375.00 12 Aug 1995 Monthly 0 D203 Gyant, Leonard E.2 420 520.00 375.00 25 Sep 1996 24 May 1997 0 D204 Dorsey, Valdinia E.2 430 490.00 375.00 7 May 1996 6 May 1997 0 D205 Funkhouser, Robert E.2 420 490.00 375.00 10 Jul 1996 9 Apr 1997 0 D206 Moore, Marshall W. E.2 420 475.00 375.00 1 Apr 1996 31 Mar 1997 0 D207 Phillips, Chris A.2 575 535.00 575.00 1 Jan 1996 31 Oct 1996 0 D208 Correa, Jennie A.2 575 521.00 179.00 7 Dec 1992 Monthly 0 D209 Sandoval, Silvia A.2 575 515.00 375.00 22 Feb 1993 31 Mar 1997 0 D210 Worman, Mary A.2 575 560.00 375.00 21 Sep 1996 24 Sep 1997 0 D211 Tsugawa, Tono A.2 575 535.00 375.00 29 Jul 1995 31 May 1997 0 D301 Johnson, Lora A.3 575 555.00 375.00 11 Aug 1995 31 May 1997 0 D302 Turner, Sandra E.3 420 445.00 375.00 5 Jan 1996 4 Jan 1997 0 D303 Guzman, Amelia E.3 420 490.00 375.00 25 May 1996 24 May 1997 0 D304 Gunter, Leater E.3 420 490.00 375.00 18 Jun 1996 17 Mar 1997 0 D305 Takahasi, Yoko E.3 420 445.00 375.00 8 Oct 1995 31 Mar 1997 0 D306 Freiermuth, Harry E.3 420 445.00 375.00 31 Jan 1996 31 Jan 1997 0 D307 Martinez, Roy A.3 575 560.00 375.00 10 Aug 1996 9 Aug 1997 0 D308 Manniquez, Maria A.3 575 560.00 375.00 6 Apr 1996 5 Apr 1997 0 D309 Soto, Blanco A.3 575 545.00 375.00 22 May 1995 31 Aug 1997 0 D310 Valdez, John A.3 575 560.00 375.00 20 May 1996 19 May 1997 0 D311 Wright, Sharon A.3 575 535.00 375.00 25 Oct 1995 Monthly 0 ====== =============================== ======== ======== ========== ========== ============ ============ ====== </TABLE> <PAGE> 09/30/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 4 12:41 pm Westlake ID 3.6.6 All Units Rent Roll As Of 27 Sep 1996 Grouping codes included: ABCDEFGHIJKLOPQRSTUVWXY <TABLE> <CAPTION> ========================================================================================================================= Unit # Name Type Sq.Ft. Autobill Deposit Moved In Lease Ends Status ====== =============================== ======== ======== ========== ========== ============ ============ ====== <C> <S> <C> <C> <C> Code Status # Units Rent Schedule Amount ==== ============================ ======= ================================ ========= 0 Occupied, No Notice 136 Units Occupied--Actual Rents 75,353.00 NU Occupied, Notice Unrented 1 Units Vacant--Vacant Potential 750.00 NR Occupied, Notice Rented 1 --------- VU Vacant, Unrented 1 100% (Gross) Potential Value 76,103.00 VR Vacant, Rented 0 SU Charging A Skip, Unrented 0 Total Escrow Deposits 50,883.00 SR Charging A Skip, Rented 0 Total Rentable Square Feet 81,985 ==== ============================ ======= ================================ ========= Total Units 139 </TABLE> <PAGE> - -------------------------------------------------------------------------------- QUALIFICATIONS OF ROBERT SAIA, MAI, SRA Calif. OREA Certificate #AG003191 - -------------------------------------------------------------------------------- EXPERIENCE Independent real estate appraiser since 1981. EDUCATION Associate Arts Degree from West Valley College. Major in Real Estate. Bachelor of Arts Degree in Economics from San Jose State University. Graduated with distinction. Graduate Studies in the Master of Business Administration Program at Golden Gate University, San Francisco. Advanced courses in appraisal taken at California State University, Hayward, University of San Francisco and San Jose State University, through the Appraisal Institute. MEMBERSHIPS Former Member of the Society of Real Estate Appraiser (SRPA designation) Current Member of the Appraisal Institute, MAT #8841 Current Member of Admissions Committee Appraisal Institute Board of Directors, South Bay Chapter Appraisal Institute 1993-95. National admissions board member. STATE CERTIFICATES AND LICENSES State of California "Certified-General" Appraiser Certificate No. AG003191 State of California Real Estate License (non-active) State of Nevada "Certified-General" Appraiser Certificate No. 00621 APPRAISAL ASSIGNMENTS Some of the types of properties appraised in the past are outlined below: Commercial: Retail stores, office buildings, service stations, vacant land, Residential: Single family, multi-family, townhouse/condominium, vacant land, subdivision, apartments and mobile home parks. Industrial: Vacant land, warehouses, research and development facilities, industrial condominiums and manufacturing facilities, mini-storage warehouses, food processing facilities, truck terminals. <PAGE> Special Use: Airport, carwash, landfill, right-of-way, easement valuation, commercial nursery, and golf courses. Lodging Facilities: Motels, hotels, inns, SRO, Recreational vehicle parks CLIENTS A brief partial list of past clients with whom Mr. Saia has worked with includes: American Savings Bank County of Santa Clara Comerica Bank Bank of America NT&SA First National Bank of Central California Bank of Salinas Home Savings of America Metropolitan Securities & Trust City of Monterey City of San Jose City of Palo Alto Imperial Thrift & Mortgage NationsBank Pacific Western Bank Bay View Federal Bank Wells Fargo Bank Phoenix Home Life DISCLAIMER The appraisal report appearing below is addressed to NationsBank of Texas, N.A. ("NationsBank"). NationsBank does not represent that the presumptions or conclusions in the appraisals are relevant or accurate and does not endorse the conclusions set forth in the appraisal. Any value, presumption, or conclusion regarding the property or properties appraised in the report must be verified independently of NationsBank. This appraisal has not been approved by NationsBank and is being transmitted without representation and warranty of NationsBank. <PAGE> ================================================================================ APPRAISAL REPORT THE ELMS APARTMENTS 424 Noice Drive Salinas, California 93906 Effective Date of Appraisal: September 28, 1996 APPRAISED FOR: NationsBank of Texas, N.A. Real Estate Risk Assessment 901 Main Street, 51st Floor Dallas, Texas 75202-3714 APPRAISED BY: ROBERT SAIA & ASSOCIATES 313 Avalon Avenue Santa Cruz, California 95060 ================================================================================ <PAGE> ROBERT SAIA, MAI & ASSOCIATES Property Appraisers & Consultants - -------------------------------------------------------------------------------- September 28, 1996 Mr. Gary D. Long Real Estate Risk Assessment NationsBank of Texas, N.A. 901 Main Street, 51st Floor Dallas, Texas 75202-3714 Dear Mr. Long: As requested, Robert Saia, MAI & Associates has completed a market value "as is" appraisal of the 188-unit apartment complex known as "The Elms," located at 424 Noice Drive, in Salinas, California. The property rights appraised are those of the leased fee interest. All units are on short-term leases (less than one year), thus there is no leasehold or leased fee bonus values to consider. In other words, the fee simple and leased fee values are the same. As of the appraisal date, there were no vacancies. The on-site office manager occupies a 12' x 16' office which is attached to one of the buildings. The office has its own separate entrance. "The Elms" is valued on the basis of 188 net rentable units. The function of this appraisal is to aid in proper underwriting, loan classification and/or disposition of the subject property, in conjunction with a multi-property pending portfolio purchase which includes the subject property. The effective date of the appraisal is September 28, 1996, the date of the last complete property inspection. This report was prepared as a Complete Appraisal, Summary Report" following generally accepted and established appraisal practices that comply with the Uniform Standards of Professional Appraisal Practice (USPAP) and also in accordance with the NationsBank Appraisal/Evaluation Guidelines for Appraisers. As instructed, the cost approach has been omitted. Although the cost approach has very little relevancy in the appraisal of apartment complexes in this area, its omission may be considered by some to invoke the Departure Provision. The Limiting Conditions and Assumptions contained at the conclusion of this report are a vital part of the appraisal. There are no extraordinary assumptions that affects the appraisal. The market value estimate is based on an exposure time of four months. Based on our analysis and investigation, as discussed in the attached appraisal report, the Market Value "As Is" of The Elms Apartments, as of September 28, 1996, is as follows: Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 <PAGE> Mr. Gary Long Page 2 -------------------------------------------------- EIGHT MILLION DOLLARS ($8,000,000) -------------------------------------------------- The above is the value of the real estate only. Personal property value is nominal, and plays no significant role in the operation of the apartments. If you should have any questions, please contact our office. Respectfully Submitted, /s/ Robert Saia Robert Saia, MAL OREA Cert. #AGOO3191 (exp. 12/7/96) Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 <PAGE> The Elms Apartments, Salinas, CA TABLE OF CONTENTS Summary of Salient Facts ..................................................... 1 Purpose of the Appraisal ..................................................... 3 Function of the Report ....................................................... 3 Valuation Date ............................................................... 3 Property Right Appraised ..................................................... 4 Location and Property Identification ......................................... 4 Property History & Ownership ................................................. 4 Project Overview ............................................................. 4 The Extent of the Appraisal Process .......................................... 5 Competency Statement ......................................................... 6 Regional Description ......................................................... 7 City of Salinas ..............................................................19 Salinas Apartment Market .....................................................22 Neighborhood Description .....................................................23 Site Analysis ................................................................24 Current Taxes & Assessments ..................................................25 Improvement Description ......................................................28 Highest and Best Use Analysis ................................................30 The Appraisal Process ........................................................32 Income Capitalization Approach ...............................................32 Sales Comparison Approach ....................................................54 Reconciliation of the Value Estimates ........................................64 Marketing Period Estimate ....................................................65 Exposure Period Estimate .....................................................65 Allocation of F,F&E ..........................................................66 Assumptions and Limiting Conditions ..........................................67 Certification of Appraisal ...................................................70 ADDENDA Photographs of the Subject Property Maps Floor Plans Apartment Building Sales Sheets Rent Roll and Operating Statements Qualifications Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 <PAGE> The Elms Apartments, Salinas, CA SUMMARY OF SALIENT FACTS - -------------------------------------------------------------------------------- CLIENT: NationsBank PROJECT NAME' The Elms Apartments ADDRESS: 424 Noice Drive, Salinas, CA 93906 LOCATION: North Salinas A.P.N.: 261-661-006 & 261-661-007 THOMAS BROS. MAP: T.B. 225 A-1 (Monterey County) CENSUS TRACT NO.: 105.00 ZONING: R-H-2.3 (High Density Residential District) PENDING LAND USE CHANGES None (No pending rent control) HIGHEST & BEST USE: -As improved... existing apartments -As vacant... high density residential development PROPERTY RIGHTS APPRAISED: Fee Simple Interest SALE HISTORY OVER PAST 5 YEARS: None CURRENT OWNERSHIP: Paul M. Thysen and Betty 0. Thysen Trust UTILITIES: Municipal services (water, electricity and sewer) are available and connected. LAND AREA: 10.57 acres SITE DENSITY: 17.79 units per net acre FLOOD ZONE: Zone B per Panel #060202- 0001 D (11/4/81) TOTAL # RENTABLE UNITS 188; in addition, there is a 12'x16' attached manager office. YEAR BUILT: 1979 NET RENTABLE BUILDING AREA (sf): 148,260sf COMMON AREA AMENITIES: Security gated entrances, lawn areas, asphalt drives, concrete walls, 2 swimming pools, 2 attached laundry rooms 16'x30'. OCCUPANCY CHARACTERISTICS: No. of Vacant Units: 0 No. of Pending Evictions: 3 ACTUAL NUMBER RENTED UNITS: on 9/28/96 and OCCUPANCY RATE: 188 (100%) PROJECTED AVERAGE OCCUPANCY for the YEAR ENDING 1996: 96-98.0% Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 1 <PAGE> The Elms Apartments, Salinas, CA GROSS ANNUAL ACTUAL REVENUE as reported for 1995: $1,115,514 ACTUAL MONTHLY RENTAL INCOME as reported as of 9/28-96: $107,220 STABILIZED NET INCOME EST. as of APPRAISAL DATE: $683,050 EST. EXPOSURE and MARKETING TIME: 4 months exposure-/ 1-6 months marketing time CONDITIONS TO APPRAISAL: No unusual conditions. Reference is made to Assumptions & Limiting Conditions in Addenda - -------------------------------------------------------------------------------- MARKET VALUE "AS IS": $8,000,000 September 28, 1996 (4 month exposure period) - -------------------------------------------------------------------------------- Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 2 <PAGE> The Elms Apartments, Salinas, CA PURPOSE OF THE APPRAISAL - -------------------------------------------------------------------------------- The purpose of this appraisal is to estimate the market value "as is" of the unencumbered fee simple interest for the real estate only. "Market Value," as used in this appraisal, is defined as "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: o Buyer and seller are typically motivated; o Both parties are well informed or well advised, each acting in what he considers his own best interests; o A reasonable time is allowed for exposure in the open market; o Payment is made in terms of cash in U.S. dollars, or in terms of financial arrangement comparable thereto; and, o The price represents the normal consideration for the property sold unaffected by special or creative financing or sale concessions granted by anyone associated with the sale." (*Source: Office of the Comptroller under 12 CFR, Part 34, Subpart Appraisals, 34.42 Definitions [f]) "Market value `as is' "means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date of inspection..." FUNCTION OF THE APPRAISAL - -------------------------------------------------------------------------------- The function of this appraisal is for the exclusive use of NationsBank, its subsidiaries, and/or affiliates, for loan underwriting purposes, in conjunction with a pending portfolio purchase which includes the subject property. It may be used in connection with the acquisition, disposition and financing of the sale of the property. VALUATION DATE - -------------------------------------------------------------------------------- The date of valuation is September 28, 1996. This is the date of the last property inspection. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 3 <PAGE> The Elms Apartments, Salinas, CA PROPERTY RIGHTS APPRAISED and DEFINED - -------------------------------------------------------------------------------- The unencumbered fee simple estate of the property has been valued. This ownership interest is defined as: "Absolute Ownership Unencumbered by any other interest or estate; subject only to the limitations of eminent domain, escheat, police power, and taxation". Any relatively short term leases of seven to twelve months in effect are considered short in duration and do not create any favorable leaseholds by the tenants. Technically speaking, the leased fee interest is being valued, although a percentage of the rental units are on a month-to-month basis. Because of the nature of a short term lease, as well as a strong correlation between contract and market rent, the value estimated for the subject property is essentially reflective of the fee simple interest. IDENTIFICATION and LOCATION OF SUBJECT PROPERTY - -------------------------------------------------------------------------------- The subject property is located approximately one block east of N. Main Street and approximately one-half block south of Chaparral Street in a portion of the "North Salinas" section of the city. "The Elms Apartments" are located at 424 Noise Drive, in the city of Salinas, California, 93906. "The Elms Apartments" consists of two separate and distinct parcels described by the Monterey County Assessor's Office as 261-661-006 and 261-661-007. A legal description is included in a copy of the preliminary title insurance report which is made part of this appraisal. PROPERTY HISTORY and OWNERSHIP - -------------------------------------------------------------------------------- Title to the property is vested in: Paul M. Thysen & Betty 0. Thysen Trust There have been no market transfers over the required reporting period. The property is currently in escrow as part of a multi-property purchase. THE ELMS APARTMENTS-OVERVIEW - -------------------------------------------------------------------------------- The Elms Apartments is a 188 (rentable) unit apartment complex located on 10.57 acres. The Elms Apartments were constructed in 1979 by a California-Hawaii development entirely on Assessor's Parcel Number 261-661-006 with the majority of parking areas and drives located on Parcel Number 261-661-007, the smaller parcel. The rentable building area is 148,260 square feet. There is also an attached small manager's office measuring 12' x 16', or 192 square feet. All units are either one or two bedroom floorplans, containing 672 square feet and 875 square feet, respectively, of gross living area. The Elm Apartments are accessed from two asphalt driveway entrances fronting to Noice Drive. There Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 4 <PAGE> The Elms Apartments, Salinas, CA are 228 total on-site parking spaces which include 188 carports and 40 open spaces. The Elms Apartments has a density of 17.79 units per acre. Amenities offered by The Elms Apartments include lawn-greenbelt areas, two swimming pools, and two laundry rooms measuring 16' x 30'. Utilities provided by the landlord include water, trash removal, sewer, and basic cable television. Each of the individual apartments in The Elms are served with a 30-gallon hot water heater. The overall exterior appearance of The Elms Apartments is considered average and reflective of other competing high density residential developments within the North Salinas area of the city. The reader is directed to the Improvement Description of this report for further comments regarding the individual units and their respective interior improvements. THE EXTENT of THE APPRAISAL PROCESS - -------------------------------------------------------------------------------- The extent of the appraisal process encompasses the necessary research and analysis to prepare a report in accordance with the intended use, the Uniform Standards of Professional Appraisal Practice as set forth by the Appraisal Foundation, and the Standards of Professional Practice of the Appraisal Institute. With regard to the valuation of the subject property, the following steps were involved: 1. The property was last inspected and photographed on September 28, 1996. This is considered the effective date of this appraisal. 2. The on-site manager provide access to both of the different unit types within The Elms Apartments. both one and two bedroom floorplans. I was not made aware of any other floorplan configuration by Lincoln Residential Services. 3. Regional, county, city, and neighborhood data were based on information taken from a variety of sources, including, but not limited to, City of Salinas Planning Department, Monterey County Tax Assessor's Office, City of Salinas Public Works Department, City of Salinas Building Department, the Association of Monterey Bay Area Governments, Salinas Chamber of Commerce, independent private studies, newspaper articles and my own files. 4. Research and investigation of current market conditions for apartment properties in the city of Salinas. 5. Interviews with brokers, appraisers, property owners and/or managers and lenders, as well as the relevant public agencies as described above. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 5 <PAGE> The Elms Apartments, Salinas, CA 6. The highest and best use was formed by information gathered in the previous steps. 7. After assembling and analyzing information defined in this extent of the appraisal process, final estimates of market value by each applicable valuation method were made. 8. And, finally, a single value estimate from within the concluded value by each approach was made. Greatest weight was given to those approaches felt to have the most influence on the purchasing decision. Unless otherwise stated in the report, the existence of hazardous materials, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser is not qualified, however, to detect such substances. The presence of toxic or caustic substances or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there are not such materials on or in the property that would cause a loss in value. Any such findings which would indicate otherwise could result in a decrease in value. COMPETENCY STATEMENT - -------------------------------------------------------------------------------- In accordance with the competency provision in the USPAP, the appraiser certifies that his education, experience and knowledge is sufficient to appraise the type of property being valued (apartments-multifamily) has provided significant professional assistance to the person inspecting the subject property in the completion of the analysis other than those mentioned in the Certification of Appraisal (see Addenda). Robert Saia, MAI has appraised this property type in the past and has the knowledge and experience necessary to complete this appraisal assignment. See Appraiser's Qualifications in the Addenda for additional information. The appraiser's analyses, opinions and conclusions were developed and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) Standards I - 3, and NationsBank appraisal policy. This appraisal assignment was not based on a requested minimum valuation, a specific valuation or the approval of a loan. The Departure Provision in the USPAP was not utilized in the preparation of this report. The appraiser's compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimated, the attainment of a stipulated result or the occurrence of a subsequent event. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 6 <PAGE> The Elms Apartments, Salinas, CA REGIONAL ANALYSIS - -------------------------------------------------------------------------------- Market value is affected by a number of externalities; e.g., geographic, economic and environmental, governmental forces, utility, supply & demand and effective purchasing power. Real estate is affected by externalities more than any other economic good, service, or commodity. It is imperative that an appraiser observe and analyze external influences in order to identify patterns and trends, and how they relate to the subject property. Trends such as population shifts, declining apartment occupancy rates, or increased housing sales in an area are relevant in order to understand the real estate marketplace. Thus the Regional Description & Analysis is important in this appraisal because it establishes the basis for determining the highest & best use of a property as well as information used in applying the three approaches to value. The scope of this regional analysis relates to the type of property being appraised, its complexity and the approaches used to estimate value. Monterey County is located in a portion of California that is often referred to as the "Central Coast," which encompasses the area known as the "Monterey Peninsula." The county is oriented northwest to southwest, and runs parallel to the Pacific Ocean. The county has a relatively long and narrow shape, with an average of only 30 miles; elevations range from sea level to 5,844 feet atop Junipero Sierra Peak, located 12 miles inland in the Santa Lucia Range. Monterey County is bounded by the Pacific Ocean on the west, Santa Cruz County to the north, San Luis Obispo county to the south, and San Benito, Kings and Fresno counties to the east. The area is located approximately 125 miles south of San Francisco and 350 miles north of Los Angeles. Approximately 105 miles of California's 840 miles of coastline lie along the westerly boundary of Monterey County. On the whole, Monterey County has a rural orientation, with substantial tracts of land devoted to agriculture and open space uses. The county encompasses 3,784 square miles, or approximately 2,127,400 acres of land area. An interesting statistic is that nearly 27 percent of this total county area is government-owned. Twenty-five percent is owned by the federal government with major holdings such as Fort Hunter Liggett. Fort Ord, Los Padres National Forest and Camp Roberts. The remaining two percent is controlled by the state and county. Geographical location and features exhibit strong influences on the county's climate. The Pacific Ocean is responsible for the county's Mediterranean climate, characterized by year round moderate temperatures, cool, dry summers, and short, rainy seasons. Pacific winter storms are blocked by the Santa Lucia Range, allowing considerably less rain to fall on the Salinas Valley. Temperature and rainfall have important implications for the county's two major economic staples, agriculture and tourism. Mild temperatures allow for exceptionally long growing seasons for farming. Rainfall patterns, while following predictably dry weather, require reservoir and ground water storage to meet year round irrigation needs. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 7 <PAGE> The Elms Apartments, Salinas, CA Population Approximately one half of the county's population lives within the seven incorporated cities and adjoining unincorporated areas of the Monterey Peninsula. The eight principal cities are Monterey, Marina, Seaside, Sand City, Del Rey Oaks, Pacific Grove, Carmel-by-the Sea and Salinas. The incorporated areas consist of 31.5 square miles, or about one percent of the county's total land area. The major factor for the high population density of the Monterey Peninsula vis-a-vis the rest of the county, is the unsurpassed natural beauty of the area --especially the coastline and beaches. Based on the most recent U.S. Census (January 1, 1990), the population of Monterey County grew by approximately 24 percent during the last decade. This growth has helped push the county's total population up to approximately 382,547 in 1994. For reference, the county's growth rate over the preceding decade was just under the state's overall gain of 26 percent. In the previous census period (1970--1980) the county's total population grew 17 percent, from 247,450 to 290,444. While county's growth has been strong, the level varies from area to area. As shown below, the population of Salinas, the largest city and the county seat, increased by 35.2 percent between 1980 - `90. The growth in Salinas constitutes approximately 43 percent of the county's total population increase during that period. In contrast, the population of the city of Monterey increased by a more modest 16 percent over that census period. As shown, not all communities in the county experienced tremendous population growth. Population growth was much steadier in the cities of Seaside, Pacific Grove and Del Rey. In large part, growth in these communities is limited due to a lack of developable land. MONTEREY COUNTY: Population Growth 1980 - '90 (1990 U.S. Census) - -------------------------------------------------------------------------------- City/Area 1980 1990 Total No. % Change - --------- ---- ---- --------- -------- Salinas 80,479 108,777 28,248 +35.2% Seaside 36,567 38,901 2,334 +6.4% Monterey 27,558 31,954 4,396 +16.0% Marina 20,647 26,436 5,789 +28.0% Pacific Grove 15,755 16,117 362 +2.3% King City 5,495 7,634 2,139 +38.9% Greenfeild 4,181 7,464 3,283 +78.5% Soledad 5,928 7,146 1,218 +20.5% Gonzales 2,891 4,660 1,769 +61.2% Carmel-by-theSea 4,707 4,239 (468) -9.9% Del Rey Oaks 1,557 1,661 104 +6.7% Unincorporated Areas 84,679 105,252 20,573 +24.3% - -------------------------------------------------------------------------------- The most recent population estimates show that the population of Monterey County, based on the January 1, 1995 estimates for California cities and counties prepared by the State of California Department of Finance, was 382,547. Recent trends show most of the increase occurring in the Salinas Valley cities rather than on the Monterey Peninsula. For example, in 1993, the fastest growing city in the county was Soledad (+6.1%), with nearby Greenfield (+5.3%) and Sand City tying for second place. Population growth in Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 8 <PAGE> The Elms Apartments, Salinas, CA Soledad is largely attributable to an expansion of the state Correctional Facility and the development of two large residential subdivisions. Greenfield's city manager reported that population growth has been spurred by reasonable prices for single family detached housing but that future growth is limited due to a lack of land. Based on projections by the State Finance Department, released in April 1993, Monterey County is projected to post a 15.6 percent gain in population by the year 2000 -- representing an increase to approximately 414,000 people. In contrast, San Benito's population is projected to increase by 37 percent by the year 2000; Santa Clara County's by 13.4%; 14.4% for Santa Cruz County; and, 21.6% statewide. Below are the Finance Department's projections by county through the year 2030. PROJECTED POPULATION GROWTH (Calif. Dept. of Finance) - -------------------------------------------------------------------------------- County 1990 2000 2010 2020 2030 - ------ ---- ---- ---- ---- ---- Montery 356,000 414,000 485,300 574,100 670,900 San Benito 37,000 50,7000 66,500 83,200 100,900 Santa Clara 1,502,200 1,703,900 1,839,700 1,956,600 2,064,100 Santa Cruz 230,800 264,000 291,800 322,300 354,100 Statewide 29,976,000 36,444,000 42,408,000 48,977,000 56,100,000 - -------------------------------------------------------------------------------- Transportation The major passenger transportation system in the county is via private automobile. The freeway system consists of Highways 101, 1 and 183; and, State Routes 156 and 68. Highway 101 runs north and south from San Francisco, along the West Bay, and through San Jose toward Los Angeles. Highway 1, the Coast Highway, runs north and south from the coastal region of San Francisco and through Santa Cruz toward San Luis Obispo County. Highway 68, the Salinas-Monterey Highway, intersects with Highway 1 and connects the Monterey Peninsula with the Salinas Valley to the south and Highway 101 to the north. There are 1,300 miles of county roads and approximately 500 miles of city streets for a total of 2,000 road miles in the county. In Monterey County, AMTRAK provides rail passenger service, and the Southern Pacific Transportation Company provides rail freight service. Salinas is the only city in the county that now has rail passenger service. SPRR is the main line between Los Angeles and San Francisco. The Monterey Peninsula Airport provides air freight and passenger service in and out of the county. Over the past 20 years, the airport has shown a moderate growth pattern. In 1970, the number of passengers totaled 411,497. In comparison, the number of passengers had grown to 523,040 by 1989 (+1.4% per annum). Today, passenger service is provided by United, Wings West, Pacific Coast Air and West Air. The cities of Salinas and King City both have municipal airports. And with the closure of Fort Ord, Marina has discussed plans to convert Fritzsche Army Airfield into its own municipal airport. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 9 <PAGE> The Elms Apartments, Salinas, CA There are harbors at Monterey and Moss Landing (4 miles from the subject) which have boating facilities with a reported 2,000 small crafts launching from its ramps every month. Approximately 1,800 transient crafts visit the harbors annually. Monterey Bay and Monterey harbor areas attract a significant portion of the tourism industry that provides jobs and an economic base for the Monterey Peninsula area and the county as a whole. Fort Ord and the Military Influence With its various military installations located throughout the Monterey Peninsula area, including control of approximately 27 percent of all of the land in the county, the influence of the military on Monterey County has been significant. This influence has had a considerable financial impact, including military and civilian payrolls, local purchase and contracts, construction in the area, as well as the increase in government aid to local schools due to the military population in the area. The local housing market has also been significantly effected by the presence of the military. This impact, however, has been primarily on the apartment rental market in the communities of Marina and Seaside. In addition, it has had some minor negative impact on mobile home parks in the general area. Being approximately 20 miles northeast of Fort Ord, impact from the base closure has been minimal and not measurable. Given that the Ford Ord area is not in the immediate environs of the subject property, the effect of the base closure on the Boronda Manor Apartments has not been minimal. The closure of Fort Ord was the dominant economic news for the county during 1994. The closing was the single largest national closure to date, with most of the base's 35,000 residents and $600 million payroll moving to other bases. Currently, the base's 44 square miles of land is being administered by the Fort Ord Reuse Authority. Local communities formed the Fort Ord Reuse Authority as an advisory planning committee which under an agreement formed a Fort Ord Joint Powers Agency (JPA). The JPA agreement gave voting membership to the cities of Marina, Seaside, Sand City, Del Rey Oaks, Monterey, and Salinas and extended non-voting status to Pacific Grove and Carmel. The county is also a voting member. The premise of the JPA was to create a forum for discussing reuse issues; to facilitate community involvement and to speed up the decision process via a cohesive voting unit. Initially, the base closure stirred dire predictions about the short-term impact on the county. However, as the closure set in, the immediate economic impact was much less severe than expected, and limited primarily to the adjacent communities. Fort Ord was so large that much of the base was self-contained with its own housing, stores, services, and restaurants. The long-term prospects after closure are encouraging, assuming the base's land can be opened to large scale private sector development. In fact, the first major reuse of the base Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 10 <PAGE> The Elms Apartments, Salinas, CA was the opening of the California State University-Monterey Bay which opened its doors on August 28, 1995 to 633 students. The state university at Fort Ord "is expected to grow substantially over the years, attracting students, well paid employees, research dollars and private businesses," according to the 1995 BT Commercial Real Overview published in April 1995. The Fort Ord complex was the largest military installation in the county with a total of 28,057 acres -- nearly the size of the city and county of San Francisco. Approximately 22 percent of the base (6,250 acres) was developed with barracks, housing, motor pools, administrative buildings, and various other support facilities. Other military installations on the Monterey Peninsula include the Presidio of Monterey, which is the home of the Defense Language Institute (foreign language school for all branches of the armed forces); the United States Naval Post Graduate School (NPGS), and the United States Coast Guard Station. The United States Department of Interior maintains 304,035 acres in the Los Padres National Forest and 164,503 acres along the Big Sur coast in the Ventana wilderness. Fort Ord Reuse Plans After more than six years of planning, the final version of the Fort Ord reuse plan shows a closed military base converted to a huge community of new homes, businesses, schools, parks, hotels and golf courses. The four volume reuse plan, filed in public libraries in the area during the first week of June 1996 by the Fort Ord Reuse Authority, has evolved from the days when a 250 member community task force first saw the base as an educational center. Along the way, planners ruled out suggestions that Fort Ord might give way to a "Disneyland in the dunes", an industrial center with 12 story high rises sprinklered about, or an endless shopping center with no room for houses. The more realistic, final plan, which the FORA board is expected to act on in July includes market research, financing analyses, economic forecasts and population projections. Still, the numbers in the reuse plan are almost overwhelming: - -Nearly 4,000 acres of land available for private owners, an area six times the size of Carmel. - -More than 13,000 new houses to be built, half as many as now exist in Salinas. - -About 12 million square feet of industrial parks and office complexes, enough to fill an area 20 times the size of Del Monte Shopping Center in Monterey. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 11 <PAGE> The Elms Apartments, Salinas, CA - -More than 45,000 new jobs in those businesses, a third as many as now exist in the entire county. - -A new community of more than 71,000 people, twice as many as now live in Monterey. - -About 1,800 hotel rooms, three times as many as the Hyatt Regency in Monterey and eight times as many as Embassy Suites in Seaside. - -Development costs of $451 million over the next 20 years, as much money as it takes to run the city of Pacific Grove for 50 years. The plan shows development, including the 800 acre military enclave left behind as the Presidio of Monterey Annex, the 1,300 acre California State University at Monterey Bay (CSUMB), the 845 acre Marina Municipal Airport and as many as seven golf courses, covering about a third of the 44 square file base. About 18 percent of the land at Fort Ord has been developed. Another 14 percent is slated to be developed in the next 60 years, according to the reuse plan. About two-thirds of the base is to be preserved in its natural state by the U.S. Bureau of Land Management (BLM), the State Department of Parks and Recreation, the University of California Natural Reserve System, the county, and the city of Marina. The environmental impact report for the reuse plan fills one of the volumes, a 327 page document, filed in early June as FORA's proposed final plan. The environmental analysis doesn't have many specifics because a special state law allows that at Fort Ord. The reuse plan, which has taken six years and many political battles to achieve, is seen as a master sketch, with details and designs to be filled in as individual development projects emerge. Fort Ord's Impact on the Local Economy It is extremely difficult to accurately ascertain the full impact that Fort Ord's closure has had on the local economy because California was suffering through a recession during the early part of the 1990's when the base was closing. The recession has made it difficult to isolate how much of the impact the close of Fort Ord has had on the economy. What has been evident is that there was a short-term glut of rentals on the Monterey Peninsula. Surrounding communities, especially Marina, Seaside and Sand City suffered the greatest negative impact as the closure process evolved. Conversely, the prestigious residential areas such as Pebble Beach, Carmel and the more upscale areas of Monterey were not impacted by the closure. Similarly, the City of Salinas' housing market was not adversely affected to a significant degree. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 12 <PAGE> The Elms Apartments, Salinas, CA In the Salinas Valley the base closure has had little to no significant impact. Rather, population growth and new development in the area of Salinas continued to be most effected by issues such as the shortage of water and salt-water intrusion. In general, the Salinas Valley could be described as being somewhat of an isolated market area. As such, a Salinas Valley location became more desirable, as investor's uncertainty associated with Fort Ord's closure was primarily directed at investment properties located on the Monterey Peninsula. Overall, a somewhat stagnant to moderate housing market appears to be the continued status for the general area over the short term, although there are signs that economic conditions are improving. This is especially the case in nearby Santa Clara County ("Silicon Valley") where the housing and rental markets have exploded due to strong job growth. Little investment activity and/or new construction is anticipated in the communities adjoining Fort Ord, at least until the major issues surrounding the redevelopment/reuse of the base are resolved. As discussed, there are several issues surrounding the base closure and its reuse which need to be resolved before the prevailing atmosphere of uncertainty blanketing the local real estate market is cleared. Business / Industry Monterey County, with a full-time civilian work force of approximately 172,000 - -175,000 workers, has two major urban areas --Salinas and the Monterey Peninsula. As shown on the following page, employment in Monterey County (not including agriculture) is projected by the Employment Development Department (EDD) to average 113,100 in 1996, which will be 2,400 jobs above the 1989 annual average. At just +2.2 percent, this very small gain in jobs reflects EDD's assessment of the impact of the Fort Ord closure. Unemployment rates in Monterey County have been consistently higher than for California as a whole. The seasonal nature of the county's economy accounts for double-digit unemployment in the winter when agriculture, food processing, and tourist-oriented industries are at a lull. Agriculture While the economy of Monterey County is diversified, agriculture is the county's leading industry and the mainstay of the local economy. Agriculture provides approximately 1/4 of the county's basic income. Almost 1/5 of California's top-producing crop farms are located in Monterey County. With 86 farming operations, the county ranks second in the state, behind Fresno County with 97 farming operations. A farming operation is defined as a farm producing a crop with a value in excess of $4 million. The county ranks third in the state in gross dollar agricultural production, making it one of the top ten producing counties in the nation. Monterey County has a total of 976,000 acres used exclusively for agriculture and another 343,680 are combined agricultural and grazing land. The county's highly productive agricultural land is often referred to as the "fog belt" agricultural area of Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 13 <PAGE> The Elms Apartments, Salinas, CA California. The long growing season in this area makes it possible to grow as many as three crops annually. Nationwide, the county leads in the production of lettuce, broccoli, artichokes, cauliflower, mushrooms, and strawberries. According to the county's agricultural commissioner, strawberries were the third-ranked cash crop in 1994, behind broccoli and head lettuce. Despite the damage done by the 1995 historic floods, the crop value for Monterey County agriculture surpassed the $2 billion mark, after creeping toward the milestone for several years. The 1995 crop value, $2.03 billion, market a 4.8 percent increase over 1994. Among the top 12 crops, the order in terms of dollar value remained almost identical to that of 1994. Besides breaking local production records, Monterey County surpassed Kern County in 1995 to become the third in the state in gross dollar value of agriculture. It was surpassed by only Fresno and Tulare counties. By the same measure, Monterey County also is the largest vegetable producing county in the United States. The crop value for the state of California stands at $20 billion. Assuming water for irrigation remains sufficient, employment in agriculture is projected to increase as growers expand production of vegetables and labor-intensive strawberry and nursery crops. But because of foreign competition, the rate of growth will be slower through 1996 than over the past seven years. Foreign demand for the county's produce remains strong, however. Additional market growth is also expected as the pre-cut salad mix processing market is rapidly expanding. Agriculture continues to be effected by water availability. Even with above normal rainfall in 1993 and 1996, the effects of years of drought have brought to focus the water issue. At this time, the issue of sufficient water supply and overdrafting (saltwater intrusion) are being addressed through water conservation and other management practices which have included moratoriums on new development. Other issues facing the agriculture industry include nitrates leaching into groundwater and soil compaction. Tourism/Convention Industry Following agriculture, the health of the county's business and industry is tied to the tourism/convention industry. According to the California Office of Tourism, an estimated 5 million visitors spent $1.2 billion in 1991 in traveling to Monterey County. That total represented about 2 percent of statewide travel spending that totaled $54.1 billion. As shown in the following table, Monterey County ranked ninth among the state's counties in total travel dollars spent in 1991. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 14 <PAGE> The Elms Apartments, Salinas, CA TRAVEL IMPACTS BY COUNTY (Office of Tourism) - -------------------------------------------------------------------------------- County ($000) ($000) (Jobs) Local & State - ------ ------ ------ ------ ------------- Los Angeles $13,617,556 $3,316,360 154,734 $221,008 $391,987 San Francisco 5,777,445 1,524,457 63,236 99,816 133,011 Santa Clara 1,816,493 414,511 26,266 39,982 62,715 Alameda 1,502,588 353,077 19,663 25,024 46,024 San Mateo 1,496,321 363,301 18,626 26,209 41,447 Monterey 1,062,686 199,309 16,210 29,922 45,087 Sonoma 571,605 117,118 8,788 9,660 26,355 Santa Cruz 385,672 80,350 5,347 7,464 13,561 Napa 321,794 67,972 5,078 7,023 13,489 San Benito 49,459 8,713 724 591 2,327 - -------------------------------------------------------------------------------- The Association of Monterey Bay Area Governments (AMBAG) estimates that 15 percent of total employment in the county and about 45 percent of all services and trade employment in the county are supported by tourism. The Monterey County Hospitality Association estimates that the industry is directly responsible for creating over 16,000 jobs locally with a payroll of nearly $200 million. And including the estimated 10,000 indirect jobs, the payroll increases to $322 million. By the Monterey County Hospitality's estimates, the "trickle-down" effect of tourism puts the total impact at $4 billion to $5 billion. Restaurants, hotels and inns, retail trade, numerous publications, and a variety of other service-oriented businesses are directly dependent on the tourist trade for their welfare. Based on 1989 data, there was a total of 220 lodging facilities in Monterey County consisting of 10,381 rooms. Because the majority of the tourism industry is centered around the hotel and convention complexes, it has more of an impact on the Monterey Peninsula area. The Monterey Peninsula area provides for a plethora of recreational and cultural activities which in combination with the natural scenic beauty create a tremendous attraction for tourism. The area has a number of public beaches that cater to swimming and sunbathing as well as surfing and scuba diving. In addition to the beaches, there is boating and sailing as well as two yacht clubs servicing the Monterey Peninsula. The area also boasts a number of parks and campgrounds, including the Los Padres National Forest and State beaches and parks. Within these parks and reserves, there are facilities for riding, hiking, hunting, and fishing. There is also the renown Del Monte Forest area and its 17-Mile Drive; Cannery Row and Fisherman's Wharf, as well as the Carmel-by-the-Sea and the ocean-front drives of the peninsula communities. The growth of the tourist industry is reflected in the continuous extension of the visitor season. More and more small business meetings, conventions and recreational events are Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 15 <PAGE> The Elms Apartments, Salinas, CA now being held on a year-round basis. Although travelers and visitors to the Monterey Peninsula area come from all over the world, the primary points of origin are from within California, particularly within one day's driving distance. Again, attractions such as the Monterey Bay Aquarium and John Steinbeck's Cannery Row, as well as the Monterey Fisherman's Wharf, continue to be prime sources of vacation and tourism attractions. Paralleling the growth of the travel & lodging industry, was the development of the Monterey Bay Aquarium. The aquarium was approved by the coastal commission in 1978 and the 60,000 square foot facility was completed in 1985. The entire cost of the $50 million aquarium was absorbed by the philanthropist/businessman David Packard. The aquarium drew 2.227 million visitors in its first year and has averaged approximately 1,730,000 annually through 1991 --making it the single largest tourist attraction in the county. A substantial expansion to the facility is now underway. Upon completion of the expansion, attendance is expected to substantially increase. Occupancy for hotels and motels often reach 100 percent during peak season on the Monterey Peninsula. In fact, visitation patterns are being strongly affected by the lack of available rooms. The major limiting factor to the growth of the tourist industry in Monterey County in the future will be accommodations and facilities. According to statistics provided by the Monterey Peninsula Chamber of Commerce, the average occupancy rate has been approximately 65-75 percent, although 1996 is turning out to exceed those numbers. In an effort to further promote tourism, leaders in Monterey County's tourism industry are beginning an ambitious campaign to market the area. The general plan is to form an alliance among merchants, city officials and representatives of major events such as the Monterey Jazz Festival and Sports Car Racing Association of the Monterey County. The strategy for expanding tourism in the county is to spread out the times when visitors come to the county and to advertise the attractions of the region, rather than just Monterey, Pebble Beach or Carmel. Traditionally, the tourist season peaks from Memorial Day to Labor Day. Additionally, the alliance would like to also extend the average stay from two to three days in the county. To that effect, tourists would be encouraged to spend time touring the Big Sur Coast, wineries of Salinas and Carmel Valley, John Steinbeck's Salinas, and even the lesser-known missions of San Antonio and Soledad. The concept of "ecotourism" is also being promoted as a means of courting more visitors to the county. Monterey County, by virtue of its fragile ecosystem, scenic natural beauty and 20 years of "no growth" planning policy appears ideally suited to this new industry. Because the future of Monterey County may very well depend on its natural environment, "ecotourism" represents a mutual interest of both business and environmentalists. Thus the adverse impacts of increased traffic, use of precious water and growth of facilities geared to tourists are sure to be carefully weighed as community leaders look towards expanding the tourism industry in order to offset losses from the closure of Fort Ord. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 16 <PAGE> The Elms Apartments, Salinas, CA Monterey County's tourist season has traditionally run from Memorial Day to Labor Day, but recent patterns of hotel occupancy and retail sales show that the season starts and ends later. The summer 1995 aquarium attendance was up 10% over 1994. In June and July 1995, attendance was up 7 percent and 7.6 percent, respectively, over the same months of last year. August was expected to experience increases of up to 5 percent, according to Mr. Jim Hekkers, vice president of external affairs at the Monterey Bay Aquarium. Commercial Market The county's office market caters primarily to small local service business, while most regional and national companies are located on the Garden Road/Ryan Ranch/Highway 68 corridor, drawn by newer buildings, attractive rents, better parking ratios, and large contiguous spaces. The industrial market is "tight" in Monterey County. Vacancies are minimal and have continued to decline. Contiguous blocks of available space over 15,000 square feet are non existent. Most knowledgeable real estate brokers expect rents to increase slightly over the next year. New development should be limited because of minimal available industrial-zoned land The local retail market may seem crowded with large shopping complexes on the drawing boards in Salinas and Sand City, but marketing reports and consultants say there's room for more. Housing Market Monterey County's real estate sales surged in April/May 1996 with total sales coming in 67 percent higher than for the month last year. The increased activity has promoted optimism about a recovering market. The median home price for the county is approximately $300,000. This is up slightly over the past year. Regional Description & Analysis --Conclusion A survey of statistics on agriculture, home sales, retail sales and other indicators shows that the Monterey County economy is proving wrong the dire predictions made before Fort Ord closed down. For decades, farming and the military were the area's two economic mainstays. Today agriculture remains paramount, but other sectors are changing rapidly to fill the void created by the base closure. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 17 <PAGE> The Elms Apartments, Salinas, CA Jobs While unemployment estimates remain seasonally high, county business have added more than 6,000 new jobs in the past 12 months, mostly in agriculture and service related fields, according to the State Employment Development Department. Construction Although the county construction permits dropped by about 4 percent in 1995, when compared to the year before, to about $319 million, single family dwelling starts have bolstered this year's construction, which is about 20 percent ahead of last year's rate. In addition, government projects are still underway, including the $100 million Natividad Medical Center in Salinas. Completion is expected in early 1997. Built around a courtyard, the new facility will offer patients an array of outpatient services devoted to the needs of families, women and children. Construction has started on the 680,000 square foot Westridge Shopping Center in Salinas. It is expected that the Wall Mart Store will open in February 1997. Real Estate Sales Although Monterey County is considered the second least affordable area in the country, higher priced homes on the Peninsula are still attractive, particularly to the people in the 45 to 54 age range. Agriculture Monterey's total crop ranks third in the state in total dollar value, behind Fresno and Tulare counties. In terms of vegetable production,, the county is the largest in dollar value in the country. The county's crops amounted to 10 percent of the statewide crop total of $20 billion in 1995. Tourism The area's coastline, golf courses and resorts attract visitors from throughout the world. In 1995, attendance at the Monterey Bay Aquarium was 1.6 million and, with the opening of the Outer Bay wing in March, attendance is expected to go as high as 2.2 million this year, according to aquarium officials. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 18 <PAGE> The Elms Apartments, Salinas, CA CITY OF SALINAS-COMMUNITY PROFILE The City of Salinas, incorporated in 1874, is located eight miles inland from the Monterey Bay, at the head of the Salinas Valley. The level fertile floor of the valley tapers to a funnel just north of the City. The original King's Highway, now called El Camino Real and/or Highway 101, traverses the approximate center of the valley floor from the Prunedale area of rural north Monterey County to King City to the south. Other cities located in the valley south of Salinas includes Chular, Gonzales, Soledad, Greenfield, San Lucas, and San Ardo. A map of the city appears in the Addenda. Salinas has been recognized historically as the distribution center for agricultural products from the Salinas Valley, one of the world's richest, most fertile growing areas, with approximately 1,000 square miles of land. The economic base of Salinas has always been agriculturally oriented; however, during the past decade, rising property values have helped to make the city of Salinas a bedroom community of the Monterey Peninsula. Salinas has become the population growth center of the Monterey Bay region. Recent projections show the city will continue to grow at an annual rate of 3 percent. There are 100 manufacturing firms in Salinas. The leading group classes of products are food, electronic components and electrical products. The largest manufacturing firms in the community are: Simplot Corporation, 550 employees; National Refractories, 419 employees; Integrated Device Technology, 360 employees; Radionics, 359 employees; and McCormick & Company, Inc. (Shilling), 350 employees. The city has three distinct geographical business areas: South Salinas, East Salinas, and North Salinas (where The Elms Apartments are located). South Salinas "Old Town" is located south of West Market Street, along Main Street in south Salinas. This area has many specialty retail stores, financial institutions and restaurants. The City is actively pursuing the redevelopment of "Old Town." Since 1974, $15 million in private investments, matched by $34 million in publicly financed improvements, have been committed to this project. This redevelopment has revitalized the area and has attracted many new commercial tenants to this part of the city. This redevelopment is to include the Steinbeck Plaza, which is anticipated to be a much-heralded showpiece of the city's downtown district. It will consist of a mixed land-use project for the blighted 100 block of South Main Street and will include a five-story, 94 room hotel with rooftop restaurant; a five story, 110,000 square foot office building with conference rooms and retail shops; a four level parking garage; restaurants with a total seating of 400; and a 33,000 square foot public plaza that will include an amphitheater. County and city government offices are located in the south Salinas area. This part of the city is generally known as the financial center. It has the highest concentration of larger office buildings. One of the largest tenants in south Salinas is the County of Monterey and its support service agencies. Salinas is the county seat of Monterey County. As the county Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 19 <PAGE> The Elms Apartments, Salinas, CA seat, Salinas serves as the area's center for finance and agribusiness. It has captured nearly 40 percent of the county's office development. North Salinas The north Salinas business district of the city is located along North Main Street, south of Boronda Road and north of East Laurel Drive. The Northridge Regional Shopping Center, with over 120 specialty shops, three savings and loans, a bank, theater complex, and four major department stores, is located in this area of the city. In 1985, Northridge concluded a four year expansion, representing an investment of over $55 million. Convenience stores, financial institutions and other neighborhood stores are also located along North Main Street, which connects the north and south Salinas areas. Over the past five years, with the development of Northridge Shopping Center, north Salinas has become the retail center of the city. Office development in this part of the city has generally been directed toward smaller buildings. East Salinas The East/Alisal area of Salinas is generally described as that part of the city that is located east of Highway 101 and Natividad Road. The central commercial district is located along East Alisal. Portales de Alisal, a three level mix of retail shops and day care center, as well as medical and other professional offices, are planned on approximately eight acres located in the 500 block of East Alisal Street, in the Hebbron Heights neighborhood of the Alisal District. Neighborhood retail shops, small professional office users and trades people comprise the typical tenant profile in the east Salinas area. Vacancy in this area is low. Very few spaces are for lease. New retail space has leased very well as evidenced by the strong activity of a 19,600 square foot retail/shopping center located at 45 Sanborn Road. Population & Growth Percentage-Citv of Salinas vs. Monterey County - -------------------------------------------------------------------------------- Year Monterey County City of Salinas - -------------------------------------------------------------------------------- 2000 422,710 144,500 - -------------------------------------------------------------------------------- 1995 370,996 122,390 - -------------------------------------------------------------------------------- 1990 355,657 108,777 - -------------------------------------------------------------------------------- 1980 289,861 80,479 - -------------------------------------------------------------------------------- 1970 247,450 58,896 - -------------------------------------------------------------------------------- Monterey County-Employment by Industry - -------------------------------------------------------------------------------- 1992 1998 (projected) Percent Change - -------------------------------------------------------------------------------- Agriculture 30,600 32,900 8% Services 28,300 32,000 13% Retail Trade 23,700 25,700 8% Government 27,900 26,300 -6% Manufacturing 8,900 9,800 10% Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 20 <PAGE> The Elms Apartments, Salinas, CA Finance, Insurance, 6,300 7,000 11% Real Estate Transportation & 5,100 4,900 -4% Public Utilities Wholesale Trade 5,000 5,100 2% Construction 3,900 4,200 8% Mining 300 200 -33% Local Economic Developments-City of Salinas Early in 1996 the Salinas Valley Maximum Security Prison opened its new operation with its expanded correctional facilities. The new facility added nearly 700 new employees; an additional 800 new employees (the highest percentage are correctional officers) have recently been added, and by the beginning of 1997 an additional 450 new employees may be added. The recent hirings have already impacted the local apartment housing market throughout Salinas; interviews with numerous apartment managers have indicated that large numbers of newly-leased units are to correctional officers working at the Soledad State Correctional Facility; extremely limited housing within the city of Soledad have heavily impacted the demand for rental units in Salinas, considered only an approximate twenty (20) mile northerly commute from the prison. Increases in the city's services, retail trades, manufacturing, construction, and finance sector have resulted in a stronger demand for affordable multi-family housing units. The current shortage of rental units has been primarily the result of local economic activity. The expansion of the Westridge Shopping Center, a 650,000 square foot retail center, is within one-half mile of the subject property and includes a Wall Mart Store opening in February, 1997; this will also increase housing demand in the North Salinas area. Household Credit Corporation recently hired 200 new employees in 1996. Residential Growth-City of Salinas The Salinas Valley has long been an attractive area for homebuyers, especially first-time buyers who are looking for an affordable home in Monterey County. The average annual growth rate over the past 10 years was nearly 2 percent, and, as a result of continuing developments throughout both Monterey County and Salinas itself the rate should approximate 3 percent for the remaining few years to 2000. Salinas has been moving forward with several new developments that will add thousands of new people to the city by the time the next U.S. Census is taken in the year 2000. The Harden Ranch subdivision in North Salinas, for example, includes 1,683 single family homes, 719 multifamily units and an area for churches, schools and a park. Creekbridge subdivision is a mix of new homes, including 1,000 single family homes and 1,030 multifamily units. The Williams Ranch subdivision in East Salinas was planned for 1,551 homes and 519 condominiums or apartment units. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 21 <PAGE> The Elms Apartments, Salinas, CA If there are any restrictions to growth in Salinas it's the agricultural land that surrounds the city. The city's master plan for growth forbids city officials from considering new building projects to the south and west of the city limits because that land is some of the richest, most productive farmland in California. `Slow" of `No-Growth" policies will limit Salinas' development in the south and west portions of the city; therefore, future developments will concentrate more heavily in North Salinas. City of Salinas-Apartment Market Analysis Below is a simple chart illustrating the structural and vacancy characteristics estimated for the City of Salinas, as of September 28, 1996, the effective date of this appraisal. From a total of 35,902 housing units within the city, 13,247 units are considered multi-family (2 or more units in a structure). This equates to 36.9 percent. This estimate includes apartment units in plan check or currently under construction. All Housing Units - -------------------------------------------------------------------------------- Mobile Total 1 unit-detached 1 unit-attached 2-4 units 5-9 units 10+ units homes - -------------------------------------------------------------------------------- 35,902* 18,077 2,942 3,239 3,236 6,772 1,636 - -------------------------------------------------------------------------------- * Information provided by the Monterey County Association of Realtors and Association of Monterey Bay Area Governments. Utilizing the number of apartment units indicated above there currently exists 13,247 apartment units. Since the end of 1992, no apartment units have been built until 1996; the overall number has remained relatively constant for a number of years. Based on the current estimated population of Salinas of 122,390 and applying a 35% multifamily ratio provides for a total renter population of approximately 42,837. Dividing the renter population by the average 3.21 household size (estimated by the Association of Monterey Bay Area Governments) suggests that the City of Salinas would need 13,345 apartment units to accommodate this demand. Comparing this to the current apartment inventory of 13,247, a deficiency of 98 units exists. If this analysis is accurate, then this explains why the market as a whole is experiencing a very low to no vacancy rate at this time as reported by various apartment building managers throughout North Salinas, South Salinas, and East Salinas. Again, this is very consistent with my findings based on interviews with on-site managers, property managers, brokers and other appraisers. The Salinas apartment market is very tight with many of the larger professionally managed complexes reporting 98%-100% occupancy with a waiting list. The market has tightened up because of several factors including the recent expansion of the Soledad prison facility wherein they recently hired approximately 1,200 employees. As previously indicated, Household Credit Corporation recently hired 400 new employees and a host of other ancillary businesses have been hiring in and around Salinas. Additionally, the population has been growing at approximately 3,500 new residents per year. Much of this growth is due to the migration from Santa Cruz, Los Angeles, and San Jose. Many of these people are purchasing homes in the newly-developed master plan communities and many are renting. According to many of the on-site property managers renters are coming from as far as San Jose which is approximately 3/4 of an hour drive north. Rents are significantly Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 22 <PAGE> The Elms Apartments. Salinas. CA higher in San Jose. Rents in Salinas are estimated at between $250 and $500 below San Jose rents and therefore is attracting tenants who view making the commute an attractive alternative to paying higher rents. Below are the results of a survey performed by this appraiser of ten (10) apartment complexes within the City of Salinas as of the date of this appraisal. The average apartment building size was 146 units. The survey indicates the name of the complex, total number of units, total number of vacant units, and total number of units "on notice". Apartment Survey-City of Salinas September 28. 1996 - -------------------------------------------------------------------------------- Name Total No. Units No. Vacant Units Units On Notice - -------------------------------------------------------------------------------- Cypress Creek Apartments 288 0 12 - -------------------------------------------------------------------------------- Cypress Landing Apartments 112 0 0 - -------------------------------------------------------------------------------- Los Padres Apartments 220 4 2 - -------------------------------------------------------------------------------- Mariner Village Apartments 176 1 3 - -------------------------------------------------------------------------------- Northridge Park Apartments 232 3 3 - -------------------------------------------------------------------------------- Kipling Manor Apartments 92 0 0 - -------------------------------------------------------------------------------- Olive Tree Apartments 34 1 0 - -------------------------------------------------------------------------------- Shadowbrook Apartments 88 3 0 - -------------------------------------------------------------------------------- Sheridan Park Apartments 116 0 10 - -------------------------------------------------------------------------------- Village Green Apartments 104 0 4 - -------------------------------------------------------------------------------- TOTALS 1,462 12 34 - -------------------------------------------------------------------------------- This particular sample surveyed represents only 11.04 percent of the total number of apartment rentals in the city of Salinas. Based on information from the above respondents a vacancy rate of .8 percent was indicated. If one includes the number of "Units on notice" (tenants who plan to vacate within 30 days), the vacancy rate becomes 3.15 percent. Most of the tenants who have given notices to vacate are considered "seasonal workers" engaged primarily in the agricultural trades, according to property managers surveyed. NEIGHBORHOOD DESCRIPTION AND ANALYSIS The subject property is located in the southerly section of the North Salinas area of the city bounded by East Alvin Drive to the north, Natividad Drive to the east, Laurel Drive to the south and by the U.S. 101 Freeway to the west. The area as defined is somewhat rectangular in shape, measuring approximately 1.5 miles by .5 mile. In all, the neighborhood contains a total of approximately .75 square miles. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 23 <PAGE> The Elms Apartments, Salinas, CA Immediate Neighborhood Environs Beginning at the signalized intersection of N. Main Street and East Alvin Drive, at the southeast corner, is the former Social Security Center now occupied by Heald Business College, located to the immediate north of the subject property. Directly across the street from the subject is one of the city's public libraries, known as El Gabilan Library. To the east and south of the subject property are average quality, established single family residential subdivisions. Moving in an easterly direction along East Alvin Drive toward Natividad Road at 230 East Alvin Drive is the North Pointe Apartment Complex, considered one of the nearby competing apartment projects of The Elms. North Salinas High School is the neighborhood's focal point and largest user, located along East Alvin Drive north of Chaparral Street. Bordering the east of the neighborhood as defined is the Natividad Medical Center, currently under expansion in a $82.4 million dollar project. The building and courtyard will face Constitution Boulevard when completed. Moving in a westerly direction along East Laurel Drive from Natividad Road is the East Laurel Square commercial strip center. Small strip centers such as Gavilan Plaza and North Main Plaza are located after turning off East Laurel Drive up N. Main Street in the direction of the subject. Located at Curtis Street and N. Main Street are a 7-11 convenience store and Accu-Tune Brake Service Center. Roy's Fast Food Restaurant and BP Gasoline Service Station are other nearby commercial enterprises within walking distance of The Elms Apartments. Located on the southwest corner of Navajo Drive and N. Main Street is "Navajo Corner", a neighborhood retail center. Overall, the Elms is well located. SITE ANALYSIS General: The Elms Apartments Based on a plat map included in a preliminary title report furnished by our client (a copy is included in the Addenda), the site (obtained by combining two legal parcels) for The Elms Apartments contains a total of 10.57 acres. A survey of the site has not been provided, it is assumed that the Plat Map is correct. Please refer to the County Assessor's Plat Map in the Addenda. Topography and Drainage: The topography of the site is predominantly level. Drainage is considered adequate. Access: The Elms Apartments has two (2) asphalt paved driveways (security gated) from Noice Drive. Access is considered adequate. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 24 <PAGE> The Elms Apartments, Salinas, CA Utilities: All major utility services are available and connected to the property. These utilities include sewer, water, electricity, cable television, and telephone services. Sewer service is provided by the Monterey Regional Water Pollution Agency. The capacity of the sewer plant is 30 million gallons per day. Water is provided by the Alco Water Service and California Water Service Company. For both water companies combined, the maximum daily pumping capacity is 45,383,680 gallons per day. Quantity rates are $.7091 per 100 cubic feet. Natural gas and electric power are provided by Pacific Gas & Electric (PG&E). Local telephone service is provided by Pacific Bell. The City of Salinas Department of Public Works has adopted a master plan of storm drains. Charges are assessed on all on-site costs, plus off-site fees. Site Hazards: The subject property is located in a designated FEMA Zone "B", according to Community Panel Map Number # 060202-0001D, dated November 4, 1981. The "B" designation does not require flood insurance. Earthquake Fault Zone The property is not located in any known earthquake fault zones. The region is subject to periodic earthquake tremors. We know of no particular reason why the site would be at a greater risk than other area properties. Rent Control: Monterey County does not have rent control. The county does have an "inclusionary housing" program that provides for affordable "low-income" housing. Low and moderate housing assistance is available through a variety of programs offered by the Housing Authority of Monterey County, the City of Salinas and CHISPA, a non-profit housing developer. Apartment complexes for low-income families, the elderly, handicapped and farm-labor families are located throughout Salinas. The city has established a Housing Trust Fund to help increase the supply of affordable rental units as well as opportunities for home ownership. Contamination/Toxics: We have inspected the property with the due diligence expected of a professional real estate appraiser. It is important to note, however, that the appraiser(s) are not qualified to detect hazardous waste and/or toxic materials. Such a determination would require investigation by a qualified expert in the field of environmental assessment. To our knowledge, there are no potentially hazardous materials that would affect the valuation and/or marketability of the property as of the date of valuation. The appraised value of The Elms Apartments is specifically predicated on the assumption that there are no hazardous materials on or in the property that would cause a loss in value. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 25 <PAGE> The Elms Apartments, Salinas, CA Easements and Restrictions: Reference is made to the preliminary title report in the Addenda for easements and restrictions. There are no apparent adverse easements or restrictions that adversely affect the marketability of the subject property. Site Analysis Conclusion In summary, the combined two (2) parcels comprise a total of 10.57 acres improved with 188 rentable units. All utilities are available, including sewer service, electricity, gas, telephone and cable television. The site lies in Flood Zone "B" (no flood insurance required). Zone "B" is typical of most of the neighborhood. TAXES AND ASSESSMENT ANALYSIS In the State of California, property is enrolled at 100% percent of market value, as determined by the Assessor upon transfer of ownership or significant new construction. The maximum tax rate cannot exceed one percent of the enrolled value, plus general and/or special assessment bonds and fees approved by the voters. The current assessed value, for the tax year beginning July 1, 1996 to June 31, 1997, for the The Elms Apartments, is $7,504,571, and is broken down as follows: - -------------------------------------------------------------------------------- Assessor Parcel No. 261-661-006 261-661-007 - -------------------------------------------------------------------------------- LAND $933,697 $933,697 - -------------------------------------------------------------------------------- IMPROVEMENTS $3,056,303 $3,370,683 - -------------------------------------------------------------------------------- PERSONAL PROPERTY $54,000 $58,800 - -------------------------------------------------------------------------------- TOTAL $4,044,000 $4,363,180 - -------------------------------------------------------------------------------- For The Elms Apartments, real estate taxes for the 1996-97 tax year are $85,644.04. Direct assessments of $1,185.74 are included. The tax rate for the The Elms Apartments is 1.004660 percent per $100 of full cash value. Direct assessments are imposed by the North County Water Regional Agency (.004660) only. There are no special assessment bonds, according to the Monterey County Tax Collector Department. Both installments have not been paid for 1996-97. The reader should refer to the preliminary title insurance report for specific amounts of any unpaid previous tax installments. The first installment for 1996-97 is due November 10, 1996. The tax rate area for The Elms Apartments is 005-022. Re-assessment of The Elms Apartments: Proposition 13 The current tax amounts for the 1996-97 tax year will not remain the same beginning on July 1, 1997. According to Proposition 13 for California, the subject property will be Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 26 <PAGE> The Elms Apartments, Salinas, CA re-assessed, most likely based on the new sale price or market value at time of sale. The assessments will be based on full cash value using a tax rate per $100 of full cash value. The passage of Proposition 13 establishes a maximum property tax of one percent of full cash value. The mandated one percent (1%) property tax level converts to a $1.00 base tax rate. The additional rates imposed by the Water Regional Agency will be added to the $1.00 base rate. ZONING DESCRIPTION AND ANALYSIS The Elms Apartments is currently under the zoning designation of R-H-2.3 by the City of Salinas. This zoning designation specifically refers to a high density residential district. Section 37-44 addresses specific purposes of the particular district's regulations. They are as follows: (1) To provide appropriately located areas for high density multiple family dwelling units consistent with the General Plan and with standards of public health and safety established by the Salinas Municipal Code. (2) To provide adequate light, air, privacy, and open space for each dwelling unit and protect residents from the harmful effects of excessive noise, population, density, traffic congestion and other adverse environmental impacts. (3) To promote development of affordable housing by providing a density binus for projects in which a portion of the dwellings are affordable to qualifying households. (4) To achieve design compatibility through the use of site development standards. (5) To protect adjoining low density residential districts from excessive noise or loss of sun, light, quiet, and privacy resulting from proximity to multifamily dwellings. (6) To provide sites for public and semipublic land uses needed to complement residential development or requiring a residential environment. (7) To ensure the provision of public services and facilities needed to accommodate planned population densities. For a comprehensive list of all property development regulations under the R-H-2.3 Zoning District the reader may refer to the Addenda of this report. Parking Requirements-On-site Division 18-Off-Street Parking and Loading Regulations of the City of Salinas Municipal Code lists all use classifications. For multifamily residential complexes containing over ten (10) units, the off-street parking and loading requirement is 1.6 spaces per unit. The Elms Apartments has 188 carport spaces and 40 open spaces for a combined total of 228 Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 27 <PAGE> The Elms Apartments, Salinas, CA spaces. It appears that the subject property meets all applicable city zoning, building and parking requirements. IMPROVEMENT DESCRIPTION AND ANALYSIS The Elms Apartments were constructed in 1979 and contain a total of 188 units configured on a 10.57 acre site. The 188 rentable units are in two (2) floorplans: a 1br-1ba unit and a 2br-lba unit.. The net rentable building area (see individual unit sizes below in chart) is 148,260 square feet. The manager's office consists of only 192 square feet. There are (2) individual on-site laundry rooms. The Elms Apartments are considered Class D Building(s) Construction Type V (wood frame) of the Uniform Building Code. Class D buildings are characterized by combustible construction. The exterior walls are made up of closely spaced wood studs with an exterior wood siding. The exteriors of all buildings have recently undergone new painting. The roof, consisting of asphalt shingles, is supported by a wood truss system with a concrete slab floor on 1st floor area. The upper floor (2nd story) consists of plywood sheets. The Elms Apartments are adequately improved with metal rain gutters and downspouts. Also, the subject is in a class of construction referred to as protected one-hour construction. Unit Mix-The Elms Apartments - -------------------------------------------------------------------------------- TYPE UNITS AREA (sf) - -------------------------------------------------------------------------------- 1 BR-lBA 80 672 - -------------------------------------------------------------------------------- 2BR-1BA 108 875 - -------------------------------------------------------------------------------- TOTAL 188 148,260 - -------------------------------------------------------------------------------- Interior Improvements: The Elms Apartments Floor coverings consist of wall to wall carpeting over concrete slab in lower levels and over plywood subfloor in upper levels. Vinyl flooring is in kitchens and bathrooms. There is electric wall heating throughout the units. The kitchens have formica countertops, freestanding electric range and ovens, garbage disposals, and dishwashers. Each of the individual units are served with 30 gallon hot water heaters. Bathrooms are improved with fiberglas wainscoting and cultured marble vanities. Overall condition is considered good. Many of the units have recently been upgraded with new carpeting and interior painting. There are no fireplaces. Note: Information regarding the individual unit sizes were taken directly from the results of measurements obtained personally by the appraiser. The appraiser was not presented with any drawings or floorplans of representative units. Only a few units could be inspected. These inspected units are considered representative of the entire project. Lincoln Residential Services Company indicated that The Elms Apartments contains only a one and a two bedroom floorplan; no variations in unit sizes were indicated nor obtained as a result of the appraiser's inspections. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 28 <PAGE> The Elms Apartments, Salinas, CA Effective Age: The Elms Apartments The actual age of the complex range is 17 years. An average quality Class D apartment project is estimated to have a total economic life of fifty (50) years. This is based primarily on the performance of many comparable properties built in the 1940's and 1950's still in existence in Monterey County still capable of attracting tenants due to upgrading and above-average maintenance. In addition, the Marshall and Swift Cost Valuation Service provides reasonable support for an estimated total economic life expectancy of fifty (50) years. Because The Elms Apartments has undergone adequate recent upgrading, including new exterior painting, and carpet and interior re-painting as required as tenants vacate, it is the appraiser's opinion that an estimated overall effective age of twelve (12) years is considered reasonable and supportable. Remaining Economic Life: The remaining economic life is estimated at 38 years, although it certainly could be longer or even shorter. This estimate is made by deducting the effective age of 12 years from a total economic life of 50 years. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 29 <PAGE> The Elms Apartments, Salinas, CA HIGHEST AND BEST USE ANALYSIS Definition Highest and best use, as used in this appraisal, is defined as that reasonable and probable use that will support the highest present value, as defined, as of the effective date of the appraisal, September 28, 1996. Alternatively, that use, from among reasonably probable and legal alternative uses, found to be physically possible, appropriately supported, financially feasible, which results in highest land value. The above definition of the "Highest and Best Use" is in reference to land that is unimproved. In cases of improved land, a determination of the contributory value of the improvements to the land must be made. The improvements found on a site may be of inappropriate use, but will continue until the land value exceeds the total value of the property in its existing use. Discussion Our opinion of the highest and best use of the subject land parcel will be supported based upon our analysis of the four tests outlined below: 1. Legally Permissible Use. This type of use is legal and conforms to the zoning assigned to property, as well as to the City's planning goals. 2. Physically Possible Use. The shape, size, and available utilities are adequate to serve this use. 3. Financially Feasible Use. Population and immediate income statistics support the feasibility of the highest and best use based upon the quantity, quality, and distribution of the income and its prospective users. 4. Maximally Possible Use. An analysis of which possible legal uses will produce a net return and/or create value to the site. All three standard appraisal approaches to value are affected by the highest and best use. Therefore, valuation is highly dependent upon the conclusions set forth by this analysis. Physically Possible Section 37-46 of the City of Salinas Municipal Code specifies a minimum lot size of 7,200 square feet in a R-H-2.3 high density residential district. The Elms Apartments contains a site of 460,429 square feet. A minimum of 1,800 square feet is required for each unit, according to Section 37-46 of the Regulations Based on this requirement, therefore, both sites are physically capable of being developed with the existing improvements. Legally Permissible The subject is zoned and general plan designated to allow high density residential uses. As existing, the subject is a legal and conforming use. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 30 <PAGE> The Elms Apartments, Salinas, CA Financially Feasible In evaluating the most reasonable and probable use of the vacant site, we considered the demographics of the surrounding area, land use patterns, local market supply and demand, general market conditions, and the physical characteristics of the property itself. The most feasible and marketable use for the subject site(s) appears to be for apartment use, given the present shortage of rental housing in Salinas, which is a result of the local economy and current growth of Salinas. Rapid changes in market conditions which were previously discussed in the Neighborhood and City Sections indicate apartment and multifamily housing as the most reasonably probable use of the subject property. Maximally Possible Use The final of the four tests in the highest and best use analysis is the use that maximizes the land value by providing the highest return. This test must be considered sequentially with the prior three tests; it makes no difference that the most probable highest value is a apartment complex, for example, if the zoning does not permit this use. The most profitable use appears to be a multi-family or apartment use. This is largely based on the fact that the current improvements are apartments and are configured on the sites as such. At the present time, the City of Salinas Planning Department recognizes through its general plan the R-H-2.3 high density residential district of the subject's neighborhood in North Salinas and is aware of the changing market conditions and rental shortage that exists in the City of Salinas. There is virtually no availability of vacant land in South Salinas for apartment use, for example, since that area is primarily designated as agricultural land. The City is encouraging the future development of high density residential land in the North Salinas section of the city. Highest and Best Use Conclusion - As Improved In conclusion, the highest and best use of the subject site, as improved, is the existing use. Highest and Best Use Conclusion - As Vacant In conclusion, the highest and best use, as vacant, is a multi-family or apartment-type use. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 31 <PAGE> The Elms Apartments, Salinas, CA THE APPRAISAL PROCESS - -------------------------------------------------------------------------------- The estimation of a real property's market value involves a systematic process in which the appraisal problem is defined and the data required is gathered, analyzed and interpreted into an estimate of value. Traditionally, three methods of valuation have been used in appraising: the cost, market and income approaches. In the cost approach, the value of the site is first estimated by comparing it to similar sites that have recently sold or are currently offered for sale. Replacement cost new of the improvements is determined by reference to actual costs of similarly constructed properties. Depreciation from all sources is then deducted from the replacement cost new of the improvements to arrive at the present value. The depreciated value of the improvements is added to the estimated land value to arrive at the total value by the cost approach. In this appraisal, however, NationsBank has requested that the cost approach be omitted from this appraisal assignment. The cost approach has been determined to be inapplicable in the valuation of 10 to 30 year-old multifamily properties due to the subjectivity involved with estimating depreciation in older properties. The market comparison approach involves comparison of the subject to similar properties that have recently sold or that are offered for sale. These sales are reviewed for differences from the subject in the date of sale, location of the site, physical characteristics and other factors. The comparable properties are then adjusted to formulate a value range for the property being appraised. The third of the three valuation techniques is the income approach. This approach involves estimating net operating income, and discounting this income to a present worth through the capitalization process. For most income-producing properties, including apartments and multifamily properties, this is an important means of valuation. INCOME CAPITALIZATION APPROACH - -------------------------------------------------------------------------------- The first and primary approach applied to the valuation of the subject is the income capitalization method. This technique involves conversion of future anticipated income into an estimate of present value by the capitalization process. This procedure involves three steps as indicated below: 1. Estimate gross income from available rental information and the 2. Estimate and deduct vacancy and collection loss allowance and operating expenses to derive net operating income; and, 3. Select an applicable capitalization method or methods, develop the appropriate capitalization rate, and complete the necessary computations to derive an economic value indicated by the income capitalization approach. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 32 <PAGE> The Elms Apartments, Salinas, CA Required Information Documents that are helpful to better estimate value under the Income Approach include the following: o Income/Expense statements o Personal Financial Statements of Owner (if applicable) o Rent Roll o Lease Agreements o Other (service agreements) Income and expense statements. Operating statements provided by management over the past year and seven months are included in the Addenda. Personal Financial Statements. The owner's personal financial statements are not required to appraise the property, but can be helpful under certain circumstances. While market value intrinsically assumes transfer to a willing and knowledgeable buyer at market price, financial statements of the owner often provides insight into the current management quality and style of the property. An undercapitalized owner, for example, may not be able to institute correction of deferred maintenance that will enhance livability. As such, occupancy and rates may suffer from inadequate level of maintenance, which results in loss of reputation. Financial statements of the subject ownership have not been reviewed. However, based on conversations with management and the overall good maintenance level and high occupancy of the property, it can logically be assumed that ownership is capable of operating the property in a strong professional manner. Based on conversations with management, and inspections of other properties owned by Thysen and managed by Lincoln Property Residential, the subject has been operated in a professional manner and there appears to be no operational problems at this time. Rent Roll: A roll of the current tenants have been provided by management as of September 28, 1996. As of the inspection date, six units were unoccupied, but three have been leased to new occupants who have yet to move in (i.e., 1.6% vacancy). Lease Agreements: A copy of the standard 2-page residential rental agreements have been reviewed, and have been included in the Addenda. All tenants are on short-term 7, 8 and 9 month leases. The rental agreements are typical of others used in the marketplace. Utilities, except for water, trash and basic cable are paid for the tenant. There is a late charge of $30 if management elects to accept rent after the third of the month, and a $20 returned check fee. No pets are allowed without written consent. Use of the premises shall be for a private residence only. No more than three persons shall occupy a one bedroom unit; no more than 5 are allowed in a two bedroom. Occupancy limits are strongly enforced. First month and security deposits are collected prior to the tenant moving in. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 33 <PAGE> The Elms Apartments, Salinas, CA Capital Improvements: Capital expenditures over the past two years have also been reviewed and/or discussed with the property manager. Improvements to the property over the past year and half include exterior paint (entire complex), new landscaping, and new appliances and carpets in most units. Occupancy trends: In addition to the above, occupancy trends of the complex have been reviewed. Since Lincoln Property took over as managers approximately 1.5 years ago, occupancy has been increasing. Increased occupancy has also been due to an improving rental market. The new management has also qualified tenants better which have resulted in less turnover and less evictions. There is a rent special of $200 off first month's rent for new tenants of a two bedroom unit. Rent specials are done periodically; it is not done throughout the year and only for a few selected units. Other: According to management, the laundry machines are owned by the service company. Subject Asking Rents As of September 28, 1996, the following monthly rents (all unfurnished) were being charged at the subject complex: 80 1 BR/1BA 672sf $575 $0.85/sf $46,000 108 2 BR/1BA 875sf $695 $0.79/sf $75,060 --- ----- ---- -------- ------- 188 $643.94 $121,060 Note: There are no known size variances. There are no locational variances in price. All rents include water, trash removal and basic cable. Tenants pay their own gas and electric (Pacific Gas & Electric Company), telephone, and premium cable channels. To qualify, prospective tenants must have three times the monthly rental rate and a positive credit report and previous rental history. There is a $25 application fee (includes credit report). The application fee is non-reimbursable. The above price list was set in September 1996. Management periodically surveys other complexes in the area in order to maintain market rental levels. As can be noted on the rent roll in the Addenda, some of the subject apartment units are already at the new "market" price levels. Those units with leases expiring will be moved to the new rates. At this time, there is a difference of approximately 6+/- percent between the market and actual rents (i.e., actual rents lag about 6 percent below market). Rent Survey and Analysis In order to determine whether the subject rentals are at or within a market rental range, a survey of competing complexes was made. This analysis involved a comparison of amenities and facilities offered by competitive projects with those offered by the subject. The competing complexes considered most helpful in estimating the subject economic or market rental level are summarized on the following pages. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 34 <PAGE> RENT COMPARABLE NUMBER 1 Name: CYPRESS CREEK Location: 162 Casentini Street, Salinas Age/Type: 9 years old/ two-story garden design - 288 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $725-750 750 $0.97-1.0O 2BR/2BA = $925-950 1000 $0.925-0.95 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, racquetball, spa, w/d hookups, laundry rooms Vacancy: 0% (some units will become available in next few weeks) Comments: Nine year old project; good tenant appeal. Located off N. Main Street. Close to shopping, schools, freeway. Deposit = $300/400. $25 per month extra with lease (either 6 or 9 months). Pet deposit of $400 (cats). Good demand over past year. Source: (408) 758-3008 (PHOTO) 35 <PAGE> RENT COMPARABLE NUMBER 2 Name: FOX CREEK Location: 136 W. Alvin, Salinas Age/Type: 1986/ two-story garden design - 168 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $625 708 $0.88 2BR/1BA = $725 875 $0.83 2BR/2BA = $750 986 $0.76 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, w/d hookups in all units, laundry rooms Vacancy: 0% (some units will become available in December) Comments: Ten year old project; good tenant appeal. Located off N. Main Street. Close to shopping, schools, freeway. Deposit = $250. Pet deposit of $350 (20 lbs.). Good demand over past year. No units available. Some units may become available in December. Carport parking plus open. No specials. Month-month rentals. Source: (408) 449-l800 [PHOTO OMITTED] 36 <PAGE> RENT COMPARABLE NUMBER 3 Name: CYPRESS LANDING Location: 552 Rico Street, Salinas Age/Type: 1989/ two-story garden design - 112 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $655-690 750+/- $0.87-0.92 2BR/1BA = N/A 2BR/2BA = $765-825 975+/- $0.78-0.84\5 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, some units have fp's (all 1/br's), laundry rooms Vacancy: 0% (some units will become available in October) Comments: Good tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit = $350/450. Good demand over past year. No units available. Some units may become available in October. Carport parking plus open. No specials. 6 and 12 month leases ($15/mo. taken off 12 mo lease). Source: (408)424-4343 [PHOTO OMITTED] 37 <PAGE> RENT COMPARABLE NUMBER 4 Name: NORTHPOINTE Location: 196 E. Alvin Drive, Salinas Age/Type: 1976/ two-story garden design - 138 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $568 648 $0.87-0.92 2BR/1BA = $620 735 $0.84 2BR/2BA = $669 835 $0.80 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, some units have fp's (all 1/br's), laundry rooms Vacancy: 1% (only one unit available at survey time) Comments: Avg-Avg+ tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit = $300/400. Good demand over past year. Carport parking plus open. No specials. 6 month leases. Source: (408)443-1776 [PHOTO OMITTED] 38 <PAGE> RENT COMPARABLE NUMBER 5 Name: THE REEF APARTMENTS Location: 333 W. Laurel Drive, Salinas Age/Type: 1960's/ garden court design - 54 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $530-545 625 $0.87 2BR/1BA = $650 800 $0.81 Studio = $450 400+/- $1.13 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: pool only Vacancy: 00% (none at time of survey; waiting list) Comments: Avg tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. No specials. Source: (408) 449-1680 [PHOTO OMITTED] 39 <PAGE> RENT COMPARABLE NUMBER 6 Name: SHERIDAN PARK Location: 1450 N. First Street, Salinas Age/Type: 1983+/ two-story garden design - 116 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $570 630 $0.90 2BR/1BA = $620 800 $650 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Heated pool, 2 sauna, spa, laundry rooms, security gates Vacancy: 0% (none at time of survey) Comments: Avg-Avg+ tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit = first month's rent plus key deposit. Carport parking plus open. No specials. No units available, but 10 units will be in November. Source: (408) 449-82O3 [PHOTO OMITTED] 40 <PAGE> The Elms Apartments, Salinas, CA All rental rates quoted in the survey are month-to-month or short-term leases. None of the complexes surveyed in this report had long-term leases. All complexes are garden style two and/or three-stories of similar vintage and design as the subject. All are located in the general subject neighborhood. Typically, rents include water and trash removal. None of the complexes were offering any specials. Rental Number 1 represents Cypress Creek, located at 162 Casentini Street, nearby the subject. This is a 288-unit complex built in 1987. It is of good quality and in good condition. Amenities include tennis courts, heated pool, sauna, racquetball, spa, laundry hookups, laundry rooms and carport parking. No promotional specials or concessions. Leases are 6 and 12 month terms. Security deposits are $300 and $400 (depending on the unit size). Pets are allowed with a $400 deposit. One bedroom units are reported at 750 square feet, and rent from $725 to $750, depending on variation of location within the complex. Two bedroom/two bath units measure 1,000 square feet and rent from $925 to $950, or $0.93 to $0.95/sf. Only four units are available. This is one of the newer and better quality complexes in Salinas and is similar in many respects to the subject. Like Rental Number 2 below, it is comparable to the subject, but superior. The subject does not offer the recreational amenities nor does it have the appeal as Rental #1. On a per unit basis, the subject should definitely rent lower than $725 for one bedrooms, and $925 for two bedrooms. Rental Number 2 represents the 168-unit Fox Creek Apartments, located at 136 West Alvin Drive nearby the subject in north Salinas. The overall quality and condition are good. No promotional specials or concessions. Leases are 6 and 12 month terms. Security deposits are $250. Amenities consists of a pool, spa, weightroom, clubhouse, laundry rooms, and tennis courts. Some units have washer/dryer hookups. There are 76 one bedroom, 24 two bedroom/one bath, and 68 two bedroom/two bath units. One bedroom units are reported by management at 708 square feet, and rent at $625 per month, or $0.88/sf. Two bedroom/ one bath units are 875 square feet, and rent at $725 per month, or $0.83/sf. Two bedroom/two bath units are 986 square feet, and rent at $750 per month, or $0.76/sf. Current vacancy is zero. Like Rental #1, this comparable is superior to the subject as it contains more recreational amenities and is newer. This comparable is useful in setting the upper end of the per unit rental range for the subject. It is clear that the subject one bedroom units should rent below $625, and the two bedrooms should fall below $725 per month. Rental Number 3 is the 112-unit Cypress Landing Apartments located at 552 Rico Street, nearby the subject in north Salinas. This is a newer complex built in 1989. It is of good quality and in good condition. There are 36 one bedroom and 76 two bedroom/ two bath units. One bedroom units measure approximately 750 square feet and are $640-665 per month. Two bedroom units are approximately 975 square feet, and rent from $745-795 per month. Amenities include a pool, spa, clubhouse and carport parking. Some units have fireplaces. No rental concessions or specials. The property is close to shopping, freeway access and schools. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 41 <PAGE> The Elms Apartments, Salinas, CA The overall appeal is good. Only one unit is currently available. As with the previous two comparables, Rental #3 is superior to the subject. Rental Number 4 is the 138-unit Northpointe Apartments located at 196 East Alvin in North Salinas nearby the subject. This is a two-story garden complex built in 1976. The overall quality and condition are above average to good. The location directly off N. Main is close to shopping, schools and freeway access. The complex has 1, one bedroom unit currently available at $568/month, and 1, two bedroom/one bath unit at $620/month. Two bedrooms reportedly rent as high as $669 per month. One bedrooms range from 624 to 648 square feet, and two bedrooms contain 735 to 835 square feet. Rents include water and trash. Security deposits are $300 for one bedrooms and $400 for two bedrooms. Leases of six months are required. There are no specials or concessions. Pets are not allowed. Amenities include two laundry rooms, and one swimming pool. The appeal, age and level and quality of amenities are similar to the subject. The subject has an advantage of having security fencing. The subject units are priced very close to Northpointe. Overall, this comparable provides excellent support for the subject "market" rents. Rental Number 5 represents The Reef Apartments, a 54-unit garden court design complex built in the 1960's. This complex is also located in north Salinas nearby the subject. It is older than the subject, and has slightly less appeal. This complex is renting one bedroom units at $530 to $545, and two bedroom units at $650. Studios are $450 per month. All rents include water and garbage. The subject offers superior appeal in that the rent includes basic cable and security gates. Given these differences, the subject should rent about $20 to $25 per month higher. Overall, Rental #5 gives excellent support to the subject "market" rents by bracketing at the lower end. Rental Number 6 represents Sheridan Park, located nearby the subject. This is an average quality property that features security gates. Rents are $570 for one bedrooms and $620 per month for two bedroom/one bath units. Water and trash removal are included in the rent, but basic cable is not. The overall quality and appeal are similar to the subject. According to management, there are no available units at this time. Overall, this is an excellent comparable for the subject. Other: In addition to the above primary comparables, several other complexes including many owned by Thysen in the Salinas marketplace were considered. Thysen owns another 12 complexes in Salinas (most are in North Salinas). Although not enough to "set" the market, the number of complexes controlled by Thysen has an influence on rental levels. Thysen property managers (employees of Lincoln Property) regularly refer clientele to other Thysen complexes. Still, there are more than enough competing projects to make it difficult if not possible to "control" the market. Rental rates at these complexes are consistent with one another and with competing projects. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 42 <PAGE> The Elms Apartments, Salinas, CA Market Rental Conclusion The six primary comparables strongly support the current subject "market" rental rates of $575 to for one bedrooms and $695 for two bedrooms. On a per square foot basis, the range is $0.79 to $0.86 per square foot which fall in-line with the market. Of the complexes surveyed (including those not shown in this appraisal) which consisted of about 2,000 total units, overall vacancy is running between 1-2 percent. Most had no vacancy. Some had only a few units available. A few managers stated that units should become available in November and December as seasonal workers go home. When a unit does become available, it typically takes 3 to 7 days to re-rent. However, in several cases, the unit is pre-leased (rented prior to the occupant moving out). Subject Market Rental Income (@ 100 Percent Occupancy) Based on market rents, the subject would have a monthly gross rental income of $121,060 (annualized = $1,452,720). Actual Reported Income Shown below is a table outlining collected revenue for 1994, through August 31, 1996. Rental income for September 1996 is also shown. Income statements are shown in the Addenda. <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------- 1994 1995 YTD (`96) Sept. 96 - --------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> *Gross Rents: $979,646 ($434/un) $1,115,514 ($494/un) $778,313 ($518/un) *$107,220($570un) Laundry $ 21,189 $ 23,324 $ 19,784 N/A Other $ 65,503 $ 57,647 $ 48,545 N/A </TABLE> * - collected rents (not including vacancies) N/A = Not available Rental Income Estimate: Almost all of the subject's total income is derived from rents. Rental income has increased steadily over the past 1.5 years. This is due in part to new management and an improving rental market. The actual rental income for the month of September 1996 was $107,220, or $570 per unit. This amount does not include five vacant/vacant pre-leased units. The market rent for the vacant units total $3,355, or $671 per unit on average. Blending this with actual rental income, results in a gross scheduled rental income of $110,575, or $588 per unit. This is only 6.1 percent below market potential. Consequently, $110,575 or $1,326,900 annualized has been used as stabilized gross income. Laundry: The laundry income is stabilized at $26,000 per year. This is consistent with other complexes of this size and with the subject's prior past years of operation. Other: Other income consists of retained deposits, late charges, nsf checks, and miscellaneous charges to tenants. The large percentage of this category relates to security deposits. Although Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 43 <PAGE> The Elms Apartments, Salinas, CA forfeited security deposits and late charges are a source of income, it is not included in the reconstructed operating statement as part of ongoing cash flows. This is largely because this type of income was not accounted for in the computation of gross and net operating incomes for the comparable sales. By including other income for the subject but not the comparables, would be overstating value. However, other income has been considered in the overall valuation. Total Gross Income: Total gross income is estimated at $1,352,900; rounded to $1,353,000. Vacancy and Collection Loss In estimating a stabilized vacancy factor, several factors were considered. First, vacancy has decreased over the past few years due to new management and improving market conditions. The property has been upgraded over the past year. Meanwhile, market conditions have improved due to an expanding economy. The resurgence of "Silicon Valley" 70 miles to the north, the new Soledad Correctional facility, and several thousand feet of regional shopping space has created many new jobs. The new Wal-Mart in this area will also expand the retail base, and bring in new jobs. As of the inspection date, the subject complex is running a zero vacancy. This is consistent with comparable Salinas projects. However, units are expected to become available and occupancy will not remain at 100 percent. Annual vacancy has been low, according to management (about 2-4 percent). In addition to vacancy, consideration must also be made for ongoing collection loss. In the case of the subject, collection loss has been reduced from previous years due to the stricter qualifying policies. There are no pending evictions. Consideration should still be made for collection loss. A reasonable stabilized collection loss rate is 1 to 2 percent of gross income. Assuming continued good professional management, vacancy and collection loss should run at approximately 5 percent on average. There is the strong possibility that vacancy and collection will fall below this estimate over the next 12 to 24 months; however, longer-term, consideration should be made for decreased economic activity which could result in "softer" rental conditions. Effective Gross Income The effective gross income is estimated by deducting five percent from estimated gross income, as shown below: - -------------------------------------------------------------------------------- Gross Annual Income: $1,353,000 Less: Allowance for Vac/Collection (5%) ( 67,650) --------- EFFECTIVE GROSS INCOME $1,285,350 - -------------------------------------------------------------------------------- Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 44 <PAGE> The Elms Apartments, Salinas, CA Expense Analysis In order to estimate the value of the property by the income capitalization approach, expenses must be deducted from effective gross income to arrive at a net operating income estimate. Like other types of income property, apartment property expenses are a function of services provided as well as physical and geographical characteristics of the property itself. Operating and "fixed" expenses vary from complex to complex, but generally fall between 33 to 45 percent of revenue (gross income), including replacement reserves. Expenses can be broken down into per unit per year (or month), or as a percentage of rental revenue or effective gross income. Expenses as a percentage of income change depending on revenue levels. It can be difficult to compare apartment expenses on a line-by-line basis. No two apartment complexes are alike. Shown on the following page is a recent operating history of the subject. Expense categories are analyzed and discussed below. It should be noted that new management took over in 1995; expense records previous to 1995 are not complete and do appear to reflect current conditions. Real Estate Taxes & Direct Assessments California state law requires the reassessment of any parcel upon change of ownership. The market value of the subject property intrinsically assumes a hypothetical sale. Therefore, it is necessary to estimate real estate taxes based upon market value. In the State of California, property is enrolled at 100 percent of market value as determined by the County Assessor upon transfer of ownership or significant new construction. The maximum tax rate cannot exceed 1 percent of the enrolled value, plus general assessment bonds and fees approved by the voters. Enrolled value can be increased by a maximum of 2 percent per year, absent transfer, or new construction, based on the cost of living. Under Proposition 8, approved subsequent to Proposition 13, value can also be decreased to reflect current market conditions. The actual taxes are below what the new taxes would be based upon market value. According to the Monterey County Tax Collector Department, there are no special assessment bonds. The tax rate is 1.05 percent of assessed value. Since market value has not yet been estimated by the income capitalization approach, a technique which adds the composite tax rate reflecting the ad valorem taxes to the capitalization rate has been used. The resulting value estimate is then multiplied by the composite tax rate to obtain the amount of new taxes. This method gives only an approximation since the assessed value may not necessarily be the sale price (or market value). In addition, the value conclusion by the sales comparison approach has been used as a guide. Applying the tax rate, results in new taxes of $82,000+/-. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 45 <PAGE> The Elms Apartments, Salinas, CA - -------------------------------------------------------------------------------- SUBJECT PROPERTY OPERATING HISTORY - -------------------------------------------------------------------------------- Expense Item 1994 1995 Y-T-D (8/96) - ------------ ---- ---- ----------- Payroll $ 97,627 $132,737 $ 77,441 Utilities $152,552 $152,013 $112,665 Insurance $ 60,020 $ 8,245 $ N/A Taxes & $ 85,748 $ 42,854 $ 42,853 License & Permits $ 280 $ 2,536 $ 2,484 Management Fee N/A $ 30,485 $ 28,582 Administrative $ 5,353 $ 29,457 $ 12,185 Maintenance & Repair $ 70,892 $187,423 $ 90,175 Gardening/Landscaping $ 67 $ 14,437 $ 14,596 Cable T.V. $ 18,267 $ 16,716 $ 12,150 Security N/A $ 6,885 $ 7,494 --- ---------------------- $490,806 $623,788 $400,625 - -------------------------------------------------------------------------------- TOTAL Per Unit (Rd) $3,300/unit $3,200/unit - -------------------------------------------------------------------------------- Note: Maintenance & repair expense in 1995 is inflated due to $76,152 spent on new carpets and $40,296 spent on extra supplies. Many of the above categories are group expenses (e.g., pool supplies and maintenance is under Maintenance and Repairs). License and Permits In addition to taxes, apartment properties incur license and permit fees. These fees have been approximately $2,500 per year over the past two years. As such, the stabilized estimate is $2,500 ($13/unit). Payroll The subject employs 6 full-time personnel. The manager lives in the complex and the unit rent is included in his compensation. Payroll expense was reported at $132,737 in 1995, or $706 per unit. This includes payroll taxes, state compensation insurance, unemployment taxes, wages for manager and office workers as well as maintenance personnel, and bonus. To date in 1996, this category is $77,441, or $618 per unit annualized. This expense has been stabilized at $116,000. Utilities Utility expense includes water, trash, basic cable, sewer, electrical for exterior site lighting and for other common amenities, including laundry facilities, filtering equipment for the pool, lighting for the clubhouse, etc.; tenants pay their own telephone, electric and gas, and premium channel cable. The subject units are individually metered. Trash removal service is included in the monthly rent for all units. Utility expense can be estimated on a price per unit or on a price per square foot basis. The projects with the greatest Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 46 <PAGE> The Elms Apartments. Salinas, CA amount of amenities and larger unit sizes generally show the highest rates of utility expenses. In 1994 and 1995, utilities were reported at $809 per unit, or $152,000. The annualized projection for 1996 based on the first eight months is $899 per unit. We have stabilized this expense at $825 per unit, which is consistent with prior years and other apartment complexes throughout the region. Insurance Insurance expense has been stabilized at $100 per unit as based on similar complexes throughout the region. Actual insurance expense does not appear accurate (e.g., $60,020 in 1994). Management Fee (Supervisory Management) Lincoln Property Company has been managing the property over the past year and one-half. The reported fee was $30,485 for 1995. To date in 1996, the fee has been $28,582. The fee will increase with the increase in rental. Normally, management companies will charge from a low of 3 for large projects to a high of 6 percent of collected rent for smaller complexes. This expense has been stabilized at approximately 4 percent of effective gross income. Maintenance and Repair This category includes on-going maintenance and repairs that include the common areas, plumbing, pool, and electric. This category also includes building/pool supplies, appliance replacement and decorating supplies. In 1995, most carpets were replaced at a cost of $76,152. This level of replacement does not recur on an annual basis, thus an adjustment is required in stabilizing this expense. M&R in 1994 was reported at $70,892, or $377 per unit. Normally, maintenance and repair ranges from 4 to 7 percent of effective gross income, or $400 to $600 per unit. The actual subject expense has been substantially higher due to the refurbishing of the complex over the past year. It should also be noted that this category does not include landscape/gardening and exterminating contracts or wages for maintenance personnel. Administrative This category consists of advertising and promotion, office supplies, computer expense, legal, credit check expense, and miscellaneous expense such as stationary, postage, etc. As shown in the Income & Expense Statement prepared by Lincoln Property Residential, a management fee paid to Lincoln is included under this category. In this analysis, the management fee has been separated and discussed under its own category. Administrative expense has been stabilized at $25,000. Gardening/Landscaping /Cable T.V./Security Landscaping is contracted to a private landscape company. Basic cable is included in the rent, thus it is an expense to the landlord. Security patrol and exterminating are also contracted. Total expense reported in 1995 was $38,038. The total for the first eight months of 1996 is $34,240. We have stabilized this category at $40,000. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 47 <PAGE> The Elms Apartments, Salinas, CA Replacement Reserves Most owners do not utilize the replacement reserve account during the analysis or operation of an apartment complex. Rather, capital improvement items are often expensed as they are incurred. However, since capital expenditures affect the investor's cash flow, an analysis of the properties value must account for these expenses in the form of appropriate reserves for replacement. Reserves for replacements are estimated at 2.5 percent of EGI, which equates to $32,000. This takes into account the current average - good condition, and recently completed capital improvements of the project. Items which are commonly associated with a reserve account include repaving of drives, replacement of underground utility pipes and electrical conduit, roof and foundation, as well as resurfacing of the pool new appliances, etc. (i.e., items that are not normally expensed year to year). Net Operating Income Total stabilized expenses and collection loss allowance amount to almost $3, per unit. This also equates to 45 percent of effective gross income. The stabilized estimate is higher than actual reported expenses, largely because of inclusion of a reserve account, and higher real estate taxes upon sale. It should be noted that as a percentage of income, expenses are higher at the subject than they are for many complexes in this region. The reasons for this include: (1) basic cable service included in the rent; and (2) rents are relatively low in comparison to complexes in neighboring counties, thus as a percentage of income, expenses appear high. Net operating income is estimated by deducting operating and fixed expenses from effective gross income, as shown below and on the following page: - -------------------------------------------------------------------------------- Effective Gross Income $1,285,350 Total Expenses (602,300) ---------- Net Operating Income Before Income Taxes & Depreciation $ 683,050 - -------------------------------------------------------------------------------- Capitalization Rate Analysis After net operating income is estimated, an appropriate capitalization method is selected. Of the various techniques, the one that is almost always used due to its simplicity is direct capitalization. This method employs the use of a single rate known as the overall rate. The overall rate reflects the relationship between the projection of annual net operating income and a sale price or an estimate of value. It is calculated by dividing the net operating income of the sale into the sale price. When the property is purchased all cash, which is rare for larger apartments, and there is no subsequent change in value or income, then the capitalization rate is also the rate of return on the total property investment. In the Sales Comparison Approach section of this report, there is a table in which we have summarized our analysis of capitalization rates for the comparable sales. These capitalization rates were based on actual or actual near-term potential gross annual income less expenses at Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 48 <PAGE> The Elms Apartments, Salinas, CA time of sale. In each case, expenses included new real estate taxes at market value as opposed to actual taxes which are typically much lower. The capitalization rates derived from each of these sale properties are summarized below: Sale No. 1 2 3 4 5 6 7 8 - -------------------------------------------------------------------------------- Cap Rate (%): 8.54 8.6 9.1 9.34 9.6 10.15 7.9 9.69 The main factor influencing capitalization rates is the perception of risk. Those properties perceived to have higher risk, will sell at higher capitalization rates. The lower risk properties sell at lower capitalization rates. Apartment properties, because of their low vacancy, generally fall into the low risk category. Risk factors that should be taken into account in selecting an appropriate capitalization rate include the following: o Amount of available land zoned to allow future apartments o Upside (or downside) potential of cash flow o Existing or planned government restrictions on use and/or rent increases o Deferred maintenance and remaining life of site improvements o Marketability/liquidity o Availability of financing Availability of Land (potential of future competition) While there are several hundred acres of undeveloped land in the general area, most is zoned agriculture or has environmental issues such as sloughs/wetlands. This is not to say, however, that additional apartments could not be developed within a 50 mile radius. There has been very little apartment construction in the area over the past 9 years. One of the main reasons is the high cost of land and building. So, while future construction of apartments will occur to some degree, the high cost will result in higher rents that likely will not compete with the subject. Upside Potential of Cash Flow Gross revenue projected at stabilized occupancy is based largely on the current average rate. The market rate, although close, is still lower than the actual income. And given high occupancy in almost all Salinas apartment properties, it appears certain that rents will continue to gradually increase over the next 12 to 24 months. Consequently, upside rental potential appears good at this particular time. The subject is not affected by rent control, so this would not be a limiting factor. Deferred Maintenance The subject is well-maintained without any significant repairs or deferred maintenance. Better-conditioned apartments tend to sell at lower capitalization rates. Marketability/Liquidity Appropriately priced, the subject would have good marketability (see Marketing and Exposure Estimate sections). This tends to lower the overall capitalization rate since there would be good buyer demand. At 207 units, the subject is on the larger size. Larger Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 49 <PAGE> The Elms Apartments, Salinas, CA properties have a tendency to sell at higher rates than similarly located smaller complexes due to the drop off in potential buyers. Availability of Financing Financing should not have a significant impact on the capitalization as capital is available for this type of property. Capitalization Rate Conclusion In conclusion, the subject capitalization rate should fall between 8.50 to 9.5 percent, as evidenced by the sales. Discussions with brokers, property owners and management companies indicate that apartment capitalization rates are dropping in Santa Clara County. Although this may also occur in Salinas, there is no empirical data to support a lower than 8.50 percent rate at this particular time for this particular project. An argument can also be made for a 9.0 percent rate, however, the upside potential is better than average resulting in the lower range of 8.5 to 8.75 percent. $683,050/ .0875 = $7,800,000 (rounded) $683,050/ .085 = $8,040,000 (rounded) - -------------------------------------------------------------------------------- Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 50 <PAGE> The Elms Apartments, Salinas, CA - -------------------------------------------------------------------------------- INCOME APPROACH SUMMARY INCOME Gross Annual Rental Income $1,327,000 Laundry $ 26,000 ---------- TOTAL GROSS INCOME $1,353,000 Less: Vacancy & Collection Loss Allowance (5%) (67,500) ------- EFFECTIVE (COLLECTED) GROSS INCOME $1,285,350 Stabilized Operating Expenses Per Unit (rd) Payroll $116,000 $617 Taxes (Prop 13) $ 82,000 $462 License & Permits $ 2,500 $ 13 Utilities $155,000 $824 Insurance $ 18,800 $100 Management Fee $ 51,000 $273 (4.0%) * Administrative $ 25,000 $133 Maintenance + Repair $ 80,000 $425 Landscape/Cable T.V./Security $ 40,000 $213 Replacement Reserves $ 32.000 $170 -------- ---- *includes -Advertising & Promotional TOTAL OPERATING EXPENSES $602,300 $3,200(rd) (46.8%) - -------------------------------------------------------------------------------- NET OPERATING INCOME (NOI) $683,050 - -------------------------------------------------------------------------------- OVERALL CAPITALIZATION RATE (Applied to NOI) .0875 ----- OVERALL CAPITALIZATION RATE (Applied to NOI) .085 ---- - -------------------------------------------------------------------------------- @ 8.75% @ 8.5% ------- ------- Market Value As Is: $7,806,286 $8,035,882 ROUNDED $7,800,000 to $8,040,000 - -------------------------------------------------------------------------------- Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 51 <PAGE> The Elms Apartments, Salinas, CA Cash-on-Cash Rate Method As a check on the above estimate, cash-on-cash has been used. The cash-on-cash rate is the annual cash flow to equity as a percentage of equity investment. Cash flow is net income after deduction of debt service. This method is helpful in determining whether the appropriate capitalization rate has been used. The formula is as follows: Cash Flow (net income after debt service) ---------------------------------------- Cash-on-Cash rate = equity Apartment property loans are usually amortized over 25 to 30 years. Loan-to value ratios are typically 70 to 75 percent. The cash-on-cash rate is helpful in supporting value, especially when direct market information is not available. Apartment sales sometimes involve some form of seller financing, where details are often not available. As such, the cash-on-cash rate is an approach that usually takes a back seat to direct capitalization. In this appraisal, enough information to gauge what an applicable cash-on-cash rate was available. Based on a 75% LTV which requires equity of $1,950,000 and a loan of $5,850,000 and a 8.0 percent (VIR) interest rate (30-yr amort), the annual subject debt service would be $515,000. The cash flow after debt service would be $168,000 (rounded). Dividing cash flow into equity results in a cash-on-cash rate of 8.6 percent. The sale properties' cash-on-cash rates ranged from a low of 6.8 percent for a San Jose complex to 11.1 percent for a 207-unit complex built in 1964/1970. The average is 9.33 percent -- higher than the subject, but still well-supported. Consequently, the subject value by the direct capitalization method is believed to be supported by the cash-on-cash method. Other Capitalization Procedures Other capitalization methods may be used in the appraisal of apartment properties, although their understanding and use falls far short of direct capitalization. The Discounted Cash Flow analysis (DCF) is one such method. In this procedure, the value of a property is equivalent to the present value of the annual before tax cash flows, over an assumed investment holding period, plus the sale (reversion) of the property at the end of the holding period, at a single discount rate. The advantage of this approach is that it identifies variability in annual cash flows, especially in a start-up operation. The Discounted Cash Flow Analysis requires several assumptions that impairs its reliability. For this reason, it is oftentimes considered a secondary valuation method in the appraisal of apartment appraisals. In this appraisal, the DCF procedure has not been used as it does not provide any additional insight into the valuation of this property. There are several reasons for Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 52 <PAGE> The Elms Apartments, Salinas, CA excluding this approach. There is nothing to suggest at this time that there will be substantial changes in income patterns, although the near-term trend appears to be continued strengthening and gradual increasing of rents. Another reason is that there would be several assumptions that would have to be made. Perhaps the most compelling is that the sales were not purchased on a DCF approach. Employing a DCF for the subject would require that inferences be made about each sales as to applicable yield and going-out capitalization rates, as well as hold periods and annual expense and income increase (or decrease) projections. If the majority of these sales were purchased in this manner, then a DCF would have applicability, however, this is not the case. Income Approach Conclusion :The Income Approach concludes a value of $7,800,000 to $8,040,000. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 53 <PAGE> The Elms Apartments, Salinas, CA SALES COMPARISON APPROACH - -------------------------------------------------------------------------------- The Sales Comparison or Market Data Approach involves making an analysis of the property being appraised based on sales of similar properties. To a lesser degree, this procedure may consider the asking prices of current listings. The market data approach presumes that a prospective purchaser would pay no more for a property than the amount with which he or she could buy another of equal utility. The reliability of this procedure is determined by: 1) availability of comparable sales; 2) comparability of sales in terms of date of sale, location, size, density, or other physical characteristics; and, 3) verification of the sales data. Although there are variations, apartment property sales are often analyzed using four unit-of-comparison indicators: o Price per unit o Gross Income Multiplier or Effective Gross Income Multiplier o Price per Rentable Square Foot o Price per Room Price Per Unit Method: The price per unit method is most often affected by unit size, condition, overall functional utility, and location of a property. Sales with high average unit sizes which are situated in the most desirable locations tend to command the highest price per unit. Naturally, the existing potential rent levels also affect the sale price, thus influencing the price per unit value. Each of these factors determine the amount of net operating income that can be generated per unit which is a fundamental measurement of investor return when applying the price per unit method. Price Per Room Method: Sale price per room demonstrates the same relationship as price per unit. Applying the same logic discussed above, which considers the average unit size of the subject, existing rent levels, and location relative to the comparable sales, a value per room can be estimated for the appraised property. Price Per Square Foot Method: While size is a strong influence in sale price per unit and price per room, the rent levels attained by a property per square foot are closely related to the price per square foot it may attain in the marketplace. It is generally true that all else being equal, the rent per square foot for larger units is less than the rents per square foot for small units. Thus, apartment buildings which have larger unit sizes have lower rents per square foot and therefore have lower selling prices per square foot. Gross Income Multiplier Method: The gross income multiplier (GIM) technique is oftentimes perceived as one of the most accurate market measure of value by the Direct Sales Comparison Approach. The GIM is calculated by dividing the sale price of the sale property by its gross annual income. This method tends to equalize property differences such age, size, and number of units. In general, where there is a fee simple title, apartment properties tend to sell at 5.5 to 8 times multiple on actual income. The range is tempered by a number of factors that include location, condition, quality, and upside rental potential. The more desirable properties with good track records will typically be higher on the Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 54 <PAGE> The Elms Apartments, Salinas, CA scale, whereas lower quality facilities in weak locations tend to fall at the lower side. Since the GIM involves gross income rather than net income, the appraiser must compare the level of expenses of the comparables with the subject. This technique works best when expense operating ratios are reasonably consistent. Comparison is not straightforward, for example, when the sale property has an operating expense ratio that is significantly higher than the subjects'. Consequently, when estimating a GIM, care must be taken when comparing gross incomes. A variation of the GIM technique--effective gross income multiplier (EGIM)--is calculated by dividing the sale price by the effective gross annual income instead of the gross annual income. This technique, however, often does not result in a further refinement since apartment vacancy (and collection loss) throughout the region is very low. Comparable Sales Description & Analysis A search for apartment properties was made in Salinas and surrounding areas. No sales of larger apartment complexes (over 100 units) in Salinas during 1995 and 1996 were found. The most recent larger apartment transaction in Salinas occurred in 1994; a 60 unit complex sold in 1993 and an 112-unit property transferred in late 1991. A summary of these sales is summarized on the following pages. Additional information is included in the Addenda. To obtain more recent sales data, it was necessary to expand the search into nearby cities and counties. The strongest sales activity at this time is taking place in Santa Clara County, adjacent to the north of Monterey County. A number of larger sales have also taken place in Santa Cruz County, to the west. A brief description of each sales area and how it relates to Salinas is summarized in the following paragraphs. Santa Clara County/San Jose: This is the largest county in the region with a population of over 1.4 million. It contains the City of San Jose, the third largest city in California. "Silicon Valley" originated in Santa Clara County. The county is home to over 2000 electronic firms, including industry leaders such as Intel and Hewlett Packard. Over the past 20 months, technological employment has dramatically increased resulting in the creation of several new jobs. To fill new jobs, several thousand people have moved into "Silicon Valley" thus creating a demand for housing. As a result, apartment and other housing rents have increased substantially, nearly doubling from previous lows in some cases. Investors have now caught on to increasing rental activity, and sales activity is brisk. This market has "filtered" into nearby communities, including Santa Cruz, Alameda County, and to some lesser degree, Salinas. The resurgence of the Santa Clara County market comes after six years of sluggish performance. The last major upswing was in 1982-85 when rents increased annually by 18 to 20 percent. From 1995 to 1989, rents and vacancy were steady. In late 1989, following the Loma Prieta earthquake and a decline in economic activity, vacancy levels started to increase and rents became soft with rental concessions given in some complexes. Starting in late 1994, the market started to once again turn upward. In 1995, economic conditions improved and rents increased to reflect a landlord's market. Today, vacancy is extremely low with very units available for rent. This is expected to continue for at least the next six to 12 months as little land is available for new apartment construction. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 55 <PAGE> COMPARABLE MARKET DATA - APARTMENT SALES <TABLE> <CAPTION> Project Name Sale Location No. Units Sale Date (COE) Year Sale Price/ GIM Price Per Unit No. A.P.N. RSF-Bldg Built Price Sq. Ft. OAR Cash-on-Cash ====================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> Hidden Creek Apartments (5) 200 Button Street 146 7/14/94 1973 $7,400,000 $77.81 6.78 $50,885 Santa Cruz, CA 95,100 9.6% N/A 3.8 acres (37du/ac), 2-story, nine buildings. Garden style walk-up. Average quality and condition. 42 studios, 60 1br/1ba, 44 2br/1ba units. About half of complex is subsidized housing tenants. Financing terms n/a. Marketing time = 3 months. Amenities include pools, fountain and extensive landscaping. North Bay Apartments (6) 41 Granview Street 115 12/15/95 1989 $8,550,000 $81.88 6.11 $74,348 Santa Cruz 104,421 10.15% 10.8% Good quality, 2-story garden style complex built in 1989. Average to good location. Buyer had to pay $300,000 in repairs and $175,000 in commissions. Cap Rate is somewhat high based on other sales of similar age, size, and location. Property was never exposed to open market. (7) 2186-2198 Brutus Street 60 5/26/93 1988 $3,072,000 $61.46 7.83 $51,200 Salinas 49,980 7.9% N/A Average to good quality garden complex located in north Salinas close to shopping, schools and freeway access. There are 23, 1br units, and 37, 2br/2ba units. Average unit size is 833 square feet. No rent control. Financing terms were not available. Cypress Landing (8) 552 Rico Street 112 11/1/91 1989 $5,950,000 $59.11 6.4 $53,125 Salinas, CA 100,660 9.69 Newer, garden style consisting of 36 1br/1ba and 78, 2br/2ba units. 2-story buildings. Good quality and condition. Amenities include club house, spa, pool, weight room, tennis courts + open spaces. Average monthly rent at time of sale = $689. Average unit size = 899 square feet. All cash to seller. ====================================================================================================================== </TABLE> Note: The above data was obtained from sources deemed reliable. However, the accuracy of the data cannot be guaranteed by R. Saia, MAI Associates (9/96) 56 <PAGE> COMPARABLE MARKET DATA - APARTMENT SALES <TABLE> <CAPTION> Project Name Sale Location No. Units Sale Date (COE) Year Sale Price/ GIM Price Per Unit No. A.P.N. RSF-Bldg Built Price Sq. Ft. OAR Cash-on-Cash ====================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> (1) Willow Gardens Apartments 1750 Stokes Street 186 6/14/96 1971 $13,650,000 $85.17 7.04 $73,387 San Jose, CA 160,260 8.54% 6.8% 2-story apartment garden style built in 1970. Wood frame, wood exterior. Average quality and condition. 190 covered parking spaces (carports). Amenities include pool, spa, laundry, recreation room, balconies/patios, storage lockers, a/c. 6.40 acres (29.06 du/ac). First loan $10,600,000 from St. Paul Federal Bank. Document #13330744. (2) Ocean Terrace 1630 Merrill Street 100 7/12/96 1972 $6,300,000 $78.04 6.5 $63,000 Santa Cruz, CA 80,724 sf 8.6% 8.1% 100-unit garden style built on 2.7 acres in county area of Santa Cruz. Built in 1972, there are six buildings, a pool, exercise room, sauna, three laundry rooms, and on-site manager's office. Wood frame construction. Average quality and avg+ condition. 130 on-site parking spaces. AEK kitchens, $4,725,000 first from Home Savings of America. (3) Fox Creek Village 196 West Alvin Rd., 168 9/24/94 1986 $9,350,000 $66.31 6.8 $55,650 Salinas, CA 141,856 sf 9.1% 9.87% Built in 1986, Fox Creek Village consists of 76, 1/br/1 ba units measuring 708 sf; 24, 2br/1ba units measuring 875 sf, and 68 2/br/1ba units 986 sq ft. The gross building area is 145,023; the net rentable has been reported at 141,856 sf. 36 units have wood-burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. There are laundry rooms with washers and dryers in the complex. Above average to good quality and condition. One covered parking space per unit. (4) Kingdale Oaks 1919 Fruitdale Avenue 331 8/15/95 1970 $16,760,000 $66.22 6.01 $50,634 San Jose, CA 253,098 sf 9.34% 11.1% Average quality, 1, 2 and 3-story buildings built in 1964-1970. Wood frame and stucco. Concrete slab. Average condition. 331 covered parking spaces (carport). 166 open parking. Amenities include 2 heated pools, spa, poolside grills, laundry rooms, volleyball, and recreation building. Elevator served. New first loan from St. Paul Federal Bank, and seller second. Marketing time was reported at six months. 11.76 acres (28.15 du/ac). 1, 2 and 3 bedroom units. ====================================================================================================================== </TABLE> Note: The above data was obtained from sources deemed reliable. However, the accuracy of the data cannot be guaranteed by R. Saia, MAI Associates (9/96) 57 <PAGE> The Elms Apartments, Salinas, CA Housing prices in San Jose are higher than they are in Salinas. Good Salinas neighborhoods, such as those found in north Salinas, can be compared to the more average/middle income areas of San Jose as well as the agricultural communities of Gilroy and Morgan Hill, in southern Santa Clara County. Still, downward adjustments are required for location when comparing San Jose to Salinas. Santa Cruz: In general, rental housing in Santa Cruz is less than it is in San Jose, but higher than in Salinas. Although considered more desirable, Santa Cruz is a relatively good area to draw comparable sales for comparison to Salinas. Santa Cruz is a coastal community that relies heavily on tourism and agriculture; some technology has filtered into the area from Silicon Valley. Rents have been increasing, but not nearly at the pace of San Jose. Occupancy is also extremely high in this area. A downward location adjustment is required when comparing a Salinas property to a Santa Cruz property. Monterey: No sales over 100 units were found in Monterey. This is mainly due to the limited number of larger units in the city. Although the City of Monterey is superior to Salinas in residential desirability, nearby cities such as Seaside and Marina are overall comparable. However, no sales of larger units were found in this area as well. Adjustment Process The most common unit of comparison indicator for apartments is price per unit. As such, the subject has been adjusted to the comparable sales on this basis. A sequence for making adjustments must be followed when percentage adjustments are calculated and added together. The first adjustment is for property rights conveyed. In this case, all properties sold fee simple or leased fee (short term leases of less than one year); no leasehold sales were included. Thus, no adjustment was required. The second adjustment converts the transaction price of the comparable into its cash-equivalent or modifies it to match the financing terms projected for the subject property. No sales with financing favorable enough to significantly influence the sales price were included, no adjustment was required. The third adjustment is made for conditions of sale or other (e.g., personal property included in sale price). No REO or distressed sales were included, and no sales with furnished units were considered. Every apartment has some amount of personal property that transfers with the property; however, these items are nominal. Other adjustments considered were based on differences in market conditions, appeal, quality/density, condition, and size. No specific adjustment was made for rent control (i.e., San Jose complexes), although this is considered in the location adjustments. Shown on the following pages is a table summarizing eight apartment sales. Additional information concerning each sale, including recording data and a photograph, is in the Addenda. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 58 <PAGE> The Elms Apartments, Salinas, CA Apartment Sale Number 1, at $73,387 per unit, is a June 1996 sale of the Willow Gardens Apartments, an 186-unit garden style walk-up apartment located in a centrally-located middle-income neighborhood in San Jose. This is an average quality complex in average condition at time of sale. There are 162, two bedroom/two bath units, and 24, three bedroom/two bath units. The average unit size is 861 square feet. Amenities consist of a pool, spa, recreation building, and laundry rooms. The project sits on 6.40 acres, indicating a density of 29.06 units per acre. The project falls under San Jose Rent Control, which limits rental increases to eight percent with pass-through for extraordinary and capital expenses. The purchase price of $13,650,000 represents a rentable per square foot indicator of $85.17, and a per room value of $17,773. The GIM on actual rental income is 7.04. On market rents, the GIM is 6.29, indicating reasonably good upside rental potential. The Overall Capitalization Rate is 8.54 percent on actual income less actual expenses adjusted for new taxes and reserves. The cash-on-cash rate is 6.8 percent. In comparison to the subject, a downward adjustment is required for location. As noted, San Jose rent levels are higher than those found in Salinas. For example, a two bedroom/two bath unit at Willow Garden is $l,000+, or about $200-300 per unit higher than in Salinas. A downward adjustment of 25 percent as based on rental differential appears reasonable. The subject's average unit size is smaller. A 10 percent adjustment has been made. No size adjustment is required. Adjusting downward by 35 percent, results in an indicated subject per unit value of $48,000 (rounded). Apartment Sale Number 2, at $63,000 per unit, is a July 1996 sale of the Ocean Terrace Apartments, an 100-unit garden style walk-up apartment located in an unincorporated area of Santa Cruz County between the cities of Capitola and Santa Cruz. This is an average plus quality complex in above average condition at time of sale. There are 52, two bedroom/ units, and 32, one bedroom/ units. There are also 16, 3 bedroom units. The average unit size is 807 square feet. Amenities consist of a pool, sauna, exercise room, and laundry rooms. The project sits on 2.70 acres, indicating a density of 37 units per acre. The purchase price of $6,300,000 represents a rentable per square foot indicator of $78.04, and a per room value of $16,406. The GIM on actual rental income is 6.5. Market rents were about 3 percent higher than actual income during the six month marketing period. The Overall Capitalization Rate is 8.6 percent on actual income less actual expenses adjusted for new taxes and reserves. The cash-on-cash rate is 8.1 percent. In comparison to the subject, a downward adjustment is required for location. As noted, Santa Cruz rent levels are higher than those found in Salinas. For example, a two bedroom/two bath unit at Ocean Terrace is $800-850+, or about $l00-250 per unit higher than in Salinas. A downward adjustment of 15 percent as based on rental differential appears reasonable. In addition, a downward adjustment of 5 percent is made for the subject's larger size. Smaller properties tend to sell at higher unit values because they appeal to a larger group of buyers. Adjusting downward by 20 percent, results in an indicated subject per unit value of $50,000 (rounded). Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 59 <PAGE> The Elms Apartments, Salinas, CA Apartment Sale Number 3, at $55,655 per unit, represents Fox Creek Village, an 168-unit two-story garden complex built in 1986, located nearby the subject in north Salinas. Although newer and superior than the subject, Sale 3 is one of the best comparables because of its nearby proximity. Physical characteristics are superior. Fox Creek includes a pool, tennis court, recreation building and laundry facilities. There are 76, one bedroom units; and, 92 two bedroom units. The average unit size is 844 square feet. Some of the units have fireplaces. Parking is by carport stalls and open spaces. The overall quality and condition are good. In comparison to the subject, a downward adjustment of 15 percent is required for appeal and amenities. Another adjustment of 10 percent is made for this property's lower effective age and larger average unit size. Although there are no sales in Salinas to determine whether apartment property value has increased since the September 1994 sale date, it is logical to assume that since rents are now somewhat higher that values are likely higher as well. Consequently, an upward adjustment of 5 percent is made. On balance, a negative 20 percent adjustment is required indicating a subject unit value of approximately $44,500. Apartment Sale Number 4, at $50,634 per unit, is located south of Freeway 280 near San Jose City Community College within single family and apartment neighborhood. the project is under San Jose Rent Control Ordinance. This is average quality and condition. The buildings are wood frame and stucco with flat T&G roofs built in 1964 and 1970. There are 36, studios; 264 1br/1ba units; 20, 2br/1ba units; 5, 3br/2ba; and, 6 2br/2ba units. Amenities include 2 heated pools, poolside grills, laundry rooms, recreation room, and volleyball. Elevator served. Units have either balcony or patio and are separately metered. Average condition. 1.5 parking spaces per unit (166 open spaces and 331 carport). According to selling broker Bruce Hermann with Marcus & Millichap, gross scheduled actual income at time of sale was $2,787,000, or approximately $700 per unit per month. Actual vacancy (and stabilized vacancy) was 4.38%. Factoring-in taxes at market (per Prop 13), total expenses were reported at approximately $1,100,000. Net operating income is estimated at $1,565,000. Financing consisted of a 1st from St. Paul Federal Bank of $14,850,000 (VIR) 8%, 25-yr amortization and a seller second of $556,000 @ 7%, 2 years resulting in a total annual debt service of $1,414,297. Cash flow (after debt service) is $150,703, indicating a cash-on-cash rate of 11.1% on the cash downpayment of $1,354,000. The marketing time was reported at 6 months. The sale reportedly did not involve an exchange. This sale closed in August 1995, but was negotiated several months prior. In comparison to the subject, a downward adjustment is required for location, although not nearly as great as the adjustment made for Sale 1. The subject has superior appeal, but due to the locational difference a downward adjustment of 15 percent is made. A 5 percent upward adjustment is required for market conditions, that is, rents have moved upward over the past 1.5 years. A 5 percent upward adjustment is made for size, but offsetting this is this comparable's larger average unit size. On balance, this sale should be adjusted down by 10 percent. This sale indicates a potential subject unit value of $45,500 (rounded). Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 60 <PAGE> The Elms Apartments, Salinas, CA Apartment Sale Number 5, at $50,685 per unit, represents a nine building, two-story, garden style complex of average quality. The project is located near Highway 1 in the City of Santa Cruz. It is in a neighborhood of predominately small bungalow single family homes built from 1930 to 1970; a new zero-lot line SFR development is located directly across. There are 42 studio units with an average size of 550 square feet; 60, 1br/1ba units @ 650 sf, and, 44, 2br/1ba units of 750 sf. The rentable area is 95,100 square feet (avg. unit = 651). There are no recreational amenities except for pool and common utility rooms. Landscaping is extensive in some areas. One-half of the units are subsidized housing units. At time of sale, "market" rents were $600 for studio, $750 for 1 bedrooms, and $850 for two bedrooms. The gross and net incomes are estimates based on reported actual income per MLS listing (#369018). According to assessor's office, some buildings had deferred maintenance, however, cost to repair are not known. In comparison to the subject, a downward adjustment of 15 percent is required by this comparable's superior location. No other adjustments are made. The indicated subject unit value, therefore, is $43,000 (rounded). Apartment Sale Number 6, at $74,348 per unit, is located in west Santa Cruz off Highway 1. This is a good quality walk-up garden design built in 1989. It is the newest complex built in west Santa Cruz area. Amenities include a swimming pool and carport parking. There are no other recreational facilities, although the complex is within a short drive to beaches and three miles to Santa Cruz Beach & Boardwalk (good tenant appeal). The buyer paid $300,000 in repairs and $175,000 commission, thus actual price was somewhat higher than reported above. The property was never exposed to the open market. The higher than normal capitalization rate is reflective of this and the extra cost to the buyer of repairs and commission. There are 18, 1br/1ba units; 69, 2br/2ba units; and, 28, 2br/2.5 ba units. Market rents are about 3-5 % higher than actual. In comparison to the subject, downward adjustments are required for age/appeal, unit size, location and size. We estimate these to be 35 percent (15% location, 5% size, and 10% age/appeal, and 5% unit size). The indicated subject value per unit from this sale is $48,000 (rounded). Apartment Sale Number 7, at $51,200 per unit, represents an average to good quality garden style apartment complex located in north Salinas. There are 23, 1 bedroom units and 37, 2 bedroom units. The 60 unit complex is smaller than the subject, however, it is very similar in location. Adjusting this sale down by 10 percent for size, and upward by 5 percent for improved market conditions since date of sale results in an indicated subject value per unit of $48,500 (rounded). Although this is a nearby comparable, because of its smaller size and older sales date less emphasis was placed on it in the final analysis. Apartment Sale Number 8, at $53,125 per unit, represents the sale of the 112-unit Cypress Landing Apartments in north Salinas. One of the last complexes to have been built in Salinas, Cypress was completed in 1989. There are 12, two-story buildings. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 61 <PAGE> The Elms Apartments, Salinas, CA Amenities include a pool, hot tub, weight room, tennis court and recreation building. All units have patios or balconies, refrigerators, R/O and dishwashers; some have fireplaces. There are 36, 1br/1ba units; and, 76 2br/2ba units measuring between 955 to 985 square feet. Carport and open parking. The average unit size is 899 square feet. Gross annual income at time of sale was $925,740, and net operating income was $573,218, indicating a cap rate of 9.69%. Normally, a 1991 sale would not be used as part of a primary sales analysis. In this case, given the scarcity of large apartment sales in Salinas, it has been used. No adjustment is required for location. Cypress is newer and has superior appeal than the subject. It is also smaller. A 20 percent downward adjustment is reasonable for these factors. On the other hand, an upward adjustment of 5 percent is made for improved market conditions since late 1991. On balance, a negative 15 percent adjustment is applied indicating a subject unit value of $45,000 (rounded). Sales Comparison Approach Summary & Conclusion The sales analyzed in the sales comparison approach range in size from 60 to 331 spaces, and in unadjusted price from $50,634 to $74,387 per unit. After adjustment, the sales indicated the following range of value: Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Sale 6 ------ ------ ------ ------ ------ ------ $48,000 $50,000 $44,500 $45,500 $43,000 $48,000 Sale 7 Sale 8 Average = $46,563 ------ ------ $48,500 $45,000 For one reason or another, the sales are not highly similar. They do, however, provide a reasonably narrow range of potential subject value. The sales consistently group around $45,000-46,000 per unit; all three sales in Salinas sold in the low to mid-$50,000 per unit range, but all three are superior. Consequently, a mid-range number of $45,000 is a reasonable and supportable per unit value to apply to the subject property. - -------------------------------------------------------------------------------- 188 units x $45,000/unit = $8,460,000 - -------------------------------------------------------------------------------- Check for Reasonableness: Based on a market value of $8,460,000, the subject property would have the following unit of comparison indicators: Price Per Rentable SF: $57.06 Price Per Room: $12,589 GIM: 6.25 Price Per Rentable SF: The range of the comparables is $59.11 to $85.17. The subject falls towards the lower end of this range; consequently, the above price appears reasonable by this method. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 62 <PAGE> The Elms Apartments, Salinas, CA Price Per Room: The range of the comparables is $14,157 to $19,344; most are in the $14,000 to $16,000 range. The subject is at the lower end, but is not out of line. GIM: The subject has a high expense ratio which should be considered in selecting the appropriate GIM. The range of the comparables is 6.01 to 7.83; most range from 6.01 to 6.8. At 6.25, the subject is probably at the higher end given its relatively high expense ratio as compared to the comparables. This tends to indicate that $8,460,000 maybe too high. The Income Approach conclusion of $7,800,000 supports this as well. At a 6 multiplier, the value is $8,100,000 (rounded) -- more in line with the Income Approach. In conclusion, three of the four Sales Comparison Approach market-derived indicators appear reasonable; however, the GIM approach indicates a lower value. Consequently, the subject is valued by the Sales Comparison Approach by the following range: $8,100,000 to $8,460,000. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 63 <PAGE> The Elms Apartments, Salinas, CA MARKETING PERIOD - -------------------------------------------------------------------------------- The sales marketing time is the time that it should take to market and sell the property in its "as is" condition as of the date of the appraisal. This should not be confused with exposure time which is the amount of time necessary to expose a property to the open market in order to achieve a sale. Marketing time is a forward estimate of the amount of time necessary to expose a property on the open market in order to achieve a sale from the effective date of the appraisal. Indications of the marketing times associated with the "as is" market value estimates are provided by the marketing time of sale comparables, and interviews with participants in the market. The sales marketing period is a period of time that is reasonable in light of a given property's characteristics and market conditions, based on certain assumptions. To our knowledge, there have been no sales the size of the subject in the Northern Monterey County market area over the past year. Sales from other parts of Northern California indicate that the marketing time would be less than 6 months. Apartment sales that have taken place over the past 24 months indicate that marketing times rarely exceed 6 months, and usually fall between 1 to 6 months. The length of time is not only a function of physical and locational characteristics, but the marketing and pricing. Based on the subject characteristics and assuming a list price close to the estimated market value, marketing time is estimated at 2-5 months. EXPOSURE PERIOD - -------------------------------------------------------------------------------- USPAP requires that an estimate of reasonable exposure time be made in the performance of an appraisal where the value being sought is "as-is". In the USPAP, the Comment to Standards Rule 1-2(b) states: When estimating market value, the appraiser should be specific as to the estimate of exposure time linked to the value estimate. The Comments to Standard Rules 2-2(a)(v) and 2-2(b)(v) state: ...Defining the value to be estimated requires both an appropriately referenced definition and any comments needed to clearly indicate to the reader how the definition is being applied [See Standards Rule 1-2(b)]... The Statement issued by the Appraisal Standards Board is as follows: Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 65 <PAGE> The Elms Apartments, Salinas, CA Reasonable exposure time is one of a series of conditions in most market value definitions. Exposure time is always presumed to precede the effective date of the appraisal. Exposure time may be defined as follows: The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market. Exposure time is different for various types of real estate and under various market conditions. It is noted that the overall concept of reasonable exposure encompasses not only adequate, sufficient and reasonable time but also adequate, sufficient and reasonable effort. This statement focuses on that time component. The fact that exposure time is always presumed to occur prior to the effective date of the appraisal is substantiated by related facts in the appraisal process: supply/demand conditions as of the effective date of the appraisal; the use of current cost information; the analysis of historical sales information (sold after exposure and after completion of negotiations between the seller and buyer); and the analysis of future income expectancy estimated from the effective date of the appraisal. Since there are few comparable properties to the subject that have sold in this market area, estimating exposure time is based more on discussions with knowledgeable real estate professionals. All of the sales with known marketing times took less than 6 months. The exposure time period assumes that the subject is appropriately priced and marketed. Obviously, a list price that is significantly higher than what the property is worth will result in a longer than typical marketing period. Although it could be sooner or later, our best estimate of an exposure period (based on our appraised value) is 4 months. ALLOCATION OF FURNITURE, FIXTURES AND EQUIPMENT - -------------------------------------------------------------------------------- For the most part, apartment in the subject region do not require significant furniture, fixtures or equipment as part of the ongoing operation of the property. In the case of the subject, FF&E is minimal and contributes only a nominal value to the overall property worth. Personal property items observed on the premises include pool equipment, furniture in the recreation/clubhouse, office furniture and equipment (e.g., computer/printer) carts, supplies, etc. The market value of the above is estimated at less than $15,000. Some of the personal property items such as the computer and copier (i.e., office equipment) would be removed upon sale. All of the comparables had similar amounts of personal property items that were included in the sale, thus there is no need for an adjustment. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 66 <PAGE> The Elms Apartments, Salinas, CA Although not as management intensive as a hotel, apartments require management expertise that technically creates some (minor) going-concern value. In valuing the subject, any going-concern/goodwill has effectively been removed by deducting an offsite professional management fee. The net incomes estimated from each sale comparable also had offsite management fees deducted. It is assumed that the subject will continue to operate under professional management. In conclusion, the estimated market value of the subject is of the real estate only; FF&E (personal property) is nominal and any going-concern/goodwill value would have been removed in the deduction of an offsite professional management fee. ASSUMPTIONS AND LIMITING CONDITIONS - -------------------------------------------------------------------------------- The estimate of value contained herein is based upon and subject to the following assumptions and qualifying conditions, to which the addressee shall be deeded to consent by acceptance hereof: It is assumed that merchantable fee simple title, free of encumbrance, is vested in the owner of record. It is recognized that a potential purchaser would likely consider the effect of value through consideration of the maximum conventional financing available for the property type as of the date of value. It is assumed that the property is subject to lawful, competent and informed ownership and management. It is also assumed that all financial information on the business operation is correct; errors or misstatements may have a material impact on the appraised value. We reserve the right to make changes if such errors or misstatements were later discovered. It is assumed that the information supplied by the addressee as to the parcel or parcels of real estate is correct and complete, including the legal description as it appears in this report. The appraisers assume no responsibility for matters of legal nature affecting the property or the title thereto, nor does the appraisers render any opinion as to title. No attempt has been made to render an opinion of or status of easements that may exist. It is understood that exhibits included in this report are solely for the purpose of assisting the reader to visualize or understand its content and are not intended to be exact in scale or detail. It is understood that no survey has been made to render an opinion of or status of easements that may exist. It is understood that material contained herein which is stated to be or is obviously furnished by others is believed to reliable but has not been verified except as specifically stated. Such information is believed to be true and correct; however, no responsibility for accuracy can be assumed by the appraisers. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 67 <PAGE> The Elms Apartments, Salinas, CA We are not required to give testimony or appear in court because of having made this appraisal, with reference to the property in question, unless arrangements have been previously; made therefor. The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization. The separate valuations of land and building must not be used in conjunction with any other appraisal and are invalid if so used. If this appraisal contains a valuation relating to a geographical portion of a large parcel or tract or real estate, the value reported for such geographical portion relates to such portion only and should not be construed as applying with equal validity to other portions of the larger parcel or tract, and the value of all geographical portion may or may not equal the value to the entire parcel or tract considered as an entity. We assume that there are no hidden or unapparent conditions of the property, subsoil or structures which would render it more or less valuable. We assume no responsibility for such conditions or for engineering which might be required to discover such factors. The appraisers assume the mechanical equipment to be in good working order unless expressed otherwise. Unless otherwise stated in this report, the existence of hazardous materials, which may not be present on the property, was not observed by the appraisers. The appraisers have no knowledge of the existence of such materials on or in the property. The appraisers, however, are not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired. All information and comments concerning the location, neighborhood, trends, construction quality and costs, loss in value from whatever cause, condition, rents, or any other data of the property appraised herein represent the estimates and opinions of the appraisers formed after an examination and study of the property. While it is believed the information, estimated and analysis given and the opinions and conclusions drawn therefrom are correct, the appraisers do not guarantee them and assumes no liability for any errors in fact in analysis or in judgment. Disclosure of the contents of this appraisal report (especially any conclusions as to value), the identity of the appraisers or the firm with which they are connected, or any reference to the Appraisal Institute, or the SRPA/MAI designations shall not be disseminated to the public through advertising media, public relations media, news media, sales media, or any Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 68 <PAGE> The Elms Apartments, Salinas, CA other public means of communication without the prior written consent and approval of the undersigned. The appraisers are considered the owner of the report, and delivery of same has been to addressee only for his specific intended real estate decision. Certain forms, formatting and techniques contained herein are private property and proprietary in nature. As such, they are protected under state and federal laws covering trademarks, copyrighting, etc. Copying or re-use is strictly prohibited without expressed written consent. Certain information contained herein is considered "not for public knowledge" and is provided herein "under strictest confidence." Said information shall be used only in connection with the business decision as specifically described in the function of the appraisal. No other use of any information contained herein is permitted. Said information shall not be re- used, shared, disclosed, etc., except in accordance with the certification, limiting conditions, function and purposes as contained herein. Any deviation from the above may subject the user to additional legal action for invasion of privacy. Acceptance and use of this report constitutes specific and implied consent to all condition, limitations, etc. Further, the client shall hold harmless the appraisers for any unpermitted use or action resulting from such use. On appraisals subject to satisfactory completion of repairs, alterations, or new construction, the appraisal report and value conclusions are contingent upon completion of the improvements in a timely and workmanlike manner, and as of the effective date of the appraisal. Any projections in income and expenses in this report are not predictions of the future. Instead, they are an estimate of current thinking of market participants of what future income and expenses will be. No warranty or representation is made that these projections will materialized. This appraisal was prepared for Home Savings as client to be used in lending decisions or any related business pertaining to its interest in the appraised property. If an informational copy has been provided to the owner it should not be utilized for other functions. The Americans with Disabilities Act (ADA) became effective January 26, 1992. The appraiser has not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 69 <PAGE> The Elms Apartments, Salinas, CA CERTIFICATION OF APPRAISAL - -------------------------------------------------------------------------------- I certify that, to the best of my knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions and conclusions. 3. I have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. 4. My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. 5. The analyses, opinions and conclusions were developed, and, this report has been prepared, in conformity with Title XI of the Federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FLRREA) and its regulations, as well as the Code of Professional Ethics and Standards of the Professional Conduct of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation and the Appraisal Institute. 6. Robert Saia and James Barcells, SRA have made a personal inspection of the property. Mr. Saia's General Certificate from the State of California is valid and in good standing as of the appraisal date. 7. No one other than the undersigned prepared the analyses, conclusions, and opinions concerning real estate that are set forth in this appraisal report. It should be noted that James Barcells helped with the preparation of the report. 8. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 9. Members of the Appraisal Institute are required to meet certain continuing education requirements. As of the date of this report, Mr. Saia have completed the requirements of the continuing education program of the Appraisal Institute. /s/ Robert Saia - ---------------------- Robert Saia, MAI OREA Cert. #AGOO3191 Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 70 <PAGE> The Elms Apartments, Salinas, CA -- ADDENDA -- Robert Saia, MAI & Associates 313 Avalon Avenue Santa Cruz, CA o (408) 458-9095 71 <PAGE> SUBJECT PHOTOGRAPHS [PHOTOS] <PAGE> SUBJECT PHOTOGRAPHS [PHOTOS] <PAGE> REGIONAL LOCATION MAP [MAP] <PAGE> NEIGHBORHOOD LOCATION MAP [MAP] <PAGE> ZONING MAP [MAP] <PAGE> PLAT MAP [MAP] <PAGE> FLOOD MAP [MAP] <PAGE> RENTAL LOCATION MAP [MAP] <PAGE> COMPARABLE SALES LOCATION MAP Map of Salinas and Vicinity [MAP] <PAGE> COMPARABLE SALES LOCATION MAP San Jose [MAP] <PAGE> COMPARABLE SALES LOCATION MAP Santa Cruz [MAP] <PAGE> market income is estimated at $2,170,200 and the actual was $1,940,052 at time of sale. The market derived GIM is 6.29, and the market derived OAR is 9.06% (actual OAR = 8.54%). Under San Jose Rent Control Ordinance which limits annual rent increases to 8 percent. Source/Confirmation: various, including public records, inspection, Comps Inc., Stan Jones Marcus & Millichap. [PHOTO] <PAGE> APARTMENT SALE NUMBER 2 Project Name: Ocean Terrace Location: 1630 Merrill Street, Santa Cruz Assessor's Parcel No.: 027-274-41 Grantor: Santa Cruz Central Investments Grantee: D&M Piterman Rec. Doc. #: #8760321 Sales Date: July 12, 1996 Sales Price: $6,300,000 No. of Units: 100 Condition/Quality: Average+/Average+ Site Area: 2.7 acres (37 un/ac) Year Built: 1972 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $63,000 Price/Room: $16,406 GIM: 6.5 Price/RSF: $78.04 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $543,984 - -------------------------------------------------------------------------------- OAR: 8.6% - -------------------------------------------------------------------------------- Occupancy: 100% (0 unit vacant @ time of sale) Financing: New First from Home Savings (see below) Comments: 100 unit garden style two-story walk-up built in 1972. It is located in an unincorporated area of Santa Cruz County one mile from the city limits of Santa Cruz and two miles north of Capitola Village, a seaside tourist area. The neighborhood is predominately average quality single family and apartments with scattering of mobilehome parks and small retail/shopping centers. The ocean is approximately one-half mile south. Amenities include a pool, sauna, three laundry rooms, <PAGE> APARTMENT SALE NUMBER 1 Project Name: Willow Garden Apartments Location: 1750 Stokes Street, San Jose Assessor's Parcel No.: 284-24-008 Grantor Marie Helen Pejcha Trust Grantee: Willow Gardens Ltd. Rec. Doc. #: #13330744 Sales Date: June 14, 1996 Sales Price: $13,650,000 No. of Units: 186 Condition/Quality: Average+/average+ Site Area: 6.40 acres (29.06 du/ac) Year Built: 1971 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $73,387 Price/Room: $17,773 GIM: 7.04 Price/RSF: $85.17 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $1,165,752 - -------------------------------------------------------------------------------- OAR: 8.54% - -------------------------------------------------------------------------------- Occupancy: 99.0% (1 unit vacant @ time of sale) Financing: see comments below Comments: Average quality garden style two-story walk-up built in 1971. Average condition and appeal. There are 162, two bedroom/two bath units, and 24, three bedroom/2 bath units. Gross rentable area is 163,740 sf. Zoning is R-4, high density. Located in area of apartments, condominiums and single family homes (middle income) with commercial/retail along major arterials. Centrally-located, close to shopping, schools, employment and freeway access. Financing terms consisted of $10,600,000 first, and a seller second of $1,275,000 @ 8%, 2 yrs. The buyer put down $1,775,000. The <PAGE> on-site manager's office, and exercise room. There are six buildings on the 2.7 acre site. Construction is wood frame and wood siding and stucco. Roofs are flat tar and gravel. Parking is 130 spaces. All units feature AEK kitchens including dishwashers, refrigerators, garbage disposals and R/O's. There are 32, 1br/1ba units containing 624 sf; 40, 2br/1ba units measuring 860 sf, 12 units are 2br/1.5 ba @ 923 sf; and, 16 are 3br/2ba units @ 955 square feet. Market rents range from $680-695 for the 1br units to $955-$980 for the 3br units. The 2 br units range from $780 to $855. Based on market rents, the monthly gross rental income is $79,950. Laundry income is $1,125 per month. The actual income for January 1996 was $77,480, or 3% below market. Based on market rental income and laundry income, gross annual income is projected (over next 12 months) at $972,900. Deducting 4 percent for vacancy and collection loss, results in EGI of $933,984. Expenses estimated by seller are approximately $390,000 (including reserves), resulting in a NOI of $543,984 and a cap rate of 8.6 percent. The Home Savings first loan has an estimated annual debt service of $416,044, yielding cash flow of $127,939 and a cash-on-cash rate of 8.1%. reportedly, the property was purchased by the seller in 1985 at $5,200,000 (unconfirmed). Source/Confirmation: Home Savings of America, South Bay Equities [PHOTO] <PAGE> APARTMENT SALE NUMBER 3 Project Name: Fox Creek Village Location: 196 W. Alvin Road, Salinas Assessor's Parcel No.: 261-631-010 Grantor: Sollecito Grantee: Fox Creek Partners Rec. Doc. #: Reel 3151 pg 1419 Sales Date: September 24, 1994 Sales Price: $9,350,000 No. of Units: 168 Condition/Quality: Good/Good Site Area: 7.84 acres (21.43 du/ac) Year Built: 1986 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $55,655 Price/Room: $15,688 GIM: 6.8 Price/RSF: $66.31 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $850,850 - -------------------------------------------------------------------------------- OAR: 9.1% - -------------------------------------------------------------------------------- Occupancy: 96.5% Financing: New loan through Bank of America Comments: Well-located in north Salinas near schools and shopping. Fox Creek consists of 76, 1br/1ba units measuring 708 sf, 24, 2br/1ba units @ 875 sf, and, 68, 2br/1ba units @ 986 sf. 36 units have wood burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. Amenities include a pool, tennis court, and recreation room. Financing terms were not available, although there was a first made by Bank of America at market rate and terms. Assuming normal downpayment and market interest rate at time of sale, cash-on- <PAGE> 96.5% cash is estimated at 9.87%. No rent control. Vacancy at time of sale was reported at 3.5 percent. One covered parking space plus open parking. Garden-design walk-up. Source/Confirmation: various, including public records, inspection. etc. [PHOTO] <PAGE> APARTMENT SALE NUMBER 4 Project Name: Kingdale Oaks Location: 1919 Fruitdale Avenue, San Jose Assessor's Parcel No.: 282-40-022,023 Grantor: Marie Helen Pejcha Trust Grantee: Ted & Catherine Spieker Rec. Doc. #: #12983233 Sales Date: August 15, 1996 Sales Price: $16,760,000 No. of Units: 331 Condition/Quality: Average/Average Site Area: 11.76 acres (28.15/un per ac) Year Built: 1970 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $50,634 Price/Room: $16,878 GIM: 6.01 Price/RSF: $66.22 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $1,565,000 - -------------------------------------------------------------------------------- OAR: 9.3% - -------------------------------------------------------------------------------- Occupancy: 95.62% (14 units vacant @ time of sale) Financing: See Comments Below Comments: Located south of Freeway 280 near San Jose City Community College within single family and apartment neighborhood. Close to shopping, schools and freeway access. Zoned R24 and R4 (high density residential). Under San Jose Rent Control Ordinance. Average quality, wood frame and stucco buildings (flat T&G roofs) built in 1964 and 1970. There are 36, studios; 264 1br/1ba units; 20, 2br/1ba units; 5, 3br/2ba; and, 6 2br/2ba units. Amenities include 2 heated pools, poolside grills, laundry rooms, recreation room, and volleyball. Elevator served. Units have either balcony or <PAGE> patio and are separately metered. Average condition. 1.5 parking spaces per unit (166 open spaces and 331 carport). According to selling broker Bruce Hermann with Marcus & Millichap, gross scheduled actual income at time of sale was $2,787,000. Actual vacancy (and stabilized vacancy) was 4.3 8%. Factoring-in taxes at market (per Prop 13), total expenses were reported at approximately $1,100,000. Net operating income is estimated at $1,565,000. Financing consisted of a 1st from St. Paul Federal Bank of $14,850,000 (VIR) 8%, 25-yr amortization and a seller second of $556,000 @ 7%, 2 years resulting in a total annual debt service of $1,414,297. Cash flow (after debt service) is $150,703, indicating a cash-on-cash rate of 11.1% on the cash downpayment of $1,354,000. The marketing time was reported at 6 months. The sale reportedly did not involve an exchange. Source/Confirmation: Marcus & Millichap (415) 494-8900 [PHOTO] <PAGE> APARTMENT SALE NUMBER 5 Project Name: Hidden Creek Location: 200 Button Street, Santa Cruz Assessor's Parcel No.: 008-202-026 Grantee: Hidden Creek Rec. Doc. #: #5547479 Sales Date: July 24, 1994 Sales Price: $7,400,000 No. of Units: 146 Condition/Quality: Avg/Avg Site Area: 3.8 acres (37 du/ac) Year Built: 1973 - -------------------------------------------------------------------------------- Value Indicators; Price/Unit: $50,685 Price/Room: $16,818 GIM: 6.78 Price/RSF: $77.81 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $710,400 - -------------------------------------------------------------------------------- OAR: 9.6% - -------------------------------------------------------------------------------- Occupancy: 98% (est) Financing: Not available Comments: Nine two-story buildings, garden style, complex of average quality. Located near Highway 1 in City of Santa Cruz. located in neighborhood of predominately small bungalow single family homes built from 1930 to 1970; a new zero-lot line SFR development is located directly across. There are 42 studio units with an average size of 550 square feet; 60, 1br/1ba units @ 650 sf, and, 44, 2br/1ba units of 750 sf. The rentable area is 95,100 square feet (avg unit = 651).There are no recreational amenities except for pool and common utility rooms. Landscaping is extensive in some areas. One-half of the units are subsidized housing units. At time of sale, "market" rents were $600 for studio, $750 for 1 bedrooms, and $850 for two bedrooms. The gross and <PAGE> net incomes are estimates based on reported actual income per MLS listing (#3690 18). According to assessor's office, some buildings had deferred maintenance, however, cost to repair are not known. Source/Confirmation: various, including public records, assessor, MLS [PHOTO] <PAGE> APARTMENT SALE NUMBER 6 Project Name: North Bay Apartments Location: 41 Grandview Street, Santa Cruz Assessor's Parcel No.: 002-051-65 Grantor: EQR Northbay Chicago Inc. Grantee: Sequoia Equities Rec. Doc. #: #7770608 Sales Date: December 1995 Sales Price: $8,550,000 No. of Units: 115 Condition/Quality: Good/Good Site Area: 5.17 (22.2 du/ac) Year Built: 1989 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $74,348 Price/Room: $19,344 GIM: 6.11 Price/RSF: $81.88 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $867,825 - -------------------------------------------------------------------------------- OAR: 10.15% - -------------------------------------------------------------------------------- Occupancy: 100% (no vacancy at time of sale) Financing: $2,425,000 down, $6,300,000 first (see below) Comments: Good quality walk-up garden design built in 1989. Newest complex built in west Santa Cruz area. Located off Highway I (Mission Street) in area of single family and apartments/condos. Above average to good location. Buyer paid $300,000 in repairs and $175,000 commission, thus actual price was somewhat higher than reported above. The property was never exposed to the open market. The higher than normal capitalization rate is reflective of this and the extra cost to the buyer of repairs and <PAGE> commission. There are 18, 1br/1ba units; 69, 2br/2ba units; and, 28, 2br/2.5 ba units. Market rents are about 3-5 % higher than actual. Amenities include a swimming pool and carport parking. No other recreational facilities, although the complex is within a short drive to beaches and three miles to Santa Cruz Beach & Boardwalk. Overall good tenant appeal. Source/Confirmation: various, including public records, broker PHOTO] <PAGE> ]PHOTO] <PAGE> APARTMENT SALE NUMBER 7 Location: 2186-2198 Brutus Street, Salinas Assessor's Parcel No.: 253-081-015 Grantee: Tom Favazza Rec. Doe. #: #35062 Sales Date: May 26, 1993 Sales Price: $3,072,000 No. of Units: 60 Condition/Quality: Good/Good Site Area: 1.8+/- ac (33 du ac) Year Built: 1988+/- - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $51,200 Price/Room: $14,157 GIM: 7.83 Price/RSF: $61.46 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $242,445 - -------------------------------------------------------------------------------- OAR: 7.9% - -------------------------------------------------------------------------------- Occupancy: Not available Financing: Not available Comments: Average to good garden style complex located off N. Main Street in north Salinas. Close to shopping, schools, and freeway access. There are 23, 1br/1ba units, and 37 2br/2a units. Total rentable area is 49,980 sf. Average unit size is 833 sf. Market income at time of sale was estimated at $392,445. Vacancy and expenses were estimated at $150,000, resulting in an estimated NOI of $242,445 (7.9% cap rate). Source/Confirmation: public records, damar <PAGE> [PHOTO] <PAGE> APARTMENT SALE NUMBER 8 Project Name: Cypress Landing Apartments Location: 552 Rico Street, Salinas Assessor's Parcel No.: 261-201-018 Grantee: William Lewis Rec. Doc. #: Reel 2692 pg: 0774 Sales Date: November 1991 Sales Price: $5,950,000 No. of Units: 112 Condition/Quality: Good/Good Site Area: 6 acres (18.7du/ac) Year Built: 1989 - -------------------------------------------------------------------------------- Value Indicators Price/Unit: $53,125 Price/Room: $14,442 GIM: 6.4 Price/RSF: $59.11 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $573,218 - -------------------------------------------------------------------------------- OAR 9.69% - -------------------------------------------------------------------------------- Occupancy: 2.7% ( 3 units vacant @ time of sale) Financing: All cash to seller Comments: Two story, garden style apartment complex of good quality and condition, built in 1989. One of the last apartment complexes to have been built in the north Salinas area. Close to shopping, schools and freeway access. 12, two-story buildings. Amenities include pool, hot tub, weight room, tennis court and recreation building. All units have patios or balconies, refrigerators, R/O and dishwashers; some have fireplaces. There are 36, 1br/1ba units; and, 76 2br/2ba units measuring between 955 to 985 square feet. Carport and open parking. No rent control. 899 sf average unit size. <PAGE> [MAP OF APARTMENTS] <PAGE> SKETCH ADDENDUM File RNNS2.SKE. - -------------------------------------------------------------------------------- Borrower/Client J.H. Real Estate Partners ----------------------------------------------------------------------- Property Address 424 Noice Drive ----------------------------------------------------------------------- City Salinas County Monterey State CA Zip Code 93906 ------------------------- --------------- -------- -------------- Lender NationsBank of Texas ----------------------------------------------------------------------------- Remarks Improvement Plat - -------------------------------------------------------------------------------- [FLOORPLAN] TYPICAL 2BR/1BA FLOORPLAN 875 sf <PAGE> SKETCH ADDENDUM File RNNS2.SKE. - -------------------------------------------------------------------------------- Borrower/Client J.H. Real Estate Partners ----------------------------------------------------------------------- Property Address 424 Noice Drive ----------------------------------------------------------------------- City Salinas County Monterey State CA Zip Code 93906 ------------------------- --------------- -------- -------------- Lender NationsBank of Texas ----------------------------------------------------------------------------- Remarks Improvement Plat - -------------------------------------------------------------------------------- [FLOORPLAN] TYPICAL 1Br/1BA FLOORPLAN 672 sf <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 1 12:15 pm Cypress/Elm ID 3:6:1 All Units ======== Unit Profile ==== ============= Scheduled vs. Actual Rent ====== I.D. Type SqFt Amount /SqFt Amount /SqFt ===== ============ ======= ========= ===== ========= ======= 1C AC.1 672 575.00 0.856 550.00 0.818 1E AE.1 672 575.00 0.856 515.00 0.766 2C AC.2 672 575.00 0.856 575.00 0.856 2E AE.2 672 575.00 0.856 550.00 0.818 3C AC.1 672 575.00 0.856 535.00 0.796 3E AE.1 672 575.00 0.856 535.00 0.796 4C AC.2 672 575.00 0.856 550.00 0.818 4E AE.2 672 575.00 0.856 575.00 0.856 5C AC.1 672 575.00 0.856 550.00 0.818 5E AE.1 672 575.00 0.856 515.00 0.766 6C AC.2 672 575.00 0.856 535.00 0.796 6E AE.2 672 575.00 0.856 535.00 0.796 7C AC.1 672 575.00 0.856 575.00 0.856 7E AE.1 672 550.00 0.856 575.00 0.856 8C AC.2 672 575.00 0.856 575.00 0.856 8E AE.2 672 575.00 0.856 515.00 0.766 9C AC.1 672 575.00 0.856 5OO.00 0.744 9E AE.1 672 575.00 0.856 575.00 0.856 lOC AC.2 672 575.00 0.856 515.00 0.766 10E AE.2 672 575.00 0.856 515.00 0.766 11C AC.1 672 575.00 0.856 475.00 0.707 11E AE.1 672 575.00 0.856 575.00 0.856 12C AC.2 672 575.00 0.856 550.00 0.818 12E AE.2 672 575.00 0.856 515.00 0.766 13C AC.1 672 575.00 0.856 535.00 0.796 13E AE.1 672 575.00 0.856 510.00 0.759 14C AC.2 672 575.00 0.856 550.00 0.818 14E AE.2 672 575.00 0.856 515.00 0.766 15C AC.1 672 575.00 0.856 535.00 0.796 15E AE.1 672 575.00 0.856 515.O0 0.766 16C AC.2 672 575.00 0.856 525.00 0.781 16B AE.2 672 575.00 0.856 575.00 0.856 17C AC.1 672 575.00 0.856 515.00 0.766 17E AE.1 672 575.00 0.856 515.00 0.766 18C AC.2 672 575.00 0.856 482.00 0.717 18E AE.2 672 575.00 0.856 515.00 0.766 19C AC.1 672 575.00 0.856 575.00 0.856 19E AE.1 672 575.00 0.856 515.00 0.766 20C AC.2 672 575.00 0.856 575.00 0.856 20B AB.2 672 575.00 0.856 0.00 0.000 21C BC.1SPEC 675 675.00 0.771 725.00 0.829 21E BE.1 875 695.00 0.794 600.00 0.686 22C BC.2 875 695.00 0.794 665.00 0.760 22E BE.2 875 695.00 0.794 675.00 0.771 23C BC.1 875 695.00 0.794 665.00 0.760 23E BE.1 875 695.00 0.794 710.00 0.811 24C BC.2 875 695.00 0.794 700.00 0.800 24E BE.2 875 695.00 0.794 0.00 0.000 25C BC.1 875 695.00 0.794 635.00 0.726 ===================== =Moved== =====Current Lease===== =Escrow YNAD Current Lease In Begin End Deposit Stat ===================== ======== ======== ======== ======= ==== Beazley Carolyn 04/22/96 03/01/96 04/30/97 375.00 Y -- Gonzales, Rafeela 08/04/94 08/04/94 05/31/97 375.00 Y -- Harris, Leslie 08/22/96 08/22/96 06/21/97 375.00 Y -- Simpson, Gene 12/01/94 06/13/95 12/11/95 375.00 Y -- Thune, Michael 01/29/96 01/29/96 01/28/97 375.00 Y -- Ruiz. Renato 01/30/96 01/30/96 01/29/97 410.00 Y -- Beluan, Salvadore 03/15/96 03/15/96 03/14/97 375.00 Y -- Glenn, April 06/23/96 08/23/96 02/22/97 375.00 Y -- Brown, Loyd Dean & 07/01/93 07/01/93 04/30/97 325.00 Y -- Williams Jr., Georg 07/16/88 06/01/96 05/31/97 350.00 Y -- Scherz, Ruth 01/01/96 10/01/96 04/30/97 375.00 Y -- Smith, Jeanette 02/01/96 02/01/96 12/31/96 375.00 Y -- Politron, Berta 05/07/96 05/07/96 02/06/97 375.00 Y -- Ceja, Francisco 08/28/96 08/28/96 02/27/97 410.00 Y -- Ayon, Frank 09/14/96 10/01/96 06/29/97 375.00 Y -- Phillips, Della Ann 07/26/93 09/01/96 08/31/97 375.00 Y -- Melchor, Aurelia 06/27/94 09/01/96 06/30/97 375.00 Y -- Marquez, Gustavo 04/02/96 04/02/96 06/01/97 375.00 Y -- Owens, Martin 06/07/93 09/01/96 08/31/97 375.00 Y -- Luna, Alvaro M. 03/10/90 06/12/95 03/31/97 350.00 Y -- Hampton, Jessie M. 12/03/88 12/03/88 03/01/97 350.00 Y -- Herrera, Lisa 07/06/96 07/06/96 03/05/97 375.00 Y -- Espinoza, Jose 04/24/96 04/24/96 04/23/97 375.00 Y -- Herrera, Mary 01/16/95 01/16/95 05/31/97 375.00 Y -- GOINS, SYBEL 02/20/96 02/20/96 02/19/97 375.00 Y -- Bloom, Joseph 04/01/85 03/01/96 02/28/97 100.00 Y -- Pineda, Heracio A. 02/29/96 02/29/96 02/28/97 375.00 Y -- Finch, Linda 05/07/94 07/22/96 07/21/97 410.00 Y -- Castaneda, Norma 10/23/95 09/01/96 08/31/97 375.00 Y -- Palacioc, Jannie 02/22/85 07/01/96 03/30/97 325.00 Y -- Jimenz, Martha 09/19/95 09/01/96 05/31/97 375.00 Y -- Maturino, Carlos 08/28/96 09/01/96 01/29/97 375.00 Y -- Scott, Kenneth 05/09/95 05/01/96 04/30/97 375.00 Y -- Salazar, Sandra 05/06/95 05/06/95 05/31/97 376.00 Y -- Marr, Mary 04/12/95 174.00 Y -- Ingram, Les 11/05/91 08/01/96 01/31/97 375.00 Y -- Moss, Mark 06/28/96 06/28/96 06/27/97 375.00 Y -- Newcomb, Kathleen K 07/02/92 07/02/92 03/31/97 375.00 Y -- Walker, Roy 06/01/96 06/01/96 05/31/97 0.OO Y -- VACANT 09/27/96 375.00 N VA VIGIL WENDY 09/14/95 09/01/96 06/31/97 375.00 Y -- Christensen, Joyce 12/30/93 09/01/96 06/30/97 375.00 Y -- Gutierrez, Cathy & A 01/26/96 02/01/96 01/31/97 375.00 Y -- Castro, Maria Ellen 01/29/96 01/29/96 01/28/97 375.00 Y -- Mendoza, Jesus R 08/12/95 08/12/95 01/20/97 375.00 Y -- Robles, James 10/06/95 10/06/95 07/31/97 375.00 Y -- Vargas, Raul 03/16/96 03/16/96 06/15/96 375.00 Y -- VACANT 08/31/96 0.OO Y VA Aguilera, Guilliser 10/30/93 07/01/96 06/30/97 410.00 Y -- <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 2 12:15 pm Cypress/Elm ID 3:6:1 All Units ======== Unit Profile ==== ============= Scheduled vs. Actual Rent ====== I.D. Type SqFt Amount /SqFt Amount /SqFt ===== ============ ======= ========= ===== ========= ======= 25E BE.1 875 695.00 0.794 650.00 0.743 26C BC.2 875 695.00 0.794 635.00 0.726 26E BE.2 875 695.00 0.794 675.00 0.771 27C BC.1 875 695.00 0.794 695.00 0.794 27E BE.1 875 695.00 0.794 695.00 0.794 28C BC.2 875 695.00 0.794 675.00 0.771 28E BE.2 875 695.00 0.794 650.00 0.743 29C BC.1 875 695.00 0.794 695.00 0.794 29E BE.1 875 695.00 0.794 575.00 0.657 3OC BC.2 875 695.00 0.794 635.00 0.726 30E BE.2 875 695.00 0.794 695.00 0.794 31C BC.1 875 695.00 0.794 635.00 0.726 3lE BE.1 875 695.00 0.794 650.00 0.743 32C BC.2 875 695.00 0.794 600.00 0.686 32E BE.2 875 695.00 0.794 635.00 0.726 33C BC.1 875 695.00 0.794 650.00 0.743 33E BE.1 875 695.00 0.794 635.00 0.726 34C BC.2 875 695.00 0.794 600.00 0.686 34E BE.2 875 695.00 0.794 635.00 0.726 35C BC.1 875 695.00 0.794 575.00 0.657 35E BE.1 875 695.00 0.794 650.00 0.743 36C BC.2 875 695.00 0.794 675.00 0.771 36E BE.2 875 695.00 0.794 700.00 0.800 37C AC.1 672 575.00 0.856 515.00 0.766 37E BE.1 875 695.00 0.794 690.00 0.789 38C AC.2 672 575.00 0.856 675.00 0.856 38E BE.2 875 695.00 0.794 635.00 0.726 39C AC.1 672 575.00 0.856 515.00 0.766 39E BE.1 875 695.00 0.794 635.00 0.726 4OC AC.2 672 575.00 0.856 515.O0 0.766 40E BE.2 875 695.00 0.794 600.00 0.686 41C AC.l 672 575.00 0.856 515.00 0.766 41E BE.1 875 695.00 0.794 635.00 0.726 42C AC.2 672 575.00 0.856 500.00 0.744 42E BE.2 875 695.00 0.794 700.00 0.800 43C AC.1 672 575.00 0.856 550.00 0.818 43E BE.l 875 695.00 0.794 635.00 0.726 44C AC.2 672 575.00 0.856 515.00 0.766 44E BE.2 875 695.00 0.794 675.00 0.771 45C AC.1 672 575.00 0.856 478.00 0.711 45E BE.l 875 695.00 0.794 695.00 0.794 46C AC.2 672 575.00 0.856 575.00 0.856 46E BE.2 875 695.00 0.794 710.00 0.811 47C AC.1 672 575.00 0.856 0.00 0.000 47E BE.l 875 695.00 0.794 635.00 0.726 48C AC.2 672 575.00 0.856 550.00 0.818 48E BE.2 875 695.00 0.794 675.00 0.771 49C AC.1 672 575.00 0.856 575.00 0.856 49E BE.1 875 695.00 0.794 710.00 0.811 ===================== =Moved== =====Current Lease===== =Escrow YNAD Current Lease In Begin End Deposit Stat ===================== ======== ======== ======== ======= ==== Espitia, Miguel 12/09/95 12/09/95 08/08/96 375.00 Y -- Angelo, Kevin 02/18/95 07/01/96 06/30/97 375.00 Y -- Barajae, Gueatvo & 05/19/96 05/19/96 05/18/97 375.00 Y -- Alonzo, Maricela 09/10/96 09/13/96 04/12/97 410.00 Y -- Simons Waldo & And 07/27/96 07/29/96 01/26/97 375.00 Y -- Lopez, Gabriela 01/01/96 01/01/96 12/31/96 375.00 Y -- Aboytea, Lupe & Cea 05/01/95 05/01/95 12/13/96 375.00 Y -- Torrez, Carlo. 07/08/94 04/18/95 07/12/97 375.00 Y -- Fitzell, Chet 05/01/95 05/01/95 12/31/99 0.00 Y -- Pulido, Edmundo & R 02/23/93 08/01/96 07/31/97 375.00 Y -- Daubenepeck, Bruno 04/14/92 06/17/95 06/16/96 375.00 Y -- Alston, Leroy & Mic 11/12/79 06/01/96 05/31/97 100.00 Y -- GUEVANA, GRISELDA 01/01/96 01/01/96 12/31/96 375.00 Y -- Garza, Conception 11/18/94 09/01/96 03/31/97 375.00 Y -- Aguier, Marie 10/11/94 08/07/95 07/31/97 375.00 Y -- Torres, Maria E 09/14/95 09/01/96 06/30/97 375.00 Y OL Trinidad, Geraldo & 02/01/95 08/01/96 01/31/97 410.00 Y -- Childs, Sharon 03/28/91 08/01/95 08/31/97 375.00 Y -- Barajas, Genoveva 11/07/94 06/17/95 05/31/97 375.00 Y -- Winston, Julie & La 03/10/87 350.00 Y -- Juarez, Diana 04/14/95 03/01/96 04/28/97 410.00 Y -- GERMAN, Felix 07/15/95 08/01/96 07/31/97 375.00 Y -- Zamora, Pedro 04/27/96 04/27/96 07/26/97 375.00 Y -- Mendez, Martha 03/01/95 03/01/95 02/28/97 375.00 Y -- Roblee, George 07/08/96 07/08/96 07/07/97 375.00 Y -- Bower, Elizabeth 07/05/96 07/05/96 08/04/97 375.00 Y -- Austin, Sally 05/19/95 07/01/96 06/30/97 375.00 Y -- Cendejas, Virginia 04/15/92 07/01/96 06/30/97 445.00 Y -- Isamore, Andrew 02/14/95 09/01/96 08/31/97 375.00 Y -- Macaraeg, Michael J 02/28/94 02/28/94 08/31/97 375.00 Y -- Tomasini, Icabelle 09/27/95 09/01/96 05/31/97 375.00 Y -- Costa, Stan & Carol 02/14/95 02/14/95 03/31/97 375.00 Y -- Kohl, Barbara 08/02/94 08/02/94 03/31/97 375.00 Y -- Perez, Zaida 10/10/94 09/01/96 06/30/97 375.00 Y -- Blas, Luis 03/22/96 03/22/96 06/21/96 375.00 Y -- Lopez, Alexandra 06/13/94 10/01/96 06/30/97 410.00 Y -- Ornelas, Sara 08/06/92 08/06/92 03/31/97 375.00 Y -- Mendoza, Maria 10/01/94 08/01/96 07/31/97 375.00 Y -- King, Kenneth P 03/13/96 03/13/96 03/12/97 750.00 Y -- Sekulo, Lorene 11/28/90 06/23/95 12/31/96 375.00 Y -- Lopez, Rick 09/12/96 09/12/96 04/11/97 375.00 Y -- Felix, Francisco 06/08/96 06/08/96 06/07/97 375.00 Y -- Matthews, David G 08/28/96 08/28/96 02/27/97 375.00 Y -- VACANT 09/26/96 375.00 N VA Ruloph, Lorraine & 09/04/87 07/24/96 07/23/97 350.00 Y -- Sweatman, Don 02/24/96 02/24/96 02/23/97 375.00 Y -- Meec, Andrew 03/19/96 03/19/96 03/19/97 375.00 Y -- Zamora, Antonio 03/17/96 03/17/96 06/30/97 375.00 Y -- Lopez, Enrique 08/22/96 08/22/96 02/21/97 375.00 Y -- <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 3 All Units ======== Unit Profile ==== ============= Scheduled vs. Actual Rent ====== I.D. Type SqFt Amount /SqFt Amount /SqFt ===== ============ ======= ========= ===== ========= ======= 50C AC.2 672 575.00 0.856 550.00 0.818 50E BE.2 875 695.00 0.794 635.00 0.726 51C AC.1 672 575.00 0.856 500.00 0.744 51E BE.1 875 695.00 0.794 635.00 0.726 52C AC.2 672 575.00 0.856 550.00 0.818 52E BE.2 875 695.00 0.794 650.00 0.743 53C AC.1 672 575.00 0.856 515.00 0.766 53E.BE.1 875 695.00 0.794 635.00 0.726 54C AC.2 672 575.00 0.856 575.00 0.866 54E BE.2 875 695.00 0.794 635.00 0.726 55C AC.1 672 575.00 0.856 575.00 0.856 55E BE.1 875 695.00 0.794 675.00 0.771 56C AC.2 672 575.00 0.856 515.00 0.766 56E BE.2 875 695.00 0.794 695.00 0.794 57C Bc.2 875 695.00 0.794 600.00 0.686 57E BE.1 875 695.00 0.794 635.00 0.726 58C BC.2 875 695.00 0.794 635.00 0.726 58E BE.2 875 695.00 0.794 675.00 0.771 59C BC.1 875 695.00 0.794 695.00 0.794 59E BE.1 875 695.00 0.794 635.00 0.726 60C BC.2 875 695.00 0.794 0.00 0.000 60E BE.2 875 695.00 0.794 650.00 0.743 61C.BC.1 875 695.00 0.794 0.00 0.000 61E BE.1 875 695.00 0.794 635.00 0.726 62C BC.2 875 695.00 0.794 675.00 0.771 62E BE.2 875 695.00 0.856 675.00 0.771 63C BC.1 875 695.00 0.794 635.00 0.726 63E BE.1 875 5695.00 0.856 635.00 0.726 64C BC.2 875 695.00 0.794 600.00 0.686 64E BE.2 875 695.00 0.856 575.00 0.657 65C BC.1 875 695.00 0.794 635.00 0.726 65E BE.1 672 695.00 0.856 635.O0 0.726 66C BC.2 875 695.00 0.794 635.00 0.726 66E BE.2 672 695.00 0.856 600.00 0.686 67C BC.1 875 695.00 0.794 695.00 0.794 67E BE.1 875 695.00 0.794 675.00 0.771 68C BC.2 875 695.00 0.794 635.00 0.726 68E BE.2 875 695.00 0.794 695.00 0.794 69C BC.1 875 695.00 0.794 660.00 0.743 69E BE.1 875 695.00 0.794 675.00 0.771 70C BC.2 875 695.00 0.794 635.00 0.726 70E BE.2 875 695.00 0.794 575.00 0.657 71C BC.1 875 695.00 0.794 675.00 0.771 71E BE.1 875 695.00 0.794 600.00 0.686 72C BC.2 875 695.00 0.794 710.00 0.811 72E BE.2 875 695.00 0.794 700.00 0.800 73C BC.1 875 695.00 0.794 635.00 0.726 73E BE.1 875 695.00 0.794 675.00 0.771 74C BC.2 875 695.00 0.794 0.00 0.000 ===================== =Moved== =====Current Lease===== =Escrow YNAD Current Lease In Begin End Deposit Stat ===================== ======== ======== ======== ======= ==== Eapitia, Miguel 12/09/95 12/09/95 08/08/96 375.00 Y -- Hernandez, Jose & B 03/23/96 03/23/96 03/22/97 375.00 Y -- Perez, Isabel 08/21/93 08/21/93 03/31/97 375.00 Y -- Espinoza, Jesus 04/08/95 09/01/96 03/31/97 375.00 Y -- Murillo, Juan 12/07/94 07/01/96 06/30/97 375.00 Y -- Elanor, Narvey 07/01/94 07/01/94 06/30/97 375.00 Y -- Soto, Julia Dima 01/27/96 01/27/96 03/16/97 375.00 Y -- Herrington, Tina 08/22/92 375.00 Y -- Moreno, Salomon 10/12/94 06/16/95 02/28/97 375.00 Y -- Renteria, Abraham 07/30/96 07/30/96 12/29/96 375.00 Y -- Amonoo, Kevin Ababi 03/16/93 06/03/96 05/31/97 375.00 Y -- Sanchez, Gerardo 04/08/96 04/08/96 06/07/97 375.00 Y -- Burpo, Norma 11/23/84 10/01/96 04/30/97 325.00 Y -- Hata, Yuichiro 12/01/93 06/01/96 05/31/97 410.00 Y -- Guevara, Velentine 07/08/96 07/08/96 07/07/97 410.00 Y -- Brown, Barbara 05/23/93 09/01/96 07/31/97 375.00 Y -- Ultreras, Rosalio & 10/01/93 10/01/93 05/31/97 375.00 Y -- Saldana, Ramon & An 02/25/94 06/28/95 07/31/97 410.00 Y -- Miller, Amy France 03/01/96 03/01/96 02/28/97 375.00 Y -- Gonzalez, Ramiro & 09/02/96 09/02/96 04/01/97 375.00 Y -- Perez, Michaela 07/01/95 08/01/96 08/08/97 375.00 Y -- VACANT/ PRELEASED 09/16/96 0.00 Y VL Buell, Maria 01/01/96 09/01/96 05/31/97 375.00 Y -- VACANT/ PRELEASED 09/15/96 0.00 Y VL Marr, Martin Lee 11/27/91 05/01/96 04/30/97 375.00 Y -- Davis, Kellie 11/01/95 08/01/96 01/31/97 300.00 Y -- Vargas, Armondo 04/05/96 04/05/96 04/04/97 375.00 Y -- Grant, Sandra 06/28/91 09/01/96 08/31/97 375.00 Y -- Ramos, Miguel 05/20/95 05/01/96 04/30/97 375.00 Y -- Lacinto, Buezo 05/06/95 09/01/96 06/30/97 410.00 Y -- White, Gennetta 12/15/94 12/15/94 06/30/95 375.00 Y -- Zamora, Juventino 03/28/95 03/28/95 04/30/97 375.00 Y -- Carillo, Benjamin 04/20/95 04/20/95 04/30/97 375.00 Y -- Konen, Carol 07/09/95 07/14/95 02/28/97 375.00 Y -- Thompson, Debrah 01/16/91 09/01/96 06/30/97 375.00 Y -- Robles, Betty 09/14/96 09/19/96 07/17/97 375.00 Y -- Hernandez, Gabriel 11/11/95 11/11/95 08/31/97 375.00 Y -- Pena, Rosie 09/15/94 07/01/96 06/30/97 375.00 Y Olvra, Marco 04/01/96 04/01/96 02/02/97 850.00 Y -- Duran, Jorge 12/01/95 12/01/95 09/30/96 375.00 Y -- Chun, Kyung Soon 03/26/96 03/26/96 03/21/97 375.00 Y -- Shin, Yoo & Nam 05/13/88 06/01/96 05/31/97 350.00 Y -- Ascencio, Sandra & 02/21/95 01/31/97 135.00 Y -- Tamayo, Carmen 03/22/96 03/22/96 03/21/97 375.00 Y -- Rice, Terry Melvin 03/04/94 09/01/96 08/31/97 410.00 Y -- Pee, Karen 08/30/96 08/30/96 02/27/97 375.00 Y -- Amaya, Efrain 04/23/96 04/23/96 07/22/96 375.00 Y -- Robinson, Richard & 06/01/94 07/01/96 05/31/97 375.00 Y -- Sanchez, Maria Ange 05/09/94 06/23/95 06/22/96 375.00 Y -- VACANT/PRELEASED 09/15/96 0.00 Y VL <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 4 Cypress/Elm ID 3.6.1 All Units ======== Unit Profile ==== ============= Scheduled vs. Actual Rent ====== I.D. Type SqFt Amount /SqFt Amount /SqFt ===== ============ ======= ========= ===== ========= ======= 74E BE.2 875 695.00 0.794 675.00 0.771 75C BC.1 875 695.00 0.794 635.00 0.726 75E BE.1 875 695.00 0.794 575.00 0.657 76C BC.2 875 695.00 0.794 635.00 0.726 76E BE.2 875 695.00 0.794 635.00 0.726 77C BC.1 875 695.00 0.794 625.00 0.714 77E BE.1 875 695.00 0.794 635.00 0.726 78C BC.2 875 695.00 0.794 635.00 0.726 78E BE.2 875 695.00 0.794 635.00 0.726 79C BC.1 875 695.00 0.794 695.00 0.794 79E AE.1 672 575.00 0.856 515.00 0.766 80C BC.2 875 695.00 0.794 675.00 0.771 80E AE.2 672 575.00 0.856 550.00 0.818 81C BC.1 875 695.00 0.794 635.00 0.726 81E AE.1 672 575.00 0.856 515.00 0.766 82C BC.2 875 695.00 0.794 635.00 0.726 82E AE.2 672 575.00 0.856 575.00 0.856 83C BC.1 875 695.00 0.794 650.00 0.743 83E AE.1 672 575.00 0.856 579.00 0.856 84C BC.2 875 695.00 0.794 635.00 0.726 84E AE.2 672 575.00 0.856 515.00 0.766 85C BC.1 875 695.00 0.794 695.00 0.794 85E AE.1 672 575.00 0.856 515.00 0.766 86C BC.2 875 695.00 0.794 650.00 0.743 86E AE.2 672 575.00 0.856 575.00 0.856 87C BC.1 875 695.00 0.794 635.00 0.726 87E AE.1 672 575.00 0.856 515.00 0.766 88C BC.2 875 695.00 0.794 635.00 0.726 88E AE.2 672 575.00 0.856 575.00 0.856 89C BC.1 875 695.00 0.794 650.00 0.743 89E AE.1 672 575.00 0.856 535.00 0.796 90C BC.2 875 695.00 0.794 650.00 0.743 90E AE.2 672 575.00 0.856 575.00 0.856 91B AE.1 672 575.00 0.856 0.O0 0.000 92E AE.2 672 575.00 0.856 575.00 0.856 93E AE.1 672 575.00 0.856 575.00 0.856 94E AE.2 672 575.00 0.856 575.00 0.856 95E AE.1 672 575.00 0.856 515.00 0.766 96E AE.2 672 575.00 0.856 550.00 0.818 97E AE.1 672 575.00 0.856 515.00 0.766 98E AE.2 672 575.00 0.856 575.00 0.856 ===== ============ ======= ========= ========= ========= ======= TOTAL: 188 141260 121040.00 0.816 109200.00 0.765 ===== ============ ======= ========= ===== ========= ======= ===================== =Moved== =====Current Lease===== =Escrow YNAD Current Lease In Begin End Deposit Stat ===================== ======== ======== ======== ======== ==== Thune, Debra 01/30/96 02/01/96 01/31/97 785.00 Y -- Camacho, Joel & San 02/25/94 09/01/96 06/30/97 410.00 Y -- Leon, Ivonne & Lee, 02/02/95 410.00 Y -- Patterson, Gertrude 12/07/86 08/01/96 01/31/97 350.00 Y -- Martinez, Dionicia 06/03/94 07/24/96 07/23/97 375.00 Y -- Baez, Angelina 08/16/95 08/16/95 08/15/96 158.00 Y -- Torres, Larry & Hor 09/13/94 08/01/95 08/01/97 375.00 Y -- Garrett, Peggy 10/02/95 01/13/95 02/28/97 375.00 Y -- Harris, Jene & Tova 10/08/94 10/08/94 04/07/95 375.00 Y -- Hernandez, Jose 06/08/96 06/01/96 02/07/97 785.00 Y -- Heroandez, Guadalup 02/25/94 08/01/96 01/31/97 375.00 Y -- Sanchez, Lourdes & 02/09/96 02/09/96 02/08/97 410.00 Y -- Ramos, Jesus 03/09/96 03/09/96 03/08/97 375.00 Y -- Mendoz, Esperanza 04/01/95 06/13/95 06/30/97 410.00 Y -- Martinez, Hilda 11/04/91 07/01/96 07/31/97 375.00 Y -- Simmons, Laurice 04/11/95 07/01/96 06/30/97 375.00 Y -- Barron, Jose 08/20/96 08/20/96 02/19/97 375.00 Y -- Perez, Tiburcio 01/01/96 09/01/96 03/31/97 375.00 Y -- Johnson, Timothy W. 08/16/96 08/16/96 02/15/97 375.00 Y -- Sotelo, Bill 08/15/89 09/01/96 08/31/97 350.00 Y -- Manriquez, Ana B. 04/11/94 06/23/95 04/30/97 375.00 Y -- Gonzalez, Ricardo & 09/06/96 09/06/96 04/05/97 375.00 Y -- Schehl, Phyllis V. 04/19/89 06/23/95 06/30/97 350.00 Y -- Rios, Maria 01/07/96 01/15/96 01/06/97 375.00 Y -- Ascencio, Elias 12/01/95 12/01/95 02/02/97 475.00 Y -- Williams, Raymond 06/14/86 07/15/96 07/14/97 350.00 Y -- Tapia, Jessie 09/16/94 08/01/96 02/28/97 375.00 Y -- Gray, Letricia 07/19/91 06/01/96 05/31/97 375.00 Y -- Doyle, Casey 09/23/96 09/23/96 04/22/97 375.00 Y -- Mungia, Elena M 11/09/95 11/10/95 11/09/96 375.00 Y -- Rocha, Maria 01/01/96 01/01/96 09/30/96 750.00 Y OL Harris, Cedra 08/10/95 09/03/96 04/02/97 375.00 Y -- Ortega, Juan 06/28/96 06/28/96 06/27/97 375.00 Y -- VACANT 09/03/96 0.00 Y VA Gonzales, Paul & Li 07/14/96 07/15/96 07/14/97 375.00 V -- Edeza, Myrna 07/28/96 07/28/96 04/27/97 410.00 V -- Clara, Flor 08/09/96 08/09/96 03/08/97 375.00 V -- Rapoport, Zelia 02/07/95 09/01/95 08/31/97 375.00 V -- Yang, Jing 06/18/95 06/15/95 02/17/96 375.00 V -- Villarta, Carmela 08/20/81 06/01/96 05/31/97 150.00 V -- Askins, Jim 08/10/96 08/10/96 08/09/97 375.00 V -- ===================== ======== ======== ======== ======== ==== 142744 SF Occupied ===================== ======== ======== ======== ======== ==== <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 5 12:15 pm Cypress/Elm ID 3:6:1 All Units <TABLE> <CAPTION> PHYSICAL OCCUPANCY: Occupied Pct Vacant Pct Total OCCUPANCY PERCENT: Excl. Off-Line Incl. Off-Line =================== ========= ===== ======= ====== ======= ================== ============== ============== <S> <C> <C> <C> <C> <C> <C> <C> <C> Square Footage.: 142,744 96.3% 5,516 3.7% 148,260 Incl. Vac. Leased: 97.9% 97.9% Unit Count.: 181 96.3% 7 3.7% 188 Excl. Vac. Leased: 96.3% 96.3% </TABLE> <TABLE> <CAPTION> EXPOSURE TO VACANCY: Number Pct MOVES/TRANSFERS: MAKE - READY STATUS.: Number Pct =========================== ====== ===== ================ ======================== ====== ====== <S> <C> <C> <C> <C> <C> Currently Vacant Units.: 7 3.7% Oct In.: 1 Total Vacant Units.: 7 100.0% Less Vacant Leased.: -3 1.6% Oct Out.: 3 Ready To Rent (Y).: 5 71.4% Less Occupied Pre-Leased.: -2 1.1% Need Make-Ready (N).: 2 28.6% Plus Occupied On Notice.: 8 4.3% Off-Line Down (D).: 0 0.0% Occupied But Skipped.: 0 0.0% Off-Line Admin (A).: 0 0.0% ------ ----- Net Exposure To Vacancy.: 10 5.3% </TABLE> <TABLE> <CAPTION> RENTAL RATES: Occupied /SqFt Pct Vacant /SqFt Pct Total /SqFt Pct ================== ============ ====== ======= =========== ====== ====== ============= ====== ====== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Scheduled Rent.: 116,535.00 0.816 96.3% 4,505.00 0.817 3.7% 121,040.00 0.816 100.0% Actual Status.: 109,200.00 0.765 90.2% 4,505.00 0.817 3.7% 113,705.00 0.767 93.9% Loss To Lease.: 7,335.00 0.051 6.1% </TABLE> STATUS OF UNIT TYPES, SUBTOTALED BY FIRST 8 CHARACTERS OF UNIT TYPE: - -------------------------------------------------------------------------------- Unit Total # % Avg. Occup. Total Sch. $ Avg. $ Type Units Occ. Occ. SqFt SqFt SqFt /Unit /SqFt ====== ===== === ==== ==== ====== ======= ========= ====== AC.1 20 19 95% 672 12768 13440 575.00 0.856 AC.2 20 20 100% 672 13440 13440 575.00 0.856 AE.1 20 19 95% 672 12768 13440 575.00 0.856 AE.2 20 19 95% 672 12768 13440 575.00 0.856 BC.1 24 23 96% 875 20125 21000 695.00 0.794 BC.1SPEC 1 1 100% 875 875 875 675.00 0.771 BC.2 25 23 92% 875 20125 21875 695.00 0.794 BE.1 29 29 100% 875 25375 25375 695.00 0.794 BE.2 29 28 97% 875 24500 25375 695.00 0.794 ========= ===== === ==== ==== ====== ======= ========= ====== 9 188 181 96% 789 142744 148260 643.83 0.816 ================================================================================ - -------------------------------------------------------------------------------- Act. $ Rent Sched. Loss to Made Not OffLn OffLn /Unit /SqFt Rent Lease Rdy. Rdy. Adm. Down ======== ===== ========= ======== ===== ===== ====== ======= 530.68 0.790 11500.00 842.00 0 1 0 0 542.60 0.807 11500.00 648.00 0 0 0 0 532.63 0.793 11500.00 805.00 1 0 0 0 550.00 0.818 11500.00 475.00 0 1 0 0 651.74 0.745 16680.00 995.00 1 0 0 0 725.00 0.829 675.00 -50.00 0 0 0 0 646.09 0.738 17375.00 1125.00 2 0 0 0 646.72 0.739 20155.00 1400.00 0 0 0 0 655.89 0.750 20155.00 1095.00 1 0 0 0 ======== ===== ========= ======== ==== ===== ====== ======= 603.31 0.765 121040.00 7335.00 5 2 0 0 ========================================================================= <PAGE> INCOME STATEMENT FOR THE 12 MONTHS ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 98,545.15 295,922.03 1,177,794.40 ( 881,872.37) RENTAL INCOME VARIANCE ( 11,918.47) ( 36,160.39) ( 197,883.63) 161,723.24 --------------- --------------- --------------- --------------- -------------- NET CURRENT RENT 94,966.66 86,361.68 1,115,513.71 979,645.77 135,867.94 OTHER RENTAL INCOME SECURITY DEPOSITS 3,977.64 ( 1,963.37) 32,079.82 40,843.55 ( 8,763.73) FORFEITED SECURITY DEPOSITS 595.73 5,194.89 5,194.89 LAUNDRY INCOME 2,151.90 1,630.50 23,324.70 21,189.15 2,135.55 CHARGES TO TENANTS 757.16 776.24 5,190.28 10,763.46 ( 5,573.18) MISCELLANEOUS 151.09 1,844.31 367.16 1,477.15 UTILITIES 5.00 34.09 49.98 ( 15.89) DAMAGE 135.07 414.04 1,353.77 5,973.53 ( 4.619.76) LATE CHARGES 830.00 803.13 7,949.57 5,166.54 2,783.03 NSF FEES 60.00 44.50 489.42 179.00 310.42 CREDIT CHECK 400.00 60.00 3,510.00 2,160.00 1,350.00 --------------- -------------- --------------- --------------- -------------- TOTAL OTHER RENT INCOME 8,907.50 1,921.13 80,970.85 86,692.37 ( 5,721.52) TOTAL RENTAL INCOME 103,874.16 88,282.81 1,196,484.56 1,066,338.14 130,146.42 --------------- -------------- --------------- --------------- -------------- OTHER INCOME REFUNDED DEPOSITS ( 3,955.00) ( 3,374.13) ( 24,814.12) ( 40,916.66) 16,102.54 INTEREST INCOME 243.95 750.73 158.35 592.38 --------------- -------------- --------------- --------------- -------------- TOTAL OTHER INCOME ( 3,711.05) ( 3,374.13) ( 24,063.39) ( 40,758.31) 16,694.92 TOTAL INCOME 100,163.11 84,908.68 1,172,421.17 1,025,579.83 146,841.34 =============== ============== =============== =============== =============== TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 105.00 1,500.00 3,250.66 1,500.00 1,750.66 REPAIRS/MAINT. PAYROLL 6,033.71 4,112.00 51,212.62 31,706.74 19,505.88 MANAGERS SALARIES 1,902.01 776.91 17,277.22 11,824.25 5,452.97 OFFICE SALARIES 3,031.42 988.00 19,256.23 5,908.00 13,348.23 GROUNDS PAYROLL 2,726.40 12,071.00 25,447.19 ( 13,376.19) DECORATING PAYROLL 307.20 552.00 307.20 244.80 STATE COMP. INS. -PAYROLL 731.14 1,011.06 7,415.75 7,607.74 ( 191.99) PAYROLL-HOSPITAL INS. 1,462.29 297.75 11,734.62 4,664.50 7,070.12 FICA - PAYROLL TAX 771.77 568.44 7,350.25 5,843.38 1,506.87 FUTA - PAYROLL TAX 81.24 154.34 761.30 500.64 260.66 SDI TAX-PAYROLL-UNEMPLOY 101.55 23.30 1,855.48 2,317.41 ( 461.93) --------------- -------------- --------------- --------------- -------------- PAYROLL EXPENSES 14,220.13 12,465.40 132,737.13 97,627.05 35,110.08 </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE -------------- --------------- --------------- --------------- --------------- --------------- <S> <C> <C> <C> <C> <C> ADMINISTRATIVE EXPENSES PROMOTIONS 156.35 1,144.11 1,144.11 ADVERTISING 611.80 612.05 9,981.59 4,207.82 5,773.77 SIGNS, FLAGS, BANNERS 1,072.17 1,072.17 OFFICE SUPPLIES 333.25 384.83 3,404.42 458.17 2,946.25 LEGAL EXPENSES ( 37.50) 4,014.03 173.38 3,840.65 MISCELLANEOUS 88.50 362.13 544.47 ( 182.34) CREDIT CHECK EXPENSE 125.60 45.50 1,993.11 1,147.55 845.56 LOSSES FROM THEFT 3,184.24 3,184.24 BANK CHARGES 16.00 68.98 68.98 PETTY CASH REIMB. 8.40 63.29 465.99 ( 402.70) POSTAGE 250.95 333.89 333.89 DUES & SUDCRIPTIONS 294.10 294.10 LINCOLN FEE 3,363.37 30,485.54 30,485.54 NSF CHECK ( 300.50) 775.00 ( 775.00) EMPLOYEE TRAINING 100.00 1,130.90 1,130.90 OUSTSIDE STATIONARY MISC 291.99 2,409.59 2,409.59 --------------- --------------- --------------- --------------- --------------- ADMINISTRATIVE EXPENSE 5,249.31 801.28 59,942.09 7,772.38 52,169.71 CONTRACT SERVICES SEC SUP/EXP-FIRE PROTECT 88.88 6,884.94 3,305.00 3,579.94 EXTERIMINATING CONTRACT 265.00 2,505.00 2,505.00 CABLE TV. 722.43 3,037.64 16,716.47 18,266.92 ( 1,550.45) GARDENING CONTRACT 1,700.00 66.75 14,437.64 66.75 14,370.89 --------------- --------------- --------------- --------------- --------------- CONTRACT SERVICES 2,776.31 3,104.39 40,544.05 21,638.67 18,905.38 UTILITY SERVICES TELEPHONE EXPENSE 352.03 122.46 1,983.70 1,211.10 772.60 TRASH REMOVAL 6,439.60 3,999.85 46,226.23 45,485.15 741.08 PGE - HOUSE 2,434.58 11,726.17 38,297.55 63,950.23 ( 25,652.63) GAS - HOUSE 3,586.82 22,643.57 22,643.57 PGE APARTMENT METERS 147.31 132.15 1,418.19 1,665.34 ( 247.15) WATER 1,460.09 17,316.20 16,157.71 1,158.49 SEWER CHARGES 24,127.92 24,082.92 45.00 --------------- --------------- --------------- --------------- --------------- UTILITY SERVICES 12,960.34 17,440.72 152,013.36 152,552,45 ( 539.09) MAINTENANCE EXPENSES CARPET REPAIRS/MAINT. 780.00 235.00 2,042.50 3,599.50 ( 1,557.00) CARPET REPLACEMENT 1,686.40 1,072.47 76,152.15 18,123.77 58,028.38 GROUNDS SUPPLY/REPLACEMENT 566.93 90.37 1,801.96 1,744.88 57.08 EQUIPMENT RENTAL 532.50 532.50 POOL SUPPLY/REPLACEMENT 5,368.53 2,498,39 2,870.14 DECORATING SUPPLIES 648.41 306.19 17,762.11 3,779.94 13,982.17 CLEANING SUPPLIES/SERV. 1,731.96 330.00 10,131.28 8,555.00 1,576.28 </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE -------------- --------------- --------------- --------------- --------------- -------------- <S> <C> <C> <C> <C> <C> EXTERMINATING SUPPLIES 140.00 110.00 1,050.00 ( 940.00) BLDG MAINT SUPPLIES 3,478.47 6,117.62 40,296.46 27,516.50 12,779.96 PLUMBING MAINTENANCE 2,174.18 6,999.88 348.00 6,651.88 APPLIANCE REPLACEMENT ( 550.00) 19,065.65 1,289.26 17,776.39 BLDG MAINT SVC/CONTRACT 1,767.39 ( 2,351.20) 3,341.82 1,664.30 1,677.52 ELECTRIC MAINTENANCE 305.04 48.00 3,818.35 722.50 3,095.85 -------------- -------------- -------------- -------------- --------------- MAINTENANCE EXPENSES 12,588.78 5,988.45 187,423.19 70,892.04 116,531.15 CONTROLLABLE EXPENSES 47,794.87 39,800.24 572,659.82 350,482.59 222,177.23 -------------- -------------- -------------- -------------- --------------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE 4,122.98 60,020.03 8,245.96 60,020.03 ( 51,774.07) PROPERTY TAXES 42,874.29 42,853.76 84,748.58 ( 42,894.82) LICENSES & PERMITS 2,536.00 280.OO 2,256.00 --------------- -------------- -------------- -------------- --------------- FIXED EXPENSES 4,122.98 102,894.32 53,635.72 146,048.61 ( 92,412.89) NET OPERATING INCOME (NOI) 48,245.26 ( 57,785.55) 546,125.63 529,048.63 17,077.00 =============== ============== ============== ============== =============== DEBT SERVICE INTEREST ON 1ST MORTGAGE 35,938.52 30,907.12 424,698.97 336,630.41 88,068.56 PRINCIPAL-1ST MORTGAGE ( 32,941.04) ( 45,057.85) --------------- --------------- -------------- -------------- --------------- DEBT SERVICE 2,997.48 ( 14,150.73) 424,698.97 336.630,41 88,068.56 OPERATING CASH FLOW 45,247.78 ( 43,635.15) 121,426.66 192,418.22 ( 70,991.56) =============== ============== ============== ============== =============== NON OPERATING EXPENSES DEPRECIATION EXPENSE 188,589.00 188,618.00 188,589.00 188,618.00 ( 29.00) DEFERRED INT. AMORTIZ. 4,800.00 4,800.00 4,800.00 4,800.00 REFURBISIHMENT & DEFERRAL ( 672.02) 2,716.00 147,266.55 2,716.00 144,550.55 -------------- -------------- -------------- -------------- --------------- NON OPERATING EXPENSES 192,716.98 196,134.00 340,655.55 196,134.00 144,521.55 PROFIT/LOSS ( 147,469.20) ( 239,769.15) ( 219,228.89) ( 3,715.78) ( 215,513.11) =============== ============== ============== ============== =============== </TABLE> <PAGE> INCOME STATMENT CYPRESS/ELM FOR THE 8 MOS. ENDING AUGDST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE -------------- --------------- --------------- --------------- --------------- -------------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 295,922.03 ( 295,922.03) RENTAL INCOME VARIANCE ( 36,160.39) 36,160.39 -------------- -------------- -------------- -------------- --------------- NET CURRENT RENT 108,902.83 98,139.51 778,313.34 726,161.74 52,151.60 OTHER RENTAL INCOME SECURITY DEPOSITS 2,220.00 1,975.00 25,739.40 21,857.95 3,881.45 FORFEITED SECURITY DEPOSITS 1,424.17 365.79 10,557.80 1,878.38 8,679.42 LAUNDRY INCOME 2,590.05 2,583.45 19,784.25 13,944.30 5,839.95 CHARGES TO TENANTS 1,050.31 190.00 5,530.51 3,224.71 2,305,80 MISCELLANEOUS 1,844.31 ( 1,844.31) UTILITIES 34.09 ( 34.09) DAMAGE 49.98 59.97 1,420.99 1,028.67 392.32 LATE CHARGES 475.00 975.00 3,882.00 5,084.57 ( 1,202.57) NSF FEES 40.00 110.00 339.17 329.42 9.75 CREDIT CHECK 200.00 225.00 1,075.00 2,685.00 ( 1,610.00) -------------- -------------- -------------- -------------- --------------- TOTAL OTHER RENT INCOME 8,049.51 6,484.21 68,329.12 51,911.40 16,417.72 TOTAL RENTAL INCOME 116,952.34 102,623.72 846,642.46 778,073.14 68,569.32 -------------- -------------- -------------- -------------- --------------- OTHER INCOME REFUNDED DEPOSITS ( 4,475.00) ( 1,160.00) ( 25,607.00) ( 12,844.12) ( 12,762.88) INTEREST INCOME 46.54 59.74 720.66 335.47 385.19 -------------- -------------- -------------- -------------- -------------- TOTAL OTHER INCOME ( 4,428.46) ( 1,100.26) ( 24,886.34) ( 12,508.65) ( 12,377.69) TOTAL INC0ME 112,523.88 101,523.46 821,756.12 765,564.49 56,191.63 ============== ============== ============== ============== ============== TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 980.00 4,615.96 1,995.00 2,620.96 REPAIRS/MAINT.PAYROLL 2,059.20 4,785.91 27,357.33 33,539.63 ( 6,182.30) MANAGERS SALARIES 2,721.44 1,360.58 17,498.08 11,258.68 ( 6,239.40 OFFICE SALARIES 1,216.29 1,582.91 11,659.72 11,830.58 ( 170.86) GROUNDS PAYROLL ( 1,086.60) 12,071.00 ( 12,071.00) DECORATING PAYROLL 552.00 ( 552.00) STATE COMP. INS.-PAYROLL 457.00 453.64 3,914.48 5,349.11 ( 1,434.63) PAYROLL-HOSPITAL INS. 850.52 907.29 7,285.71 7,601.31 ( 316.00) FICA - PAYROLL TAX 482.38 478.84 4,131.93 5,168.76 ( 1,036.83) FUTA - PAYROLL TAX 50.78 50.40 434.94 531.67 ( 96.73) SDI TAX-PAYROLL-UMEMPLOY 63.47 63.00 543.67 1,568.44 ( 1,024.77) -------------- -------------- ------------- -------------- -------------- PAYROLL EXPENSES 8,881.08 8,595.97 77,441.42 91,466.18 ( 14,024,76) </TABLE> <PAGE> CYPRESS/ELM INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> ADMINISTRATIVE EXPENSES PROMOTIONS 327.79 12.84 655.61 695.81 ( 40.20) ADVERTISING 50.84 801.58 2,580.37 5,732.32 ( 3,151.95) SIGNS, FLAGS, BANNERS 480.49 45.13 875.31 ( 830.18) BROCHURES 139.88 139.88 OFFICE SUPPLIES 315.12 ( 197.59) 2,192.32 ( 2,389.91) COMPUTER EXPENSES 7.50 7.50 LEGAL EXPENSES 779.70 5,979.88 2,313.65 3,666.23 MISCELLANEOUS 74.80 136.99 148.53 ( 11.54) CREDIT CHECK EXPENSE 140.25 1,494.97 1,548.26 ( 53.29) LOSSES FROM THEFT 3,184.24 ( 3,184.24) BANK CHARGES 28.00 ( 32.00) 185.19 0.38 184.81 PETTY CASH REIMB. 63.29 ( 63.29) POSTAGE 69.84 580.96 328.91 252.05 DUES & SUBCRIPTIONS ( 89.96) 572.60 ( 662.56) LINCOLN FEE 3,843.56 3,492.88 28,582.40 16,758.70 11,823.70 EMPLOYEE TRAINING 217.32 100.00 530.90 ( 430.90) OUSTSIDE STATIONARY MISC 119.83 93.39 566.01 1,891.33 ( 1,325.32) -------------- -------------- --------------- --------------- --------------- ADMINISTRATIVE EXPENSE 5,464.84 5,351.39 40,767.34 36,836.55 3,930.79 CONTRACT SERVICES SEC SUP/EXP-FIRE PROTECT 991.61 ( 645.04) 7,494.14 4,344.79 3,149.35 EXTERMINATING CONTRACT 440.00 220.00 2,290.00 1,360.00 930.00 CABLE T.V. 1,518.54 2,318.36 12,150.28 10,631.74 1,518.54 GARDENING CONTRACT 1,770.00 1,580.00 14,596.19 7,449.66 7,146.53 WATER SOFTENER ( 148.00) ( 252.59) 252.59 -------------- -------------- --------------- --------------- --------------- CONTRACT SERVICES 4,720.15 3,325.32 36,530.61 23,533.60 12,997.01 UTILITY SERVICES TELEPHONE EXPENSE 343.78 279.74 1,652.22 1,291.81 360.41 TRASH REMOVAL 3,561.04 4,100.40 28,766.20 28,021.70 744.50 PGE HOUSE 4,786.57 2,641.11 19,369.52 28,223.21 ( 8,853.69) GAS HOUSE 6,411.36 2,817.65 27,941.33 9,394.16 18,547.17 PGE APARTMENT METERS 135.84 101.00 1,402.47 1,027.27 375.20 WATER 3,518.87 960.80 17,448.10 8,612.38 8,835.72 SEWER CHARGES 4,021.32 16,085.28 16,085.28 -------------- -------------- --------------- --------------- --------------- UTILITY SERVICES 18,763.46 14,922,02 112,665.12 92,655.81 20,009.31 MAINTENANCE EXPENSES CARPET REPAIRS/MAINT. 1,506.25 80.00 6,044.O5 357.50 5,686.55 CARPET REPLACMENT 4,165.20 4,432.20 20,274.96 49,958.31 ( 29,683.35) GROUNDS SUPPLY/REPLACMENT 135.53 151.71 798.66 1,183.45 ( 384.79) EQUIPMENT RENTAL 523.49 532.50 ( S32.50) POOL SUPPLY/REPLACMENT 1,028.15 1,736.62 6,521.38 1,736.62 4,784.76 </TABLE> <PAGE> CYPRESS/ELM INCOME STATMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO OATH YEAR TO DATE VARIANCE ----------- ------ ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> DECORATING SUPPLIES 2,793,95 2,772.91 10,246.72 9,711.63 535.09 CLEANING SUPPLIES/SERV. 1,152.50 210.00 6,726.14 6,904.80 ( 178.66) EXTERMINATING SUPPLIES 110,00 ( 110.00) BLDGMAINT SUPPLIES 2,107.61 2,782.54 14,542.36 26,163.42 ( 11.621.04) PLUMBING MAINTENANCE 2,705.69 774.06 6,228.20 3,267.10 2,961.10 APPLIANCE REPLACMENT 1,143.25 2,491.86 7,412.73 10,402.81 ( 2,990.08) BLDG MAINT SVC/CONTRACT 1,597.50 ( 152.10) 6,458.48 1.418,04 5,040.44 ELECTRIC MAINTENANCE 414.66 286.38 4,891.41 3,241.62 1,649.79 MISC. MAINT. EXPENSES 30.43 30.43 --------------- --------------- ---------------- ---------------- --------------- MAINTENANCE EXPENSES 18,750.29 16,089.67 90,175.54 114,987.80 ( 24,812.26) CONTROLLABLE EXPENSES 56,579.82 48,284.37 357,580.03 359,479.94 ( 1,899.91) --------------- --------------- ---------------- ---------------- --------------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE ( 324.57) ( 324.57) PROPERTY TAXES 42,853.76 42,853.76 LICENSES & PERMITS 2,564.00 2,536.00 28.00 --------------- --------------- ---------------- ---------------- --------------- FIXED EXPENSES 45,093.19 2,536.00 42,557.19 NET OPERATING INCOME (NOI) 55,944.06 53,239.09 419,082.90 403,548.55 15,534.35 =============== =============== ================ ================ =============== DEBT SERVICE INTEREST ON 1ST MORTGAGE 31,902.72 36,028.82 273,775.79 280,808.59 ( 7,032.80) PRINCIPAL-1ST MORTGAGE 2,872.67 2,930.19 525,127.93 24,015.87 501,112.06 --------------- --------------- ---------------- ---------------- --------------- DEBT SERVICE 34,775.39 38,959.01 798,903.72 304,824.46 494,079.26 OPERATING CASH FLOW 21,168.67 14,280.08 ( 379,820.82) 98,724.09 ( 478,544.91) =============== =============== ================ ================ =============== NON OPERATING EXPENSES REURBISMENT & DEFERRAL 9,654.12 21,492.70 26,790.82 121,543.35 ( 94,752.53) --------------- --------------- ---------------- ---------------- --------------- NON OPERATING EXPENSES 9,654.12 21,492.70 26,790.82 121,543.35 ( 94,752.53) PROFIT/LOSS 11,514.55 ( 7,212.62) ( 406,611.64) ( 22,819,26) ( 383,792.38) =============== =============== ================ ================ =============== </TABLE> <PAGE> QUALIFICATIONS OF ROBERT SAIA, MAI, SRA Calif. OREA Certificate #AG003191 EXPERIENCE Independent real estate appraiser since 1981. EDUCATION Associate Arts Degree from West Valley College. Major in Real Estate Bachelor of Arts Degree in Economics from San Jose State University. Graduated with distinction. Graduate Studies in the Master of Business Administration Program at Golden Gate University, San Francisco. Advanced courses in appraisal taken at California State University, Hayward, University of San Francisco and San Jose State University, through the Appraisal Institute. MEMBERSHIPS Former Member of the Society of Real Estate Appraiser (SRPA designation) Current Member of the Appraisal Institute, MAI #8841 Current Member of Admissions Committee Appraisal Institute Board of Directors, South Bay Chapter Appraisal Institute 1993-95. National admissions board member. STATE CERTIFICATES AND LICENSES State of California "Certified-General" Appraiser Certificate No. AG003191 State of California Real Estate license (non-active) State of Nevada "Certified-General" Appraiser Certificate No6 00621 APPRAISAL ASSIGNMENTS Some of the types of properties appraised in the past are outlined below: Commercial: Retail stores, office buildings, service stations, vacant land, Residential: Single family, multi-family, townhouse/condominium, vacant land, subdivision, apartments and mobile home parks. Industrial: Vacant land, warehouses, research and development facilities, industrial condominiums and manufacturing facilities, mini-storage warehouses, food processing facilities, truck terminals. <PAGE> Special Use: Airport, carwash, landfill, right-of-way, easement valuation, commercial nursery, and golf courses. Lodging Facilities: Motels, hotels, inns, SRO, Recreational vehicle parks Clients A brief partial list of past clients with whom Mr. Saia has worked with includes: American Savings Bank County of Santa Clara Comerica Bank Bank of America NT&SA First National Bank of Central California Bank of Salinas Home Savings of America Metropolitan Securities & Trust City of Monterey City of San Jose City of Palo Alto Imperial Thrift & Mortgage NationsBank Pacific Western Bank Bay View Federal Bank Wells Fargo Bank Phoenix Home Life DISCLAIMER The appraisal report appearing below is addressed to NationsBank of Texas, N.A. ("NationsBank"). NationsBank does not represent that the presumptions or conclusions in the appraisals are relevant or accurate and does not endorse the conclusions set forth in the appraisal. Any value, presumption, or conclusion regarding the property or properties appraised in the report must be verified independently of NationsBank. This appraisal has not been approved by NationsBank and is being transmitted without representation and warranty of NationsBank. <PAGE> - -------------------------------------------------------------------------------- APPRAISAL REPORT Pine Grove Apartments 230 Grove Acre Avenue Pacific Grove, California 93950 Effective Date of Appraisal: September 30, 1996 APPRAISED FOR: NationsBank of Texas, N.A. Real Estate Risk Assessment 901 Main Street, 51st Floor Dallas, Texas 75202-3714 APPRAISED BY: ROBERT SAIA & ASSOCIATES 313 Avalon Avenue Santa Cruz, California 95060 - -------------------------------------------------------------------------------- <PAGE> ROBERT SAIA, MAI & ASSOCIATES Property Appraisers & Consultants - -------------------------------------------------------------------------------- September 30, 1996 Mr. Gary D. Long Real Estate Risk Assessment NationsBank of Texas, N.A. 901 Main Street, 51st Floor Dallas, Texas 75202-3714 Dear Mr. Long: As requested, Robert Saia & Associates has completed a market value "as is appraisal of the 100-unit apartment complex known as "Pine Grove Apartments" located at 230 Grove Acre Avenue, in Pacific Grove, California. The Pine Grove Apartments were constructed in 1963 in a rectangular configuration around a courtyard and swimming pool on a site area of 2.37 acres. The net rentable building area is 69,232 square feet. The property rights appraised are those of the leased fee interest. Many of the units are on short-term leases (less than one year), thus there is no leasehold or leased fee bonus values to consider. In other words, the fee simple and leased fee values are the same. The function of this appraisal is to aid in proper underwriting, loan classification and/or disposition of the subject property in conjunction with a pending portfolio purchase that includes the subject property. The effective date of the appraisal is September 28, 1996, the first inspection date of the property. This report was prepared as a Complete Appraisal, Summary Report following generally accepted and established appraisal practices that comply with the Uniform Standards of Professional Appraisal Practice (USPAP) and also in accordance with the NationsBank Appraisal/Evaluation Guidelines for Appraisers. As instructed, the cost approach has been omitted. Although the cost approach has very little relevancy in the appraisal of apartment complexes in this area, its omission may be considered by some to invoke the Departure Provision. The Limiting Conditions and Assumptions contained at the conclusion of this report are a vital part of the appraisal. There are no extraordinary assumptions that affects the appraisal. The market value estimate is based on an exposure time of four months. Based on our analysis and investigation, as discussed in the attached summary appraisal report, the Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Page 2 Mr. Gary Long Market Value "As Is" of the Pine Grove Apartments, as of September 30, 1996, is as follows: ------------------------------------------------------------------------ FIVE MILLION EIGHT HUNDRED THOUSAND DOLLARS ($5,800,000) ------------------------------------------------------------------------ The above is the value of the real estate only. Personal property value is nominal, and plays no significant role in the operation of the apartments. If you should have any questions, please contact our office. Respectfully Submitted, /s/ Robert Saia Robert Saia, MAI OREA Cert. #AG003191 (exp. 12/7/96) Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA TABLE OF CONTENTS Summary of Salient Facts .................................................... 2 Purpose of the Appraisal .................................................... 3 Function of the Report ...................................................... 4 Valuation Date .............................................................. 4 Property Right Appraised .................................................... 5 Location and Property Identification ........................................ 5 Property History & Ownership ................................................ 5 Project Overview ............................................................ 5 The Extent of the Appraisal Process ......................................... 6 Competency Statement ........................................................ 7 Regional Description ........................................................ 8 City of Pacific Grove ....................................................... 19 Neighborhood Description .................................................... 21 Site Analysis ............................................................... 22 Current Taxes & Assessments ................................................. 23 Improvement Description ..................................................... 25 Highest and Best Use Analysis ............................................... 26 The Appraisal Process ....................................................... 29 Income Capitalization Approach .............................................. 30 Sales Comparison Approach ................................................... 44 Reconciliation of the Value Estimates ....................................... 53 Marketing Period Estimate ................................................... 54 Exposure Period Estimate .................................................... 54 Allocation of F,F&E ......................................................... 55 Assumptions and Limiting Conditions ......................................... 57 Certification of Appraisal .................................................. 60 ADDENDA Photographs of the Subject Property Maps Floor Plans Apartment Building Sales Sheets Rent Roll and Operating Statements Qualifications Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA SUMMARY OF SALIENT FACTS - -------------------------------------------------------------------------------- CLIENT: NationsBank PROJECT NAME: Pine Grove Apartments NO. OF UNITS: 100 net rentable ADDRESS: 230 Grove Acre Avenue, Pacific Grove, CA LOCATION: Monterey Peninsula A.P.N.: 006-371-023 THOMAS BROS. MAP: T.B. 241 A1 (Monterey County) CENSUS TRACT NO.: 124.02 ZONING: R-3-M (apartments) RENT CONTROL: None HIGHEST & BEST USE: -As improved... existing apartments -As vacant... apartments, motel, hotel, adult community PROPERTY RIGHTS APPRAISED: Leased Fee Interest SALE HISTORY OVER PAST 5 YEARS: None CURRENT OWNERSHIP: Paul M. Thysen and Betty O. Thysen Trust UTILITIES: Municipal services (water, electricity and sewer) are available and connected. SITE SIZE: 2.37 acres SITE DENSITY: 42.2 units per acre FLOOD ZONE: NSFHA-Pacific Grove does not participate in FEMA The subject is not in a special flood hazard area. TOTAL # UNITS 100 YEAR BUILT: 1963 NET RENTABLE BUILDING AREA (sf): 69,232 COMMON AREA AMENITIES: 1 swimming pool, 1 Jacuzzi, 2 exercise rooms, 1 rec room, 3 laundry rooms, 2 saunas (women - 2nd flr, men - 3rd flr) OCCUPANCY CHARACTERISTICS: No. of Vacant Units: 0 No. of Pending Evictions: 0 ACTUAL NUMBER OCCUPIED UNITS: on 9/28/96 and OCCUPANCY RATE: 100 (100%) 2 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA PROJECTED AVERAGE OCCUPANCY for the YEAR ENDING 1996: 98% + % GROSS ACTUAL REVENUE as reported for 1995: $814,439 (includes "other" income) ACTUAL MONTHLY RENTAL INCOME as reported as of 9/28-96: $72,571 STABILIZED NET INCOME EST. as of APPRAISAL DATE: $507,208 EST. EXPOSURE and MARKETING TIME: 2-6 months marketing / 4 month exposure CONDITIONS TO APPRAISAL: No unusual conditions. Reference is made to Assumptions & Limiting Conditions in Addenda ================================================================================ MARKET VALUE "as is": $5,800,000 September 30, 1996 (4 month exposure period) ================================================================================ 3 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA PURPOSE OF THE APPRAISAL ================================================================================ The purpose of this appraisal is to estimate the market value "as is" of the fee interest for the real estate only. "Market Value," as used in this appraisal, is defined as "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: o Buyer and seller are typically motivated; o Both parties are well informed or well advised, each acting in what he considers his own best interests; o A reasonable time is allowed for exposure in the open market; o Payment is made in terms of cash in U.S. dollars, or in terms of financial arrangement comparable thereto; and, o The price represents the normal consideration for the property sold unaffected by special or creative financing or sale concessions granted by anyone associated with the sale." (*Source: Office of the Comptroller under 12 CFR, Part 34, Subpart Appraisals, 34.42 Definitions [f]) "Market value 'as is' "means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date of inspection." FUNCTION OF THE APPRAISAL ================================================================================ The function of this appraisal is for the exclusive use of NationsBank, its subsidiaries, and/or affiliates, for loan underwriting purposes in conjunction with a portfolio purchase that includes this property. It may be used in connection with the acquisition, disposition and financing of the sale of the property. VALUATION DATE ================================================================================ The date of valuation is September 30, 1996. This is the date of the last property inspection. 4 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA PROPERTY RIGHTS APPRAISED and DEFINED ================================================================================ The fee simple estate of the property has been valued. This ownership interest is defined as: "Absolute Ownership Unencumbered by any other interest or estate; subject only to the limitations of eminent domain, escheat, police power, and taxation". Leases of seven to twelve months are considered short in duration and do not create any favorable leaseholds by the tenants. Technically speaking, the leased fee interest is being valued, although a percentage of the rental units are on a month-to-month basis. Because of the nature of a short term lease, as well as a strong correlation between contract and market rent, the value estimated for the subject property is essentially reflective of the fee simple interest. IDENTIFICATION and LOCATION OF SUBJECT PROPERTY ================================================================================ The subject property in this appraisal consists of the Pine Grove Apartments located in the western section of the city limits of Pacific Grove. The Pine Grove Apartments are located within one block south of Jewel Street and Lighthouse Avenue on the west side of Grove Acre Avenue. The mailing address is 230 Grove Acre Avenue, Pacific Grove, California, 93950. The Monterey County Assessor Parcel Number is 006-371-023. A legal description is included in the preliminary title report which is made a part of this appraisal. PROPERTY HISTORY and OWNERSHIP ================================================================================ Title to the property is vested in: Paul M. Thysen and Betty O. Thysen Trust The property has not transferred over the required reporting period. It is currently in escrow as part of a multi property portfolio sale. THE PINE GROVE APARTMENTS-OVERVIEW ================================================================================ The Pine Grove Apartments is a 100-unit apartment complex built in 1963 by Len-Ray General Contractor for Lester B. Nelson, the original property owner. It is located on one legal parcel containing 2.37 acres and configured in a 3-story rectangular-like building around a courtyard with a swimming pool that measures 28 feet by 44 feet. There is an on-site manager's office fronting to Grove Acre Avenue and a visitor's lobby area. There are laundry rooms on all levels. There are balconies included with all second and third floor units. Pine Grove Apartments offers only two different floorplans one and two bedroom units with one bathroom. The 1BR/1BA floorplan contains 640 square feet (76 units total) and the 2BR/1BA unit contains 858 square feet (24 units total). The average unit size is 692 square feet. The wood frame masonry exterior building (a Type V combustible type Class D Building) has undergone recent upgrading including window replacements, exterior painting, re-roofing with 3-ply Fiberglas tar & gravel since 1992 (permit #92-0018), asphalt repair, sealing and striping. Some of the units afford limited Monterey Bay-ocean views through the westerly 5 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA pines/wooded areas west of the complex. Amenities offered by the Pine Grove Apartments include lawn-greenbelt areas, one swimming pool, (3) laundry rooms, men's and women's saunas, Jacuzzi, two exercise rooms and recreation room. Utilities provided by the landlord include water, trash removal, sewer, and basic cable television for all of the units. In conclusion, the overall exterior appearance of Pine Grove Apartments is above average to good and reflective of other competing high density residential developments within the community of Pacific Grove. The reader is directed to the Improvement Description of this report for further comments regarding the individual units and their respective interior improvements. THE EXTENT of THE APPRAISAL PROCESS ================================================================================ The extent of the appraisal process encompasses the necessary research and analysis to prepare a report in accordance with the intended use, the Uniform Standards of Professional Appraisal Practice as set forth by the Appraisal Foundation, and the Standards of Professional Practice of the Appraisal Institute. With regard to the valuation of the subject property, the following steps were involved: 1. The property was last inspected and photographed on September 28, 1996. This date is considered the "effective date" of this appraisal. 2. The overall exterior site and buildings of the Pine Grove Apartments was personally inspected by the appraiser. The on-site office manager provided interior access to each of the various unit types within the developments. The appraiser was able to physically measure a representative unit of a studio, one bedroom and two bedroom floorplan. The subject is valued assuming that the net rentable areas of the typical unit sizes are representative of the complex as indicated by Lincoln Residential Services. 3. Regional, county, city, and neighborhood data were based on information taken from a number of sources, including, but not limited to, Pacific Grove Planning Department, Monterey County Tax Assessor's Office, the Pacific Grove Public Works Department, Pacific Grove Building Department, the Association of Monterey Bay Area Governments, Chamber of Commerce, independent private studies, newspaper articles, and our own files. 4. Research and investigation of current market conditions for apartment properties in the City of Pacific Grove. 6 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA 5. Interviews with brokers, appraisers, property owners and/or managers and lenders, as well as the relevant public agencies as described above. 6. The highest and best use was formed by information gathered in the previous steps. 7. After assembling and analyzing information defined in this extent of the appraisal process, final estimates of market value by each applicable valuation method were made. 8. And, finally, a single value estimate from within the concluded value by each approach was made. Greatest weight was given to those approaches felt to have the most influence on the purchasing decision. Unless otherwise stated in the report, the existence of hazardous materials, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser is not qualified, however, to detect such substances. The presence of toxic or caustic substances or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there are not such materials on or in the property that would cause a loss in value. Any such findings which would indicate otherwise could result in a decrease in value. COMPETENCY STATEMENT ================================================================================ In accordance with the competency provision in the USPAP, the appraiser certifies that his education, experience and knowledge is sufficient to appraise the type of property being valued (apartment complex) and that no appraiser has provided significant professional assistance to the person inspecting the subject property in the completion of the analysis other than those mentioned in the Certification of Appraisal (see Addenda). Robert Saia, MAI has appraised this property type in the past and has the knowledge and experience necessary to complete this appraisal assignment. See Appraiser's Qualifications in the Addenda for additional information. The appraiser's analyses, opinions and conclusions were developed and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) Standards 1 - 3, and NationsBank appraisal policy. This appraisal assignment was not based on a requested minimum valuation, a specific valuation or the approval of a loan. The appraiser's compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimated, the attainment of a stipulated result or the occurrence of a subsequent event. 7 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA REGIONAL ANALYSIS ================================================================================ Market value is affected by a number of externalities; e.g., geographic, economic and environmental, governmental forces, utility, supply & demand and effective purchasing power. Real estate is affected by externalities more than any other economic good, service, or commodity. It is imperative that an appraiser observe and analyze external influences in order to identify patterns and trends, and how they relate to the subject property. Trends such as population shifts, declining apartment occupancy rates, or increased housing sales in an area are relevant in order to understand the real estate marketplace. Thus the Regional Description & Analysis is important in this appraisal because it establishes the basis for determining the highest & best use of a property as well as information used in applying the three approaches to value. The scope of this regional analysis relates to the type of property being appraised, its complexity and the approaches used to estimate value. Monterey County is located in a portion of California that is often referred to as the "Central Coast," which encompasses the area known as the "Monterey Peninsula." The county is oriented northwest to southwest, and runs parallel to the Pacific Ocean. The county has a relatively long and narrow shape, with an average of only 30 miles; elevations range from sea level to 5,844 feet atop Junipero Sierra Peak, located 12 miles inland in the Santa Lucia Range. Monterey County is bounded by the Pacific Ocean on the west, Santa Cruz County to the north, San Luis Obispo county to the south, and San Benito, Kings and Fresno counties to the east. The area is located approximately 125 miles south of San Francisco and 350 miles north of Los Angeles. Approximately 105 miles of California's 840 miles of coastline lie along the westerly boundary of Monterey County. On the whole, Monterey County has a rural orientation, with substantial tracts of land devoted to agriculture and open space uses. The county encompasses 3,784 square miles, or approximately 2,127,400 acres of land area. An interesting statistic is that nearly 27 percent of this total county area is government-owned. Twenty-five percent is owned by the federal government with major holdings such as Fort Hunter Liggett, Fort Ord, Los Padres National Forest and Camp Roberts. The remaining two percent is controlled by the state and county. Geographical location and features exhibit strong influences on the county's climate. The Pacific Ocean is responsible for the county's Mediterranean climate, characterized by year round moderate temperatures, cool, dry summers, and short, rainy seasons. Pacific winter storms are blocked by the Santa Lucia Range, allowing considerably less rain to fall on the Salinas Valley. Temperature and rainfall have important implications for the county's two major economic staples, agriculture and tourism. Mild temperatures allow for exceptionally long growing seasons for farming. Rainfall patterns, while following predictably dry weather, require reservoir and ground water storage to meet year round irrigation needs. 8 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Population Approximately one half of the county's population lives within the seven incorporated cities and adjoining unincorporated areas of the Monterey Peninsula. The eight principal cities are Monterey, Marina, Seaside, Sand City, Del Rey Oaks, Pacific Grove, Carmel-by-the Sea and Salinas. The incorporated areas consist of 31.5 square miles, or about one percent of the county's total land area. The major factor for the high population density of the Monterey Peninsula vis-a-vis the rest of the county, is the unsurpassed natural beauty of the area ---especially the coastline and beaches. Based on the most recent U.S. Census (January 1, 1990), the population of Monterey County grew by approximately 24 percent during the last decade. This growth has helped push the county's total population up to approximately 382,547 in 1994. For reference, the county's growth rate over the preceding decade was just under the state's overall gain of 26 percent. In the previous census period (1970--1980) the county's total population grew 17 percent, from 247,450 to 290,444. While county's growth has been strong, the level varies from area to area. As shown below, the population of Salinas, the largest city and the county seat, increased by 35.2 percent between 1980 - `90. The growth in Salinas constitutes approximately 43 percent of the county's total population increase during that period. In contrast, the population of the city of Monterey increased by a more modest 16 percent over that census period. As shown, not all communities in the county experienced tremendous population growth. Population growth was much steadier in the cities of Seaside, Pacific Grove and Del Rey. In large part, growth in these communities is limited due to a lack of developable land. MONTEREY COUNTY: Population Growth 1980 - '90 (1990 U.S. Census) - -------------------------------------------------------------------------------- City/Area 1980 1990 Total No. % Change - --------- ---- ---- --------- -------- Salinas 80,479 108,777 28,248 +35.2% Seaside 36,567 38,901 2,334 +6.4% Monterey 27,558 31,954 4,396 +16.0% Marina 20,647 26,436 5,789 +28.0% Pacific Grove 15,755 16,117 362 +2.3% King City 5,495 7,634 2,139 +38.9% Greenfield 4,181 7,464 3,283 +78.5% Soledad 5,928 7,146 1,218 +20.5% Gonzales 2,891 4,660 1,769 +61.2% Carmel-by-the-Sea 4,707 4,239 (468) -9.9% Del Rey Oaks 1,557 1,661 104 +6.7% Unincorporated Areas 84,679 105,252 20,573 +24.3% - -------------------------------------------------------------------------------- The most recent population estimates show that the population of Monterey County, based on the January 1, 1995 estimates for California cities and counties prepared by the State of California Department of Finance, was 382,547. Recent trends show most of the increase occurring in the Salinas Valley cities rather than on the Monterey Peninsula. For example, in 1993, the fastest growing city in the county was Soledad (+6.1%), with nearby Greenfield (+5.3%) and Sand City tying for second place. Population growth in Soledad is largely attributable to an expansion of the 9 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA state Correctional Facility and the development of two large residential subdivisions. Greenfield's city manager reported that population growth has been spurred by reasonable prices for single family detached housing but that future growth is limited due to a lack of land. Based on projections by the State Finance Department, released in April 1993, Monterey County is projected to post a 15.6 percent gain in population by the year 2000 -- representing an increase to approximately 414,000 people. In contrast, San Benito's population is projected to increase by 37 percent by the year 2000; Santa Clara County's by 13.4%; 14.4% for Santa Cruz County; and, 21.6% statewide. Below are the Finance Department's projections by county through the year 2030. PROJECTED POPULATION GROWTH (Calif. Dept. of Finance) <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------- County 1990 2000 2010 2020 2030 - ------ ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Monterey 356,000 414,000 485,300 574,100 670,900 San Benito 37,000 50,700 66,500 83,200 100,900 Santa Clara 1,502,200 1,703,900 1,839,700 1,958,600 2,064,100 Santa Cruz 230,800 264,000 291,800 322,300 354,100 Statewide 29,976,000 36,444,000 42,408,000 48,977,000 56,100,000 - ----------------------------------------------------------------------------------------- </TABLE> Transportation The major passenger transportation system in the county is via private automobile. The freeway system consists of Highways 101, 1 and 183; and, State Routes 156 and 68. Highway 101 runs north and south from San Francisco, along the West Bay, and through San Jose toward Los Angeles. Highway 1, the Coast Highway, runs north and south from the coastal region of San Francisco and through Santa Cruz toward San Luis Obispo County. Highway 68, the Salinas-Monterey Highway, intersects with Highway 1 and connects the Monterey Peninsula with the Salinas Valley to the south and Highway 101 to the north. There are 1,300 miles of county roads and approximately 500 miles of city streets for a total of 2,000 road miles in the county. In Monterey County, AMTRAK provides rail passenger service, and the Southern Pacific Transportation Company provides rail freight service. Salinas is the only city in the county that now has rail passenger service. SPRR is the main line between Los Angeles and San Francisco. The Monterey Peninsula Airport provides air freight and passenger service in and out of the county. Over the past 20 years, the airport has shown a moderate growth pattern. In 1970, the number of passengers totaled 411,497. In comparison, the number of passengers had grown to 523,040 by 1989 (+1.4% per annum). Today, passenger service is provided by United, Wings West, Pacific Coast Air and West Air. The cities of Salinas and King City both have municipal airports. And with the closure of Fort Ord, Marina has discussed plans to convert Fritzsche Army Airfield into its own municipal airport. There are harbors at Monterey and Moss Landing (4 miles from the subject) which have boating 10 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA facilities with a reported 2,000 small crafts launching from its ramps every month. Approximately 1,800 transient crafts visit the harbors annually. Monterey Bay and Monterey harbor areas attract a significant portion of the tourism industry that provides jobs and an economic base for the Monterey Peninsula area and the county as a whole. Fort Ord and the Military Influence With its various military installations located throughout the Monterey Peninsula area, including control of approximately 27 percent of all of the land in the county, the influence of the military on Monterey County has been significant. This influence has had a considerable financial impact, including military and civilian payrolls, local purchase and contracts, construction in the area, as well as the increase in government aid to local schools due to the military population in the area. The local housing market has also been significantly effected by the presence of the military. This impact, however, has been primarily on the apartment rental market in the communities of Marina and Seaside. In addition, it has had some minor negative impact on mobile home parks in the general area. Being approximately 20 miles northeast of Fort Ord, impact from the base closure has been minimal and not measurable. Given that the Ford Ord area is not in the immediate environs of the subject property, the effect of the base closure on the Boronda Manor Apartments has not been minimal. The closure of Fort Ord was the dominant economic news for the county during 1994. The closing was the single largest national closure to date, with most of the base's 35,000 residents and $600 million payroll moving to other bases. Currently, the base's 44 square miles of land is being administered by the Fort Ord Reuse Authority. Local communities formed the Fort Ord Reuse Authority as an advisory planning committee which under an agreement formed a Fort Ord Joint Powers Agency (JPA). The JPA agreement gave voting membership to the cities of Marina, Seaside, Sand City, Del Rey Oaks, Monterey, and Salinas and extended non-voting status to Pacific Grove and Carmel. The county is also a voting member. The premise of the JPA was to create a forum for discussing reuse issues; to facilitate community involvement and to speed up the decision process via a cohesive voting unit. Initially, the base closure stirred dire predictions about the short-term impact on the county. However, as the closure set in, the immediate economic impact was much less severe than expected, and limited primarily to the adjacent communities. Fort Ord was so large that much of the base was self-contained with its own housing, stores, services, and restaurants. The long-term prospects after closure are encouraging, assuming the base's land can be opened to large scale private sector development. In fact, the first major reuse of the base was the opening of the California State University-Monterey Bay which opened its doors on August 28, 1995 to 633 students. The state university at Fort Ord "is expected to grow substantially over the years, attracting students, well paid employees, research dollars and private businesses," according to the 1995 BT Commercial Real Overview published in April 1995. 11 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA The Fort Ord complex was the largest military installation in the county with a total of 28,057 acres --nearly the size of the city and county of San Francisco. Approximately 22 percent of the base (6,250 acres) was developed with barracks, housing, motor pools, administrative buildings, and various other support facilities. Other military installations on the Monterey Peninsula include the Presidio of Monterey, which is the home of the Defense Language Institute (foreign language school for all branches of the armed forces); the United States Naval Post Graduate School (NPGS), and the United States Coast Guard Station. The United States Department of Interior maintains 304,035 acres in the Los Padres National Forest and 164,503 acres along the Big Sur coast in the Ventana wilderness. Fort Ord Reuse Plans After more than six years of planning, the final version of the Fort Ord reuse plan shows a closed military base converted to a huge community of new homes, businesses, schools, parks, hotels and golf courses. The four volume reuse plan, filed in public libraries in the area during the first week of June 1996 by the Fort Ord Reuse Authority, has evolved from the days when a 250 member community task force first saw the base as an educational center. Along the way, planners ruled out suggestions that Fort Ord might give way to a "Disneyland in the dunes", an industrial center with 12 story high rises sprinklered about, or an endless shopping center with no room for houses. The more realistic, final plan, which the FORA board is expected to act on in July includes market research, financing analyses, economic forecasts and population projections. Still, the numbers in the reuse plan are almost overwhelming: - - Nearly 4,000 acres of land available for private owners, an area six times the size of Carmel. - - More than 13,000 new houses to be built, half as many as now exist in Salinas. - - About 12 million square feet of industrial parks and office complexes, enough to fill an area 20 times the size of Del Monte Shopping Center in Monterey. - - More than 45,000 new jobs in those businesses, a third as many as now exist in the entire county. - - A new community of more than 71,000 people, twice as many as now live in Monterey. - - About 1,800 hotel rooms, three times as many as the Hyatt Regency in Monterey and eight times as many as Embassy Suites in Seaside. 12 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA - - Development costs of $451 million over the next 20 years, as much money as it takes to run the city of Pacific Grove for 50 years. The plan shows development, including the 800 acre military enclave left behind as the Presidio of Monterey Annex, the 1,300 acre California State University at Monterey Bay (CSUMB), the 845 acre Marina Municipal Airport and as many as seven golf courses, covering about a third of the 44 square file base. About 18 percent of the land at Fort Ord has been developed. Another 14 percent is slated to be developed in the next 60 years, according to the reuse plan. About two-thirds of the base is to be preserved in its natural state by the U.S. Bureau of Land Management (BLM), the State Department of Parks and Recreation, the University of California Natural Reserve System, the county, and the city of Marina. The environmental impact report for the reuse plan fills one of the volumes, a 327 page document, filed in early June as FORA's proposed final plan. The environmental analysis doesn't have many specifics because a special state law allows that at Fort Ord. The reuse plan, which has taken six years and many political battles to achieve, is seen as a master sketch, with details and designs to be filled in as individual development projects emerge. Fort Ord's Impact on the Local Economy It is extremely difficult to accurately ascertain the full impact that Fort Ord's closure has had on the local economy because California was suffering through a recession during the early part of the 1990's when the base was closing. The recession has made it difficult to isolate how much of the impact the close of Fort Ord has had on the economy. What has been evident is that there was a short-term glut of rentals on the Monterey Peninsula. Surrounding communities, especially Marina, Seaside and Sand City suffered the greatest negative impact as the closure process evolved. Conversely, the prestigious residential areas such as Pebble Beach, Carmel and the more upscale areas of Monterey were not impacted by the closure. Similarly, the City of Salinas' housing market was not adversely affected to a significant degree. In the Salinas Valley the base closure has had little to no significant impact. Rather, population growth and new development in the area of Salinas continued to be most effected by issues such as the shortage of water and salt-water intrusion. In general, the Salinas Valley could be described as being somewhat of an isolated market area. As such, a Salinas Valley location became more desirable, as investor's uncertainty associated with Fort Ord's closure was primarily directed at investment properties located on the Monterey Peninsula. Overall, a somewhat stagnant to moderate housing market appears to be the continued status for the general area over the short term, although there are signs that economic conditions are improving. This is especially the case in nearby Santa Clara County ("Silicon Valley") where the housing and rental markets have exploded due to strong job growth. Little investment activity 13 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA and/or new construction is anticipated in the communities adjoining Fort Ord, at least until the major issues surrounding the redevelopment/reuse of the base are resolved. As discussed, there are several issues surrounding the base closure and its reuse which need to be resolved before the prevailing atmosphere of uncertainty blanketing the local real estate market is cleared. Business / Industry Monterey County, with a full-time civilian work force of approximately 172,000 - -175,000 workers, has two major urban areas --Salinas and the Monterey Peninsula. As shown on the following page, employment in Monterey County (not including agriculture) is projected by the Employment Development Department (EDD) to average 113,100 in 1996, which will be 2,400 jobs above the 1989 annual average. At just +2.2 percent, this very small gain in jobs reflects EDD's assessment of the impact of the Fort Ord closure. Unemployment rates in Monterey County have been consistently higher than for California as a whole. The seasonal nature of the county's economy accounts for double-digit unemployment in the winter when agriculture, food processing, and tourist-oriented industries are at a lull. Agriculture While the economy of Monterey County is diversified, agriculture is the county's leading industry and the mainstay of the local economy. Agriculture provides approximately 1/4 of the county's basic income. Almost 1/5 of California's top-producing crop farms are located in Monterey County. With 86 farming operations, the county ranks second in the state, behind Fresno County with 97 farming operations. A farming operation is defined as a farm producing a crop with a value in excess of $4 million. The county ranks third in the state in gross dollar agricultural production, making it one of the top ten producing counties in the nation. Monterey County has a total of 976,000 acres used exclusively for agriculture and another 343,680 are combined agricultural and grazing land. The county's highly productive agricultural land is often referred to as the "fog belt" agricultural area of California. The long growing season in this area makes it possible to grow as many as three crops annually. Nationwide, the county leads in the production of lettuce, broccoli, artichokes, cauliflower, mushrooms, and strawberries. According to the county's agricultural commissioner, strawberries were the third-ranked cash crop in 1994, behind broccoli and head lettuce. Despite the damage done by the 1995 historic floods, the crop value for Monterey County agriculture surpassed the $2 billion mark, after creeping toward the milestone for several years. The 1995 crop value, $2.03 billion, market a 4.8 percent increase over 1994. Among the top 12 crops, the order in terms of dollar value remained almost identical to that of 1994. Besides breaking local production records, Monterey County surpassed Kern County in 1995 to become the third in the state in gross dollar value of agriculture. It was surpassed by only Fresno and Tulare counties. By the same measure, Monterey County also is the largest vegetable 14 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA producing county in the United States. The crop value for the state of California stands at $20 billion. Assuming water for irrigation remains sufficient, employment in agriculture is projected to increase as growers expand production of vegetables and labor-intensive strawberry and nursery crops. But because of foreign competition, the rate of growth will be slower through 1996 than over the past seven years. Foreign demand for the county's produce remains strong, however. Additional market growth is also expected as the pre-cut salad mix processing market is rapidly expanding. Agriculture continues to be effected by water availability. Even with above normal rainfall in 1993 and 1996, the effects of years of drought have brought to focus the water issue. At this time, the issue of sufficient water supply and overdrafting (saltwater intrusion) are being addressed through water conservation and other management practices which have included moratoriums on new development. Other issues facing the agriculture industry include nitrates leaching into groundwater and soil compaction. Tourism/Convention Industry Following agriculture, the health of the county's business and industry is tied to the tourism/convention industry. According to the California Office of Tourism, an estimated 5 million visitors spent $1.2 billion in 1991 in traveling to Monterey County. That total represented about 2 percent of statewide travel spending that totaled $54.1 billion. As shown in the following table, Monterey County ranked ninth among the state's counties in total travel dollars spent in 1991. TRAVEL IMPACTS BY COUNTY (Office of Tourism) <TABLE> <CAPTION> - ------------------------------------------------------------------------------------ Travel Expenditures Payroll Employment Tax Receipts ($000) County ($000) ($000) (Jobs) Local & State <S> <C> <C> <C> <C> <C> Los Angeles $13,617,556 $3,316,360 154,734 $221,008 $391,987 San Francisco 5,777,445 1,524,457 63,236 99,816 113,011 Santa Clara 1,816,493 414,511 26,269 39,982 62,715 Alameda 1,502,588 353,077 19,663 25,024 46,024 San Mateo 1,496,321 363,301 18,626 26,209 41,447 Monterey 1,062,686 199,309 16,210 29,922 45,087 Sonoma 571,605 117,118 8,788 9,660 26,355 Santa Cruz 385,672 80,350 5,347 7,464 13,561 Napa 321,794 67,972 5,078 7,023 13,489 San Benito 49,459 8,713 724 591 2,327 - ------------------------------------------------------------------------------------ </TABLE> 15 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA The Association of Monterey Bay Area Governments (AMBAG) estimates that 15 percent of total employment in the county and about 45 percent of all services and trade employment in the county are supported by tourism. The Monterey County Hospitality Association estimates that the industry is directly responsible for creating over 16,000 jobs locally with a payroll of nearly $200 million. And including the estimated 10,000 indirect jobs, the payroll increases to $322 million. By the Monterey County Hospitality's estimates, the "trickle-down" effect of tourism puts the total impact at $4 billion to $5 billion. Restaurants, hotels and inns, retail trade, numerous publications, and a variety of other service-oriented businesses are directly dependent on the tourist trade for their welfare. Based on 1989 data, there was a total of 220 lodging facilities in Monterey County consisting of 10,381 rooms. Because the majority of the tourism industry is centered around the hotel and convention complexes, it has more of an impact on the Monterey Peninsula area. The Monterey Peninsula area provides for a plethora of recreational and cultural activities which in combination with the natural scenic beauty create a tremendous attraction for tourism. The area has a number of public beaches that cater to swimming and sunbathing as well as surfing and scuba diving. In addition to the beaches, there is boating and sailing as well as two yacht clubs servicing the Monterey Peninsula. The area also boasts a number of parks and campgrounds, including the Los Padres National Forest and State beaches and parks. Within these parks and reserves, there are facilities for riding, hiking, hunting, and fishing. There is also the renown Del Monte Forest area and its 1 7-Mile Drive; Cannery Row and Fisherman's Wharf; as well as the Carmel-by-the-Sea and the ocean-front drives of the peninsula communities. The growth of the tourist industry is reflected in the continuous extension of the visitor season. More and more small business meetings, conventions and recreational events are now being held on a year-round basis. Although travelers and visitors to the Monterey Peninsula area come from all over the world, the primary points of origin are from within California, particularly within one day's driving distance. Again, attractions such as the Monterey Bay Aquarium and John Steinbeck's Cannery Row, as well as the Monterey Fisherman's Wharf, continue to be prime sources of vacation and tourism attractions. Paralleling the growth of the travel & lodging industry, was the development of the Monterey Bay Aquarium. The aquarium was approved by the coastal commission in 1978 and the 60,000 square foot facility was completed in 1985. The entire cost of the $50 million aquarium was absorbed by the philanthropist/businessman David Packard. The aquarium drew 2.227 million visitors in its first year and has averaged approximately 1,730,000 annually through 1991 --making it the single largest tourist attraction in the county. A substantial expansion to the facility is now underway. Upon completion of the expansion, attendance is expected to substantially increase. Occupancy for hotels and motels often reach 100 percent during peak season on the Monterey Peninsula. In fact, visitation patterns are being strongly affected by the lack of available rooms. The major limiting factor to the growth of the tourist industry in Monterey County in the future will be accommodations and facilities. According to statistics provided by the Monterey Peninsula Chamber of Commerce, the average occupancy rate has been approximately 65-75 percent, although 1996 is turning out to exceed those numbers. 16 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA In an effort to further promote tourism, leaders in Monterey County's tourism industry are beginning an ambitious campaign to market the area. The general plan is to form an alliance among merchants, city officials and representatives of major events such as the Monterey Jazz Festival and Sports Car Racing Association of the Monterey County. The strategy for expanding tourism in the county is to spread out the times when visitors come to the county and to advertise the attractions of the region, rather than just Monterey, Pebble Beach or Carmel. Traditionally, the tourist season peaks from Memorial Day to Labor Day. Additionally, the alliance would like to also extend the average stay from two to three days in the county. To that effect, tourists would be encouraged to spend time touring the Big Sur Coast, wineries of Salinas and Carmel Valley, John Steinbeck's Salinas, and even the lesser-known missions of San Antonio and Soledad. The concept of "ecotourism" is also being promoted as a means of courting more visitors to the county. Monterey County, by virtue of its fragile ecosystem, scenic natural beauty and 20 years of "no growth" planning policy appears ideally suited to this new industry. Because the future of Monterey County may very well depend on its natural environment, "ecotourism" represents a mutual interest of both business and environmentalists. Thus the adverse impacts of increased traffic, use of precious water and growth of facilities geared to tourists are sure to be carefully weighed as community leaders look towards expanding the tourism industry in order to offset losses from the closure of Fort Ord. Monterey County's tourist season has traditionally run from Memorial Day to Labor Day, but recent patterns of hotel occupancy and retail sales show that the season starts and ends later. The summer 1995 aquarium attendance was up 10% over 1994. In June and July 1995, attendance was up 7 percent and 7.6 percent, respectively, over the same months of last year. August was expected to experience increases of up to 5 percent, according to Mr. Jim Hekkers, vice president of external affairs at the Monterey Bay Aquarium. Commercial Market The county's office market caters primarily to small local service business, while most regional and national companies are located on the Garden Road/Ryan Ranch/Highway 68 corridor, drawn by newer buildings, attractive rents, better parking ratios, and large contiguous spaces. The industrial market is "tight" in Monterey County. Vacancies are minimal and have continued to decline. Contiguous blocks of available space over 15,000 square feet are non existent. Most knowledgeable real estate brokers expect rents to increase slightly over the next year. New development should be limited because of minimal available industrial-zoned land. The local retail market may seem crowded with large shopping complexes on the drawing boards in Salinas and Sand City, but marketing reports and consultants say there's room for more. 17 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Housing Market Monterey County's real estate sales surged in April/May 1996 with total sales coming in 67 percent higher than for the month last year. The increased activity has promoted optimism about a recovering market. The median home price for the county is approximately $300,000. This is up slightly over the past year. Regional Description & Analysis --Conclusion A survey of statistics on agriculture, home sales, retail sales and other indicators shows that the Monterey County economy is proving wrong the dire predictions made before Fort Ord closed down. For decades, farming and the military were the area's two economic mainstays. Today agriculture remains paramount, but other sectors are changing rapidly to fill the void created by the base closure. Jobs While unemployment estimates remain seasonally high, county business have added more than 6,000 new jobs in the past 12 months, mostly in agriculture and service related fields, according to the State Employment Development Department. Construction Although the county construction permits dropped by about 4 percent in 1995, when compared to the year before, to about $319 million, single family dwelling starts have bolstered this year's construction, which is about 20 percent ahead of last year's rate. In addition, government projects are still underway, including the $100 million Natividad Medical Center in Salinas. Completion is expected in early 1997. Built around a courtyard, the new facility will offer patients an array of outpatient services devoted to the needs of families, women and children. Construction has started on the 680,000 square foot Westridge Shopping Center in Salinas. It is expected that the Wall Mart Store will open in February 1997. Real Estate Sales Although Monterey County is considered the second least affordable area in the country, higher priced homes on the Peninsula are still attractive, particularly to the people in the 45 to 54 age range. Agriculture Monterey's total crop ranks third in the state in total dollar value, behind Fresno and Tulare counties. In terms of vegetable production,, the county is the largest in dollar value in the country. The county's crops amounted to 10 percent of the statewide crop total of $20 billion in 1995. Tourism The area's coastline, golf courses and resorts attract visitors from throughout the world. In 1995, attendance at the Monterey Bay Aquarium was 1.6 million and, with the opening of the Outer Bay wing in March, attendance is expected to go as high as 2.2 million this year, according to aquarium officials. 18 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA CITY OF PACIFIC GROVE-COMMUNITY PROFILE Pacific Grove was incorporated as a city in 1889 and was historically used in 1875 as a Methodist summer retreat. According to figures released by the Department of Finance Research Unit, State of California, the population of Pacific Grove is estimated to be 17,406 (1995 estimate). Located next to Monterey and Carmel, the City of Pacific Grove is one of the county's focal points for retail sales and tourism. Pacific Grove is accessible from Highway 1 via Highway 68/223. Highway 1 is a secondary thoroughfare that connects various coastal communities throughout the state. The city is at the northwestern most area of the Monterey Peninsula and totals approximately 2.7 square miles. Geographically, the city is 350 miles north of Los Angeles and 120 miles south of San Francisco. The landscape of Pacific Grove is characterized by a slight upward grade and rolling terrain that extends from the coast of Monterey Bay and the Pacific Ocean. The city clearly ranks as one of the preferred locations for the shopping and lodging of tourists. The "downtown" area is one of the most popular retail districts with its quaint shops and eateries. One of the main draws to this area is the mild climate that permits year-round recreational activities. The average high is 68 to 78 degrees, while the average low is 48 degrees. The average rainfall is 15.86 inches. The main tourist season is in the summer, although the best weather is in the fall. Occupancy in the summer usually exceeds 95 percent in many of the lodging facilities. During selected weekends, occupancy will reach 100 percent. The City of Pacific Grove hosts approximately 90 percent of total visitors and tourists to the Monterey Bay Aquarium. The Monterey By Aquarium attracted nearly 1,750,000 visitors last year. The Monterey Bay Aquarium is the world's largest and perhaps the best showcase of marine life. The city contains over 1,300 sleeping rooms in local lodging which are almost 100 percent occupied during major events such as the AT&T Golf Tournament (formerly, the Crosby). Pebble Beach, which borders Pacific Grove to the south, hosts the AT&T ProAm Golf Tournament during January and February which has an attendance of over 110,000. The local Asilomar Conference Center is located on the coast on the western boundary of Pacific Grove. This popular conference facility consists of 314 rooms with 694 beds. The facility averages 90 percent occupancy and generally has over 200,000 overnight guests and over 60,000 day visitors since 1993. Pacific Grove's natural resources consists of six (6) miles of bay and ocean shoreline, Asilomar State Beach, the Monarch Butterfly Preserve, eighteen (18) city parks from natural woodland to rocky shores and the Monterey Bay National Marine Refuge. When considering the central business district of the city, the Pacific Grove Municipal Golf Course and other parks and recreation areas such as the Monarch Grove Butterfly Sanctuary one block south of the subject property and Washington Park west of Alder Street, the majority of Pacific Grove consists of older residential communities and properties that date to the late 1800's. The slow growth rate is due to the affordability issue and the short supply of readily developable vacant land (as well as growth control measures). Based on information provided the appraiser by the City of Pacific Grove Building Department, for example, only one new apartment project since 1990 has been approved (permit #96-0163). The project is currently under construction and consists of only eight (8) units located at 2935 David Avenue. Real estate prices increased in the 1980's, but leveled off (and declined somewhat) in the early 1990's. The 19 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA average home price in Pacific Grove is approximately $350,000. Population & Growth Percentage-City of Pacific Grove vs. Monterey County - -------------------------------------------------------------------------------- Year Monterey County City of Pacific Grove - -------------------------------------------------------------------------------- 2000 422,710 18,000 - -------------------------------------------------------------------------------- 1995 370,996 17,406 - -------------------------------------------------------------------------------- 1990 355,657 16,117 - -------------------------------------------------------------------------------- 1980 289,861 15,755 - -------------------------------------------------------------------------------- 1970 247,450 12,310 - -------------------------------------------------------------------------------- Note: The population of Pacific Grove grew slowly during the 1980's, increasing from 15,755 to 16,717. The 1990 population included 230 persons living in group quarters; the remaining 15,887 lived in the city's 7,342 households. The household average size is 2.19 persons. This figure has remained stable during the 1990's. Land Use-City of Pacific Grove The predominant land use in Pacific Grove is residential, and most of that is single-family. Commercial uses are largely related to goods and services, with almost no land available for industrial uses. A generous amount of land is devoted to parks and natural areas that are free and open to the public. Most significant is that Pacific Grove is almost fully built-out. There is very little buildable vacant land in the city. The land use issues in Pacific Grove, therefore, focus primarily on managing existing uses and in-fill, and potential intensification. Below is a summary table illustrating the city's 1,830 acres and the percentage of different uses. - -------------------------------------------------------------------------------- USE PERCENTAGE (%) - -------------------------------------------------------------------------------- Residential 45.8 - -------------------------------------------------------------------------------- Open Space & Parks 18.7 - -------------------------------------------------------------------------------- Commercial/Professional 5.0 - -------------------------------------------------------------------------------- Public/Private Facilities 6.6 - -------------------------------------------------------------------------------- Other (churches, vacant, streets & misc.) 23.9 - -------------------------------------------------------------------------------- TOTAL 100.0 - -------------------------------------------------------------------------------- Summary of General Characteristics-City of Pacific Grove Pacific Grove has a stable population estimated as of the effective date of this appraisal to be 17,500. Because the community is essentially built out, only the demographic profile of the population changes. In the seventies and early eighties the majority of residents were retired, over 50, no children living at home, one or two vehicles per household, and they had lived in Pacific Grove for over 15 years. By the mid-1980's the demographics had changed dramatically as land values increased and "young, upwardly mobile professionals" discovered the county's "last home town" and purchased homes. Now the majority of residents are under 50, many are single parents, working full time with two or more vehicles per household and have lived here less than 10 years. The population is projected to grow only slightly during the 1990's as land is scarce. Growth 20 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA The population is projected to grow only slightly during the 1990's as land is scarce. Growth was slight during the past decade. The area has a slightly older population than the nation as a whole and a well-above average percentage of the adult population has college degrees. Household size (2.19 persons) is smaller than the national average; an above average share of the households are single persons. Average income is somewhat above the national average; an above average share of the income is derived from retirement sources. A majority of Pacific Grove's housing units are renter occupied with an above-average residential turnover; housing is considered relatively expensive. A majority of the houses were built before 1950. The table below provides data based on both the California State Department of Finance and City of Pacific Grove Community Development Center for housing units by type. The table shows total units for single-family detached, single family attached, two to four-plexes, five units or more per structure and mobile homes. Vacancy rates and persons per household are included. Selected Characteristics by Housing Unit Type-City of Pacific Grove-1996 <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------------- UNIT TYPE #Housing Units #Occupied Units Household Population Vacancy Rate Household # - ----------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> SFR-detached 4,809 4,705 11,734 2.16 2.44 - ----------------------------------------------------------------------------------------------------------- SFR-attached 510 498 1,030 2.35 2.07 - ----------------------------------------------------------------------------------------------------------- 2-4 plexes 938 907 1,641 3.30 1.75 - ----------------------------------------------------------------------------------------------------------- five+ units 1,468 1,421 2,672 3.20 1.82 - ----------------------------------------------------------------------------------------------------------- mobile homes 199 189 329 5.02 1.65 - ----------------------------------------------------------------------------------------------------------- TOTAL 7,924 7,720 17,406 2.57 2.19 - ----------------------------------------------------------------------------------------------------------- </TABLE> NEIGHBORHOOD DESCRIPTION AND ANALYSIS The subject is in the western section of the city limits of Pacific Grove in a relatively small neighborhood within a .5 mile radius of the intersection of Lighthouse Avenue and Asilomar Boulevard, specifically part of the Pine Garden and Pacific Grove Acres Subdivision. The area as defined is basically a mix of some single family residential with mostly apartment buildings, motels, and adult communities. As defined, the neighborhood encompasses approximately .75 square miles. Located adjacent to the subject property on the north at 210 Grove Acre Avenue is the Eden Rock Apartment complex. Located across the street at 215 Grove Acre Avenue from the subject is the Villa Pines Apartment complex. Immediate Neighborhood Environs Pine Grove Apartments is located in the western section of the city. Since the general intent of city planners is to allow for residential uses, including single family homes, multi-family homes (2-4 units), apartments, motels, retirement homes, and adult community developments within the defined subject's neighborhood, the essential characteristics of the immediate area are to be maintained. These characteristics include a feeling of open space around dwellings, and public views of ocean, sky and trees. New homes and additions were constructed in proportion to lot sizes and with roof lines, for example, that enhance the architectural integrity of the neighborhood. 21 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Apartment complexes located within the subject's immediate area include Villa Del Mar, Twin Oaks Apartments, Olympia Grove Apartments, Townhouse Apartments and Lighthouse Villas. Lodges, motels, and inns include Best Western Lighthouse Lodge, Olympia Motor Lodge, Quality Inn, Sea Breeze Motel, Pacific Grove Motel, Terrace Oaks Inn, Pine Acres Lodge, The Wilkie's Motel and the Butterfly Grove Inn. Located at the corner of Ridge Road and Lighthouse Avenue is the Pacific Grove Adult Education Center. The Pacific Grove Municipal Golf Links is the largest development in the neighborhood; this course is between Lighthouse Avenue and Monterey Bay. The Monarch Grove Butterfly Sanctuary is located one block east of the subject property; the Monarch Butterfly makes Pacific Grove its home in winter. Lighthouse Avenue links the subject's neighborhood to the central business district of Pacific Grove, located around the intersection of Forest Avenue .75 mile east. SITE ANALYSIS ================================================================================ General: Pine Grove Apartments Based on a plat map furnished by our client (a copy is included in the Addenda), the site for the Pine Grove Apartments contains a 2.37 acre parcel comprised of two (2) lots. A survey of the site has not been made, and it is assumed that the Plat Map is correct. The two individual lots that comprise the subject site are irregularly configured. Topography and Drainage: The topography of the sites is predominantly level to slightly rolling. Drainage is believed to be adequate. Access: The Pine Grove Apartments has one asphalt paved access and a rear fire lane for emergency. Utilities: All major utility services are available and connected to the property. These utilities include sewer, water, electricity, cable television, and telephone services. Sewer service is provided by the Monterey Regional Water Pollution Agency. Electricity is provided by Pacific Gas & Electric Company, cable television by MPTV, and underground phone cables by Pacific Bell. The property is also served by the Pacific Grove Fire & Police Departments with stations nearby. To our knowledge, there are no existing or planned utility moratoriums. Site Hazards: The subject property is not within a FEMA Special Flood Hazard Area. The community of Pacific Grove is not participating in the FEMA program; thus, flood hazard insurance is not available through this federal program. Earthquake Fault Zone The property is not located in any known earthquake fault zones. However, the region is subject to periodic earthquake tremors. We know of no particular reason why the site would be at a greater risk than other area properties. 22 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Rent Control: Monterey County and Pacific Grove do not have rent control. The county does have an "inclusionary housing" program that provides for affordable "low-income" housing. Low and moderate housing assistance is available through a variety of programs offered by the Housing Authority of Monterey County, the City of Pacific Grove, and CHISPA, a non-profit housing developer. Contamination/Toxics: We have inspected the property with the due diligence expected of a professional real estate appraiser. It is important to note, however, that the appraiser(s) are not qualified to detect hazardous waste and/or toxic materials. Such a determination would require investigation by a qualified expert in the field of environmental assessment. To our knowledge, there are no potentially hazardous materials that would affect the valuation and/or marketability of the property as of the date of valuation. The appraised value of the Pine Grove Apartments is specifically predicated on the assumption that there are no hazardous materials on or in the property that would cause loss in value. Easements and Restrictions: Normal public utility easements are assumed that are not considered to adversely affect marketability. Site Analysis Conclusion In summary, the Pine Grove Apartments complex has a site consisting of 2.37 acres configured on two lots on one legal parcel improved with 100 rentable units. All utilities are available, including sewer service, electricity, gas, telephone and cable television. TAXES AND ASSESSMENT ANALYSIS In the State of California, property is enrolled at 100% percent of market value, as determined by the Assessor upon transfer of ownership or significant new construction. The maximum tax rate cannot exceed one percent of the enrolled value, plus general and/or special assessment bonds and fees approved by the voters. The Monterey County Assessor Parcel Number for the Pine Grove Apartments is 006-371-023. The assessed values allocated between land and improvements, for the tax year 1996-97, are as follows: ------------------------------------------ LAND $413,919 ------------------------------------------ IMPROVEMENTS $1,470,353 ------------------------------------------ PERS. PROPERTY $29,200 ------------------------------------------ TOTAL $1,913,472 ------------------------------------------ 23 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA For the Pine Grove Apartments, real estate taxes for the 1996-97 tax year are $19,790.64. Direct assessments of $368.90 are included. The tax rate for the Pine Grove Apartments is 1.01500 percent per $100 of full cash value. A direct assessment, considered typical for Pacific Grove, is imposed by the Monterey County Ambulance Service/911 (.001500) and added to the one (1) percent base tax rate as specified by Proposition 13 for California. There are no special assessment bonds, according to the Monterey County Tax Collector Department. Both installments have not been paid for 1996-97. The reader should refer to the preliminary title insurance report for specific amounts of any unpaid previous tax installments. The first installment for 1996-97 is due November 10, 1996. The tax rate area for the Pine Grove Apartments is 004-000. Re-assessment of the Pine Grove Apartments: Proposition 13 The current tax amounts for the 1996-97 tax year will not remain the same beginning on July 1, 1197. According to Proposition 13 for California, the subject property will be re-assessed, most likely based on the new sale price or market value at time of sale. The assessments will be based on full cash value using a tax rate per $100 of full cash value. The passage of Proposition 13 establishes a maximum property tax of one percent of full cash value. The mandated one percent (1%) property tax level converts to a $1.00 base tax rate. The additional rate imposed by the Monterey County Ambulance Service/911 is be added to the $1.00 base rate. ZONING DESCRIPTION AND ANALYSIS The Pine Grove Apartments complex is currently under the zoning designation of R-3-M by the City of Pacific Grove. This zoning designation specifically refers permitted uses designated in the R-3 district, such as single or two-family dwellings, multiple dwellings, apartment houses and dwelling groups; a use permit must be secured if the total number of family units exceeds seven (7). Combining existing structures with new structures are also allowed; rooming or boarding houses are also allowed, subject to first securing use permits. The R-3-M zoning designation, in addition to including all uses found under R-3, also includes motels, hotels, adult communities, retirement homes and rest homes, all subject to first securing use permits. Section 23.52.040 of the Municipal Code indicates the intent of the R-3-M District. "It is the intention of the ordinance codified in this section to preserve the essential residential character of the city, and to prevent the adverse impacts of such from developments in the R-3-M Districts." Section 23.52.030 of the Code indicates the regulations for R-3-M uses. Sub-section (a) states: "In no event shall less than 2,000 square feet (of land) per occupied unit be allowed." After reviewing the property file on record at the City of Pacific Grove Community Development Office it was determined that the subject property "as improved" constitutes a legal non-conforming use. The subject property operates under a provision adopted prior to the last 24 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA ordinance amendment in 1986. The subject is allowed under a 990 square foot of land area (minimum) per unit regulation. The subject property contains 103,237 square feet of land area; under the "990" regulation, 104 units are allowed. The subject Pine Grove Apartments have 100 units. Section 23.64.190 of the Code refers to Off-Street Parking & Storage. Current regulations require one and one-half parking space for each apartment unit having less than two bedrooms; however, the subject property today is considered to have legal non-conforming parking. The subject property was approved for construction in 1963 and conformed to the requirements for off-street parking that were enacted in the prior year (1962). Current on-site parking appears adequate in view of the fact that some of the Pine Grove residents are senior retired citizens who because of different reasons do not require or use a vehicle. The Pine Grove Apartment complex has a total of 96 parking spaces of which 52 are covered. Conclusion It appears that the subject property meets all applicable city zoning, building and parking requirements (grandfathered-in according to 1962 requirements). IMPROVEMENT DESCRIPTION AND ANALYSIS The Pine Grove Apartments were constructed in 1963 (permit #3115). There are a total of 100 rentable units located on 2.37 acres (a combination of 2 lots on 1 parcel) configured with a 3-story apartment building. The Pine Grove Apartments contain a total of 69,232 square feet of net rentable building area. There are also three (3) laundry rooms, one (1) swimming pool, men's and women's saunas (located on 2nd & 3rd floors), two (2) exercise rooms, one (1) recreation room, and a Jacuzzi. The swimming pool (permit #3190) measures 28'x44' and was installed by Blue Haven Pools. The Pine Grove Apartments are considered Class D Building(s) Construction Type V (wood frame) of the Uniform Building Code. Class D buildings are characterized by combustible construction. The exterior walls are made up of closely spaced wood studs with an exterior masonry stucco siding. The roof, consisting of a built-up 3-ply tar & gravel material, is supported by a wood truss system with a concrete slab floor on 1st floor area. The upper floors (2nd & 3rd stories) consists of plywood sheets. Also, the subject is in a class of construction referred to as protected one-hour construction. In 1984 a solar hot water system was installed on the south-facing portion of the roof. Thirty (30) 4'x10' collectors were mounted and the panels were put on racks. A 1,625 gallon storage tank with automatic controls, pump system, valves and sensors was included. Tor-Sun, Inc. was the contractor. 25 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Unit Mix-Pine Grove Apartments - -------------------------------------------------------------------------------- TYPE UNITS AREA (sf) - -------------------------------------------------------------------------------- 1BR/1BA 76 640 - -------------------------------------------------------------------------------- 2BR/1BA 24 858 - -------------------------------------------------------------------------------- Note: Information regarding the individual unit sizes was provided by the on-site Lincoln Residential Services Management Company in the form of floorplan sketches. The appraiser was provided interior access to a representative unit of each type. The gross living area estimates for the units indicated above are based on exterior wall measurement taken by the appraiser. It is assumed that the interior conditions of all units are similar to those inspected Interior Improvements: Pine Grove Apartments Floor coverings consist of wall to wall carpeting over concrete slab in lower levels and over plywood subfloor in upper levels. Vinyl flooring is in kitchens and bathrooms. Central heating is included in all units. The kitchens have Formica countertops, built-in electric range and ovens, dishwashers, garbage disposals and stainless steel sinks. Bathrooms are improved with tile tub and shower enclosures and cultured marble vanities. Overall condition is considered good. Many of the units have recently been upgraded with new carpeting and interior painting. Most of the original windows have been replaced; exterior painting, asphalt repair, sealing and striping are completed; re-roofing is complete (permit# 92-0018) with a new Fiberglas tar & gravel material. Effective Age The actual age of the Pine Grove Apartment complex is 33 years. An average quality Class D apartment project is estimated to have a total economic life of fifty (50) years. This is based primarily on the performance of many comparable properties built in the 1940's and 1950's still in existence in Monterey County and capable of attracting tenants due to upgrading and above-average maintenance. In addition, the Marshall and Swift Cost Valuation Service provides reasonable support for an estimated total economic life expectancy of fifty (50) years. Because the Pine Grove Apartments has undergone recent upgrading, it is the appraiser's opinion that an estimated overall effective age of twenty years is considered reasonable and supportable. Remaining Economic Life: The remaining economic life of the Pine Grove Apartments is estimated at 30 years, although it certainly could be longer or even shorter. This estimate is made by deducting the effective age of 20 years from total economic life of 50 years. HIGHEST AND BEST USE ANALYSIS Definition Highest and best use, as used in this appraisal, is defined as that reasonable and probable use that will 26 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA support the highest present value, as defined, as of the effective date of the appraisal, September 28, 1996. Alternatively, that use, from among reasonably probable and legal alternative uses, found to be physically possible, appropriately supported, financially feasible, which results in highest land value. The above definition of the "Highest and Best Use" is in reference to land that is unimproved. In cases of improved land, a determination of the contributory value of the improvements to the land must be made. The improvements found on a site may be of inappropriate use, but will continue until the land value exceeds the total value of the property in its existing use. Discussion Our opinion of the highest and best use of the subject land parcel will be supported based upon our analysis of the four tests outlined below: 1. Legally Permissible Use. This type of use is legal and conforms to the zoning assigned to property, as well as to the City's planning goals. 2. Physically Possible Use. The shape, size, and available utilities are adequate to serve this use. 3. Financially Feasible Use. Population and immediate income statistics support the feasibility of the highest and best use based upon the quantity, quality, and distribution of the income and its prospective users. 4. Maximally Possible Use. An analysis of which possible legal uses will produce a net return and/or create value to the site. All three standard appraisal approaches to value are affected by the highest and best use. Therefore, valuation is highly dependent upon the conclusions set forth by this analysis. Physically Possible Section 23.52 of the City of Pacific Grove Municipal Code specifies the general regulations, permitted uses, statement of intent, provisions and amendments to the R-3-M District. The subject property has a combined site size of 103,237 square feet. Based on this site area, the site is physically capable of being developed with the current apartment improvements as well as other multi-family configurations, motels, hotels, adult communities, retirement homes and rest homes. A subdivision of the 2.37 acre site will also allow for development of single family homes. Legally Permissible The subject is zoned and general plan designated to allow for apartment houses, among many other alternative residential uses. As existing, the subject is a legal and conforming use. The Pine Grove Apartments complex is legally permissible under the current zoning regulations. 27 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Financially Feasible In evaluating the most reasonable and probable use of the vacant site, we considered the demographics of the surrounding area, land use patterns, local market supply and demand, general market conditions, and the physical characteristics of the property itself. The most feasible and marketable use for the subject site appears to be for ether apartments or multiple dwelling groups, given the immediate neighborhood properties along Grove Acre Avenue, such as the adjacent apartment complex known as Eden Rock Apartments or the Villa Pines Apartments across the street from the subject. The southeast corner of Grove Acre Avenue and Lighthouse Avenue is improved with the Terrace Oaks Inn. Current market conditions reflect a vacancy rate of less than two (2) percent citywide for apartments or multiple family dwellings. The subject site would most likely not be improved with a motel or inn since it does front to a feeder street location, such as Asilomar Boulevard or Lighthouse Avenue. Maximally Possible Use The final of the four tests in the highest and best use analysis is the use that maximizes the land value by providing the highest return. This test must be considered sequentially with the prior three tests; it makes no difference that the most probable highest value is a apartment complex, for example, if the zoning does not permit this use. The most profitable use is a multi-family or apartment use. This is largely based on the fact that the current improvements are apartments and are configured on the site as such. At the present time, the City of Pacific Grove Community Development Department recognizes through its general plan the R-3-M zoning which allows high density residential use in the subject's neighborhood and is aware of the changing market conditions and limited inventory of remaining vacant land available for apartment use in the city. The immediate neighborhood environs reflect apartment use along Grove Acre Avenue. Apartment use on the subject site is considered to provide the highest return to the land and maximize the land value. Highest and Best Use Conclusion - As Improved In conclusion, the highest and best use of the Pine Grove Apartments, as improved, is apartment use. Highest and Best Use Conclusion - As Vacant In conclusion, the highest and best use as vacant is a multi-family or apartment-type use. 28 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA THE APPRAISAL PROCESS ================================================================================ The estimation of a real property's market value involves a systematic process in which the appraisal problem is defined and the data required is gathered, analyzed and interpreted into an estimate of value. Traditionally, three methods of valuation have been used in appraising: the Cost, Sales or Market Comparison and Income Approaches. In the Cost Approach, the value of the site is first estimated by comparing it to similar sites that have recently sold or are currently offered for sale. Replacement cost new of the improvements is determined by reference to actual costs of similarly constructed properties. Depreciation from all sources is then deducted from the replacement cost new of the improvements to arrive at the present value. The depreciated value of the improvements is added to the estimated land value to arrive at the total value by the cost approach. In this appraisal, however, NationsBank has requested that the cost approach be omitted from this appraisal assignment. The cost approach has been determined to have little to no significant applicability in the valuation of 10 to 30 year-old multi-family properties due largely to the subjectivity involved with estimating depreciation in older properties. Moreover, cost and value are oftentimes not the same. The Sales Comparison Approach involves comparison of the subject to similar properties that have recently sold or that are offered for sale. These sales are reviewed for differences from the subject in the date of sale, location of the site, physical characteristics and other factors. The comparable properties are then adjusted to formulate a value range for the property being appraised. The third of the three valuation techniques is the Income Capitalization Approach. This approach involves estimating net operating income, and discounting this income to a present worth through the capitalization process. For most income-producing properties, including apartments and multi-family properties, this is the better valuation technique. 29 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA INCOME CAPITALIZATION APPROACH ================================================================================ The first and primary approach applied to the valuation of the subject is the income capitalization method. This technique involves conversion of future anticipated income into an estimate of present value by the capitalization process. This procedure involves three steps as indicated below: 1. Estimate gross income from available rental information and the subject's operating history; 2. Estimate and deduct vacancy and collection loss allowance and operating expenses to derive net operating income; and, 3. Select an applicable capitalization method or methods, develop the appropriate capitalization rate, and complete the necessary computations to derive an economic value indicated by the income capitalization approach. Required Information Documents that are helpful to better estimate value under the Income Approach include the following: o Income/Expense statements o Personal Financial Statements of Owner (if applicable) o Rent Roll o Lease Agreements o Other (service agreements) Income and expense statements. Operating statements provided by management over the past two years and eight months are included in the Addenda. Personal Financial Statements. The owner's personal financial statements are not required to appraise the property, but can be helpful under certain circumstances. While market value intrinsically assumes transfer to a willing and knowledgeable buyer at market price, financial statements of the owner often provides insight into the current management quality and style of the property. An undercapitalized owner, for example, may not be able to institute correction of deferred maintenance that will enhance livability. As such, occupancy and rates may suffer from inadequate level of maintenance, which results in loss of reputation. Financial statements of the subject ownership have not been reviewed. However, based on conversations with management and the overall good maintenance level and high occupancy of the property, it can logically be assumed that ownership is capable of operating the property in a strong professional manner. Based on conversations with management, and inspections of other properties owned by Thysen and managed by Lincoln Residential Services, the subject has been operated in a professional manner and there appears to be no operational problems. 30 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Rent Roll: A roll of the current tenants has been provided by management as of September 30, 1996. As of this date, no units were vacant. Thus, there is no vacancy at this particular time. Lease Agreements: A copy of the standard 2-page residential rental agreements has been reviewed. Units are on either 7, 8, 9 and 10 month short-term leases. The rental agreements are typical of others used in the marketplace. Utilities, except for water, trash and basic cable are paid for by the tenants. There is a late charge of $30 if management elects to accept rent after the third of the month, and a $20 returned check fee. No pets are allowed without written consent. Use of the premises shall be for a private residence only. First month and security deposits are collected prior to the tenant moving in. Capital Improvements: Capital expenditures over the past two years have also been reviewed and/or discussed with the property manager. Improvements to the property over the past year and half include the following: o Asphalt repair, seal and striping o Carpets in common hallways; window replacement o New appliances and carpets in most units (ongoing) o Reroofing o Exterior painting o Office and lobby remodel Occupancy trends: In addition to the above, occupancy trends of the complex have been reviewed. Since Lincoln Property took over as managers, occupancy has been increasing. This is due mainly to correction of deferred maintenance items and an improving rental market. The new management has also qualified tenants better which have resulted in less turnover and less evictions. Moreover, seasonal tenancy has been reduced by the implementation of leases. Subject Asking Rents As of September 30, 1996, the following monthly rents (all unfurnished) were being charged at the subject complex: 24 1BR/1BA 640 sf $695 $1.09/sf $16,680 26 1BR/1BA 640 sf $715 $1.12/sf $18,590 26 1BR/1BA 640 sf $725 $1.13/sf $18,850 8 2BR/1BA 858 sf $795 $0.93/sf $ 6,360 8 2BR/1BA 858 sf $825 $0.96/sf $ 6,600 8 2BR/1BA 858 sf $850 $1.08/sf $ 6,800 ------ ---- -------- ------- 100 692 avg. $739/avg. $1.06/sf avg. $73,880 All rents include water, trash removal and basic cable. Tenants pay their own electric and gas (Pacific Gas & Electric Company), telephone, and premium cable channels. To qualify, prospective tenants must have three times the monthly rental rate and a positive credit report and previous rental history. There is a $25 application fee (includes credit report). The application fee is non-reimbursable. 31 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA The above price list was set in September 1996. Management periodically surveys other complexes in the area in order to maintain market rental levels. At this time, there are no rental specials or concessions. As explained earlier, market conditions have been improving gradually over the past year, and apartment complexes in Pacific Grove are not offering any rental concessions at this time. As can be noted on the rent roll in the Addenda, a number of subject apartment units are at the above quoted rates. Those units with leases expiring will be moved to the new rates. At this time, there is a difference of approximately 1.8 percent between the market and actual rents. Rent Survey and Analysis In order to determine whether the subject rentals are at or within a market rental range, a survey of competing complexes was made. This analysis involved a comparison of amenities and facilities offered by competitive projects with those offered by the subject. The two competing complexes considered most useful in estimating the subject economic or market rental level are summarized on the following two pages. All rental rates quoted in the survey are month-to-month or short-term leases. None of the complexes surveyed in this report had long-term leases. All complexes are garden style two and/or three-stories of similar vintage and design as the subject. All are located in the general subject neighborhood. Typically, rents include water and trash removal (and sometimes basic cable service). None of the complexes were offering any specials. 32 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> RENT COMPARABLE NUMBER 1 Name: Villa Pine Apartments Location: 215 Grove Acres, Pacific Grove Age/Type: 1972/garden design - 30 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $575+ N/A N/A 2BR/1.5BA = $750+ N/A N/A - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: none Vacancy: 0% Comments: Average plus quality, good condition. Parking under buildings. No specials. Leases neg. Source: (408) 373-2401 [PHOTO OMITTED] 33 <PAGE> RENT COMPARABLE NUMBER 2 Name: Eden Rock Apartments Location: 210 Grove Acres, Pacific Grove Age/Type: 1956-60 (circa)/ garden design - 45 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $$550-650+ N/A N/A 3BR = $$775-800+ N/A N/A - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: pool, rec room Vacancy: 0% Comments: Average quality, average condition. Located next to subject. Average appeal. [PHOTO OMITTED] 34 <PAGE> Pine Grove Apartments, Pacific Grove, CA All rental rates quoted in the survey are month-to-month or short-term leases. None of the complexes surveyed in this report had long-term leases. All complexes are garden style two and/or three-stories of similar vintage and design as the subject. All are located in the general subject neighborhood. Typically, rents include water and trash removal. None of the complexes were offering any specials. Although there are more complexes in the general area, we have only specifically shown two comparables that are located next to the subject. Both are on Grove Acres. These comparables adequately support the subject rents. Moreover, the subject market rents are well supported by the fact that actual rents are less than 2 percent different with many of the units already at the market rent. Rental Number 1 represents Villa Pines Apartments located next to the subject at 215 Grove Acres. This is a 30 year old garden walk-up complex containing 30 units. The condition is good and the quality is above average. One bedroom units rent from $575 per month, and two bedrooms/1.5 baths at $750+ per month. The average unit sizes are not known, although it appears that they are similar to the subject. No units were available at time of inspection. The subject units are slightly higher in price partly due to its pool and basic cable being included in the rent. Overall, Villa Pines supports the rents at the subject. Rental Number 2 represents Eden Rock Apartments located at 210 Grove Acres next to the subject. This is a 40 year old garden complex of average quality. Amenities consist of a pool and recreation room. One bedroom units rent from $550 to $650 depending on size, and three bedroom units range from $775 to $800 per month. The appeal of this project is somewhat less than the subject. Overall, this comparable supports the subject rents for its one bedroom units. Market Rental Conclusion The comparables surveyed as well as the actual subject rents themselves support the "market" rents currently being charged. Since the market rents are only slightly below the actual rents, and rents have been gradually increasing, we have used market rents in estimating gross income. Subject Market Rental Income (@ 100 percent Occupancy) Based on market rents, the subject would have the following monthly income at 100 percent occupancy. $73,880 x 12 = $886,560 Actual Reported Income Shown on the following page is a table outlining revenue for 1994, through August 31, 1996. Rental income for September 1996 is also shown. Income statements are shown in the Addenda. 35 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------- 1994 1995 YTD (`96) Aug. 96 - ------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> *Gross Rents: $743,549 ($620/unit) $783,817 ($653/un) $541,548 ($677/un) $72,571 ($726/un) Laundry $ 7,877 $ 7,175 $ 5,495 N/A **Other $20,833 $23,447 $21,180 N/A </TABLE> * - collected rents ** - includes deposits ($11,296 refunded in 1995; $12,094 refunded in 1996) N/A = Not available Rental Income Estimate: Almost all of the subject's total income is derived from rents. As shown above, rental income has increased significantly over the past year. This is due to in part to new management, an improving rental market and upgrades made to the project. The actual rental income for the month of September 1996 was $72,571, or $726 per unit. The market rent is 1.8 percent higher. Laundry: The laundry income is stabilized at $8,500 per year. Other: Other income consists of retained deposits, late charges, nsf checks, and miscellaneous charges to tenants. The large percentage of this category relates to security deposits. Although forfeited security deposits and late charges are a source of income, it is not included in the reconstructed operating statement as part of ongoing cash flows. This is because this type of income was not accounted for in the computation of gross and net operating incomes for the comparable sales. Total Gross Income: Total gross annual income is estimated at $895,060. Vacancy and Collection Loss In estimating a stabilized vacancy factor, several factors were considered. First, vacancy has decreased over the past few years due to new management and improving market conditions. In 1993, market conditions were soft and vacancy was higher than it is today. The property has been upgraded over the past two years. Meanwhile, market conditions have improved due to an expanding economy. The resurgence of "Silicon Valley" to the north, and an improving California economy has created many new jobs for the general area. As of the inspection date, the subject complex was fully occupied. This is consistent with comparable Pacific Grove projects at this time. And, since there is virtually no developable land remaining, it is unlikely that any new larger apartments will be built over the next several years. Consequently, vacancy should continue to remain low (below 2 percent). In addition to vacancy, consideration must also be made for ongoing collection loss. In the case of the subject, collection loss is not a significant factor. A 1 percent rate has been used. Assuming continued good professional management, stabilized vacancy and collection loss should run at approximately 3 percent on average. There is the strong possibility that vacancy and collection will 36 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA fall below this estimate over the next 12 to 24 months, however, longer-term, consideration should be made for decreased economic activity and possible higher vacancy. Effective Gross Income The effective gross income is estimated by deducting three percent from estimated gross income, as shown below: Gross Annual Income: $895,060 Less: Allowance for Vac/Collection (3%) (26,852) EFFECTIVE GROSS INCOME $868,208 Expense Analysis In order to estimate the value of the property by the income capitalization approach, expenses must be deducted from effective gross income to arrive at a net operating income estimate. Like other types of income property, apartment property expenses are a function of services provided as well as physical and geographical characteristics of the property itself. Operating and 'fixed" expenses vary from complex to complex, but generally fall between 33 to 45+ percent of revenue (gross income), including replacement reserves. Expenses can be broken down into per unit per year (or month), or as a percentage of rental revenue or effective gross income. Expenses as a percentage of income change depending on revenue levels. It can be difficult to compare apartment expenses on a line-by-line basis. No two apartment complexes are alike. Shown on the following page is a recent operating history of the subject. Expense categories are analyzed and discussed below. It should be noted that new management took over in 1995; expense records previous to 1995 are not complete and do appear to reflect current conditions. Real Estate Taxes & Direct Assessments California state law requires the reassessment of any parcel upon change of ownership. The market value of the subject property intrinsically assumes a hypothetical sale. Therefore, it is necessary to estimate real estate taxes based upon market value. In the State of California, property is enrolled at 100 percent of market value as determined by the County Assessor upon transfer of ownership or significant new construction. The maximum tax rate cannot exceed 1 percent of the enrolled value, plus general assessment bonds and fees approved by the voters. Enrolled value can be increased by a maximum of 2 percent per year, absent transfer, or new construction, based on the cost of living. Under Proposition 8, approved subsequent to Proposition 13, value can also be decreased to reflect current market conditions. The actual taxes are below what the new taxes would be based upon market value. According to the Monterey County Tax Collector Department, there are no special assessment bonds. The tax rate is approximately 1.01 percent. 37 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Since market value has not yet been estimated by the income capitalization approach, a technique which adds the composite tax rate reflecting the ad volorem taxes to the capitalization rate has been used. The resulting value estimate is then multiplied by the composite tax rate to obtain the amount of new taxes. This method gives only an approximation since the assessed value may not necessarily be the sale price (or market value). In addition, the value conclusion by the sales comparison approach has been used as a guide. Applying the tax rate of 1.01 percent, results in new taxes of $58,000. - -------------------------------------------------------------------------------- SUBJECT PROPERTY OPERATING HISTORY - -------------------------------------------------------------------------------- Expense Item 1994 1995 1996 (ytd) - ------------ ---- ---- ---------- Payroll $ 50,319 $ 61,640 $ 47,482 Utilities $ 68,886 $ 81,695 $ 54,702 Insurance $ 31,926 $ 4,386 $ 173 Taxes & $ 1,278 $ 1,256 $ 9,780 License & Permits $ 360 $ 2,028 $ 830 Management Fee $ N/A $ 20,594 $ 19,213 Administrative $ 7,217 $ 17,409 $ 12,957 Maintenance & Repair $ 37,974 $ 79,924 $ 52,936 Gardening/Landscaping $ 7,843 $ 7,195 $ 6,901 Cable T.V $ 9,338 $ 8,503 $ 6,183 Security $ 439 $ 945 $ 330 - -------------------------------------------------------------------------------- TOTAL $215,580 $285,575 $211,487 Per Unit $2,156/unit $2,856/unit *$3,172/unit * - annualized - -------------------------------------------------------------------------------- Note: Maintenance & Repair in 1995-96 include carpet replacement at a cost of $40,363. This is not an annually recurring expense and has not been treated as such. License and Permits In addition to taxes, apartment properties incur license and permit fees. Based on $20 per unit, the stabilized annual estimated is $2,000 (rounded). Payroll The manager lives in the complex and the unit rent is included as part of her compensation. Payroll expense was reported at $50,319 for 1994. In 1995, it increased to $61,640 as the complex went through management changes and upgrading. This category includes payroll taxes, state compensation insurance, unemployment taxes, wages for manager and office workers as well as maintenance personnel, and bonus. It should also include the loss of rent for the manager's unit. To date, this category is $47,482. Based on payroll at other complexes, this expense has been stabilized at $71,000, or $710 per unit. 38 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Utilities Utility expense includes water, trash, basic cable, sewer, electrical for exterior site lighting and for other common amenities, including laundry facilities, filtering equipment for the pool, lighting for the clubhouse, etc.; tenants pay their own telephone, electric, and premium channel cable. Trash removal service is included in the monthly rent for all units. Utility expense can be estimated on a price per unit or on a price per square foot basis. The projects with the greatest amount of amenities and larger unit sizes generally show the highest rates of utility expenses. In 1994, utilities were reported at $689 per unit, and in 1995 it was reported at $817 per unit. The annualized projection for 1996 is $821 per unit. We have stabilized this expense at $82,000 ($820/unit), which is consistent with prior years and other apartment complexes throughout the region. Insurance Insurance expense has been stabilized at $110 per unit as based on similar complexes throughout the region. Actual expense has not been reported. Management Fee (Supervisory Management) Lincoln Property Company has been managing the property over the past year and one-half. The reported fee was $20,594 for 1995. To date in 1996, the fee totals $19,213. The fee will increase with the increase in rental. Normally, management companies will charge from a low of 3 for large projects to a high of 6 percent of collected rent for smaller complexes. A rate of 4.0 percent on collected rents is reasonable for this project. Maintenance and Repair This category includes on-going maintenance and repairs that include the common areas, plumbing, pool, and electric. This category also includes building/pool supplies, appliance replacement and decorating supplies. In 1995, several carpets were replaced. Carpets have also been replaced in 1996 as tenants move out. Other capital improvements have been as well. This level of replacement does not recur on an annual basis, thus an adjustment is required in stabilizing this expense. Normally, maintenance and repair ranges from $400 to $600 per unit. The actual subject expense has been substantially higher due to the refurbishing of the complex over the past year. It should also be noted that this category does not include landscape/gardening and exterminating contracts or wages for maintenance personnel. Administrative This category consists of advertising and promotion, office supplies, computer expense, legal, credit check expense, and miscellaneous expense such as stationary, postage, etc. As shown in the Income & Expense Statement prepared by Lincoln Property Residential, a management fee paid to Lincoln is included under this category. In this analysis, the management fee has been separated and discussed under its own category. Gardening/Landscaping/Cable T.V./Security Landscaping is contracted to a private landscape company (recently hired). Basic cable is included in the rent, thus it is an expense to the landlord. Security patrol and exterminating are also contracted. 39 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Total expense reported in 1995 was $16,643. The total for the first eight months of 1996 is $13,414. We have stabilized this category at $18,000 per year. Replacement Reserves Most owners do not utilize the replacement reserve account during the analysis or operation of an apartment complex. Rather, capital improvement items are often expensed as they are incurred. However, since capital expenditures affect the investor's cash flow, an analysis of the property's value must account for these expenses in the form of appropriate reserves for replacement. Reserves for replacements are estimated at 2.5 percent of EGI, which equates to $220/unit. This takes into account the current good condition, lower effective age and recently completed capital improvements of the project. Items which are commonly associated with a reserve account include repaving of drives, replacement of underground utility pipes and electrical conduit, roof and foundation, as well as resurfacing of the pool new appliances, etc. (i.e., items that are not normally expensed year to year). Net Operating Income Total stabilized expenses and collection loss allowance amount to $361,000, or $3,600 per unit. This also equates to 41.5 percent of effective gross income. This is in-line with other Pacific Grove/Monterey projects. Net operating income is estimated by deducting operating and fixed expenses from effective gross income, as shown below and on the following page: - -------------------------------------------------------------------------------- Effective Gross Income $868,208 Total Expenses (361,000) Net Operating Income Before Income Taxes & Depreciation $507,208 - -------------------------------------------------------------------------------- Capitalization Rate Analysis After net operating income is estimated, an appropriate capitalization method is selected. Of the various techniques, the one that is almost always used due to its simplicity is direct capitalization. This method employs the use of a single rate known as the overall rate. The overall rate reflects the relationship between the projection of annual net operating income and a sale price or an estimate of value. It is calculated by dividing the net operating income of the sale into the sale price. When the property is purchased all cash, which is rare for larger apartments, and there is no subsequent change in value or income, then the capitalization rate is also the rate of return on the total property investment. In the Sales Comparison Approach section of this report, there is a table in which we have summarized our analysis of capitalization rates for the comparable sales. These capitalization rates were based on actual or actual near-term potential gross annual income less expenses at time of sale. In each case, 40 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA expenses included new real estate taxes at market value as opposed to actual taxes which are typically much lower. The capitalization rates derived from each of these sale properties are summarized below: Sale No. 1 2 3 4 5 6 7 8 - -------------------------------------------------------------------------------- Cap Rate (%): 8.54 8.6 9.1 9.34 9.6 10.15 7.9 9.69 The main factor influencing capitalization rates is the perception of risk. Those properties perceived to have higher risk, will sell at higher capitalization rates. The lower risk properties sell at lower capitalization rates. Apartment properties, because of their low vacancy, generally fall into the low risk category. Risk factors that should be taken into account in selecting an appropriate capitalization rate include the following: o Amount of available land zoned to allow future apartments o Upside (or downside) potential of cash flow o Existing or planned government restrictions on use and/or rent increases o Deferred maintenance and remaining life of site improvements o Marketability/liquidity o Availability of financing Availability of Land (potential of future competition) There has been very little apartment construction in the area over the past several years. Currently, only one 8-unit project is under construction. No rental units have been built since 1990 in Pacific Grove. The primary reason is the lack of developable land. The cost of construction is also very high, thus multifamily land that can be developed is usually built out with single family homes. The place where future apartment construction can occur is in the Salinas area or possibly on the former Fort Ord site. In both cases, these future units will not compete with Pacific Grove. Upside Potential of Cash Flow Gross revenue projected at stabilized occupancy is based on the market rate. The market rate, in this case, is almost the same as the actual income. And given high occupancy in Pacific Grove apartment properties, it appears that rents will continue to gradually increase over the next 12 to 24 months. Consequently, upside rental potential appears adequate at this particular time. Deferred Maintenance The subject is well-maintained without any significant repairs or deferred maintenance. Better-conditioned apartments tend to sell at lower capitalization rates. Marketability/Liquidity Appropriately priced, the subject would have reasonably good marketability (see Marketing and Exposure Estimate sections). This tends to lower the overall capitalization rate since there would be good buyer demand. Availability of Financing Financing should not have a significant impact on the capitalization as capital is available for this type of property. 41 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Capitalization Rate Conclusion In conclusion, the subject capitalization rate should fall between 8.5 to 9.0 percent, as evidenced by the sales. Discussions with brokers, property owners and management companies indicate that apartment capitalization rates are dropping in Santa Clara and Santa Cruz Counties. The subject has good upside potential. Based on our analysis, the most probable subject capitalization rate is at the middle of the above range, or 8.75 percent. $507,208/ .0875 = $5,796,665 $5,800,000 (rounded) INCOME APPROACH SUMMARY - -------------------------------------------------------------------------------- INCOME Gross Annual Rental Income $903,560 Laundry $ 8,500 -------- TOTAL GROSS INCOME $895,060 Less: Vacancy & Collection Loss Allowance (3%) (26,852) -------- EFFECTIVE (COLLECTED) GROSS INCOME $868,208 Stabilized Operating Expenses Per Unit (rd) ----------------------------- ------------- Payroll $ 71,000 $710 Taxes (Prop 13) $ 58,000 $560 License & Permits $ 2,000 $ 20 Utilities $ 82,000 $830 Insurance $ 11,000 $110 Management Fee $ 35,000 4% * Administrative $ 17,000 $180 Maintenance + Repair $ 45,000 $450 Landscape/Cable T.V./Security $ 18,000 $190 Replacement Reserves $ 22,000 $220 -------- ---- * includes - Advertising & Promotional TOTAL OPERATING EXPENSES $361,000 $3,600(41.5%) NET OPERATING INCOME (NOI) $507,208 OVERALL CAPITALIZATION RATE (Applied to NOI) .0875 ----- - -------------------------------------------------------------------------------- Market Value As Is: $5,796,665 Rounded: $5,800,000 - -------------------------------------------------------------------------------- 42 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Other Capitalization Procedures Other capitalization methods may be used in the appraisal of apartment properties, although their understanding and use falls far short of direct capitalization. The Discounted Cash Flow analysis (DCF) is one such method. In this procedure, the value of a property is equivalent to the present value of the annual before tax cash flows, over an assumed investment holding period, plus the sale (reversion) of the property at the end of the holding period, at a single discount rate. The advantage of this approach is that it identifies variability in annual cash flows, especially in a startup operation. The Discounted Cash Flow Analysis requires several assumptions that impairs its reliability. For this reason, it is oftentimes considered a secondary valuation method in the appraisal of apartment appraisals. In this appraisal, the DCF procedure has not been used as it does not provide any additional insight into the valuation of this property. There are several reasons for excluding this approach. There is nothing to suggest at this time that there will be substantial changes in income patterns, although the near-term trend appears to be continued strengthening and gradual increasing of rents. Another reason is that there would be several assumptions that would have to be made. Perhaps the most compelling is that the sales were not purchased on a DCF approach. Employing a DCF for the subject would require that inferences be made about each sales as to applicable yield and going-out capitalization rates, as well as hold periods and annual expense and income increase (or decrease) projections. If the majority of these sales were purchased in this manner, then a DCF would have applicability; however, this is not the case. Income Approach Conclusion The Income Approach concludes a value of $5,800,000. 43 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA SALES COMPARISON APPROACH ================================================================================ The Sales Comparison or Market Data Approach involves making an analysis of the property being appraised based on sales of similar properties. To a lesser degree, this procedure may consider the asking prices of current listings. The market data approach presumes that a prospective purchaser would pay no more for a property than the amount with which he or she could buy another of equal utility. The reliability of this procedure is determined by: 1) availability of comparable sales; 2) comparability of sales in terms of date of sale, location, size, density, or other physical characteristics; and, 3) verification of the sales data. Although there are variations, apartment property sales are often analyzed using four unit-of-comparison indicators: o Price per unit o Gross Income Multiplier or Effective Gross Income Multiplier o Price per Rentable Square Foot o Price per Room Price Per Unit Method: The price per unit method is most often affected by unit size, condition, overall functional utility, and location of a property. Sales with high average unit sizes which are situated in the most desirable locations tend to command the highest price per unit. Naturally, the existing potential rent levels also affect the sale price, thus influencing the price per unit value. Each of these factors determine the amount of net operating income that can be generated per unit which is a fundamental measurement of investor return when applying the price per unit method. Price Per Room Method: Sale price per room demonstrates the same relationship as price per unit. Applying the same logic discussed above, which considers the average unit size of the subject, existing rent levels, and location relative to the comparable sales, a value per room can be estimated for the appraised property. Price Per Square Foot Method. While size is a strong influence in sale price per unit and price per room, the rent levels attained by a property per square foot are closely related to the price per square foot it may attain in the marketplace. It is generally true that all else being equal, the rent per square foot for larger units is less than the rents per square foot for small units. Thus, apartment buildings which have larger unit sizes have lower rents per square foot and therefore have lower selling prices per square foot. Gross Income Multiplier Method: The gross income multiplier (GIM) technique is oftentimes perceived as one of the most accurate market measure of value by the Direct Sales Comparison Approach. The GIM is calculated by dividing the sale price of the sale property by its gross annual income. This method tends to equalize property differences such age, size, and number of units. In general, where there is a fee simple title, apartment properties tend to sell at 5.5 to 8 times multiple on actual income. The range is tempered by a number of factors that include location, condition, quality, and upside rental potential. The more desirable properties with good track records will typically be higher on the scale, whereas lower quality facilities in weak locations tend 44 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA to fall at the lower side. Since the GIM involves gross income rather than net income, the appraiser must compare the level of expenses of the comparables with the subject. This technique works best when expense operating ratios are reasonably consistent. Comparison is not straightforward, for example, when the sale property has an operating expense ratio that is significantly higher than the subjects'. Consequently, when estimating a GIM, care must be taken when comparing gross incomes. A variation of the GIM technique--effective gross income multiplier (EGIM)--is calculated by dividing the sale price by the effective gross annual income instead of the gross annual income. This technique, however, often does not result in a further refinement since apartment vacancy (and collection loss) throughout the region is very low. Comparable Sales Description & Analysis A search for apartment properties was made on the Monterey Peninsula and surrounding areas. No market sales of larger apartment complexes (over 75 units) in Pacific Grove or on the Peninsula during 1995 and 1996 were found. The most recent apartment transaction in Pacific Grove occurred in 1993; however, this was an REO that sold well below market potential. A summary of these sales is summarized on the following pages. Additional information is included in the Addenda. To obtain more recent sales data, it was necessary to expand the search into nearby cities and counties. The strongest sales activity at this time is taking place in Santa Clara County, adjacent to the north of Monterey County. A number of larger sales have also taken place in Santa Cruz County, to the west. A brief description of each sales area and how it relates to Pacific Grove is summarized in the following paragraphs. Santa Clara County/San Jose: This is the largest county in the region with a population of over 1.4 million. It contains the City of San Jose, the third largest city in California. "Silicon Valley" originated in Santa Clara County. The county is home to over 2000 electronic firms, including industry leaders such as Intel and Hewlett-Packard. Over the past 20 months, technological employment has dramatically increased resulting in the creation of several new jobs. To fill new jobs, several thousand people have moved into "Silicon Valley" thus creating a demand for housing. As a result, apartment and other housing rents have increased substantially, nearly doubling from previous lows in some cases. Investors have now caught on to increasing rental activity, and sales activity is brisk. This market has "filtered" into nearby communities, including Santa Cruz, Alameda County, but to a much lesser degree, Pacific Grove. The resurgence of the Santa Clara County market comes after six years of sluggish performance. The last major upswing was in 1982-85 when rents increased annually by 18 to 20 percent. From 1995 to 1989, rents and vacancy were steady. In late 1989, following the Loma Prieta earthquake and a decline in economic activity, vacancy levels started to increase and rents became soft with rental concessions given in some complexes. Starting in late 1994, the market started to once again turn upward. In 1995, economic conditions improved and rents increased to reflect a landlord's market. Today, vacancy is extremely low with very units available for rent. This is expected to continue for at least the next six to 12 months as little land is available for new apartment construction. 45 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> COMPARABLE MARKET DATA - APARTMENT SALES <TABLE> <CAPTION> Project Name Sale Location No. Units Sale Date (COE) Year Sale Price/ GIM Price Per Unit No. A.P.N. RSF-Bldg Built Price Sq. Ft OAR Cash-on-Cash =============================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> [1] Willow Gardens Apartment 1750 Stokes Street 186 6/14/96 1971 $13,650,000 $85.17 7.04 $73,387 San Jose, CA 160,260 8.54% 6.8% ------------------------------------------------------------------------------------------------------------------------- 2-story apartment garden style built in 1970. Word frame, wood exterior. Average quality and condition. 190 covered parking spaces (carports). Amenities include pool, spa, laundry, recreation room, balconies/patios, storage lockers, a/c. 6.40 acres (29.06 du/ac). First loan $10,600,000 from St. Paul Federal Bank. Document #13330744. ------------------------------------------------------------------------------------------------------------------------- [2] Ocean Terrace 1630 Merrill Street 100 Santa Cruz, CA 80,724 sf 7/12/96 1972 $6,300,000 $78.04 6.5 $63,000 8.6% 8.1% ------------------------------------------------------------------------------------------------------------------------- 100-unit garden style built on 2.7 acres in county area of Santa Cruz. Built in 1972, there are six buildings, a pool, exercise room, sauna, three laundry rooms, and on-site manager's office. Wood frame construction. Average quality and avg+ condition. 130 on-site parking spaces. AEK kitchens, $4,725,000 first from Home Savings of America. ------------------------------------------------------------------------------------------------------------------------- [3] Fox Creek Village 196 West Alvin Rd., 168 9/24/94 1986 $9,350,000 $66.31 6.8 $55,650 Salinas, CA 141,856 sf 9.1% 9.87% ------------------------------------------------------------------------------------------------------------------------- Built in 1986, Fox Creek Village consists of 76, 1/br/1ba units measuring 708 sf; 24, 2br/1ba units measuring 875 sf, and 68, 2/br/1ba units 986 sq ft. The gross building area is 145,023; the net rentable has been reported at 141,856 sf. 36 units have wood-burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. There are laundry rooms with washers and dryers in the complex. Above average to good quality and condition. One covered parking space per unit. ------------------------------------------------------------------------------------------------------------------------- [4] Shangri La Apartments 2875 David Avenue 43 10/21/93 1968 $1,610,000 $65.23 5.5 $37,441 Pacific Grove 24,682 10.25% 15% ------------------------------------------------------------------------------------------------------------------------- REO SALE. Below-market price. Average quality in fair to average condition at time of sale. 1.49 acres. 32, 1br units. 11, 2Br units. All cash to seller. Garden walk-up. Average location. ------------------------------------------------------------------------------------------------------------------------- =============================================================================================================================== </TABLE> Note: The above date was obtained from sources deemed reliable. However, the accuracy of the data cannot be guaranteed by R. Saia, MAI Associates (9/96) 46 <PAGE> COMPARABLE MARKET DATA - APARTMENT SALES <TABLE> <CAPTION> Project Name Sale Location No. Units Sale Date (COE) Year Sale Price/ GIM Price Per Unit No. A.P.N. RSF-Bldg Built Price Sq. Ft OAR Cash-on-Cash =============================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> Hidden Creek Apartments [5] 200 Button Street 146 7/14/94 1973 $7,400,000 $77.81 6.78 $50,685 Santa Cruz, CA 95,100 9.6% N/A ------------------------------------------------------------------------------------------------------------------------- 3.8 acres (37 du/ac), 2-story, nine buildings. Garden style walk-up. Average quality and condition. 42 studios, 60 1br/1ba, 44 2br/1ba units. About half of complex is subsidized housing tenants. Financing terms n/a. Marketing time = 3 months. Amenities include pools, creek fountain and extensive landscaping. ------------------------------------------------------------------------------------------------------------------------- North Bay Apartment [6] 41 Granview Street 115 12/15/95 1989 $8,550,000 $81.88 6.11 $74,348 Santa Cruz 104,421 10.15% 10.8% ------------------------------------------------------------------------------------------------------------------------- Good quality, 2-story garden style complex built in 1989. Average to good location. Buyer had to pay $300,000 in repairs and $175,000 in commissions. Cap Rate is somewhat high based on other sales of similar age, size, and location. Property was never exposed to open market. ------------------------------------------------------------------------------------------------------------------------- =============================================================================================================================== </TABLE> Note: The above date was obtained from sources deemed reliable. However, the accuracy of the data cannot be guaranteed by R. Saia, MAI Associates (9/96) 47 <PAGE> Pine Grove Apartments, Pacific Grove, CA Housing prices in the better areas of San Jose are similar to those in Pacific Grove, but the average home price in Pacific Grove is higher. However, income levels are higher in San Jose, and apartment rents are typically higher (as are values). Santa Cruz: In general, rental housing in Santa Cruz is similar to the Monterey Peninsula. Santa Cruz is located on the north side of the Monterey Bay across the bay from Monterey. Santa Cruz is a good area to draw comparable sales for comparison to Pacific Grove. In fact, Sale Number 2, located in Santa Cruz county, is an excellent comparable. Santa Cruz is a coastal community that relies heavily on tourism and agriculture; some technology has filtered into the area from Silicon Valley (similar to Monterey Peninsula). Rents have been increasing, but not nearly at the pace of San Jose. Occupancy is also extremely high in this area. Adjustment Process The most common unit of comparison indicator for apartments is price per unit. As such, the subject has been adjusted to the comparable sales on this basis. A sequence for making adjustments must be followed when percentage adjustments are calculated and added together. The first adjustment is for property rights conveyed. In this case, all properties sold fee simple or leased fee (short term leases of less than one year); no leasehold sales were included. Thus, no adjustment was required. The second adjustment converts the transaction price of the comparable into its cash-equivalent or modifies it to match the financing terms projected for the subject property. No sales with financing favorable enough to significantly influence the sales price were included, no adjustment was required. The third adjustment is made for conditions of sale or other (e.g., personal property included in sale price). With the exception of sale #4, no REO or distressed sales were included, and no sales with furnished units were considered. Every apartment has some amount of personal property that transfers with the property; however, these items are nominal. Other adjustments considered were based on differences in market conditions, appeal, quality/density, condition, and size. No specific adjustment was made for rent control (i.e., San Jose complexes), although this is considered in the location adjustments. There is no rent control in Pacific Grove. Shown on the following pages is a table summarizing eight apartment sales. Additional information concerning each sale, including recording data and a photograph, is in the Addenda. Apartment Sale Number 1, at $73,387 per unit, is a June 1996 sale of the Willow Gardens Apartments, an 186-unit garden style walk-up apartment located in a centrally-located middle-income neighborhood in San Jose. This is an average quality complex in average condition at time of sale. There are 162, two bedroom/two bath units, and 24, three bedroom/two bath units. The average unit size is 861 square feet. Amenities consist of a pool, spa, recreation building, and laundry rooms. The project sits on 6.40 acres, indicating a density of 29.06 units per acre. The project falls under San Jose Rent Control, which limits rental increases to eight percent with pass-through for extraordinary and capital expenses 48 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA The purchase price of $13,650,000 represents a rentable per square foot indicator of $85.17, and a per room value of $17,773. The GIM on actual rental income is 7.04. On market rents, the GIM is 6.29, indicating reasonably good upside rental potential. The Overall Capitalization Rate is 8.54 percent on actual income less actual expenses adjusted for new taxes and reserves. The cash-on-cash rate is 6.8 percent. In comparison to the subject, a downward adjustment is required for location. As noted, San Jose rent levels are higher than those found in Pacific Grove. For example, a two bedroom/two bath unit at Willow Garden is $1,000+, or about $150-200 per month per unit higher than in Pacific Grove. A downward adjustment of 10 percent as based on rental differential appears reasonable (see appeal adjustment below). The subject's average unit size at only 692 square feet is well below the comparable, resulting in a 10 percent downward adjustment. The quality and condition are relatively similar, although the subject has better appeal (adjusted for under location). Adjusting this comparable by 20 percent, results in an indicated subject per unit value of $59,000 (rounded). Apartment Sale Number 2, at $63,000 per unit, is a July 1996 sale of the Ocean Terrace Apartments, an 100-unit garden style walk-up apartment located in an unincorporated area of Santa Cruz County between the cities of Capitola and Santa Cruz. This is an average plus quality complex in above average condition at time of sale. There are 52, two bedroom/units, and 32, one bedroom/ units. There are also 16, 3 bedroom units. The average unit size is 807 square feet. Amenities consist of a pool, sauna, exercise room, and laundry rooms. The project sits on 2.70 acres, indicating a density of 37 units per acre. The purchase price of $6,300,000 represents a rentable per square foot indicator of $78.04, and a per room value of $16,406. The GIM on actual rental income is 6.5. Market rents were about 3 percent higher than actual income during the six month marketing period. The Overall Capitalization Rate is 8.6 percent on actual income less actual expenses adjusted for new taxes and reserves. The cash-on-cash rate is 8.1 percent. In comparison to the subject, a downward adjustment is required for location. As noted, Santa Cruz rent levels are similar to Pacific Grove. For example, a two bedroom unit at Ocean Terrace is $800-850+, compared to $795 to $825 at Pine Grove. No location adjustment is required. The subject's average unit size is smaller, resulting in a 5 percent downward adjustment. Both complexes are 100 units, thus no size adjustment is required. Adjusting downward by a total of 5 percent, results in an indicated subject per unit value of $60,000 (rounded). Apartment Sale Number 3, at $55,655 per unit, represents Fox Creek Village, an 168-unit two-story garden complex built in 1986, located in north Salinas. Fox Creek includes a pool, tennis court, recreation building and laundry facilities. There are 76, one bedroom units; and, 92 two bedroom units. The average unit size is 844 square feet - almost 25 percent higher than the subject. Some of the units have fireplaces. Parking is by carport stalls and open spaces. The overall quality and condition are good, superior to the subject. An adjustment of 15 percent is made for this property's lower effective age and superior and amenities. However, a 15 percent adjustment is required for the subject's superior location. Although there are no 49 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA sales in Salinas to determine whether apartment property value has increased since the September 1994 sale date, it is logical to assume that since rents are now somewhat higher that values are likely higher as well. Consequently, an upward adjustment of 5 percent is made. Overall, the adjustments total upward by 5 percent, indicating a subject unit value of $58,000 (rounded). Apartment Sale Number 4, at $37,441 per unit, is the Shangra La Apartments, located nearby the subject along David Avenue, in Pacific Grove. This is a two-story, 43-unit complex built in 1968. It is of average quality and design, inferior to the subject. The average unit size of only 574 square feet is significantly smaller than the subject. The condition, at time of sale, was fair to average, and is also inferior to the subject. The property sold in October 1993 at $1,610,000, or $65.23 per square foot of rentable area. Financing consisted of a 30 percent cash downpayment and a new first from Home Savings. Sale Number 4 was an REO sale that reportedly generated several written offers due to the low pricing. The low pricing reflected the lender's desire to dispose of the property quickly. The sales price was less than the debt. According to the listing agent, 10 offers were received within the first two weeks the property was marketed. The buyer is a local resident who owns other rentals in the area. The below-market transaction makes comparison with the subject difficult. Moreover, the subject is a superior property in terms of physical characteristics. Substantial upward adjustments are required. Pine Grove would sell well above the per unit value as represented by this sale. Apartment Sale Number 5, at $50,685 per unit, represents a nine building, two-story, garden style complex of average quality. The project is located near Highway 1 in the City of Santa Cruz. It is in a neighborhood of predominately small bungalow single family homes built from 1930 to 1970; a new zero-lot line SFR development is located directly across. There are 42 studio units with an average size of 550 square feet; 60, 1br/1ba units @ 650 sf; and, 44, 2br/1ba units of 750 sf. The rentable area is 95,100 square feet (avg. unit = 651). There are no recreational amenities except for pool and common utility rooms. Landscaping is extensive in some areas. One-half of the units are subsidized housing units. At time of sale, "market" rents were $600 for studio, $750 for 1 bedrooms, and $850 for two bedrooms. The gross and net incomes are estimates based on reported actual income per MLS listing (#369018). According to assessor's office, some buildings had deferred maintenance, however, the cost to repair is not known. The subject is located in a more desirable neighborhood, but rental rates are about the same. No location adjustment has been made. No adjustment are required for average unit size. The subject is superior in quality and appeal, thus an upward adjustment of 10 percent has been made. Overall, a 10 percent adjustment results in an indicated subject unit value of $56,000 (rounded). Apartment Sale Number 6, at $74,348 per unit, is located in west Santa Cruz off Highway 1. This is a good quality walk-up garden design built in 1989. It is the newest complex built in west Santa Cruz area. Amenities include a swimming pool and carport parking. There are no other recreational facilities, although the complex is within a short drive to beaches and three miles to Santa Cruz Beach & Boardwalk (good tenant appeal). The buyer paid $300,000 in repairs and $175,000 commission, thus actual price was somewhat higher than reported above. The property 50 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA was never exposed to the open market. The higher than normal capitalization rate is reflective of this and the extra cost to the buyer of repairs and commission. There are 18, 1br/1ba units; 69, 2br/2ba units; and, 28, 2br/2.5 ba units. Market rents are about 3-5 % higher than actual. In comparison to the subject, downward adjustments are required for age, average unit size and size. We estimate these to be 20 percent. The indicated subject value per unit from this sale is $59,000 (rounded). Sales Comparison Approach Summary & Conclusion The sales analyzed in the sales comparison approach range in size from 60 to 331 spaces, and in unadjusted price from $50,634 to $74,387 per unit. After adjustment, the sales indicated the following range of value: Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Sale 6 ------ ------ ------ ------ ------ ------ $59,000 $60,000 $58,000 *N/A $56,000 $59,000 * - not adjusted due to REO/distressed circumstances For one reason or another, the sales are not highly similar. These sales do, however, provide a reasonably narrow range of potential subject value. The sales consistently group around $58,000 to $60,000. As such, the subject's indicated per unit value is $59,000, or as outlined below. - -------------------------------------------------------------------------------- 100 units x $59,000/unit = $5,900,000 - -------------------------------------------------------------------------------- Check for Reasonableness: Based on a market value of $5,900,000, the subject property would have the following unit of comparison indicators: Price Per Rentable SF: $85.22 Price Per Room: $18,210 GIM: 6.59 Price Per Rentable SF: The unadjusted range of the comparables is $59.11 to $85.17. Although towards the upper end, the indicated $85.22 per square foot value is supported by the range. Price Per Room: The unadjusted range of the comparables is $14,157 to $19,344; most are in the $14,000 to $16,000 range. The subject is at the upper end, but supported. GIM: The range of the comparables is 6.01 to 7.83; most range from 6.01 to 6.8. At 6.5, the subject is adequately supported by the sales. Consequently, it is our opinion that the above value estimate is supported by the GIM technique. 51 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA All three unit-of-comparison indicators support the per unit value conclusion. The most important of the three -- GIM --- supports the conclusion, therefore we have concluded the following Sales Comparison Method value: CONCLUSION: $5,900,000 52 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA RECONCILIATION OF THE VALUE ESTIMATES The market value of the subject property has been estimated by two of the three traditional appraisal approaches. The indications given by each are summarized as follows: Income Approach $5,800,000 Sales Comparison Approach $5,900,000 In order to determine our final opinion of value, the reliability and relevance of each value based upon the quality of data collected, and the applicability of the assumptions underlying each approach was considered. The cost approach was not used in this appraisal. Although it may have some relevancy, it is not a primary valuation method. The Sales Comparison Approach is a more accurate method than the Cost Approach, but is flawed to some degree by the limited number of comparable sales in the Pacific Grove/Monterey Peninsula area. The sales that were available, however, provided consistent support. The Income Capitalization Approach is the better of the two methods, but is also flawed to some degree by the lack of recent sales in Salinas. The sales provided a strong central tendency in indicating that capitalization rates are within a range of 8.0 to 9.5 percent; however, market conditions are improving and capitalization rates may be decreasing. Without recent empirical data in Pacific Grove, however, it is difficult to pinpoint a specific rate for the subject property. Still, most weight has been given to the Income Approach in concluding a final value estimate. STATEMENT OF VALUE Based on the foregoing analysis, the value of the subject property, as of September 28, 1996, is estimated as follows: FIVE MILLION EIGHT HUNDRED THOUSAND DOLLARS ($5,800,000) 53 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA MARKETING PERIOD ================================================================================ The sales marketing time is the time that it should take to market and sell the property in its "as is" condition as of the date of the appraisal. This should not be confused with exposure time which is the amount of time necessary to expose a property to the open market in order to achieve a sale. Marketing time is a forward estimate of the amount of time necessary to expose a property on the open market in order to achieve a sale from the effective date of the appraisal. Indications of the marketing times associated with the "as is" market value estimates are provided by the marketing time of sale comparables, and interviews with participants in the market. The sales marketing period is a period of time that is reasonable in light of a given property's characteristics and market conditions, based on certain assumptions. To our knowledge, there have been no sales the size of the subject in the Northern Monterey County market area over the past year. Sales from other parts of Northern California indicate that the marketing time would be less than 6 months. Apartment sales that have taken place over the past 24 months indicate that marketing times rarely exceed 6 months, and usually fall between 1 to 6 months. The length of time is not only a function of physical and locational characteristics, but the marketing and pricing. Based on the subject characteristics and assuming a list price close to the estimated market value, marketing time is estimated at 2-5 months. EXPOSURE PERIOD ================================================================================ USPAP requires that an estimate of reasonable exposure time be made in the performance of an appraisal where the value being sought is "as-is". In the USPAP, the Comment to Standards Rule 1-2(b) states: When estimating market value, the appraiser should be specific as to the estimate of exposure time linked to the value estimate. The Comments to Standard Rules 2-2(a)(v) and 2-2(b)(v) state: ...Defining the value to be estimated requires both an appropriately referenced definition and any comments needed to clearly indicate to the reader how the definition is being applied [See Standards Rule 1-2(b)]... The Statement issued by the Appraisal Standards Board is as follows: Reasonable exposure time is one of a series of conditions in most market value definitions. Exposure time is always presumed to precede the effective date of the appraisal. 54 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Exposure time may be defined as follows: The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market. Exposure time is different for various types of real estate and under various market conditions. It is noted that the overall concept of reasonable exposure encompasses not only adequate, sufficient and reasonable time but also adequate, sufficient and reasonable effort. This statement focuses on that time component. The fact that exposure time is always presumed to occur prior to the effective date of the appraisal is substantiated by related facts in the appraisal process: supply/demand conditions as of the effective date of the appraisal; the use of current cost information; the analysis of historical sales information (sold after exposure and after completion of negotiations between the seller and buyer); and the analysis of future income expectancy estimated from the effective date of the appraisal. Since there are few comparable properties to the subject that have sold in this market area, estimating exposure time is based more on discussions with knowledgeable real estate professionals. All of the sales with known marketing times took less than 6 months. The exposure time period assumes that the subject is appropriately priced and marketed. Obviously, a list price that is significantly higher than what the property is worth will result in a longer than typical marketing period. Although it could be sooner or later, our best estimate of an exposure period (based on our appraised value) is 4 months. ALLOCATION OF FURNITURE, FIXTURES AND EQUIPMENT ================================================================================ For the most part, apartment in the subject region do not require significant furniture, fixtures or equipment as part of the ongoing operation of the property. In the case of the subject, FF&E is minimal and contributes only a nominal value to the overall property worth. Personal property items observed on the premises include pool equipment, furniture in the recreation/clubhouse, office furniture and equipment (e.g., computer/printer) carts, supplies, etc. The market value of the above is estimated at less than $15,000. Some of the personal property items such as the computer and copier (i.e., office equipment) would be removed upon sale. All of the comparables had similar amounts of personal property items that were included in the sale, thus there is no need for an adjustment. Although not as management intensive as a hotel, apartments require management expertise that technically creates some (minor) going-concern value. In valuing the subject, any going-concern/goodwill has effectively been removed by deducting an offsite professional management 55 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA fee. The net incomes estimated from each sale comparable also had offsite management fees deducted. It is assumed that the subject will continue to operate under professional management. In conclusion, the estimated market value of the subject is of the real estate only; FF&E (personal property) is nominal and any going-concern/goodwill value would have been removed in the deduction of an offsite professional management fee. 56 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA ASSUMPTIONS AND LIMITING CONDITIONS ================================================================================ The estimate of value contained herein is based upon and subject to the following assumptions and qualifying conditions, to which the addressee shall be deeded to consent by acceptance hereof: It is assumed that merchantable fee simple title, free of encumbrance, is vested in the owner of record. It is recognized that a potential purchaser would likely consider the effect of value through consideration of the maximum conventional financing available for the property type as of the date of value. It is assumed that the property is subject to lawful, competent and informed ownership and management. It is also assumed that all financial information on the business operation is correct; errors or misstatements may have a material impact on the appraised value. We reserve the right to make changes if such errors or misstatements were later discovered. It is assumed that the information supplied by the addressee as to the parcel or parcels of real estate is correct and complete, including the legal description as it appears in this report. The appraisers assume no responsibility for matters of legal nature affecting the property or the title thereto, nor does the appraisers render any opinion as to title. No attempt has been made to render an opinion of or status of easements that may exist. It is understood that exhibits included In this report are solely for the purpose of assisting the reader to visualize or understand its content and are not intended to be exact in scale or detail. It is understood that no survey has been made to render an opinion of or status of easements that may exist. It is understood that material contained herein which is stated to be or is obviously furnished by others is believed to reliable but has not been verified except as specifically stated. Such information is believed to be true and correct; however, no responsibility for accuracy can be assumed by the appraisers. We are not required to give testimony or appear in court because of having made this appraisal, with reference to the property in question, unless arrangements have been previously; made therefor. The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization, The separate valuations of land and building must not be used in conjunction with any other appraisal and are invalid if so used. If this appraisal contains a valuation relating to a geographical portion of a large parcel or tract or real estate, the value reported for such geographical portion relates to such portion only and should not be construed as applying with equal validity to other portions of the larger parcel or tract, and the value of all geographical portion may or may not equal the value to the entire parcel or tract considered as an entity. 57 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA We assume that there are no hidden or unapparent conditions of the property, subsoil or structures which would render it more or less valuable. We assume no responsibility for such conditions or for engineering which might be required to discover such factors. The appraisers assume the mechanical equipment to be in good working order unless expressed otherwise. Unless otherwise stated in this report, the existence of hazardous materials, which may not be present on the property, was not observed by the appraisers. The appraisers have no knowledge of the existence of such materials on or in the property. The appraisers, however, are not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired. All information and comments concerning the location, neighborhood, trends, construction quality and costs, loss in value from whatever cause, condition, rents, or any other data of the property appraised herein represent the estimates and opinions of the appraisers formed after an examination and study of the property. While it is believed the information, estimated and analysis given and the opinions and conclusions drawn therefrom are correct, the appraisers do not guarantee them and assumes no liability for any errors in fact in analysis or in judgment. Disclosure of the contents of this appraisal report (especially any conclusions as to value), the identity of the appraisers or the firm with which they are connected, or any reference to the Appraisal Institute, or the SRPA/MAI designations shall not be disseminated to the public through advertising media, public relations media, news media, sales media, or any other public means of communication without the prior written consent and approval of the undersigned. The appraisers are considered the owner of the report, and delivery of same has been to addressee only for his specific intended real estate decision. Certain forms, formatting and techniques contained herein are private property and proprietary in nature. As such, they are protected under state and federal laws covering trademarks, copyrighting, etc. Copying or re-use is strictly prohibited without expressed written consent. Certain information contained herein is considered "not for public knowledge" and is provided herein "under strictest confidence." Said information shall be used only in connection with the business decision as specifically described in the function of the appraisal. No other use of any information contained herein is permitted. Said information shall not be re- used, shared, disclosed, etc., except in accordance with the certification, limiting conditions, function and purposes as contained herein. Any deviation from the above may subject the user to additional legal action for invasion of privacy. 58 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA Acceptance and use of this report constitutes specific and implied consent to all condition, limitations, etc. Further, the client shall hold harmless the appraisers for any unpermitted use or action resulting from such use. On appraisals subject to satisfactory completion of repairs, alterations, or new construction, the appraisal report and value conclusions are contingent upon completion of the improvements in a timely and workmanlike manner, and as of the effective date of the appraisal. Any projections in income and expenses in this report are not predictions of the future. Instead, they are an estimate of current thinking of market participants of what future income and expenses will be. No warranty or representation is made that these projections will materialized. This appraisal was prepared for Home Savings as client to be used in lending decisions or any related business pertaining to its interest in the appraised property. If an informational copy has been provided to the owner it should not be utilized for other functions. The Americans with Disabilities Act (ADA) became effective January 26, 1992. The appraiser has not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. 59 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA CERTIFICATION OF APPRAISAL ================================================================================ I certify that, to the best of my knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions and conclusions. 3. I have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. 4. My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. 5. The analyses, opinions and conclusions were developed, and, this report has been prepared, in conformity with Title XI of the Federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and its regulations, as well as the Code of Professional Ethics and Standards of the Professional Conduct of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation and the Appraisal Institute. 6. Robert Saia and James Barcells, SRA have made a personal inspection of the property. Mr. Saia's General Certificate from the State of California is valid and in good standing as of the appraisal date. 7. No one other than the undersigned prepared the analyses, conclusions, and opinions concerning real estate that are set forth in this appraisal report. It should be noted that James Barcells helped with the preparation of the report. 8. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 9. Members of the Appraisal Institute are required to meet certain continuing education requirements. As of the date of this report, Mr. Saia have completed the requirements of the program of the Appraisal Institute. /s/ Robert S. Saia - ------------------------- Robert S. Saia, MAI OREA Cert. #AGO03191 60 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Pine Grove Apartments, Pacific Grove, CA -- ADDENDA -- 61 Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> PHOTOGRAPHS OF SUBJECT PROPERTY [PHOTOS OMITTED] Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> PHOTOGRAPHS OF SUBJECT PROPERTY [PHOTOS OMITTED] Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> REGIONAL LOCATION MAP [GRAPHIC OMITTED] <PAGE> NEIGHBORHOOD LOCATION MAP [GRAPHIC OMITTED] <PAGE> PLAT MAP [GRAPHIC OMITTED] <PAGE> RENTAL LOCATION MAP [GRAPHIC OMITTED] <PAGE> COMPARABLE SALES LOCATION MAP [GRAPHIC OMITTED] <PAGE> COMPARABLE SALES LOCATION MAP [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 1 Project Name: Willow Garden Apartments Location: 1750 Stokes Street, San Jose Assessor's Parcel No.: 284-24-008 Grantor: Marie Helen Pejcha Trust Grantee: Willow Gardens Ltd. Rec. Doc. #: #13330744 Sales Date: June 14, 1996 Sales Price: $13,650,000 No. of Units: 186 Condition/Quality: Average/average Site Area: 6.40 acres (29.06 du/ac) Year Built: 1971 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $73,387 Price/Room: $17,773 GIM: 7.04 Price/RSF: $85.17 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $1,165,752 - -------------------------------------------------------------------------------- OAR: 8.54% - -------------------------------------------------------------------------------- Occupancy: 99.0% (1 unit vacant @ time of sale) Financing: see comments below Comments: Average quality garden style two-story walk-up built in 1971. Average condition and appeal. There are 162, two bedroom/two bath units, and 24, three bedroom/2 bath units. Gross rentable area is 163,740 sf. Zoning is R-4, high density. Located in area of apartments, condominiums and single family homes (middle income) with commercial/retail along major arterials. Centrally-located, close to shopping, schools, employment and freeway access. Financing terms consisted of $10,600,000 first, and a seller second of $1,275,000 @ 8%, 2 yrs. The buyer put down $1,775,000. The <PAGE> market income is estimated at $2,170,200 and the actual was $1,940,052 at time of sale. The market derived GIM is 6.29, and the market derived OAR is 9.06% (actual OAR = 8.54%). Under San Jose Rent Control Ordinance which limits annual rent increases to 8 percent. Source/Confirmation: various, including public records, inspection, Comps Inc., Stan Jones Marcus & Millichap. [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 2 Project Name: Ocean Terrace Location: 1630 Merrill Street, Santa Cruz Assessor's Parcel No.: 027-274-41 Grantor: Santa Cruz Central Investments Grantee: D&M Piterman Rec. Doc. #: #8760321 Sales Date: July 12, 1996 Sales Price: $6,300,000 No. of Units: 100 Condition/Quality: Average+/Average+ Site Area: 2.7 acres (37 un/ac) Year Built: 1972 Indicators: Price/Unit: $63,000 Price/Room: $16,406 GIM: 6.5 Price/RSF: $78.04 Stabilized NOI Est.: $543,984 OAR: 8.6% Occupancy: 100% (0 unit vacant @ time of sale) Financing: New First from Home Savings (see below) Comments: 100 unit garden style two-story walk-up built in 1972. It is located in an unincorporated area of Santa Cruz County one mile from the city limits of Santa Cruz and two miles north of Capitola Village, a seaside tourist area. The neighborhood is predominately average quality single family and apartments with scattering of mobilehome parks and small retail/shopping centers. The ocean is approximately one-half mile south. Amenities include a pool, sauna, three laundry rooms, <PAGE> on-site manager's office, and exercise room. There are six buildings on the 2.7 acre site. Construction is wood frame and wood siding and stucco. Roofs are flat tar and gravel. Parking is 130 spaces. All units feature AEK kitchens including dishwashers, refrigerators, garbage disposals and R/O's. There are 32, 1br/1ba units containing 624 sf; 40, 2br/1ba units measuring 860 sf; 12 units are 2br/1.5 ba @ 923 sf; and, 16 are 3br/2ba units @ 955 square feet. Market rents range from $680-695 for the 1br units to $955-$980 for the 3br units. The 2 br units range from $780 to $855. Based on market rents, the monthly gross rental income is $79,950. Laundry income is $1,125 per month. The actual income for January 1996 was $77,480, or 3% below market. Based on market rental income and laundry income, gross annual income is projected (over next 12 months) at $972,900. Deducting 4 percent for vacancy and collection loss, results in EGI of $933,984. Expenses estimated by seller are approximately $390,000 (including reserves), resulting in a NOI of $543,984 and a cap rate of 8.6 percent. The Home Savings first loan has an estimated annual debt service of $416,044, yielding cash flow of $127,939 and a cash-on-cash rate of 8.1%. reportedly, the property was purchased by the seller in 1985 at $5,200,000 (unconfirmed). Source/Confirmation: Home Savings of America, South Bay Equities [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 3 Project Name: Fox Creek Village Location: 196 W. Alvin Road, Salinas Assessor's Parcel No.: 261-631-010 Grantor: Sollecito Grantee: Fox Creek Partners Rec. Doc. #: Reel 3151 pg 1419 Sales Date: September 24, 1994 Sales Price: $9,350,000 No. of Units: 168 Condition/Quality: Good/Good Site Area: 7.84 acres (21.43 du/ac) Year Built: 1986 Value Indicators: Price/Unit: $55,655 Price/Room: $15,688 GIM: 6.8 Price/RSF: $66.31 Stabilized NOI Est.: $850,850 OAR: 9.1% Occupancy: 96.5% Financing: New loan through Bank of America Comments: Well-located in north Salinas near schools and shopping. Fox Creek consists of 76, 1br/1ba units measuring 708 sf, 24, 2br/1ba units @ 875 sf, and, 68, 2br/1ba units @ 986 sf 36 units have wood burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. Amenities include a pool, tennis court, and recreation room. Financing terms were not available, although there was a first made by Bank of America at market rate and terms. Assuming normal downpayment and market interest rate at time of sale, cash-on- <PAGE> APARTMENT SALE NUMBER 4 Project Name: Shangra La Apartments Location: 2875 David Avenue, Pacific Grove Assessor's Parcel No.: 007-643-023 Grantor: Brazos Partners, L.P Grantee: Dr. & Mrs. Dean Y. Ishii, et. al Rec. Doc. #: #73854 Sales Date: October 21, 1993 Sales Price: $1,610,000 No. of Units: 46 Condition/Quality: Average-Fair/Average Site Area: 1.49 acres (29 un/ac) Year Built: 1968 Value Indicators: Price/Unit: $37,441 Price/Room: $11,500 GIM: 5.5 Price/RSF: $65.23 Stabilized NOI Est.: $165,000 OAR: 10.25% Occupancy: 4.6% (2 units vacant @ time of sale) Financing: New First from Home Savings to (30%)cash down Comments: Average quality and location, two-story walk-up. REO sale, below market. Wood frame. Pool. 32, 1 bedroom units renting at $525 to $575 at time of sale; 11, 2 bedroom units renting at 625 to $675 at time of sale. Several offers made on property within quick two week marketing period. <PAGE> cash is estimated at 9.87%. No rent control. Vacancy at time of sale was reported at 3.5 percent. One covered parking space plus open parking. Garden-design walk-up. Source/Confirmation: various, including public records, inspection, etc. [PHOTO OMITTED] <PAGE> [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 5 Project Name: Hidden Creek Apartments Location: 200 Button Street, Santa Cruz Assessor's Parcel No.: 008-202-026 Grantee: Hidden Creek Rec. Doc. #: #5547479 Sales Date: July 24, 1994 Sales Price: $7,400,000 No. of Units: 146 Condition/Quality: Avg/Avg Site Area: 3.8 acres (37 du/ac) Year Built: 1973 Value Indicators: Price/Unit: $50,685 Price/Room: $16,818 GIM: 6.78 Price/RSF: $77.81 Stabilized NOI Est.: $710,400 OAR: 9.6% Occupancy: 98% (est) Financing: Not available Comments: Nine two-story buildings, garden style, complex of average quality. Located near Highway 1 in City of Santa Cruz. located in neighborhood of predominately small bungalow single family homes built from 1930 to 1970; a new zero-lot line SFR development is located directly across. There are 42 studio units with an average size of 550 square feet; 60, 1br/1ba units @ 650 sf, and, 44, 2br/1ba units of 750 sf. The rentable area is 95,100 square feet (avg unit = 651). There are no recreational amenities except for pool and common utility rooms. Landscaping is extensive in some areas. One-half of the units are subsidized housing units. At time of sale, "market" rents were $600 for studio, $750 for 1 bedrooms, and $850 for two bedrooms. The gross and <PAGE> net incomes are estimates based on reported actual income per MLS listing (#369018). According to assessor's office, some buildings had deferred maintenance, however, cost to repair are not known. Source/Confirmation: various, including public records, assessor, MLS [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 6 Project Name: North Bay Apartments Location: 41 Grandview Street, Santa Cruz Assessor's Parcel No.: 002-051-65 Grantor: EQR Northbay Chicago Inc. Grantee: Sequoia Equities Rec. Doc. #: #7770608 Sales Date: December 1995 Sales Price: $8,550,000 No. of Units: 115 Condition/Quality: Good/Good Site Area: 5.17 (22.2 du/ac) Year Built: 1989 Value Indicators: Price/Unit: $74,348 Price/Room: $19,344 GIM: 6.11 Price/RSF: $81.88 Stabilized NOI Est.: $867,825 OAR: 10.15% Occupancy: 100% (no vacancy at time of sale) Financing: $2,425,000 down, $6,300,000 first (see below) Comments: Good quality walk-up garden design built in 1989. Newest complex built in west Santa Cruz area. Located off Highway 1 (Mission Street) in area of single family and apartments/condos. Above average to good location. Buyer paid $300,000 in repairs and $175,000 commission, thus actual price was somewhat higher than reported above. The property was never exposed to the open market. The higher than normal capitalization rate is reflective of this and the extra cost to the buyer of repairs and <PAGE> commission. There are 18, 1br/1ba units; 69, 2br/2ba units; and, 28, 2br/2.5 ba units. Market rents are about 3-5 % higher than actual. Amenities include a swimming pool and carport parking. No other recreational facilities, although the complex is within a short drive to beaches and three miles to Santa Cruz Beach & Boardwalk. Overall good tenant appeal. Source/Confirmation: various, including public records, broker <PAGE> 09/30/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 1 4:10 pm Pine Grove ID 3.6.1 All Units <TABLE> <CAPTION> =Unit Profile== ==Scheduled vs Actual Rent=== ======================== =Moved== ==Current Lease=== Security= =YNAD= I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ==== ==== ==== ====== ===== ====== ===== ======================== ======== ======== ======== ========= ====== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 101 A.1 640 695.00 1.086 695.00 1.086 Williamson, Deborah 10/08/94 05/01/96 04/30/97 350.00 Y -- 102 A.1 640 695.00 1.086 695.00 1.086 House, Kirk 01/19/96 08/01/96 07/31/97 600.00 Y -- 103 A.1 640 695.00 1.086 695.00 1.086 Hamilton, Ellen 07/23/94 06/01/96 05/31/97 350.00 Y -- 104 A.1 640 695.00 1.086 695.00 1.086 Wright, Marion 01/11/88 06/01/96 05/31/97 375.00 Y -- 105 A.1 640 695.00 1.086 646.00 1.009 De Laney, Rite 05/19/94 05/01/96 04/30/97 149.00 Y -- 106 A.1 640 695.00 1.086 675.00 1.055 Mc Aleese, Lucille 12/27/89 06/01/96 05/31/97 375.00 Y -- 107 A.1 640 695.00 1.086 695.00 1.086 Paterson, Thomas G 06/10/95 07/01/96 07/31/97 350.00 Y -- 108 A.1 640 695.00 1.086 675.00 1.055 Coles, Kim 08/22/94 05/01/96 04/30/97 350.00 Y -- 109 A.1 640 695.00 1.086 685.00 1.070 L.Mirkarimi, Kay 07/22/95 01/30/96 01/29/97 600.00 Y -- 110 A.1 640 695.00 1.086 695.00 1.086 Sanghavi, Swadnesh 09/10/94 06/01/96 05/31/97 350.00 Y -- 111 A.1 640 695.00 1.086 646.00 1.009 Franck, Corenna L 05/16/95 06/01/96 05/31/97 150.00 Y -- 112 A.1 640 695.00 1.086 680.00 1.063 Marshall, Laurie N 03/08/93 05/01/96 04/30/97 375.00 Y -- 113 A.1 640 695.00 1.086 695.00 1.086 Kissinger, Florence 07/19/90 06/01/96 05/31/97 375.00 Y -- 114 A.1 640 695.00 1.086 646.00 1.009 Shoshana Rene 0 5/19/94 06/01/96 05/31/97 135.00 Y -- 115 A.1 640 695.00 1.086 695.00 1.086 Herrling, Martin 12/20/74 07/01/96 06/30/97 95.00 Y -- 116 A.1 640 695.00 1.086 695.00 1.086 Drakes, Peggy 03/30/96 03/30/96 02/27/97 600.00 Y -- 117 A.1 640 695.00 1.086 695.00 1.086 Wilson, Scott 11/27/95 09/01/96 08/31/97 635.00 Y -- 118 A.1 640 695.00 1.086 695.00 1.086 Carroll, Donna 06/21/96 06/21/96 06/30/97 600.00 Y -- 119 A.1 640 695.00 1.086 695.00 1.086 John, James 02/01/89 05/01/96 04/30/97 375.00 Y -- 120 A.1 640 695.00 1.086 675.00 1.055 Zabriskie, William 12/12/92 05/01/96 04/30/97 375.00 Y -- 121 A.1 640 695.00 1.086 646.00 1.009 Smith, Lillian 06/01/78 06/01/96 05/31/97 185.00 Y -- 122 A.1 640 695.00 1.086 646.00 1.009 Lyon, Patricia 01/25/94 02/01/96 01/31/97 189.00 Y -- 123 A.1 640 695.00 1.086 700.00 1.094 McKinney, Jeanette 01/27/96 01/27/96 01/26/97 700.00 Y OL 124 A.1 640 695.00 1.086 695.00 1.086 Jensen, Pierce 09/11/96 09/11/96 09/30/97 900.00 Y -- 125 B.1 800 795.00 0.994 795.00 0.994 David Meyer 06/01/95 09/01/96 08/31/97 650.00 Y -- 126 B.1 800 795.00 0.994 780.00 0.975 Mc Garth, Jean 05/26/90 07/01/96 06/30/97 375.00 Y -- 127 B.1 800 795.00 0.994 780.00 0.975 Corah, Laurence 09/01/91 06/01/96 05/31/97 450.00 Y -- 128 B.1 800 795.00 0.994 795.00 0.994 Jackson, James F 08/24/95 09/01/96 08/31/97 600.00 Y -- 129 B.1 800 795.00 0.994 780.00 0.975 Scales, Mary 03/01/94 06/01/96 05/31/97 450.00 Y -- 130 B.1 800 795.00 0.994 825.00 1.031 Modi, Varish 08/27/93 01/13/96 07/12/96 450.00 Y -- 131 B.1 800 795.00 0.994 850.00 1.063 Preciado, Debra 07/16/96 07/16/96 08/15/97 600.00 Y -- 132 B.1 800 795.00 0.994 775.00 0.969 Parks, Kendall 11/04/95 11/04/95 11/30/96 600.00 Y -- 201 A.2 640 715.00 1.117 695.00 1.086 Doyle, Sheila 10/06/89 07/01/96 06/30/97 375.00 Y -- 202 A.2 640 715.00 1.117 695.00 1.086 Vaughn, Fred E. 01/06/92 06/01/96 05/31/97 375.00 Y -- 203 A.2 640 715.00 1.117 695.00 1.086 Rogers, Esther G 01/19/93 07/01/96 06/30/97 375.00 Y -- 204 A.2 640 715.00 1.117 700.00 1.094 Dunagan, Kathleen 01/16/96 08/01/96 08/31/97 600.00 Y --- 205 A.2 640 715.00 1.117 646.00 1.009 Walsh, Elaine 12/07/79 01/01/96 12/31/96 190.00 Y -- 206 A.2 640 715.00 1.117 695.00 1.086 Fernandez, Maria 02/19/93 05/01/96 04/30/97 375.00 Y -- 207 A.2 640 715.00 1.117 715.00 1.117 Harris, Steve 08/01/95 08/01/96 04/30/97 600.00 Y -- 208 A.2 640 715.00 1.117 660.00 1.031 Kodani, Kuniko 12/13/82 06/01/96 05/31/97 205.00 Y -- 209 A.2 640 715.00 1.117 715.00 1.117 Madden, Michael 05/11/96 05/11/96 05/10/97 600.00 Y -- 210 A.2 640 715.00 1.117 715.00 1.117 Payne, Kenneth 07/11/96 07/11/96 07/31/97 600.00 Y -- 211 A.2 640 715.00 1.117 715.00 1.117 Pierce, Stephen 08/14/96 08/14/96 08/31/97 600.00 Y -- 212 A.2 640 715.00 1.117 646.00 1.009 Vahdat, Farokh 03/01/94 03/01/96 02/28/97 150.00 Y -- 213 A.2 640 715.00 1.117 740.00 1.156 Brischke, Vern 11/15/95 11/15/95 08/14/96 600.00 Y -- 214 A.2 640 715.00 1.117 685.00 1.070 Haller, Lynne 10/28/95 10/28/95 10/27/96 600.00 Y -- 215 A.2 640 715.00 1.117 715.00 1.117 Geer, Grace 11/16/95 09/01/96 08/31/97 600.00 Y -- 216 A.2 640 715.00 1.117 695.00 1.086 Brinton, Avard 05/01/94 05/01/96 04/30/97 535.00 Y -- 217 A.2 640 715.00 1.117 710.00 1.109 Helm, Robert 03/23/96 03/23/96 02/22/97 600.00 Y -- </TABLE> <PAGE> 09/30/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 2 4:10 pm Pine Grove ID 3.6.1 All Units <TABLE> <CAPTION> =Unit Profile== ==Scheduled vs Actual Rent=== ======================== =Moved== ==Current Lease=== Security= =YNAD= I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ==== ==== ==== ====== ===== ====== ===== ======================== ======== ======== ======== ========= ====== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 218 A.2 640 715.00 1.117 710.00 1.109 Zulli, David 03/14/96 03/14/96 09/13/96 900.00 Y -- 219 A.2 640 715.00 1.117 715.00 1.117 Gross, Rebecca 08/31/96 08/31/96 08/31/97 700.00 Y -- 220 A.2 640 715.00 1.117 715.00 1.117 Gimblin, Carolyn J 09/11/95 07/01/96 06/30/97 800.00 Y -- 221 A.2 640 715.00 1.117 685.00 1.070 Krauthamer, Lila A. 03/15/95 11/01/95 10/31/96 350.00 Y -- 222 A.2 640 715.00 1.117 646.00 1.009 Walter, Alberta 07/10/77 01/01/96 12/31/96 185.00 Y -- 223 A.2 640 715.00 1.117 646.00 1.009 Kali, Jala B 01/09/95 01/01/96 12/31/96 191.00 Y -- 224 A.2 640 715.00 1.117 646.00 1.009 Montie, Alice 05/05/92 05/01/96 04/30/97 150.00 Y -- 225 A.2 640 715.00 1.117 750.00 1.172 Barrett, Kathy 08/17/96 08/17/96 08/31/97 600.00 Y -- 226 A.2 640 715.00 1.117 750.00 1.172 Truesdale, Lisa 06/24/96 06/24/96 06/30/97 900.00 Y -- 227 B.2 800 825.00 1.031 795.00 0.994 Hormozi, Gamar 04/15/89 05/01/96 04/30/97 375.00 Y -- 228 B.2 800 825.00 1.031 780.00 0.975 Ruban, Dimitri 07/14/93 07/01/96 06/30/97 375.00 Y -- 229 B.2 800 825.00 1.031 825.00 1.031 Vandal, Steve & She 06/25/96 06/25/96 06/30/97 900.00 y -- 230 B.2 800 825.00 1.031 750.00 0.938 Pitts, Christina 05/11/94 05/01/96 04/30/97 135.00 Y -- 231 B.2 800 825.00 1.031 750.00 0.938 Grooms, Jan "E" 04/13/96 04/13/96 03/13/97 300.00 Y -- 232 B.2 800 825.00 1.031 795.00 0.994 Reese, Joyce 06/21/96 06/21/96 06/30/97 600.00 Y -- 233 B.2 800 825.00 1.031 800.00 1.000 Hart, Joy 05/01/94 05/01/96 04/30/97 450.00 Y -- 234 B.2 800 825.00 1.031 780.00 0.975 Sculley, Dorothy 11/01/91 07/01/96 06/30/97 450.00 Y -- 301 A.3 640 725.00 1.133 750.00 1.172 Kerps, Dieter 09/27/95 09/27/95 03/26/96 600.00 Y -- 302 A.3 640 725.00 1.133 705.00 1.102 Riddell Coralyn J. 06/01/94 06/01/96 04/30/97 350.00 Y -- 303 A.3 640 725.00 1.133 740.00 1.156 Bueno, Adalberto 09/10/94 11/01/95 04/30/96 350.00 Y -- 304 A.3 640 725.00 1.133 750.00 1.172 Hanson, Scott F. 07/01/94 05/01/95 10/31/95 350.00 Y -- 305 A.3 640 725.00 1.133 750.00 1.172 Lynch, Ray And Bee 07/11/96 07/11/96 08/10/97 600.00 Y -- 306 A.3 640 725.00 1.133 695.00 1.086 Felton, Merlyn 10/10/93 07/01/96 06/30/97 375.00 Y -- 307 A.3 640 725.00 1.133 740.00 1.156 Bunch, Maureen 06/01/94 08/01/96 07/31/97 350.00 Y -- 308 A.3 640 725.00 1.133 750.00 1.172 Alexander, Larry & 08/21/96 08/21/96 08/31/97 600.00 Y -- 309 A.3 640 725.00 1.133 725.00 1.133 Amaral, Mark 09/01/94 03/28/96 02/28/97 350.00 Y -- 310 A.3 640 725.00 1.133 735.00 1.148 Hearn, Bernice 01/22/96 08/01/96 07/31/97 600.00 Y -- 311 A.3 640 725.00 1.133 725.00 1.133 Olvera, Jack 07/13/96 07/13/96 07/31/97 600.00 Y -- 312 A.3 640 725.00 1.133 750.00 1.172 Arredondo, Aaron L. 08/01/94 12/01/95 08/31/96 450.00 Y OL 313 A.3 640 725.00 1.133 715.00 1.117 Fischer, John W. 11/01/89 06/01/96 05/31/97 375.00 Y -- 314 A.3 640 725.00 1.133 750.00 1.172 Houx, Dave 07/27/96 07/27/96 07/30/97 600.00 Y -- 315 A.3 640 725.00 1.133 750.00 1.172 Williams, Ben 08/16/96 08/16/96 08/31/97 600.00 Y -- 316 A.3 640 725.00 1.133 695.00 1.086 Raney-Renk, Joshuah 11/01/95 11/01/95 10/31/96 800.00 Y -- 317 A.3 640 725.00 1.133 725.00 1.133 Shahidi, MaryAnn 04/25/95 08/01/96 07/31/97 350.00 Y -- 318 A.3 640 725.00 1.133 695.00 1.086 Smith, Janice 09/01/78 08/01/96 07/31/97 220.00 Y -- 319 A.3 640 725.00 1.133 750.00 1.172 Bell, Peter & Karen 05/15/96 05/15/96 05/14/97 800.00 Y -- 320 A.3 640 725.00 1.133 680.00 1.063 Johnson, Jeanne 06/22/83 06/01/96 05/31/97 235.00 Y -- 321 A.3 640 725.00 1.133 646.00 1.009 Preddy, Betty 04/29/94 05/01/96 04/30/97 205.00 Y -- 322 A.3 640 725.00 1.133 750.00 1.172 Chelsea, David 06/19/96 06/19/96 06/30/97 600.00 Y -- 323 A.3 640 725.00 1.133 750.00 1.172 Pieken, Rebecca 05/01/96 05/01/96 04/30/97 900.00 Y -- 324 A.3 640 725.00 1.133 750.00 1.172 Goodwin, Barbara 11/08/94 12/01/94 05/31/95 350.00 Y -- 325 A.3 640 725.00 1.133 725.00 1.133 Berniger-Wick, Alic 09/27/88 05/01/96 04/30/97 375.00 Y -- 326 A.3 640 725.00 1.133 715.00 1.117 Neustadt, Judith F. 05/09/92 06/01/96 05/31/97 375.00 Y -- 327 B.3 800 850.00 1.063 800.00 1.000 Wylie, Coral 05/11/87 05/01/96 04/30/97 410.00 Y -- 328 B.3 800 850.00 1.063 850.00 1.063 Meyers, Kathryn R 09/15/95 06/01/96 04/30/97 600.00 Y -- 329 B.3 800 850.00 1.063 815.00 1.019 Koster, Scott 08/16/94 09/01/96 05/31/97 600.00 Y -- 330 B.3 800 850.00 1.063 800.00 1.000 Seigrist, Jeanne 04/01/94 05/01/96 04/30/97 450.00 Y -- 331 B.3 800 850.00 1.063 850.00 1.063 Waggoner, Nora 12/24/95 12/24/95 09/23/96 600.00 Y -- 332 B.3 800 850.00 1.063 800.00 1.000 Rudolph, Don 04/26/91 05/01/95 04/30/97 450.00 Y -- </TABLE> <PAGE> 09/30/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 3 4:10 pm Pine Grove ID 3.6.1 All Units <TABLE> <CAPTION> =Unit Profile== ==Scheduled vs Actual Rent=== ======================== =Moved== ==Current Lease=== Security= =YNAD= I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ==== ==== ==== ====== ===== ====== ===== ======================== ======== ======== ======== ========= ====== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 333 B.3 800 850.00 1.063 850.00 1.063 Selman, Nicola 11/20/92 11/01/95 07/31/96 450.00 Y -- 334 B.3 800 850.00 1.063 785.00 0.981 Carlsen, Charles 03/09/89 05/01/96 04/30/97 375.00 Y -- ==== ==== ===== ======== ===== ======== ===== ======================== ======== ======== ======== ======== ==== TOTAL: 100 67840 73880.00 1.089 72571.00 1.070 67840 SF Occupied ==== ==== ===== ======== ===== ======== ===== ======================== ======== ======== ======== ======== ==== </TABLE> <PAGE> 09/30/96 LINCOLN RESIDENTIAL MGMT. SERVICES Page 4 4:29 pm Pine Grove ID 3.6.1 All Units <TABLE> <CAPTION> PHYSICAL OCCUPANCY: Occupied Pct Vacant Pct Total OCCUPANCY PERCENT: Excl. Off-Line Incl. Off-Line =================== ======== === ====== === ===== ================== ============== ============== <S> <C> <C> <C> <C> <C> <C> <C> <C> Square Footage: 67,840 100.0% 0 0.0% 67,840 Incl. Vac. Leased.: 100.0% 100.0% Unit Count.: 100 100.0% 0 0.0% 100 Excl. Vac. Leased.: 100.0% 100.0% <CAPTION> EXPOSURE TO VACANCY: Number Pct MOVES/TRANSFERS: MAKE-READY STATUS.: Number Pct ========================== ====== === ================ =================== ====== === <S> <C> <C> <C> <C> <C> <C> Currently Vacant Units.: 0 0.0% Oct In.: 0 Total Vacant Units.: 0 100.0% Less Vacant Leased.: 0 0.0% Oct Out.: 0 Ready To Rent (Y).: 0 0.0% Less Occupied Pre-Leased.: -2 2.0% Need Make-Ready (N).: 0 0.0% Plus Occupied On Notice.: 2 2.0% Off-Line Down (D).: 0 0.0% Occupied But Skipped.: 0 0.0% Off-Line Admin (A).: 0 0.0% ------ --- Net Exposure To Vacancy.: 0 0.0% <CAPTION> =============================================================================================== RENTAL RATES: Occupied /SqFt Pct Vacant /SqFt Pct Total /SqFt Pct ================ ========= ===== ===== ====== ===== === ========= ===== ====== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Scheduled Rent.: 73,880.00 1.089 100.0% 0.00 0.000 0.0% 73,880.00 1.089 100.0% Actual Status.: 72,571.00 1.070 98.2% 0.00 0.000 0.0% 72,571.00 1.070 98.2% Loss To Lease.: 1,309.00 1.019 1.8% STATUS OF UNIT TYPES, SUBTOTALED BY FIRST 8 CHARACTERS OF UNIT TYPE: <CAPTION> ==================================================================================================================================== Unit Total # % Avg. Occup. Total Sch. $ Avg. $ Act. $ Rent Sched. Loss to Made Not OffLn OffLn Type Units Occ. Occ. SqFt SqFt SqFt /Unit /SqFt /Unit /SqFt Rent Lease Rdy. Rdy. Adm. Down ==== ===== === ==== ==== ===== ===== ====== ===== ====== ===== ======== ======= ==== ==== ===== ===== <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> A.1 24 24 100% 640 15360 15360 695.00 1.086 681.46 1.065 16680.00 325.00 0 0 0 0 A.2 26 26 100% 640 16640 16640 715.00 1.117 696.15 1.089 18590.00 490.00 0 0 0 0 A.3 26 26 100% 640 16640 16640 725.00 1.133 727.35 1.136 18850.00 -61.00 0 0 0 0 B.1 8 8 100% 800 6400 6400 795.00 0.994 797.50 0.997 6360.00 -20.00 0 0 0 0 B.2 8 8 100% 800 6400 6400 825.00 1.031 784.38 0.980 6600.00 325.00 0 0 0 0 B.3 8 8 100% 800 6400 6400 850.00 1.063 818.75 1.023 6800.00 250.00 0 0 0 0 ==== ===== === ==== ==== ===== ===== ====== ===== ====== ===== ======== ======= ==== ==== ===== ===== 6 100 100 100% 678 67840 67840 738.80 1.089 725.71 1.070 73880.00 1309.00 0 0 0 0 ==================================================================================================================================== </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE =========== ====== ========== ============ ============ ======== <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 66,778.00 200,115.09 802,660.62 (602,545.53) RENTAL INCOME VARIANCE (1,693.95) (4,013.91) (59,106.38) 55,092.47 --------- --------- ---------- ---------- --------- NET CURRENT RENT 73,034.70 65,079.57 783,817.09 743,549.76 40,267.33 OTHER RENTAL INCOME SECURITY DEPOSITS 2,963.00 350.00 18,075.00 16,888.00 1,187.00 FORFEITED SECURITY DEPOSITS 131.00 941.85 941.85 LAUNDRY INCOME 555.60 7,175.20 7,876.50 (701.30) CHARGES TO TENANTS 105.00 50.00 1,486.73 2,965.00 (1,478.27) MISCELLANEOUS 116.84 734.51 151.84 582.67 DAMAGE 101.45 (101.45) LATE CHARGES 75.00 1,055.00 180.00 875.00 NSF FEES 20.00 6.00 76.00 68.00 8.00 CREDIT CHECK 125.00 20.00 1,078.25 480.00 598.25 ========= ========= ========== ========== ========= TOTAL OTHER RENT INCOME 3,974.60 542.84 30,622.54 28,710.79 1,911.75 TOTAL RENTAL INCOME 77,009.30 65,622.41 814,439.63 772,260.55 42,179.08 ========= ========= ========== ========== ========= OTHER INCOME REFUNDED DEPOSITS (1,150.00) (944.69) (11,296.00) (15,839.00) 4,543.00 INTEREST INCOME 103.51 413.44 413.44 OTHER INCOME 3,600.00 3,600.00 ========= ========= ========== ========== ========= TOTAL OTHER INCOME (1,046.49) (944.69) (7,282.56) (15,839.00) 8,556.44 TOTAL INCOME 75,962.81 64,677.72 807,157.07 756,421.55 50,735.52 ========= ========= ========== ========== ========= TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 459.09 2,000.00 2,699.09 2,000.00 699.09 REPAIRS/MAINT. PAYROLL 3,461.12 1,935.38 22,589.54 20,425.33 2,164.21 MANAGERS SALARIES 2,756.85 3,000.00 21,008.29 17,075.04 3,933.25 OFFICE SALARIES 521.79 1,777.34 660.00 1,117.34 DECORATING PAYROLL 63.50 1,118.77 (1,118.77) STATE COMP. INS.=PAYROLL 426.11 674.24 3,374.65 4,106.02 (731.37) PAYROLL=HOSPITAL INS. 822.20 306.90 5,623.22 600.30 5,022.92 FICA = PAYROLL TAX 439.22 387.40 3,307.37 3,157.90 149.47 FUTA = PAYROLL TAX 46.23 348.54 154.31 194.23 SDI TAX=PAYROLL=UNEMPLOY 57.79 912.78 1,022.22 (109.44) ========= ========= ========== ========== ========= PAYROLL EXPENSES 8,990.40 8,367.42 61,640.82 50,319.89 11,320.93 </TABLE> ADMINISTRATIVE EXPENSES <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE =========== ====== ========== ============ ============ ======== <S> <C> <C> <C> <C> <C> PROMOTIONS 623.85 623.85 ADVERTISING 706.82 382.76 8,223.27 3,395.61 4,827.66 SIGNS, FLAGS, BANNERS 42.60 42.60 OFFICE SUPPLIES 762.29 63.97 2,412.06 261.20 2,150.86 FURNITURE RENTAL 315.94 358.54 358.54 LEGAL EXPENSES 373.75 955.50 742.52 1,056.20 (313.68) MISCELLANEOUS 125.60 466.19 339.94 126.25 CREDIT CHECK EXPENSE 60.80 433.05 215.40 217.65 BANK CHARGES 4.00 22.00 22.00 PETTY CASH REIMB. 355.55 372.91 1,929.75 (1,556.84) POSTAGE 133.63 517.98 517.98 DUES & SUBCRIPTIONS 341.19 341.19 LINCOLN FEE 2,378.33 20,594.93 20,594.93 NSF CHECK (767.74) 19.26 (19.26) EMPLOYEE TRAINING 745.74 745.74 OUSTIDE STATIONARY MISC 303.29 2,107.10 2,107.10 ========= ========= ========== ========== ========= ADMINISTRATIVE EXPENSE 5,164.45 990.04 38,003.93 7,217.36 30,786.57 CONTRACT SERVICES SEC SUP/EXP=FIRE PROTECT 276.04 944.58 439.30 505.28 EXTERMINATING CONTRACT 220.00 2,881.24 2,881.24 CABLE T.V. 825.71 1,545.62 8,503.81 9,337.53 (833.72) GARDENING CONTRACT 695.00 1,318.00 7,195.00 7,843.00 (648.00) ELVATOR MAINT./CONT. 156.89 2,142.50 1,882.68 259.82 ========= ========= ========== ========== ========= CONTRACT SERVICES 2,016.75 3,020.51 21,667.13 19,502.51 2,164.62 UTILITY SERVICES TELEPHONE EXPENSE 282.87 80.45 2,542.87 1,129.23 1,413.64 TRASH REMOVAL 1,017.65 681.10 8,847.85 7,298.90 1,548.95 PGE = HOUSE 1,086.63 2,647.36 19,550.46 27,277.20 (7,726.74) GAS = HOUSE 2,074.66 12,521.36 12,521.36 PGE APARTMENT METERS 0.12 156.10 915.90 680.35 235.55 WATER 2,951.30 21.91 20,362.60 15,760.79 4,601.81 SEWER CHARGES 4,863.90 2,790.00 16,953.90 16,740.00 213.90 ========= ========= ========== ========== ========= UTILITY SERVICES 12,277.13 6,376.92 81,694.94 68,886.47 12,808.47 MAINTENANCE EXPENSES CARPET REPAIRS/MAINT. 120.00 290.00 1,482.50 1,796.67 (314.17) CARPET REPLACEMENT (592.99) 534.24 24,402.59 6,906.71 17,495.88 GROUNDS SUPPLY/REPLACEMENT 1,529.98 262.71 1,267.27 POOL SUPPLY/REPLACEMENT 48.16 533.89 8,942.87 1,885.03 7,057.84 DECORATING SUPPLIES 133.34 174.00 6,344.23 1,874.24 4,469.99 CLEANING SUPPLIES/SERV. 145.00 160.00 2,899.86 3,367.50 (467.64) EXTERMINATING SUPPLIES 220.00 75.00 742.00 (667.00) </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE =========== ====== ========== ============ ============ ======== <S> <C> <C> <C> <C> <C> BLDG MAINT SUPPLIES (407.54) (2,089.58) 16,589.55 17,759.39 (1,169.84) PLUMBING MAINTENANCE 519.10 4,760.79 53.33 4,707.46 APPLIANCE REPLACEMENT 803.84 7,563.51 899.38 6,664.13 BLDG MAINT SVC/CONTRACT 457.77 (30,030.96) 4,345.83 1,762.79 2,583.04 ELECTRIC MAINTENANCE 86.64 875.20 664.50 210.70 MISC. MAINT. EXPENSES 112.11 112.11 ========== ========== ========== ========== ========= MAINTENANCE EXPENSES 1,313.32 (30,208.41) 79,924.02 37,974.25 41,949.77 CONTROLLABLE EXPENSES 29,762.05 (11,453.52) 282,930.84 183,900.48 99,030.36 ========== ========== ========== ========== ========= TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE 2,193.07 31,925.55 4,386.14 31,925.55 (27,539.41) PROPERTY TAXES 9,585.57 9,780.87 19,171.14 (9,390.27) LICENSES & PERMITS 1,256.03 1,278.00 (21.97) ========== ========== ========== ========== ========= FIXED EXPENSES 2,193.07 41,511.12 15,423.04 52,374.69 (36,951.65) NET OPERATING INCOME (NOI) 44,007.69 34,620.12 508,803.19 520,146.38 (11,343.19) ========== ========== ========== ========== ========= DEBT SERVICE INTEREST ON 1ST MORTGAGE 35,014.37 29,948.33 287,317.11 359,379.96 (72,062.85) PRINCIPAL ON 1ST MORTG. (70,127.44) ========== ========== ========== ========== ========= DEBT SERVICE (35,113.07) 29,948.33 287,317.11 359,379.96 (72,062.85) OPERATING CASH FLOW 79,120.76 4,671.79 221,486.08 160,766.42 60,719.66 ========== ========== ========== ========== ========= NON OPERATING EXPENSES DEPRECIATION EXPENSE 131,112.00 130,896.00 131,112.00 130,896.00 216.00 DEFERRED INT. AMORTIZ. 4,083.38 4,083.38 4,083.38 REFURBISHMENT & DEFERRALS 17,277.62 72,630.99 151,260.40 72,630.99 78,629.41 ========== ========== ========== ========== ========= NON OPERATING EXPENSES 152,473.00 203,526.99 286,455.78 203,526.99 82,928.79 PROFIT/LOSS (73,352.24) (198,855.20) (64,969.70) (42,760.57) (22,209.13) ========== ========== ========== ========== ========= </TABLE> <PAGE> PINE GROVE INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE =========== ====== ========== ============ ============ ======== <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 200,115.09 (200,115.09) RENTAL INCOME VARIANCE (4,013.91) 4,013.91 ========= ========= ========== ========== ========= NET CURRENT RENT 70,198.94 66,209.76 541,547.57 517,884.50 23,663.07 OTHER RENTAL INCOME SECURITY DEPOSITS 3,450.00 3,000.00 17,250.00 8,162.00 9,088.00 FORFEITED SECURITY DEPOSITS 536.84 1,772.00 110.85 1,661.15 LAUNDRY INCOME 613.05 641.25 5,494.80 4,511.20 983.60 CHARGES TO TENANTS 495.00 50.00 1,230.00 1,115.00 115.00 MISCELLANEOUS 734.51 (734.51) DAMAGE 54.73 54.73 LATE CHARGES 30.00 165.00 360.00 740.00 (380.00) NSF FEES 10.00 160.00 46.00 114.00 CREDIT CHECK 175.00 300.00 553.25 (253.25) TRANSFER CHARGE 54.28 54.28 ========= ========= ========== ========== ========= TOTAL OTHER RENT INCOME 5,124.89 4,041.25 26,675.81 15,972.81 10,703.00 TOTAL RENTAL INCOME 75,323.83 70,251.01 568,223.38 533,857.31 34,366.07 ========= ========= ========== ========== ========= OTHER INCOME REFUNDED DEPOSITS (3,850.00) (900.00) (12,094.00) (6,650.00) (5,444.00) INTEREST INCOME 66.17 36.67 581.06 189.71 391.35 OTHER INCOME 3,600.00 (3,600.00) ========= ========= ========== ========== ========= TOTAL OTHER INCOME (3,783.83) (863.33) (11,512.94) (2,860.29) (8,652.65) TOTAL INCOME 71,540.00 69,387.68 556,710.44 530,997.02 25,713.42 ========= ========= ========== ========== ========= TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 840.00 245.00 2,673.73 2,205.00 468.73 REPAIRS/MAINT. PAYROLL 2,146.52 1,467.42 16,629.85 11,618.11 5,011.74 MANAGERS SALARIES 1,812.28 15,483.11 16,298.13 (815.02) OFFICE SALARIES 90.00 79.47 3,139.14 503.52 2,635.62 STATE COMP. INS.=PAYROLL 295.87 126.89 2,293.48 2,270.90 22.58 PAYROLL=HOSPITAL INS. 550.62 253.77 4,268.41 3,445.70 822.71 FICA = PAYROLL TAX 312.30 133.93 2,420.90 2,152.85 268.05 FUTA = PAYROLL TAX 32.87 14.10 254.84 227.01 27.83 SDI TAX=PAYROLL=UNEMPLOY 41.09 17.62 318.55 760.87 (442.32) ========= ========= ========== ========== ========= PAYROLL EXPENSES 6,121.55 2,338.20 47,482.01 39,482.09 7,999.92 </TABLE> ADMINISTRATIVE EXPENSES <PAGE> PINE GROVE INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE =========== ====== ========== ============ ============ ======== <S> <C> <C> <C> <C> <C> PROMOTIONS 517.37 71.70 623.85 (552.15) ADVERTISING 954.95 596.50 5,474.59 3,190.52 2,284.07 BROCHURES 38.50 38.50 OFFICE SUPPLIES 231.68 323.95 3,200.36 982.11 2,218.25 FURNITURE RENTAL 112.97 988.96 988.96 COMPUTER EXPENSES (212.95) LEGAL EXPENSES 653.57 368.77 284.80 MISCELLANEOUS 67.20 426.50 1,122.84 991.32 131.52 CREDIT CHECK EXPENSE 132.80 51.00 343.00 182.00 161.00 BANK CHARGES (32.00) 79.00 79.00 PETTY CASH REIMB. 372.91 (372.91) POSTAGE 67.65 37.19 567.62 221.50 346.12 DUES & SUBCRIPTIONS (17.27) 484.24 (501.51) LINCOLN FEE 2,501.00 2,344.92 19,212.54 11,359.23 7,853.31 EMPLOYEE TRAINING 200.00 245.74 (45.74) OUSTIDE STATIONARY MISC 57.73 234.04 1,677.17 (1,443.13) ========= ========= ========== ========== ========= ADMINISTRATIVE EXPENSE 4,068.25 4,110.21 32,169.45 20,699.36 11,470.09 CONTRACT SERVICES SEC SUP/EXP=FIRE PROTECT (110.42) 329.98 392.50 (62.52) EXTERMINATING CONTRACT 223.74 1,543.74 1,561.24 (17.50) CABLE T.V. 772.67 772.81 6,182.56 5,409.67 772.89 GARDENING CONTRACT 896.14 650.00 6,901.72 4,550.00 2,351.72 ELVATOR MAINT./CONT. 286.32 1,830.81 313.78 1,517.03 ========= ========= ========== ========== ========= CONTRACT SERVICES 2,068.45 1,422.81 16,788.81 12,227.19 4,561.62 UTILITY SERVICES TELEPHONE EXPENSE 181.62 36.32 1,568.80 635.51 933.29 TRASH REMOVAL 1,127.75 709.45 8,945.55 5,732.50 3,213.05 PGE = HOUSE 1,578.50 7,841.99 14,534.16 (6,692.17) GAS = HOUSE 2,968.95 107.87 12,324.53 2,908.01 9,416.52 PGE APARTMENT METERS 98.97 (6.02) 1,698.36 564.05 1,134.31 WATER 3,754.00 11,341.78 8,530.46 2,811.32 SEWER CHARGES 2,790.00 10,980.79 8,370.00 2,610.79 ========= ========= ========== ========== ========= UTILITY SERVICES 12,499.79 847.62 54,701.80 41,274.69 13,427.11 MAINTENANCE EXPENSES CARPET REPAIRS/MAINT. 375.00 (189.90) 1,610.00 652.50 957.50 CARPET REPLACEMENT 1,920.41 6,232.98 15,960.32 15,122.57 837.75 GROUNDS SUPPLY/REPLACEMENT 16.09 1,529.98 (1,513.89) POOL SUPPLY/REPLACEMENT 330.91 3,594.73 1,980.14 1,614.59 DECORATING SUPPLIES 229.41 419.72 4,683.57 2,906.99 1,776.58 CLEANING SUPPLIES/SERV. 1,024.92 475.00 2,960.53 1,662.16 1,298.37 EXTERMINATING SUPPLIES 75.00 (75.00) </TABLE> <PAGE> PINE GROVE INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE =========== ====== ========== ============ ============ ======== <S> <C> <C> <C> <C> <C> BLDG MAINT SUPPLIES 1,661.27 (1,656.86) 7,194.55 12,423.95 (5,229.40) PLUMBING MAINTENANCE 457.38 397.09 7,944.72 2,712.21 5,232.51 APPLIANCE REPLACEMENT 445.06 7,804.40 6,157.11 1,647.29 BLDG MAINT SVC/CONTRACT (226.94) 733.75 3,007.77 (2,274.02) ELECTRIC MAINTENANCE 1.50 433.43 1,809.36 (1,375.93) MISC. MAINT. EXPENSES 112.11 (112.11) --------- --------- ---------- ---------- --------- MAINTENANCE EXPENSES 6,445.86 5,451.09 52,936.09 50,151.85 2,784.24 CONTROLLABLE EXPENSES 31,203.90 14,169.93 204,078.16 163,835.18 40,242.98 --------- --------- ---------- ---------- --------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE (172.65) (172.65) PROPERTY TAXES 9,780.87 9,780.87 LICENSES & PERMITS 830.00 1,256.03 (426.03) --------- --------- ---------- ---------- --------- FIXED EXPENSES 10,438.22 1,256.03 9,182.19 NET OPERATING INCOME (NOI) 40,336.10 55,217.75 342,194.06 365,905.81 (23,711.75) ========= ========= ========== ========== ========= DEBT SERVICE INTEREST ON 1ST MORTGAGE 21,070.21 22,780.12 171,975.63 194,700.09 (22,724.46) PRINCIPAL ON 1ST MORTG. 11,667.00 11,667.00 93,336.00 23,334.00 70,002.00 --------- --------- ---------- ---------- --------- DEBT SERVICE 32,737.21 34,447.12 265,311.63 218,034.09 47,277.54 OPERATING CASE FLOW 7,598.89 20,770.63 76,882.43 147,871.72 (70,989.29) ========= ========= ========== ========== ========= NON OPERATING EXPENSES REFURBISHMENT & DEFERRALS 225.00 48,225.27 60,873.98 71,601.66 (10,727.68) --------- --------- ---------- ---------- --------- NON OPERATING EXPENSES 225.00 48,225.27 60,873.98 71,601.66 (10,727.68) PROFIT/LOSS 7,373.89 (27,454.64) 16,008.45 76,270.06 (60,261.61) ========= ========= ========== ========== ========= </TABLE> <PAGE> PINE GROVE FLOOR PLAN [GRAPHIC OMITTED] <PAGE> PINE GROVE FLOOR PLAN [GRAPHIC OMITTED] <PAGE> - -------------------------------------------------------------------------------- QUALIFICATIONS OF ROBERT SAIA, MAI, SRA Calif. OREA Certificate #AG003191 - -------------------------------------------------------------------------------- EXPERIENCE Independent real estate appraiser since 1981. EDUCATION Associate Arts Degree from West Valley College. Major in Real Estate. Bachelor of Arts Degree in Economics from San Jose State University. Graduated with distinction. Graduate Studies in the Master of Business Administration Program at Golden Gate University, San Francisco. Advanced courses in appraisal taken at California State University, Hayward, University of San Francisco and San Jose State University, through the Appraisal Institute. MEMBERSHIPS Former Member of the Society of Real Estate Appraiser (SRPA designation) Current Member of the Appraisal Institute, MAI #8841 Current Member of Admissions Committee Appraisal Institute Board of Directors, South Bay Chapter Appraisal Institute 1993-95. National admissions board member. STATE CERTIFICATES AND LICENSES State of California "Certified-General" Appraiser Certificate No. AG003191 State of California Real Estate License (non-active) State of Nevada "Certified-General" Appraiser Certificate No. 00621 APPRAISAL ASSIGNMENTS Some of the types of properties appraised in the past are outlined below: Commercial: Retail stores, office buildings, service stations, vacant land, Residential: Single family, multi-family, townhouse/condominium, vacant land, subdivision, apartments and mobile home parks. Industrial: Vacant land, warehouses, research and development facilities, industrial condominiums and manufacturing facilities, mini-storage warehouses, food processing facilities, truck terminals. <PAGE> Special Use: Airport, carwash, landfill, right-of-way, easement valuation, commercial nursery, and golf courses. Lodging Facilities: Motels, hotels, inns, SRO, Recreational vehicle parks CLIENTS A brief partial list of past clients with whom Mr. Saia has worked with includes: American Savings Bank County of Santa Clara Comerica Bank Bank of America NT&SA First National Bank of Central California Bank of Salinas Home Savings of America Metropolitan Securities & Trust City of Monterey City of San Jose City of Palo Alto Imperial Thrift & Mortgage NationsBank Pacific Western Bank Bay View Federal Bank Wells Fargo Bank Phoenix Home Life ARTHUR ANDERSEN LLP Appraisal & Valuation Services BIRCH CREEK APARTMENTS MOUNTAIN VIEW, CALIFORNIA Prepared For American Apartment Communities December 1, 1996 Prepared By ARTHUR ANDERSEN LLP Valuation Services Group <PAGE> [Letterhead of Arthur Andersen] February 1, 1997 Mr. Kevin Kaz American Apartment Communities 615 Front Street San Francisco, CA 94111 Re: Birch Creek Apartments Mountain View, California Dear Mr. Kaz: As you requested, we have inspected and appraised the above referenced property. A description of the property appraised, together with explanations of the appraisal procedures used, are presented in the body of the report. The purpose of this appraisal is to estimate the market value of the leasehold interest in the real estate, subject to the definition of market value, the general assumptions and limiting conditions, and the certification as set forth in this appraisal report. The intended use of the appraisal is for financing purposes for American Apartment Communities and may not be disclosed to a third party. This appraisal has been prepared in accordance with the Code of Professional Ethics and Standards of Professional Practice set forth by the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP) adopted by the Appraisal Foundation. This report may not be included or referred to in any Securities and Exchange Commission filing or other public document. Based upon the data and conclusions presented in the attached report, it is our opinion that the leasehold market value of the subject, as of December 1, 1996, was: -- TEN MILLION TWO HUNDRED THOUSAND DOLLARS -- ($10,200,000) We appreciate the opportunity to work with you on this assignment. Please call Brian E. Ginsberg at (212) 708-8197 if you have any questions or if we can be of further assistance. Very truly yours, /s/ Arthur Andersen LLP <PAGE> TABLE OF CONTENTS Page LETTER OF TRANSMITTAL ................................................... i SUMMARY OF CRITICAL FACTS AND CONCLUSIONS ............................... iii INTRODUCTION ............................................................ v SCOPE OF THE APPRAISAL .................................................. vi ASSUMPTIONS AND LIMITING CONDITIONS ..................................... vii CERTIFICATION ........................................................... ix SECTION A: SUBJECT PROPERTY IDENTIFICATION Subject Property Identification and Ownership History .............. 1 Purpose and Function of the Valuation .............................. 2 Property Rights Appraised .......................................... 3 Effective Date of the Valuation .................................... 3 SECTION B: ANALYSIS OF THE SUBJECT PROPERTY Description and Analysis of the Subject Property ................... 4 Improvements ....................................................... 6 Real Estate Taxes .................................................. 9 Zoning ............................................................. 11 SECTION C: MARKET CONDITIONS General Conditions ................................................. 13 Neighborhood Analysis .............................................. 24 Apartment Market Overview .......................................... 27 Highest and Best Use Analysis ...................................... 33 SECTION D: THE APPRAISAL PROCESS ........................................ 38 SECTION E: THE SALES COMPARISON APPROACH Sales Comparison Approach .......................................... 40 NOI Per Unit Analysis .............................................. 51 Conclusion by the Sales Comparison Approach ........................ 52 SECTION F: INCOME APPROACH Income Capitalization Approach ..................................... 53 Property Income Analysis ........................................... 54 Operating Expense Analysis ......................................... 64 Direct Capitalization Analysis ..................................... 68 Conclusion by the Income Approach .................................. 71 SECTION C: RECONCILIATION OF VALUE ESTIMATES ............................ 72 ADDENDA Property Photographs ............................................... A-73 <PAGE> SUMMARY OF CRITICAL FACTS AND CONCLUSIONS THE SUBJECT PROPERTY Property Name: Birch Creek Apartments Property Location: 575 South Rengstorff Avenue Mountain View, CA 94040 Property Type: Garden apartment complex Current Owner of Record: American Apartment Communities, Inc. Land: Acres: 6.4 Acres Square Feet: 278,784 Square Feet Zoning: R-3-l, Multiple Family Residential District Building Area: Net Rentable Area (NRA) 162,000 Square Feet Number of Units: 184 Number of Stories: 2 Parking: Number of Spaces: 187 Uncovered spaces 200 Carports --- 387 Parking spaces Ratio: 2.10 spaces per unit Year Built: Phase I - 1968 Property Condition and Appeal: The subject is in good condition and is similar in physical appearance, project and unit features, and curb appeal to its competitive set. Highest and Best Use: Land as Though Vacant: Multifamily development Property as Improved: Multifamily development - iii - <PAGE> Interest Appraised: Leasehold Ground Lease Term: 75 years (1968 - 2043) VALUE INDICATIONS TOTAL PER UNIT ----- -------- Sales Comparison Approach $11,000,000 $59,782 Income Approach $10,200,000 $55,434 Final Estimate of Market Value: $10,200,000 $55,434 Effective Date of Valuation: December 1, 1996 Date of Inspection: November 4, 1996 Marketing Period: 9-12 months Exposure Period: 9-12 months - iv - <PAGE> INTRODUCTION This report was prepared for American Apartment Communities for the purpose of rendering an opinion of the market value of this property. This appraisal report describes and analyzes the prospective value of the leasehold interest in a 184-unit garden apartment complex. The improvements, which were constructed in 1968, contain a net rentable area of approximately 162,000 square feet. The improvements were found to be in generally good condition. The underlying land area is 6.4 acres or 278,784 square feet. As of the effective date of the appraisal, unit occupancy was approximately 96.2 percent. The estimated value is prospective, as it is a future date from the date of property inspection and transmittal of the report. This appraisal has been prepared in compliance with the Appraisal Standards Board requirements and is a self contained appraisal report. The report contains all information significant to the solution of the appraisal problem and reports all significant data in a comprehensive fashion. - v - <PAGE> SCOPE OF THE APPRAISAL As part of this assignment, the appraisers made a number of independent investigations and analyses. In conducting our investigation, various governmental planning agencies were contacted for demographic data, land policies and trends, and growth estimates. Neighborhood data were supplemented by physical inspection of the defined area. Information regarding local ordinances, utilities, and other limitations on site utilization was obtained from the client and through the appropriate agencies. Both the site and the surrounding area was inspected to determine suitability for multifamily use. In addition, the local apartment market was analyzed for past trends and current data. Estimated income and occupancy levels, expenses, and income structures are based upon this market evidence. A diligent search for comparable data was conducted, and comparable information was obtained from both public and private sources. in the case of comparable sales and occupancy data, attempts were made to contact the buyers or sellers or other knowledgeable third parties to verify that the transactions were at arm's length, cash equivalent, and market reflective. The considered information was within the property's market area and was analyzed and adjusted where necessary for use in estimating separate value indications by the sales comparison and income approaches. The income approach was deemed to be the most appropriate method to value the subject. - vi - <PAGE> ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report has been made with the following general assumptions and limiting conditions. 1. No investigation has been made of, and no responsibility is assumed for, the legal description of the property being valued or legal matters, including title or encumbrances. Title to the property is assumed to be good and marketable unless otherwise stated. The property is assumed to be free and clear of any liens, easements or encumbrances unless otherwise stated. 2. Information furnished by others, upon which all or portions of this appraisal is based, is believed to be reliable, but has not been verified in all cases. No warranty is given as to the accuracy of such information. 3. This report has been made only for the purpose stated and shall not be used for any other purpose. Neither this report nor any portions thereof (including, without limitation, any conclusions, the identity of Arthur Andersen or any individuals signing or associated with this report, or the professional associations or organizations with which they are affiliated) shall be disseminated to third parties by any means without the prior written consent and approval of Arthur Andersen. 4. Subject to the provision of the "Fees" paragraph of the engagement letter to which this Statement is annexed, neither Arthur Andersen nor any individual signing or associated with this report shall be required by reason of this report to give further consultation, provide testimony, or appear in court or other legal proceedings unless specific arrangements therefore have been made. 5. This appraisal study has been made in conformance with the methodology outlined in the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation. As per your request, our study conclusions are present in report form. 6. No responsibility is taken for changes in market conditions and no obligation is assumed to revise this report to reflect events or conditions which occur subsequent to the appraisal date hereof. 7. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, or national government or private entity or organization have been or can readily be obtained or renewed for any use on which the value estimates contained in this report are based. 8. Full compliance with all applicable federal, state and local zoning, use, occupancy, environmental and similar laws and regulations is assumed, unless otherwise stated. 9. Responsible ownership and competent property management are assumed. - vii - <PAGE> 10. Areas and dimensions of the property were obtained from sources believed to be reliable. Maps or sketches, if included in this report, are only to assist the reader in visualizing the property and no responsibility is assumed for their accuracy. No independent surveys were conducted. 11. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for arranging engineering studies that may be required to discover them. 12. No soil analysis or geological studies were ordered or made in conjunction with this report, nor was an investigation made of any water, oil, gas, coal, or other subsurface mineral and use rights or conditions. 13. We have not been engaged nor are we qualified to detect the existence of hazardous material which may or may not be present on or near the properties. The presence of potentially hazardous substances such as asbestos, urea-formaldehyde foam insulation, industrial wastes, etc. may affect the value of the properties. The value estimates herein are predicated on the assumption that there is no such material on, in, or near the property that would cause a loss in value. No responsibility is assumed for any such conditions or for any expertise or engineering knowledge required to discover them. The client should retain an expert in this field if further information is desired. 14. Arthur Andersen's maximum liability relating to services rendered under this letter (regardless of form of action, whether in contract, negligence or otherwise), shall be limited to the fees paid to Arthur Andersen for its services under this agreement. In no event shall Arthur Andersen be liable for consequential, special, incidental, or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.) even if it has been advised of their possible existence. 15. American Apartment Communities shall indemnify and hold harmless Arthur Andersen and its personnel from and against any claims, liabilities, costs and expenses (including, without limitation, attorney's fees and the time of Arthur Andersen personnel involved but excluding consequential, special incidental or punitive damages) brought against, paid or incurred by Arthur Andersen at any time and in any way arising out of a breach by American Apartment Communities of its obligations under this agreement 16. This report may not be included or referred to in any Securities and Exchange Commission filing or other public document. - viii - <PAGE> CERTIFICATION WE CERTIFY THAT, TO THE BEST OF OUR KNOWLEDGE AND BELIEF... - -- the statements of fact contained in this report are true and correct; - -- the reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are our personal, unbiased professional analyses, opinions, and conclusions; - -- we have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved; - -- our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event; - -- our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Supplemental Standards of Professional Practice of The Appraisal Institute and the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation; - -- the use of this report is subject to the requirements of The Appraisal Institute relating to review by its duly authorized representatives; - -- as of the date of this report, Brian E. Ginsberg, MAI, has completed the requirements of the continuing education program of The Appraisal Institute; - -- James Sullivan made a personal inspection of the property that is the subject of this report on November 4, 1996. - -- James Sullivan provided significant professional assistance to the person signing this report; - -- neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser, The Appraisal Institute or the MAI or SRA designations) shall be disseminated to the public through advertising media, public relations media, news media, sales media, or any other public means of communication without the prior written consent and approval of the undersigned; and - -- this appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. /s/ Brian E. Ginsberg ----------------------------- Brian E. Ginsberg, MAI Manager of Valuation Services - ix - <PAGE> A.1 SUBJECT PROPERTY IDENTIFICATION SUBJECT PROPERTY IDENTIFICATION AND OWNERSHIP HISTORY Property Address: Birch Creek Apartments 575 South Rengstorff Avenue Mountain View, CA 94040 Tax Map Reference: 154-13-008-00 Current Owner of Record: American Apartment Communities, Inc. Owner's Address: 615 Front Street San Francisco, CA 94111 Acquisition History: Date: September 4, 1996 Price: $10,200,000 Deferred Maintenance: $1,056,240 Transferred From: Berkeley Federal - 1 - <PAGE> A.2 PURPOSE AND FUNCTION OF THE VALUATION The purpose of this report is to estimate the market value of the leasehold interest in the subject property. The function of this appraisal is to assist American Apartment Communities in analyzing the property for financing purposes. As used herein, market value is defined as: 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, knowledgeable, 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: a. buyer and seller are typically motivated; b. both parties are well informed or well advised, and each acting in what he considers his own best interest; c. a reasonable time is allowed for exposure in the open market; d. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and e. 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.(1) - ---------- (1) The Appraisal of Real Estate, Tenth Edition, 1992. - 2 - <PAGE> A.3 PROPERTY RIGHTS APPRAISED This appraisal values the leasehold estate of the subject property. Leasehold Estate is defined in The Language of Real Estate Appraisal Second Edition, page 106, as "an ownership interest in real estate held by a tenant during the term of a lease." A.4 EFFECTIVE DATE OF THE VALUATION The effective date of value is December 1, 1996. The date of the physical inspection of the subject property was November 4, 1996. - 3 - <PAGE> B.l ANALYSIS OF THE SUBJECT PROPERTY LOCATION: The subject is located on the east side of South Rengstorff Avenue, just north of its intersection with El Camino Real in Mountain View, a community located in northwestern Santa Clara County within the San Jose PMSA. The property benefits from a suburban location in a predominantly residential neighborhood, within close proximity to major transportation corridors such as U.S. 101 and the Stevens Creek Freeway (State Highway 85). The property is located approximately 7 miles northwest of San Jose and 45 miles south of San Francisco. LAND: Size and Configuration: The subject parcel is nearly rectangular in shape and includes 6.4 acres, or 278,784 square feet. The entire parcel is assumed to be usable. Frontage and Accessibility: The subject property has 400.3 linear feet of frontage along the east side of South Rengstorff Avenue. Two of the subject property buildings front directly on South Rengstorff Avenue and benefit from good visibility and access from this thoroughfare. Overall, the property is very accessible from U.S. 101 and El Camino Real and is within close proximity to neighborhood amenities and retail services. The frontage on South Rengstorff Avenue is considered very good and provides two primary points of ingress/egress to the property. Topography: The subject parcel is level and at grade with South Rengstorff Avenue. The parcel includes dense foliage along its perimeter, a koi pond and a canal system in the interior. The property has attractive landscaping, with a significant number of mature trees and shrubbery. Floodplain: According to F.E.M.A. Community Map Panel No. 060347-0003D, dated July 4, 1988, the site is located is within Zone XB, which is defined as an area of moderate or minimal flooding located between the limits of the 100-year floodplain and the 500-year floodplain. Soil and Subsoil Conditions: We are unaware of any subsoil conditions which would adversely affect the use of the subject property. Please refer to the Assumptions and Limiting Conditions. Utilities and Public Services: All public utilities are available to the site. Easements and Encroachments: Typical utility and access easements are in place. These easements do not appear to adversely affect the property. - 4 - <PAGE> Development of Adjacent Sites: The surrounding area is generally developed with multifamily residential development characterized properties of similar age but inferior condition to the subject. Surrounding uses are well maintained. Additional information is provided in the Neighborhood Analysis section, but the following is a summary of adjacent and surrounding property uses. North: Duplexes and multifamily residential development East: Multifamily residential development South: Multifamily residential development West: Multifamily residential development Conclusion: The subject is well located in an attractive suburban location. It benefits from good visibility and access from South Rengstorff Avenue, as well as proximity to U.S. 101. The size, configuration, and topography of the subject are adequate for a wide variety of uses. - 5 - <PAGE> [GRAPHIC OMITTED] SITE PLAN BIRCH CREEK APARTMENTS MOUNTAIN VIEW, CALIFORNIA <PAGE> [GRAPHIC OMITTED] FLOODPLAIN MAP BIRCH CREEK APARTMENTS MOUNTAIN VIEW, CALIFORNIA <PAGE> IMPROVEMENTS: Introduction: The subject property is a garden-style apartment complex containing 184 units which was completed in 1968. The complex contains 20, two-story buildings, all of which have stucco and wood exteriors. The buildings are configured around a central courtyard which contains a pool, a recreation room/fitness center and a koi pond and canal system. As a result of the building configuration, the property presents a low density environment. The apartment mix consists of three basic floor plans: one junior, one-bedroom, one-bath style; one one-bedroom, one-bath style; and one two-bedroom, two-bath unit style. The property is most heavily weighted toward one-bedroom units, which account for approximately 57 percent of the total number of units. As a result, the average unit size is approximately 880 square feet. Project amenities include a swimming pool, a community room, and a fitness center. Laundry facilities are available in four buildings at the property. The property also offers 200 "tuck-under" or carports parking spaces. Apartment unit features include wall-to-wall carpeting, dishwashers, and patios/balconies.. Rent includes water, sewer and garbage collection. The buildings have enclosed, central entrances with four units (two on the lower level and two on the upper level) located off each entrance. The property also contains 187 uncovered parking spaces, or approximately one uncovered space per unit. The table that follows provides a breakdown of the apartment unit mix. - 6 - <PAGE> UNIT MIX BIRCH CREEK APARTMENTS Number Percent of Average Square Total Area Unit Type of Units Total Feet Square Feet - --------- -------- ----- ---- ----------- JR. lBR/lBA 24 13.0% 550 13,200 lBR/lBA 80 43.5% 800 64,000 2BR/2BA 80 43.5% l,060 84,800 --- ------ ------- Total/Avg. 184 100.00% 880 l62,000 - ---------- Source: American Apartment Communities: September 1996. Building Area: 162,000 net rentable square feet Number of Buildings: 20 Number of Stories: 2 Year Completed: 1968 Structural System: o Foundation: Poured concrete slab. o Building Frame: Each building is of wood frame construction on poured concrete. o Roofing System: The roofs are pitched with wood shingle covering. o Exterior Walls: Exterior walls are stucco and wood finish. o Fenestration: Single pane in aluminum frame. Mechanical Systems: o HVAC System: Each apartment unit is individually heated by electric floorboard heaters in the bedrooms, heating coils in the bathrooms, and thermostats in the living rooms. o Fire Protection System: The units are not sprinklered. -7- <PAGE> o Elevators and Stairs: Each individual building contains a staircase per each 4-unit segment. There are no elevators located on the property. o Security System: A security service visits the property every night. Interior Finishes: o Floor Coverings: Floor coverings in the apartment units are generally carpet of average quality with vinyl tile in kitchens and bathrooms. Carpets are replaced on an as-needed basis. o Walls and Partitions: Walls in the apartment units are constructed of painted drywall on wood frame. o Ceilings: Ceilings in the apartment units are of a textured, "popcorn-style" finish. Site Improvements: o Parking: The property provides 187 uncovered surface parking spaces and 200 carports, for a total of 387 parking spaces. The parking ratio is 2.1 spaces for every apartment unit. o Landscaping: The property has fairly dense foliage along its perimeter, with a small koi pond and an extensive canal system in the interior. The property has attractive landscaping with a significant number of mature trees and shrubbery. - 8 - <PAGE> B.2 REAL ESTATE TAXES Taxing Jurisdiction(s): Local Government: Santa Clara County Tax Account Number: 154-13-008 Current Tax Year: July 1 - June 30 Current Tax Rate: $1.00 per $100 of assessed value plus amounts required for debt service payments. Assessment Ratio: 100 percent of fair market value, as defined by the jurisdiction. Total Estimated Taxes: $146,124 or $796 per unit. Taxes Due: First Installment: November 1st Second Installment: February 1st Current: According to the Santa Clara County Tax Assessment office, the taxes on the subject property are current. Tax Rates Established: August of every year Assessments Established: March 1st of every year Reassessment Frequency: Annually Tax History: See the table below - 9 - <PAGE> PROPERTY TAXES BIRCH CREEK APARTMENTS Tax Year Total Assessment(1) Rate/$100 Amount Amount Per Unit - -------- ------------------- --------- ------ --------------- 1996-97 $13,656,525 $l.07 $146.124(2) $794 - ---------- (1) Total assessment includes values of land, improvements, and personal property. (2) Based on estimate by tax assessor. Amount slightly higher than that indicated by the millage rates due to additional levies for sewer service, etc. Source: Santa Clara County Tax Assessment Office By law, the tax rate in Santa Clara County is limited to 1.0 percent of full cash value plus amounts required for principal and interest on voter approved bonded indebtedness. The 1.0 percent tax rate equals $1.00 per $100 of full cash value, which includes values of land, improvements and personal property (plus amounts required for debt service payments). These funds are provided for county, city, school and special district operations as well as funds to pay for tax increment financing requirements of redevelopment agencies. There also exists a rate based on the land and improvement value of the property, reflecting amounts required for sanitation, flood control and other special district debt service payments. In addition, direct assessments for sewer service, weed abatement, other fees for service and bonded assessment charges from cities and public improvement districts are then added to arrive at the gross tax for the fiscal year. Supplemental tax bills are due with any improvement to the property or with any change in title. It is important to note that the subject property may be eligible to appeal the tax assessment in order to secure lower taxes, due to the fact that the subject property was purchased in October 1996 for $10,200,000, which is significantly below the current assessment. - 10 - <PAGE> B.3 ZONING The subject property is zoned R3-1, Multiple Family Residential District, which was created "to provide for a range of multiple-family residential densities offering a wide choice of living accommodations for families of diverse composition and life style, intending to afford generous open spaces in close proximity to each dwelling unit as means of enhancing the quality of life" (Section 36.11, Zoning Ordinance of Mountain View, CA). The restrictions that apply to this zoning are listed below, as cited from the Zoning Ordinance. Zoning Jurisdiction: Mountain View Existing Zoning: R-3-l, Multiple Family Residential District Permitted Uses: By Right: Multiple-family dwellings and apartment houses, single-family dwellings and two- family dwellings or duplexes, townhouse developments, crop and tree farming. By Site Plan Approval: Boarding or lodging houses, nursing homes, convalescent hospitals and similar residential uses, public halls, lodges and clubs. Minimum Lot Size: 8,000 square feet Minimum Average Lot Width: 80 feet or one-third of lot depth Minimum Setbacks: Front Yard: 15 feet Side Yard: l5 feet Rear Yard: l5 feet Maximum Building Height: 35 feet Maximum Floor Area Ratio: 1.05 Maximum Lot Coverage: 35 percent On Site Parking: Maximum Open Area: 20 percent of total lot area - 11 - <PAGE> The subject is improved with a 184-unit, garden-style apartment complex. The number of units results in a density of 28.75 units per acre, which is less than the maximum allowable density of 33.56 units per acre. The site's use as an apartment property, the height and positioning of the improvements, and the number of parking spaces all conform to the current zoning guidelines. The subject is considered a legally conforming use as confirmed by the Mountain View Planning Department. - 12 - <PAGE> C.1 MARKET CONDITIONS GENERAL CONDITIONS The subject property is located in the city of Santa Clara, in Santa Clara County, approximately 2 miles northwest of San Jose and 50 miles south of San Francisco. Santa Clara County and the San Jose PMSA are contiguous and are part of the San Francisco-Oakland-San Jose CMS which also includes the Oakland, San Francisco, Santa Cruz-Watsonville, Santa Rosa, and Vallejo-Fairfield-Napa PMSAs. Due to the high concentration of San Jose PMSA residents in the local workforce and the expansive and naturally divided geography of the San Francisco-Oakland-San Jose CMSA, this report focuses on the San Jose PMSA. Trends in the San Jose PMSA impact the performance and value of the subject property. As such, we have analyzed these influences fully in the following section. The San Jose PMSA is located south of San Francisco and Oakland at the southern edge of San Francisco Bay. The PMSA's sole county, Santa Clara, covers a total land area of approximately 1,300 square miles and extends from Palo Alto/Menlo Park on the north to Gilroy on the south. Most urban development in the PMSA lies within the northwestern portion of the county, known as the Santa Clara Valley or the Silicon Valley. Communities such as Palo Alto, Mountain View, Cupertino, Sunnyvale, Santa Clara, and San Jose lie within this densely developed valley. The PMSA is bordered on the west by the Santa Cruz Mountains and on the east by the Diablo Range. While some of these hilly areas contain desirable housing, much of the PMSA's mountainous open terrain is unsuitable for residential development. In addition, a significant portion of the county's land is devoted to agricultural uses. The birth and growth of the computer and semi-conductor industries in Silicon Valley facilitated the San Jose PMSA's current concentration in the high-technology electronics, computer, aerospace, telecommunications, software, and bio-technology industries. These industries experienced rapid growth throughout the 1960s and 1970s which finally slowed in the mid-1980s. Increased efficiency due to downsizing and the general economic recovery have led - 13 - <PAGE> to a resurgence in the high-tech industries in the 1990s. While high costs of conducting business have precipitated the departure of the manufacturing arms of many high-tech firms from Silicon Valley, the area remains a desired location for high-tech firms' headquarters and research and development facilities. Although Santa Clara County still has a significant agricultural base, the high-tech industries overshadow other contributors to the area's economy. POPULATION Based on the 1990 census, Claritas Inc. estimates the 1996 San Jose PMSA population to be approximately 1.59 million. Currently, the San Jose metropolitan area accounts for slightly less than five percent of the state of California's total population. Population in both the PMSA and state of California grew at a faster rate than the U.S. during the 1980s. However, between 1990 and 1996, the population growth rate in the San Jose PMSA fell to a compound annual average of 1.0 percent, or slightly below the U.S. average of 1.1 percent. The population in the state of California grew at a compound annual rate of 1.5 percent over the same period. The table below sets forth population trends for the San Jose PMSA compared with those for the state of California and the United States. POPULATION TRENDS <TABLE> <CAPTION> Compound Compound Annual Annual 1996 2001 Growth Growth 1980 1990 (estimated) (projected) 1990-1996 1996-2001 ---- ---- ----------- ----------- --------- --------- <S> <C> <C> <C> <C> <C> <C> San Jose 1,295,069 1,497,577 1,593,746 l,678,380 1.0% 1.0% California 23,667,908 29,760,022 32,242,114 34,279,984 1.3% 1.2% USA 226,545,776 248,709,872 264,992,224 277,957,536 1.1% 1.0% </TABLE> Source: Claritas Inc.; Arthur Andersen - 14 - <PAGE> [GRAPHIC OMITTED] AREA MAP BIRCHCREEK APARTMENTS MOUNTAIN VIEW, CALIFORNIA <PAGE> The southern and eastern portions of Santa Clara County have been capturing much of the population growth. The south county cities of Gilroy and Morgan Hill have been growing especially fast, as have Milpitas, San Jose, and adjoining neighborhoods to the south and east. In contrast, the cities located in the highly urbanized northwestern portion of the county have grown more slowly. POPULATION FORECAST SAN JOSE PMSA 1995 - 2015 <TABLE> <CAPTION> Annual Percent of Percent of Average Subregional Total Region Total Region Growth Rate Area 1995 2000 2010 2015 1995 2000 1995 - 2015 ---- ---- ---- ---- ---- ---- ---- ----------- <S> <C> <C> <C> <C> <C> <C> <C> Campbell 41,800 43,400 44,500 44,200 2.6% 2.5% 0.28% Cupertino 51,300 53,900 54,800 54,800 3.2% 3.1% 0.39% Gilroy 38,200 45,000 58,000 65,800 2.4% 2.6% 2.76% Los Altos 30,300 30,100 30,000 30,100 1.9% 1.8% -0.03% Los Altos Hills 8,600 8,800 8,800 8,800 0.5% 0.5% 0.12% Los Gatos 32,900 33,600 33,700 33,500 2.0% 2.0% 0.09% Milpitas 59,000 64,100 65,700 65,700 3.7% 3.7% 0.54% Monte Sereno 3,900 3,950 3,900 3,850 0.2% 0.2% -0.06% Morgan Hill 33,700 38,300 46,900 51,400 2.1% 2.2% 2.13% Mountain View 73,200 76,600 78,800 78,600 4.5% 4.5% 0.36% Palo Alto 78,600 79,000 81,800 82,400 4.9% 4.6% 0.24% San Jose 888,600 956,800 1,031,600 1,048,900 55.2% 55.7% 0.83% Santa Clara 97,600 l02,200 114,200 116,900 6.1% 5.9% 0.91% Saratoga 30,500 31,200 31,100 30,900 1.9% 1.8% 0.07% Sunnyvale 126,800 135,200 142,900 147,100 7.9% 7.9% 0.75% Remainder 16,000 17,000 17,600 17,700 1.0% 1.0% 0.51% --------- --------- --------- --------- ----- ----- ----- Santa Clara County (San Jose PMSA) 1,611,200 1,719,150 1,844,300 1,880,650 100.0% 100.0% 0.78% </TABLE> - ---------- Note: Figures differ somewhat from the prior table due to different sources. Source: Association of Bay Area Governments, December 1995. - 16 - <PAGE> Projections by the Association of Bay Area Governments further support the trend in population growth away from the Santa Clara County's mature northwest towns and toward the less developed eastern and southern regions of the county. Between 1995 and 2015, Gilroy is expected to grow at a compound annual rate of 2.8 percent and Morgan Hill is expected to grow at a compound annual rate of 2.1 percent. Over the same period, Mountain View is expected grow at compound annual rate of 0.4 percent and the city of Santa Clara is expected to grow at a compound annual rate of 0.9 percent. EMPLOYMENT Most of the San Jose PMSA urban development is concentrated in northwestern Santa Clara County in the area known as Silicon Valley. With more than 4,100 high-tech companies, Silicon Valley is considered the nation's center of high technology. As a result, the economy of the San Jose PMSA relies on both the worldwide demand for its products and the United States defense budget -- two main reasons for the area's loss of over 22,000 jobs between 1990 and 1992. Since that time, however, the high-tech industry has restructured itself and shifted from manufacturing to providing high-tech services, such as data processing services and research and software development. In particular, the explosion of internet start-up firms such as Mountain View's Netscape fueled job growth and attracted a highly-educated labor pool to the area. Consequently, the county of Santa Clara recovered and the San Jose PMSA became California's employment leader for 1995 with Silicon Valley accounting for over one third of California's exports. According to the U.S. Department of Labor, the annual average at-place employment for the San Jose PMSA increased from 845,000 in August 1995 to 877,500 in August 1996, or a net gain of over 32,000 jobs over the one-year period. The San Jose PMSA has consistently enjoyed lower unemployment rates than the national rate and the state of California as a result of its indispensable role as a high-technology research and development center. The following table displays Santa Clara County's unemployment rate for the past 6.5 years. - 17 - <PAGE> UNEMPLOYMENT TRENDS 1990 - 1996 San Jose Year PMSA California U.S. ---- ---- ---------- ---- 1990 4.0% 5.8% 5.6% 1991 5.6% 7.7% 6.8% 1992 6.7% 9.3% 7.5% 1993 6.8% 9.4% 6.9% 1994 6.2% 8.6% 6.1% 1995 5.0% 7.8% 5.6% July 1996 3.8% 7.6% 5.4% ---------- Source: U.S. Department of Labor Bureau of Labor Statistics; August 1996. The State of California Employment Development Department predicts a growth rate for nonagricultural wage and salary jobs of 10.5 percent during the 1992 - 1999 period with high technology leading the economy. Services, primarily business services, will become the largest industry division with data processing services expected to continue recording fast growth. Employment in manufacturing accounted for the largest industry sector until 1992 and is projected to continue to decline in importance as a result of the defense cutbacks. Retail trade is the county's third largest industry sector and is expected to grow in tandem with the county's population growth. The total non-agriculture wage and salary job count between 1994 and 1995 showed a net gain of over 28,000 jobs. The service and construction sectors had the largest gains with annual growths of 7.8 percent and 4.6 percent, respectively. The growth in the service sector contributed nearly 19,000 jobs. The two industry sectors which lost jobs over the period were the finance, insurance and real estate sector and the government sector, which together lost 2,800 jobs - 18 - <PAGE> During the most recent recession ending in 1992, the local economy lost 22,400 jobs from its 1990 total of 814,500 jobs, an average annual loss of 1.4 percent. Since bottoming out in 1992, the local economy has added nearly 35,900 jobs as of year-end 1995, a compound annual growth rate of 1.5 percent. The following table sets forth employment by industry within the San Jose PMSA over the past five years. However, contract and self-employed workers are not included in these figures and are projected to be significant. WAGE AND SALARY EMPLOYMENT BY INDUSTRY AND PLACE OF WORK SAN JOSE PMSA 1990-1995 (Thousands) Industry 1990 1991 1992 1993 1994 1995 - ------------- ------- ------- ------- ------- ------- ------- Manufacturing 258.2 251.5 236.8 231.7 226.0 229.6 Construction 29.5 28.1 27.3 26.1 26.4 27.6 Services 214.4 217.7 226.6 237.9 245.1 263.7 Trade 169.0 165.0 158.6 157.7 160.3 167.6 TCPU(1) 22.2 22.6 22.4 23.6 23.8 23.9 FIRE(2) 31.6 31.5 31.5 31.5 30.0 28.7 Government 89.4 89.1 88.8 87.9 88.3 86.8 Mining .3 .3 .2 .2 .1 .1 ----- ----- ----- ----- --- - ----- Total 814.5 805.8 792.1 796.6 799.9 828.0 - ---------- (1) Transportation, Communication and Public Utilities. (2) Finance, Insurance and Real Estate. Source: California Association for Local Economic Development; August 1996. The county of Santa Clara is expected to maintain its position as the high-technology corporate headquarters for the nation. Hewlett-Packard's Component Group, IBM's Storage Systems Division, Fujitsu America, Sony, Hitachi, and Samsung Semiconductor, Inc. all operate in San Jose. The following table outlines the largest employers in the county. - 19 - <PAGE> TOP EMPLOYERS - 1995 SANTA CLARA COUNTY Name Location Employment ---- -------- ---------- Hewlett Packard Company Palo Alto l6,000 County of Santa Clara San Jose 13,512 Lockheed Martin Missiles & Space Sunnyvale 10,124 Stanford University Stanford 7,900 IBM Corporation San Jose 7,500 Kaiser Permanente Medical Center Santa Clara 5,900 Stanford University Hospital Palo Alto 5,500 City of San Jose San Jose 5,212 Applied Materials Santa Clara 5,l00 National Semiconductor Corp. Santa Clara 5,000 Sun Microsystems Mountain View 4,830 Intel Corporation Santa Clara 4,700 Apple Computer, Inc. Cupertino 4,637 S.C. Valley Health & Hospital Sys. San Jose 4,300 Silicon Graphics Mountain View 3,744 ---------- Source: San Jose Metropolitan Chamber of Commerce 1996. - 20 - <PAGE> INCOME The San Jose metropolitan area is well above national averages in terms of median household income and in a 1995 study was ranked the sixth most affluent market in the United States. The 1996 median household income for the San Jose PMSA was estimated at $58,246, or approximately 59 percent higher than the national median. It is also nearly 43 percent higher than the state of California median household income of $40,802. The PMSA income figure has increased at an annual average of 2.8 percent since 1989 and is projected to increase an additional 2.7 percent annually through the year 2001. The following table sets forth trends in median household income in the San Jose area. MEDIAN HOUSEHOLD INCOME SAN JOSE METROPOLITAN AREA 1979 - 2001 (Projected) <TABLE> <CAPTION> Compound Compound Estimated Projected Annual Growth Annual Growth 1979 1989 1996 2001 1989-1996 1996-2001 ---- ---- ---- ---- --------- --------- <S> <C> <C> <C> <C> <C> <C> San Jose PMSA $23,387 $48,155 $58,246 $66,490 2.8% 2.7% California $18,252 $35,833 $40,802 $44,209 1.9% 1.6% United States $16,846 $30,097 $36,625 $42,259 2.8% 2.9% </TABLE> - ---------- Source: Claritas, Inc - 21 - <PAGE> TRANSPORTATION Highways Arteries The Bay Area's sprawling growth has made traffic a major concern for area residents. In a 1992 Association of Bay Area Governments survey concerning infrastructure problems, 48 percent of survey respondents indicated that the problems associated with roads were either at the critical or severe stage. Local governments are making numerous road improvements to combat the traffic problems. In the San Jose PMSA, projects in progress include a recently opened freeway in the West Valley Corridor, the widening of U.S. 101 through central San Jose, and the extension of two new freeways, Highway 85 and Highway 87. The completion of Highways 85 and 87 resulted in a 30 percent drop in commute times. San Jose's location positions the city as a transportation hub for both Santa Clara County and the Bay Area as a whole. The Bay Area's four major freeways, Highways 280, 680, and 880 and State Highway 101, all converge in San Jose. State Highway 101 heads south from San Jose to Los Angeles and north to San Francisco, Highway 880 North leaves San Jose for Oakland, and Highway 680 connects San Jose to Sacramento. San Jose's 70-mile expressway system includes 31 miles of commuter lanes. Public Transportation Rail Systems Bay Area Rapid Transit (BART) is a light rail system which connects San Francisco with surrounding counties, including those in the Oakland and San Jose PMSAs. A study is underway to determine the feasibility of extending BART to downtown San Jose. The CalTrain commuter rail serves over 20 Silicon Valley stations between San Jose and San Francisco. The new Santa Clara Light Rail Line provides service to San Jose from southern Santa Clara County. Extensions - 22 - <PAGE> of the 20-mile Santa Clara Light Rail Line to northeast San Jose, Sunnyvale, Mountain View, and the east valley are being considered. Air Service The San Jose International Airport annually transports over 8 million passengers via thirteen passenger airlines and over 150 million pounds of cargo. The additions of Southwest Airlines and United's entrant into the low fare market, United Express, have offset American Airlines decision to downsize its San Jose hub operations. Overall passenger traffic at San Jose International Airport increased almost 6 percent from 1994 to 1995 to a total of 8.9 million passengers. By the end of August 1996, the airport already handled over 6.5 million passengers for the year. CONCLUSION The recent strengthening of the computer and high-tech industries has fueled the recovery of the inextricably linked Silicon Valley and Santa Clara County economies. The continued growth and success of computer and high-tech related start-up firms is expected to continue to inject vigor into the local economy. In addition, these industries continue to supply high-paying jobs that boost the area's already lofty median household income. As a result, the affordability of single-family and multifamily housing is expected to remain low as limited new development and strong demand conspire to spark home price and rental rate increases that much of the area's highly-paid work force can afford. Affordable housing is likely to be found farther away from the employment centers of northwest Santa Clara County and San Jose. The less developed eastern and southern regions of Santa Clara County are expected to see the bulk of new residential development and consequently are likely to harbor the majority of the region's population growth in the coming decades. - 23 - <PAGE> C.2 NEIGHBORHOOD ANALYSIS Location The subject property is located in Mountain View, which is located in northwest Santa Clara County. Mountain View is considered a desirable residential area within the county because it has good access to the area's employment centers and retail corridors. The area has one of the Bay Area's warmest and driest climates that supports a green landscape and permits year-round outdoor recreation. Mountain View is a mature, built-out community comprised largely of desirable, well-kept single-family and multifamily residential neighborhoods. Moreover, the city benefits from excellent access to U.S. 101, 1-280 and the Stevens Creek Freeway, which provide access to the employment and recreation options outside of the San Jose PMSA in the San Francisco and Oakland PMSAs. The subject is located on the east side of South Rengstorff Avenue, just west of its intersection with El Camino Real. South Rengstorff Avenue is a major four-lane north-south thoroughfare that heads north from El Camino Real to an on/off ramp on U.S. 101. The subject is framed by residential development. Two of the subject buildings are situated parallel to South Rengstorff Avenue, providing the property with good frontage, visibility, and access from the roadway. Boundaries of Neighborhood The subject's neighborhood is defined as the western portion of Mountain View, bound to the east by Escuela Avenue, to the west by San Antonio Road, to the north by the Central Expressway, and to the south by El Camino Real, the city's border with Los Altos. The neighborhood encompasses an area of just less than one square mile and contains significant concentrations of residential and commercial development. Rengstorff Park is also located within the subject's neighborhood. - 24 - <PAGE> [GRAPHIC OMITTED] NEIGHBORHOOD MAP BIRCH CREEK APARTMENTS MOUNTAIN VIEW, CALIFORNIA <PAGE> Land Use Patterns Development along South Rengstorff Avenue is primarily residential in nature, with small pockets of commercial activity at major intersections. The subject property is located in a residential area, characterized by medium-sized, one-story single-family residences and multifamily developments, most of which were constructed in the 1960s and 1970s. Most commercial development in the township is located along El Camino Real. The subject property is located approximately one half mile from the San Antonio Shopping Center and approximately two miles from Shoreline Regional Park and golf course. The most proximate multifamily property to the subject, Mountain View Gardens Apartments, is located due west of the subject on South Rengstorff Avenue. This property's condition is inferior to that of the subject. Several other projects are located along Rengstorff Avenue and along Middlefleld Road and Shoreline Boulevard. Three of the subject's rent comparables are located near the intersection of Middlefield Road and Shoreline Boulevard in central Mountain View. The U.S. Naval Air Station and NASA's Ames Research Center, both located at Moffett Field, are located approximately two miles northeast of the subject adjacent to U.S. 101. Along with Shoreline Regional Park, the Moffett Field complex encompasses the entire northern border of Mountain View. The city is bordered on its other three sides by mature suburban communities: Palo Alto to the west, Los Altos to the south, and Sunnyvale to the east. NEIGHBORHOOD STAGE The subject neighborhood is in the stability stage, as is evidenced by the significant number of older residential and commercial properties and the largely built-out nature of the majority of the community. New development in the area generally takes the form of infill projects. - 25 - <PAGE> NEW DEVELOPMENT No major multifamily development is currently under construction or approved for construction in the area. Americana Apartments is awaiting City approval in the fall 1996 to construct 58 new units in Mountain View. In addition, several small infill residential projects are in the development pipeline. However, these projects are not expected to significantly increase the number of units in the market. CONCLUSION The subject's neighborhood is characterized as predominantly residential in nature, with small areas of commercial development at main intersections and most of the city's commercial development located along El Camino Real. The subject property is located within close proximity to neighborhood shopping centers and within a half mile of a large shopping center. Given the extensive highway network which serves the City of Mountain View, the property is also very accessible to employment centers throughout the San Jose PMSA. Most of the residents work in Silicon Valley firms in the San Jose PMSA. The City of Mountain View is considered an attractive residential location but has become increasingly less affordable over the past few years. Because there are limited sites available for new multifamily development, it is anticipated that very little new development of this type will occur in the area over the near-term. This will affect the subject in a positive manner by limiting the competition it faces for tenants. With the subject property's location within close proximity to major transportation arteries and commercial areas but surrounded by established residential development, it is concluded that the subject should remain a strong competitor within its market. - 26 - <PAGE> C.3 APARTMENT MARKET OVERVIEW From a construction standpoint, the apartment market in the San Jose PMSA has slowed significantly since experiencing strong activity in the late 1980s. At the same time, strong demand has resulted in one of the nation's tightest rental markets as strong employment growth has attracted a steady stream of new households to the area. Development within several communities in the county remains restricted in order to safeguard open space, limit traffic, or protect property values. Consequently, as of June 1996, apartment vacancy in Santa Clara County dropped to 1.9 percent, the lowest in the entire San Francisco Bay Area. Local restricted development policies are, however, expected to loosen as housing becomes a more critical factor with the expected growth in labor demand. MARKET SIZE From 1991 to 1995, multifamily building permits issued in the San Jose MSA accounted for a decreasing proportion of the total number of permits issued annually. Two years of positive multifamily permitting activity during 1993 and 1994 interrupted a declining trend in the number of multifamily permits issued in the PMSA. Although the positive fundamentals of the San Jose PMSA's multifamily housing market have sparked strong interest in new development, the local regulatory and lending environments and the paucity of developable residential land continue to slow the permitting of large-scale apartment developments. The following table outlines historical permit issuance in the San Jose PMSA. - 27 - <PAGE> HISTORICAL PERMIT ISSUANCE SAN JOSE PMSA (SANTA CLARA COUNTY) 1989 - 1995 <TABLE> <CAPTION> 1989 1990 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> <C> <C> Single-Family Permits 2,567 1,762 1,638 1,760 1,848 2,127 2,213 Multifamily Permits (1) 1,963 3,109 2,134 1,297 1331 1817 1,232 ----- ----- ----- ----- ----- ----- ----- Total Permits 4,530 4,871 3,772 3,057 3,179 3,944 3,445 Multifamily as Percent of Total 43.3% 63.8% 56.6% 42.4% 41.9% 46.1% 35.8% Multifamily Change From Prior Year -- 58.4% -31.4% -39.2% 2.6% 36.5% 32.2% </TABLE> - ---------- (1) includes apartments, condominiums and plexes Source: Regional Financial Associates: Arthur Andersen LLP, September 1996. Residents of the San Jose PMSA exhibit a strong preference for rental-type units, with approximately 40 percent of total households residing in rental units. This rental ratio is above the national average of 36 percent. The San Jose PMSA's relatively high rental ratio is attributable to the low affordability of single family housing as only 43 percent of San Jose PMSA households can afford the median existing home price of $268,160. Area residents' propensity to rent is also driven by the relative youth of the local population and volatility of the high-tech Silicon Valley job market. VACANCY From an occupancy perspective, the San Jose PMSA apartment market is extremely tight. For the first half of 1996, Santa Clara County had the lowest vacancy rate in the entire nine-county San Francisco Bay Area. This situation is a direct result of the recovery of the job market and the constrained construction of new units in the area. The following table outlines historical vacancy rates for the San Jose PMSA. - 28 - <PAGE> HISTORICAL VACANCY RATES SAN JOSE PMSA 1993 - 1996 Period Average Vacancy ------ --------------- Dec 1993 4.94% June 1994 4.14% Dec 1994 4.38% June 1995 3.28% Dec 1995 2.15% June 1996 1.90% ---------- Source: RealData, Inc.; Arthur Andersen LLP, September 1996. NEW SUPPLY In response to the strong need for more rental housing, over 2,500 units of rental housing construction are currently in the pipeline in Santa Clara County. This figure represents more than 50 percent of the overall total for the San Francisco Bay area. Approximately 1,000 of these units will consist of low income housing in the city of San Jose and will not significantly impact market vacancy rates. In Cupertino, over 300 units are scheduled to be open by the end of 1996; over 250 units are planned in the city of Santa Clara; and, in Sunnyvale, a 709-unit apartment community is planned. Within the city of San Jose, in addition to the low income housing, a 300-unit complex is expected to open during 1996. As a result of these modest levels of new construction coupled with the projected population and employment growth, the vacancy rates are expected to remain extremely low in the area over the next several years. - 29 - <PAGE> RENTAL RATES Over the past two years, coinciding with the economic return of Silicon Valley, rental rates in the San Jose PMSA have risen sharply to reach an average of $1.32 per square foot as of June 1996. This reflects an increase of over 10 percent in the first six months of 1996, leading the nine-county Bay Area and placing Santa Clara County in the highest ranking position in terms of average gross rental rate. In particular, the northwestern portion of the county is dominating the market with the highest rental rates in the county with the city of Mountain View averaging $1.40 per square foot and the city of Santa Clara averaging $1.38 per square foot. For the near term, rental rates are expected to steadily increase until new construction impacts the available supply of units. The table below outlines rental rates for Santa Clara County as of June 1996. RENTAL RATES BY UNIT TYPE SANTA CLARA COUNTY JUNE 1996 Avg. Monthly Rental Apartment Type Avg. Monthly Rental Rates Rates Per Square Foot - -------------- ------------------------- --------------------- Studio $ 747 $1.65 1 Bedroom/1 Bath $ 977 $1.41 2 Bedroom/1 Bath $1,065 $1.19 2 Bedroom/1 Bath/+ $1,254 $1.27 3 Bedroom/1 Bath $ 921 $0.90 3 Bedroom/1 Bath/+ $1,425 $1.19 4 Bedroom $1,400 $0.97 - ---------- Source: RealData, Inc., September 1996. - 30 - <PAGE> SURVEY OF SUBJECT NEIGHBORHOOD In September 1996, Arthur Andersen surveyed five apartment complexes (including the subject) in the immediate neighborhood which had a total of 881 units and occupancy levels ranging from 98.4 to 100.0 percent, with an average of 99.7 percent. The following apartment complexes are analyzed in more detail as part of the comparable rental analysis in the Income Approach section of this report. SURVEY OF APARTMENT COMPLEXES CITY OF MOUNTAIN VIEW Number Rental Rental Complex Of Units Rates Rates/SF Occupancy - ------- -------- ----- -------- --------- Birch Creek (Subject) 184 $950 - $1,425 $1.34 - $1.73 98.4% Shoreline Village 126 $845 - $1,125 $1.11 - $1.46 100.0% Village Lake 208 $950 - $1,495 $1.41 - $1.73 100.0% The Shadows 180 $1,060 - $1,960 $1.46 - $1.95 100.0% Northpark 183 $820 - $1,400 $1.63 - $1.96 NA --- Total/Average 881 99.7% - ---------- Source: Arthur Andersen Field Research, September 1996. Monthly rental rates in the subject's market area, according to the Arthur Andersen survey, are $820 for studio units ($1.96 per square foot); $950 to $1,005 for junior one-bedroom units ($1.73 -$1.91 per square foot); $845 to $1,320 for one-bedroom units ($1.30 to $1.96 per square foot); $1,000 to $1,500 for two-bedroom, one-bath units ($1.11 to $1.61 per square foot); $1,475 to $1,660 for two-bedroom, two bath units ($1.41 to $1.62 per square foot); and $1,930 to $1,960 for three- bedroom, two-bath units ($1.46 to $1.48 per square foot). At the subject, asking rents range from $950 to $1,425 ($1.34 to $1.73 per square foot) and are within the range of the competitive properties. No rental concessions are currently being offered at the surveyed properties. -31 - <PAGE> Based on the observed performance of the competitive properties, examined within the framework of overall market indicators, it appears that the supply and demand fundamentals in the multifamily market appear strong in the City of Mountain View. Moreover, modest population growth coupled with limited new construction should keep the apartment market strong over the near-term. Market sources agree that vacancies are expected to remain low, with well-located complexes such as the subject showing the highest occupancies. Consequently, the outlook for the subject property appears very favorable. Santa Clara County is projected to add 29,371 households over the 1996 - 2001 period. Assuming the current rental preference of 40 percent, this household growth would translate into more than 2,300 new renters annually over the next five years. In contrast, Santa Clara County has issued an average of 1,840 new multifamily permits annually over the past seven years. Furthermore, only 2,500 new units are currently in the development pipeline in the area, only 1500 units of which are market rate units. - 32 - <PAGE> C.4 HIGHEST AND BEST USE ANALYSIS The validity of an appraisal is dependent upon the consideration and conclusion of highest and best use.(3) Often expressed as "the most profitable legal use," the concept requires an analysis of many factors. Vacant land value is directly related to its highest and best use. On the other hand, an improved property may have the same or a different highest and best use than the land supporting the improvements when considered as vacant land. Therefore, for improved property, both highest and best use decisions must be separately considered, both as vacant land and as improved property. In addition to a conclusion for both the vacant land and improved property, sale and lease comparisons are usually made with properties having similar highest and best uses as the subject. The parameters for consideration relate to legality of use, physical possibilities, financial feasibility, and maximum economic production. Single uses, interim uses, legal non-conforming uses, speculative uses or excess land determinations require further analysis. HIGHEST AND BEST USE OF THE LAND AS IF VACANT Legally permissible uses are those limited by zoning, easements and rights-of-way, deed restrictions, building codes, and environmental controls. These restrictions, discussed in Section B.2, limit the permissible uses of the subject property to single-family and multifamily uses. Physically possible uses are limited by size, design, topography, flood possibilities and physical capacities. The subject site contains 6.4 useable acres consisting of a nearly trapezoidally-shaped parcel. The subject property is located between the limits of the 100-year floodplain and the 500-year floodplain. Drainage and topography are acceptable for the legally permissible uses. Although we are unqualified to render an opinion of the physical load-bearing capacity of the land or its freedom - ---------- (3) Highest and Best Use: "The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. (American Institute of Real Estate Appraisers, The Dictionary of Real Estate Appraisal, Second Edition, Copyright 1989, Page 149. - 33 - <PAGE> from hazardous materials, no nuisances were obvious at the time of inspection. It appears that all of the legally permissible uses are physically possible. Financially feasible uses must be supported by sufficient demand in the neighborhood to create a sufficient return to invest over the long term. In analyzing each potential highest and best use alternative, the income potential from those legally permissible and physically possible uses were considered. The income from the highest and best use should be sufficient to satisfy investor requirements and operating expenses, thereby providing a return on the land. Predominant land uses in the neighborhood provide indications of profitable land uses for the location of the subject property. Development in the immediate vicinity is dominated by multifamily residential uses of similar age and condition. The close proximity to major thoroughfares such as Central Expressway, El Camino Real and U.S. 101, shopping centers, and employment centers adds to the desirability of the location for residential use. Thus, the subject's location is suitable for multifamily development. Physically, this multifamily development could be in the form of either residential rental apartments or ownership condominiums. As most of the single-family residential construction in the past two years has targeted first-time home buyers, the availability of more affordable single-family housing has weakened the demand for condominiums. In addition, many area employees in the computer and high-tech industries prefer to rent instead of own to give themselves more flexibility in the dynamic, unpredictable Silicon Valley job market. Considering these issues, the highest and best use of the subject property would appear to be the development of a rental apartment complex similar to the subject. Our judgment of the maximally productive use of the site, therefore, centers on the potential for future income production in the Mountain View apartment market as compared to the single-family market. Historically, the apartment properties in this area have maintained high occupancy levels and high rental rate levels due to strong demand for affordable housing alternatives to the single-family market. Demand is fueled by the subject's proximity to Silicon Valley and other Bay Area employment - 34 - <PAGE> centers. In addition, many employees at fast-paced Silicon Valley firms have short-term tenure expectations and thus desire temporary housing. On the supply side, there are currently no approved additions to the multifamily supply in Mountain View. Development has been and continues to be limited by the lack of available land and the slow approvals process. Santa Clara County is the most active county in the Bay Area for multifamily construction. With 776 units under construction and 2,395 units planned, Santa Clara County's construction activity dwarfs that of the other Bay Area counties. However, much of this construction involves low income or Affordable Housing Program development in urban San Jose and other areas. This construction trend indicates that current rental rate levels and vacancy rates justify new construction. However, the lack of available, properly zoned land in Mountain View continues to limit construction in the city, warranting a bullish outlook for the local apartment market. Therefore, it is our opinion that the highest and best use of the subject site, as though vacant is for multifamily residential development at the maximum allowable density. HIGHEST AND BEST USE OF THE PROPERTY AS CURRENTLY IMPROVED The subject property is currently improved with a good quality 184-unit garden apartment complex. In light of the existing improvements, a contrast with other uses is made for the optimal use which is also physically suitable for the site, legally permissible, economically feasible and the most profitable usage of the site. As earlier indicated, the highest and best use of a property as improved may differ from the highest and best use of the land as if vacant. The "as improved" analysis assists in the identity of the use that is estimated to provide the greatest overall property return on invested capital, as well as in the identification of comparable properties. Typical choices for improved property include the following usage alternatives: - 35 - <PAGE> 1. Demolition of the improvements; 2. Remodeling or renovation; and 3. Continued usage, as is. DEMOLITION OF THE IMPROVEMENTS: The implication in a highest and best use analysis is that the existing improvements should be retained and/or renovated as long as those improvements continue to contribute to the total value of the property, or until the return from a new improvement would more than offset the cost of demolishing the existing improvements and constructing alternative facilities. An analysis of the subject property reveals that the existing improvements do continue to contribute to the overall value of the subject, with no alternative use available to the site which would provide a greater return. As a result, demolition of the improvements is considered neither warranted, nor optimal from a highest and best use standpoint. REMODELING OR RENOVATION This alternative would present the highest and best use of the site if the resulting increase in value would more than offset the cost of remodeling or renovating the existing improvements. In this case, no renovation or remodeling would be required to maximize the profitability of the subject property primarily due to the age of the building. The improvements are well constructed, functional, and supported by an adequate level of market demand. Renovation of the current use would not generate sufficient additional income to provide a return on the cost of any renovations. - 36 - <PAGE> CONCLUSION AND RECONCILIATION OF HIGHEST AND BEST USE In conclusion, the highest and best use of the subject property, as currently improved, is continued use as an apartment complex with ongoing upgrades of units when vacated to replace outdated carpets, appliances, and other interior unit features. - 37 - <PAGE> D.1 THE APPRAISAL PROCESS The purpose of this appraisal is to estimate the "as is" market value the subject property in accordance with accepted value estimating procedure. "The valuation process is a systematic procedure employed to provide the answer to a client's question about real property value. It is a model of appraisal activity, reflecting an understanding of value and the methods used in the value estimation. "(4) There are three traditional approaches involved in the valuation of real property. These are known as the cost approach, the sales comparison approach, and the income approach. Each of the three approaches is related to the other, as they involve the gathering and analysis of sales, cost, and income data that pertain to the property being appraised. In the cost approach, the appraiser estimates a value by estimating the replacement cost of a structure with similar utility, deducting all forms of accrued depreciation, and adding to that the estimated value of the land. The cost approach is most reliable in estimating value of newly constructed or special purpose properties. This approach loses validity when the estimation of large amounts of physical depreciation and/or external obsolescence is required. In addition, this approach is least used by investors when evaluating apartment property acquisitions so we did not include it in our valuation. In the sales comparison approach, value for the subject property is estimated by comparing it to other similar properties which have sold recently, applying the appropriate units of comparison and making adjustments to the comparables to arrive at an indicated value for the subject. In the case of the subject, market price per unit is the most commonly used unit of comparison. - ---------- (4) American Institute of Real Estate Appraisers, The Appraisal of Real Estate Appraisal, Chicago, Illinois, 1989, p.73. - 38 - <PAGE> The income approach is the approach through which a value indication for income producing properties is estimated by converting the anticipated income stream into property value. This can be accomplished through two methods: the direct capitalization technique and the discounted cash flow analysis. Direct capitalization utilizes the anticipated annual income and capitalizes it at a market derived capitalization rate that reflects a specific pattern, return on investments and change in value over the expected holding period. The discounted cash flow method anticipates the income stream for a specified holding period as well as a reversion value, and discounts that income to a current value based on a specified yield rate. Direct capitalization is the most commonly applied technique in pricing apartment properties, especially when the property is stabilized. Direct capitalization is typically supported by the discounted cash flow method. Both approaches are utilized. In all of the approaches, the most important data source is the marketplace. This applies not only to comparable sales, but also to the determination of rent levels, occupancy rates, expenses and capitalization rates. The separate value indications derived for the sales and income approach technique are reconciled at the end of our appraisal into a final value estimate. - 39 - <PAGE> E.1 SALES COMPARISON APPROACH The sales comparison approach estimates market value based on comparative analysis of recent sales of improved properties that are similar in function, size, income production and use to the appraised property. This approach to value assumes that the market will set a price for the subject in the same manner that it sets the price for comparable, competitive properties. To apply the sales comparison approach, the appraisers employ a number of appraisal principles, including the principle of substitution which holds that the value of a property that is replaceable in the marketplace tends to be set by the cost of acquiring an equally desirable substitute property. Additional considerations include examination of market conditions prevailing at the time of sale as compared to those at the date of valuation. A comparison of the subject property to the selected comparable sales was complicated by the fact that the subject property is encumbered by a long term ground lease and all of the comparables were fee simple transactions. In an effort to address this major difference correctly and the effect the additional cost of ground rent has on the value of the subject property, the appraisers have elected to employ the net operating income comparison method in our Sales Comparison approach. The following pages contain a description of the five selected sales utilized in this analysis. This is followed by an explanation of the application of this method to the subject property, and finally by the appraisers value conclusion under the Sales Comparison Approach. - 40 - <PAGE> [GRAPHIC OMITTED] IMPROVED SALE COMPARABLES MAP BIRCH CREEK APARTMENTS MOUNTAIN VIEW, CALIFORNIA <PAGE> COMPARABLE APARTMENT SALE 1 Location: 2326-2330 California Street Mountain View, California Grantor: Master Mortgage Company Grantee: The Spieker Companies Date of Sale: April 1996 Sale Price: $4,050,001 Financing: Cash to seller Year Built: 1963 Number of Units: 80 Price Per Unit: $50,625 Overall Cap Rate: 8.98% EGIM: 5.63 Income Information: NOI: $ 363,772 NOI Per Unit: $ 4,547 Land: 2.02 acres Net Rentable Area: 79,433 square feet Occupancy at Sale: 95 percent Property Description: This property has two, two-story buildings in average condition. Amenities include a pool, laundry, balconies and storage lockers. The property has 23 one-bed units, 8 two-bed one-bath units, and 49 two-bed two-bath floorplans, with sizes ranging between 702 sq ft and 1,143 sq ft. Rental rates range from $675 to $775 per month, depending on the floorplan. The tenant is responsible for gas heat and electricity expenses. - 41 - <PAGE> Comments: The property benefits from good access to El Camino Real, a major regional commercial thoroughfare, and San Antonio Road, which leads directly to Highway 101. The property has good visibility from California Street, a secondary road. However, the site is proximate to unsightly development. - 42 - <PAGE> COMPARABLE APARTMENT SALE 2 Location: 1035-1061 Meridian Avenue San Jose, California Grantor: Federal National Mortgage Assoc. Grantee: Gilbert M. & Carol Meyer Date of Sale: March 1996 Sale Price: $ 4,000,000 Financing N/A Year Built 1964 Number of Units: 82 Price Per Unit: $ 48,780 Overall Cap Rate: 10.80% EGIM: 5.39 Information: Effective Gross Income: $ 719,197 Less Operating Expenses: $ 287,000 --------- NOI: $ 432,197 NOI Per Unit $ 5,271 Land: 3.61 acres Net Rentable Area: N/A Occupancy at Sale: 97 percent Property Description: The complex consists of 7, two-story buildings of wood frame construction, with exterior walls of stucco panels. The complex is on Meridian Avenue, with easy access to SW Expressway. The property is in average condition. Project amenities include a pool, laundry facilities, balconies and patios. - 43 - <PAGE> The property contains 30 one-bedroom one-bath units and 52 two-bedroom one-and-a-half bath units. The tenant is responsible for gas heat and electricity expenses. Comments: The property is in an older, less attractive residential development. The improvements are currently undergoing a major renovation. - 44 - <PAGE> COMPARABLE APARTMENT SALE 3 Location Kingdale Oaks 1919 Fruitdale Avenue San Jose, California Grantor: Marie Helen Pejcha Grantee: M/M Richard Tod & Catherine Spieker Date of Sale: August 1995 Sale Price: $16,760,000 Financing: Cash equivalent Year Built: 1970 Number of Units: 331 Price Per Unit: $ 50,634 Overall Cap Rate: 9.34% EGIM: 6.01 Income Information: NOI: $ 1,565,000 NOI Per Unit: $ 4,728 Land: 11.76 acres Net Rentable Area: N/A Occupancy at Sale: 95.6 percent Property Description: This garden apartment complex is located on Fruitdale Avenue near the juncture of 1-280 and 1-880 The complex consists of four two-story buildings, two one-story buildings, and nine three-story buildings of wood frame construction, with exterior walls of stucco. Project amenities include two heated pools, pool-side grills, a spa, laundry facilities, a recreation room, balconies, patios and elevators. The property offers - 45 - <PAGE> studios, one-bed/one-bath units, two-bed/one-bath units, two-bed/two-bath units, three-bed/two-bath units. - 46 - <PAGE> COMPARABLE APARTMENT SALE 4 Location: Spring Creek Apartments Formerly known as La Casa Granada Apartments 100 Buckingham Drive Santa Clara, California Grantor: State Street Bank & Trust Company Grantee: Avery Investments Partnership Date of Sale: April 1995 Sale Price: $8,875,000 Financing: Cash to seller Year Built: 1968 Number of Units: 140 Price Per Unit: $ 63,392 Overall Cap Rate: 10.21% EGIM: 5.62 Income Information: Gross Annual Income: $1,501,494 Less Operating Expenses: 595.000 ---------- NOI: $ 906,494 NOI Per Unit: $ 6,475 Land: 5.35 acres Net Rentable Area: 145,844 Occupancy at Sale: 95 percent Property Description: The complex consists of twelve two-story buildings of wood frame construction with stucco exteriors. The property is located on a secondary residential street, Buckingham Drive, which leads directly to Stevens Creek Boulevard, a major east-west thoroughfare, and - 47 - <PAGE> indirectly to 1-280 and 1-880. Project amenities include laundry facilities, balconies, storage lockers and patios. The apartments consist of the following mix: Unit Number Size ---- ------ ---- 1BR/1BA 20 758 SF 2BR/2BA 108 1,063-1,025 SF 2BR/2BA 12 1,276 SF Comments: Rental rates range from $1,050 to $1,075 for the one-bedroom units $1,295 to $1,525 for the two-bedroom two-bath units, and $1,630 to $1,655 for the three-bedroom two-bath units. The property has undergone substantial renovations since the time of the sale. - 48 - <PAGE> COMPARABLE APARTMENT SALE 5 Location: Hidden Willows 840-850 Meridian Avenue San Jose, California Grantor: The Willows Equity Partners Grantee: Hidden Willows, Ltd. Date of Sale: January 1995 Sale Price: $ 7,725,000 Financing: $ 2,334,701 down (30%) Year Built: 1978 Number of Units: 112 Price Per Unit: $ 68,973 Overall Cap Rate: 8.63% EGIM: 6.94 Income Information: Gross Annual Income: $1,057,225 Less Operating Expenses: 390,665 ---------- NOI: $ 666,560 NOT Per Unit: $ 5,951 Land: 3.28 acres Net Rentable Area: N/A Occupancy at Sale: 95 percent - 49 - <PAGE> Property Description: The complex consists of eleven two-story buildings, with wood frames and stucco exteriors. The property is in good condition. Amenities include a pool, a spa, air conditioning, laundry facilities, balconies, patios, storage lockers and a clubhouse. There are 74 one-bedroom/one-bath units and 38 two-bedroom/two-bath units. Comments: Current asking rental rates range from $775 for the one-bedroom units and $925 for the two-bedroom units. This complex is an established garden apartment community located on Meridian Way near the intersection of three major roads: the Southwest Expressway, I-280, and Meridian Avenue. Access to the property is difficult. - 50 - <PAGE> E.2 NET OPERATING INCOME (NOI) PER UNIT ANALYSIS An indication of value for the subject property can also be estimated by comparing the NOI per unit of the sales with the estimated NOI per unit of the subject (as projected in the Income Approach). In this technique, the NOI for the comparables are arrayed in descending order. Using the actual NOI for the subject of $5,963 per unit from the income approach, it is placed in the continuum of the comparable properties. The placement of the subject in the continuum results in an indicated value per unit. The following table shows the subject with respect to the comparables based on NOI per unit. COMPARABLE SALES RANKED BY NOI PER UNIT <TABLE> <CAPTION> Sale No. Sale Date Occupancy Sale Price/Unit EGIM OAR NOI Per Unit - -------- --------- --------- --------------- ---- --- ------------ <S> <C> <C> <C> <C> <C> <C> Sale No. 4 Apr. 1995 95.0% $63,393 5.62 10.21% $6,475 Sale No. 5 Jan. 1995 95.0% $68,973 6.94 8.63% $5,951 Sale No. 2 Mar. 1996 97.0% $48,780 5.39 10.80% $5,271 Sale No. 3 Aug. 1995 95.6% $50,634 6.01 9.34% $4,728 Sale No. 1 Mar. 1996 95.0% $50,625 5.63 8.98% $4,547 Subject As of Dec. 1, 1996 96.2% $5,963 </TABLE> The NOI per unit of the comparables range from $4,547 to $6,475 per unit. The corresponding actual sale prices range from $48,780 to $68,973 per unit. As estimated in the income approach, the subject has an NOI of $5,963 per unit. This NOI places the subject at the middle of the range. In addition to this estimate, a second analysis of NOI per unit is applied. In this analysis, direct adjustments to the properties' sale prices were applied based on the percent difference between the sale's NOI and the subject's NOI. The following table summarizes the direct adjustment process. - 51 - <PAGE> SUMMARY OF NOI ADJUSTMENTS Sales Subject's Percent Adjusted Sale No. Price/Unit NOI Unit NOI Unit Difference Price/Unit - -------- ---------- -------- -------- ---------- ---------- 1 $50,625 $4,547 $5,963 31.14% $66,389 2 $48,780 $5,271 $5,963 13.12% $55,179 3 $50,634 $4,728 $5,963 26.12% $63,859 4 $63,393 $6,475 $5,963 -7.90% $58,385 5 $68,973 $5,951 $5,963 0.20% $68,835 E.3 CONCLUSION - SALES COMPARISON APPROACH Through the NOI adjustment process, the indicated value of the subject ranges from $55,179 to $68,835 per unit. Based on this analysis, Sales No. 2, 4 and 5 appear to be the most comparable due to their similarity to the subject and the relatively small adjustments required. A value of $60,000 per unit, or approximately $11,000,000 (rounded) is concluded as the "leasehold interest" for the subject based on the NOI per unit analysis, as of December 1, 1996. - 52 - <PAGE> F. INCOME APPROACH The Income Capitalization Approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. The direct capitalization methodology uses a single year's stabilized net operating income as a basis for a value indication. It converts estimated "stabilized" annual net operating income to a value indication by dividing the income by a capitalization rate. The discounted cash flow (DCF) analysis focuses on the operating cash flows expected from the property and the anticipated proceeds of a hypothetical sale at the end of an assumed holding period. These amounts are then discounted to their present value. The discounted present values of the income stream and the reversion are added to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method puts more weight on income projected in the early years than income and sale proceeds to be received later. The direct capitalization method is normally appropriate for properties with relatively stable operating histories and expectations, or properties that can be expected to reach stabilization within a short period of time. Apartments, except for new construction, are typically analyzed by the direct capitalization approach, assuming that they are at a stabilized occupancy level. We consider the subject to be reaching a stabilized occupancy level and have applied only the direct capitalization method. This approach requires an estimation of the subject's income and expenses in order to forecast net operating income, which is then converted to a value indication by use of the direct capitalization analysis. Direct Capitalization The direct capitalization approach is based upon an estimate of the property's income in a year of stabilized occupancy. We first estimated effective income from apartment rents and other sources, and then estimated the operating expenses associated with the property. These were - 53 - <PAGE> combined to develop an operating statement for the property in a representative year. The following items were estimated in our Direct Capitalization analysis. Property Income Analysis Potential Gross Rental Income: The first step in the direct capitalization approach and the discounted cash flow approach is to estimate the gross potential income of the property. Accordingly, we surveyed the competitive rentals in the market to determine an appropriate market rent. We also considered the current leases, the recent and historical per unit average rental rates, and quoted asking rental rates for the subject. The gross potential income figure in our analysis equates to the sum of the existing annual rents in place as of the date of value, plus market rental rates applied to the vacant units. The gross potential income was trended upwards to reflect increase in market rents over the past year due to low vacancy rates and healthy competition. Based on a rent roll (as of December 3, 1996) provided by American Apartment Communities, there were a total of 184 units of which 7 were vacant, amounting to a 3.8% overall vacancy rate. According to the leasing agent, a 3.0% vacancy rate is in line with normal turnover vacancies, with generally 5 to 10 units available. Historically, since the middle of 1996, the subject property has experienced occupancy levels ranging from 95 to 100 percent. According to the rent roll provided, the gross potential monthly rent for the occupied units amounts to $202,971 or $1,147 per unit. In projecting the 1997 gross potential rental revenue, we applied an average projected monthly rent of $1,204 or a 5% increase over the December, 1996 rent roll. The 5% growth rate is conservative in light of our Apartment Market Overview which demonstrates that average rents in Santa Clara County have risen by 10% in the first six months of 1996, and is further supported by our survey of competitive properties. Market rents in our survey for one bedroom apartment range from $845 to $1,320 per unit per month while the monthly rental rates for two bedroom one bath units range from $1,000 to $1,500 per unit per month. Market rents in our survey for two bedroom two bath range from $1,400 to $1,660 per unit per month while the monthly rental rates for three bedroom two bath units are $1,930 to $1960 per unit per month. A - 54 - <PAGE> comparable rental survey and descriptions of the competitive properties can be found on the following pages. Our analysis indicates that our projected market and effective rents fall will within competitive properties. Variance/Concessions: Currently no rental concessions in the form of free or discounted rent are being offered on new leases in the market; however concessions exist in the form of rent variance. According to the property manager, rent variance represents the difference between gross potential rent and actual rents in place. Not only does it includes discounts and move-in specials, but also reflects artificially low rent levels of tenants who have been living at the property for several years and whose annual rent increases at renewal have not kept pace with market rent increases. In addition, this variance/concessions also includes a deduction for one subsidized employee unit at the subject property. Based on historical figures, and the new property management's aggressive policy of increasing renewing rental rates to more closely reflect current asking rates, we have projected total variance/concessions to be 3.0 percent of potential gross income. Vacancy & Credit Loss: To account for income loss associated with market occupancy fluctuations and frictional vacancy resulting from short-term leases, a 3.0 percent economic vacancy loss factor was judged appropriate for the subject based on market and historical information. Over the past year, the multifamily occupancy level for the Mountain View market has held below 4.0 percent. The physical occupancy rate at the subject was 96.2 percent occupied as of the date of inspection. The five competitive properties surveyed displayed physical occupancies of 100 percent. A separate deduction for Credit loss reflects deficient rent payments and other scheduled revenues not collected from tenants. Credit loss was 0.4 percent over the first six months of 1995, but has been estimated at 1.0 percent by American Apartment Communities, Inc. As a result, we have projected credit loss at 1.0 percent of potential gross income going forward. - 55 - <PAGE> Other Income: Other income includes application fees, interest income, late fees, laundry revenue, and lease breakage fees. Through the first six months of 1996, these sources of income accounted for 1.4 percent of potential gross income. Total Other Income for Year 1 has been estimated to be $40,000. - 56 - <PAGE> [GRAPHIC OMITTED] RENT COMPARABLES MAP BIRCH CREEK APARTMENTS MOUNTAIN VIEW, CALIFORNIA <PAGE> - -------------------------------------------------------------------------------- Table G-2 COMPARABLE RENTAL SURVEY BIRCH CREEK APARTMENTS MOUNTAIN VIEW, CA - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Monthly Rent ------------------------------------------------ Year Unit Size Effective No. Property and Location Built Occupancy Type (Sq. Ft.) Asking Effective Per SF - --- --------------------- ----- --------- ---- --------- ------ --------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 3 The Shadows 1971 100.0% Jr1BR/1BA 550 $1,060 - $1,070 $1,060 - $1,070 $1.93 - $1.95 750 North Shoreline Boulevard 1BR/1BA 705 $1,205 - $1,245 $1,205 - $1,245 $1.71 - $1.77 1BR/1BA 790 $1,290 - $1,320 $1,290 - $1,320 $1.63 - $1.67 2BR/1BA 930 $1,450 - $1,500 $1,450 - $1,500 $1.56 - $1.61 2BR/2BA 1,025 $1,620 - $1,660 $1,620 - $1,660 $1.58 - $1.62 3BR/2BA 1,325 $1,930 - $1,960 $1,930 - $1,960 $1.46 - $1.48 </TABLE> Comments: This comparable is located approximately one half mile northeast of the subject property on North Shoreline Boulevard between Middlefield Road and Central Expressway. The property consists of 180 units in 24 buildings on approximately 10 acres of land. Amenities include two pools, three saunas, a social room, a fitness center, a sand volleyball court, an outdoor barbecue area, a putting green, a car wash, laundry facilities and covered carports. Unit features include dishwashers, microwaves (in selected units), balconies or patios, ceiling fans, and fireplaces (in selected units). The property is in good condition and was reportedly 100 percent occupied as of the date of survey. No concessions are currently being offered. <PAGE> - -------------------------------------------------------------------------------- Table G-2 COMPARABLE RENTAL SURVEY BIRCH CREEK APARTMENTS MOUNTAIN VIEW, CA - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Monthly Rent ------------------------------------------------------ Year Unit Size Effective No. Property and Location Built Occupancy Type (Sq. Ft.) Asking Effective Per SF - --- --------------------- ----- --------- ---- --------- ------ --------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 4 North Park Apartments 1966 very low Studio 418 $ 820 $ 820 $1.96 111 North Rengstorff Jr1BA/BA 520 $1,005 $1,005 $1.93 1BR/1BA 656 $1,100 $1,100 $1.68 2BR/2BA 826 $1,400 $1,400 $1.69 </TABLE> Comments: This comparable is located approximately 3 blocks north of the subject property at the intersection of North Rengstorff Avenue and Central Expressway. This property contains 183 units in cottage-style buildings on a 7 acre land parcel. Amenities include two swimming pools, a recreation room, covered parking, and laundry facilities. Unit features include dishwashers, patio balconies, and storage space. No concessions are currently offered and, according to the leasing agent, had very few vacant units as of the date of the survey. <TABLE> <S> <C> <C> <C> <C> <C> <C> <C> <C> Summary Totals/ Ranges (1) Studio 418 $ 820 $ 820 $1.96 Jr1BR/1BA 520 - 550 $ 845 - $1,070 $ 845 - $1,070 $1.30 - $1.95 1BR/1BA 650 - 790 $ 845 - $1,320 $ 845 - $1,320 $1.30 - $1.77 2BR/1BA 900 - 930 $1,000 - $1,500 $1,000 - $1,500 $1.11 - $1.61 2BR/2BA 826 - 1,060 $1,400 - $1,660 $1,400 - $1,660 $1.39 - $1.69 3BR/2BA 1,325 $1,930 - $1,960 $1,930 - $1,960 $1.46 - $1.48 ----- ------ ------ ------ ------ ----- ----- 520 - 1,325 $ 845 - $1,960 $ 845 - $1,960 $1.11 - $1.96 </TABLE> - ---------- (1) For comparison purposes, summary totals/ ranges do not include subject data Source: Arthur Andersen, September 1996. <PAGE> We have analyzed four competitive rental complexes within the subject market area. All of the projects were constructed between the years 1966 and 1971 and constitute a representative sample of older Class B projects of similar exterior construction quality. The competitive projects are in generally good condition and offer similar amenities such as a pool, clubhouse, public laundry facilities, and covered carports. One of the properties offers additional amenities such as a sand volleyball court, an outdoor barbecue area, a putting green and a car wash. A more detailed discussion of the comparability of each property follows. Rental No. 1, Shoreline Village, contains 126 units and was constructed around 1970. This comparable is located approximately one mile east of the subject property on Central Avenue near the intersection of Moffett Boulevard and Central Expressway. The property is within walking distance of a CalTrain commuter rail line station and has excellent access to major regional thoroughfares such as I-85 and Highway 101. The property has limited landscaping in the courtyard between the six major buildings. Amenities include a heated pool, public laundry facilities, an outdoor barbecue area, a lounge, and covered parking. Unit features include dishwashers, ceiling fans, and balconies/patios. The property is in fair to good condition and was 100 percent occupied as of the date of survey, with no concessions currently being offered. This property is inferior to the subject in terms of its location, physical condition, unit mix, project amenities, and asking rental rates. Rental No. 2, Village Lake, contains 208 units and was constructed in 1966. This comparable is located approximately one half mile northeast of the subject property and is bordered by Middlefield and Shoreline Roads. Amenities include a pool, a spa, a weight room, a billiard room, a clubhouse, laundry facilities and covered carports. Unit features include dishwashers, garbage disposals, and balconies/patios. The property is in good condition and was reportedly 100 percent occupied as of the date of survey, with no concessions currently being offered. This property is comparable to the subject in terms of its location, size, unit mix, physical condition, project amenities, and asking rental rates, with slightly inferior unit features. - 62 - <PAGE> Rental No. 3, The Shadows, contains 180 units and was constructed in 1971. This comparable is located approximately one half mile northeast of the subject property on North Shoreline Boulevard between Middlefield Road and Central Expressway. The property consists of 180 units in 24 buildings on approximately 10 acres of land. Amenities include two pools, three saunas, a social room, a fitness center, a sand volleyball court, an outdoor barbecue area, a putting green, a car wash, laundry facilities and covered carports. Unit features include dishwashers, microwaves (in selected units), balconies/patios, ceiling fans, and fireplaces (in selected units). The property is in good condition and was reportedly 100 percent occupied as of the date of survey, with no concessions currently being offered. This property is comparable to the subject in terms of its location, size, and interior finish; however, it offers superior project amenities, higher rental rates and a better package of unit features. Rental No. 4, Northpark, contains 183 units in cottage-style buildings on approximately 7 acres of land and was constructed in 1966. This comparable is located approximately 3 blocks north of the subject property at the intersection of North Rengstorff Avenue and Central Expressway. Amenities include two pools, a recreation room, covered parking, and laundry facilities. Unit features include dishwashers, patios/balconies, and storage space. This property is in good condition and, according to the leasing agent, had very few vacant units as of the date of survey, with no concessions currently being offered. This property is comparable to the subject in terms of its location, size and exterior finish, but is inferior in terms of project amenities, unit features. This project's units do, however, offer superior privacy to those of the subject due to its cottage-style units. - 63 - <PAGE> OPERATING EXPENSE ANALYSIS In estimating the 1997 expenses for the subject property, we analyzed historical data for the subject, competitive apartments complexes and published national surveys. The owner could only provide us with the 1996 operating statements, since they only recently acquired the property, and thus primary reliance was placed on competitive facilities and national surveys. We compared our stabilized expense projections on a per unit basis with the 1995 National Apartment Association (NAA) analysis of garden-style multi-family apartment buildings in the San Francisco-San Jose Region and the Institute of Real Estate Management Survey for the San Jose metropolitan area. Both of these organizations survey property managers throughout the nation to determine income and expense averages for different municipalities. Direct comparison of each category with a trade source such as NAA or IREM can be difficult since different property managers classify expenses differently. However, the analysis in the table on the following page shows that the historical expense amounts are very much in line with the market averages determined by NAA. According to the NAA and IREM analyses, the market average of operating expenses was $4,425 per unit and $3,894 respectively in 1995, which places the subject's stabilized per unit operating expense of $4,807, slightly above the range. However, according to NAA and IREM, the average expense ratio (O.E.R. - total expenses / effective gross income) ranged from 35.31 percent to 40.21% for the San Jose region. The projected stabilized O.E.R. calculated from the Direct Capitalization Analysis for the stabilized year is forecasted to be 35. 17 percent which compares favorable to the industry standards outlined by NAA and IREM. Listed below is a description of the individual operating expenses projected in this analysis. Payroll: Payroll expenses include leasing and custodial salaries and bonuses, payroll taxes, medical benefits, and worker's compensation insurance. Based on historical costs and industry averages, payroll expenses have been estimated at $180,000. Maintenance: Maintenance includes items such as painting, carpet cleaning and repair, swimming pool maintenance, plumbing, and janitorial and building supplies. Based on historical costs and property management's current budget, maintenance costs for Year 1 have been estimated at $180,000. - 64 - <PAGE> Administration: Administration expenses include office supplies, licenses, credit reports, computer supplies, and other miscellaneous costs associated with operation of the subject. Administration costs have been estimated at $15,000 in Year 1. Utilities: Utilities expense includes the total cost of utilities associated with both units and common areas which are not paid by tenants. Rental rates at the subject property include water and sewer and garbage collection expenses. This expense category includes electricity, gas, telephone, garbage removal, and water and sewer expenses. Based upon both historical and budgeted amounts, utilities for the subject property have been estimated to be $180,000 in Year 1. Real Estate Taxes: Based on information provided by the Santa Clara County Assessment Office, taxes are estimated at $146,425, or $796 per unit. Insurance: Based on the property's actual casualty insurance expenses through the first half of 1996, costs have been anticipated to total $35,000 in Year 1. Management Fee: Conversations with Ann Beal, the Western Region Vice President of Operations for American Apartment Communities, Inc. indicated management fees in the local market typically range from 3.0 to 5.0 percent of effective gross income. Given the above and our experience with similar properties, we have estimated 3.5 percent of effective gross income is reasonable. Ground Lease: The ground lease base rent at the subject property is fixed at $418,200 per year. In addition, the tenant is required to pay percentage rent of 2.0 percent of effective gross income on an annual basis as percentage rent. Based on this calculation, ground lease percentage rent has been estimated at $50,293 in Year 1. - 65 - <PAGE> Miscellaneous: Miscellaneous expenses include professional services such as legal and consulting fees, advertising and marketing, and security. Based on historical and budgeted figures, miscellaneous expenses are projected at $60,000. Capital Improvements: Deductions for both immediate and one to five year capital improvements have been included in the analysis. These capital items include the costs of site work, exterior and interior structural improvements, and roof repair, as well as plumbing, parking lot, deck/wood, pool, and fitness center improvements. American Apartment Communities Inc.'s capital improvements budgeted figures for the years 1996 through 2000 are used in the analysis. Capital expenditures are projected to be budgeted at $1,443,700 (excluding items included under the reserve for replacement). For the purposes of our direct capitalization analysis we have taken the present value of these expenditures at a market derived 11% discount rate which yielded a stabilized expenditure of $1,070,000. Replacement Reserves: Based on the age of the property and its history of capital expenditures, a replacement reserve fund is estimated at $350 per unit. - 66 - <PAGE> Table G-3 - -------------------------------------------------------------------------------- PER UNIT EXPENSE COMPARABLES RENTAL APARTMENT PROPERTIES SAN JOSE METROPOLITAN AREA - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Birch Creek Apartments (1) Marina Playa Apartments (2) 184 Units 272 Units Annualized Projected Year End Annualized 1996 (5) 1997 1995 1996 (5) --------- -------- ---------- <S> <C> <C> <C> <C> REVENUE Effective Gross Income $10,921 $13,667 $10,986 $11,523 EXPENSES Payroll $ 1,013 $ 978 $ 814 $ 824 Maintenance $ 1,027 $ 978 $ 541 $ 431 Administration $ 35 $ 82 $ 84 $ 79 Utilities $ 954 $ 978 $ 671 $ 646 Taxes $ 588 $ 796 $ 857 $ 870 Insurance $ 86 $ 190 $ 187 $ 226 Management Fee $ 382 $ 478 $ 334 $ 600 Miscellaneous $ 114 $ 326 $ 113 $ 189 Total Expenses $ 4,199 $ 4,807 $ 3,600 $ 3,864 Expenses/Total Revenue 38.45% 35.17% 32.77% 33.54% Ground Lease Base Rent -- $ 2,272 $ 1,033 $ 1,033 Ground Lease Percentage Rent -- $ 274 $ 852 $ 985 <CAPTION> National Apartment Ass'n Institute of R.E. Management Survey of Income and Expenses (3) Income/Expense Analysis (4) Year End Year End 1995 1996 1995 1996 -------- -------- -------- -------- <S> <C> <C> <C> <C> REVENUE Effective Gross Income $11,005 $11,029 EXPENSES Payroll $ 858 -- $ 605 -- Maintenance $ 698 -- $ 680(7) -- Administration $ 330 -- $ 680(7) -- Utilities $ 672 -- $ 611 -- Taxes $ 988 -- $ 885 -- Insurance $ 328 -- $ 160 -- Management Fee $ 440 -- $ 448 -- Miscellaneous $ 111 -- $ 170(7) -- Total Expenses $ 4,425 -- $3,894 -- Expenses/Total Revenue 40.21% -- 35.31% -- Ground Lease Base Rent -- -- -- -- Ground Lease Percentage Rent -- -- -- -- </TABLE> - ---------- Note: This analysis does not include reserve for replacement. (1) Constructed in 1968. Owned by American Apartment Communities, Inc. (2) Constructed in 1971. Owned by American Apartment Communities, Inc. (3) Average income and expense data for garden style apartments in the San Francisco-Oakland-San Jose Metropolitan Area. (4) Average income and expense data for garden style apartments built after 1978 in the San Jose metropolitan area (data for apartments built between 1946 and 1978 unavailable). (5) CY 1996 expenses have been annualized based on expenses for January through July. (6) CY 1996 expenses have been annualized based on expenses for January through June. (7) Double-counts a component of payroll which is subtracted out in the total expenses calculation. <PAGE> DIRECT CAPITALIZATION ANALYSIS The capitalization approach uses a market-derived rate which when applied to "normalized" net operating income yields a value estimate. This estimate then may be adjusted for deficient income, capital expenditures, and/or other circumstances as may be appropriate. Use of this approach requires (1) the choice of a capitalization rate and (2) the determination of normalized operations. The capitalization technique is especially useful during periods when expectations of long-term inflation, interest rates, and market conditions are fairly stable and when leases are at market rates. On the other hand, this technique is especially difficult to apply with confidence when interest rates and inflation are relatively high, or when estimated rents are particularly volatile -- as, for example, in the case of properties with leaseholds and in markets subject to substantial rental concessions. Indications of capitalization rates can be derived from various sources. The two most commonly relied upon indicators of capitalization rates are recent sales in the local or regional marketplace and regional investor surveys. We have researched both of these sources in estimating an appropriate capitalization rate for the subject property. Normalized operations are reflected in net operating income. Investors typically define net operating income for apartments as effective gross revenues less operating expenses, management fees, and reserves for replacements. We have applied this market-based definition in our analysis. As such, capitalization rates have been applied to income less a reserve for replacements. As reflected by the sales listed in the "Sales Comparison Approach" section, recent purchases have been made at overall capitalization rates applied to net operating income, ranging from 8.63 percent to 10.80 percent, as indicated on the following page. - 68 - <PAGE> SUMMARY OF CAPITALIZATION RATES SANTA CLARA COUNTY GARDEN APARTMENT SALES Overall Property Date Sale Price NOI Capitalization Identification of Sale Per Unit Per Unit Rate -------------- ------- -------- -------- ---- 2326-2330 California Street 4/96 $50,625 $4,547 8.98% 1035-1061 Meridian Avenue 3/96 $48,780 $5,271 10.80% Kingdale Oaks 8/95 $50,634 $4,728 9.34% Granada (Spring Creek) 4/95 $63,393 $6,475 10.21% Hidden Willows 1/95 $68,973 $5,951 8.63% Sale Nos. 3, 4 and 5 were judged most similar to the subject. Selection of a particular rate depends upon the relative risk associated with the property, including its location and the strength of the local market, and especially upon the size and timing of future changes in net income. In addition to the aforementioned sales evidence, we have considered the indications of the following investor surveys. INVESTOR SURVEYS CAPITALIZATION RATES FOR APARTMENT PROPERTIES NATIONAL MARKET Source Car. Rates ------ ---------- Peter F. Korpacz & Associates 4Q 1996 8.5% - 10.0% RERC 2Q 1996 8.5% - 9.0% The investor surveys indicate that capitalization rates for apartments in the nation range from 8.5 percent to 10.0 percent. Considering the age, location, and condition of the subject property, an appropriate capitalization rate would fall near the top of the indicated range. Based on the analysis of capitalization rates from the comparable sales and investor surveys, we estimate an appropriate overall capitalization rate for the subject of 9.75 percent. Applying this rate to - 69 - <PAGE> the subject's estimated stabilized net operating income, indicates a value of $10,200,000, or $55,435 per unit as of December 1, 1996 after a deduction for capital expense items. The following capitalization technique, provided on the next page is based on the anticipated stabilized income and expenses previously discussed earlier in this section for the subject property. - 70 - <PAGE> INCOME CAPITALIZATION BIRCH CREEK APARTMENTS DECEMBER 1, 1996 REVENUE Gross Potential Rental Revenue $2,659,205 Variance/ Concessions 3.0% ($79,776) Vacancy 3.0% ($79,776) ---------- Gross Effective Rent $2,499,653 Other Income $40,000 Credit Loss 1.0% ($24,997) ---------- Effective Gross Income $2,514,656 EXPENSES Payroll $180,000 Maintenance $180,000 Administration $15,000 Utilities $180,000 Taxes $146,424 Insurance $35,000 Management Fee 3.5% $88,013 Ground Lease Base Rent $418,200 Ground Lease Percentage Rent $50,293 Miscellaneous $60,000 Reserve for Replacement $350.00 /unit $64,400 ---------- Total Expenses $1,417,330 ----------- NET OPERATING INCOME $1,097,326 CAPITALIZED AT 9.75% TOTAL VALUE BEFORE CAP X $11,254,625 LESS CAPITAL EXPENDITURES ($1,070,000) TOTAL MARKET VALUE $10,184,625 $10,200,000 <PAGE> G.1 RECONCILIATION AND FINAL VALUE ESTIMATE Valuation of the fee simple interest in the appraised property has been developed by the Sales Comparison Approach and Income Approach. Various appraisal techniques and methods were utilized in the analyses of the property. The value estimates by each approach are summarized as follows: Valuation Method Value ---------------- ----- Cost Approach N/A Sales Comparison Approach: $11,000,000 Income Approach: $10,200,000 The cost approach is most useful when valuing new or nearly new properties or when appraising special purpose properties. The reliability of this approach is diminished when significant amounts of accrued depreciation are present. In addition, most investors in this property class give minimal consideration to this valuation approach when analyzing potential acquisitions. Given these considerations, the cost approach was not used in our valuation. The sales comparison approach is frequently a good indicator of value, especially when a sufficient number of relevant transactions with reliable information on each is available. In this case, the data about the properties and their operations is complete, allowing for a complete analysis of the sales. However, the information analyzed is at least six months old and, due to the rapid strengthening of the Santa Clara County apartment market, may not reflect prevailing market conditions. We have attempted to adjust for physical and transaction-related differences in our sales analysis. Overall, this approach is considered a fair indicator of value fair the subject and a good check against the other approaches. - 72 - <PAGE> The income approach recognizes the income-producing nature of the subject. The valuation by this approach is based on strong market support of rental rates, expenses, absorption, and rates of return. Considered within this approach are the motivations of investors in properties such as the subject. In addition, this approach most closely reflects current methodology applied by investors actively acquiring multifamily properties. As such, this approach is given the strongest consideration in the estimate of market value of the subject property. Based on the research and analyses performed in the development of these approaches, and with primary emphasis on the income approach, it is our opinion that the market value of the fee simple interest in the appraised property, as of December 1, 1996 is: -- TEN MILLION TWO HUNDRED THOUSAND DOLLARS -- ($10,200,000) - 73 - <PAGE> - -------------------------------------------------------------------------------- Table G-2 COMPARABLE RENTAL SURVEY BIRCH CREEK APARTMENTS MOUNTAIN VIEW, CA - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Monthly Rent ---------------------------------------- Year Unit Size Effective No. Property and Location Built Occupancy Type (Sq. Ft.) Asking Effective Per SF - --- --------------------- ----- --------- ---- --------- ------ --------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Subject Birch Creek Apartments 1968 98.40% JR. 1BR/1BA 550 $ 950 $ 950 $1.73 575 South Rengstorff Avenue 1BR/1BA 800 $1,150 $1,150 $1.44 2BR/1BA 1,060 $1,425 $1,425 $1.34 </TABLE> Comments: The subject property is a two-story garden style apartment complex containing 184 units. The complex contains 21 buildings, all of which have stucco and wood exteriors. The buildings are configured around a central courtyard which contains a pool, a recreation room/fitness center and a koi pond and canal system. The subject is located on the east side of South Rengstorff Avenue, just north of its intersection with El Camino Real in Mountain View and has close proximity to major highways. Project amenities include a swimming pool, a community room, a fitness center and 200 carports. Laundry facilities are available in four buildings. Unit features include wall-to-wall carpeting, dishwashers and patios/balconies. The subject was reportedly 98.4% occupied as of the date of the visit, and no concessions are currently being offered. <PAGE> - -------------------------------------------------------------------------------- Table G-2 COMPARABLE RENTAL SURVEY BIRCH CREEK APARTMENTS MOUNTAIN VIEW, CA - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Monthly Rent ------------------------------------------------ Year Unit Size Effective No. Property and Location Built Occupancy Type (Sq. Ft.) Asking Effective Per SF - --- --------------------- ----- --------- ---- --------- ------ --------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 1 Shoreline Village 1970 l00.0% 1BR/1BA 650 $ 845 - $950 $ 845 - $950 $1.30 - $1.46 505 Central Avenue 2BR/1BA 900 $1,000 - $1,125 $1,000 - $1,125 $1.11 - $1.25 </TABLE> Comments: This comparable is located approximately one mile east of the subject property on Central Avenue near the intersection of Moffett Boulevard and Central Expressway. The property is within walking distance of a CalTrain commuter rail line station and has excellent access to I-85 and Highway 101, two major regional thoroughfares. The property has limited landscaping in the courtyard between the six major buildings. Amenities include a heated pool, public laundry facilities, an outdoor barbecue area, a lounge and covered parking. Unit features include dishwashers, ceiling fans and balconies or patios. The property is in fair to good condition and was 100 percent occupied at the date of the survey. No concessions are currently being offered and the units are rented on a month-to-month basis. <PAGE> - -------------------------------------------------------------------------------- Table G-2 COMPARABLE RENTAL SURVEY BIRCH CREEK APARTMENTS MOUNTAIN VIEW, CA - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Monthly Rent ------------------------------------------------ Year Unit Size Effective No. Property and Location Built Occupancy Type (Sq. Ft.) Asking Effective Per SF - --- --------------------- ----- --------- ---- --------- ------ --------- ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 2 Village Lake 1974 100.0% Jr1BR/1BA 550 $ 950 - $ 995 $ 950 - $ 995 $1.73 - $1.81 777 West Middlefield Road 1BR/1BA 682 $1,075 - $1,135 $1,075 - $1,135 $1.58 - $1.66 1BR/1BA 786 $1,175 - $1,200 $1,175 - $1,200 $1.49 - $1.53 2BR/1BA 900 $1,285 - $1,345 $1,285 - $1,345 $1.43 - $1.49 2BR/2BA 1,060 $1,475 - $1,495 $1,475 - $1,495 $1.39 - $1.41 </TABLE> Comments: This comparable is located approximately one half mile northeast of the subject property, bordered by Middlefield and Shoreline Roads. The property is a few blocks away from Moffett Field and Lockheed and within easy access of Highways 101 and 85. On site amenities include a pool, a spa, a weight room, a billiard room, a clubhouse, laundry facilities and covered carports. Unit features include dishwashers, garbage disposals and balconies/patios. All 208 units of the property were occupied as of the date of the survey. No concessions are currently being offered. <PAGE> SUBJECT PROPERTY PHOTOGRAPHS BRICH CREEK APARTMENTS [GRAPHIC OMITTED] Photo 1 Subject Property [GRAPHIC OMITTED] Photo 2 Building and covered carports. A-74 <PAGE> SUBJECT PROPERTY PHOTOGRAPHS BRICH CREEK APARTMENTS [GRAPHIC OMITTED] Photo 3 Swimming pool. [GRAPHIC OMITTED] Photo 4 Exercise Room. A-75 <PAGE> BIRCH CREEK APARTMENTS MOUNTAIN VIEW, CALIFORNIA Prepared For Merrill Lynch & Co. June 1,1997 Prepared By ARTHUR ANDERSEN LLP Valuation Services Group <PAGE> [Letterhead of Arthur Andersen] June 23, 1997 Mr. Anthony Rokovich Merrill Lynch & Co. World Financial Center - North Tower 26th Floor New York, New York 10281 Re: Birch Creek Apartments Mountain View, California Dear Mr. Rokovich: As requested, we have completed an updated restricted appraisal report of our full-narrative appraisal, with a valuation date of December 1, 1996, of the Birch Creek Apartments, Mountainview, California. We recommend that the reader review this report in conjunction with the prior appraisal. The purpose of this appraisal is to estimate the market value of the leased fee interest in the real estate subject to the definition of market value, the general assumptions and limiting conditions, and the certification as set forth in this restricted appraisal update. This is a Restricted Appraisal Report which is intended to comply with the reporting requirements set forth under Standards Rule 2-2(c) of the Uniform Standards of Professional Practice for a Restricted Appraisal Report. As such it does not present discussions of the data, reasoning, and analysis that were used in the appraisal process to develop the appraiser's opinion of value. Supporting documentation concerning the data, reasoning and analyses is retained in the appraisers file. The depth of discussion contained in this report is specific to the needs of Merrill Lynch and for the intended use stated below. This report may not be included or referred to in any Securities and Exchange Commission filing of other public document. Arthur Andersen is not responsible for the unauthorized use of this report and this report is subject to the attached Statement of General Assumptions and Limiting Conditions. REAL ESTATE APPRAISED: A 184 unit garden apartment complex located at 575 South Rengstorff Avenue, Mountain View, California. The Birch Creek Apartments, built in 1968, are situated on 6.4 acres with 162,000 square feet of net rentable area. PURPOSE OF THE APPRAISAL: The purpose of this restricted appraisal report is to estimate the fair market value of the subject leasehold on a "free and clear" basis. Market value means the most probable price which an asset 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 <PAGE> Mr. Anthony Rokovich Page 2 June 23, 1997 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 sales. For this engagement, market value will represent the consideration for the asset sold on a "free and clear" basis, and unaffected by sales concessions granted by anyone associated with the sale. INTENDED USE OF REPORT: The purpose of this restricted appraisal update is to assist the client, Merrill Lynch, in determining the fair market value of the leasehold interest in the subject property located at 575 South Rengstorff Avenue in Mountain View, California. Arthur Andersen's maximum liability relating to services rendered under this letter (regardless of form of action, whether in contract, negligence or otherwise), shall be limited to the fees paid to Arthur Andersen for its services under this agreement. In no event shall Arthur Andersen be liable for consequential, special, incidental, or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.) even if it has been advised of their possible existence. Merrill Lynch shall indemnify and hold harmless Arthur Andersen and its personnel from and against any claims, liabilities, costs and expenses (including, without limitation, attorney's fees and the time of Arthur Andersen personnel involved but excluding consequential, special incidental or punitive damages) brought against, paid or incurred by Arthur Andersen at any time and in any way arising out of a breach by Merrill Lynch of its obligations under this agreement. <PAGE> Mr. Anthony Rokovich Page 3 June 23, 1997 INTEREST VALUED: Leased Fee Interest EFFECTIVE DATE OF VALUE: June 1, 1997 DATE OF REPORT: June 23,1997 APPRAISAL DEVELOPMENT AND REPORTING PROCESS: In preparing this appraisal, the appraisers completed a number of independent investigations to update our valuation analysis and conclusions. Unless a significant change was uncovered during our field investigation or analysis, we relied on information, regarding demographics and economic statistics, land policies, neighborhood data, and zoning, collected during our previous appraisal dated December, 1996. The subject and the surrounding areas were not re-inspected due to the recent date of the last appraisal (six months). All phases of the Mountainview apartment market were analyzed to compile current data and to identify recent trends. Estimated income and occupancy levels, expenses, and income structures are based upon our market analysis and updated information provided by American Apartment Communities. In addition to the comparable sales used in the previous appraisal, we also initiated a diligent search for recent transactions. Our market research indicated that there were no new comparable sales in the subject market since our last appraisal in December, 1996 and we have thus relied upon the sales comparison approach utilized in our previous analysis. The sales comparison approach was employed as an alternative means to estimate value and was given limited weight in our final value conclusion. The Cost Approach is an appraisal procedure which is not applicable and it is thus acceptable to exclude from the valuation analysis if it will not mislead or confuse the intended user. Given the property type, age, and nature, the intended use of the appraisal, the general lack of reliance on the Cost Approach by typical investors in income producing properties, and that reasonable appraisers do not believe it to be applicable, we believe the exclusion of the Cost Approach will not confuse or mislead the intended user of the appraisal and therefore does not constitute a departure from Standards 1 through 4. The Income Approach is the most applicable for investment or income-producing real estate. The strength in this approach is the sufficient market data to estimate income, expenses, vacancy rate, capitalization rate, and discount assumptions. Valuation techniques attempt to replicate the analysis performed by investors when purchasing a property. In the case of the subject property, we completed the Income Capitalization method as we determined this method would most accurately reflect the true value of the subject property. Our updated <PAGE> Mr. Anthony Rokovich Page 4 June 23, 1997 valuation considered the updated rent roll, operating expenses and capital expenditure information provided by American Apartment Communities. To develop the opinion of value, the appraiser performed a complete appraisal process, as defined by the Uniform Standards of Professional Appraisal Practice. This Restricted Appraisal Report sets forth only the appraisers conclusions. Supporting documentation is retained in the appraiser's file. HIGHEST AND BEST USE: Highest and best use as though vacant: multifamily residential development at the maximum allowable density. Highest and best use as improved: continued use as an apartment complex with ongoing upgrades of units when vacated to replace outdated carpets, appliances, and other interior unit features SALES COMPARISON APPROACH VALUE CONCLUSION: $11,000,000 INCOME CAPITALIZATION APPROACH VALUE CONCLUSION: $11,100,000 FINAL MARKET VALUE CONCLUSION: $11,050,000 INDICATED EXPOSURE TIME: 9-12 months ESTIMATED MARKETING TIME: 9-12 months We appreciate the opportunity to work with you on this assignment. Please call Brian Ginsberg at 212-708-8197, if you have any questions or if we can be of further assistance. Very truly yours, /s/ Arthur Andersen LLP <PAGE> ADDENDA - -------------------------------------------------------------------------------- ADDENDA <PAGE> INCOME CAPITALIZATION BIRCH CREEK APARTMENTS JUNE 1, 1997 REVENUE Gross Potential Rental Revenue $2,695,836 Variance/ Concessions 0.5% ($13,479) Vacancy 3.0% ($80,875) ---------- Gross Effective Rent $2,601,481 Other Income $40,000 Credit Loss 1.0% ($26,015) ---------- Effective Gross Income $2,615,466 EXPENSES Payroll $184,000 Maintenance $184,000 Administration $15,000 Utilities $184,000 Taxes $150,000 Insurance $35,000 Management Fee 3.5% $91,541 Ground Lease Base Rent $418,200 Ground Lease Percentage Rent $52,309 Miscellaneous $61,000 Reserve for Replacement $350.00 /unit $64,400 ---------- Total Expenses $1,439,451 ----------- NET OPERATING INCOME $1,176,016 CAPITALIZED AT 9.75% TOTAL VALUE BEFORE CAP X $12,061,701 LESS CAPITAL EXPENDITURES ($920,000) TOTAL MARKET VALUE $11,141,701 $11,100,000 RD <PAGE> CERTIFICATION - -------------------------------------------------------------------------------- CERTIFICATION 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 is our personal, 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 we have no personal interest or bias with respect to the parties involved. 4. Our compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. Further, this appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. 5. James T. Sullivan has made a personal inspection of the property that is the subject of this report. Brian E. Ginsberg has not inspected the property. 6. James T. Sullivan has provided significant professional assistance to the persons signing this report. 7. We certify that to the best of our knowledge and belief, the reported analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice (USPAP) adopted by the Appraisal Foundation, the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute and FIRREA regulations. 8. We certify that the use of this report is subject to the requirements of the Appraisal Institute relating to the review by its duly authorized representatives. 9. As of the date of this report, I, Brian E. Ginsberg, MAI, have completed the requirements of the continuing education program of the Appraisal Institute. 10. Our conclusion of the fair market leased fee value, as of June 1, 1997, was: ELEVEN MILLION FIFTY THOUSAND DOLLARS $11,050,000 /s/ Brian E. Ginsberg Brian E. Ginsberg, MAI Manager, Valuation Services James T. Sullivan Contributing Appraiser <PAGE> LIMITING CONDITIONS - -------------------------------------------------------------------------------- GENERAL ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report is subject to the following general assumptions and limiting conditions: 1. No investigation has been made of, and no responsibility is assumed for, the legal description of the property being valued or legal matters, including title or encumbrances. Title to the property is assumed to be good and marketable unless otherwise stated. The property is assumed to be free and clear of any liens, easements or encumbrances unless otherwise stated. 2. Information furnished by others, upon which all or portions of this appraisal is based, is believed to be reliable, but has not been verified in all cases. No warranty is given as to the accuracy of such information. 3. This report has been made only for the purpose stated and shall not be used for any other purpose. Neither this report nor any portions thereof (including, without limitation, any conclusions, the identity of Arthur Andersen or any individuals signing or associated with this report, or the professional associations or organizations with which they are affiliated) shall be disseminated to third parties by any means without the prior written consent and approval of Arthur Andersen. 4. Subject to the provision of the "Fees" paragraph of the engagement letter to which this Statement is annexed, neither Arthur Andersen nor any individual signing or associated with this report shall be required by reason of this report to give further consultation, provide testimony, or appear in court or other legal proceedings unless specific arrangements therefor have been made. 5. This appraisal study has been made in conformance with the methodology outlined in the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation and FIRREA requirements. 6. No responsibility is taken for changes in market conditions and no obligation is assumed to revise this report to reflect events or conditions which occur subsequent to the appraisal date hereof. 7. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, or national government or private entity or organization have been or can readily be obtained or renewed for any use on which the value estimates contained in this report are based. 8. Full compliance with all applicable federal, state and local zoning, use, occupancy, environmental and similar laws and regulations is assumed, unless otherwise stated. 9. Responsible ownership and competent property management are assumed. <PAGE> LIMITING CONDITIONS - -------------------------------------------------------------------------------- 10. Areas and dimensions of the property were obtained from sources believed to be reliable. Maps or sketches, if included in this report, are only to assist the reader in visualizing the property and no responsibility is assumed for their accuracy. No independent surveys were conducted. 11. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for arranging engineering studies that may be required to discover them. 12. No soil analysis or geological studies were ordered or made in conjunction with this report, nor was an investigation made of any water, oil, gas, coal, or other subsurface mineral and use rights or conditions. 13. We have not been engaged nor are we qualified to detect the existence of hazardous material which may or may not be present on or near the properties. The presence of potentially hazardous substances such as asbestos, urea-formaldehyde foam insulation, industrial wastes, etc. may affect the value of the properties. The value estimates herein are predicated on the assumption that there is no such material on, in, or near the property that would cause a loss in value. No responsibility is assumed for any such conditions or for any expertise or engineering knowledge required to discover them. The client should retain an expert in this field if further information is desired. 14. Arthur Andersen's maximum liability relating to services rendered under this letter (regardless of form of action, whether in contract, negligence or otherwise), shall be limited to the fees paid to Arthur Andersen for its services under this agreement. In no event shall Arthur Andersen be liable for consequential, special, incidental, or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.) even if it has been advised of their possible existence. 15. Merrill Lynch & Co. shall indemnify and hold harmless Arthur Andersen and its personnel from and against any claims, liabilities, third party costs and expenses (including, without limitation, attorney's fees but excluding the time of Arthur Andersen personnel involved, consequential, special incidental or punitive damages) brought against, paid or incurred by Arthur Andersen at any time and in any way arising out of a breach by Merrill Lynch of its obligations under this agreement. ------------------------------------------------ COMPLETE APPRAISAL OF REAL PROPERTY Office Building One Orlando Center 800 North Magnolia Avenue Orlando, Florida ------------------------------------------------ IN A SELF-CONTAINED REPORT As of September 23,1997 Prepared For: Merrill Lynch World Financial Center North Tower New York, New York 10281-1326 Prepared By: Cushman & Wakefield, Inc. Valuation Advisory Services 51 West 52nd Street, 9th Floor New York, New York 10019 <PAGE> [LETTERHEAD OF CUSHMAN & WAKEFIELD, INC.] October 6, 1997 Mr. Edward J. Welch Director Investment Banking Merrill Lynch Corporate and Institutional Client Group World Financial Center, 26th Floor New York, New York 10281-1326 Re: Complete Appraisal of Real Property Office Building One Orlando Center Orlando, Florida Dear Mr. Welch: In fulfillment of our agreement as outlined in the Letter of Engagement, Cushman & Wakefield, Inc. is pleased to transmit our report estimating the market value of the leased fee estate in the referenced real property, as of September 23,1997. As specified in the Letter of Engagement, the value opinion reported below is qualified by certain assumptions, limiting conditions, certifications, and definitions, which are set forth in the report. This report was prepared for Merrill Lynch and its affiliates (collectively, "Client"). The Client, rating agencies, and certain limited investors involved in the types of securitizations described below may use and rely on the Appraisal Report in its entirety and we will not require an indemnification agreement. Said securitizations may be either of the following two types: a) A private placement Rule 144A offering to "qualified institutional buyers", as defined by Rule 144A ("Private Offering") or b) If the property appraised will be part of a pool of properties owned by various non affiliated owners which will be the subject of a debt offering ("Pooled Offering"). In the case of Pooled Offering, Client may accurately disclose the appraised value and the identity of our firm as the firm which prepared the report in the Offering Document. In the case of a Private Offering, you must obtain our prior written approval of any reference to our work and firm in the private placement memorandum. The property was inspected by and the report was prepared by Eric B. Lewis, MAI. <PAGE> Mr. Edward J. Welch Director Investment Banking Merrill Lynch Corporate and Institutional Client Group Page 2 October 6, 1997 As a result of our analysis, we have formed an opinion that the market value of the leased fee estate in the referenced property, subject to the assumptions, limiting conditions, certifications, and definitions, as of September 23,1997, was: FIFTY FIVE MILLION DOLLARS $55,000,000 This letter is invalid as an opinion of value if detached from the report, which contains the text, exhibits, and an Addenda. Respectfully submitted, CUSHMAN & WAKEFIELD, INC. /s/ Eric B. Lewis Eric B. Lewis, MAI Director Valuation Advisory Services State of Florida Certified General Real Estate Appraiser No. RZ-0002224 EBL:sjr NY97-626.DOC <PAGE> SUMMARY OF SALIENT FACTS AND CONCLUSIONS ================================================================================ Property Type: Office Building Name/Location: One Orlando Center 800 North Magnolia Avenue Orlando, Florida Assessor's Parcel Number: 23-22-29-5640-01001 Interest Appraised: Leased Fee Estate Date of Value: September 23,1997 Date of Inspection: September 23,1997 Ownership: Magnolia Associates, Ltd. Land Area: 5.53+ /- acres Zoning: AC-3A/T Downtown Activity Core Center District Highest and Best Use If Vacant: Eventual development as an office building. As Improved: Existing use as a multi-tenanted office building. Improvements Type: The subject is a 19-story multi-tenanted, Class A office building with detached parking garage. Year Built: 1987 Type of Construction: Structural steel and masonry with stone and glass exterior Size Rentable Area: 357,181+/- SF Gross Area: 383,59+/- SF Condition: Very Good <PAGE> Summary of Salient Facts and Conclusions ================================================================================ Value Indicators Cost Approach: n/a Sales Comparison Approach: $54,000,000 Income Capitalization Approach-Discounted Cash Flow Income Growth Rate: 4.7% year 1 ($1/sf rent increase) 3% thereafter Expense Growth Rate: 3% Tenant Improvements Vacant Space/New Leases: $10.00/SF year 1, increasing at 3% per year Vacancy Between Tenancies: 6 months weighted for renewal probability. Renewal Probability: 65% Terminal Overall Rate: 9.0% Cost of Sale at Reversion: 2.5% Discount Rate: 11.0% Indicated Value: Income Capitalization Approach: $56,000,000 Value Conclusion: $55,000,000 Estimated Marketing Time: 12 months or less Special Assumptions: 1. We have been provided with abstracts of the lease agreements in place at the subject property. We have relied on the accuracy of these abstracts in the valuation of the subject property. Should any of the information in the abstracts be found to be inaccurate, a material adjustment to the value conclusion in this report could result. 2. Please refer to the complete list of Assumptions and Limiting Conditions included at the end of this report. <PAGE> PHOTOGRAPHS OF SUBJECT PROPERTY ================================================================================ [PHOTO OMITTED] Subject property looking northwest from North Magnolia Avenue. <PAGE> Photographs of Subject Property ================================================================================ [PHOTO OMITTED] Subject property looking southeast. <PAGE> Photographs of Subject Property ================================================================================ [PHOTO OMITTED] Subject property looking north from North Magnolia Avenue. [PHOTO OMITTED] Subject property looking northeast from Route 50. <PAGE> Photographs of Subject Property ================================================================================ [PHOTO OMITTED] Subject property looking southwest from North Magnolia Avenue. [PHOTO OMITTED] Subject property looking southeast from Orange Avenue. <PAGE> Photographs of Subject Property ================================================================================ [PHOTO OMITTED] Subject property looking south from neighboring property. [PHOTO OMITTED] Parking garage looking northeast. <PAGE> Photographs of Subject Property ================================================================================ [PHOTO OMITTED] Subject loading area looking east. [PHOTO OMITTED] Subject entrance drive looking southeast <PAGE> Photographs of Subject Property ================================================================================ [PHOTO OMITTED] Subject entrance drive looking east. [PHOTO OMITTED] Interior view showing main lobby. <PAGE> Photographs of Subject Property ================================================================================ [PHOTO OMITTED] Interior view showing typical elevator lobby. [PHOTO OMITTED] Interior view showing 18th & 19th floor office space. <PAGE> Photographs of Subject Property ================================================================================ [PHOTO OMITTED] Interior view showing typical office space. [PHOTO OMITTED] Interior view showing typical bathroom. <PAGE> Photographs of Subject Property ================================================================================ [PHOTO OMITTED] Street scene looking north on Orange Avenue (subject is on the right) [PHOTO OMITTED] Street scene looking south on Orange Avenue (subject is on the left). <PAGE> Photographs of Subject Property ================================================================================ [PHOTO OMITTED] Street scene looking east on Park Lane Street (subject is on the left) [PHOTO OMITTED] Street scene looking west on Park Lane Street (subject is on the right). <PAGE> Photographs of Subject Property ================================================================================ [PHOTO OMITTED] Street scene looking north on North Magnolia Avenue (subject is on the left). [PHOTO OMITTED] Street scene looking south on North Magnolia Avenue (subject is on the right). <PAGE> Photographs of Subject Property ================================================================================ [PHOTO OMITTED] Street scene looking west on Marks Street (subject is on the left). <PAGE> TABLE OF CONTENTS ================================================================================ Page INTRODUCTION .................................................................1 Identification of Property ...............................................1 Property Ownership and Recent History ....................................1 Purpose and Function of the Appraisal ....................................1 Extent of the Appraisal Process ..........................................1 Dates of Value and Property Inspection ...................................2 Property Rights Appraised ................................................2 Definitions of Value, Interest Appraised, and Other Pertinent Terms ......2 Legal Description ........................................................3 ORLANDO REGIONAL ANALYSIS ....................................................5 MARKET AREA ANALYSIS ........................................................13 ORLANDO OFFICE MARKET ANALYSIS ..............................................19 PROPERTY DESCRIPTION ........................................................27 Site Description ........................................................27 Improvements Description ................................................28 REAL PROPERTY TAXES AND ASSESSMENTS .........................................32 ZONING ......................................................................34 HIGHEST AND BEST USE ........................................................35 VALUATION PROCESS ...........................................................37 SALES COMPARISON APPROACH ...................................................38 INCOME CAPITALIZATION APPROACH ..............................................41 RECONCILIATION AND FINAL VALUE ESTIMATE .....................................52 ASSUMPTIONS AND LIMITING CONDITIONS .........................................54 SPECIAL ASSUMPTIONS .........................................................56 ADDENDA .....................................................................58 <PAGE> INTRODUCTION ================================================================================ Identification of Property The subject property consists of a multi-tenant, 19-story, Class A office building with separate parking garage. The property is located on the west side of Magnolia Avenue, between Park Lane Street and Marks Street in the City of Orlando, Orange County, Florida. The property is known as One Orlando Center. The street address is 800 North Magnolia Avenue, Orlando, Florida. The property is identified on the Tax Rolls of the City of Orlando as parcel number 23-22-29-5640-01001. Property Ownership and Recent History The leased fee estate in the property is owned by Magnolia Associates, Ltd. which purchased the property from Olympia & York on March 1, 1994 for a reported consideration of $29,597,600 as recorded in the Orange County land records in Book 4706, Page 2478. At the time of sale, the property was reportedly 50 percent occupied. The current owners subsequently leased the property to its present 100 percent occupancy. There have been no other arms-length transfers of the subject property over the past five years. Purpose and Function of the Appraisal The purpose of the appraisal is to estimate the market value of the leased fee estate in the property, based upon prevailing market conditions, as of September 23,1997. The function of this appraisal is its use by Merrill Lynch in conjunction with a mortgage financing on a portfolio of properties including the subject. Extent of the Appraisal Process In the process of preparing this appraisal, we: o Inspected the exterior of the building, the site improvements and a representative sample of tenant spaces. o Interviewed a representative of the management company and the leasing agent for the property. o Reviewed leasing policy, concessions, tenant build-out allowances and history of recent rental rates and occupancy with the building manager and leasing personnel. o Reviewed a detailed history of income and expense and a budget forecast for 1997 including the budget for planned capital expenditures and repairs. o Conducted market research of occupancies, asking rents, concessions and operating expenses at competing buildings including interviews with on-site managers and a review of our own leasing data base from previous appraisal files. o Prepared an estimate of stabilized income and expense (for capitalization purposes). ================================================================================ -1- <PAGE> Introduction ================================================================================ o Conducted market inquiries into recent sales of similar buildings to ascertain sales price per square foot, effective gross income multipliers and capitalization rates. This process involved telephone interviews with sellers, buyers and/or participating brokers. (See detailed sales write-ups in Addenda for more complete information on the verification process.) o Prepared Sales Comparison and Income Capitalization Approaches to value. Dates of Value and Property Inspection The date of value is September 23,1997 which coincides with our most recent inspection of the property. Property Rights Appraised Leased fee estate. Definitions of Value, Interest Appraised, and Other Pertinent Terms The definition of market value taken from the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation, is as follows: 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 best interests; 3. A reasonable time is allowed for exposure in the open market; 4. Payment is made in terms of cash in United States 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. Exposure Time Under Paragraph 3 of the definition of market value, the values estimate presumes that "a reasonable time is allowed for exposure in the open market." Exposure time is defined as the estimated 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. ================================================================================ -2- <PAGE> Introduction ================================================================================ Definitions of pertinent terms taken from the Dictionary of Real Estate Appraisal, Third Edition (1993), published by the Appraisal Institute, are as follows: 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. Definitions of other terms taken from various other sources are as follows: Market Value As is on Appraisal Date Value of the property appraised in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications on the effective date of appraisal. Legal Description The subject property is identified as Parcel No. 23-22-29-5640-01001. We have been provided with a legal description of the property which is included in the addenda to this report. ================================================================================ -3- <PAGE> [REGIONAL MAP OMITTED] REGIONAL MAP <PAGE> ORLANDO REGIONAL ANALYSIS ================================================================================ The intent of the Regional Analysis is to review all relevant historical and projected economic and demographic data to determine whether the subject market area and neighborhood are likely to experience economic growth, stability or decline in the future. These trends are correlated based on their propensity to reflect lodging demand variations. Market Area Definition and General Geographic Character The subject property is located in the City of Orlando, Orange County, Florida. The primary market is considered to be the Orlando Metropolitan Statistical Area (MSA), which includes the counties of Lake, Orange, Osceola, and Seminole, in the State of Florida. Area Economic and Demographic Data As previously mentioned, the subject property is located in one of the nation's Metropolitan Statistical Areas (MSA) known as the Orlando MSA. Economic and demographic data for the MSA, as well as the County of Orange, and the nation as a whole, were obtained from Woods and Poole Economics. Data from other sources is noted where appropriate. The Woods and Poole data is summarized on the following page. Dollar amounts are adjusted to a 1987 base for each representative year; thus the real change represents growth or decline without inflation. The Woods and Poole data shows that the Orlando MSA, as well as the County of Orange, have experienced strong growth in the categories of income, population, employment, and retail sales categories during the period 1970-1980. The period 1980 through 1990 displayed continued strong growth in the same categories as that of the previous decade, while more recently, during the period 1990 through 1995, growth has continued in all of these categories at a more moderate pace than that of the previous two decades. Forecasts for the period 1995 through 2000 show expected growth levels similar to those of the period 1990 through 1995. ================================================================================ -5- <PAGE> <TABLE> <CAPTION> ==================================================================================================================================== ORLANDO, FL - ------------------------------------------------------------------------------------------------------------------------------------ 1970 1980 1985 1990 1995 1997 2000 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> Population and Income Data Resident Population (Thousands) ORLANDO, FL 529.7 813.4 996.3 1,239.1 1,390.6 1,501.4 1,667.2 6,864.9 9,841.1 11,351.1 13,019.1 14,165.6 14,734.3 15,578.8 USA 203,982.3 227,225.6 237,924.7 249,403.0 262,778.1 267,607.3 274,581.0 Personal Income (Millions)* ORLANDO, FL 6,777.2 13,113.9 17,990.8 23,299.3 27,941.5 30,474.4 34,904.7 91,526.3 165,436.5 212,379.0 263,298.6 303,771.2 324,123.5 356,544.0 USA 2,796,010.0 3,861,549.0 4,443,363.0 5,011,216.0 5,573,393.0 5,804,863.0 6,172,122.0 Per Capita Personal Income* ORLANDO, FL 12,793 16,123 18,057 18,803 20,093 20,297 20,936 13,333 16,811 18,710 20,224 21,444 21,998 22,887 USA 13,707 16,994 18,675 20,093 21,210 21,692 22,478 Number of Households (Thousands) ORLANDO, FL 169.92 298.28 373.74 467.61 516.21 558.68 622.14 Persons per Household ORLANDO, FL 3.01 2.66 2.60 2.58 2.63 2.62 2.62 2.87 2.54 2.48 2.46 2.51 2.51 2.50 USA 3.08 2.74 2.68 2.63 2.64 2.63 2.61 Mean Household Income* ORLANDO, FL 38,789 43,107 47,226 48,781 53,063 53,522 55,099 38,584 42,885 46,641 50,055 54,021 55,337 57,464 USA 42,571 46,806 50,267 53,149 56,251 57,295 59,023 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Employment Data (Thousands) Total Employment 231.9 416.9 563.2 751.3 873.1 904.9 992.5 Construction 19.9 28.0 44.3 51.4 52.4 53.7 57.4 Manufacturing 23.4 40.2 53.8 60.4 53.8 55.8 58.5 Transportation and Utilities (TCPU) 10.6 18.8 26.4 35.7 47.3 49.5 54.9 Wholesale Trade 14.9 24.1 31.4 37.6 43.3 43.9 46.5 Retail Trade 38.5 70.9 101.0 140.1 160.0 168.2 185.8 Finance, Insurance and Real Estate (FIRE) 18.4 39.1 49.3 60.3 68.9 71.1 77.6 Services 48.2 110.3 169.0 255.5 332.7 352.8 396.2 Government 41.4 59.7 59.7 67.8 63.7 60.0 15.3 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Retail Sales Data (Millions)* ORLANDO, FL 3,969.4 6,965.9 9,878.9 12,459.4 14,374.6 15,410.1 17,289.7 50,331.5 80,775.4 102,393.8 119,153.8 136,161.4 140,561.3 150,059.1 USA 1,271,773.0 1,636,426.0 1,820,063.0 1,926,189.0 2,136,866.0 2,160,626.0 2,239,888.0 Retail Sales By Category (Millions)* General Merchandise 550.4 760.4 979.8 1,387.8 1,697.2 1,839.3 2,092.0 Apparel and Accessories 147.5 273.3 414.6 620.1 731.7 775.4 863.8 Furniture, Home Furnishing 177.2 306.4 466.7 553.8 694.8 751.9 848.9 Eating and Drinking Places 280.7 699.3 1,071.2 1,603.4 1,921.4 2,096.0 2,407.8 Miscellaneous Retail Stores 379.7 648.0 959.2 1,146.5 1,162.2 1,213.4 1,339.5 GAF Total 875.1 1,340.1 1,861.1 2,561.8 3,123.8 3,366.7 3,804.7 - ------------------------------------------------------------------------------------------------------------------------------------ Real Dollars 1992 Source: Woods & Poole ==================================================================================================================================== <CAPTION> ------------------------------------------------------------- Average Annual Compounded Change 2010 1970-80 1980-90 1985-95 1990-97 1990-10 - ------------------------------------------ ------------------------------------------------------------- - ------------------------------------------ ------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Population and Income Data Resident Population (Thousands) ORLANDO, FL 2,203.1 5.35% 5.23% 3.96% 3.02% 4.67% 18,366.4 4.34% 3.23% 2.48% 1.88% 2.47% USA 297,640.7 1.14% 0.98% 1.04% 1.04% 1.12% Personal Income (Millions)* ORLANDO, FL 51,695.5 9.35% 7.77% 5.53% 4.40% 6.96% 479,162.6 8.08% 5.92% 4.30% 3.30% 4.78% USA 7,528,738.0 3.81% 2.98% 2.54% 2.26% 2.97% Per Capita Personal Income* ORLANDO, FL 23,465 2.60% 1.66% 1.13% 1.14% 1.56% 26,089 2.61% 2.03% 1.46% 1.25% 1.86% USA 25,295 2.40% 1.82% 1.36% 1.14% 1.66% Number of Households (Thousands) ORLANDO, FL 824.62 7.55% 5.68% 3.81% 2.78% 4.76% Persons per Household ORLANDO, FL 2.62 -1.16% -0.30% 0.12% 0.22% 0.00% 2.50 -1.15% -0.31% 0.12% 0.29% -0.04% USA 2.57 -1.10% -0.40% -0.15% 0.00% -0.23% Mean Household Income* ORLANDO, FL 61,656 1.11% 1.32% 1.24% 1.39% 1.52% 65,420 1.11% 1.67% 1.58% 1.51% 1.82% USA 65,447 0.99% 1.36% 1.19% 1.11% 1.42% - ------------------------------------------ ------------------------------------------------------------- - ------------------------------------------ ------------------------------------------------------------- Employment Data (Thousands) Total Employment 1,278.1 7.98% 8.02% 5.50% 2.92% 4.12% Construction 69.5 4.03% 8.37% 1.82% 0.65% 2.94% Manufacturing 65.7 7.18% 5.03% 0.01% -1.09% 1.77% Transportation and Utilities (TCUP) 72.8 7.78% 9.01% 7.92% 5.54% 4.70% Wholesale Trade 54.7 6.13% 5.60% 3.80% 2.40% 2.47% Retail Trade 240.8 8.39% 9.76% 5.85% 2.66% 4.32% Finance, Insurance and Real Estate (FIRE) 99.8 11.24% 5.44% 3.96% 2.55% 4.04% Services 541.9 12.89% 13.16% 9.69% 5.44% 5.36% Government 69.6 4.43% 1.35% 0.68% -1.63% 1.59% - ------------------------------------------ ------------------------------------------------------------- - ------------------------------------------ ------------------------------------------------------------- Retail Sales Data (Millions)* ORLANDO, FL 24,661.7 7.55% 7.89% 4.55% 3.38% 6.00% 190,620.8 6.05% 4.75% 3.30% 2.57% 3.56% USA 2,621,164.0 2.87% 1.77% 1.74% 1.74% 2.13% Retail Sales By Category (Millions)* General Merchandise 3,090.3 3.82% 8.25% 7.32% 4.65% 6.80% Apparel and Accessories 1,219.8 8.53% 12.69% 7.65% 3.58% 5.73% Furniture, Home Furnishing 1,224.5 7.29% 8.08% 4.89% 5.11% 6.28% Eating and Drinking Places 3,678.7 14.91% 12.93% 7.94% 4.39% 7.55% Miscellaneous Retail Stores 1,874.8 7.06% 7.69% 2.12% 0.83% 5.45% GAF Total 5,534.5 5.31% 9.12% 6.78% 4.49% 6.44% - ------------------------------------------ ------------------------------------------------------------- Real Dollars 1992 Source: Woods & Poole ========================================================================================================= </TABLE> <PAGE> Orlando Regional Analysis ================================================================================ Orlando Metropolitan Area The constantly changing nature of economic relationships within a market area have a direct bearing on real estate values and the long-term quality of a real estate investment. In the market, the value of a property is not based solely on the price paid for it in the past or the cost of its creation, but on what benefits buyers and sellers perceive it will provide in the future. Consequently, the attitude of the market toward a property within a specific neighborhood or market area reflects the probable future trend of that neighborhood. Since real estate is an immobile asset, economic trends affecting its locational quality in relation to other competing properties within its market area will also have a direct effect on its value as an investment. To accurately reflect such influences, it is necessary to examine the past and probable future trends which may affect the economic structure of the market area and evaluate their impact on the market potential of the subject. This section of the analysis will isolate and examine the discernible economic trends in the area which influence and create value for the subject property. The Orlando Metropolitan Statistical Area (MSA) is located in the geographical center of Florida and covers approximately 2,558 square miles in Orange (910 square miles), Seminole (298 square miles) and Osceola (1,350 square miles) Counties. Orlando, Winter Park and south Seminole County comprise the primary population base which covers approximately 300 square miles and is the growing hub of activity in Central Florida. The city of Orlando encompasses 43 square miles. In 1982, Walt Disney World completed construction of its $800 million EPCOT (Experimental Prototype Community of Tomorrow) development. Disney World employment reached some 20,000 persons. During EPCOT's first year in operation, Disney World attendance reached 22.3 million persons, up from 12 to 14 million persons in previous years. In January 1989, Walt Disney World announced the opening of their MGM Studios tour with an accompanying national advertising program. A fourth Disney attraction, the 500-acre Wild Animal Kingdom is scheduled to open in the spring of 1998. In late 1997, the 200-acre Walt Disney World International Sports Complex will open. This facility will accommodate professional training and competition facilities for a variety of sports. Today, Walt Disney World, the most visited tourist destination in the world, continues to be the major impetus for economic growth in Orlando. Commercial and financial interests have also been fostered by the tourism industry, combining to make Orlando one of the fastest growing MSA's in the United States. The fourth phase of the Orange County Convention/Civic Center's expansion was completed in August, 1996. The final phase, scheduled to be completed in January, 1998, will increase the Center's size to 1,100,000 square feet of contiguous exhibition space, all on one level. Upon completion of its expansion, the Center will be the sixth largest convention center in the United States. The facility broadens the appeal of the Orlando metropolitan area as a tourist and convention destination. The Orange County Courthouse (a $133,000,000 development), is expected to be completed in late 1997. ================================================================================ -7- <PAGE> Orlando Regional Analysis ================================================================================ The continued strengthening of the Orlando area as a major tourist destination, coupled with the establishment of the region as a center for banking and high technology industries, has had a positive impact on area population growth. During the 1970's, as Disney established itself in Central Florida, the Orlando MSA grew at a 4.4 percent compound annual rate. As the state and nation suffered through a recession in the early 1980's, Orlando's growth continued unaltered, reaching a population of 862,700 in 1985. As of 1990, population of the MSA was reported at 1,072,748 persons. As of 1995, the Orlando MSA population was estimated at 1,214,314 persons. The following table illustrates the rapid growth of the area with estimates for projected growth in the future. ============================================================== Population History and Projected Growth Orange Seminole Osceola Orlando Year County County County MSA ---- ------ ------ ------ --- 1960 263,540 54,947 19,029 337,516 1970 344,311 83,692 25,267 453,270 1980 470,865 179,752 49,287 699,904 1985 554,659 229,937 77,374 862,700 1989 668,649 289,035 99,819 1,032,636 1990 677,491 287,529 107,728 1,072,748 1995* 752,387 331,827 130,100 1,214,314 2000* 821,500 395,000 157,000 1,373,500 *Projections Source: U.S. Census Bureau ============================================================== Future population growth in the Orlando MSA is expected to slow significantly from the 1970 and 1980 paces. Nonetheless, projections indicate compound annual growth rates of 2.5 percent between the years 1990 and 2000, nearly double the growth rate projected for Florida, for the same period. Furthermore, while significantly down from the boom of 1987, when population grew by 85,000 persons, projections indicate the area will welcome nearly 30,000 new residents annually during the 1990's. The economic base of the Orlando area is becoming increasingly diversified with less dependence on any one sector. However, approximately 59.7 percent of the total labor force is spread among wholesale and retail trade and services. Government is the third largest employer with 12.3 percent of the labor force. The most recent annual average employment figures were available from Florida Department of Commerce. These figures indicate that manufacturing constitutes 7.35 percent of the total labor force; wholesale and retail trade constitutes 21.35 percent; services constitutes 45.94 percent; and government constitutes 10.34 percent. ================================================================================ -8- <PAGE> Orlando Regional Analysis ================================================================================ Between 1993 and 1995, the services sector has outpaced wholesale and retail trade, which historically has dominated the Orlando economy. The primary catalyst of this employment growth is Orlando's tourism industry, which continues to expand. The employment by industry category is shown in the following table. ============================================================== Employment by Industry category Orlando MSA Percent of Industry Number Total Manufacturing 48,600 7.35% Construction 30,300 4.58% wholesale & Retail Trade 141,200 21.35% Services 303,800 45.94% Finance, Insurance & Real Estate 33,000 4.99% Transportation & Public Utilities 30,000 4.54% Government 68,400 10.34% Other 6,000 .9l% ----- Total 661,300 100.0% Source: Florida Department of Commerce ============================================================== Projections indicate continued rapid expansion in the region's economy. Roughly 250,000 new jobs are expected to be created by the year 2000, with services, trade and high technology manufacturing cornering the largest share of this growth. Furthermore, with the civilian labor force expanded by a projected 75,000 persons between 1990 and 1995. Based on these factors, the Orlando area should ensure future growth by offering an adequate labor force for corporate expansion and relocation. Today, the area's major employers are household names in the tourism, banking, publishing, and high technology manufacturing fields. The table on the following page presents largest employers in the area by county. ================================================================================ -9- <PAGE> Orlando Regional Analysis ================================================================================ ================================================================================ TOP 10 EMPLOYERS BY COUNTY - -------------------------------------------------------------------------------- EMPLOYER NUMBER OF EMPLOYEES - -------------------------------------------------------------------------------- ORANGE COUNTY Waft Disney World 34,600 Orange County Public Schools 19,067 Orlando Naval Training Center 17,615 Martin Marietta Elect., Inf. & Mis. Group 9,000 Florida Hospital 6,277 AT&T Information Systems 5,200 Orange County Government 5,031 Orlando Regional Healthcare System 5,000 Winn Dixie Stores/Orlando 3,177 City of Orlando 3,100 - -------------------------------------------------------------------------------- SEMINOLE COUNTY - -------------------------------------------------------------------------------- Seminole County Sonools 5,500 Siemens Stromberg-Carlson 1,934 Florida Hospital/Altamonte 1,177 American Automobile Association 1,131 Seminole County Government 1,008 HCA Central Florida Regional Hospital 738 Tri-City Electrical Contractors, Inc. 654 United Telephone 649 Seminole County Sheriffs Department 539 City of Altamonte Springs 462 - -------------------------------------------------------------------------------- OSCEOLA COUNTY - -------------------------------------------------------------------------------- Osceola County Public Schools 3,000 Tupperware Worldwide 620 City of Kissimmee 579 Osceola County 557 Days Suites Complex 510 Humana Hospital Kissimmee 500 Hyatt Orlando 475 City of St. Cloud 320 Ramada Resort 305 Kissimmee Good Samaritan Village 300 ================================================================================ Source: Florida Department of Commerce Expansion and relocation activities continue to be a source of economic strength for the area. According to a representative of the Economic Development Commission of Central Florida, nearly 200 companies either expanded or relocated in the Orlando area between 1994 and 1995. This pace of expansions and relocations is expected to continue into 1997. The ================================================================================ -10- <PAGE> Orlando Regional Analysis ================================================================================ recent expansions and relocations generated or saved approximately 6,800 jobs, 1.8 million square feet of commercial and industrial space, and $220 million in capital investment. Companies which have recently announced their relocation to or expansion in the Orlando area include Airship International, ECI Telecom, Elson Thermoplastics, Florida Polymers, Healthco International, IBAX Healthcare, Lazerdata Corp., Maynard Electronics, Stanley Door Systems, Texas Instruments and Wurth Tools. The strength of the Orlando economy is also illustrated in the area's unemployment rate. unemployment in the Orlando area has consistently bettered the national and state rates. The following table outlines unemployment rates for Osceola County, Orange County and the Orlando MSA. ================================================================================ Year Osceola Country Orange County Orlando MSA ================================================================================ 1990 4.8 5.5 5.7 1991 6.2 6.8 6.8 1992 7.8 7.4 7.5 1993 6.3 6.2 6.2 1994 5.8 6.5 6.3 1995 4.8 4.5 4.5 1996 (Dec.) 3.5 3.2 3.2 ================================================================================ The Orlando area has a central location and is accessible by all modes of transportation. Highway accessibility is good via Interstate 4, which runs northeast to southwest through the mid-section of the area. This highway also connects to Interstate 95 at Daytona Beach and Interstate 75 near Tampa, thereby providing convenient access to other areas of the state and nation. In addition, the Florida Turnpike is located in the western portion of the area. This toll road connects to Interstate 75 north of Leesburg and extends south to Miami. There are also numerous local arteries which provide convenient access to specific points within the region. Rail transportation is provided by the Seaboard Coastline Railroad and by Amtrak. There are over 25 common carrier truck lines, and bus transportation is available via Greyhound Bus Line. The Orlando International Airport is the seventeenth most active airport in the nation and the 26th busiest airport in the world. Also, two multi-level parking facilities were opened in 1993. At present, 20 scheduled airlines serve the airport along with a number of air charter services. Total passenger traffic at the International Airport in 1995 was approximately 18 million persons. This total represents a significant increase over the 1990 total of 11 million passengers. The Orlando Executive Airport, which is near downtown Orlando, is also a popular site for corporate and private air travel. Retail sales trends are also an important economic indicator because they tend to measure the strength of the local population base and, in the case of a tourism dominated economy such as Orlando, the level of visitation. In the Orlando MSA, retail sales have far surpassed what would be expected from the combined effect of area inflation and population growth. These trends suggest that out-of-town visitors serve as a secondary consumer base ================================================================================ -11- <PAGE> Orlando Regional Analysis ================================================================================ for retail spending in Orlando. The retail sales for the Orlando area are shown in the following chart. ============================================================== RETAIL SALES TRENDS & PROJECTIONS (IN THOUSANDS) YEAR ORLANDO MSA STATE OF FLORIDA USA 1980 $4,764,148 $65,359,776 $1,332,009,000 1983 $5,296,499 $67,410,093 $1,353,372,000 1985 $6,458,126 $77,922,212 $1,474,056,000 1987 $7,210,402 $85,790,836 $1,544,897,000 1990 $9,895,768 $116,412,423 $1,970,503,000 1995 $15,104,519 $145,664,914 $2,355,242,000 ============================================================== Population and employment trends as well as retail sales levels provide an indication of commercial and tourism activities and subsequent demand for transient lodging facilities. The characteristics of Orlando's workforce and strength of the services and finance, insurance and real estate (FIRE) sectors indicate high potential levels of visitation. Retail sales, especially in the dining service areas, illustrate the role of Orlando's commercial establishments in serving a population which far exceeds the local resident base. Summary The recent trend towards corporate relocation and expansion, along with the growing tourist industry, should result in continued growth of the MSA. This growth will likely place some stress on local government services such as water, sewer, roads, police and fire protection, and schools. This problem is being addressed by various governmental agencies; such as a joint sewer project by the City of Orlando and Orange County. This project is planned to handle growth through the year 2000. Improvements to Interstate 4 are underway and expansion of other various roadways has helped to improve the roadway problem. In conclusion, the long-term outlook for Orlando and Central Florida is positive, both in terms of employment growth and national prominence. ================================================================================ -12- <PAGE> MARKET AREA ANALYSIS ================================================================================ The subject property is located in the northern section of the downtown area of the City of Orlando. Downtown Orlando is the primary legal, financial, service and professional office district of Central Florida. The Orange County Courthouse and Administrative Offices, Orlando City Hall and Police Department, Federal Courthouse and Orlando's main Post Office facility are all located within the business core. Several financial institutions and utility companies also have state and/or regional headquarters in the CBD. The neighborhood is characterized by high-rise and mid-rise office towers, interspersed with older single and two story commercial and light industrial improvements. Many older buildings in the neighborhood have been replaced by newer and larger facilities or have undergone renovation and remodeling programs. The City has also encouraged redevelopment of the downtown area by easing zoning regulations for those properties not improved with "historic structures," and by enhancing the aesthetic appeal of several of the main roads serving the district. The City also completed the construction of several multi-level parking garages, and a new bus terminal in an effort to deal with ever increasing traffic and resultant parking shortages. Boundaries The Central Business District is loosely defined by the major traffic routes which serve the area. These boundaries are further discussed below. Interstate 4 (Western Neighborhood Boundary) Interstate 4 is the primary traffic artery serving the metropolitan area. This limited access highway runs in a north/south direction through the Orlando area and beyond. Interstate 4 gives the area access to Tampa and the west coast of Florida, as well as metropolitan Daytona Beach on the east coast. Interstate 4 has four exits serving the downtown area. Holland East/West Expressway (Southern Neighborhood Boundary) The East/West Toll Road Expressway (SR 408) is located approximately 1.5 miles south of the property. The Expressway is a limited access toll road which provides a transportation route to the eastern and western periphery of the Orlando metropolitan area. The Expressway is also part of the Greeneway Toll Road system (SR 417) which presently accesses the eastern portions of Orange, Seminole and Osceola Counties. The Expressway has two exits serving the downtown area. Ivanhoe Boulevard/Interstate 4 (Northern Neighborhood Boundary) The interchange of interstate 4 and Ivanhoe Boulevard (along the south side of Lake Ivanhoe) forms the northern neighborhood boundary. This interchange is the northernmost exit serving the downtown area and is located about one mile north of the property. Areas to the north and west of this interchange tend to be more residential in character and Lake Ivanhoe forms the natural boundary or buffer between the commercial and residential neighborhoods. ================================================================================ -13- <PAGE> Market Area Analysis ================================================================================ Eastern Boundary The eastern boundary of the downtown area is loosely defined by a series of commercial collector roads. These roadways include Summerlin Avenue, Mills Avenue, and Highland Avenue. The downtown district extends eastward to include the area surrounding Lake Eola, southward to the East/West Expressway. New development of the eastern areas of the neighborhood has been less intense than has been experienced in the more central and northern areas of the district. Many of the buildings in the eastern neighborhood are professional offices which were converted from single-family residences. Developments The majority of new construction in the CBD occurred between 1983-1989. With the start of the 1990's came the national economic slowdown, and the resultant damper on new development interest downtown. Several major projects that were slated to come on line during the early part of this decade have been on hold, awaiting a change in economic conditions. However, the CBD still remains the focal point of activity, with new or proposed development highlighted by the current construction of the Orange County courthouse. The following chart summarizes current, proposed and speculative activity for several projects that have been offered over the past 4 to 5 years. <TABLE> <CAPTION> ==================================================================================================================== Name Description Year Built/ Size Proposed - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Orange County Courthouse Government complex Late - 1997 1.3 million SF (Under construction) 24-stories - -------------------------------------------------------------------------------------------------------------------- Jaymont Realty Retail & Office complex Late - 1998 24 - screen theater 125,000 SF - Retail 200,000 SF - Office Hotel & 800 space parking gargage. - -------------------------------------------------------------------------------------------------------------------- One Orlando Center II 25 stores, office/hotel Construction start 441,000 SF & 1,000 space offered at mid to garage. late 1998 - -------------------------------------------------------------------------------------------------------------------- 10.82 acres owned by Barnett Office/Hotel/Retail & the Speculative Unknown. Dependent upon Bank of Central Florida City's Lymmo bus terminal negotiations with City. - -------------------------------------------------------------------------------------------------------------------- Eola Park Center II 14 Stories Construction start 190,000 SF offered at mid to late 1998 - -------------------------------------------------------------------------------------------------------------------- Chunch Street West Retail/Entertainment/Office Construction start 140,000 SF offered at late 1998 - -------------------------------------------------------------------------------------------------------------------- </TABLE> While the new Orange County Courthouse is the only tangible development at present, the proposed developments exemplify the recovery of the CBD district. Each of these developments is discussed below. ================================================================================ -14- <PAGE> Market Area Analysis ================================================================================ Orange County Courthouse: This long awaited complex is in the latter stages of construction, having experienced significant delays and cost increases over its long planning and construction period. Originally proposed at $125+ million, current cost projections have been offered at $183+ million. However, the final total may range to $200 million by completion according to published reports. This development is within the block bounded by Orange Avenue (west), Magnolia Avenue (east), Livingston Street (south) and Amelia Avenue (north). Jaymont Realty: This proposed Development of Regional Impact (DRI) is to be located within the block bounded by Orange Avenue (west), Magnolia Avenue (east), Church Street (south) and Pine Street (north) and contains about 2.25 acres. Originally proposed for 552,000 SF of office space, 36,350 SF of retail and a parking garage (1,540 spaces), current plans entail a greater combination of retail and entertainment versus office space. The amended plan was recently approved by the City Council of Orlando on November 13,1995, having prior approval from the regional planning council. However, the current proposal still lacks the approval of the Orlando Historic Preservation Board, which will not comment until design plans are offered for review. No plans have been revealed to date. However, our interpretation of the information would indicate that this proposal has a very favorable probability. (Please refer to the following chart.) ================================================================ Land Use Original Approval Amended Approval Change ================================================================ Retail 36,350 SF 125,000 SF + 88,650 SF Theater -0- SF 90,000 SF + 90,000 SF Office 552,000 SF 200,000 SF -352,000 SF ================================================================ TOTALS 588,350 SF 415,000 SF -173,350 SF ================================================================ Parking 1,540 Spaces 800 Spaces -740 Spaces ================================================================ It should also be noted that the amended plan is also flexible to allow for hotel development, influenced by demand. The retail entertainment expansion offering was influenced by the success of two large temporary tenants in the existing structures, Terror on Church Street (a haunted house attraction) and Q-Zar (a laser video game arcade). These two businesses essentially extended the growing tourist traffic generated from the nearby Church Street Entertainment complex. A clear advantage to the new proposal regards a shifting of traffic volume to evening hours that the retail entertainment portion would generate. One Orlando Center II: This proposed development located adjacent to the subject has reappeared as a speculative development following the sale of the existing One Orlando Center in March 1994. The existing building along with an adjacent 2.0 acre site were part of a package sale of five office properties, three office buildings in New York City and one office building in Tucson, Arizona. The new owners, a partnership headed by Feldman Equities Inc. of New York, has recently announced that the "sister" building along with a parking garage could be under construction within two years. Reportedly, pre-leasing efforts are currently on-going. ================================================================================ -15- <PAGE> Market Area Analysis ================================================================================ Our analysis of this speculative construction is influenced by several factors. First, One Orlando Center I is currently 100 percent occupied. However, on the other side of the coin, the location is not within the recognized Cap core area. New opportunities associated with the Jaymont Realty proposed development and the Eola Park "sister" tower proposal offer superior locational opportunities for office space. Couple these announced developments with the speculation surrounding the Barnett Bank parcel (10.82 acres), impacts the reality of the proposed One Orlando Center II for the foreseeable future. 10.82 acres owned by Barnett Bank: This site represents the largest block of vacant land in the CBD area. Originally proposed as an office hotel complex, the uniqueness of this parcel is of great importance to the City of Orlando. Being located directly across Orange Avenue from the new courthouse, enhances the appeal of this site. The site was under contract for about $40/SF of land area, which represents Barnett Bank's position in the site, having acquired ownership through mortgage foreclosure. However, the contract did not dose. Currently speculation revolves around Pizzuti Development Inc., which is reportedly negotiating a purchase of the site. Area brokers indicated that the site will likely sell for $11 million which equates to approximately $23/SF of land area. Confirmation that Pizzuti is looking at the site is offered by recent meetings with the City of Orlando. Eola Park Centre II: This proposed development was announced in March 1995 to consist of "sister" office tower to the existing tower which was built in 1969. As part of the proposed development, the existing tower will be renovated and re-skinned to mirror the proposed new tower. The site for the proposed second tower is about one acre and fronts along Rosalind Avenue. Church Street West: This proposed development is being hailed as the beginning of an area redevelopment plan referred to as the Parramore Heritage Development plan. The proposal is estimated to cost $15 million and will include clubs, restaurants, sports bar and sports related retail and an office building. Together the development is estimated to encompass 140,000 SF of GLA. The City will assist in the development through its expenditure of $2.3 million (will include some federal funds) to renovate the I-4 underpass between the proposed project and the existing Church Street Station. However, this project has not been financed which may delay its offered construction start. The only other recent development was the new $36 million City Hall office complex and a parking garage. The City Hall represented that last new development when completed in 1991. The new building features classic dome-style architecture, and highlights Orlando's modem skyline. Lincoln Property Company of Florida, which built the City Hall, has the right to build two office towers adjacent to City Hall. However, if another developer starts an office tower in downtown Orlando before Lincoln starts on its property, Lincoln will lose its development right. ================================================================================ -16- <PAGE> Market Area Analysis ================================================================================ The subject improvements are constructed on a roughly rectangular parcel bordered by Park Lane Street to the south, Marks Street to the north, Orange Avenue to the west, and North Magnolia Avenue to the east. All of these roads are one-way macadam paved streets ranging in size from one to four lanes. North Magnolia Avenue is a north-bound roadway, Marks Street runs west-bound, Orange Avenue to the south, and Park Lane Street to the east. Immediately adjacent uses to the subject include a series of small one to three story buildings to the east across North Magnolia Avenue including a three story residential condominium, professional office and restaurant building as well as a vacant site. A single story sandwich shop is located diagonally across the intersection of North Magnolia Avenue and Marks Street. Across Marks Street to the north is a Senior Citizen Recreation Complex and a vacant site. Immediately west of the subject is a vacant site slated for development with the 450,000+ square foot Two Orlando Center. At the southwestern portion of this block is a vacant five story office building formerly occupied by Florida National Bank. Beyond these properties to the west is Orange Avenue with small one to two story professional office building fronting on its west side. Finally, to the south of the subject across Park Lane Street is a combination of small professional offices and vacant land. Infrastructure All public utilities are available in the neighborhood. The neighborhood has excellent access to major roadways throughout the metropolitan area with immediate proximity to the East/West Expressway and Interstate 4. Additional roadways providing access throughout the neighborhood would be Colonial Drive (Highway 50), Orange Avenue, and Rosalind Avenue. Downtown is also convenient to Orlando's two commercial airports, the Orlando Executive Airport and the Orlando International Airport. Future Outlook Downtown Orlando is expected to double in size over the next 20 years, going from 10 million square feet of commercial space to 20 million square feet. Anticipating the impacts on traffic, air quality, sewers, water and other services that such growth will create, the City has undertaken a study of downtown that will govern how downtown Orlando develops over the next two decades. The Downtown Development Board has prepared a Development of Regional Impact (DRI) application to the East Central Florida Regional Planning Council and the State Department of Community Affairs. The DRI pertains to parking needs, traffic control requirements, road access priorities and other necessary services which will impact all future downtown developments. The DRI covers a 1,185 acre area bounded by Parramore Avenue on the west, Lake Ivanhoe on the north, Summerlin Avenue on the east, and Gore Street to the south. The DRI covers an estimated 12,000,000 square feet future development over the next 20 years. Over the next five years, 1.8 million square feet of office space could be developed within the DRI's threshold. One of the issues addressed by the "Downtown DRI" is how Orlando will treat the future development of "historic" properties. The recent redevelopment wave of older properties in the downtown area into high rise office buildings, has led to a public concern for the preservation of Orlando's historic past. This concern, in turn, gave way to what can be described as a historic preservation movement. A Downtown Historic Preservation District has already been established to protect some of the older "historic" properties from the onslaught of developers. ================================================================================ -17- <PAGE> [NEIGHBORHOOD MAP OMITTED] NEIGHBORHOOD MAP <PAGE> ORLANDO OFFICE MARKET ANALYSIS ================================================================================ The following market study will examine the competitive Class A office building market within the Orlando Central Business District with regard to definition of market area, inventory, vacancy, rental characteristics, absorption and proposed construction. The subject, One Orlando Center, contains a current measurement of 357,181+/- rentable square feet of office space that is presently 100 percent leased. The market area and competitive properties identified in the subject's market sector are primarily the Class A buildings located within the Central Business District. The term Class A space in the context of this report includes modern buildings of concrete or steel frame construction built since the mid 1970s and offering good quality mechanical and electrical facilities, efficient floor layouts, aesthetic appeal and attractive interior finishes. In order to present the downtown Orlando market in the context of the Orlando office market as a whole, we will first summarize the size and scope of the entire Orlando office market. As of the end of the third quarter 1997, the greater Orlando office market consisted of a total of 18.9 million square feet of inventory in eleven submarkets. Of this total, approximately 9.4 million square feet or 49.7 percent is considered Class A inventory. As indicated in the chart on the following page, the CBD market is the largest with a total inventory of 5.068 million square feet and 3.27 million square feet of Class A space. The Maitland submarket is a close second with a total inventory of 3.681 million square feet, 3.1 million square feet of which is Class A space. The Orlando office market has remained healthy through the end of the third quarter. The overall vacancy rate remains in the single digits and Orlando is entering the final quarter of 1997 with the lowest vacancy rate of all Metropolitan Statistical areas within the State of Florida for the second quarter in a row. Leasing activity has been substantial, with a total of 383,259 sf leased during the third quarter. Net absorption for the year is 798,001 sf, with a third quarter total of (34,405) The negative figure is due in large part to the increase in formerly occupied office space. Construction activity throughout the Orlando office market remains steady. The area has witnessed the delivery of 356,271 Sf of new construction during the first three quarters of 1997. Furthermore, the existing inventory will soon be augmented with the addition of 647,824 sf of office space currently under construction. Coupled with the fact that there are currently 28 proposed projects totaling 4,282,799 sf the Orlando office market remains a hotbed of activity. Eight of the proposed office projects are located within the CBD, which has been suffering from a lack of alternatives for large blocks of class A office space. New construction during the third quarter consisted of 125,155 sf of class A office space at the 600 International Business Center in the Longwood/Lake Mary submarket. The building was completely pre-leased by First USA, Inc., which may soon be entertaining expansion opportunities. Other key developments under construction include The Crescent at Primera and 701 International Parkway, also in Longwood/Lake Mary, Lucien Pointe and Maitland Green II in the Maitland submarket and Gran Park at SouthPark in the Southwest area. ================================================================================ -19- <PAGE> <TABLE> <CAPTION> ================================================================================================================================= Orlando Office Market Office Market Report Statistical Summary Third Quarter 1997 ================================================================================================================================= Ytd Direct Direct Ytd Sq.Ft. Submarket Direct Overall Net Asking Asking Leasing Under Name Inventory Vacancy Rate Vacancy Rate Absorption Rental Rate Rental Range Activity Construction <S> <C> <C> <C> <C> <C> <C> <C> <C> CBD 5,068,560 8.2% 8.7% (2,952) $ 16.65 $11.00-25.00 270,445 0 Class A 3,266,582 3.4% 4.2% 84,837 $ 23.44 $19.00-25.00 183,529 0 Maitland 3,681,088 3.7% 3.8% 319,955 $ 19.34 $13.50-22.00 452,474 173,038 Class A 3,099,432 3.2% 3.4% 239,521 $ 19.99 $16.50-22.00 382,183 173,038 Altamonte 1,227,129 5.1% 5.1% (6,174) $ 13.56 $10.00-16.50 101,296 0 Class A 94,557 4.2% 4.2% (1,966) $ 14.00 $14.00-14.00 2,473 0 Longwood/Lk Mry 1,582,081 2.8% 2.8% 314,105 $ 16.23 $8.50-20.00 249,427 275,084 Class A 1,156,868 1.2% 1.2% 306,655 $ 18.24 $18.00-18.50 218,182 275,084 Lee Road 1,224,555 5.2% 5.5% 49,696 $ 14.42 $9.00-16.50 118,225 0 Class A 0 0.0% 0.0% 0 N/A N/A 0 0 University 747,885 0.0% 0.0% 0 N/A N/A 5,800 0 Class A 672,085 0.0% 0.0% 0 N/A N/A 5,800 0 436 Corridor 1,505,034 9.8% 11.2% 670 $ 14.13 $10.00-16.00 62,405 0 Class A 0 0.0% 0.0% 0 N/A N/A 0 0 Winter Park 837,925 4.4% 4.4% 660 $ 16.72 $11.00-20.00 34,931 0 Class A 0 0.0% 0.0% 0 N/A N/A 0 0 Intl. Airport 503,036 17.9% 17.9% 61,951 $ 17.00 $16.50-17.50 21,904 0 Class A 503,036 17.9% 17.9% 61,951 $ 17.00 $16.50-17.50 21,904 0 Colonial Drive 399,924 15.6% 15.6% 4,409 $ 13.52 $11.00-17.00 35,372 0 Class A 0 0.0% 0.0% 0 N/A N/A 0 0 Southwest 2,160,767 12.2% 12.2% 55,681 $ 16.69 $9.00-23.50 175,146 199,608 Class A 615,349 10.1% 10.1% 8,926 $ 22.40 $17.50-23.50 67,342 199,608 Total 18,937,984 7.0% 7.3% 798,001 $ 16.26 $8.50-25.00 1,527,425 647,824 Class A 9,407,909 4.0% 4.4% 699,924 $ 20.55 $14.00-25.00 881,413 647,824 </TABLE> <PAGE> Orlando office Market Analysis ================================================================================ The CBD, which represents 27 percent of the total market, has a current vacancy rate of 8.2 percent, down slightly from year end's 8.6 percent. To date, leasing activity in the CBD totals 270,445 sf with current net absorption of (2,952). Leases of note during the third quarter include CNL's lease of 16,419 sf at City Hall Plaza and HDR Engineering's lease of 4,077 sf at Signature Plaza. Hurley & Rogner, P.A. also signed a 13,950 sf sublease at the SunTrust Center. The non-CBD has experienced 800,953 sf of net absorption so far this year, which is 181,368 sf greater than the absorption for all of 1996. The suburban submarkets have also experienced an impressive 1,256,950 sf of leasing activity during the first three quarters and are enjoying a current vacancy rate of 6.7 percent, a decrease of 3 8 percentage points over year end 1996. Several key leases that transpired during the third quarter include: <TABLE> <CAPTION> ===================================================================================== Tenant Submarket Location SF ===================================================================================== <S> <C> <C> <C> Florida Hospital Lee Road Corridor Florida Hospital Bldg. 14,866 SF - ------------------------------------------------------------------------------------- Managed Comp Maitland Maitland Summit I 12,020 SF - ------------------------------------------------------------------------------------- Intermedia Communications Maitland 555 Winderley Place 10,000 SF - ------------------------------------------------------------------------------------- Hard Rock Cafe Southwest AmSouth Building 9,535 SF - ------------------------------------------------------------------------------------- HRH Insurance, Inc. 436 Corridor Koger-Palmetto Bldg. 9,000 SF - ------------------------------------------------------------------------------------- Department of Revenue Lee Road Corridor The Promenade 6,500 SF - ------------------------------------------------------------------------------------- Federal Aviation Authority Airport Area Citadel International 7,500 SF ===================================================================================== </TABLE> Orlando has seven major class A submarkets which compete for corporate office users and totals just over 9.4 million square feet. Net class A absorption for the year-to-date is 699,924 sf. The currency vacancy rate for class A space is 4.4 percent well below stabilized levels and current availabilities total 410,462 sf. There is such a market for class A space that in the CDB alone there is a 4.3 percentage point difference between the overall vacancy rate and the class A vacancy rate. Maitland is the second largest submarket in terms of class A space and the vacancy rate there is very low at 3.4 percent. The weighted average direct asking rental rate for available space has increased to its current level of $20.77 psf from $18.73 psf at the end of 1996. Strong tenant interest in the market, coupled with increasing rental rates and strong demand for new construction has left the Orlando office market quite favorable for landlords and it continues to spark investor interest. Such investor interest is best explained by example. To date, the market has seen a total of twelve buildings change hands, seven of which were investor sales. Notable transactions to date include the following: ======================================================================= Building Submarket Sale Price Price/SF ======================================================================= Barnett Bank Center CBD $60,725,000 $144.32 ---------------------------------------------------------------------- Citruis Center CBD $28,500,000 $110.33 ---------------------------------------------------------------------- American States Bldg. Maitland $ 5,160,000 $ 98.29 ---------------------------------------------------------------------- 800 Trafalgar Maitland $ 3,039,000 $ 53.96 ---------------------------------------------------------------------- Former NCR Building Maitland $ 1,950,000 $ 78.00 ======================================================================= ================================================================================ -21- <PAGE> Orlando Office Market Analysis ================================================================================ Orlando should continue to perform well for the remainder of 1997. At the end of the third quarter there were still several large leases out for signature, which will positively impact year-end statistics. Rental rates, which have been on the rise since the end of 1996, will continue to rise, although at a less rapid pace. Downtown Orlando Office Market - Overview The Central Business District (CBD) has continued the steady pace with which it began this year and is not showing any signs of slowing down. With an current overall vacancy rate of 6.6 percent, space within the CBD continues to tighten. Net absorption during the second quarter was 40,573 sf with a year to date total of 117,944 sf. However, it is unrealistic to expect this trend to continue considering the low vacancy factor and the shortage of space downtown. Leasing activity during the second quarter totaled 97,578 sf, which represents a 37 percent increase over the same period last year. The CBD was largely a sublease market during the first quarter of 1997 but the environment is again changing as the vast majority of available sublease opportunities have been seized by tenants. We are once again witnessing the decrease of available office space coupled with an increase in overall asking rates. In addition, subleases are rolling over into direct leases offered through landlords, as was the case in the 24,592 sf leased by the Education Institute of the Hotel/Motel Association at One Orlando Centre. Other key direct leases include MFS's lease of 5,311 sf at Landmark I and Arthur J. Gallagher's lease of 4,418 sf at Signature Plaza. The limited amount of space within the CBD has allowed for rising asking rates for several successive quarters. The current overall asking rate is now $20.06 psf, an increase of $1.75 psf over the second quarter of 1996 and $1.05 psf over year end. Class A space is leasing for an average of $23.03, which represents a $0.88 increase over year end's $22.15. The lack of quality space has led to the often voiced need for a new CBD office tower. There are several developers proposing such a tower, including two very talked about projects. Pizzuti Development is currently seeking FM approval for a 400,000 sf office tower, which would be the tallest office building in the Orlando area. Associated Capital Properties is also proposing a multi-building office project adjacent to their 201 E. Pine Street building which rivals the Pizzuti development. In addition, the Orange County Courthouse is nearing completion, which is expected to augment demand for space at the north end of downtown by legal and hospitality users. ================================================================================ -22- <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ Competitive Office Building Summary One Orlando Center 800 North Magnolia Avenue Orlando, Florida - ------------------------------------------------------------------------------------------------------------------------------------ Estimated Average Year Total Available Vacancy Asking Property/Location Completed Sq. Ft Space Rate Rent Comments <C> <S> <C> <C> <C> <C> <C> <C> 1 Subject/One Orlando Center 1987 357,181 - 0.0% $ 21.00 Rent is gross plus annual bumps and increases over base year expenses 2 Gateway Center 1989 215,708 6,825 3.2% $19.50-$21.00 Gross rent + annual bumps and increases over base year expenses 3 Landmark Center I & II 1983/85 440,273 - 0.0% $ 20.00 Gross rent + annual bumps and increases over base year expenses 4 Nationsbank Tower 1986 223,190 7,387 3.3% $ 22.00 Gross rent + annual bumps and increases over base year expenses 5 201 E. Pine St. 1975 247,609 - 0.0% $ 21.00 Gross rent + annual bumps and increases (Colonial Bank Building) over base year expenses 6 First Union Building 1983 255,724 1,754 0.7% $ 19.00 Gross rent + annual bumps and increases over base year expenses-lower end Class A 7 Citrus Center 1972 264,719 15,647 5.9% $ 21.00 Gross rent + annual bumps and increases over base year expenses 8 Signature Plaza 1982 268,962 25,001 9.3% $ 23.00 Gross rent + annual bumps and increases over base year expenses 9 Barnett Bank Center 1987 420,719 - 0.0% $ 25.00 Gross rent + annual bumps and increases over base year expenses-1 of 2 premier bldgs. 10 Suntrust Center 1988 569,678 33,460 5.9% $ 24.00 Gross rent + annual bumps and increases over base year expenses-1 of 2 premier bldgs. Total Sq. Ft. Area in Survey 3,263,763 90,054 2.8% - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <PAGE> Orlando Office Market Analysis ================================================================================ Inventory Statistics The last major additions to the Downtown Class A market were One Orlando Center in 1987, Suntrust Center in 1988, and Gateway Center in 1989. Since the addition of the 1.1+/- million square feet contained in these three buildings, there have been no additions to inventory. As touched on earlier, current rental and occupancy rates suggest that new development will take place in the near future. Brokers and developers interviewed however, all indicated that new projects will have a very difficult time finding financing without a 50 percent level of preleasing. Though rumors continue as to the identity and size of potential large office occupants into the market, no single or group of users large enough to spur new development have committed to the area. Though a limited number of landowners in this market reportedly have sufficient capital to begin projects without financing, none have actively begun development of downtown inventory. The market is currently such that the first major Class A building to come out of the ground will likely be the only one for some time as the market absorbs the space. As presented earlier, there are a number of potential entrants in the market. The table on the previous page shows a survey of existing Class A downtown buildings considered most directly competitive to the subject. As indicated, the total inventory is approximately 3.26 million square feet with a surprisingly low vacancy rate of only 2.8 percent. All of the buildings were completed since 1972 and all are in excess of 200,000 square feet. Though they range in terms of desirability, all are considered competitive Class A buildings. Vacancy As indicated in the previous table, the overall market vacancy rate for directly competitive Class A CBD properties is currently at 2.8 percent. This reflects the continuing trend toward shrinking vacancy rates as presented in the following table. ================================================== ORLANDO CBD OFFICE MARKET VACANCY TRENDS ================================================== Year Overall CBD Class A CBD -------------------------------------------------- 1993 14.3% 12.2% -------------------------------------------------- 1994 12.3% 10.7% -------------------------------------------------- 1995 8.2% 7.2% -------------------------------------------------- 1996 8.6% 7.9% -------------------------------------------------- YTD 1997 6.6% 4.2% ================================================== The overall CBD Class A inventory, which includes properties not considered directly competitive with the subject, currently exhibits a vacancy rate of 4.2 percent. With the exception of 1996 which exhibited a slight increase over 1995 in terms of vacancy, the market has been on an improving trend since 1993. Rental Rates The lease rates quoted are generally on a gross basis, plus a pro rata share of increases over base year expenses and include a tenant work letter ranging from $10.00 to $20.00 per square foot for new leases and $2.00 to $5.00 per square foot for renewals. Asking rents have increased fairly steadily since 1993, particularly to date in 1997. From a level of just over $20.00 per square foot in 1993, current average asking rents are in the $23.00 to $24.00 per square foot range and the average actual lease rate is $23.03, representing an increase of $0.88 over 1996 ================================================================================ -24- <PAGE> Orlando Office Market Analysis ================================================================================ year end's figure of $22.15. Rental rates are projected to continue to grow going forward until another downtown Class A building comes on-line. Absorption With the exception of 1995, absorption has historically been strong in the Orlando CBD. The following table summarizes historical absorption for the overall downtown market since 1993 based on Cushman & Wakefield's Orlando Office Market Report. ================================================================================ HISTORIC ABSORPTION - ORLANDO CBD OFFICE MARKET ================================================================================ 1993 1994 1995 1996 YTD 2Q 1997 Average - -------------------------------------------------------------------------------- CBD 140,883 113,981 167,744 15,075 117,944 134,714 ================================================================================ Parking In general terms, the City of Orlando's long range plan is to discourage the use of private automobiles in the downtown area. Recent amendments to the City's zoning ordinance tend to limit the amount of off-street parking which an office development project can provide. This is in contrast to existing office properties which were constructed with adequate on-site parking facilities during the 1970s and 1980s. With office occupancy rates on the rise, building owners have begun to charge new tenants for parking at rates ranging from $45 to $65 per month per space with a ratio of approximately 2 to 2.5 spaces per 1,000 square feet of rentable area. This trend is expected to continue as the demand for space continues to outpace new supply. Any of the aforementioned proposed developments will not be permitted with parking facilities considered sufficient to accommodate the building occupants. The potential for additional parking revenue for those existing buildings, therefore, is projected to continue to grow, even as growth in office rents may level off upon completion of new Class A product. Lease Parameters The typical lease terms vary between 3 and 15 years. Institutional tenants tend to secure 10 to 15 year leases with provisions for obtaining option additional space. Local and lesser established tenants desire 3 to 5 year obligations. In general, tenants occupying less than approximately 5,000+/- square feet seek terms in the 3 to 5 year range. Free rent is virtually nonexistent and tenant work allowances have generally been shrinking. Tenant work ranges from $10 to $15 per square foot for new tenants and $2.00 to $5.00 per square foot for renewal tenants. Larger work letters are typically compensated for by higher lease rates. ================================================================================ -25- <PAGE> Orlando Office Market Analysis ================================================================================ Conclusion The Orlando downtown office market has performed very well over the past three to four years. Occupancy and rental rates are on the rise while tenant work allowances have generally been shrinking. At present, there is a large volume of potential inventory on hold in various planning or approval stages. Most market participants feel that these buildings will only be actively developed upon the securing of a 50 percent level of preleasing and that the first building to come out of the ground will likely be the only one for some time. Assuming these projections hold true, the current prognosis for the downtown Orlando market is generally good going forward. ================================================================================ -26- <PAGE> PROPERTY DESCRIPTION ================================================================================ Site Description Property: One Orlando Center 800 North Magnolia Avenue Orlando, Florida Location: The site is located on the west side of Magnolia Avenue, between Park Lane Street and Marks Street in the City of Orlando, Orange County, Florida. Shape: Generally rectangular, please refer to the site plan on the facing page Land Area: 5.53+/- acres Frontage: We have been provided with a site plan which does not indicate the length of road frontage. According to the legal description presented in the addenda, the subject has a total of 590.5 feet of frontage on the west side of Magnolia Avenue. Topography/Terrain: The site is generally level Street Improvements: Curbing, sidewalks and street lighting 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 the existing structure. We did not observe any evidence to the contrary during our physical inspection of the property. The tract's drainage appears to be adequate. Utilities: All municipal utilities including electric, telephone, water, and sewer are available and installed at the subject site. Gas is not available or installed. Access: Vehicular access to the site is available via driveways on the west side of North Magnolia Avenue, the east side of Orange Avenue, and the north side of Park Lane Street. 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. ================================================================================ -27- <PAGE> Property Description ================================================================================ Flood Hazard: According to the National Flood Rate Insurance Map No. 120186 0015D, the subject is not located in a Flood Hazard Zone and, therefore, does not require flood hazard insurance. A copy of the flood zone designation obtained from the City of Orlando Public Works Department can be found in the addenda. Wetlands: We were not given a Wetlands survey. However, it appears that the subject is not encumbered by regulated wetlands. Site Improvements: The site features an on-site structured parking garage containing parking facilities for 1,390 cars on seven levels. Additional on-site grade level parking is available to the west of the subject which is used principally for loading. Comments: Overall, the site was found to be a functional parcel, well suited for its existing use and typical of this area. Improvements Description The improvements consist of a 19-story Class A office building. The property contains a rentable area of 357,181+/- square feet and a gross building area of 383,599+/- square feet. The building was completed in 1987. The following description of the improvements is based upon the physical inspection of the property along with our discussions of the property with ownership and management. General Description Year Built: 1987 Gross Area: 383,599+ SF Rentable Area: 357,181+ SF Building Height: 19 stories Stacking Plan: Please refer to the chart on the facing page. The total net rentable area indicated in the chart differs slightly from that derived from the sum of the rentable areas cited in the tenants' lease abstracts. Construction Detail Foundations: Foundations appear to be constructed of poured concrete. Framing: Framing throughout the property is structural steel Ceiling Height: Slab to slab ceiling heights are 12.5 feet. Floors: Poured concrete ================================================================================ -28- <PAGE> Property Description ================================================================================ Exterior Walls: The exterior curtain walls are reflective glass and stone panels Roof Cover: Rubber membrane Windows: Windows throughout the property are fixed, double pane units. Pedestrian Doors: The pedestrian doors are swinging and revolving glass units. Mechanical Detail Heating and Cooling: Air conditioning is provided by a central electric system which provides chilled water to air handlers on each floor. The property has no central heating system. In the event heat is needed in the building, there are electric units located on the air ducts on each floor. Plumbing: The building features one men's and one women's common lavatory on each floor. Electrical Service: The building has adequate commercial grade electric service. Elevator Service: The subject office building is serviced by a total of eight elevator units. Six, 3,500 pound capacity cabs service the first through 18th floor. One similar unit services floors 18 and 19. There is one 3,000 pound elevator which services floors one and two and is used primarily for freight. Finally, there are three, 3,500 pound capacity units which serve the parking garage. Security/Fire Protection: Smoke detectors, sprinkler system, standpipe system, and emergency lighting. Interior Detail Layout: The main entrances to the subject are located at the southeast and northwest corners of the building. An additional entrance is available via an enclosed, second floor walkway providing direct access from the parking garage to the north. The entrances open to a two-story atrium lobby off of which are various sundry shops, office space, and elevator bank. There are also open marble staircases providing access between floors 1 and 2. Floors 3 through 19 house general office space. The 19th floor is not directly accessible by the main elevator-banks but can be reached by an elevator serving the 18th and 19th floors as well as an open staircase. There are two additional staircases ================================================================================ -29- <PAGE> Property Description ================================================================================ providing central access throughout the building. The loading facilities are located on the west side of the first floor of the building and consist of three enclosed tailboard level loading docks. Floors: The finished floors vary from level to level and from tenant to tenant. Generally speaking, the interior finishes are high quality and include floors of marble, hardwood, granite, commercial grade carpet, and vinyl or ceramic tile. Ceilings: Ceilings throughout the property are either suspended acoustical tile or painted drywall. The area between the slab and the tiles is generally filled with duct work and wiring. Walls: Walls throughout are sheetrock over metal studs. Generally, the sheetrock walls are painted or are treated with various wall coverings. Lighting: Lighting is a combination of recessed fluorescent and incandescent fixtures. Restrooms: Each floor is equipped with common men's and women's restrooms. 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. Americans With Disabilities Act Compliance: The Americans With Disabilities Act (ADA) became effective January 26, 1992. According to building management, the subject has been brought into compliance with the requirements of the ADA. 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 ================================================================================ -30- <PAGE> Property Description ================================================================================ with the results of a survey, we did not consider possible noncompliance with the requirements of ADA in estimating the value of the property. Other: The subject also features a seven-level detached structured parking garage located immediately north of the office building. This garage contains parking for a total of 1,390 cars. The entrance and exit are located at the southern end of the structure, facing the office building. Condition: The subject improvements are constructed of high quality materials and have been very well maintained since their completion in 1987. Comments: The quality of the subject improvements is rated to be very good. The layout and functional plan are considered to be consistent with current market demands. The building was completed in 1987 and has been very well maintained since its completion. Other than second floor bathroom repairs, there are no major capital items which were noted as being required as of the date of this report. ================================================================================ -31- <PAGE> REAL PROPERTY TAXES AND ASSESSMENTS ================================================================================ The subject property is indicated as Parcel Number 23-22-295640-01001. The 1996-97 fiscal year is the most recent year for which assessed valuation and properly tax information is available. The current assessment is as follows: Land $ 9,629,400 Improvements 31,609,978 ----------- Total $41,239,378 According to the City of Orlando Assessor, the subject assessments represent approximately 100 percent of fair market value according to the City. This would indicate a value for the subject property of $107.51 per square foot of gross building area based on a gross building area of 383,599 square feet or $115.46 per square foot of net rentable area based on a net rentable area of 357,181+/- square feet. In order to evaluate the reasonableness of the subject's assessment, we have compared it to assessment levels of other Class A office buildings in downtown Orlando. The following table summarizes the assessments in total and per square foot of gross building area for several comparable downtown Orlando Class A office buildings. REAL ESTATE TAX COMPARABLES - ONE ORLANDO CENTER, ORLANDO, FLORIDA <TABLE> <CAPTION> =================================================================================================== Total Building Parking Building Size Land Area Assessment Property Assessment Age Facilities (SF GBA) (Ac.) SF Bldg Area =================================================================================================== <S> <C> <C> <C> <C> <C> <C> Colonial Bank Bldg. 201 E. Pine St. $24,839,726 1975 Surface 251,994 7.95 $ 98.57 - --------------------------------------------------------------------------------------------------- Signature Plaza 5-level 201 S. Orange Ave. $25,841,750 1982 garage 298,000 1.98 $ 86.72 - --------------------------------------------------------------------------------------------------- DuPonte Center 390 N. Orange Ave. $50,261,239 1988 Minimal 568,647 2.73 $ 86.39 - --------------------------------------------------------------------------------------------------- NationsBank Tower 4-level 111 N. Orange Ave. $24,865,313 1986 garage 255,763 1.1 $ 97.22 - --------------------------------------------------------------------------------------------------- First Union Tower garage & 20 N. Orange Ave. $22,622,609 1983 surface 267,309 2.32 $ 84.63 - --------------------------------------------------------------------------------------------------- SunTrust Tower 7-level 200 S. Orange Ave. $91,030,745 1958 garage 733,991 3.88 $124.02 - --------------------------------------------------------------------------------------------------- Citrus Center 5-level 255 S. Orange Ave. $20,593,790 1971 garage 258,321 2.28 $ 79.72 - --------------------------------------------------------------------------------------------------- 7-level Subject $41,239,378 1987 garage 383,599 5.53 $107.51 - --------------------------------------------------------------------------------------------------- Average (excluding subject) $ 94.18 =================================================================================================== </TABLE> As indicated by the information presented in the chart, the subject's assessments on a per square foot of gross building area basis are slightly higher than the average of the real estate tax comparables presented but considered reasonable overall given the age, size, and condition of the properties as well as the subject's parking facilities. According to the Orange County Tax Collector, the combined county, school, city and miscellaneous taxes applicable to the subject property for the coming tax year will be $929,635.68, reflecting an effective tax rate of $22.5424 per $1,000 of assessed value. Since Orange County reviews assessment levels on an annual basis, the subject's assessment and tax liability has increased at a rapid pace over the past few years as the building's occupancy and the market as a whole have improved dramatically over that time frame. For example, the subject's ================================================================================ -32- <PAGE> Real Property Taxes and Assessments ================================================================================ assessment and tax liability for the previous tax year were $34,883,796 and $789,640.49, respectively, based on a total tax rate of $22.6363 per $1,000 of assessed value, representing an increase of 17.73 percent. As the property is currently at 100 percent occupancy, there is not likely to be a real estate tax increase exceeding the underlying rate of inflation going forward. We have therefore projected an annual increase in the effective tax rate going forward of 3.0 percent. Real estate taxes are due in March of the current tax year. Property owners are able to take advantage of up to a 4 percent discount on the total tax bill by paying real estate taxes in November of the prior year. The discount is reduced by one percent per month for payments received after November until it is burned off by March. We have assumed that the subject property would be competently managed whereby the tax discount would be taken advantage of. Assuming an inflationary increase in the real estate tax liability, combined with the 4 percent discount, we have projected a first year tax liability in our cash flow projection of $930,000, rounded. ================================================================================ -33- <PAGE> ZONING ================================================================================ The subject property is located in the AC-3A/T Downtown Activity Core Center District, as outlined in the zoning ordinance of the City of Orlando. Permitted uses include: multi-family, mixed residential office uses, hospitals, hotels, motels, office, and light retail. The permitted uses are subject to the following bulk and yard requirements: FAR min./max.: 0.75/3.0 Minimum Site Frontage: 25 feet Minimum Setbacks: Front Yard (min./max.): 0 feet/5 feet Side Yard (min./max.): 0 feet/25 feet Rear Yard: 10 feet Maximum Building Height: Dictated by the FAA Minimum Parking Requirement: 2 sp./1,000 sf Maximum Parking Requirement: 3 sp./1,000 sf until 12/31/95 2.5 sp./1,000 sf from 1/1/96 to 12/31/00 2 sp./1,000 sf thereafter The subject property went through the City approval process and is considered a legal use according to the Orlando Department of Planning and Zoning. As indicated, the City of Orlando is attempting to encourage public transportation into the City and discourage the use of the personal automobile, in part through the use of zoning restrictions on office building parking facilities. Other initiatives include a proposed light rail system and increased public busing. The impact of this trend on the subject, which has an adequate parking ratio of 3.89 spaces per 1,000 square feet of net rentable area, is to provide for significant upside income potential as property owners begin to charge for parking as the market continues to improve and any new office development is discouraged from providing adequate parking. 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. ================================================================================ -34- <PAGE> 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 reasonable 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. As Vacant Our initial consideration of the subject site as vacant concerns the land uses which are physically possible on the subject parcel. The subject site contains a total of 5.53t acres of land area. The parcel has adequate road frontage. The size and configuration of the site are felt to provide development potential for a wide variety of uses. Access and exposure are felt to be good for office use. Municipal utilities are adequately provided for all conceivable uses. The street improvements are also adequate. Therefore, the physical characteristics of the site provide a wide range of potential land uses. Secondly, we must consider the land uses which are legally permissible based upon the prevailing zoning and land use ordinances. The subject's zoning classification is fairly liberal with regard to permitted uses. Office uses are, however, most consistent with the overall development of the downtown Orlando area. Finally, we have considered the possible land uses which would be financially feasible and which would produce the highest net return to the land. As noted in our discussion, an office use is felt to be the most appropriate land use for the subject. Vacancy and rental rates in the downtown Orlando area, while improving dramatically over the past few years, have not yet reached the point where new speculative construction is yet feasible. Based upon the foregoing, we conclude that the highest and best use of the site as vacant is for a Class A office building, upon a continued improvement in market conditions which would justify speculative new construction, or alternatively, upon securing of a tenant for at least a significant portion of the proposed project. As Improved Unlike the previous analysis of the site as vacant, this analysis considers the subject property as currently improved with an evaluation of the physical, legal and financial appropriateness of the existing land use. Relative to the physical considerations, the subject site is improved with an existing office structure and based upon our observations, there are no apparent physical factors such as, soil, drainage or other site characteristics which would adversely affect the continued utility or existence of the subject improvements. ================================================================================ -35- <PAGE> Highest and Best Use ================================================================================ In relation to the legal considerations, the subject site, as presently improved, represents a legal use. Finally, in consideration of the appropriately supported and financially feasible land uses, the use of the subject improvement is considered to contribute in an economic manner to the subject site. In the foreseeable future, this will produce a level of return which is consistent with investment grade real estate. Therefore, based upon the subject's historical performance and overall character, it is our opinion that the highest and best use of the property, as improved, is a commercial office building. ================================================================================ -36- <PAGE> VALUATION PROCESS ================================================================================ Appraisers typically use three approaches in valuing real property: the Cost Approach, the Income Capitalization Approach, and the Sales Comparison Approach. The type and age of the property and the quantity and quality of data affect the applicability of each approach in a specific appraisal situation. The sales of existing properties similar to the subject are available for our analysis, and we can use information from these sales, along with other market information to value the subject using the Sales Comparison and Income Capitalization Approaches. We believe a discounted cash flow analysis is more appropriate since it is widely used by investors in the current marketplace. The Cost Approach is not considered in the valuation of the subject property. The investment marketplace does not typically trade leased office buildings on a cost/value basis. Though development is taking place in the suburban markets with extensive preleasing, the subject was completed approximately ten years ago and the estimate of physical depreciation is fairly subjective. We have therefore not employed the Cost Approach in the valuation of this property. We concluded the appraisal process by reviewing each of the approaches to value. We considered the type and reliability of data and the applicability of each report. Finally, we reconciled the approaches and estimated the final value. ================================================================================ -37- <PAGE> SALES COMPARISON APPROACH ================================================================================ Methodology In the Sales Comparison Approach, we estimated the value of the subject by comparing it with similar, recently sold properties in the surrounding or competing area. Inherent in this approach is the principle of substitution, which holds 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 arms-length transactions between willing and knowledgeable buyers and sellers, we can identify value and price trends. The sold properties must be comparable to the subject in physical, locational, and economic characteristics. 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 subject, considering 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 of building area; 5. make appropriate adjustments to the prices of the comparable properties; 6. interpret the adjusted sales data and draw a logical value conclusion. The most widely-used and market-oriented unit of comparison for properties such as the subject is the sale price per square foot of net rentable area. All comparable sales were analyzed on this basis. On the following facing page is a summary of the improved, sold properties that we compared with the subject property as well as the adjustments applied. Over the past four years, nearly every major Class A office property in the downtown Orlando market has transferred. We have focused on the six most recent transfers which have taken place since March 1995. The subject's office market has been improving fairly steadily since that time and we have therefore adjusted the sales which took place in 1996 and 1995 upward for time to reflect the improvement in market conditions as covered in the market analysis section of the report. The subject is a high quality Class A office building located in the northern portion of the Orlando CBD in a somewhat secondary location. The comparable sales are generally superior to the subject in terms of location and have been adjusted accordingly. The major elements of comparison for an analysis of this type include 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 and ================================================================================ -38- <PAGE> Sales Comparison Approach ================================================================================ functional traits and the economic characteristics of the property. Advantageous financing terms and conditions of a sale must first be adjusted to reflect a normal market transaction. Then, changes in market conditions must be accounted for, thereby creating a time adjusted normal unit of comparison. Adjustments have been made for location, the physical and functional traits (size and utility) in order to generate the final adjusted unit range which is appropriate for comparison to the subject property. Our summary of Comparable Office Building Sales and Adjustments chart details six sales involving office buildings in the Orlando market. Before adjustment, the sales prices range from $83.67 per square foot to $162.29 per square foot. These structures range in size from 222,970 square feet to 654,678 square feet. Analysis of Sales Sale No. 1 is the September 1997 sale of the Signature Plaza office building located at 201 South Orange Avenue in the south-central section of the Orlando CBD. The sale price reflects an overall capitalization rate of 8.24 percent. This sale was not adjusted for time but required an upward adjustment for age/condition to reflect its inferiority to the subject in this regard. A downward location adjustment was made to reflect the superiority of this property to the subject. An upward adjustment was made to reflect the inferior parking ratio of this property as compared to the subject. After adjustments, this sale reflected a value to the subject of $149.65 per square foot of net rentable area. Sale No. 2 is the August 1997 purchase of Citrus Center in downtown Orlando by Tircony Florida Corp. A going-in overall capitalization rate of 10.31 percent was reflected by this sale. The indicated purchase price of $110.33 per square foot of net rentable area was not adjusted for time, however, a significant upward age/condition adjustment was applied to reflect this property's 1971 date of construction. Similar to Comparable Sale No. 1, this sale required a downward location adjustment. This adjustment was countered by an upward adjustment for inferior parking facilities. After adjustments, this property reflected a value to the subject of $132.39 per square foot of net rentable area. Sale No. 3 is the most recent transfer of DuPonte Center located at 390 North Orange Avenue. This sale took place in March 1997 and required no time adjustment. The indicated price of $144.42 per square foot of net rentable area reflects an unusually low overall capitalization rate of 6.68 percent. This sale was adjusted downward to account for the superior location of this property as compared to the subject. A significant upward adjustment was made, however, to reflect the inferior parking facilities of this property as compared to the subject. After adjustments, this property continues to reflect a value to the subject of $144.42 per square foot of net rentable area. Sale No. 4 involved the transfer of the Colonial Bank Building at 201 East Pine Street and reflected an overall capitalization rate of 11.12 percent. The transfer took place in December 1996 and an upward time adjustment was made to account for the improvement in the market since this transfer. This property was constructed in 1975 and was adjusted upward for age/condition. Similar to Comparable Sale No. 2, this sale required a downward adjustment for location and an upward adjustment for inferior parking facilities. After adjustment, a unit value of $110.44 per square foot of net rentable area is indicated. ================================================================================ -39- <PAGE> Sales Comparison Approach ================================================================================ Sale No. 5 is the purchase of the SunTrust Center Building at 200 South Orange Avenue and reflected an overall going-in capitalization rate of 8.64 percent. This transfer took place in September 1996 and was adjusted upward for time to reflect the improvement in market conditions since that transfer. At over 650,000 square feet, this property is significantly larger than the subject. With all other things being equal, a larger property will reflect lower values on a per square foot basis. We have therefore adjusted this sale upward on a per square foot basis to reflect this tendency. A downward adjustment was made to reflect the superior location of this property relative to the subject. An offsetting upward adjustment was made, however, to account for the subject's superior parking facilities. This property reflected a value to the subject of $187.45 per square foot of net rentable area after adjustments. Sale No. 6 is the most recent transfer of NationsBank Tower located at 111 North Orange Avenue. This sale reflected an overall capitalization rate of 10.4 percent and a per square foot value of $125.47. This sale was adjusted upward for time as this sale took place in March 1995. With the exception of a superior location and inferior parking facilities, this property was considered similar to the subject and no further adjustments were applied. After adjustments, this property reflected a value to the subject of $144.29 per square foot of net rentable area. After adjustment, a more narrow range in unit value is indicated of from $110.44 to $187.45 per square foot. The upper end of the range is indicated by the sale of SunTrust Tower while the low end of the range is accounted for by the sale of Colonial Bank Building. The average adjusted sale price per square foot of net rentable area of the comparables is $145.66 per square foot of net rentable area. On the whole, we are of the opinion that the comparable sales are a very good indication of market value for the subject property due to their recency and location relative to the subject. Given the high quality construction of the subject, the improving market conditions, and the location of the subject in a growth corridor of the Orlando CBD, we have concluded near the higher end of the range established by the comparable sales. We have therefore concluded a value of $150.00 per square foot of net rentable area or $54,000,000, rounded as calculated below. 357,181+/- square feet @ $150.00/sf $53,577,150 Rounded $54,000,000 ================================================================================ -40- <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ Methodology The Income Capitalization Approach is a method of converting the anticipated economic benefits of owning property into a value estimate through capitalization. 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 estimated, 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 analysis. In direct capitalization, net operating income is divided by an overall rate extracted from market sales to indicate a value. In the discounted cash flow method, anticipated future net income streams and a reversionary value are discounted to an estimate of net present value at a chosen yield rate (internal rate of return). In our opinion, the discounted cash flow method is most appropriate. The discounted cash flow analysis is generally thought to be the best method for evaluating income producing properties purchased for investment. Forecasted future patterns of income and expenses are modeled to reflect the perceived investor expectations. Appraisers make forecasts (not predictions) of future events based upon their understanding of market forces and familiarity with the expectations of typical investors in the property type being appraised. Given the stabilized nature of the subject property as well as the indications of overall going-in capitalization rates provided by the comparable sales, we have also applied a direct capitalization analysis of the subject property based on the first year's net operating income. Potential Gross Income Generally, office tenants pay rent on a rentable area basis which is consistent with the space measurement standards for buildings of similar vintage, plus any increases in operating expenses and real estate taxes above stipulated base year amounts. Tenant electric costs are treated in a number of ways depending upon the mechanical make-up of the building. Existing Leases The subject is currently 100 percent occupied. Please refer to the subject lease abstracts presented in the addenda to this report. As previously mentioned, we have been provided with a client prepared Argus cash flow model. This model contains details of the tenant expense pass-throughs in addition to rental rates and lease terms. We have attempted to verify this information with a rent roll provided by the property owner, however, the tenant lease information provided by the borrower was incomplete and did not enable us to confirm the pass-through methods contained in the Argus model. We have therefore relied upon the cash flow model provided to us by the client with regard to expense pass-throughs. Recent leasing activity at the subject includes a lease for 24,592 square feet to Educational Institution beginning July 1997 with a ten year term at an initial rate of $18.50 per square foot per year and an average rate of $20.42 per square foot. This rental rate is gross plus increases in operating expenses over a base year amount. Another recent lease is to Fluor Daniel, Inc. which took place in June 1997 and extends for three years. The average annual rental rate is $21.03 per square foot on a gross plus increases basis. As can be seen by the following lease expiration schedule, generally small portions of the subject property in terms of net rentable area are due to expire over the next three years. In year ================================================================================ -41- <PAGE> Income Capitalization Approach ================================================================================ four of the cash flow, a total of 11.1 percent of the leases are due to expire, followed by 2.8 percent in year 5. Year 6 of the cash flow reflects a total of 44.3 percent of the leases as expiring which is fairly significant in terms of the property as a whole, however, since this is not scheduled to occur until the sixth year of the cash flow, the impact is somewhat mitigated. We have nevertheless considered the lease expiration schedule in our selection of a discount rate for the subject property. ================================================= Lease Expiration Schedule ------------------------------------------------- Year No. of Leases Annual SF % of NRA ================================================= 1998 4 10,635 3.0% ------------------------------------------------- 1999 4 19,941 5.6% ------------------------------------------------- 2000 9 23,391 8.2% ------------------------------------------------- 2001 12 39,703 11.1% ------------------------------------------------- 2002 2 10,088 2.8% ------------------------------------------------- 2003 14 158,325 44.3% ------------------------------------------------- 2004 6 51,648 14.4% ------------------------------------------------- 2005 7 19,375 5.4% ------------------------------------------------- 2006 12 70,388 19.7% ================================================= Based upon the lease expiration schedule, we forecast an 9 year investment holding period. The 10th year is estimated to be the reversionary year. Office Market Rental Rate The market rent for office space within the property has been estimated by analyzing comparable properties exhibited on the summary chart and an adjustment grid which appears on the facing page. In our analysis, we have considered the four comparable leases and have adjusted for lease attributes including, rent concession, market conditions, location, quality, size and building condition. Percentage adjustments between the subject property and the comparable properties were made for each of these factors. We have adjusted each comparable for rent concessions where appropriate and where building standard alteration work is significantly different from that which is offered at the subject property. Comparable leases which provide more generous rent concessions when viewed in the aggregate over the length of the lease terms available were adjusted downward to account for the concession packages. Conversely, those rentals with less generous rental concession packages were adjusted upward. In general, we found that the concession packages available throughout the Orlando market included no free rent for office occupancy and offered alteration allowances generally between $12 and $20 per square foot for new leases and from $4.00 to $5.50 per square foot for renewals. These figures are generally consistent with those indicated by Orlando office brokers we spoke with. In addition to analyzing actual deals within and outside of the subject property, leasing brokers were interviewed in an effort to ascertain competitive packages available in the marketplace today. Most brokers interviewed were of the opinion that rents have recently increased significantly over the past three to four years which is supported by the market analysis presented earlier in this report. This overall market improvement has placed downward pressure on tenant improvement allowances and has also led to the institution of previously unheard of charges for parking. ================================================================================ -42- <PAGE> Income Capitalization Approach ================================================================================ In consideration of the occupied area, location and lease dates, the comparable rental data provide fairly consistent evidence of rental rates for properties located in the Orlando CBD market. Accordingly, this results in a market value indication for the subject space of $21.00 per square foot with annual increases on a gross basis plus increases in operating expenses over base year amounts. This rate represents an average for all of the rentable space in the building. These rents assume a work allowance of $10.00 per square foot for vacant space and $5.00 per square foot where the existing tenant renews. This compares favorably with the most recent leasing activity at the subject. The new tenant improvements of $10.00 per square foot is lower than some of the most recent leases in the market but considered reasonable considering the 100 percent occupancy of the building, the quality and condition of existing interior finishes, and the lower amount of tenant work provided by the most competitive class A buildings in the market. Assumptions Regarding Existing and Proposed Leases With regard to the lease expirations, we have projected that 35 percent of the tenants within the property will vacate their premises at the expiration of their leases, and that 65 percent will renew their leases for space that they currently occupy. This assumption is based in part upon our experience with office properties where the retention rates have been slightly higher at 70 to 80 percent. Vacancy between leases includes the period of actual downtime and could also include the construction period for new tenant spaces. Consistent with our experience, we have assumed a 6 month vacancy between leases, inclusive of the construction period. The vacancy is weighted for a 65 percent renewal probability which results in an effective downtime of the effective vacancy period of 2 months downtime upon lease expiration. Reimbursable Expenses Tenants are responsible for their pro-rata share of real estate taxes when this expense exceeds those incurred during the first year of occupancy. This type of escalation is typically also applied to operating expenses. Based on the information provided by the client, the majority of the current leases in the subject property include this form of escalation. The calculation of this revenue is summarized as follows: billing year operating expenses, less base year operating expenses, multiplied by the tenants, pro-rata share of rentable area. As mentioned, we have been forced to rely on a client prepared cash flow with regard to expense pass-throughs. We have assumed that future leases in the subject property will be on a similar basis. The tenant will be responsible for increases in real estate taxes over the base fiscal year amount billed either on a semi-annual or monthly basis, and operating expenses will be billed monthly. Rental rates include tenant electric. ================================================================================ -43- <PAGE> Income Capitalization Approach ================================================================================ Vacancy and Collection Loss Both the investor and the appraiser are primarily interested in the annual revenue that 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. Normally, a prudent practice is to expect that some income loss will incur as tenants vacate, fail to pay rent, or pay rent late. Our cash flow projection assumes a tenant vacancy of 6 months upon lease expiration set against our probability of renewal estimated to be 65 percent. Finally, a global vacancy and credit loss has been applied to the gross rental income. The vacancy/global credit loss provision applies to all tenants and is estimated at 5 percent. Other Income In addition to rental income, the subject has recently generated $140,000 per year in parking income. Given the upside income potential from the parking garage as discussed in the office market analysis and potential rental income sections of the report, we have estimated a first year parking revenue figure of $180,000 which we have grown to $275,000 in year two, $350,000 in year three and $450,000 in year 4 of the cash flow at which point we have grown the income amount at the underlying 3.0 percent rate of inflation. Other minor other income items include storage rental income, overtime electric charges, and miscellaneous building services. First year revenue for these items is estimated at $101,000 total and is grown at the underlying 3.0 percent inflation rate. Operating Expenses We have analyzed the subject's historical expenses for 1995 and 1996 as well as the budgeted operating expenses for 1997 as provided by management and exhibited on the table on the facing page. We forecasted the property's operating expenses after consulting local building managers and agents, including Cushman & Wakefield Property Management Personnel. We have also examined industry norms as reported by BOMA, experienced exchange reports published by the Building Owners and Managers Association International, a nationally recognized publication. The following analysis attempts to utilize the budgeted expense data supported by actual historical information. The age and unique physical characteristics of the subject warrant consideration of the subject's budget in estimating market operating expenses. Real Estate Taxes The real estate taxes have been discussed in a separate section of this report. Please refer to the Real Property Assessment and Taxes section of this report. The first year expense projection is $930,000. Utilities Expense The utilities expense has been projected by management at $598,560 for the 1997 budget year. This expense was $283,935 in 1995 and $648,865 in 1996. The utility expense comprises common area electric which includes heat and air conditioning to the tenant areas, and water and sewer. We have projected a utilities expense, based upon stabilized occupancy, of $600,000 or $1.68 per square foot. ================================================================================ -44- <PAGE> Income Capitalization Approach ================================================================================ Insurance The insurance expense was projected to be $32,051, or $0.09 per square foot in the 1997 budget based on the current policy. This expense has varied in past years from $29,595 in 1995 to $55,076 in 1996. Considering the subject's historical expenses as well as the 1997 budget amount, we have projected an amount of $40,000 or $0.11 per square foot as reasonable for the subject property. Repairs and Maintenance The budgeted amount for repairs and maintenance for 1997 amounts to $713,933. This reflects a cost of $2.00 per square foot. For years 1994 through 1996, this expense ranged between $0.79 and $1.55 per square foot. We have included an annual deduction for reserves for capital items amounting to $36,000 for the first year of our projection. Considering the inclusion of these items which will in part account for expenses previously included in repairs and maintenance, we have projected a first year repairs and maintenance expense of $720,000 or $2.02 per square foot. Cleaning The cleaning expense is broken down into three general categories: the day cleaning payroll, contract services which provide janitorial, window cleaning and sidewalk cleaning and supplies materials and miscellaneous cleaning products. The cleaning expense has ranged between $87,580, or $0.25 per square foot and $213,015, or $0.60 per square foot. The amount budgeted for 1997 is $267,248, or approximately $0.75 per square foot. We have estimated a cleaning expense of $275,000 for the first fiscal year of our projection. This represents an expense per square foot of $0.77. Security The security expense has been estimated at $0.42 per square foot, or $150,000. This amount represents funds for the contract services to provide guard service during nonbusiness hours and to maintain a security presence in the common areas during business hours. This expense has been $0.78 to $0.41 per square foot over the past two years and management's projection of $142,197 or $0.40 per square foot appears reasonable. General and Administrative Administration expense provides for professional services, legal fees, general office expenses and for the salaries of the on-site manager, staff bookkeeper, secretary, overtime and benefits. The total administration cost is projected to be $52,000, or $0.15 per square foot in the 1997 budget. This expense has ranged significantly during 1995 and 1996 but appears to have stabilized as indicated in the 1997 budget. We have therefore projected a first year administrative expense of $60,000 or $0.17 per square foot which is in line with the subject's budget. Promotion This expense category includes costs for promotional materials and advertising to maintain the subject's presence in the market. The total administration cost is projected to be $22,300, or $0.06 per square foot in the 1997 budget. This expense has generally declined as the property has leased-up over the past three years. We have therefore projected a first year administrative expense of $25,000 or $0.07 per square foot which is in line with the subject's budget. ================================================================================ -45- <PAGE> Income Capitalization Approach ================================================================================ Management The management expense has ranged from $101,900 to $236,211 and is budgeted at $260,400 for 1997. Based on the current management contract as well as the typical management contract in this market, we have estimated the subject's management cost at 3 percent of collected income over the course of the holding period. This expense amounts to $240,421 in the first year of the cash flow projection. According to the client, this expense is not passed though to the tenants. Total Expenses We have projected total stabilized operating expenses, excluding reserves, tenant improvements, and leasing commissions of $3,040,421 or $9.53 per square foot of net rentable area. This level of expenses is considered reasonable by local standards. Leasing Commissions and Alteration Costs The leasing commissions have been based upon the generally accepted standard schedule. The standard schedule as quoted by leasing agents in the Orlando market area amounts to 6 percent of the aggregate rental for a net lease and 3 percent of the aggregate rental on a renewal. Based on the assumption that a 3 percent commission rate is paid on renewal leases, we have applied the 65 percent renewal probability to the 6 percent commission rate to yield a 4.05 percent commission rate on speculative renewals. Orlando office building owners typically refurbish office space to tenant specifications. Known as tenant workletters, the refurbishment typically takes the form of the demolition of the old improvements, the addition of new partitions, lighting and carpeting. In certain instances, new ceilings are also provided. Alternatively, a lump sum amount is given to the tenants for the improvements. Tenant improvements are expressed as a dollar amount per square foot with new tenants typically receiving $10.00 per square foot and renewal tenants typically receiving $5.00 per square foot. Again, the probability of renewal is applied to these figures for a tenant improvement figure of $6.75 per square foot upon speculative renewals. Reserves for Capital Items It is customary and prudent to deduct an annual sum from the effective gross income to establish a reserve for replacing short-lived items throughout the building. These costs may include roof repair, HVAC upgrades and ADA compliance. Our 1997 projections include $36,000, or approximately $0.10 per square foot of rentable area. This amount is grown at the concluded inflation rate and is considered reasonable for capital expenditures over the course of the investment holding period. ================================================================================ -46- <PAGE> Income Capitalization Approach ================================================================================ Discounted Cash Flow Analysis In the discounted cash flow analysis, we employed the Argus software model which allows us to simulate the operating characteristics of the property and to make a variety of operating assumptions. We try to reflect the most likely investment assumptions of typical buyers and sellers in this particular market segment. Cash Flow Assumptions for the subject are as follows: I. Projection Period: 10 years commencing November 1, 1997 with an investment holding period of 9 years. II. Growth Rates A. Market Rental Rates: $21.00/sf year 1 $22.00/sf year 2 Growing at 3.5% per year thereafter B. Operating Expenses: 3.5% per annum C. Real Estate Taxes: 3.5% per annum D. Tenant Work: 3.5% per annum III. Market Rent: $21.00 per square foot, gross plus increases in operating expenses over base year amounts IV. Revenues A. Rental Income: Based upon current rent roll B. Expense Recoveries: Tenants pay according to their lease terms, a pro-rata share of all operating expenses over base year amounts with the exception of reserves, leasing commissions, management and tenant work. V. Vacancy: 2 months weighted average vacancy in addition to an average of approximately 5% global vacancy and credit loss. VI. Tenant Work: $10.00 per SF for new tenants, $5.00 per SF for renewing tenants, increasing at 3.5% per year. VII. Expenses A. Operating Expenses Building Operating Expenses: Based upon the 1997 estimated operating expenses amounting to $3,040,421 for a fully occupied building, or $9.53 per square foot. B. Management: The management expense is estimated to be $240,421 which equates to $0.67 per square foot. ================================================================================ -47- <PAGE> Income Capitalization Approach ================================================================================ C. Real Estate Taxes: As presented in Real Property Assessments and Taxes section of this report. VIII. Rollover and Renewals A. Tenant Mix Upon Lease Expiration: 65 percent renew, 35 percent vacate B. Office Space Characteristics of New Leases 1. Lease Term: 5 years 2. Vacancy Period: 2 months weighted average upon lease expiration 3. Base Rent: Base rent is assumed to be market rent in the year of lease expiration. 4. Type of Escalation: Pass-through of pro-rata share of all operating expenses over base year, with the exception of reserves, leasing commissions, and tenant improvements which are fully paid by the owner. 5. Leasing Commissions: Calculated based upon standard commission rates for 5 year lease transactions. Cash Flow Projection The 10 calendar cash flow projection which includes our 9 year holding period and the 10th year reversion is illustrated on the facing page. The cash flow reflects the results of the Argus cash flow projections. Terminal Capitalization Rate A terminal capitalization rate (OAR) was used to estimate the market value of the property at the end of the assumed investment holding period. The rate is applied to the 10th year estimate of operating income. We estimated an appropriate terminal rate based upon indicated rates in today's market. A premium was added to today's rate to allow for the risk of unforeseen events or trends which might affect our estimate of net operating income during the holding period, including possible deterioration in market conditions for the property. Investors typically add 50 to 100 basis points to the "going-in" rate to arrive at a terminal OAR, according to Cushman & Wakefield's Periodic Investor Surveys. Discount Rate Analysis Our valuation endeavors to reflect the most likely actions of typical buyers and sellers in this market. We forecasted the cash flows and discounted them and the future property value at reversion to a present value at various internal rates of return (yield rates) currently anticipated by investors in similar quality investments. The yield rate (internal rate of return or IRR) is the single rate that discounts all equity benefits (cash flows and equity reversion) to an estimated present value. In the discounted cash flow analysis, we employed the Argus computer program. This program simulates the operating characteristics of the property and allows us to make a variety of operating assumptions. We try to reflect the most likely assumptions of typical buyers and sellers in this particular market segment. ================================================================================ -48- <PAGE> Income Capitalization Approach ================================================================================ Analysis of the discounted cash flow method is examined over a holding period that allows the investment to mature, the investor to recognize a return commensurate with the risk taken and a recapture of the original investment. Typical holding periods usually range from 10 to 20 years and are sufficient for a majority of institutional grade real properties, such as the subject to meet the criteria noted above. In the instance of the subject, we have analyzed the cash flow anticipated over the 10 year projection period. Our analysis has been performed on a fiscal year basis, commencing November 1,1997. A sale or reversion is deemed to occur at the end of the 9th year, based upon capitalization of the following year's net operating income. This is based upon the premise that a buyer is purchasing the following year's net income. Therefore, our analysis reflects this situation by capitalizing the first year of the next holding period. The present value was formulated by discounting the property's cash flows at various rates. The yield rate utilized to discount the projected cash flow and eventual property reversion were based upon an analysis of anticipated yield rates of investors dealing in similar investments. The rates reflect acceptable expectations of yields to be achieved by investors currently in the marketplace shown in their current investment criteria and as extracted from the sale of office buildings. Since any real estate investment must compete in the open market for capital, it must be competitive with the various alternatives available in the financial marketplace. In developing an appropriate risk rate for the subject, we have given consideration to a number of different investment opportunities. These other non-real estate alternatives are important to an equity investor when contemplating investments which include long term rates such as Corporate AAA Bonds and 30 Year Treasury Bonds. Cushman & Wakefield publishes an investor survey outlining current investment parameters for major forces in the real estate marketplace. The results of this most recent survey, prepared as of Fall, 1996 is provided in the Addenda section of this report. The investment instruments described above and the pre-tax yield requirements in our survey provide a benchmark for prevailing real estate market conditions, especially when differing investment characteristics are considered. These yields are considered to be the best indicators available of general yield expectations in the marketplace. Major investors in existing investment grade real estate, such as office buildings, shopping centers and industrial facilities currently require equity yield rates in the range of between 10 percent to 15 percent depending upon the attraction, duration and quality of a project's cash flow, the type of property, recent market activity, availability in terms of financing, risk perception, tax benefit potential and future value considerations. Obviously, with risk being commensurate with return, more secure income streams would tend to fall toward the lower end of the current yields, with those properties containing more risks, falling toward the upper end. We also must consider the fact that the subject property, as a Class A building located in the Orlando CBD would be considered a lower level risk investment relative ================================================================================ -49- <PAGE> Income Capitalization Approach ================================================================================ to other office product attracting national investor attention. This factor will be considered in our analysis of investment returns which are cited in the Investor Survey. The residual cash flow generated by the subject property comprises only the first part of the return which an investor will receive. The second component of this investment return is the pretax cash proceeds from the resale of the property at the end of the projected investment holding period. Typically, investors will structure a provision in their analysis in the form of a rate differential over going-in capitalization rates in projecting a future disposition price. The view is that the improvement is then older and the future is more difficult to visualize, hence a slightly higher rate is warranted for the added risks in forecasting. Cushman & Wakefield's Valuation Advisory Services has surveyed national real estate investors to determine their investment objectives. The most recent survey dated Fall, 1996 details the investment requirements of active investors in the marketplace. Regarding value-added (those requiring lease-up) urban Class A office buildings, these investors generally require internal rates of return from 11.0 percent to 16.0 percent with an average-low and high ranging from 12.8 percent to 13.6 percent, respectively. Going-in capitalization rates range from 8.0 percent to 12.0 percent with the average low and high ranging from 9.3 percent to 10.0 percent, respectively. Terminal capitalization rates range from 8.5 percent to 11.0 percent with the average low and high ranging from 9.5 percent to 10.3 percent, respectively. Growth rates for income and expenses generally range from 3 percent to 5 percent. Additional publications of investment parameters of national investors lend support to Cushman & Wakefield's Valuation Advisory Services Investor Survey, Fall, 1996. National market indicators, as of the second quarter of 1997, published by Peter F. Korpacz & Associates is summarized as follows: ================================================================== National Market Indicators Second Quarter 1997 National CBD Office Market =================================================================== Range Average ------------------------------------------------------------------- IRR 10.0% to 15.0% 11.76% ------------------------------------------------------------------- OAR/In 7.5% to 12.0% 9.28% ------------------------------------------------------------------- OAR/Out 8.25% to 12% 9.59% ------------------------------------------------------------------- =================================================================== Source:/ Real Estate Investor Survey, Peter F. Korpacz & Associates =================================================================== Based upon the above, it is our opinion that an investor would require a discount rate in the range of 10.5 to 11.5 percent with a terminal capitalization rate in the range of 8.5 percent to 9.5 percent. The discount rate is impacted by the credit rating of the tenants in place which is considered average, as well as the number of leases which expire over the holding period. As indicated previously, the building is currently 100 percent occupied with a generally minimal number of leases due to expire over the next five years. Enough information was available on each of the comparable sales used to derive an overall going-in capitalization rate. The range of rates reflected by the comparable sales was 6.68 percent to 11.12 percent with an average of 9.19 percent. It is important to note that the sale which took place in 1997 reflected a range of 6.68 percent to 10.31 percent with an average of ================================================================================ -50- <PAGE> Income Capitalization Approach ================================================================================ 8.41 percent, suggesting that investor return requirements are declining with regard to Class A office buildings in this market. Accordingly, we have discounted the projected future pre-tax cash flows to be received by an equity investor in the subject property at the present value of from 10.5 percent to 11.5 percent at 25 basis point intervals at a terminal capitalization rate ranging of 9.0. Discounting these cash flows over the range of yield rates and terminal capitalization rates now being required by participants in the market for this type of real estate places additional perspective upon our analysis. A valuation matrix for the subject property is presented on the facing page. The valuation of the subject property varies with the discount rates from approximately $54,000,000 to $57,000,000, as rounded. Giving consideration to all the characteristics of the subject property previously discussed, we feel that a prudent investor would require a yield rate which falls towards the middle of the market range outlined for this property. In view of the analysis presented, it is our opinion that the discounted cash flow analysis indicates a market value of $56,000,000, as rounded for the subject property. The indices of investment generated through this indication of value are presented as follows: Terminal Capitalization Rate 9.0% Equity Yield 11.0% Price/SF of NRA $156.78/SF In the final analysis, it is our opinion that the value of the leased fee estate in the land and improvements, as indicated by the Income Capitalization Approach is $56,000,000. The concluded value reflects a going-in capitalization rate of 8.9 percent based upon the first year's net operating income per the cash flow projection. This rate is supported by the recent office building sales in downtown Orlando as well as by the most recent investor surveys referenced earlier in the report. ================================================================================ -51- <PAGE> RECONCILIATION AND FINAL VALUE ESTIMATE ================================================================================ We have considered all of the traditional approaches to estimate market value of the commercial real estate in our analysis. Two of the three traditional approaches were utilized indicating the following values for the subject property. VALUE INDICATIONS AND CONCLUSION - ONE ORLANDO CENTER Cost Approach N/A Sales Comparison Approach $54,000,000 Income Capitalization Approach $56,000,000 The Cost Approach has not been utilized in this report. This valuation method requires an estimate of the cost to replace the existing improvements. From the estimated replacement cost of the improvements, accrued depreciation from physical, functional and economic sources is deducted to arrive at a cost less depreciation. The estimated land value is then added to arrive at a total value. The Cost Approach was not utilized in this report due to the lack of available data to estimate the site's land value. The subjectivity of estimating accrued depreciation of aged existing improvements limits the reliability of this approach. Finally and most importantly, we know of few investors who utilized replacement costs as the basis for their investment decisions. The Sales Comparison Approach consists of the collection and analysis of data relevant to actual sales of property interests deemed comparable to the subject property. Properties which have been sold are compared to the property under appraisal and adjustments to the sales prices are made based upon differences between the subject property and the comparable sales. Adjustments are typically made for location, date of sale, building size, quality of construction and other relevant characteristics. The Income Capitalization Approach converts anticipated cash flows into a present value estimate. This method is based on the premise that the motivation of a property purchase is a function of the anticipated future benefits to be gained from the investment. The potential purchaser, in essence, will trade the purchase price of the property for a projected income stream to be received in the future. Conversion of the anticipated cash flow into a value indication commonly occurs in the form of discounted cash flow analysis or application of a single capitalization rate to a stabilized income estimate. These three traditional methods of estimating the market value of commercial real estate are not mutually exclusive approaches to derive an estimate of the most probable selling price, but are interdependent methodologies, each relying on components from at least one of the other approaches. Hence, the Cost Approach requires extensive market data to derive estimates of depreciation and to determine the value of land as if vacant. This approach may require income data in order to make adjustments for functional and economic obsolescence. The Sales Comparison Approach requires application of methods from the Income Capitalization Approach in order to make adjustments for differences in income that have influence on the sale price. Consideration of market data is also required for the Income Capitalization Approach in the selection and application of equity, capitalization and discount rates and estimation of income and expenses. It is the Income Capitalization Approach, however, that is logically considered the most appropriate technique for estimating the value of income producing property. Not only does this ================================================================================ -52- <PAGE> Reconciliation and Final Value Estimate ================================================================================ approach represent the most direct and accurate simulation of market behavior, it is the method explicitly employed by buyers and sellers in acquisition and disposition decisions. Therefore, following the implied dictum of the market, we have used an approach based primarily on projected income as the foundation of our valuation of the subject property. This is particularly true of the subject property which is currently operating at or above stabilized levels with a fairly well defined cash flow over the next five years. Despite the applicability of the Income Capitalization Approach in this case, the Sales Comparison Approach has been given fairly significant weight in the value reconciliation. As mentioned, six of the directly competitive properties to the subject in the downtown Orlando market have sold within the past four years. We were able to gather sufficient information on each sale to estimate the going-in capitalization rate required by each purchaser, thereby providing a very good indication of value to the subject, both on a per square foot basis and as a multiple of net operating income per square foot. We have therefore placed significant weight on the results of the Sales Comparison Approach in our final value conclusion. As a result of our analysis, it is our opinion that the market value of the leased fee estate in the subject property, subject to the assumptions, limiting conditions, certifications and definitions, as of September 23, 1997, was: FIFTY FIVE MILLION DOLLARS $55,000,000 Marketing Time Marketing time is an estimate 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 estimate 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 predication of a date of sale. Based on the current state of the subject's market as well as the marketing times of comparable properties in the area, we concluded a marketing time of twelve months for the subject. ================================================================================ -53- <PAGE> ASSUMPTIONS AND LIMITING CONDITIONS ================================================================================ "Appraisal" means the appraisal report and opinion of value stated therein, or the letter opinion of value, 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(s)" means the employee(s) of C&W who prepared and signed the Appraisal. The Appraisal has been 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 estimates, 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. 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 considered in the Appraisal; and (d) all ================================================================================ -54- <PAGE> Assumptions and Limiting Conditions ================================================================================ required licenses, certificates of occupancy and other governmental consents have been or can be obtained and renewed for any use on which the value estimate contained in the Appraisal is based. 7. The physical condition of the improvements considered by 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 forecasted potential gross income referred to in the Appraisal may be based on lease summaries provided by the owner or third parties. The Appraiser 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 forecasts of income and expenses are not predictions of the future. Rather, they are the Appraiser's best estimates of current market thinking on future income and expenses. The Appraiser and C&W make no warranty or representation that these forecasts will materialize. The real estate market is constantly fluctuating and changing. It is not the Appraiser's task to predict or in any way warrant the conditions of a future real estate market; the Appraiser can only reflect what the investment community, as of the date of the Appraisal, envisages for the future in terms of rental rates, expenses, supply and demand. 10. Unless otherwise stated in the Appraisal, the existence of potentially hazardous or toxic materials which may have been used in the construction or maintenance of the improvements or may be located at or about the Property was not considered 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 considered 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. ================================================================================ -55- <PAGE> SPECIAL ASSUMPTIONS ================================================================================ 1. We have been provided with abstracts of the lease agreements in place at the subject property. We have relied on the accuracy of these abstracts in the valuation of the subject property. Should any of the information in the abstracts be found to be inaccurate, a material adjustment to the value conclusion in this report could result. ================================================================================ -56- <PAGE> CERTIFICATION OF APPRAISAL ================================================================================ We certify that, to the best of our knowledge and belief: 1. Eric B. Lewis inspected the property and prepared the report. 2. The statements of fact contained in this report are true and correct. 3. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinions, and conclusions. 4. We have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. 5. Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. The appraisal assignment was not based on a requested minimum valuation, a specific valuation or the approval of a loan. 6. No one provided significant professional assistance to the persons signing this report. 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. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 9. As of the date of this report, Eric B. Lewis, MAI has completed the requirements of the continuing education program of the Appraisal Institute. /s/ Eric B. Lewis Eric B. Lewis, MAI Director Valuation Advisory Services State of Florida Certified General Real Estate Appraiser No. RZ-0002224 ================================================================================ -57- <PAGE> ADDENDA ================================================================================ IMPROVED PROPERTY SALES PHOTOGRAPHS OF SELECTED COMPETING BUILDINGS SUMMARY OF ARGUS ASSUMPTIONS LEGAL DESCRIPTION CITY OF ORLANDO FLOOD ZONE INDICATION SUBJECT LEASE ABSTRACTS CUSHMAN & WAKEFIELD INVESTOR SURVEY APPRAISER'S QUALIFICATIONS ================================================================================ -58- <PAGE> OFFICE BUILDING SALE 1 ================================================================================ Location Data Property Name: Signature Plaza Location: 201 S. Orange Avenue City: Orlando County: Orange State/Zip: Florida Assessor's Parcel No(s): 22-29-26-7352-22-009 Atlas Reference: N/A Physical Data Type: CBD Land Area: 1.9800 Acres Zoning: AC-3, Downtown Activity Core Gross Building Area: 298,000 SF Net Rentable Area: 272,639 SF Usable Building Area: 272,639 SF Year Built: 1982 # of Stories: 15 Parking: 5-level, 512 spaces - 1.9/1000 Condition: Good Exterior Walls: Steel Amenities: N/A Class: A Sale Data Transaction Type: Sale Date of Transaction: 09/97 Marketing Time: 8 months Grantor: Judd Malkin, et al. Grantee: ACP Signature Plaza Partners, LP Document No.: N/A Sale Price: $34,000,000 Financing: Cash to Seller Cash Equivalent Price: $34,000,000 Required Capital Cost: $0 Adjusted Sale Price: $34,000,000 Verification: C&W-VAS, NY 9/97 Financial Data Assumptions & Forecast: N/A Occupancy at Sale: 96% Existing or Pro Forma Income: N/A TOTAL P.S.F. ----- ------ Potential Gross Income: $4,750,000 $17.42 Vacancy and Credit Loss: N/A N/A Effective Gross Income: $4,750,000 $17.42 Expenses: $1,950,000 $7.15 Net Operating Income: $2,800,000 $10.27 SIGNATURE PLAZA <PAGE> OFFICE BUILDING SALE 1 ================================================================================ Analysis Value Indicators: Overall Capitalization Rate (OAR): 8.24% Projected IRR: N/A % Effective Gross Multiplier (EGIM): 7.16 Operating Expense Ratio (OER): 41.05% Price Per Square Foot: $124.71 Comments Property has upside income potential due to packing facilities and an approved public atrium leasehold which could generate additional kiosk revenue. Photograph [PHOTO OMITTED] SIGNATURE PLAZA <PAGE> OFFICE BUILDING SALE 2 ================================================================================ Location Data Property Name: Citrus Center Location: 255 S. Orange Avenue City: Orlando County: Orange State/Zip: Florida Assessor's Parcel No(s): 22-29-26-7352-22-010 Atlas Reference: N/A Physical Data Type: CBD Land Area: 2.2800 Acres Zoning: AC-3, Downtown Activity Core Gross Building Area: 258,321 SF Net Rentable Area: 258,321 SF Usable Building Area: 258,321 SF Year Built 1971 # of Stories: 18 Parking: 5-level garage, 672 spaces-2.6 Condition: Good Exterior Walls: Concrete Amenities: N/A Class: B Sale Data Transaction Type: Sale Date of Transaction: 08/97 Marketing Time: 5 months Grantor: First Capital Financial Corp. Grantee: Tircony Florida Corp. Document No.: N/A Sale Price: $28,500,000 Financing: Cash to Seller Cash Equivalent Price: $28,500,000 Required Capital Cost: $0 Adjusted Sale Price: $28,500,000 Verification: C&W-VAS, NY 9/97 Financial Data Assumptions & Forecast: N/A Occupancy at Sale: 97% Existing or Pro Forma Income: N/A TOTAL P.S.F. ----- ------ Potential Gross Income: $5,297,148 $20.51 Vacancy and Credit Loss: $112,723 $0.44 Effective Gross Income: $5,184,425 $20.07 Expenses: $2,243,547 $8.69 Net Operating Income: $2,940,878 $11.38 CITRUS CENTER <PAGE> OFFICE BUILDING SALE 2 ================================================================================ Analysis Value Indicators: Overall Capitalization Rate (OAR): 10.32% Projected IRR: N/A % Effective Gross Multiplier (EGIM): 5.50 Operating Expense Ratio (OER): 43.27% Price Per Square Foot: $110.33 Comments This property is the original hi-rise in CBD Orlando and was built in 1971. The property underwent extensive renovations in 1995-96 and now represents a good Class B property in the market. Its location and Citrus Club (private dining and health clubs) within the building has resulted in the property being well occupied since its development. The property was originally listed for $32 million and when this pricing was found too aggressive, the list price was dropped to $29.5 million. Income/expense information represented pro forma estimates for FY June 1998. For 1997 the forecast NOI was estimated at $2.93 million. Actual NOI for 1996 was $2.81 million. The seller was hoping for a sale reflecting an OAR in the mid 9% range. However, the age of the building and older mechanicals resulted in a sale price at a higher 10.3% return rate. [PHOTO OMITTED] CITRUS CENTER <PAGE> OFFICE BUILDING SALE 3 ================================================================================ Location Data Property Name: DuPonte Center Location: 390 N. Orange Avenue City: Orlando County: Orange State/Zip: Florida Assessor's Parcel No(s): 29-22-26-2263-00-020002 Atlas Reference: N/A Physical Data Type: CBD Land Area: 2.7300 Acres Zoning: AC-3, Downtown Activity Core Gross Building Area: 568,647 SF Net Rentable Area: 420,475 SF Usable Building Area: 420,475 SF Year Built: 1988 # of Stories: 28 Parking: N/A Condition: Good Exterior Walls: Steel Amenities: Retail Arcade Class: A Sale Data Transaction Type: Sale Date of Transaction: 03/97 Marketing Time: 6 months Grantor: TRST Orlando, Inc. Grantee: USI Gaedeke Associates, LP Document No.: LIBER 5218, PAGE 487 Sale Price: $60,725,000 Financing: Cash to Seller Cash Equivalent Price: $60,725,000 Required Capital Cost: $0 Adjusted Sale Price: $60,725,000 Verification: C&W-VAS, NY 9/97 Financial Data Assumptions & Forecast: N/A Occupancy at Sale: 95% Existing or Pro Forma Income: N/A TOTAL P.S.F. ----- ------ Potential Gross Income: $8,206,824 $19.52 Vacancy and Credit Loss: N/A N/A Effective Gross Income: $8,206,824 $19.52 Expenses: $4,150,242 $9.87 Net Operating Income: $4,056,582 $9.65 DUPONTE CENTER <PAGE> OFFICE BUILDING SALE 3 ================================================================================ Analysis Value Indicators: Overall Capitalization Rate (OAR): 6.68% Projected IRR: N/A % Effective Gross Multiplier (EGIM): 7.40 Operating Expense Ratio (OER): 50.57% Price Per Square Foot: $144.42 Comments This is a Class A office property located at the north end of the Orlando CBD. The property initially suffered due to its timing in the market - came on line in a poor leasing market. The buyer is anticipating strong upside potential for the property, which is reflected in the rather low going-in return rate of about 7%. This was believed to be an aggressive purchase in light of the property's near term earning capacity. Photograph [PHOTO OMITTED] DUPONTE CENTER <PAGE> OFFICE BUILDING SALE 4 ================================================================================ Location Data Property Name: Colonial Bank Building Aka SE Financial Plza Location: 201 E. Pine Street City: Orlando County: Orange State/Zip: Florida Assessor's Parcel No(s): 22-29-25-8146-00-010 Atlas Reference: N/A Physical Data Type: CBD Land Area: 7.9500 Acres Zoning: AC-3, Downtown Activity Core Gross Building Area: 251,994 SF Net Rentable Area: 241,856 SF Usable Building Area: 241,856 SF Year Built: 1975 # of Stories: 15 Parking: Surface, 678 spaces 2.8/1000SF CondItion: Average Exterior Walls: Steel Amenities: Near Lake Eola (upper floor views) Class: B Sale Data Transaction Type: Sale Date of Transaction: 12/96 Marketing Time: N/A Grantor: Stephen Permutter, et al. Grantee: ACP Pine Street L.P. Document No.: LIBER 5173, PAGE 2350 Rec. Date: 12/01/96 Sale Price: $20,235,000 Financing: Cash to Seller Cash Equivalent Price: N/A Required Capital Cost: $20,235,000 Adjusted Sale Price: $20,235,000 Verification: C&W-VAS, NY 9/97 Financial Data Assumptions & Forecast: N/A Occupancy at Sale: 98.5% Existing or Pro Forma Income: N/A TOTAL P.S.F. ----- ------ Potential Gross Income: $4,200,000 $17.37 Vacancy and Credit Loss: N/A N/A Effective Gross Income: $4,200,000 $17.37 Expenses: $1,950,000 $8.06 Net Operating Income: $2,250,000 $9.30 COLONIAL BANK <PAGE> OFFICE BUILDING SALE 4 ================================================================================ Analysis Value Indicators: Overall Capitalization Rate (OAR): 11.12% Projected IRR: N/A % Effective Gross Multiplier (EGIM): 4.82 Operating Expense Ratio (OER): 46.43% Price Per Square Foot: $83.67 Comments This property is located on the eastern fringe of the Orlando CBD. It has excellent exposure with upper floors having views of Lake Eola to the north. The property has excess land that would permit an additional office tower. Estimated value of excess land is $6,970,000 ($40/SF) which was deducted from the total consideration of $27,205,000 to arrive at the purchase price of $20,235,000. Photograph [PHOTO OMITTED] COLONIAL BANK <PAGE> OFFICE BUILDING SALE 5 ================================================================================ Location Data Property Name: SunTrust Tower Location: 200 S. Orange Avenue City: Orlando County: Orange State/Zip: Florida Assessor's Parcel No(s): 29-22-26-0027-00-O50000 Atlas Reference: N/A Physical Data Type: Land Area: 3.8800 Acres Zoning: Ac-3, Activity Center Gross Building Area: 733,991 SF Net Rentable Area: 654,678 SF Usable Building Area: 654,678 SF Year Built: 1988 # of Stories: 30/7 Parking: 7-level garage, 1400 spaces Condition: Good Exterior Walls: Concrete Amenities: Excess land/Public Parking Garage Class: A Sale Data Transaction Type: Sale Date of Transaction: 09/96 Marketing Time: N/A Grantor: Teachers Insurance & Annuity & Lincoln Propty Co Grantee: Lincoln-Sun Center Ltd. & Linco Document No.: LIBER 5123, PAGE 2838 Rec. Date: 09/01/96 Sale Price: $106,250,000 Financing: Cash to Seller Cash Equivalent Price: $106,250,000 Required Capital Cost: $0 Adjusted Sale Price: $106,250,000 Verification: C&W-VAS, NY 9/97 Financial Data Assumptions & Forecast: N/A Occupancy at Sale: N/A Existing or Pro Forma Income: N/A TOTAL P.S.F. ----- ------ Potential Gross Income: $14,414,424 $22.02 Vacancy and Credit Loss: N/A N/A Effective Gross Income: $14,414,424 $22.02 Expenses: $5,237,424 $8.00 Net Operating Income: $9,177,000 $14.02 SUNTRRUST TOWER <PAGE> OFFICE BUILDING SALE 5 ================================================================================ Analysis Value Indicators: Overall Capitalization Rate (OAR): 8.64% Projected IRR: N/A % Effective Gross Multiplier (EGIM): 7.37 Operating Expense Ratio (OER): 36.33% Price Per Square Foot: $162.29 Comments About 10% of the income is related to this parking garage operation. For analysis purposes it was deducted from the analysis. If included the OAR would be about 9.3%. Also included in the purchase is excess land originally scheduled for a hotel. The land area estimate devoted to the hotel was 2.5 acres. At an estimated value of $27.50/SF of land area, the approximate deduction from the total purchase price is $3 million for a net sale price of $106.25 million or $162.29/SF from the actual sale price of $109.25 million. [PHOTO OMITTED] SUNTRRUST TOWER <PAGE> OFFICE BUILDING SALE 6 ================================================================================ Location Data Property Name: NationsBank Tower Location: 111 N. Orange Avenue City: Orlando County: Orange State/Zip: Florida Assessor's Parcel No(s): 22-29-26-7352-30-011 Atlas Reference: N/A Physical Data Type: CBD Land Area: 1.1000 Acres Zoning: AC-3, Office Gross Building Area: 255,763 SF Net Rentable Area: 222,970 SF Usable Building Area: 222,970 SF Year Built: 1986 # of stories: 20 Parking: 4-level garage, 528 spaces-2.4 Condition: Excellent Exterior Walls: Steel Amenities: N/A Class: A Sale Data Transaction Type: Sale Date of Transaction: 03/95 Marketing time: N/A Grantor: 111 Orange Associates, Ltd. Grantee: Utah State Retirement Office A Document No.: LIBER 4867, PAGE 1362 Rec. Date: 03/01/95 Sale Price: $27,975,000 Financing: Cash to Seller Cash Equivalent Price: $27,975,000 Required Capital Cost: $0 Adjusted Sale Price: $27,975,000 Verification: C&W-VAS, NY 9/97 Financial Data Assumptions & Forecast: N/A Occupancy at Sale: 92% Existing or Pro Forma Income: N/A TOTAL P.S.F. ----- ------ Potential Gross Income: $4,775,710 $21.42 Vacancy and Credit Loss: N/A N/A Effective Gross Income: $4,775,710 $21.42 Expenses: $1,865,868 $8.37 Net Operating Income: $2,909,842 $13.05 NATIONSBANK <PAGE> OFFICE BUILDING SALE 6 ================================================================================ Analysis Value Indicators: Overall Capitalization Rate (OAR): 10.40% Projected IRR: N/A % Effective Gross Multiplier (EGIM): 5.86 Operating Expense Ratio (OER): 39.07% Price Per Square Foot: $125.47 Comments The property was marketed quietly to selected investors. Lower floors of the building are used for garage parking. The going-in overall rate recognized that several above market leases existed at the time of purchase. Locally, the price paid was believed somewhat aggressive at that time. Since then this acquisition may be considered a bargain due to a continued positive turn in the CBD office market when reviewing the going-in return rate. Photograph [PHOTO OMITTED] NATIONSBANK <PAGE> PHOTOGRAPHS OF COMPETING PROPERTIES ================================================================================ [PHOTO OMITTED] Landmark Center I & II <PAGE> Photographs of Competing Properties ================================================================================ [PHOTO OMITTED] First Union Building. <PAGE> Date : 10/6/97 File : ONEORLAN Time : 6:34 am Property Type : Office & Retail Ref# : ABW Portfolio : Page : 6 ONE ORLANDO CENTER - CH PROPERTY SUMMARY REPORT TIMING & INFLATION Analysis Period: November 1, 1997 to October 31, 2006; 9 years Inflation Method: Fiscal General Inflation Rate: 3.00% PROPERTY SIZE & OCCUPANCY Property Size: 357,576 Square Feet Number of rent roll tenants: 50 Total Occupied Area: 355,168 Square Feet, 99.33%, during first month of analysis GENERAL VACANCY Method: Percent of Potential Gross Revenue Amount: 5.00% PROPERTY PURCHASE & RESALE Purchase Price: Resale Method: Capitalize Net Operating Income Cap Rate: 9.00% Cap Year: Year 10 Commission/Closing Cost: 2.50% Net Cash Flow from Sale: $70,956,708 PRESENT VALUE DISCOUNTING Discount Method: Annually (End-point on Cash Flow & Resale) Unleveraged Discount Rate: 10.50% to 12.50%, 0.50% Increments Unleveraged Present Value: $51,290,824 at 12.50% <PAGE> TRACT II (PHASE I PROPERTY) LEGAL DESCRIPTION THAT PART OF: Block "A" and Lots 4 and 5, Block "B" of DR. R. A. MILLER'S ADDITION TO THE TOWN OF ORLANDO as recorded in Plat Book "C", Page 70, Public Records of Orange County, Florida; AND Lots 1 through 13 of F. A. LEWTER'S SUBDIVISION as recorded in Plat Book "G", Page 24, Public Records of Orange County, Florida; and Lots 26 through 32 of COOPER AND ATHA'S RE-SUBDIVISION as recorded in Plat Book "G", Page 30, Public Records of Orange County, Florida. DESCRIBED AS FOLLOWS: From the Northwest corner of Lot 1, Block "B" of DR. R. A. MILLER'S ADDITION TO THE TOWN OF ORLANDO as recorded in Plat Book "C", Page 70, Public Records of Orange County, Florida, run N.89(Degree)50'08"E. 10.00 feet along the North boundary of said Lot 1 to the East right-of-way line of Orange Avenue, said East right-of-way line being a line parallel with and 10.00 feet East of, when measured at right angles to, the West boundary of Lots 1 through 7, Block "B" of said DR. R. A. MILLER'S ADDITION TO THE TOWN OF ORLANDO; thence run S.00(Degree)13'23"E. 320.50 feet along said East right-of-way line for the POINT OF BEGINNING, said Point of Beginning being on the South boundary of the North 50.00 feet of Lot 4, Block "B"; thence run N.89(Degree)50'08"E. 190.00 feet to the Southeast corner of said North 50.00 feet of Lot 4, Block "B"; thence continue N.89(Degree)50'08"E. 149.45 feet to the West boundary of Lot 4 of F. A. LEWTER'S SUBDIVISION as recorded in Plat Book "G", Page 24, Public Records of Orange County, Florida, said point being N.00(Degree)10'53"W. 49.50 feet from the Southwest corner of said Lot 4; thence run N.00(Degree)10'53"W.320.50 feet to the Northwest corner of said Lot 4; thence run N.89(Degree)50'08"E. 339.00 feet along the North boundary of Lots 4, 5, 6, and 7 of the aforesaid F. A. LEWTER'S SUBDIVISION to the West right-of-way line of Magnolia Avenue, said West right-of-way being a line parallel with and 5.00 feet West of, when measured at right angles to, the East boundary of Lots 7 through 13 of said F. A. LEWTER'S SUBDIVISION; thence run S.00(Degree)01'35"E. 590.50 feet along said right-of-way line to the South boundary of Lot 31 of COOPER AND ATHA'S RE-SUBDIVISION as recorded in Plat Book "G", Page 30, Public Records of Orange County, Florida, said point being S.89(Degree)50'08"W. 5.00 feet from the Southeast corner of said Lot 31, thence run S.89(Degree)50'08"W. along the South boundary line of said COOPER AND ATHA'S RE-SUBDIVISION for 422.00 feet to the East line of the West 5.00 feet of Lot 26 of said COOPER AND ATHA'S RE-SUBDIVISION; thence N.00(Degree)13'23"W. along said East line for 120.00 feet to the North line of said Lot 26 and the South line of the North 470.5 feet of Block "A" of aforementioned DR. R. A. MILLER'S ADDITION TO THE TOWN OF ORLANDO: thence continue N.00(Degree)13'23"W. for 18.00 feet; thence S.89(Degree)50'08"W. for 128.65 feet to the East line of the West 136.00 feet of Lot 5 and 4 of Block "B" of said DR. R. A. MILLER'S ADDITION TO THE TOWN OF ORLANDO: thence N.00(Degree)13'23"W. along said East line for 92.01 feet to the point of curvature of a curve concave Southwesterly; thence Northerly and Westerly along the arc of said curve having a radius of 10.00 feet, through a central angle of 89(Degree)56'29" for 15.70 feet to the point of tangency, said point being on the North line of the South 20.00 feet of Lot 4 of said Dr. R. A. MILLER'S ADDITION TO THE TOWN OF ORLANDO; thence S.89(Degree)50'08"W. along said North line for 116.01 feet to the East right-of-way line of Orange Avenue; thence N.00(Degree)13'23"W. along said East right-of-way line for 30.00 feet to the POINT OF BEGINNING. TOGETHER with and subject to: A perpetual easement for ingress and engress over the East 20.00 feet of Lot 3 of F. A. LEWTER'S SUBDIVISION as recorded in Plat Book "G", Page 24, Public Records of Orange County, Florida. Containing 5.59 acres, more or less. <PAGE> [SEAL OF CITY OF ORLANDO] CITY OF ORLANDO PUBLIC WORKS DEPARTMENT ENGINEERING BUREAU 400 SOUTH ORANGE AVENUE (407) 246-2261 CENTRAL PERMITTING ORLANDO, FLORIDA 32801-3302 FAX (407) 246-2882 DATE: Sept 23, 1997 RE: Flood Insurance Rate Map Information TO WHOM IT MAY CONCERN: The property located at 800 N Magnolia Av, Orlando FL has been located on the city's Flood Insurance Rate Map (FIRM). The following information is provided: Orlando's community number: 120186 The property is located on panel number: 0015, Suffix: D The date of the FIRM index: March 26,1982 The property is located in FIRM zone: C The main building on the property: XX is not located in a Special Flood Hazard Area. However, the property may still be subject to local drainage problems or other unmapped flood hazard. Flood insurance is available and may be obtained at non-floodplain rates. A flood insurance policy may be required by the lender. NOTE: This information is based on the Flood Insurance Rate Map for the City of Orlando. This letter does not imply that the referenced property will or will not be free from flooding or damage. A property not in a Special Flood Hazard Area may be damaged by a flood greater than that predicted on the FIRM or from a local drainage problem not shown on the map. This letter does not create liability on the part of the City, or any officer or employee thereof, for damage that results from reliance on this information. Sincerely /s/ Erik Lervaag Erik Lervaag, Civil Engineer II City of Orlando <PAGE> 09/24/97 Commercial Rent Roll Property : MAGNOLIA ASSOCIATES L.P. <TABLE> <CAPTION> |------------Base Rent-----------|------ Total Charges : 9/01/97 - 9/30/97--------- Unit Square Annual Per Charge Total Per O Number Name Footage Amount Begins Ends Sq Ft Description Amount Sq Ft A - ------------------------------------------------------------------------------------------------------------------------------------ <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> 0101 WORLD WIDE TRAVEL NETWORK, IN 864 18576.00 12/01/96 11/30/99 21.50 Gross Rent 1548.00 21.50 Unit Number 101 Lease Beg Date 12/01/96 Lease End Date 11/30/99 - ------------------------------------------------------------------------------------------------------------------------------------ 0102 LEGG MASON WOODWALKER, INC. 8819 176379.96 5/01/95 4/30/96 20.00 MONTHLY OPERATING ESCALATION 206.04 0.28 Unit Number 102 178769.64 5/01/96 5/31/96 20.27 Total Base Rent 15594.94 21.22 Lease Beg Date 05/18/95 181671.48 6/01/96 4/30/97 20.60 -------- ----- Lease End Date 05/17/01 184140.84 5/01/97 5/31/97 20.88 Gross Rent 15800.98 21.50 187139.28 6/01/97 4/30/98 21.22 189648.36 5/01/98 5/31/98 21.50 192695.16 6/01/98 4/30/99 21.85 195323.76 5/01/99 5/31/99 22.15 198515.76 6/01/99 4/30/00 22.51 201224.04 5/01/00 5/31/00 22.82 204512.64 6/01/00 4/30/01 23.19 112152.12 5/01/01 5/31/01 12.72 - ------------------------------------------------------------------------------------------------------------------------------------ 0103 CENTRAL FLORIDA COPY CENTERS 1727 24298.92 10/01/91 2/29/96 14.07 MONTHLY OPERATING ESCALATION 971.40 6.75 Unit Number 103 27198.48 3/01/96 10/31/96 15.75 Total Base Rent 2392.78 16.63 Lease Beg Date 10/31/91 28713.36 11/01/96 10/31/97 16.63 -------- ----- Lease End Date 10/31/97 Gross Rent 3364.18 23.38 - ------------------------------------------------------------------------------------------------------------------------------------ 0105 CELLCOM, INC. 418 6687.96 2/01/96 4/30/96 16.00 MONTHLY OPERATING ESCALATION 12.43 0.36 Unit Number 105 7022.40 5/01/96 4/30/97 16.80 Total Base Rent 696.67 20.00 Lease Beg Date 01/01/96 8360.04 5/01/97 4/30/98 20.00 -------- ----- Lease End Date 12/31/00 8694.36 5/01/98 4/30/99 20.80 Gross Rent 709.10 20.36 9041.40 5/01/99 4/30/00 21.63 9405.00 5/01/00 12/31/00 22.50 - ------------------------------------------------------------------------------------------------------------------------------------ 0110 FIROZ P KANJI & MURJAHAN KANJ 377 3016.08 5/01/95 4/30/96 8.00 MONTHLY OPERATING ESCALATION 0.17 0.01 RE Unit Number 110 3166.80 5/01/96 4/30/97 8.40 Total Base Rent 277.10 8.82 Security Deposits 502.66 3325.20 5/01/97 4/30/98 8.82 -------- ----- RE Lease Beg Date 05/01/95 Gross Rent 277.27 8.83 Lease End Date 04/30/98 - ------------------------------------------------------------------------------------------------------------------------------------ 0200 NATURE'S TABLE,INC. 376 5264.04 10/01/95 9/30/99 14.00 MONTHLY OPERATING ESCALATION 8.78 0.28 Unit Number 200 Total Base Rent 438.67 14.00 Security Deposits 438.67 -------- ----- Lease Beg Date 10/16/95 Gross Rent 447.45 14.28 Lease End Date 09/09/99 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <PAGE> 09/24/97 Commercial Rent Roll Property : MAGNOLIA ASSOCIATES L.P. <TABLE> <CAPTION> |------------Base Rent-----------|------ Total Charges : 9/01/97 - 9/30/97--------- Unit Square Annual Per Charge Total Per O Number Name Footage Amount Begins Ends Sq Ft Description Amount Sq Ft A - ------------------------------------------------------------------------------------------------------------------------------------ <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> 0201 CREDIT DATA SERVICES, INC. 7245 115920.00 7/01/92 12/31/97 16.00 MONTHLY OPERATING ESCALATION 203.91 0.34 Unit Number 201 121716.00 1/01/98 12/31/98 16.80 Total Base Rent 9660.00 16.00 Lease Beg Date 07/01/92 127801.80 1/01/99 12/31/99 17.64 -------- ----- Lease End Date 12/31/02 134177.40 1/01/00 12/31/00 18.52 Gross Rent 9863.91 16.34 140915.28 1/01/01 12/31/01 19.45 147942.96 1/01/02 12/31/02 20.42 - ------------------------------------------------------------------------------------------------------------------------------------ 0202 SMITH BARNEY 9444 165270.00 8/01/94 10/31/99 17.50 MONTHLY A/C CHARGE 175.00 0.22 CA Unit Number 202 203046.00 11/01/99 11/30/04 21.50 MONTHLY OPERATING ESCALATION 715.37 0.91 Lease Beg Date 08/09/94 -------- ----- RE Lease End Date 11/08/04 Total Other Charges 890.37 1.13 Total Base Rent 13772.50 17.50 Gross Rent 14662.87 18.63 - ------------------------------------------------------------------------------------------------------------------------------------ 0203 CELLCOM, INC. 1050 16800.00 2/01/96 2/28/97 16.00 MONTHLY OPERATING ESCALATION 30.04 0.34 Unit Number 203 17640.00 3/01/97 2/28/98 16.80 Total Base Rent 1470.00 16.80 Security Deposits 2009.88 18522.00 3/01/98 2/28/99 17.64 -------- ----- Lease Beg Date 02/26/96 19446.00 3/01/99 2/29/00 18.52 Gross Rent 1500.04 17.14 Lease End Date 12/31/00 20422.56 3/01/00 12/31/00 19.45 - ------------------------------------------------------------------------------------------------------------------------------------ 0204 PRODUCTIVITY SOFTWARE 1530 27540.00 8/01/96 12/31/96 18.00 MONTHLY OPERATING ESCALATION 31.76 0.25 Unit Number 204 28917.00 1/01/97 12/31/97 18.90 Total Base Rent 2409.75 18.90 Lease Beg Date 07/19/96 30370.44 1/01/98 12/31/98 19.85 -------- ----- Lease End Date 12/31/00 31885.20 1/01/99 12/31/99 20.84 Gross Rent 2441.51 19.15 33476.40 1/01/00 12/31/00 21.88 - ------------------------------------------------------------------------------------------------------------------------------------ 0209 NATURE'S TABLE, INC. 1349 18939.96 4/01/95 4/30/00 14.04 MONTHLY OPERATING ESCALATION 31.51 0.28 Unit Number 209 Total Base Rent 1578.33 14.04 Security Deposits 3156.66 -------- ----- Lease Beg Date 04/14/95 Gross Rent 1609.84 14.32 Lease End Date 04/13/00 - ------------------------------------------------------------------------------------------------------------------------------------ 0210 FORUM MANAGEMENT 1800 Gross Rent 0.00 Unit Number 210 Lease Beg Date 09/01/97 Lease End Date - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <PAGE> 09/24/97 Commercial Rent Roll Property : MAGNOLIA ASSOCIATES L.P. <TABLE> <CAPTION> |------------Base Rent-----------|------ Total Charges : 9/01/97 - 9/30/97--------- Unit Square Annual Per Charge Total Per O Number Name Footage Amount Begins Ends Sq Ft Description Amount Sq Ft A - ------------------------------------------------------------------------------------------------------------------------------------ <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> 0300 R.W. BECK, INC. 25541 181258.44 8/01/96 8/31/96 7.10 Gross Rent 43845.38 20.60 Unit Number 0300 510819.96 9/01/96 8/31/97 20.00 Lease Beg Date 08/21/96 526144.56 9/01/97 8/31/98 20.60 Lease End Date 08/31/06 541980.00 9/01/98 8/31/99 21.22 558326.28 9/01/99 8/31/00 21.86 575183.28 9/01/00 8/31/01 22.52 592551.24 9/01/01 8/31/02 23.20 610429.92 9/01/02 8/31103 23.90 628819.44 9/01/03 8/31/04 24.62 647719.80 9/01/04 8/31/05 25.36 667130.88 9/01/05 8/31/06 26.12 - ------------------------------------------------------------------------------------------------------------------------------------ 0400 METROPOLITAN LIFE INSURANCE 4466 87087.00 11/01/96 1/31/97 19.50 Gross Rent 7547.54 20.28 CA Unit Number 400 90570.48 2/01/97 1/31/96 20.28 Lease Beg Date 11/01/96 94188.00 2/01/98 1/31/99 21.09 Lease End Date 01/31/02 97939.44 2/01/99 1/31/00 21.93 101869.44 2/01/00 1/31/01 22.81 105933.48 2/01/01 1/31/02 23.72 - ------------------------------------------------------------------------------------------------------------------------------------ 0401 METROPOLITAN LIFE INSURANCE 5622 94168.56 2/01/95 1/31/96 16.75 MONTHLY OPERATING ESCALATION 131.23 0.28 CA Unit Number 401 97935.24 2/01/96 1/31/97 17.42 Total Base Rent 8489.22 18.12 Lease Beg Date 02/01/95 101870.64 2/01/97 1/31/98 18.12 -------- ----- --- Lease End Date 01/31/02 105918.48 2/01/98 1/31/99 18.84 Gross Rent 8620.45 18.40 110191.20 2/01/99 1/31/00 19.60 114576.36 2/01/00 1/31/01 20.38 119130.24 2/01/01 1/31/02 21.19 - ------------------------------------------------------------------------------------------------------------------------------------ 0402 REASSURANCE COMPANY OF HANOVE 2315 46299.96 8/01/97 7/31/98 20.00 MONTHLY OPERATING ESCALATION 78.60 0.41 Unit Number 0402 48152.04 8/01/98 5/31/99 20.80 Total Base Rent 3858.33 20.00 Lease Beg Date 08/01/97 Lease End Date 05/31/99 Gross Rent 3936.93 20.41 - ------------------------------------------------------------------------------------------------------------------------------------ 0600 CAC PROP.INC. / UNITED HEALTH 39240 627840.00 8/01/95 1/31/96 16.00 MONTHLY OPERATING ESCALATION 851.63 0.26 R Unit Number 600 659232.00 2/01/96 1/31/97 16.80 Total Base Rent 57682.80 17.64 Lease Beg Date 01/04/95 692193.60 2/01/97 1/31/98 17.64 -------- ----- --- Lease End Date 07/31/02 727509.60 2/01/98 1/31/99 18.54 Gross Rent 58534.43 17.90 763218.00 2/01/99 1/31/00 19.45 801280.80 2/01/00 1/31/01 20.42 841305.60 2/01/01 1/31/02 21.44 883292.40 2/01/02 7/31/02 22.51 - ------------------------------------------------------------------------------------------------------------------------------------ 1001 REASSURANCE CO. OF HANOVER 6633 122710.56 5/01/92 5/31/99 18.50 MONTHLY OPERATING ESCALATION 132.23 0.24 Unit Number 1001 Total Base Rent 10225.88 18.50 Lease Beg Date 05/26/92 -------- ----- --- Lease End Date 05/31/99 Gross Rent 10358.11 18.74 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <PAGE> 09/24/97 Commercial Rent Roll Property : MAGNOLIA ASSOCIATES L.P. <TABLE> <CAPTION> |------------Base Rent-----------|------ Total Charges : 9/01/97 - 9/30/97--------- Unit Square Annual Per Charge Total Per O Number Name Footage Amount Begins Ends Sq Ft Description Amount Sq Ft A - ------------------------------------------------------------------------------------------------------------------------------------ <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> 1002 REASSURANCE CO. OF HANOVER 2638 47484.00 5/01/92 5/31/99 18.00 MONTHLY OPERATING ESCALATION 87.48 0.40 Unit Number 1002 Total Base Rent 3957.00 18.00 Lease Beg Date 05/05/94 -------- ----- --- Lease End Date 05/31/99 Gross Rent 4044.48 18.40 - ------------------------------------------------------------------------------------------------------------------------------------ 1100 HANSEN LIND MEYER, INC. 30000 429000.00 10/01/87 3/31/97 14.30 Gross Rent 56700.00 22.68 Unit Number 1100 680400.00 4/01/97 12/31/02 22.68 Lease Beg Date 10/12/87 834900.00 1/01/03 12/31/03 27.83 Lease End Date 12/31/05 868200.00 1/01/04 12/31/04 28.94 903000.00 1/01/05 12/31/05 30.10 - ------------------------------------------------------------------------------------------------------------------------------------ 1201 FLUOR DANIEL, INC. 3375 67500.00 6/01/97 5/31/98 20.00 Gross Rent 5625.00 20.00 R Unit Number 1201 71043.72 6/01/98 5/31/99 21.05 Lease Beg Date 05/08/97 74418.72 6/01/99 5/31/00 22.05 Lease End Date 05/31/00 - ------------------------------------------------------------------------------------------------------------------------------------ 1202 PRUDENTIAL INS CO OF AMERICA 7418 122248.68 9/01/95 7/31/96 16.48 MONTHLY OPERATING ESCALATION 561.73 0.91 R Unit Number 1202 122959.44 8/01/96 8/31/96 16.58 Total Base Rent 10805.55 17.48 Lease Beg Date 08/26/94 125883.48 9/01/96 7/31/97 16.97 -------- ----- --- Lease End Date 08/25/99 126615.72 8/01/97 8/31/97 17.07 Gross Rent 11367.28 18.39 129666.60 9/01/97 7/31/98 17.48 130412.76 8/01/98 8/31/98 17.58 133524.00 9/01/98 7/31/99 18.00 107680.68 8/01/99 8/31/99 14.52 - ------------------------------------------------------------------------------------------------------------------------------------ 1203 ECC OF ORLANDO, INC. 8330 166599.96 9/01/92 5/31/98 20.00 MONTHLY OPERATING ESCALATION 234.45 0.34 Unit Number 1203 173264.04 6/01/98 5/31/99 20.80 Total Base Rent 13883.33 20.00 Lease Beg Date 09/01/92 180177.96 6/01/99 5/31/00 21.63 -------- ----- --- Lease End Date 05/31/02 187425.00 6/01/00 5/31/01 22.50 Gross Rent 14117.78 20.34 194922.00 6/01/01 5/31/02 23.40 - ------------------------------------------------------------------------------------------------------------------------------------ 1300 ACACIA MUTUAL LIFE INS. CO. 5295 102603.12 5/01/91 9/30/95 19.38 MONTHLY OPERATING ESCALATION 153.31 0.35 Unit Number 1300 95310.00 10/01/95 4/30/96 18.00 Total Base Rent 8480.83 19.22 Lease Beg Date 08/01/95 96898.56 5/01/96 4/30/97 18.30 -------- ----- --- Lease End Date 04/30/01 101769.96 5/01/97 4/30/98 19.22 Gross Rent 8634.14 19.57 106853.16 5/01/98 4/30/99 20.18 112201.08 5/01/99 4/30/00 21.19 117813.72 5/01/00 4/30/01 22.25 - ------------------------------------------------------------------------------------------------------------------------------------ 1301 TURNER CONSTRUCTION 7283 131094.00 4/01/95 12/31/96 18.00 MONTHLY OPERATING ESCALATION 158.05 0.26 Unit Number 1301 136337.76 1/01/97 12/31/97 18.72 Total Base Rent 11361.48 18.72 Security Deposits 8658.67 141800.04 1/01/98 12/31/98 19.47 -------- ----- --- Lease Beg Date 04/01/95 147480.72 1/01/99 12/31/99 20.25 Gross Rent 11519.53 18.98 Lease End Date 06/30/01 153380.04 1/01/00 12/31/00 21.06 159497.76 1/01/01 6/30/01 21.90 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <PAGE> 09/24/97 Commercial Rent Roll Property : MAGNOLIA ASSOCIATES L.P. <TABLE> <CAPTION> |------------Base Rent-----------|------ Total Charges : 9/01/97 - 9/30/97--------- Unit Square Annual Per Charge Total Per O Number Name Footage Amount Begins Ends Sq Ft Description Amount Sq Ft A - ------------------------------------------------------------------------------------------------------------------------------------ <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> 1302 ALTERNATIVE RESOURCES CORP. 1842 33156.00 6/01/96 5/31/97 18.00 MONTHLY OPERATING ESCALATION 52.83 0.34 Unit Number 1302 34813.80 6/01/97 5/31/98 18.90 Total Base Rent 2901.15 18.90 Security Deposits 4595.10 36563.76 6/01/98 5/31/99 19.85 -------- ----- --- Lease Beg Date 05/24/96 38387.28 6/01/99 5/31/00 20.84 Gross Rent 2953.98 19.24 Lease End Date 03/24/03 40302.96 6/01/00 5/31/01 21.88 42292.32 6/01/01 5/31/02 22.96 44410.68 6/01/02 2/28/03 24.11 34382.40 3/01/03 3/31/03 18.67 - ------------------------------------------------------------------------------------------------------------------------------------ 1303 WILLIAM R. PICKERING 1715 30870.00 11/01/95 1/31/97 18.00 MONTHLY OPERATING ESCALATION 40.12 0.28 Unit Number 1303 32413.56 2/01/97 1/31/98 18.90 Total Base Rent 2701.13 18.90 Security Deposits 2572.50 34042.80 2/01/98 1/31/99 19.85 -------- ----- --- Lease Beg Date 11/15/95 35740.56 2/01/99 1/31/00 20.84 Gross Rent 2741.25 19.18 Lease End Date 11/30/00 37524.24 2/01/00 11/30/00 21.88 - ------------------------------------------------------------------------------------------------------------------------------------ 1305 PRODUCTIVITY SOFTWARE 3112 56016.00 10/01/95 12/31/96 18.00 MONTHLY OPERATING ESCALATION 72.72 0.28 Unit Number 1305 58816.80 1/01/97 12/31/97 19.90 Total Base Rent 4901.40 18.90 Lease Beg Date 10/01/95 61773.24 1/01/98 12/31/98 19.85 -------- ----- --- Lease End Date 12/31/00 64854.12 1/01/99 12/31/99 20.84 Gross Rent 4974.12 19.18 68090.52 1/01/00 12/31/00 21.88 - ------------------------------------------------------------------------------------------------------------------------------------ 1401 PRUDENTIAL SECURITIES INC. 13678 344138.52 7/01/96 1/31/07 25.16 MONTHLY OPERATING ESCALATION 386.64 0.34 TE Unit Number 1401 221231.88 2/01/07 2/28/07 16.17 Total Base Rent 28678.21 25.16 Lease Beg Date 07/01/96 -------- ----- --- Lease End Date 02/18/07 Gross Rent 29064.85 25.50 - ------------------------------------------------------------------------------------------------------------------------------------ 1402 LDDS COMMUNICATIONS, INC. 5889 94224.00 9/01/94 8/31/95 16.00 MONTHLY OPERATING ESCALATION 446.02 0.91 RE Unit Number 1402 98935.20 9/01/95 8/31/96 16.80 Total Base Rent 9088.69 18.52 Lease Beg Date 09/01/94 103881.96 9/01/96 8/31/97 17.64 -------- ----- --- Lease End Date 08/31/99 109064.28 9/01/97 8/31/98 18.52 Gross Rent 9534.71 19.43 114541.08 9/01/98 8/31/99 19.45 - ------------------------------------------------------------------------------------------------------------------------------------ 1500 DEAN MEAD EGERTON BLOODWORTH 22264 534336.00 2/01/89 10/31/95 24.00 Gross Rent 48161.49 25.96 Unit Number 1500 555709.44 11/01/95 10/31/96 24.96 Security Deposits 45000.00 577937.88 11/01/96 10/31/97 25.96 Lease Beg Date 02/01/89 601055.28 11/01/97 10/31/98 27.00 Lease End Date 04/30/04 625097.52 11/01/98 10/31/99 28.08 650101.44 11/01/99 10/31/00 29.20 676105.44 11/01/00 10/31/01 30.37 703149.60 11/01/01 10/31/02 31.58 731275.56 11/01/02 10/31/03 32.85 760526.64 11/01/03 4/30/04 34.16 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <PAGE> 09/24/97 Commercial Rent Roll Property : MAGNOLIA ASSOCIATES L.P. <TABLE> <CAPTION> |------------Base Rent-----------|------ Total Charges : 9/01/97 - 9/30/97--------- Unit Square Annual Per Charge Total Per O Number Name Footage Amount Begins Ends Sq Ft Description Amount Sq Ft A - ------------------------------------------------------------------------------------------------------------------------------------ <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> 1600 AMERICAN PHOENIX CORP 8700 154425.00 10/01/95 9/30/96 17.75 MONTHLY OPERATING ESCALATION 203.11 0.28 TE Unit Number 1600 160602.00 10/01/96 9/30/97 18.46 RENT CONCESSION-8/1/96-9/30/ -751.61 -1.04 Lease Beg Date 10/01/95 167040.00 10/01/97 9/30/98 19.20 -------- ----- --- Lease End Date 09/30/02 173739.00 10/01/98 9/30/99 19.97 Total Other Charges -549.50 -0.76 180699.00 10/01/99 9/30/00 20.77 Total Base Rent 13383.50 18.46 189747.00 10/01/00 9/30/01 21.81 -------- ----- --- 199230.00 10/01/01 9/30/02 22.90 Gross Rent 12835.00 17.70 - ------------------------------------------------------------------------------------------------------------------------------------ 1625 AMERICAN PHOENIX CORPORATION 1764 33868.80 11/01/97 9/30/98 19.20 Gross Rent 0.00 Unit Number 1625 35227.08 10/01/98 9/30/99 19.97 Lease Beg Date 09/01/97 36638.28 10/01/99 9/30/00 20.77 Lease End Date 09/30/02 38472.84 10/01/00 9/30/01 21.81 40395.60 10/01/01 9/30/02 22.90 - ------------------------------------------------------------------------------------------------------------------------------------ 1650 BUSINESS TELECOM, INC. 3763 65852.52 11/01/95 12/31/96 17.50 MONTHLY OPERATING ESCALATION 108.77 0.35 Unit Number 1650 69163.92 1/01/97 12/31/97 18.38 Total Base Rent 5763.66 18.38 Security Deposits 5487.71 72625.92 1/01/98 12/31/98 19.30 -------- ----- --- Lease Beg Date 11/01/95 76275.96 1/01/99 12/31/99 20.27 Gross Rent 5872.43 18.73 Lease End Date 12/31/00 80076.60 1/01/00 12/31/00 21.28 - ------------------------------------------------------------------------------------------------------------------------------------ 1701 AMERICAN EXPRESS FINANCIAL 13387 247659.48 5/01/95 5/31/00 18.50 MONTHLY OPERATING ESCALATION 1003.87 0.90 RE Unit Number 1701 Total Base Rent 20638.29 18.50 Lease Beg Date 02/01/88 -------- ----- --- Lease End Date 05/31/00 Gross Rent 21642.16 19.40 - ------------------------------------------------------------------------------------------------------------------------------------ 1702 WADE DEVELOPMENT INC. 3557 64026.00 7/01/95 4/30/96 18.00 MONTHLY OPERATING ESCALATION 83.10 0.28 Unit Number 1702 95778.00 5/01/96 7/31/96 26.93 Total Base Rent 5771.23 19.47 Lease Beg Date 07/11/95 99609.12 8/01/96 7/31/97 28.00 -------- ----- --- Lease End Date 09/10/00 69254.76 8/01/97 7/31/98 19.47 Gross Rent 5854.33 19.75 72029.28 8/01/98 7/31/99 20.25 74910.48 8/01/99 7/31/00 21.06 77898.36 8/01/00 8/31/00 21.90 25966.08 9/01/00 9/30/00 7.30 - ------------------------------------------------------------------------------------------------------------------------------------ 1900 THE EDUCATIONAL INSTITUTE 24592 454952.04 7/01/97 6/30/98 18.50 Gross Rent 37912.67 18.50 Unit Number 1800 467247.96 7/01/98 6/30/99 19.00 Lease Beg Date 07/01/97 479544.00 7/D1/99 6/30/00 19.50 Lease End Date 06/30/07 504135.96 7/01/00 6/30/07 20.50 - ------------------------------------------------------------------------------------------------------------------------------------ 999 MISCELLANEOUS BUILDING INCOME 0 Gross Rent 0.00 Lease Beg Date 09/01/97 Lease End Date - ------------------------------------------------------------------------------------------------------------------------------------ AIR AIRBORNE 0 12000.00 3/01/94 3/31/97 0.00 Gross Rent 0.00 Unit Number 0000 Lease Beg Date 03/01/94 Lease End Date 02/08/98 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <PAGE> 09/24/97 Commercial Rent Roll Property : MAGNOLIA ASSOCIATES L.P. <TABLE> <CAPTION> |------------Base Rent-----------|------ Total Charges : 9/01/97 - 9/30/97--------- Unit Square Annual Per Charge Total Per O Number Name Footage Amount Begins Ends Sq Ft Description Amount Sq Ft A - ------------------------------------------------------------------------------------------------------------------------------------ <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> BIFFS DIAMOND DETAILING SERVICE 0 1200.00 7/01/91 12/31/96 0.00 Gross Rent 250.00 Unit Number - CARWAS 3000.00 1/01/97 9/30/99 0.00 Lease Beg Date 07/16/91 Lease End Date 09/09/99 - ------------------------------------------------------------------------------------------------------------------------------------ DRIVE FIRST UNION NATIONAL BANK 0 138522.84 1/01/88 12/31/02 0.00 C.P.I. 2995.07 Unit Number DRIVE Total Base Rent 11543.57 Lease Beg Date 01/01/89 --------- ----- --- Lease End Date 12/31/02 Gross Rent 14538.64 - ------------------------------------------------------------------------------------------------------------------------------------ EQUIP SPRINT METROPOLITAN NETWORKS 0 36000.00 7/14/97 8/13/97 0.00 Gross Rent 0.00 Unit Number EQUIP 37800.00 7/14/98 8/13/99 0.00 Lease Beg Date 07/14/97 39690.00 7/14/99 8/13/99 0.00 Lease End Date 07/13/00 - ------------------------------------------------------------------------------------------------------------------------------------ FIRST FIRST UNION NATIONAL BANK 69363 1248534.84 1/01/88 12/31/02 18.00 C.P.I. 39077.24 6.76 RE Unit Number OFFICE MONTHLY OPERATING ESCALATION 40421.41 6.99 Lease Beg Date 01/01/88 SIGNAGE 330.64 0.06 RE Lease End Date 12/31/02 --------- ----- --- Total Other Charges 79829.29 13.81 RE Total Base Rent 104044.57 18.00 --------- ----- --- Gross Rent 183873.86 31.81 - ------------------------------------------------------------------------------------------------------------------------------------ UTIL METROPOLITAN FIBER SYSTEMS 400 3000.00 10/01/95 9/30/96 7.50 MONTHLY OPERATING ESCALATION 9.19 0.28 Unit Number UTIL R 3150.00 10/01/96 9/30/97 7.88 Total Base Rent 262.50 7.88 Lease Beg Date 10/01/95 3307.56 10/01/97 9/30/98 8.27 --------- ----- --- Lease End Date 09/30/05 3472.92 10/01/98 9/30/99 8.68 Gross Rent 271.69 8.15 3646.56 10/01/99 9/30/00 9.12 3828.84 10/01/00 9/30/01 9.57 4020.24 10/01/01 9/30/02 10.05 4221.36 10/01/02 9/30/03 10.55 4432.32 10/01/03 9/30/04 11.08 4653.96 10/01/04 9/30/05 11.63 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <PAGE> 09/24/97 - Commercial Rent Roll Property : MAGNOLIA ASSOCIATES L.P. <TABLE> <CAPTION> TOTALS : --------Occupied-------- --------Vacant-------- --------Total------- Total Per Total Per Total Per Amount Sq Ft Amount Sq Ft Amount Sq Ft - ------------------------------ ------------ ----- ----------- ----- --------- ----- <S> <C> <C> <C> <C> <C> Base Rent 588303.14 19.76 0.00 588303.14 19.76 Other Charges: C.P.I. 42072.31 1.41 0.00 42072.31 1.41 MONTHLY A/C CHARGE 175.00 0.01 0.00 175.00 0.01 MONTHLY OPERATING ESCALATION 47427.90 1.59 0.00 47427.90 1.59 RENT CONCESSION-8/1/96-9/30/00 -751.61 -0.03 0.00 -751.61 -0.03 SIGNAGE 330.64 0.01 0.00 330.64 0.01 - ------------------------------ ------------ ----- ----------- ----- --------- ----- Gross Rent 677557.38 22.76 0.00 677557.38 22.76 Annual Rent 8130688.56 0.00 8130689.56 Security Deposits Held 72421.85 UNIT SUMMARY : --------Occupied-------- --------Vacant-------- --------Total-------- Number % Number % Number % - ------------------------------ ----------- ----- ----------- ----- --------- ----- Units 44 100.0 0 0.0 44 100.0 Square Footage 357181 100.0 0 0.0 357181 100.0 </TABLE> <PAGE> 9:05AM on 10/6/97 INVESTOR SURVEY Cushman & Wakefield Valuation Advisory Services Autumn 1996 <TABLE> <CAPTION> ================================================================================================================================= Capitalization Rates Growth Rate ---------------------------------- Internal ------------------------------ Typical Projection Going-In Terminal Rate of Return Income Expenses Period (Years) Low High Low High Low High Low High Low High Low High - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> OFFICE - --------------------------------------------------------------------------------------------------------------------------------- Urban/CBD 9.8% 10.3% 9.6% 10.3% 13.0% 13.6% 3.8% 4.1% 3.5% 3.8% 7.8 9.1 - --------------------------------------------------------------------------------------------------------------------------------- Class A - Leased Asset 9.3% 9.8% 9.3% 9.8% 11.8% 12.2% 3.6% 3.9% 3.5% 3.8% 8.3 9.5 - --------------------------------------------------------------------------------------------------------------------------------- 9.5% 10.0% 10.0% 10.0% 11.5% 11.5% 3.0% 3.0% 3.0% 4.0% 10.0 10.0 9.5% 10.0% 10.0% 10.5% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0 8.0% 9.0% 8.5% 8.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 13.0% 13.0% 14.0% 14.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0 9.3% 9.3% 10.3% 10.3% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.0% 9.0% 8.5% 9.0% 10.5% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0 10.0% 10.0% 10.0% 10.0% 12.5% 12.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 9.0% 9.0% 9.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 8.0% 9.0% 8.0% 9.0% 10.0% 12.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0 Class B - Leased Asset 10.1% 10.6% 9.6% 10.4% 12.9% 13.3% 3.9% 4.2% 3.6% 3.9% 8.0 9.7 - --------------------------------------------------------------------------------------------------------------------------------- 10.0% 10.0% 9.0% 9.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 9.5% 9.5% 10.5% 10.5% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 10.0% 10.0% 11.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 15.0% 15.0% 20.0% 20.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0 9.0% 10.0% 9.0% 10.0% 9.0% 10.0% 12.0% 13.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0 Class A - Value Added 9.3% 10.0% 9.5% 10.3% 12.8% 13.6% 3.9% 4.1% 3.6% 3.8% 7.3 8.8 - --------------------------------------------------------------------------------------------------------------------------------- 8.0% 9.0% 9.5% 10.0% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0 8.0% 10.0% 8.5% 9.0% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0 9.5% 9.5% 10.5% 10.5% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 12.0% 12.0% 13.0% 13.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0 9.0% 9.0% 9.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 1.0 10.0 12.0% 13.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0 </TABLE> <PAGE> 9:05AM on 10/6/97 <TABLE> <CAPTION> ================================================================================================================================= Capitalization Rates Growth Rate ---------------------------------- Internal ------------------------------ Typical Projection Going-In Terminal Rate of Return Income Expenses Period (Years) Low High Low High Low High Low High Low High Low High - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Class B - Value Added 10.5% 10.9% 10.1% 10.9% 14.5% 15.3% 3.9% 4.2% 3.4% 3.7% 7.6 8.6 -------------------------------------------------------------------------------------------------------------------------------- 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0 9.8% 9.8% 10.8% 10.8% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 14.0% 14.0% 20.0% 20.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% 10.0% 11.0% 14.0% 14.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 - -------------------------------------------------------------------------------------------------------------------------------- Suburban 9.2% 9.8% 9.6% 10.1% 12.9% 13.5% 3.6% 4.1% 3.4% 3.6% 7.7 8.7 - -------------------------------------------------------------------------------------------------------------------------------- Class A - Leased Asset 8.8% 9.6% 9.4% 10.0% 11.2% 11.1% 3.8% 4.1% 3.6% 3.7% 8.8 9.6 ------------------------------------------------------------------------------------------------------------------------------- 9.5% 9.5% 10.5% 10.5% 10.5% 10.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 8.5% 8.5% 9.3% 9.3% 11.3% 11.3% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 11.0% 11.0% 12.0% 12.0% 5.0% 3.0% 3.0% 3.0% 5.0 7.0 8.5% 10.0% 9.0% 10.5% 11.0% 12.5% 3.5% 3.5% 3.5% 3.5% 10.0 10.0 8.0% 10.0% 9.5% 10.0% 11.5% 12.0% 4.0% 6.0% 4.0% 4.0% 10.0 10.0 10.0% 11.0% 10.5% 11.0% 12.0% 12.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 8.0% 9.0% 8.5% 8.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 9.1% 9.1% 10.1% 10.1% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.5% 10.0% 9.0% 10.5% 11.0% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0 9.0% 9.0% 10.0% 10.0% 11.5% 11.5% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 9.0% 9.0% 9.0% 9.0% 12.0% 13.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0 9.0% 9.0% 9.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 8.0% 10.0% 8.0% 9.0% 8.0% 9.0% 10.0% 12.0% 5.0% 5.0% 4.0% 4.0% 5.0 10.0 Class B - Leased Asset 9.6% 10.1% 9.7% 10.2% 12.1% 12.6% 3.7% 4.1% 3.5% 3.6% 8.5 9.5 ------------------------------------------------------------------------------------------------------------------------------- 9.5% 9.5% 10.5% 10.5% 10.5% 10.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 8.8% 8.8% 9.5% 9.5% 11.8% 11.8% 3.5% 3.5% 3.5% 3.5% 10.0 10.0 12.0% 12.0% 18.0% 18.0% 5.0% 3.0% 3.0% 3.0% 5.0 7.0 10.5% 10.5% 10.0% 10.0% 11.0% 13.0% 2.0% 2.0% 2.0% 2.0% 10.0 10.0 8.0% 10.0% 9.5% 10.0% 11.0% 12.0% 4.0% 6.0% 4.0% 4.0% 10.0 10.0 9.0% 10.0% 9.0% 9.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 9.4% 9.4% 10.4% 10.4% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% 10.0% 10.0% 14.0% 15.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0 9.0% 9.0% 9.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 10.0% 11.0% 10.0% 11.0% 10.0% 11.0% 12.0% 13.0% 5.0% 5.0% 4.0% 4.0% 5.0 10.0 </TABLE> <PAGE> 9:05AM on 10/6/97 <TABLE> <CAPTION> ================================================================================================================================= Capitalization Rates Growth Rate ---------------------------------- Internal ------------------------------ Typical Projection Going-In Terminal Rate of Return Income Expenses Period (Years) Low High Low High Low High Low High Low High Low High - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Class A - Value Added 9.0% 9.7% 9.5% 10.1% 13.6% 14.6% 3.5% 4.1% 3.5% 3.7% 6.9 7.8 ------------------------------------------------------------------------------------------------------------------------------- 10.0% 10.0% 13.0% 13.0% 3.0% 3.0% 3.0% 3.0% 5.0 7.0 8.0% 10.0% 8.5% 9.0% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0 9.4% 9.4% 10.4% 10.4% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 6.0% 6.0% 9.0% 9.0% 17.0% 20.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0 9.0% 9.0% 9.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 1.0 10.0 8.0% 10.0% 12.0% 12.0% 10.0% 10.0% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 2.0 2.0 Class B - Value Added 9.5% 9.8% 9.9% 10.4% 14.6% 15.3% 3.3% 3.9% 3.2% 3.4% 6.9 7.8 ------------------------------------------------------------------------------------------------------------------------------ 11.0% 11.0% 18.0% 18.0% 3.0% 3.0% 3.0% 3.0% 5.0 7.0 10.5% 10.5% 10.0% 10.0% 11.0% 13.0% 2.0% 2.0% 2.0% 2.0% 10.0 10.0 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0 9.6% 9.6% 10.6% 10.6% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 6.0% 6.0% 10.0% 10.0% 20.0% 20.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0 9.0% 9.0% 9.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 9.0% 10.0% 12.0% 12.0% 10.0% 10.0% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 2.0 2.0 INDUSTRIAL ------------------------------------------------------------------------------------------------------------------------------- Warehouse/Distribution 9.2% 9.5% 9.9% 10.3% 11.3% 11.4% 3.2% 3.7% 3.3% 3.7% 9.5 10.2 ------------------------------------------------------------------------------------------------------------------------------- Class A - Leased Asset 8.9% 9.3% 9.5% 9.9% 10.9% 11.1% 3.3% 3.6% 3.3% 3.6% 9.8 10.1 ------------------------------------------------------------------------------------------------------------------------------ 9.2% 9.2% 9.5% 9.5% 10.0% 10.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 8.5% 8.5% 9.3% 9.3% 11.0% 11.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 8.5% 10.0% 9.5% 10.0% 11.0% 12.0% 3.5% 3.5% 3.5% 3.5% 10.0 10.0 9.0% 9.0% 9.5% 9.5% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 10.0 10.0 9.5% 9.5% 10.0% 10.0% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.5% 10.0% 9.0% 10.5% 11.0% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0 9.0% 9.0% 10.0% 10.0% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 9.0% 9.0% 9.5% 9.5% 10.5% 10.5% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 </TABLE> <PAGE> 9:05AM on 10/6/97 <TABLE> <CAPTION> ================================================================================================================================= Capitalization Rates Growth Rate ---------------------------------- Internal ------------------------------ Typical Projection Going-In Terminal Rate of Return Income Expenses Period (Years) Low High Low High Low High Low High Low High Low High - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Class B - Leased Asset 9.2% 9.4% 9.8% 10.0% 11.0% 11.0% 3.2% 3.6% 3.3% 3.7% 9.7 10.2 ------------------------------------------------------------------------------------------------------------------------------- 9.2% 9.2% 9.5% 9.5% 10.0% 10.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 8.8% 8.8% 9.5% 9.5% 11.3% 11.3% 3.5% 3.5% 3.5% 3.5% 10.0 10.0 9.5% 9.5% 10.0% 10.0% 11.5% 11.5% 3.0% 4.0% 3.0% 4.0% 10.0 10.0 9.8% 9.8% 10.3% 10.3% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 9.5% 10.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Class A - Value Added 9.3% 9.6% 9.9% 10.4% 11.5% 11.5% 3.3% 3.8% 3.3% 3.8% 9.3 10.3 ------------------------------------------------------------------------------------------------------------------------------- 9.8% 9.8% 10.3% 10.3% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 9.5% 10.0% 10.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Class B - Value Added 9.5% 9.8% 10.2% 10.7% 11.8% 11.8% 3.3% 3.8% 3.3% 3.8% 9.3 10.3 ------------------------------------------------------------------------------------------------------------------------------- 10.0% 10.0% 10.5% 10.5% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% 10.5% 10.5% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 - --------------------------------------------------------------------------------------------------------------------------------- Business Parks 9.4% 9.9% 10.0% 10.8% 12.3% 12.9% 3.4% 4.0% 3.2% 3.8% 8.3 9.6 - --------------------------------------------------------------------------------------------------------------------------------- Class A - Leased Asset 9.0% 9.5% 9.8% 10.5% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5 ------------------------------------------------------------------------------------------------------------------------------- 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 9.5% 10.0% 10.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Class B - Leased Asset 9.3% 9.8% 10.0% 10.8% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5 ------------------------------------------------------------------------------------------------------------------------------- 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 1l.0 11.0 10.0% 10.0% 10.5% 10.5% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Class A - Value Added 9.5% 10.2% 10.0% 10.8% 13.0% 14.3% 3.5% 4.0% 3.2% 3.7% 7.7 8.7 ------------------------------------------------------------------------------------------------------------------------------- 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0 8.5% 9.5% 9.5% 11.0% 11.0 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% 10.5% 10.5% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Class B - Value Added 9.7% 10.3% 10.2% 11.0% 13.0% 14.3% 3.5% 4.0% 3.2% 3.7% 7.7 8.7 ------------------------------------------------------------------------------------------------------------------------------- 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.5% 10.5% 11.0% 11.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 </TABLE> <PAGE> 9:05AM on 10/6/97 <TABLE> <CAPTION> ================================================================================================================================= Capitalization Rates Growth Rate ---------------------------------- Internal ------------------------------ Typical Projection Going-In Terminal Rate of Return Income Expenses Period (Years) Low High Low High Low High Low High Low High Low High - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------------- Other Industrial/ - --------------------------------------------------------------------------------------------------------------------------------- Manufacturing 9.2% 9.7% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.8 10.3 - --------------------------------------------------------------------------------------------------------------------------------- Class A - Leased Asset 8.8% 9.3% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.5 10.0 ------------------------------------------------------------------------------------------------------------------------------- 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 10.0 10.0 9.0% 9.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Class B - Leased Asset 9.3% 9.8% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.5 10.0 ------------------------------------------------------------------------------------------------------------------------------- 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 10.0 10.0 10.0% 10.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Class A - Value Added 9.3% 9.8% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5 ------------------------------------------------------------------------------------------------------------------------------- 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Class B -Value Added 9.5% 10.0% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5 ------------------------------------------------------------------------------------------------------------------------------- 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.5% 10.5% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 RETAIL - --------------------------------------------------------------------------------------------------------------------------------- Neighborhood & Community Centers 9.5% 10.1% 10.0% 10.7% 13.2% 13.7% 3.2% 3.5% 3.5% 3.8% 8.5 9.1 - --------------------------------------------------------------------------------------------------------------------------------- Class A - Leased Asset 9.4% 9.9% 10.0% 10.4% 12.1% 12.4% 3.2% 3.4% 3.6% 3.8% 8.8 9.4 ------------------------------------------------------------------------------------------------------------------------------- 9.0% 10.5% 9.5% 10.5% 11.0% 12.5% 3.5% 3.5% 3.5% 3.5% 10.0 10.0 9.5% 10.0% 10.0% 10.0% 12.5% 12.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 10.0% 10.0% 10.5% 10.5% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0 10.3% 10.3% 10.8% 10.8% 13.0% 13.0% 2.0% 2.0% 4.0% 4.0% 7.0 7.0 9.8% 9.8% 10.3% 10.3% 11.5% 11.5% 3.8% 3.8% 4.0% 4.0% 10.0 10.0 9.0% 10.0% 3.0% 3.0% 4.0% 4.0% 10.0 10.0 9.0% 9.0% 9.5% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 Class B - Leased Asset 9.5% 10.1% 10.3% 11.0% 12.3% 12.3% 2.9% 3.3% 3.6% 4.0% 8.8 9.5 ------------------------------------------------------------------------------------------------------------------------------- 10.8% 10.8% 11.3% 11.3% 14.0% 14.0% 2.0% 2.0% 4.0% 4.0% 7.0 7.0 9.0% 10.0% 3.0% 3.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 9.5% 10.0% 11.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 9.5% 10.5% </TABLE> <PAGE> 9:05AM on 10/6/97 <TABLE> <CAPTION> ================================================================================================================================= Capitalization Rates Growth Rate ---------------------------------- Internal ------------------------------ Typical Projection Going-In Terminal Rate of Return Income Expenses Period (Years) Low High Low High Low High Low High Low High Low High - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Class A - Value Added 9.5% 10.2% 9.6% 10.4% 14.0% 15.0% 3.3% 3.6% 3.3% 3.6% 8.2 8.8 ------------------------------------------------------------------------------------------------------------------------------- 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 10.0 10.0 9.0% 10.0% 3.0% 3.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 9.5% 9.5% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 9.0% 10.0% 11.0% 11.0% 9.5% 9.5% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 3.0 3.0 Class B - Value Added 9.7% 10.3% 10.0% 10.9% 14.3% 15.3% 3.3% 3.6% 3.3% 3.6% 8.2 8.6 ------------------------------------------------------------------------------------------------------------------------------- 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 10.0 10.0 9.0% 10.0% 3.0% 3.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% 10.0% 11.0% 14.0% 14.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 11.0% 11.0% 10.5% 10.5% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 3.0 3.0 - --------------------------------------------------------------------------------------------------------------------------------- Power Center & "Big Box" 9.6% 9.9% 10.0% 10.5% 11.8% 11.9% 2.9% 3.5% 3.2% 3.7% 9.3 10.3 - --------------------------------------------------------------------------------------------------------------------------------- Class A - Leased Asset 9.4% 9.5% 9.7% 10.1% 11.5% 11.7% 3.3% 3.5% 3.4% 3.7% 9.1 10.1 ------------------------------------------------------------------------------------------------------------------------------- 9.0% 9.0% 9.5% 9.5% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 10.0% 10.0% 9.5% 9.5% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0 10.5% 10.5% 10.5% 10.5% 11.0% 12.0% 2.0% 2.0% 3.0% 3.0% 10.0 10.0 9.5% 9.5% 10.0% 10.0% 11.4% 11.4% 3.8% 3.8% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 9.5% 9.5% 10.0% 11.0% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0 9.3% 9.3% 9.5% 10.0% 10.5% 10.5% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 9.0% 9.0% 9.0% 9.5% 9.5% 10.0% 11.0% 11.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 Class B - Leased Asset 9.8% 10.1% 10.1% 10.6% 11.0% 11.3% 2.8% 3.7% 3.2% 3.7% 9.3 10.3 ------------------------------------------------------------------------------------------------------------------------------- 10.8% 10.8% 10.8% 10.8% 11.0% 12.0% 2.0% 3.0% 3.0% 3.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% 10.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Class A - Value Added 9.6% 9.9% 10.1% 10.6% 12.0% 12.0% 2.8% 3.3% 3.2% 3.7% 9.3 10.3 --------------------------------------------------------------------------------------------------------------------------------- 10.8% 10.8% 10.8% 10.8% 12.0% 12.0% 2.0% 2.0% 3.0% 3.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 9.5% 10.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 </TABLE> <PAGE> 9:05AM on 10/6/97 <TABLE> <CAPTION> ================================================================================================================================= Capitalization Rates Growth Rate ---------------------------------- Internal ------------------------------ Typical Projection Going-In Terminal Rate of Return Income Expenses Period (Years) Low High Low High Low High Low High Low High Low High - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Class B - Value Added 9.8% 10.3% 10.1% 10.9% 12.7% 12.7% 2.8% 3.3% 3.2% 3.7% 9.3 10.3 ------------------------------------------------------------------------------------------------------------------------------- 11.0% 11.0% 10.8% 10.8% 12.0% 12.0% 2.0% 2.0% 3.0% 3.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 15.0% 15.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 - --------------------------------------------------------------------------------------------------------------------------------- Regional Malls 9.1% 9.4% 9.3% 9.9% 13.4% 13.6% 3.2% 3.4% 3.6% 3.8% 8.5 8.7 - -------------------------------------------------------------------------------------------------------------------------------- Class A - Leased Asset 8.0% 8.2% 8.3% 8.7% 11.5% 11.8% 3.3% 3.5% 3.6% 3.7% 9.0 9.6 ------------------------------------------------------------------------------------------------------------------------------- 7.5% 7.5% 8.0% 8.0% 11.3% 11.3% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 9.0% 9.0% 9.0% 9.0% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0 7.5% 7.5% 7.8% 7.8% 12.0% 12.0% 1.5% 2.0% 3.0% 3.0% 10.0 10.0 9.0% 3.0% 3.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.0% 8.0% 8.0% 9.0% 10.5% 11.0% 3.0% 3.5% 3.0% 3.5% 10.0 10.0 8.0% 8.0% 8.5% 8.5% 11.0% 11.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 7.8% 8.0% 8.3% 8.5% 11.0% 12.0% 2.5% 3.0% 2.5% 3.0% 10.0 10.0 7.0% 8.0% 7.0% 8.0% 10.0% 11.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0 Class B - Leased Asset 9.4% 9.5% 9.5% 10.0% 13.8% 13.8% 3.1% 3.3% 3.9% 4.0% 8.3 8.3 ------------------------------------------------------------------------------------------------------------------------------- 10.0% 10.0% 10.0% 10.0% 17.0% 17.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0 9.0% 9.0% 9.0% 9.0% 13.5% 13.5% 2.0% 2.0% 4.0% 4.0% 7.0 7.0 10.0% 3.0% 3.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 Class A - Value Added 8.9% 9.3% 9.3% 10.0% 13.5% 13.8% 3.3% 3.5% 3.5% 3.8% 9.0 9.0 ------------------------------------------------------------------------------------------------------------------------------- 10.0% 10.0% 10.0% 10.0% 18.0% 18.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0 9.0% 3.0% 3.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.0% 8.5% 8.5% 9.0% 11.5% 12.5% 2.5% 3.0% 2.5% 3.0% 10.0 10.0 Class B - Value Added 10.2% 10.6% 10.2% 10.7% 14.8% 15.0% 3.2% 3.4% 3.4% 3.6% 7.8 7.8 ------------------------------------------------------------------------------------------------------------------------------- 11.0% 11.0% 11.0% 11.0% 20.0% 20.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0 10.0% 3.0% 3.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.5% 9.0% 9.3% 9.8% 12.0% 13.0% 2.5% 3.0% 2.5% 3.0% 10.0 10.0 13.0% 13.0% 11.0% 11.0% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 3.0 3.0 </TABLE> <PAGE> 9:05AM on 10/6/97 <TABLE> <CAPTION> ================================================================================================================================= Capitalization Rates Growth Rate ---------------------------------- Internal ------------------------------ Typical Projection Going-In Terminal Rate of Return Income Expenses Period (Years) Low High Low High Low High Low High Low High Low High - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------------- Specialty Retail 8.3% 9.3% 9.2% 10.6% 10.9% 11.0% 3.6% 4.0% 3.6% 4.0% 10.3 10.9 - --------------------------------------------------------------------------------------------------------------------------------- Class A - Leased Asset 7.8% 8.8% 8.3% 9.5% 10.5% 11.0% 3.8% 4.0% 3.8% 4.0% 8.0 10.5 ------------------------------------------------------------------------------------------------------------------------------- 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 7.0% 8.0% 7.0% 8.0% 10.0% 11.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0 Class B - Leased Asset 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 ------------------------------------------------------------------------------------------------------------------------------- 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 Class A - Value Added 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 ------------------------------------------------------------------------------------------------------------------------------- 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 Class B - Value Added 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 ------------------------------------------------------------------------------------------------------------------------------- 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 RESIDENTIAL -------------------------------------------------------------------------------------------------------------------------------- Apartments 8.7% 9.2% 9.5% 10.2% 11.3% 11.8% 3.4% 4.3% 3.2% 3.7% 7.9 9.1 -------------------------------------------------------------------------------------------------------------------------------- Class A - Leased Asset 8.7% 9.2% 9.1% 9.7% 11.4% 11.8% 3.3% 3.8% 3.3% 3.7% 8.2 8.8 ------------------------------------------------------------------------------------------------------------------------------- 8.5% 10.0% 9.0% 10.5% 3.5% 3.5% 1.0 1.0 8.5% 9.0% 9.0% 9.0% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 9.8% 9.8% 10.0% 10.0% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0 8.3% 9.0% 9.0% 9.5% 10.5% 11.5% 3.0% 4.0% 3.0% 4.0% 10.0 10.0 8.8% 8.8% 9.0% 9.0% 11.3% 11.3% 3.8% 4.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.5% 9.0% 9.0% 9.5% 10.0% 11.5% 3.0% 4.0% 3.0% 3.0% 10.0 10.0 8.5% 9.0% 8.5% 9.0% 3.0% 3.5% 3.0% 3.5% 10.0 10.0 8.8% 9.0% 9.0% 9.5% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Class B - Leased Asset 8.9% 9.6% 9.6% 10.4% 11.0% 11.6% 3.1% 4.0% 3.1% 3.8% 9.5 10.3 ------------------------------------------------------------------------------------------------------------------------------- 9.0% 9.5% 9.5% 10.0% 11.0% 12.0% 3.0% 4.0% 3.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.0% 10.0% 10.0% 10.5% 10.5% 12.0% 3.0% 4.0% 3.0% 3.0% 10.0 10.0 9.0% 9.5% 9.5% 10.0% 11.5% 11.5% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Class A - Value Added 8.5% 8.8% 9.3% 10.0% 11.3% 11.7% 3.5% 4.7% 3.2% 3.7% 7.0 8.7 ------------------------------------------------------------------------------------------------------------------------------- 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.0% 8.0% 9.0% 9.0% 11.0% 12.0% 4.0% 6.0% 3.0% 3.0% 3.0 5.0 9.0% 9.0% 9.5% 10.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 </TABLE> <PAGE> 9:05AM on 10/6/97 <TABLE> <CAPTION> ================================================================================================================================= Capitalization Rates Growth Rate ---------------------------------- Internal ------------------------------ Typical Projection Going-In Terminal Rate of Return Income Expenses Period (Years) Low High Low High Low High Low High Low High Low High - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------------- Class B - Value Added 8.7% 9.2% 9.8% 10.7% 11.7% 12.3% 3.5% 4.7% 3.2% 3.7% 7.0 8.7 ------------------------------------------------------------------------------------------------------------------------------- 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.0% 8.0% 10.0% 10.0% 11.0% 13.0% 4.0% 6.0% 3.0% 3.0% 3.0 5.0 9.5% 10.0% 10.0% 11.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 </TABLE> "Leased Asset" refers to predominantly "passive" investments involving substantially leased Properties "Value Added" denotes properties which require more active management involvement due to leasing issues and/or additional capital investment for physical issues ----------------------------------------------------- Cushman & Wakefield Valuation Advisory Services National Investor Survey - Autumn 1996 <PAGE> QUALIFICATIONS OF ERIC B. LEWIS, MAI ================================================================================ Professional Affiliations: Member, The Appraisal Institute - MAI, (Certificate No. 9798) Certified General Appraiser - State of Connecticut (License No. 0000373) Licensed Real Estate Salesperson - State of New Jersey New Jersey Certified Real Estate Appraiser-General (License No. RG. 00922) Certified General Real Estate Appraiser-State of New York (License No. 46000022963) Certified General Real Estate Appraiser-State of Ohio (No. 423183) Certified General Real Estate Appraiser-State of Florida (License No. RZ-0002224) Real Estate Experience: Cushman & Wakefield of CT, Inc., Stamford, CT April, 1992 - Present Director involved in appraisal of income producing properties throughout the northeastern United States. Work scope also includes, feasibility studies, market surveys and investment analysis. Mason-Helmstetter, Associates Hasbrouck, Heights, NJ November, 1987 - March, 1992 Work scope included the preparation of appraisals of residential, commercial and industrial properties primarily in northern New Jersey. Arthur Young & Company New York, NY September, 1985- October, 1987 Senior Auditor responsible for the work of four junior staff members during audits of Cheseborough Ponds, Inc., and Pan Am Corporation. Education: New York University, New York, New York Master of Science-Real Estate Valuation and Analysis: December 1991 Lehigh University, Bethlehem, Pennsylvania Bachelor of Science-Accounting: June, 1985 The Appraisal Institute Course 1A-1 Real Estate Appraisal Principles Course 1A-2 Basic Valuation Procedures Course 1B-A Capitalization Theory & Techniques Part A Course 1B-B Capitalization Theory & Techniques Part B Course 2-1 Case Studies in Real Estate Valuation Course 2-2 Report Writing and Valuation Analysis Course SPP Standards of Professional Practice DISCLAIMER The appraisal report appearing below is addressed to NationsBank of Texas, N.A. ("NationsBank"). NationsBank does not represent that the presumptions or conclusions in the appraisals are relevant or accurate and does not endorse the conclusions set forth in the appraisal. Any value, presumption, or conclusion regarding the property or properties appraised in the report must be verified independently of NationsBank. This appraisal has not been approved by NationsBank and is being transmitted without representation and warranty of NationsBank. <PAGE> ================================================================================ APPRAISAL REPORT Heather Plaza Apartments 939-978 Heather Circle Salinas, California 93906 Effective Date of Appraisal: September 28, 1996 APPRAISED FOR: NationsBank of Texas, N.A. Real Estate Risk Assessment 901 Main Street, 51st Floor Dallas, Texas 75202-3714 APPRAISED BY: ROBERT SAIA & ASSOCIATES 313 Avalon Avenue Santa Cruz, California 95060 ================================================================================ <PAGE> [LETTERHEAD OF ROBERT SAIA, MAI & ASSOCIATES] September 28, 1996 Mr. Gary D. Long Real Estate Risk Assessment NationsBank of Texas, N.A. 901 Main Street, 51st Floor Dallas, Texas 75202-3714 Dear Mr. Long: As requested, Robert Saia & Associates has completed a market value "as is" appraisal of the 218-unit apartment complex known as "Heather Plaza Apartments" located at 939-978 Heather Circle in Salinas, California. The property rights appraised are those of the leased fee interest. Many of the units are on short-term leases (less than one year), thus there is no leasehold or leased fee bonus values to consider. In other words, the fee simple and leased fee values are the same. The function of this appraisal is to aid in proper underwriting, loan classification and/or disposition of the subject property in conjunction with a pending multi-property portfolio purchase that includes the subject property. The effective date of the appraisal is September 28, 1996, the first inspection date of the property. This report was prepared as a Complete Appraisal, Summary Report following generally accepted and established appraisal practices that comply with the Uniform Standards of Professional Appraisal Practice (USPAP) and also in accordance with the NationsBank Appraisal/Evaluation Guidelines for Appraisers. As instructed, the cost approach has been omitted. Although the cost approach has very little relevancy in the appraisal of apartment complexes in this area, its omission may be considered by some to invoke the Departure Provision. The Limiting Conditions and Assumptions contained at the conclusion of this report are a vital part of the appraisal. There are no extraordinary assumptions that affects the appraisal. The market value estimate is based on an exposure time of four months. Based on our analysis and investigation, as discussed in the attached summary appraisal report, the Market Value "As Is" of the Heather Plaza Apartments 28, 1996, is as follows: - -------------------------------------------------------------------------------- EIGHT MILLION THREE HUNDRED THOUSAND DOLLARS $8,300,000 - -------------------------------------------------------------------------------- Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Heather Plaza Apartments, Salinas CA Mr. Gary Long page ii The above is the value of the real estate only. Personal property value is nominal, and plays no significant role in the operation of the apartments. If you should have any questions, please contact our office. Respectfully Submitted, /s/ Robert Saia - ------------------------------------- Robert Saia, MAI OREA Cert. #AG003191 (exp. 12/7/96) Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Heather Plaza Apartments, Salinas CA TABLE OF CONTENTS Summary of Salient Facts .................................................... 1 Purpose of the Appraisal .................................................... 3 Function of the Report ...................................................... 3 Valuation Date .............................................................. 3 Property Right Appraised .................................................... 4 Location and Property Identification ........................................ 4 Property History & Ownership ................................................ 4 Project Overview ............................................................ 4 The Extent of the Appraisal Process ......................................... 5 Competency Statement ........................................................ 6 Regional Description ........................................................ 7 City of Salinas .............................................................18 Salinas Apartment Market ....................................................21 Neighborhood Description ....................................................22 Site Analysis ...............................................................23 Current Taxes & Assessments .................................................25 Improvement Description .....................................................27 Highest and Best Use Analysis ...............................................28 The Appraisal Process .......................................................31 Income Capitalization Approach ..............................................32 Sales Comparison Approach ...................................................52 Reconciliation of the Value Estimates .......................................61 Marketing Period Estimate ...................................................62 Exposure Period Estimate ....................................................62 Allocation of F,F&E .........................................................63 Assumptions and Limiting Conditions .........................................65 Certification of Appraisal ..................................................68 ADDENDA Photographs of the Subject Property Maps Floor Plans Apartment Building Sales Sheets Rent Roll and Operating Statements Qualifications Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Heather Plaza Apartments, Salinas CA SUMMARY OF SALIENT FACTS ================================================================================ CLIENT: NationsBank PROJECT NAME: Heather Plaza Apartments NO. OF UNITS: 218 net rentable ADDRESS: 939-978 Heather Circle, Salinas, CA LOCATION: North Salinas A.P.N.: 003-801-003, 004,005,006, & 009 THOMAS BROS. MAP: T.B. 225 A-1 (Monterey County) CENSUS TRACT NO.: 105.00 ZONING: R-H-2.3 (High Density Residential District) RENT CONTROL: None (No pending) HIGHEST & BEST USE: -As improved... Existing apartments -As vacant... High density residential development PROPERTY RIGHTS APPRAISED: Leased Fee Interest SALE HISTORY OVER PAST 5 YEARS: None CURRENT OWNERSHIP: Paul M. Thysen and Betty 0. Thysen Trust UTILITIES: Municipal services (water, electricity and sewer) are available and connected. LAND AREA: 12.6 acres plus private street SITE DENSITY: 17.3 units per acre FLOOD ZONE: Zone B per Panel #060202- 0002 D (11/4/81) TOTAL # RENTABLE UNITS 218 YEAR BUILT: 1974 NET RENTABLE BUILDING AREA (sf): 147,384 sf COMMON AREA AMENITIES: Security gated entrance, lawn areas, asphalt drives, concrete walks, 2 swimming pools, 1 playground, 7 laundry rooms. OCCUPANCY CHARACTERISTICS: No. of Vacant Units: 4 units were available @ time of inspection ACTUAL NUMBER OCCUPIED UNITS: on 9/28/96 and OCCUPANCY RATE: 214 (98.1%) Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 1 <PAGE> Heather Plaza Apartments, Salinas CA GROSS ACTUAL REVENUE as reported for 1995: $1,316,153 (includes "other" income). ACTUAL MONTHLY RENTAL INCOME as reported as of 9/28-96: $118,551 STABILIZED NET INCOME EST. as of APPRAISAL DATE : $692,350 EST. EXPOSURE and MARKETING TIME: 2-6 months marketing/ (4 month exposure) CONDITIONS TO APPRAISAL: No unusual conditions. Reference is made to Assumptions & Limiting Conditions in Addenda ================================================================================ MARKET VALUE "as is": $8,300,000 September 28, 1996 (4 month exposure period) ================================================================================ Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 2 <PAGE> Heather Plaza Apartments, Salinas CA PURPOSE OF THE APPRAISAL ================================================================================ The purpose of this appraisal is to estimate the market value "as is" of the fee interest for the real estate only. "Market Value," as used in this appraisal, is defined as "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: o Buyer and seller are typically motivated; o Both parties are well informed or well advised, each acting in what he considers his own best interests; o A reasonable time is allowed for exposure in the open market; o Payment is made in terms of cash in U.S. dollars, or in terms of financial arrangement comparable thereto; and, o The price represents the normal consideration for the property sold unaffected by special or creative financing or sale concessions granted by anyone associated with the sale." (*Source: Office of the Comptroller under 12 CFR, Part 34, Subpart Appraisals, 34.42 Definitions [f]) "Market value 'as is' "means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date of inspection.." FUNCTION OF THE APPRAISAL ================================================================================ The function of this appraisal is for the exclusive use of NationsBank, its subsidiaries, and/or affiliates, for loan underwriting purposes in conjunction with a portfolio purchase that includes this property. It may be used in connection with the acquisition, disposition and financing of the sale of the property. VALUATION DATE ================================================================================ The date of valuation is September 28, 1996. This is the date of the last property inspection. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 3 <PAGE> Heather Plaza Apartments, Salinas CA PROPERTY RIGHTS APPRAISED and DEFINED ================================================================================ The unencumbered fee simple estate of the property has been valued. This ownership interest is defined as: "Absolute Ownership Unencumbered by any other interest or estate; subject only to the limitations of eminent domain, escheat, police power, and taxation". Leases of seven to twelve months are considered short in duration and do not create any favorable leaseholds by the tenants. Technically speaking, the leased fee interest is being valued, although a percentage of the rental units are on a month-to-month basis. Because of the nature of a short term lease, as well as a strong correlation between contract and market rent, the value estimated for the subject property is essentially reflective of the fee simple interest. IDENTIFICATION and LOCATION OF SUBJECT PROPERTY ================================================================================ The subject property in this appraisal consists of the Heather Plaza Apartments located in the North central section of the city of Salinas. The Heather Plaza Apartments are located immediately south of Iris Drive through a security gate entrance and immediately north of the U.S. 101 Freeway. The mailing address is 939-978 Heather Circle, Salinas, California, 93906. The Monterey County Assessor Parcel Numbers are 003-801-003,004,005,006 and 009. A legal description is included in the preliminary title report which is made a part of this appraisal. PROPERTY HISTORY and OWNERSHIP ================================================================================ Title to the property is vested in: Paul M. Thysen & Betty 0. Thysen Trust The property has not transferred over the required reporting period. It is currently in escrow as part of a multi property portfolio sale. HEATHER PLAZA APARTMENTS-OVERVIEW ================================================================================ The Heather Plaza Apartments is a 218 - unit apartment complex located on a 12.62 acre site configured in thirty-three (33) 2-story buildings. Not included is the on-site manager's office. The Heather Plaza Apartments is located directly south of Iris Drive contiguous to the Capri Apartments. The street leading into Heather Plaza was formerly a city-owned public street that has since been deeded by Salinas (in 1983) and made part of Heather Plaza (common area). The gated entrance is the only access to the apartment complex. The Heather Plaza Apartments were built in 1974 and contain a mix of one, two and three bedroom floorplans. There are 215 carport spaces and 124 open parking spaces. Amenities offered by the Heather Plaza Apartments include lawn-greenbelt areas, two swimming Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 4 <PAGE> Heather Plaza Apartments, Salinas CA pools, seven (7) laundry rooms and one children's play area. Utilities provided by the landlord include water, trash removal, sewer, and basic cable television. In conclusion, the overall exterior appearance of the subject property (the Heather Plaza Apartments) is considered above average to good and reflective of other more recently constructed and competing high density residential developments within the North Salinas area. The reader is directed to the Improvement Description of this report for further comments regarding the individual units and their respective interior improvements. THE EXTENT of THE APPRAISAL PROCESS ================================================================================ The extent of the appraisal process encompasses the necessary research and analysis to prepare a report in accordance with the intended use, the Uniform Standards of Professional Appraisal Practice as set forth by the Appraisal Foundation, and the Standards of Professional Practice of the Appraisal Institute. With regard to the valuation of the subject property, the following steps were involved: 1. The property was last inspected and photographed on September 28, 1996. This date is considered the "affective date" of this appraisal. 2. The overall exterior site of the subject property i.e. (The Heather Plaza Apartments) was personally inspected by the appraiser. The on-site office manager provided interior access to each of the various unit types within the developments. The appraiser was able to physically measure a representative unit of both a one bedroom and two bedroom floorplan. However, it was indicated by the Lincoln Residential Services manager that there are four (4) 3BR/1BA units in Heather Plaza. Access was not provided into any of these units, although management indicated approximately 900 square feet of gross living area as representative of the unit sizes. The subject is valued assuming that information regarding the 3BR/1BA unit size is correct. 3. Regional, county, city, and neighborhood data were based on information taken from a variety of sources, including, but not limited to, City of Salinas Planning Department, Monterey County Tax Assessor's Office, City of Salinas Public Works Department, City of Salinas Building Department, the Association of Monterey Bay Area Governments, Salinas Chamber of Commerce, independent private studies, newspaper articles and my own files. 4. Research and investigation of current market conditions for apartment properties in the city of Salinas. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 5 <PAGE> Heather Plaza Apartments, Salinas CA 5. Interviews with brokers, appraisers, property owners and/or managers and lenders, as well as the relevant public agencies as described above. 6. The highest and best use was formed by information gathered in the previous steps. 7. After assembling and analyzing information defined in this extent of the appraisal process, final estimates of market value by each applicable valuation method were made. 8. And, finally, a single value estimate from within the concluded value by each approach was made. Greatest weight was given to those approaches felt to have the most influence on the purchasing decision. Unless otherwise stated in the report, the existence of hazardous materials, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser is not qualified, however, to detect such substances. The presence of toxic or caustic substances or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there are not such materials on or in the property that would cause a loss in value. Any such findings which would indicate otherwise could result in a decrease in value. COMPETENCY STATEMENT ================================================================================ In accordance with the competency provision in the USPAP, the appraiser certifies that his education, experience and knowledge is sufficient to appraise the type of property being valued (apartment complex) and that no appraiser has provided significant professional assistance to the person inspecting the subject property in the completion of the analysis other than those mentioned in the Certification of Appraisal (see Addenda). Robert Saia, MAI has appraised this property type in the past and has the knowledge and experience necessary to complete this appraisal assignment. See Appraiser's Qualifications in the Addenda for additional information. The appraiser's analyses, opinions and conclusions were developed and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice USPAP) Standards 1 - 3, and NationsBank appraisal policy. The appraisal assignment was not based on a requested minimum valuation, a specific valuation or the approval of a loan. The Departure Provision in the USPAP was not utilized in the preparation of this report. The appraiser's compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimated, the attainment of a stipulated result or the occurrence of a subsequent event. ======================= Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 6 <PAGE> Heather Plaza Apartments, Salinas CA REGIONAL ANALYSIS ================================================================================ Market value is affected by a number of externalities; e.g., geographic, economic and environmental, governmental forces, utility, supply & demand and effective purchasing power. Real estate is affected by externalities more than any other economic good, service, or commodity. It is imperative that an appraiser observe and analyze external influences in order to identify patterns and trends, and how they relate to the subject property. Trends such as population shifts, declining apartment occupancy rates, or increased housing sales in an area are relevant in order to understand the real estate marketplace. Thus the Regional Description & Analysis is important in this appraisal because it establishes the basis for determining the highest & best use of a property as well as information used in applying the three approaches to value. The scope of this regional analysis relates to the type of property being appraisal, its complexity and the approaches used to estimate value. Monterey County is located in a portion of California that is often referred to as the "Central Coast," which encompasses the area known as the "Monterey Peninsula." The county is oriented northwest to southwest, and runs parallel to the Pacific Ocean. The county has a relatively long and narrow shape, with an average of only 30 miles; elevations range from sea level to 5,844 feet atop Junipero Sierra Peak, located 12 miles inland in the Santa Lucia Range. Monterey County is bounded by the Pacific Ocean on the west, Santa Cruz County to the north, San Luis Obispo county to the south, and San Benito, Kings and Fresno counties to the east. The area is located approximately 125 miles south of San Francisco and 350 miles north of Los Angeles. Approximately 105 miles of California's 840 miles of coastline lie along the westerly boundary of Monterey County. On the whole, Monterey County has a rural orientation, with substantial tracts of land devoted to agriculture and open space uses. The county encompasses 3,784 square miles, or approximately 2,127,400 acres of land area. An interesting statistic is that nearly 27 percent of this total county area is government-owned. Twenty-five percent is owned by the federal government with major holdings such as Fort Hunter Liggen, Fort Ord, Los Padres National Forest and Camp Roberts. The remaining two percent is controlled by the state and county. Geographical location and features exhibit strong influences on the county's climate. The Pacific Ocean is responsible for the county's Mediterranean climate, characterized by year round moderate temperatures, cool, dry summers, and short, rainy seasons. Pacific winter storms are blocked by the Santa Lucia Range, allowing considerably less rain to fall on the Salinas Valley. Temperature and rainfall have important implications for the county's two major economic staples, agriculture and tourism. Mild temperatures allow for exceptionally long growing seasons for farming. Rainfall patterns, while following predictably dry weather, require reservoir and ground water storage to meet year round irrigation needs. Population Approximately one half of the county's population lives within the seven incorporated cities and adjoining unincorporated areas of the Monterey Peninsula. The eight principal cities are Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 7 <PAGE> Heather Plaza Apartments, Salinas CA Monterey, Marina, Seaside, Sand City, Del Rey Oaks, Pacific Grove, Carmel-by-the Sea and Salinas. The incorporated areas consist of 31.5 square miles, or about one percent of the county's total land area. The major factor for the high population density of the Monterey Peninsula vis-a-vis the rest of the county, is the unsurpassed natural beauty of the area --especially the coastline and beaches. Based on the most recent U.S. Census (January 1, 1990), the population of Monterey County grew by approximately 24 percent during the last decade. This growth has helped push the county's total population up to approximately 382,547 in 1994. For reference, the county's growth rate over the preceding decade was just under the state's overall gain of 26 percent. In the previous census period (1970--1980) the county's total population grew 17 percent, from 247,450 to 290,444. While county's growth has been strong, the level varies from area to area. As shown below, the population of Salinas, the largest city and the county seat, increased by 35.2 percent between 1980 - '90. The growth in Salinas constitutes approximately 43 percent of the county's total population increase during that period. In contrast, the population of the city of Monterey increased by a more modest 16 percent over that census period. As shown, not all communities in the county experienced tremendous population growth. Population growth was much steadier in the cities of Seaside, Pacific Grove and Del Rey. In large part, growth in these communities is limited due to a lack of developable land. MONTEREY COUNTY: Population Growth 1980 - '90 (1990 U.S. Census) - -------------------------------------------------------------------------------- City/Area 1980 1990 Total No. % Change - --------- ---- ---- --------- -------- Salinas 80,479 108,777 28,248 +35.2% Seaside 36,567 38,901 2,334 +6.4% Monterey 27,558 31,954 4,396 +16.0% Marina 20,647 26,436 5,789 +28.0% Pacific Grove 15,755 16,117 362 +2.3% King City 5,495 7,634 2,139 +38.9% Greenfield 4,181 7,464 3,283 +78.5% Soledad 5,928 7,148 1,218 +20.5% Gonzales 2,891 4,660 1,769 +61.2% Carmel-by-the-Sea 4,707 4,239 (468) -9.9% Del Rey Oaks 1,557 1,661 104 +6.7% Unincorporated Areas 84,679 105,252 20,573 +24.3% - -------------------------------------------------------------------------------- The most recent population estimates show that the population of Monterey County, based on the January 1, 1995 estimates for California cities and counties prepared by the State of California Department of Finance, was 382,547. Recent trends show most of the increase occurring in the Salinas Valley cities rather than on the Monterey Peninsula. For example, in 1993, the fastest growing city in the county was Soledad (+6.1%), with nearby Greenfield (+5.3%) and Sand City tying for second place. Population growth in Soledad is largely attributable to an expansion of the state Correctional Facility and the development of two large residential subdivisions. Greenfield's city manager reported that population growth has been spurred by reasonable prices for single family detached housing but that future growth is limited due to a lack of land. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 8 <PAGE> Heather Plaza Apartments, Salinas CA Based on projections by the State Finance Department, released in April 1993, Monterey County is projected to post a 15.6 percent gain in population by the year 2000 --representing an increase to approximately 414,000 people. In contrast, San Benito's population is projected to increase by 37 percent by the year 2000; Santa Clara County's by 13.4%; 14.4% for Santa Cruz County; and, 21.6% statewide. Below are the Finance Department's projections by county through the year 2030. PROJECTED POPULATION GROWTH (Calif. Dept. of Finance) - -------------------------------------------------------------------------------- County 1990 2000 2010 2020 2030 ------ ---- ---- ---- ---- ---- Monterey 356,000 414,000 485,300 574,100 670,900 San Benito 37,000 50,700 66,500 83,200 100,900 Santa Clara 1,502,200 1,703,900 1,839,700 1,958,600 2,064,100 Santa Cruz 230,800 264,000 291,800 322,300 354,100 Statewide 29,976,000 36,444,000 42,408,000 48,977,000 56,100,000 - -------------------------------------------------------------------------------- Transportation The major passenger transportation system in the county is via private automobile. The freeway system consists of Highways 101, 1 and 183; and, State Routes 156 and 68. Highway 101 runs north and south from San Francisco, along the West Bay, and through San Jose toward Los Angeles. Highway 1, the Coast Highway, runs north and south from the coastal region of San Francisco and through Santa Cruz toward San Luis Obispo County. Highway 68, the Salinas-Monterey Highway, intersects with Highway 1 and connects the Monterey Peninsula with the Salinas Valley to the south and Highway 101 to the north. There are 1,300 miles of county roads and approximately 500 miles of city streets for a total of 2,000 road miles in the county. In Monterey County, AMTRAK provides rail passenger service, and the Southern Pacific Transportation Company provides rail freight service. Salinas is the only city in the county that now has rail passenger service. SPRR is the main line between Los Angeles and San Francisco. The Monterey Peninsula Airport provides air freight and passenger service in and out of the county. Over the past 20 years, the airport has shown a moderate growth pattern. In 1970, the number of passengers totaled 411,497. In comparison, the number of passengers had grown to 523,040 by 1989 (+1.4% per annum). Today, passenger service is provided by United, Wings West, Pacific Coast Air and West Air. The cities of Salinas and King City both have municipal airports. And with the closure of Fort Ord, Marina has discussed plans to convert Fritzsche Army Airfield into its own municipal airport. There are harbors at Monterey and Moss Landing (4 miles from the subject) which have boating facilities with a reported 2,000 small crafts launching from its ramps every month. Approximately 1,800 transient crafts visit the harbors annually. Monterey Bay and Monterey harbor areas attract a significant portion of the tourism industry that provides jobs and an economic base for the Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 9 <PAGE> Heather Plaza Apartments, Salinas CA Monterey Peninsula area and the county as a whole. Fort Ord and the Military Influence With its various military installations located throughout the Monterey Peninsula area, including control of approximately 27 percent of all of the land in the county, the influence of the military on Monterey County has been significant. This influence has had a considerable financial impact, including military and civilian payrolls, local purchase and contracts, construction in the area, as well as the increase in government aid to local schools due to the military population in the area. The local housing market has also been significantly effected by the presence of the military. This impact, however, has been primarily on the apartment rental market in the communities of Marina and Seaside. In addition, it has had some minor negative impact on mobile home parks in the general area. Being approximately 20 miles northeast of Fort Ord, impact from the base closure has been minimal and not measurable. Given that the Ford Ord area is not in the immediate environs of the subject property, the effect of the base closure on the Boronda Manor Apartments has not been minimal. The closure of Fort Ord was the dominant economic news for the county during 1994. The closing was the single largest national closure to date, with most of the base's 35,000 residents and $600 million payroll moving to other bases. Currently, the base's 44 square miles of land is being administered by the Fort Ord Reuse Authority. Local communities formed the Fort Ord Reuse Authority as an advisory planning committee which under an agreement formed a Fort Ord Joint Powers Agency (JPA). The JPA agreement gave voting membership to the cities of Marina, Seaside, Sand City, Del Rey Oaks, Monterey, and Salinas and extended non-voting status to Pacific Grove and Carmel. The county is also a voting member. The premise of the JPA was to create a forum for discussing reuse issues; to facilitate community involvement and to speed up the decision process via a cohesive voting unit. Initially, the base closure stirred dire predictions about the short-term impact on the county. However, as the closure set in, the immediate economic impact was much less severe than expected, and limited primarily to the adjacent communities. Fort Ord was so large that much of the base was self-contained with its own housing, stores, services, and restaurants. The long-term prospects after closure are encouraging, assuming the base's land can be opened to large scale private sector development. In fact, the first major reuse of the base was the opening of the California State University-Monterey Bay which opened its doors on August 28, 1995 to 633 students. The state university at Fort Ord "is expected to grow substantially over the years, attracting students, well paid employees, research dollars and private businesses," according to the 1995 BT Commercial Real Overview published in April 1995. The Fort Ord complex was the largest military installation in the county with a total of 28,057 acres --nearly the size of the city and county of San Francisco. Approximately 22 percent of the Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 10 <PAGE> Heather Plaza Apartments, Salinas CA base (6,250 acres) was developed with barracks, housing, motor pools, administrative buildings, and various other support facilities. Other military installations on the Monterey Peninsula include the Presidio of Monterey, which is the home of the Defense Language Institute (foreign language school for all branches of the armed forces); the United States Naval Post Graduate School (NPGS), and the United States Coast Guard Station. The United States Department of Interior maintains 304,035 acres in the Los Padres National Forest and 164,503 acres along the Big Sur coast in the Ventana wilderness. Fort Ord Reuse Plans After more than six years of planning, the final version of the Fort Ord reuse plan shows a closed military base converted to a huge community of new homes, businesses, schools, parks, hotels and golf courses. The four volume reuse plan, filed in public libraries in the area during the first week of June 1996 by the Fort Ord Reuse Authority, has evolved from the days when a 250 member community task force first saw the base as an educational center. Along the way, planners ruled out suggestions that Fort Ord might give way to a "Disneyland in the dunes", an industrial center with 12 story high rises sprinklered about, or an endless shopping center with no room for houses. The more realistic, final plan, which the FORA board is expected to act on in July includes market research, financing analyses, economic forecasts and population projections. Still, the numbers in the reuse plan are almost overwhelming: - -Nearly 4,000 acres of land available for private owners, an area six times the size of Carmel. - -More than 13,000 new houses to be built, half as many as now exist in Salinas. - -About 12 million square feet of industrial parks and office complexes, enough to fill an area 20 times the size of Del Monte Shopping Center in Monterey. - -More than 45,000 new jobs in those businesses, a third as many as now exist in the entire county. - -A new community of more than 71,000 people, twice as many as now live in Monterey. - -About 1,800 hotel rooms, three times as many as the Hyatt Regency in Monterey and eight times as many as Embassy Suites in Seaside. - -Development costs of $451 million over the next 20 years, as much money as it takes to run the city of Pacific Grove for 50 years. The plan shows development, including the 800 acre military enclave left behind as the Presidio of Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 11 <PAGE> Heather Plaza Apartments, Salinas CA Monterey Annex, the 1,300 acre California State University at Monterey Bay (CSUMB), the 845 acre Marina Municipal Airport and as many as seven golf courses, covering about a third of the 44 square file base. About 18 percent of the land at Fort Ord has been developed. Another 14 percent is slated to be developed in the next 60 years, according to the reuse plan. About two-thirds of the base is to be preserved in its natural state by the U.S. Bureau of Land Management (BLM), the State Department of Parks and Recreation, the University of California Natural Reserve System, the county, and the city of Marina. The environmental impact report for the reuse plan fills one of the volumes, a 327 page document, filed in early June as FORA's proposed final plan. The environmental analysis doesn't have many specifics because a special state law allows that at Fort Ord. The reuse plan, which has taken six years and many political battles to achieve, is seen as a master sketch, with details and designs to be filled in as individual development projects emerge. Fort Ord's Impact on the Local Economy It is extremely difficult to accurately ascertain the full impact that Fort Ord's closure has had on the local economy because California was suffering through a recession during the early part of the 1990's when the base was closing. The recession has made it difficult to isolate how much of the impact the close of Fort Ord has had on the economy. What has been evident is that there was a short-term glut of rentals on the Monterey Peninsula. Surrounding communities, especially Marina, Seaside and Sand City suffered the greatest negative impact as the closure process evolved. Conversely, the prestigious residential areas such as Pebble Beach, Carmel and the more upscale areas of Monterey were not impacted by the closure. Similarly, the City of Salinas' housing market was not adversely affected to a significant degree. In the Salinas Valley the base closure has had little to no significant impact. Rather, population growth and new development in the area of Salinas continued to be most effected by issues such as the shortage of water and salt-water intrusion. In general, the Salinas Valley could be described as being somewhat of an isolated market area. As such, a Salinas Valley location became more desirable, as investor's uncertainty associated with Fort Ord's closure was primarily directed at investment properties located on the Monterey Peninsula. Overall, a somewhat stagnant to moderate housing market appears to be the continued status for the general area over the short term, although there are signs that economic conditions are improving. This is especially the case in nearby Santa Clara County ("Silicon Valley") where the housing and rental markets have exploded due to strong job growth. Little investment activity and/or new construction is anticipated in the communities adjoining Fort Ord, at least until the major issues surrounding the redevelopment/reuse of the base are resolved. As discussed, there are several issues surrounding the base closure and its reuse which need to be resolved before the Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 12 <PAGE> Heather Plaza Apartments, Salinas CA prevailing atmosphere of uncertainty blanketing the local real estate market is cleared. Business / Industry Monterey County, with a full-time civilian work force of approximately 172,000-175,000 workers, has two major urban areas -Salinas and the Monterey Peninsula. As shown on the following page, employment in Monterey County (not including agriculture) is projected by the Employment Development Department (EDD) to average 113,100 in 1996, which will be 2,400 jobs above the 1989 annual average. At just +2.2 percent, this very small gain in jobs reflects EDD's assessment of the impact of the Fort Ord closure. Unemployment rates in Monterey County have been consistently higher than for California as a whole. The seasonal nature of the county's economy accounts for double-digit unemployment in the winter when agriculture, food processing, and tourist-oriented industries are at a lull. Agriculture While the economy of Monterey County is diversified, agriculture is the county's leading industry and the mainstay of the local economy. Agriculture provides approximately 1/4 of the county's basic income. Almost 1/5 of California's top-producing crop farms are located in Monterey County. With 86 farming operations, the county ranks second in the state, behind Fresno County with 97 farming operations. A farming operation is defined as a farm producing a crop with a value in excess of $4 million. The county ranks third in the state in gross dollar agricultural production, making it one of the top ten producing counties in the nation. Monterey County has a total of 976,000 acres used exclusively for agriculture and another 343,680 are combined agricultural and grazing land. The county's highly productive agricultural land is often referred to as the "fog belt" agricultural area of California. The long growing season in this area makes it possible to grow as many as three crops annually. Nationwide, the county leads in the production of lettuce, broccoli, artichokes, cauliflower, mushrooms, and strawberries. According to the county's agricultural commissioner, strawberries were the third-ranked cash crop in 1994, behind broccoli and head lettuce. Despite the damage done by the 1995 historic floods, the crop value for Monterey County agriculture surpassed the $2 billion mark, after creeping toward the milestone for several years. The 1995 crop value, $2.03 billion, market a 4.8 percent increase over 1994. Among the top 12 crops, the order in terms of dollar value remained almost identical to that of 1994. Besides breaking local production records, Monterey County surpassed Kern County in 1995 to become the third in the state in gross dollar value of agriculture. It was surpassed by only Fresno and Tulare counties. By the same measure, Monterey County also is the largest vegetable producing county in the United States. The crop value for the state of California stands at $20 billion. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 13 <PAGE> Heather Plaza Apartments, Salinas CA Assuming water for irrigation remains sufficient, employment in agriculture is projected to increase as growers expand production of vegetables and labor-intensive strawberry and nursery crops. But because of foreign competition, the rate of growth will be slower through 1996 than over the past seven years. Foreign demand for the county's produce remains strong, however. Additional market growth is also expected as the pre-cut salad mix processing market is rapidly expanding. Agriculture continues to be effected by water availability. Even with above normal rainfall in 1993 and 1996, the effects of years of drought have brought to focus the water issue. At this time, the issue of sufficient water supply and overdrafting (saltwater intrusion) are being addressed through water conservation and other management practices which have included moratoriums on new development. Other issues facing the agriculture industry include nitrates leaching into groundwater and soil compaction. Tourism/Convention Industry Following agriculture, the health of the county's business and industry is tied to the tourism/convention industry. According to the California Office of Tourism, an estimated 5 million visitors spent $1.2 billion in 1991 in traveling to Monterey County. That total represented about 2 percent of statewide travel spending that totaled $54.1 billion. As shown in the following table, Monterey County ranked ninth among the state's counties in total travel dollars spent in 1991. TRAVEL IMPACTS BY COUNTY (Office of Tourism) - -------------------------------------------------------------------------------- Travel Expenditures Payroll Employment Tax Receipts ($000) County ($000) ($000) (Jobs) Local & State Los Angeles $13,617,556 $3,316,360 154,734 $221,008 $391,987 San Francisco 5,777,445 1,524,457 63,236 99,816 133,011 Santa Clara 1,816,493 414,511 26,269 39,982 62,715 Alameda 1,502,588 353,077 19,663 25,024 46,024 San Mateo 1,496,321 363,301 18,626 26,209 41,447 Monterey 1,062,686 199,309 16,210 29,922 45,087 Sonoma 571,605 117,118 8,788 9,660 26,355 Santa Cruz 385,672 80,350 5,347 7,464 13,561 Napa 321,794 67,972 5,078 7,023 13,489 San Benito 49,459 8,713 724 591 2,327 - -------------------------------------------------------------------------------- The Association of Monterey Bay Area Governments (AMBAG) estimates that 15 percent of total employment in the county and about 45 percent of all services and trade employment in the county are supported by tourism. The Monterey County Hospitality Association estimates that Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 14 <PAGE> Heather Plaza Apartments, Salinas CA the industry is directly responsible for creating over 16,000 jobs locally with a payroll of nearly $200 million. And including the estimated 10,000 indirect jobs, the payroll increases to $322 million. By the Monterey County Hospitality's estimates, the "trickle-down" effect of tourism puts the total impact at $4 billion to $5 billion. Restaurants, hotels and inns, retail trade, numerous publications, and a variety of other service-oriented businesses are directly dependent on the tourist trade for their welfare. Based on 1989 data, there was a total of 220 lodging facilities in Monterey County consisting of 10,381 rooms. Because the majority of the tourism industry is centered around the hotel and convention complexes, it has more of an impact on the Monterey Peninsula area. The Monterey Peninsula area provides for a plethora of recreational and cultural activities which in combination with the natural scenic beauty create a tremendous attraction for tourism. The area has a number of public beaches that cater to swimming and sunbathing as well as surfing and scuba diving. In addition to the beaches, there is boating and sailing as well as two yacht clubs servicing the Monterey Peninsula. The area also boasts a number of parks and campgrounds, including the Los Padres National Forest and State beaches and parks. Within these parks and reserves, there are facilities for riding, hiking, hunting, and fishing. There is also the renown Del Monte Forest area and its 17-Mile Drive; Cannery Row and Fisherman's Wharf; as well as the Carmel-by-the-Sea and the ocean-front drives of the peninsula communities. The growth of the tourist industry is reflected in the continuous extension of the visitor season. More and more small business meetings, conventions and recreational events are now being held on a year-round basis. Although travelers and visitors to the Monterey Peninsula area come from all over the world, the primary points of origin are from within California, particularly within one day's driving distance. Again, attractions such as the Monterey Bay Aquarium and John Steinbeck's Cannery Row, as well as the Monterey Fisherman's Wharf, continue to be prime sources of vacation and tourism attractions. Paralleling the growth of the travel & lodging industry, was the development of the Monterey Bay Aquarium. The aquarium was approved by the coastal commission in 1978 and the 60,000 square foot facility was completed in 1985. The entire cost of the $50 million aquarium was absorbed by the philanthropist/businessman David Packard. The aquarium drew 2.227 million visitors in its first year and has averaged approximately 1,730,000 annually through 1991 --making it the single largest tourist attraction in the county. A substantial expansion to the facility is now underway. Upon completion of the expansion, attendance is expected to substantially increase. Occupancy for hotels and motels often reach 100 percent during peak season on the Monterey Peninsula. In fact, visitation patterns are being strongly affected by the lack of available rooms. The major limiting factor to the growth of the tourist industry in Monterey County in the future will be accommodations and facilities. According to statistics provided by the Monterey Peninsula Chamber of Commerce, the average occupancy rate has been approximately 65-75 percent, although 1996 is turning out to exceed those numbers. In an effort to further promote tourism, leaders in Monterey County's tourism industry are beginning an ambitious campaign to market the area. The general plan is to form an alliance Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 15 <PAGE> Heather Plaza Apartments, Salinas CA among merchants, city officials and representatives of major events such as the Monterey Jazz Festival and Sports Car Racing Association of the Monterey County. The strategy for expanding tourism in the county is to spread out the times when visitors come to the county and to advertise the attractions of the region, rather than just Monterey, Pebble Beach or Carmel. Traditionally, the tourist season peaks from Memorial Day to Labor Day. Additionally, the alliance would like to also extend the average stay from two to three days in the county. To that effect, tourists would be encouraged to spend time touring the Big Sur Coast, wineries of Salinas and Carmel Valley, John Steinbeck's Salinas, and even the lesser-known missions of San Antonio and Soledad. The concept of "ecotourism" is also being promoted as a means of courting more visitors to the county. Monterey County, by virtue of its fragile ecosystem, scenic natural beauty and 20 years of "no growth" planning policy appears ideally suited to this new industry. Because the future of Monterey County may very well depend on its natural environment, "ecotourism" represents a mutual interest of both business and environmentalists. Thus the adverse impacts of increased traffic, use of precious water and growth of facilities geared to tourists are sure to be carefully weighed as community leaders look towards expanding the tourism industry in order to offset losses from the closure of Fort Ord. Monterey County's tourist season has traditionally run from Memorial Day to Labor Day, but recent patterns of hotel occupancy and retail sales show that the season starts and ends later. The summer 1995 aquarium attendance was up 10% over 1994. In June and July 1995, attendance was up 7 percent and 7.6 percent, respectively, over the same months of last year. August was expected to experience increases of up to 5 percent, according to Mr. Jim Hekkers, vice president of external affairs at the Monterey Bay Aquarium. Commercial Market The county's office market caters primarily to small local service business, while most regional and national companies are located on the Garden Road/Ryan Ranch/Highway 68 corridor, drawn by newer buildings, attractive rents, better parking ratios, and large contiguous spaces. The industrial market is "tight" in Monterey County. Vacancies are minimal and have continued to decline. Contiguous blocks of available space over 15,000 square feet are non existent. Most knowledgeable real estate brokers expect rents to increase slightly over the next year. New development should be limited because of minimal available industrial-zoned land. The local retail market may seem crowded with large shopping complexes on the drawing boards in Salinas and Sand City, but marketing reports and consultants say there's room for more. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 16 <PAGE> Heather Plaza Apartments, Salinas CA Housing Market Monterey County's real estate sales surged in April/May 1996 with total sales coming in 67 percent higher than for the month last year. The increased activity has promoted optimism about a recovering market. The median home price for the county is approximately $300,000. This is up slightly over the past year. Regional Description & Analysis --Conclusion A survey of statistics on agriculture, home sales, retail sales and other indicators shows that the Monterey County economy is proving wrong the dire predictions made before Fort Ord closed down. For decades, farming and the military were the area's two economic mainstays. Today agriculture remains paramount, but other sectors are changing rapidly to fill the void created by the base closure. Jobs While unemployment estimates remain seasonally high, county business have added more than 6,000 new jobs in the past 12 months, mostly in agriculture and service related fields, according to the State Employment Development Department. Construction Although the county construction permits dropped by about 4 percent in 1995, when compared to the year before, to about $3 19 million, single family dwelling starts have bolstered this year's construction, which is about 20 percent ahead of last year's rate. In addition, government projects are still underway, including the $100 million Natividad Medical Center in Salinas. Completion is expected in early 1997. Built around a courtyard, the new facility will offer patients an array of outpatient services devoted to the needs of families, women and children. Construction has started on the 680,000 square foot Westridge Shopping Center in Salinas. It is expected that the Wall Mart Store will open in February 1997. Real Estate Sales Although Monterey County is considered the second least affordable area in the country, higher priced homes on the Peninsula are still attractive, particularly to the people in the 45 to 54 age range. Agriculture Monterey's total crop ranks third in the state in total dollar value, behind Fresno and Tulare counties. In terms of vegetable production,, the county is the largest in dollar value in the country. The county's crops amounted to 10 percent of the statewide crop total of $20 billion in 1995. Tourism The area's coastline, golf courses and resorts attract visitors from throughout the world. In 1995, attendance at the Monterey Bay Aquarium was 1.6 million and, with the opening of the Outer Bay wing in March, attendance is expected to go as high as 2.2 million this year, according to aquarium officials. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 17 <PAGE> Heather Plaza Apartments, Salinas CA CITY OF SALINAS-COMMUNITY PROFILE The City of Salinas, incorporated in 1874, is located eight miles inland from the Monterey Bay, at the head of the Salinas Valley. The level fertile floor of the valley tapers to a funnel just north of the City. The original King's Highway, now called El Camino Real and/or Highway 101, traverses the approximate center of the valley floor from the Prunedale area of rural north Monterey County to King City to the south. Other cities located in the valley south of Salinas includes Chular, Gonzales, Soledad, Greenfield, San Lucas, and San Ardo. A map of the city appears in the Addenda. Salinas has been recognized historically as the distribution center for agricultural products from the Salinas Valley, one of the world's richest, most fertile growing areas, with approximately 1,000 square miles of land. The economic base of Salinas has always been agriculturally oriented; however, during the past decade, rising property values have helped to make the city of Salinas a bedroom community of the Monterey Peninsula. Salinas has become the population growth center of the Monterey Bay region. Recent projections show the city will continue to grow at an annual rate of 3 percent. There are 100 manufacturing firms in Salinas. The leading group classes of products are food, electronic components and electrical products. The largest manufacturing firms in the community are: Simplot Corporation, 550 employees; National Refractories, 419 employees; Integrated Device Technology, 360 employees; Radionics, 359 employees; and McCormick & Company, Inc. (Shilling), 350 employees. The city has three distinct geographical business areas: South Salinas, East Salinas, and North Salinas (where the Heather Plaza Apartments are located). South Salinas "Old Town" is located south of West Market Street, along Main Street in south Salinas. This area has many specialty retail stores, financial institutions and restaurants. The City is actively pursuing the redevelopment of "Old Town." Since 1974, $15 million in private investments, matched by $34 million in publicly financed improvements, have been committed to this project. This redevelopment has revitalized the area and has attracted many new commercial tenants to this part of the city. This redevelopment is to include the Steinbeck Plaza, which is anticipated to be a much-heralded showpiece of the city's downtown district. It will consist of a mixed land-use project for the blighted 100 block of South Main Street and will include a five-story, 94 room hotel with rooftop restaurant; a five story, 110,000 square foot office building with conference rooms and retail shops; a four level parking garage; restaurants with a total seating of 400; and a 33,000 square foot public plaza that will include an amphitheater. County and city government offices are located in the south Salinas area. This part of the city is generally known as the financial center. It has the highest concentration of larger office buildings. One of the largest tenants in south Salinas is the County of Monterey and its support service agencies. Salinas is the county seat of Monterey County. As the county seat, Salinas serves as the area's center for finance and agribusiness. It has captured nearly 40 percent of the county's office development. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 18 <PAGE> Heather Plaza Apartments, Salinas CA North Salinas The north Salinas business district of the city is located along North Main Street, south of Boronda Road and north of East Laurel Drive. The Northridge Regional Shopping Center, with over 120 specialty shops, three savings and loans, a bank, theater complex, and four major department stores, is located in this area of the city. In 1985, Northridge concluded a four year expansion, representing an investment of over $55 million. Convenience stores, financial institutions and other neighborhood stores are also located along North Main Street, which connects the north and south Salinas areas. Over the past five years, with the development of Northridge Shopping Center, north Salinas has become the retail center of the city. Office development in this part of the city has generally been directed toward smaller buildings. East Salinas The East/Alisal area of Salinas is generally described as that part of the city that is located east of Highway 101 and Natividad Road. The central commercial district is located along East Alisal. Portales de Alisal, a three level mix of retail shops and day care center, as well as medical and other professional offices, are planned on approximately eight acres located in the 500 block of East Alisal Street, in the Hebbron Heights neighborhood of the Alisal District. Neighborhood retail shops, small professional office users and trades people comprise the typical tenant profile in the east Salinas area. Vacancy in this area is low. Very few spaces are for lease. New retail space has leased very well as evidenced by the strong activity of a 19,600 square foot retail/shopping center located at 45 Sanborn Road. Population & Growth Percentage-City of Salinas vs. Monterey County - -------------------------------------------------------------------------------- Year Monterey County City of Salinas - -------------------------------------------------------------------------------- 2000 422,710 144,500 - -------------------------------------------------------------------------------- 1995 370,996 122,390 - -------------------------------------------------------------------------------- 1990 355,657 108,777 - -------------------------------------------------------------------------------- 1980 289,861 80,479 - -------------------------------------------------------------------------------- 1970 247,450 58,896 - -------------------------------------------------------------------------------- Monterey County-Employment by Industry 1992 1998 (projected) Percent Change Agriculture 30,600 32,900 8% Services 28,300 32,000 13% Retail Trade 23,700 25,700 8% Government 27,900 26,300 -6% Manufacturing 8,900 9,800 10% Finance, Insurance, 6,300 7,000 11% Real Estate Transportation & 5,100 4,900 4% Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 19 <PAGE> Heather Plaza Apartments, Salinas CA Public Utilities Wholesale Trade 5,000 5,100 2% Construction 3,900 4,200 8% Mining 300 200 -33% Local Economic Developments-City of Salinas Early in 1996 the Salinas Valley Maximum Security Prison opened its new operation with its expanded correctional facilities. The new facility added nearly 700 new employees; an additional 800 new employees (the highest percentage are correctional officers) have recently been added, and by the beginning of 1997 an additional 450 new employees may be added. The recent hirings have already impacted the local apartment housing market throughout Salinas; interviews with numerous apartment managers have indicated that large numbers of newly-leased units are to correctional officers working at the Soledad State Correctional Facility; extremely limited housing within the city of Soledad have heavily impacted the demand for rental units in Salinas, considered only an approximate twenty (20) mile northerly commute from the prison. Increases in the city's services, retail trades, manufacturing, construction, and finance sector have resulted in a stronger demand for affordable multi-family housing units. The current shortage of rental units has been primarily the result of local economic activity. The expansion of the Westridge Shopping Center, a 650,000 square foot retail center, is within one-half mile of the subject property and includes a Wall Mart Store opening in February, 1997; this will also increase housing demand in the North Salinas area. Household Credit Corporation recently hired 200 new employees in 1996. Residential Growth-City of Salinas The Salinas Valley has long been an attractive area for homebuyers, especially first-time buyers who are looking for an affordable home in Monterey County. The average annual growth rate over the past 10 years was nearly 2 percent, and, as a result of continuing developments throughout both Monterey County and Salinas itself the rate should approximate 3 percent for the remaining few years to 2000. Salinas has been moving forward with several new developments that will add thousands of new people to the city by the time the next U.S. Census is taken in the year 2000. The Harden Ranch subdivision in North Salinas, for example, includes 1,683 single family homes, 719 multifamily units and an area for churches, schools and a park. Creekbridge subdivision is a mix of new homes, including 1,000 single family homes and 1,030 multifamily units. The Williams Ranch subdivision in East Salinas was planned for 1,551 homes and 519 condominiums or apartment units. If there are any restrictions to growth in Salinas it's the agricultural land that surrounds the city. The city's master plan for growth forbids city officials from considering new building projects to the south and west of the city limits because that land is some of the richest, most productive farmland in California. "Slow" of "No-Growth" policies will limit Salinas' development in the south and west portions of the city; therefore, future developments will concentrate more heavily in North Salinas, in the general vicinity of the Heather Plaza Apartments Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 20 <PAGE> Heather Plaza Apartments, Salinas CA City of Salinas-Apartment Market Analysis Below is a simple chart illustrating the structural and vacancy characteristics estimated for the City of Salinas, as of September 28, 1996, the effective date of this appraisal. From a total of 35,902 housing units within the city, 13,247 units are considered multi-family (2 or more units in a structure). This equates to 36.9 percent. This estimate includes apartment units in plan check or currently under construction. All Housing Units <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------- Total 1 unit-detached 1 unit-attached 2-4 units 5-9 units 10+ units Mobile homes - ---------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> 35,902* 18,077 2,942 3,239 3,236 6,772 1,636 - ---------------------------------------------------------------------------------------- </TABLE> * Information provided by the Monterey County Association of Realtors and Association of Monterey Bay Area Governments. Utilizing the number of apartment units indicated above there currently exists 13,247 apartment units. Since the end of 1992, no apartment units have been built until 1996; the overall number has remained relatively constant for a number of years. Based on the current estimated population of Salinas of 122,390 and applying a 35% multifamily ratio provides for a total renter population of approximately 42,837. Dividing the renter population by the average 3.21 household size (estimated by the Association of Monterey Bay Area Governments) suggests that the City of Salinas would need 13,345 apartment units to accommodate this demand. Comparing this to the current apartment inventory of 13,247, a deficiency of 98 units exists. If this analysis is accurate, then this explains why the market as a whole is experiencing a very low to no vacancy rate at this time as reported by various apartment building managers throughout North Salinas, South Salinas, and East Salinas. Again, this is very consistent with my findings based on interviews with on-site managers, property managers, brokers and other appraisers. The Salinas apartment market is very tight with many of the larger professionally managed complexes reporting 98%-100% occupancy with a waiting list. The market has tightened up because of several factors including the recent expansion of the Soledad prison facility wherein they recently hired approximately 1,200 employees. As previously indicated, Household Credit Corporation recently hired 400 new employees and a host of other ancillary businesses have been hiring in and around Salinas. Additionally, the population has been growing at approximately 3,500 new residents per year. Much of this growth is due to the migration from Santa Cruz, Los Angeles, and San Jose. Many of these people are purchasing homes in the newly-developed master plan communities and many are renting. According to many of the on-site property managers renters are coming from as far as San Jose which is approximately 3/4 of an hour drive north. Rents are significantly higher in San Jose. Rents in Salinas are estimated at between $250 and $500 below San Jose rents and therefore is attracting tenants who view making the commute an attractive alternative to paying higher rents. Below are the results of a survey performed by this appraiser of ten (10) apartment complexes within the City of Salinas as of the date of this appraisal. The average apartment building size was 146 units. The survey indicates the name of the complex, total number of units, total number of vacant units, and total number of units "on notice". Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 21 <PAGE> Heather Plaza Apartments, Salinas CA Apartment Survey-City of Salinas September 28, 1996 - -------------------------------------------------------------------------------- Name Total No. Units No. Vacant Units Units On Notice - -------------------------------------------------------------------------------- Cypress Creek Apartments 288 0 12 - -------------------------------------------------------------------------------- Cypress Landing Apartments 112 0 0 - -------------------------------------------------------------------------------- Los Padres Apartments 220 4 2 - -------------------------------------------------------------------------------- Mariner Village Apartments 176 1 3 - -------------------------------------------------------------------------------- Northridge Park Apartments 232 3 3 - -------------------------------------------------------------------------------- Kipling Manor Apartments 92 0 0 - -------------------------------------------------------------------------------- Olive Tree Apartments 34 1 0 - -------------------------------------------------------------------------------- Shadowbrook Apartments 88 3 0 - -------------------------------------------------------------------------------- Sheridan Park Apartments 116 0 10 - -------------------------------------------------------------------------------- Village Green Apartments 104 0 4 - -------------------------------------------------------------------------------- TOTALS 1,462 12 34 - -------------------------------------------------------------------------------- This particular sample surveyed represents only 11.04 percent of the total number of apartment rentals in the city of Salinas. Based on information from the above respondents a vacancy rate of .8 percent was indicated. If one includes the number of "units on notice" (tenants who plan to vacate within 30 days), the vacancy rate becomes 3.15 percent. Most of the tenants who have given notices to vacate are considered "seasonal workers" engaged primarily in the agricultural trades, according to property managers surveyed. NEIGHBORHOOD DESCRIPTION AND ANALYSIS The subject property is located in a north central section of the North Salinas area of the city bounded by Iris Drive north, Tyler Street to the west, U.S. 101 Freeway south and by N. Main Street to the east. The area as defined is nearly triangular in shape and contains a total of less than .25 square miles. Immediate Neighborhood Environs The subject property occupies the southwestern portion of the "neighborhood" as defined above. In the area immediately west of Heather Plaza is an average quality tract of detached single family homes built circa 1960. Located to the immediate south of the 218 unit development is the U.S. 101 Freeway. Tyler Street is considered the westerly boundary line and is also improved with single family uses. Directly across Iris Drive at Heather Drive to the immediate north of the subject property are the Crestwood and Skyline Convalescent Hospitals (residential care facilities). The Petra Bible Church occupies the southwest corner of Lupin Drive and Iris Drive. Located along N. Main Street in sections north and south of the Iris Drive intersection is the Sherwood Gardens Shopping Center. In the southern portion of the neighborhood commercial center are tenants that include Buon Appetito Cafe & Deli, Salinas Western Store, Boots & Western Wear, The Krate Records & Tapes, Evelyn's Unique European Boutique, Arby's Fast Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 22 <PAGE> Heather Plaza Apartments, Salinas CA Food Restaurant, DKA Computers, Andrus Jewelers, Your Community Blood Center, Thee Salon, Magana's Meat Market, Jenny Craig's Weight Loss Clinic, Avco Financial Services, House of Fabrics, United Travel, Mandarin Garden Chinese Restaurant, Quito's Mexican Restaurant, South Valley Bikes, Shadow Walkers Cards & Comics, 3-Day Blinds, Salinas Radio & Stereo and Golden West Restaurant. Located at Bemal Drive and N. Main Street are Standard Stationers and the Rodeo Inn (motel). Located in the northern portion of the Sherwood Gardens Neighborhood Shopping Center are the Sherwood Care Pharmacy and Laundry Care; large users of space also include anchor tenants such as Canned Foods & Grocery Outlets, Grand Auto Supply & Tires and 24 Hour Nautilus Fitness Center. The Casa Linda Motel is "outside" the shopping center located north along N. Main Street's west side of the street. It should be pointed out that just east of the neighborhood as defined along N. Main Street are the California Rodeo Grounds and Salinas Community Center & Swimming Pool. The subject property, Heather Plaza Apartments, has relatively good freeway access to U.S. 101 within one-half mile northwest at West Laurel Drive or within one-half mile south at N. Main Street. SITE ANALYSIS ================================================================================ General: Heather Plaza Apartments Based on a plat map furnished by our client (a copy is included in the Addenda), the site for the Heather Plaza Apartments contains a total of 12.6 acres comprised of four (4) parcels. This does not include the private street formerly deeded by the city of Salinas for exclusive use of Heather Plaza residents (a separate parcel). The street is considered a common area and is not assessed by Monterey County. A survey of the site has not been made, and it is assumed that the Plat Map is correct. The individual parcels that make up the subject site are irregularly configured.. Topography and Drainage: The topography of both of the sites is predominantly level to slightly rolling. Drainage is believed to be adequate. Access: The Heather Plaza Apartments has one main access driveway with a security gate fronting to Iris Drive only. Utilities: All major utility services are available and connected to the property. These utilities include sewer, water, electricity, cable television, and telephone services. Sewer service is provided by the Monterey Regional Water Pollution Agency. The capacity of the sewer plant is 30 million gallons per day. Water is provided by the Alco Water Service and California Water Service Company. For both water companies combined, the maximum daily pumping capacity is 45,383,680 gallons per day. Quantity rates are $.7091 per 100 cubic feet. Natural gas and electric power are provided by Pacific Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 23 <PAGE> Heather Plaza Apartments, Salinas CA Gas & Electric (PG&E). Local telephone service is provided by Pacific Bell. The City of Salinas Department of Public Works has adopted a master plan of storm drains. Charges are assessed on all on-site costs, plus off-site fees. Site Hazards: The subject property is located in a designated FEMA Zone "B", according to Community Panel Map Number #060202-0002 D, dated November 4, 1981. The "B" designation does not require flood insurance. Earthquake Fault Zone The property is not located in any known earthquake fault zones. However, the region is subject to periodic earthquake tremors. We know of no particular reason why the site would be at a greater risk than other area properties. Rent Control: Monterey County does not have rent control. The county does have an "inclusionary housing" program that provides for affordable "low-income" housing. Low and moderate housing assistance is available through a variety of programs offered by the Housing Authority of Monterey County, the City of Salinas and CHISPA, a nonprofit housing developer. Apartment complexes for low-income families, the elderly, handicapped and farm-labor families are located throughout Salinas. The city has established a Housing Trust Fund to help increase the supply of affordable rental units as well as opportunities for home ownership. Contamination/Toxins: We have inspected the property with the due diligence expected of a professional real estate appraiser. It is important to note, however, that the appraiser(s) are not qualified to detect hazardous waste and/or toxic materials. Such a determination would require investigation by a qualified expert in the field of environmental assessment. To our knowledge, there are no potentially hazardous materials that would affect the valuation and/or marketability of the property as of the date of valuation. The appraised value of the Heather Plaza Apartments is specifically predicated on the assumption that there are no hazardous materials on or in the property that would cause a loss in value. Easements and Restrictions: Normal public utility easements are assumed that are not considered to adversely affect marketability. Site Analysis Conclusion In summary, the Heather Plaza Apartments complex has a site consisting of 12.6 acres on one parcel improved with 218 rentable units. All utilities are available, including sewer service, electricity, gas, telephone and cable television. The site lies in Flood Zone "B" (no flood insurance required). Zone "B" is typical of the neighborhood. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 24 <PAGE> Heather Plaza Apartments, Salinas CA TAXES AND ASSESSMENT ANALYSIS In the State of California, property is enrolled at 100% percent of market value, as determined by the Assessor upon transfer of ownership or significant new construction. The maximum tax rate cannot exceed one percent of the enrolled value, plus general and/or special assessment bonds and fees approved by the voters. The Monterey County Assessor Parcel Numbers for the Heather Plaza Apartments are 003-801-003 through 006, and 003-801-009 (this parcel refers to the common area-street and is not assessed by Monterey County). The assessed values allocated between land and improvements, for the tax year 1996-97, are as follows: - -------------------------------------------------------------------------------- APN 003-801-003 003-801-004 003-801-005 003-801-006 - -------------------------------------------------------------------------------- LAND $ 186,067 $ 225,568 $171,782 $256,704 - -------------------------------------------------------------------------------- IMPROVEMENTS $ 836,995 $1,010,617 $766,197 $1,192,573 - -------------------------------------------------------------------------------- PERS.PROPERTY $ 19,800 $ 24,000 $ 18,000 $ 26,200 - -------------------------------------------------------------------------------- TOTAL $1,042,862 $1,260,185 $955,979 $1,475,477 - -------------------------------------------------------------------------------- For the Heather Plaza Apartments, real estate taxes for the 1996-97 tax year are $50,718.72. Direct assessments of $3,156.96 are included. The tax rate for Heather Plaza is 1.004660 percent per $100 of full cash value. A direct assessment, considered typical of North Salinas, is imposed by the North County Water Regional Agency (.004660) and added to the one (1) percent base tax rate as specified by Proposition 13 for California. There are no special assessment bonds, according to the Monterey County Tax Collector Department. Both installments have not been paid for 1996-97. The reader should refer to the preliminary title insurance report for specific amounts of any unpaid previous tax installments. The first installment for 1996-97 is due November 10, 1996. The tax rate area for Heather Plaza Apartments is 005-015. Re-assessment of Heather Plaza Apartments: Proposition 13 The current tax amounts for the 1996-97 tax year will not remain the same beginning on July 1, 1197. According to Proposition 13 for California, the subject property will be re-assessed, most likely based on the new sale price or market value at time of sale. The assessments will be based on full cash value using a tax rate per $100 of full cash value. The passage of Proposition 13 establishes a maximum property tax of one percent of full cash value. The mandated one percent (1%) property tax level converts to a $1.00 base tax rate. The additional rate imposed by the Water Regional Agency will be added to the $1.00 base rate. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 25 <PAGE> Heather Plaza Apartments, Salinas CA ZONING DESCRIPTION AND ANALYSIS The Heather Plaza Apartments is currently under the zoning designation of R-H-2.3 by the City of Salinas. This zoning designation specifically refers to a high density residential district. Section 37-44 addresses specific purposes of the particular district's regulations. They are as follows: (1) To provide appropriately located areas for high density multiple family dwelling units consistent with the General Plan and with standards of public health and safety established by the Salinas Municipal Code. (2) To provide adequate light, air, privacy, and open space for each dwelling unit and protect residents from the harmful effects of excessive noise, population, density, traffic congestion and other adverse environmental impacts. (3) To promote development of affordable housing by providing a density bonus for projects in which a portion of the dwellings are affordable to qualifying households. (4) To achieve design compatibility through the use of site development standards. (5) To protect adjoining low density residential districts from excessive noise or loss of sun, light, quiet, and privacy resulting from proximity to multifamily dwellings. (6) To provide sites for public and semipublic land uses needed to complement residential development or requiring a residential environment. (7) To ensure the provision of public services and facilities needed to accommodate planned population densities. For a comprehensive list of all property development regulations under the R-H-2.3 Zoning District the reader may refer to the Addenda of this report. Parking Requirements-On-site Division 18-Off-Street Parking and Loading Regulations of the City of Salinas Municipal Code lists all use classifications. For multifamily residential complexes containing over ten (10) units, the off-street parking and loading requirement is 1.6 spaces per unit. The Heather Plaza Apartments has 215 carport spaces and 124 open spaces for a combined Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 26 <PAGE> Heather Plaza Apartments, Salinas CA total of 339 spaces. This equates to a 1.555 (rounded to 1.6) parking ratio, considered to meet code requirements. Conclusion It appears that the subject property meets all applicable city zoning, building and parking requirements. IMPROVEMENT DESCRIPTION AND ANALYSIS The Heather Plaza Apartments were constructed in 1974 and contain a total of thirty-three (33) two-story buildings configured on a 12.6 acre site. There are a total of 218 rentable units in three (3) distinct floorplans. The net rentable building area is 147,384 square feet. There are also seven (7) laundry rooms and one (1) children's playground. The Heather Plaza Apartments are considered Class D Building(s) Construction Type V (wood frame) of the Uniform Building Code. Class D buildings are characterized by combustible construction. The exterior walls are made up of closely spaced wood studs with an exterior wood siding. The roof, of asphalt shingle composition, is supported by a wood truss system with a concrete slab floor on 1st floor area. The upper floor (2nd story) consists of plywood sheets. Also, the subject is in a class of construction referred to as protected one-hour construction. Unit Mix-Heather Plaza Apartments - -------------------------------------------------------------------------------- TYPE UNITS AREA (sf) - -------------------------------------------------------------------------------- 1BR/1BA 162 616 - -------------------------------------------------------------------------------- 2BR/1BA 52 846 - -------------------------------------------------------------------------------- 3BR-1BA 4 900 - -------------------------------------------------------------------------------- TOTAL 218 147,384 - -------------------------------------------------------------------------------- Note: information regarding the individual unit sizes was provided by the Lincoln Residential Services Management Company. The appraiser was provided interior access to both one and two bedroom floorplans purported to be representative units. Gross living area estimates for these units are based on exterior wall measurement taken by the appraiser. It is assumed that the interior conditions of the units are similar to those inspected. Access to one of the 3BR/1BA units was not provided, however; the typical 3BR/1BA unit (only 4 in the complex) is assumed to contain 900 square feet of living area, according to information provided by on-site management. Interior Improvements: Heather Plaza Apartments Floor coverings consist of wall to wall carpeting over concrete slab in lower levels and over plywood subfloor in upper levels. Vinyl flooring is in kitchens and bathrooms. Electric wall heating is included in all units. The kitchens have Formica countertops, free-standing electric range and ovens, garbage disposals, stainless steel sinks and dishwashers. There are no dishwashers included in the one bedroom units, however. Each of the units are served with individual hot water heaters. Bathrooms are improved with Fiberglas tub and shower enclosures Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 27 <PAGE> Heather Plaza Apartments, Salinas CA and cultured marble vanities. Overall condition is considered good. Many of the units have recently been upgraded with new carpeting and interior painting. Effective Age: Heather Plaza Apartments The actual age of the Heather Plaza Apartments complex is 22 years. An average quality Class D apartment project is estimated to have a total economic life of fifty (50) years. This is based primarily on the performance of many comparable properties built in the 1940's and 1950's still in existence in Monterey County and capable of attracting tenants due to upgrading and above-average maintenance. In addition, the Marshall and Swift Cost Valuation Service provides reasonable support for an estimated total economic life expectancy of fifty (50) years. Because the Heather Plaza Apartments has undergone substantial recent upgrading under the current management to date it is the appraiser's opinion that an estimated overall effective age of twelve (15) years is considered reasonable and supportable. Remaining Economic Life: The remaining economic life of the Heather Plaza Apartments is estimated at 35 years, although it certainly could be longer or even shorter. This estimate is made by deducting the effective age of 15 years from total economic life of 50 years. External Obsolescence Because some of the apartment units located in the Heather Plaza Apartments are in relative close proximity to U.S. 101 Freeway, Lincoln Residential Services was consulted as to any adverse effects any of the rental units may have experienced in attracting and maintaining tenants over a reasonable period of time. No significant problems have occurred in renting any of the few units that are located close to the freeway, which is separated by a 12' noise abatement wall and adequate distance setbacks. There is no difference in rental rates (i.e. rent loss) between apartment units located in close proximity to the freeway and from interior sections of the developments. HIGHEST AND BEST USE ANALYSIS Definition Highest and best use, as used in this appraisal, is defined as that reasonable and probable use that will support the highest present value, as defined, as of the effective date of the appraisal, September 28, 1996. Alternatively, that use, from among reasonably probable and legal alternative uses, found to be physically possible, appropriately supported, financially feasible, which results in highest land value. The above definition of the "Highest and Best Use" is in reference to land that is unimproved. In cases of improved land, a determination of the contributory value of the improvements to the land must be made. The improvements found on a site may be of inappropriate use, but will continue until the land value exceeds the total value of the property in its existing use. Discussion Our opinion of the highest and best use of the subject land parcel will be supported based upon our analysis of the four tests outlined below: Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 28 <PAGE> Heather Plaza Apartments, Salinas CA 1. Legally Permissible Use. This type of use is legal and conforms to the zoning assigned to property, as well as to the City's planning goals. 2. Physically Possible Use. The shape, size, and available utilities are adequate to serve this use. 3. Financially Feasible Use. Population and immediate income statistics support the feasibility of the highest and best use based upon the quantity, quality, and distribution of the income and its prospective users. 4. Maximally Possible Use. An analysis of which possible legal uses will produce a net return and/or create value to the site. All three standard appraisal approaches to value are affected by the highest and best use. Therefore, valuation is highly dependent upon the conclusions set forth by this analysis. Physically Possible Section 37-46 of the City of Salinas Municipal Code specifies a minimum lot size of 7,200 square feet in a R-H-2.3 high density residential district. The Heather Plaza Apartments has a site size of 548,856 square feet. A minimum of 1,800 square feet is required for each unit, according to Section 37-46 of the Regulations. Based on this requirement, therefore, the site is physically capable of being developed with the current apartment improvements. Legally Permissible The subject is zoned and general plan designated to allow high density residential uses. As existing, the subject is a legal and conforming use. The Heather Plaza Apartments complex is legally permissible under the current zoning regulations. Financially Feasible In evaluating the most reasonable and probable use of the vacant site, we considered the demographics of the surrounding area, land use patterns, local market supply and demand, general market conditions, and the physical characteristics of the property itself. The most feasible and marketable use for the subject site appears to be for apartment use, given the present shortage of rental housing in Salinas, which is a result of the local economy and current growth of Salinas. Rapid changes in market conditions which were previously discussed in the Neighborhood and City Sections indicate apartment and multi-family housing as the most reasonably probable use of the subject property. Maximally Possible Use The final of the four tests in the highest and best use analysis is the use that maxitnizes the land value by Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 29 <PAGE> Heather Plaza Apartments, Salinas CA providing the highest return. This test must be considered sequentially with the prior three tests; it makes no difference that the most probable highest value is a apartment complex, for example, if the zoning does not permit this use. The most profitable use is a multi-family or apartment use. This is largely based on the fact that the current improvements are apartments and are configured on the sites as such. At the present time, the City of Salinas Planning Department recognizes through its general plan the R-H-2.3 high density residential district of the subject's neighborhood in North Salinas and is aware of the changing market conditions and rental shortage that exists in the City of Salinas. There is virtually no availability of vacant land in South Salinas for apartment use, for example, since that area is primarily designated as agricultural land. The City is encouraging the future development of high density residential land in the North Salinas section of the city. Highest and Best Use Conclusion - As Improved In conclusion, the highest and best use of the Heather Plaza Apartments, as improved, is apartment use. Highest and Best Use Conclusion - As Vacant In conclusion, the highest and best use as vacant is a multi-family or apartment-type use. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 30 <PAGE> Heather Plaza Apartments, Salinas CA THE APPRAISAL PROCESS ================================================================================ The estimation of a real property's market value involves a systematic process in which the appraisal problem is defined and the data required is gathered, analyzed and interpreted into an estimate of value. Traditionally, three methods of valuation have been used in appraising: the Cost, Sales or Market Comparison and Income Approaches. In the Cost Approach, the value of the site is first estimated by comparing it to similar sites that have recently sold or are currently offered for sale. Replacement cost new of the improvements is determined by reference to actual costs of similarly constructed properties. Depreciation from all sources is then deducted from the replacement cost new of the improvements to arrive at the present value. The depreciated value of the improvements is added to the estimated land value to arrive at the total value by the cost approach. In this appraisal, however, NationsBank has requested that the cost approach be omitted from this appraisal assignment. The cost approach has been determined to have little to no significant applicability in the valuation of 10 to 30 year-old multi-family properties due largely to the subjectivity involved with estimating depreciation in older properties. Moreover, cost and value are oftentimes not the same. The Sales Comparison Approach involves comparison of the subject to similar properties that have recently sold or that are offered for sale. These sales are reviewed for differences from the subject in the date of sale, location of the site, physical characteristics and other factors. The comparable properties are then adjusted to formulate a value range for the property being appraised. The third of the three valuation techniques is the Income Capitalization Approach. This approach involves estimating net operating income, and discounting this income to a present worth through the capitalization process. For most income-producing properties, including apartments and multi-family properties, this is the better valuation technique. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 31 <PAGE> Heather Plaza Apartments, Salinas CA INCOME CAPITALIZATION APPROACH The first and primary approach applied to the valuation of the subject is the income capitalization method. This technique involves conversion of future anticipated income into an estimate of present value by the capitalization process. This procedure involves three steps as indicated below: 1. Estimate gross income from available rental information and the subject's operating history; 2. Estimate and deduct vacancy and collection loss allowance and operating expenses to derive net operating income; and, 3. Select an applicable capitalization method or methods, develop the appropriate capitalization rate, and complete the necessary computations to derive an economic value indicated by the income capitalization approach. Required Information Documents that are helpful to better estimate value under the Income Approach include the following: o Income/Expense statements o Personal Financial Statements of Owner (if applicable) o Rent Roll o Lease Agreements o Other (service agreements) Income and expense Statements. Operating statements provided by management over the past year and seven months are included in the Addenda. Personal Financial Statements. The owner's personal financial statements are not required to appraise the property, but can be helpful under certain circumstances. While market value intrinsically assumes transfer to a willing and knowledgeable buyer at market price, financial statements of the owner often provides insight into the current management quality and style of the property. An undercapitalized owner, for example, may not be able to institute correction of deferred maintenance that will enhance livability. As such, occupancy and rates may suffer from inadequate level of maintenance, which results in loss of reputation. Financial statements of the subject ownership have not been reviewed. However, based on conversations with management and the overall good maintenance level and high occupancy of the property, it can logically be assumed that ownership is capable of operating the property in a strong professional manner. Based on conversations with management, and inspections of other properties owned by Thysen and managed by Lincoln Residential Services, the subject has been operated in a professional manner and there appears to be no operational problems. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 32 <PAGE> Heather Plaza Apartments, Salinas CA Rent Roll: A roll of the current tenants has been provided by management as of September 28, 1996. As of this date, 5 units were vacant. Of the vacant units, one has been preleased. Thus, there are four units (1.8%) that are available for rent at this time. Lease Agreements: A copy of the standard 2-page residential rental agreements has been reviewed, and has been included in the Addenda. Units are on either 7, 8, 9 and 10 month short-term leases. The rental agreements are typical of others used in the marketplace. Utilities, except for water, trash and basic cable are paid for the tenant. There is a late charge of $30 if management elects to accept rent after the third of the month, and a $20 returned check fee. No pets are allowed without written consent. Use of the premises shall be for a private residence only. No more than three persons shall occupy a one bedroom unit; no more than 5 are allowed in a two bedroom; and, no more than 7 in a three bedroom unit. Occupancy limits are strongly enforced. First month and security deposits are collected prior to the tenant moving in. Capital Improvements: Capital expenditures over the past two years have also been reviewed and/or discussed with the property manager. Improvements to the property over the past year and half include the following: o New roofs and balconies o Exterior paint (entire complex) o New appliances and carpets in most units Occupancy trends: In addition to the above, occupancy trends of the complex have been reviewed. Since Lincoln Property took over as managers approximately 1.5 years ago, occupancy has been increasing. This is due mainly to correction of deferred maintenance items and an improving rental market. The new management has also qualified tenants better which have resulted in less turnover and less evictions. Moreover, seasonal tenancy has been reduced to virtually nothing by the implementation of leases. Other: According to management, laundry equipment is owned by the service company. Subject Asking Rents As of September 28, 1996, the following monthly rents (all unfurnished) were being charged at the subject complex: 162 1BR/1BA 616 sf $550 $0.89/sf $89,100 52 2BR/1BA 846 sf $725 $0.86/sf $37,700 4 3 BR/1BA 900 sf $775 $0.86/sf $ 3,100 - --- ------ ---- ----- ------- 218 676 avg. $595/avg. $0.88/sf avg. $129,900 All rents include water, trash removal and basic cable. Tenants pay their own gas and electric (Pacific Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 33 <PAGE> Heather Plaza Apartments, Salinas CA Gas & Electric Company), telephone, and premium cable channels. To qualify, prospective tenants must have three times the monthly rental rate and a positive credit report and previous rental history. There is a $25 application fee (includes credit report) and a $35 fee for the security gate card. The application fee is non-reimbursable. The deposit is $375. The above price list was set in September 1996. Management periodically surveys other complexes in the area in order to maintain market rental levels. At this time, there are no rental specials or concessions. In the past, management has offered 1/2 to one month "move-in" rent or $100 off first month's rent. As explained earlier, market conditions have been improving gradually over the past year, and most apartment complexes in Salinas are not offering any rental concessions at this time. As can be noted on the rent roll in the Addenda, a number of subject apartment units are at the above quoted rates. Those units with leases expiring will be moved to the new rates. At this time, there is a difference of approximately 5 percent between the market and actual rents (i.e., actual rents lag about 5 percent below market when factoring-in vacant/preleased units at market rates). Rent Survey and Analysis In order to determine whether the subject rentals are at or within a market rental range, a survey of competing complexes was made. This analysis involved a comparison of amenities and facilities offered by competitive projects with those offered by the subject. The competing complexes considered most helpful in estimating the subject economic or market rental level are summarized on the following pages. All rental rates quoted in the survey are month-to-month or short-term leases. None of the complexes surveyed in this report had long-term leases. All complexes are garden style two and/or three-stories of similar vintage and design as the subject. All are located in the general subject neighborhood. Typically, rents include water and trash removal (and sometimes basic cable service). None of the complexes were offering any specials. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 34 <PAGE> Heather Plaza Apartments, Salinas CA RENT COMPARABLE NUMBER 1 Name: CYPRESS CREEK Location: 162 Casentini Street, Salinas Age/Type: 9 years old/ two-story garden design -288 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $725-750 750 $0.97-1.00 2BR/2BA = $925-950 1,000 $0.925-0.95 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, racquetball, spa, w/d hookups, laundry rooms Vacancy: 0% (some units will become available in next few weeks) Comments: Nine year old project; good tenant appeal. Located off N. Main Street. Close to shopping, schools, freeway. Deposit = $300/400. $25 per month extra with lease (either 6 or 9 months). Pet deposit of $400 (cats). Good demand over past year. Source: (408) 758-3008 [GRAPHIC OMITTED] 35 <PAGE> RENT COMPARABLE NUMBER 2 Name: FOX CREEK Location 136 W. Alvin, Salinas Age/Type 1986/ two-story garden design - 168 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $625 708 $0.88 2BR/1BA = $725 875 $0.83 2BR/2BA = $750 986 $0.76 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, w/d hookups in all units, laundry rooms Vacancy: 0% (some units will become available in December) Comments: Ten year old project; good tenant appeal. Located off N. Main Street. Close to shopping, schools, freeway. Deposit = $250. Pet deposit of $350 (20 lbs.). Good demand over past year. No units available. Some units may become available in December. Carport parking plus open. No specials. Month-month rentals. Source: (408)449-1800 [GRAPHIC OMITTED] 36 <PAGE> RENT COMPARABLE NUMBER 3 Name: CYPRESS LANDING Location: 552 Rico Street, Salinas Age/Type: 1989/ two-story garden design - 112 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $655-690 75O+/- $0.87-0.92 2BR/1BA = N/A 2BR/1BA = $765-825 975+/- $0.78-0.84\5 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, some units have fp's (all 1/br's), laundry rooms Vacancy: 0% (some units will become available in October) Comments: Good tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit =$350/450. Good demand over past year. No units available. Some units may become available in October. Carport parking plus open. No specials. 6 and 12 month leases ($15/mo. taken off 12 mo lease). Source: (408)424-4343 [GRAPHIC OMITTED] 37 <PAGE> RENT COMPARABLE NUMBER 4 Name: NORTHPOINTE Location: 196 E. Alvin Drive, Salinas Age/Type: 1976/ two-story garden design - 138 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent 1BR/1BA = $568 648 $0.87-0.92 2BR/1BA = $620 735 $0.84 2BR/1BA = $669 835 $0.80 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: Tennis, heated pool, sauna, spa, exercise room, some units have fp's (all 1/br's), laundry rooms Vacancy: 1% (only one unit available at survey time) Comments: Avg-Avg+ tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. Deposit $300/400. Good demand over past year. Carport parking plus open. No specials. 6 month leases. Source: (408)443-1776 [GRAPHIC OMITTED] 38 <PAGE> RENT COMPARABLE NUMBER 5 Name: THE REEF APARTMENTS Location: 333 W. Laurel Drive, Salinas Age/Type: 1960's/ garden court design - 54 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent 1BR/1BA = $530-545 625 $0.87 2BR/1BA = $650 800 $0.81 Studio $450 400+/- $1.13 - -------------------------------------------------------------------------------- Utilities included in Rent: water and trash Recreational Amenities: pool only Vacancy: 0% (none at time of survey; waiting list) Comments: Avg tenant appeal. Located in north Salinas. Close to shopping, schools, freeway. No specials. Source: (408) 449-1680 [GRAPHIC OMITTED] 39 <PAGE> RENT COMPARABLE NUMBER 6 Name: SHERIDAN PARK Location: 1450 N. First Street, Salinas Age/Type: 1983+/ two story garden design - 116 units - -------------------------------------------------------------------------------- Type Rent SF Rent/SF ---- ---- -- ------- Monthly Rent: 1BR/1BA = $570 630 $0.90 2BR/1BA = $620 800 $650 Utilities included in Rent: water and trash Recreational Amenities: Heated pool, 2 sauna, spa, laundry rooms, security gates Vacancy: 0% (none at time of survey) Comments: Avg-Avg+ tenant appeal. Located in north Salinas. Close to shopping, schools, freeway Deposit = first month's rent plus key deposit. Carport parking plus open. No specials. No units available, but 10 units will be in November. Source: (408) 449-8203 [GRAPHIC OMITTED] 40 <PAGE> Heather Plaza Apartments, Salinas CA All rental rates quoted in the survey are month-to-month or short-term leases. None of the complexes surveyed in this report had long-term leases. All complexes are garden style two and/or three-stories of similar vintage and design as the subject. All are located in the general subject neighborhood. Typically, rents include water and trash removal. None of the complexes were offering any specials. Rental Number 1 represents Cypress Creek, located at 162 Casentini Street, in north Salinas This is a 288-unit complex built in 1987. It is of good quality and in good condition. Amenities include tennis courts, heated pool, sauna, racquetball, spa, laundry hookups, laundry rooms and carport parking. No promotional specials or concessions. Leases are 6 and 12 month terms. Security deposits are $300 and $400 (depending on the unit size). Pets are allowed with a $400 deposit. One bedroom units are reported at 750 square feet, and rent from $725 to $750, depending on variation of location within the complex. Two bedroom/two bath units measure 1,000 square feet and rent from $925 to $950, or $0.93 to $0.95/sf. Only four units are available. This is one of the newer and better quality complexes in Salinas and is similar in many respects to the subject. Like Rental Number 2 below, it is comparable to the subject, but superior. The subject does not offer the level of recreational amenities nor does it have the appeal as Rental #1. On a per unit basis, the subject should definitely rent lower than $725 for one bedrooms, and $925 for two bedrooms. Rental Number 2 represents the 168-unit Fox Creek Apartments, located at 136 West Alvin Drive nearby the subject in north Salinas. The overall quality and condition are good. No promotional specials or concessions. Leases are 6 and 12 month terms. Security deposits are $250. Amenities consists of a pool, spa, weightroom, clubhouse, laundry rooms, and tennis courts. Some units have washer/dryer hookups. There are 76 one bedroom, 24 two bedroom/one bath, and 68 two bedroom/two bath units. One bedroom units are reported by management at 708 square feet, and rent at $625 per month, or $0.88/sf. Two bedroom/ one bath units are 875 square feet, and rent at $725 per month, or $0.83/sf. Two bedroom/two bath units are 986 square feet, and rent at $750 per month, or $0.76/sf. Current vacancy is zero. Like Rental #1, this comparable is superior to the subject as it contains more recreational amenities and is newer. This comparable is useful in setting the upper end of the per unit rental range for the subject. It is clear that the subject one bedroom units should rent below $625, and the two bedrooms should fall slightly below $725 per month based on this particular comparable. Rental Number 3 is the 112-unit Cypress Landing Apartments located at 552 Rico Street, nearby the subject in north Salinas. This is a newer complex built in 1989. It is of good quality and in good condition. There are 36 one bedroom and 76 two bedroom/ two bath units. One bedroom units measure approximately 750 square feet and are $640-665 per month. Two bedroom units are approximately 975 square feet, and rent from $745-795 per month. Amenities include a pool, spa, clubhouse and carport parking. Some units have fireplaces. No rental concessions or specials. The property is close to shopping, freeway access and schools. The overall appeal is good. Only one unit is currently available. As with the previous two comparables, Rental #3 is superior to the subject. Rental Number 4 is the 138-unit Northpointe Apartments located at 196 East Alvin in North Salinas Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 41 <PAGE> Heather Plaza Apartments, Salinas CA nearby the subject. This is a two-story garden complex built in 1976. The overall quality and condition are above average to good. The location directly off N. Main is close to shopping, schools and freeway access. The complex has 1, one bedroom unit currently available at $568/month, and 1, two bedroom/one bath unit at $620/month. Two bedrooms reportedly rent as high as $669 per month. One bedrooms range from 624 to 648 square feet, and two bedrooms contain 735 to 835 square feet. Rents include water and trash. Security deposits are $300 for one bedrooms and $400 for two bedrooms. Leases of six months are required. There are no specials or concessions. Pets are not allowed. Amenities include two laundry rooms, and one swimming pool. The appeal, age and level and quality of amenities are similar, but slightly inferior to the subject. The subject has an advantage of having security fencing. Overall, this comparable brackets the potential subject "market" rents on the lower end. Rental Number 5 represents The Reef Apartments, a 54-unit garden court design complex built in the 1960's. This complex is also located in north Salinas nearby the subject. It is older than the subject, and has slightly less appeal. This complex is renting one bedroom units at $530 to $545, and two bedroom units at $650. Studios are $450 per month. All rents include water and garbage. The subject offers superior appeal in that the rent includes basic cable and security gates. Given these differences, the subject should rent higher. Overall, Rental #5 gives good support to the subject "market" rents by bracketing at the lower end. Rental Number 6 represents Sheridan Park; located in the general neighborhood. This is an average quality property that features security gates. Rents are $570 for one bedrooms and $620 per month for two bedroom/one bath units. Water and trash removal are included in the rent, but basic cable is not. The overall quality and appeal are similar, but slightly inferior to the subject. According to management, there are no available units at this time. Overall, this comparable provides good support for the subject units. Other: In addition to the above primary comparables, several other complexes including many owned by Thysen in the Salinas marketplace were considered. Thysen owns another 12 complexes in Salinas (most are in North Salinas). Although not enough to "set" the market, the number of complexes controlled by Thysen has an influence on rental levels. Thysen property managers (employees of Lincoln Property) regularly refer clientele to other Thysen complexes. Still, there are more than enough competing projects to make it difficult if not possible to "control" the market. Rental rates at these complexes are consistent with one another and with competing projects. Market Rental Conclusion The comparables surveyed support the "market" rents of the one bedroom units at $550/month, or $0.89 per square foot. There is less support for the two bedroom units at $725 per month, however, at least five subject units have been rented at these rates. The market has been changing, and it may be that some of the competing complexes have yet to move some of their units to market levels. Based on the survey, the market rent for the two bedroom units appears to be closer to $695 per month; again, however, five subject units are rented at $725/month, and it is difficult to conclude a lower rate when rents have been increasing. The four, 3-bedroom units are estimated at $775 per month. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 42 <PAGE> Heather Plaza Apartments, Salinas CA Of the complexes surveyed (including those not shown in this appraisal) which consisted of about 2,000 total units, overall vacancy is running between 1-2 percent. Most had no vacancy. Some had only a few units available. A few managers stated that units should become available in November and December as seasonal workers go home. When a unit does become available, it typically takes 3 to 7 days to rent. However; in several cases, the unit is pre-leased (rented prior to the occupant moving out). Subject Market Rental Income (@ 100 percent Occupancy) Based on market rents, the subject would have the following monthly income at 100 percent occupancy. 1BR @ $550/mo. x 162 = $ 89,100 2BR @ $725/mo. x 52 = $ 37,700 3BR @ $775 x 4 = $ 3,100 -------- $129,900 Actual Reported Income Shown below is a table outlining revenue for 1994, through July 31, 1996. Rental income for September 1996 is also shown. Income statements are shown in the Addenda. <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------ 1994 1995 YTD ('96) Sept. 96 - ------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> *Gross Rents: $1,203,739 ($460/un) $1,214,238 ($464/un) $869,249 ($498/un) $118,551 ($544/un) Laundry $ 26,683 $ 27,021 $ 19,103 N/A Other $ 65,696 $ 74,894 $ 43,710 N/A </TABLE> * - collected rents N/A = Not available Rental Income Estimate: Almost all of the subject's total income is derived from rents. As shown above, rental income has increased significantly over the past year. This is due to in part to new management and an improving rental market. The actual rental income for the month of September 1996 was $118,551, or $544 per unit. This amount does not include vacant/vacant preleased units. The market rent for the vacant units total $3,825. Blending this with actual rental income, results in a gross scheduled rental income of $122,376, or $561 per unit. Consequently, $122,376 or $1,468,512, has been used as stabilized gross income. Laundry: The laundry income is stabilized at $28,000 per year. Other: Other income consists of retained deposits, late charges, nsf checks, and miscellaneous charges to tenants. The large percentage of this category relates to security deposits. Although forfeited security deposits and late charges are a source of income, it is not included in the reconstructed operating statement as part of ongoing cash flows. This is largely because this type of income was not accounted for in the computation of gross and net operating incomes for the comparable sales. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 43 <PAGE> Heather Plaza Apartments, Salinas CA Total Gross Income: Total gross income is estimated at $1,496,512; rounded to $1,497,000. Vacancy and Collection Loss In estimating a stabilized vacancy factor, several factors were considered. First, vacancy has decreased over the past few years due to new management and improving market conditions. In 1993, market conditions were soft and vacancy was higher than it is today. The property has been upgraded over the past two years. Meanwhile, market conditions have improved due to an expanding economy. The resurgence of "Silicon Valley" 70 miles to the north, the new Soledad Correctional facility, and several thousand feet of regional shopping space has created many new jobs. The new Wal-Mart in this area will also expand the retail base, and bring in new jobs. As of the inspection date, the subject complex was running an 1.8 percent vacancy. This is consistent with comparable Salinas projects at this time. There may be some seasonal variance as workers leave agricultural jobs in November, but the overall affect on the subject should be minimal as the subject does not rely on this type of tenancy In addition to vacancy, consideration must also be made for ongoing collection loss. In the case of the subject, collection loss has been reduced from previous years due to the stricter qualifying policies. There are five pending evictions. According to management, evictions number about 10 per year. Deposits are collected upfront, thus actual collection loss is mitigated to some degree. However, consideration should still be made for collection loss. A reasonable stabilized collection loss rate is 1 to 2 percent of gross income. Assuming continued good professional management, stabilized vacancy and collection loss should run at approximately 5 percent on average. There is the strong possibility that vacancy and collection will fall below this estimate over the next 12 to 24 months, however, longer-term, consideration should be made for construction of new units and decreased economic activity. Effective Gross Income The effective gross income is estimated by deducting five percent from estimated gross income, as shown below: - -------------------------------------------------------------------------------- Gross Annual Income: $1,497,000 Less: Allowance for Vac/Collection (5%) ( 74,850) ---------- EFFECTIVE GROSS INCOME $1,422,150 - -------------------------------------------------------------------------------- Expense Analysis In order to estimate the value of the property by the income capitalization approach, expenses must be deducted from effective gross income to arrive at a net operating income estimate. Like other types of income property, apartment property expenses are a function of services provided as well as physical and geographical characteristics of the property itself. Operating and "fixed" expenses vary from complex to complex, but generally fall between 33 to 45+ percent of revenue (gross income), including replacement reserves. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 44 <PAGE> Heather Plaza Apartments, Salinas CA Expenses can be broken down into per unit per year (or month), or as a percentage of rental revenue or effective gross income. Expenses as a percentage of income change depending on revenue levels. It can be difficult to compare apartment expenses on a line-by-line basis. No two apartment complexes are alike. Shown on the following page is a recent operating history of the subject. Expense categories are analyzed and discussed below. It should be noted that new management took over in 1995; expense records previous to 1995 are not complete and do appear to reflect current conditions. Real Estate Taxes & Direct Assessments California state law requires the reassessment of any parcel upon change of ownership. The market value of the subject property intrinsically assumes a hypothetical sale. Therefore, it is necessary to estimate real estate taxes based upon market value. In the State of California, property is enrolled at 100 percent of market value as determined by the County Assessor upon transfer of ownership or significant new construction. The maximum tax rate cannot exceed 1 percent of the enrolled value, plus general assessment bonds and fees approved by the voters. Enrolled value can be increased by a maximum of 2 percent per year, absent transfer, or new construction, based on the cost of living. Under Proposition 8, approved subsequent to Proposition 13, value can also be decreased to reflect current market conditions. The actual taxes are below what the new taxes would be based upon market value. According to the Monterey County Tax Collector Department, there are no special assessment bonds. The tax rate is approximately 1.05 percent. Since market value has not yet been estimated by the income capitalization approach, a technique which adds the composite tax rate reflecting the ad valorem taxes to the capitalization rate has been used. The resulting value estimate is then multiplied by the composite tax rate to obtain the amount of new taxes. This method gives only an approximation since the assessed value may not necessarily be the sale price (or market value). In addition, the value conclusion by the sales comparison approach has been used as a guide. Applying the tax rate of 1.05 percent, results in new taxes of $87,000. SUBJECT PROPERTY OPERATING HISTORY Expense Item 1994 1995 1996 (ytd) - ------------ ---- ---- ---------- Payroll $138,300 $204,358 $104,038 Utilities $166,856 $175,286 $111,127 Insurance $ 69,598 $ 9,561 N/A Taxes & $ 49,336 $ 25,133 $ 25,133 License & Permits $ 280 $ 5,134 $ 2,616 Management Fee $ N/A $ 33,123 $ 31,396 Administrative $ 12,381 $ 31,994 $ 15,135 Maintenance & Repair $126,694 $266,221 $ 86,518 Gardening/Landscaping $ N/A $ 17,083 $ 22,835 Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 45 <PAGE> Heather Plaza Apartments, Salinas CA Cable T.V. $ 21,245 $ 18,632 $ 15,897 Security $ N/A $ 9,855 $ 6,806 TOTAL N/A $796,380 $421,501 Per Unit $3,653/unit $2,900/unit Note: Maintenance & Repair in 1995-96 include carpet replacement at a cost of $107,845. This is not an annually recurring expense and has not been treated as such. License and Permits In addition to taxes, apartment properties incur license and permit fees. Based on $13 per unit, the stabilized annual estimated is $2,800 (rounded). Payroll The subject employs 6 full-time personnel. The manager lives in the complex and the unit rent is included in her compensation. Payroll expense was reported at $204,358 for 1995, or $937 per unit --up from $138,300 reported in 1994. This category includes payroll taxes, state compensation insurance, unemployment taxes, wages for manager and office workers as well as maintenance personnel, and bonus. To date, this category is $104,038, or $716 per unit annualized. Taking the average of the two years, and considering payroll at other complexes, this expense has been stabilized at $160,000, or $734 per unit. Utilities Utility expense includes water, trash, basic cable, sewer, electrical for exterior site lighting and for other common amenities, including laundry facilities, filtering equipment for the pool, lighting for the clubhouse, etc.; tenants pay their own telephone, electric and gas, and premium channel cable. The subject units are individually metered. Trash removal service is included in the monthly rent for all units. Utility expense can be estimated on a price per unit or on a price per square foot basis. The projects with the greatest amount of amenities and larger unit sizes generally show the highest rates of utility expenses. In 1994, utilities were reported at $765 per unit, and in 1995 it was reported at $804 per unit. The annualized projection for 1996 is $765 per unit. We have stabilized this expense at $166,000, which is consistent with prior years and other apartment complexes throughout the region. Insurance Insurance expense has been stabilized at $100 per unit as based on similar complexes throughout the region. Actual expense has not been reported. Management Fee (Supervisory Management) Lincoln Property Company has been managing the property over the past year and one-half The reported fee was $33,122 for 1995. To date in 19%, the fee totals $31,396. The fee will increase with Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 46 <PAGE> Heather Plaza Apartments, Salinas CA the increase in rental. Normally, management companies will charge from a low of 3 for large projects to a high of 6 percent of collected rent for smaller complexes. Given the size of the subject, this expense is stabilized towards the lower end; i.e., 4.0 percent. Maintenance and Repair This category includes on-going maintenance and repairs that include the common areas, plumbing, pool, and electric. This category also includes building/pool supplies, appliance replacement and decorating supplies. In 1995, several carpets were replaced. Carpets have also been replaced in 1996 as tenants move out. Several appliances were also replaced at a cost of $41,010 in 1995. This level of replacement does not recur on an annual basis, thus an adjustment is required in stabilizing this expense. Normally, maintenance and repair ranges from 4 to 7 percent of effective gross income, or $400 to $600 per unit. The actual subject expense has been substantially higher due to the refurbishing of the complex over the past year. It should also be noted that this category does not include landscape/gardening and exterminating contracts or wages for maintenance personnel. Administrative This category consists of advertising and promotion, office supplies, computer expense, legal, credit check expense, and miscellaneous expense such as stationary, postage, etc. As shown in the Income & Expense Statement prepared by Lincoln Property Residential, a management fee paid to Lincoln is included under this category. In this analysis, the management fee has been separated and discussed under its own category. Gardening/Landscaping/Cable T.V./Security Landscaping is contracted to a private landscape company (recently hired). Basic cable is included in the rent, thus it is an expense to the landlord. Security patrol and exterminating are also contracted. Total expense reported in 1995 was $45,570. The total for the first eight months of 1996 is $45,438. We have stabilized this category at a higher total since the numbers do not fully account for the cost of professional landscaping. Replacement Reserves Most owners do not utilize the replacement reserve account during the analysis or operation of an apartment complex. Rather, capital improvement items are often expensed as they are incurred. However, since capital expenditures affect the investor's cash flow, an analysis of the property's value must account for these expenses in the form of appropriate reserves for replacement. Reserves for replacements are estimated at 2.5 percent of EGI, which equates to $160/unit. This takes into account the current good condition, lower effective age and recently completed capital improvements of the project. Items which are commonly associated with a reserve account include repaving of drives, replacement of underground utility pipes and electrical conduit, roof and foundation, as well as resurfacing of the pool new appliances, etc. (i.e., items that are not normally expensed year to year). Again, new roofs were installed within the past two years. Net Operating Income Total stabilized expenses and collection loss allowance amount to $729,800, or $3,348 per unit. This Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 47 <PAGE> Heather Plaza Apartments, Salinas CA also equates to 51 percent of effective gross income. It should be noted that as a percentage of income, expenses are higher at the subject than they are for many complexes in this region. The reasons for this include: (1) basic cable service included in the rent; (2) more common amenities (and security gates) than the typical complex resulting in a higher level of maintenance; (3) rents are relatively low in comparison to complexes in neighboring counties, thus as a percentage of income, expenses appear high. Net operating income is estimated by deducting operating and fixed expenses from effective gross income, as shown below and on the following page: - -------------------------------------------------------------------------------- Effective Gross Income $1,422,150 Total Expenses (729,800) ------- Net Operating Income Before Income Taxes & Depreciation $ 692,350 - -------------------------------------------------------------------------------- Capitalization Rate Analysis After net operating income is estimated, an appropriate capitalization method is selected. Of the various techniques, the one that is almost always used due to its simplicity is direct capitalization. This method employs the use of a single rate known as the overall rate. The overall rate reflects the relationship between the projection of annual net operating income and a sale price or an estimate of value. It is calculated by dividing the net operating income of the sale into the sale price. When the property is purchased all cash, which is rare for larger apartments, and there is no subsequent change in value or income, then the capitalization rate is also the rate of return on the total property investment. In the Sales Comparison Approach section of this report, there is a table in which we have summarized our analysis of capitalization rates for the comparable sales. These capitalization rates were based on actual or actual near-term potential gross annual income less expenses at time of sale. In each case, expenses included new real estate taxes at market value as opposed to actual taxes which are typically much lower. The capitalization rates derived from each of these sale properties are summarized below: Sale No. 1 2 3 4 5 6 7 8 - -------------------------------------------------------------------------------- Cap Rate (%): 8.54 8.6 9.1 9.34 9.6 10.15 7.9 9.69 The main factor influencing capitalization rates is the perception of risk. Those properties perceived to have higher risk, will sell at higher capitalization rates. The lower risk properties sell at lower capitalization rates. Apartment properties, because of their low vacancy, generally fall into the low risk category. Risk factors that should be taken into account in selecting an appropriate capitalization rate include the following: o Amount of available land zoned to allow future apartments o Upside (or downside) potential of cash flow o Existing or planned government restrictions on use and/or rent increases o Deferred maintenance and remaining life of site improvements Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 48 <PAGE> Heather Plaza Apartments, Salinas CA o Marketability/liquidity o Availability of financing Availability of Land (potential of future competition) While there are several hundred acres of undeveloped land in the general area, most is zoned agriculture or has environmental issues such as sloughs/wetlands. This is not to say, however, that additional apartments could not be developed within a 50 mile radius. There has been very little apartment construction in the area over the past 9 years. One of the main reasons is the high cost of land and building. So, while future construction of apartments will occur to some degree, the high cost will result in higher rents that likely will not compete with the subject. Upside Potential of Cash Flow Gross revenue projected at stabilized occupancy is based largely on the current average rate. The market rate, although close, is still lower than the actual income. And given high occupancy in almost all Salinas apartment properties, it appears certain that rents will continue to gradually increase over the next 12 to 24 months. Consequently, upside rental potential appears good at this particular time. The subject is not affected by rent control, so this would not be a limiting factor. Deferred Maintenance The subject is well-maintained without any significant repairs or deferred maintenance. Better-conditioned apartments tend to sell at lower capitalization rates. Marketability/Liquidity Appropriately priced, the subject would have good marketability (see Marketing and Exposure Estimate sections). This tends to lower the overall capitalization rate since there would be good buyer demand. The subject also appears to have the ability to add additional units given the lower density and positioning of the buildings as they relate to common areas. This potential has been considered, but not specifically valued. Availability of Financing Financing should not have a significant impact on the capitalization as capital is available for this type of property. Capitalization Rate Conclusion In conclusion, the subject capitalization rate should fall between 8.5 to 9.0 percent, as evidenced by the sales. Discussions with brokers, property owners and management companies indicate that apartment capitalization rates are dropping in Santa Clara and Santa Cruz Counties. The subject has good upside potential. It may also have extra or "excess" land to construct additional units. Based on our analysis, the most probable subject capitalization rate is at the lower end of the above range, or 8.5 percent. $692,350 / .085 = $8,150,000 (rounded) Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 49 <PAGE> Heather Plaza Apartments, Salinas CA INCOME APPROACH SUMMARY - -------------------------------------------------------------------------------- INCOME Gross Annual Rental Income $1,469,000 Laundry $ 28,000 ---------- TOTAL GROSS INCOME $1,497,000 Less: Vacancy & Collection Loss Allowance (5%) (74,850) ---------- EFFECTIVE (COLLECTED) GROSS INCOME $1,422,150 Stabilized Operating Expenses Per Unit (rd) ----------------------------- ------------- Payroll $160,000 $734 Taxes (Prop 13) $ 87,000 $385 License & Permits $ 2,800 $ 13 Utilities $166,000 $760 Insurance $ 22,000 $100 Management Fee $ 57,000 4% *Administrative $ 25,000 $115 Maintenance + Repair $120,000 $550 Landscape/Cable T.V./Security $ 55,000 $252 Replacement Reserves $ 35,000 $160 -------- ---- *includes -Advertising & Promotional TOTAL OPERATING EXPENSES $729,800 $3,348 (51%) NET OPERATING INCOME (NOI) $692,350 OVERALL CAPITALIZATION RATE (Applied to NOI) .085 - -------------------------------------------------------------------------------- Market Value As Is: $8,145,294 Rounded: $8,150,000 - -------------------------------------------------------------------------------- Other Capitalization Procedures Other capitalization methods may be used in the appraisal of apartment properties, although their understanding and use falls far short of direct capitalization. The Discounted Cash Flow analysis (DCF) is one such method. In this procedure, the value of a property is equivalent to the present value of the annual before tax cash flows, over an assumed investment holding period, plus the sale (reversion) of the property at the end of the holding period, at a single discount rate. The advantage of this approach is that it identifies variability in annual cash flows, especially in a start- Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 50 <PAGE> Heather Plaza Apartments, Salinas CA up operation. The Discounted Cash Flow Analysis requires several assumptions that impairs its reliability. For this reason, it is oftentimes considered a secondary valuation method in the appraisal of apartment appraisals. In this appraisal, the DCF procedure has not been used as it does not provide any additional insight into the valuation of this property. There are several reasons for excluding this approach. There is nothing to suggest at this time that there will be substantial changes in income patterns, although the near-term trend appears to be continued strengthening and gradual increasing of rents. Another reason is that there would be several assumptions that would have to be made. Perhaps the most compelling is that the sales were not purchased on a DCF approach. Employing a DCF for the subject would require that inferences be made about each sales as to applicable yield and going-out capitalization rates, as well as hold periods and annual expense and income increase (or decrease) projections. If the majority of these sales were purchased in this manner, then a DCF would have applicability; however, this is not the case. Income Approach Conclusion The Income Approach concludes a value of $8,150,000. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 51 <PAGE> Heather Plaza Apartments, Salinas CA SALES COMPARISON APPROACH ================================================================================ The Sales Comparison or Market Data Approach involves making an analysis of the property being appraised based on sales of similar properties. To a lesser degree, this procedure may consider the asking prices of current listings. The market data approach presumes that a prospective purchaser would pay no more for a property than the amount with which he or she could buy another of equal utility. The reliability of this procedure is determined by: 1) availability of comparable sales; 2) comparability of sales in terms of date of sale, location, size, density, or other physical characteristics; and, 3) verification of the sales data. Although there are variations, apartment property sales are often analyzed using four unit-of-comparison indicators: o Price per unit o Gross Income Multiplier or Effective Gross Income Multiplier o Price per Rentable Square Foot o Price per Room Price Per Unit Method: The price per unit method is most often affected by unit size, condition, overall functional utility, and location of a property. Sales with high average unit sizes which are situated in the most desirable locations tend to command the highest price per unit. Naturally, the existing potential rent levels also affect the sale price, thus influencing the price per unit value. Each of these factors determine the amount of net operating income that can be generated per unit which is a fundamental measurement of investor return when applying the price per unit method. Price Per Room Method: Sale price per room demonstrates the same relationship as price per unit. Applying the same logic discussed above, which considers the average unit size of the subject, existing rent levels, and location relative to the comparable sales, a value per room can be estimated for the appraised property. Price Per Square Foot Method: While size is a strong influence in sale price per unit and price per room, the rent levels attained by a property per square foot are closely related to the price per square foot it may attain in the marketplace. It is generally true that all else being equal, the rent per square foot for larger units is less than the rents per square foot for small units. Thus, apartment buildings which have larger unit sizes have lower rents per square foot and therefore have lower selling prices per square foot. Gross Income Multiplier Method: The gross income multiplier (GIM) technique is oftentimes perceived as one of the most accurate market measure of value by the Direct Sales Comparison Approach. The GIM is calculated by dividing the sale price of the sale property by its gross annual income. This method tends to equalize property differences such age, size, and number of units. In general, where there is a fee simple title, apartment properties tend to sell at 5.5 to 8 times multiple on actual income. The range is tempered by a number of factors that include location, condition, quality, and upside rental potential. The more desirable properties with good track records will typically be higher on the scale, whereas lower quality facilities in weak locations tend Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 52 <PAGE> Heather Plaza Apartments, Salinas CA to fall at the lower side. Since the GIM involves gross income rather than net income, the appraiser must compare the level of expenses of the comparables with the subject. This technique works best when expense operating ratios are reasonably consistent. Comparison is not straightforward, for example, when the sale property has an operating expense ratio that is significantly higher than the subjects'. Consequently, when estimating a GIM, care must be taken when comparing gross incomes. A variation of the GIM technique effective gross income multiplier (EGIM)--is calculated by dividing the sale price by the effective gross annual income instead of the gross annual income. This technique, however, often does not result in a further refinement since apartment vacancy (and collection loss) throughout the region is very low. Comparable Sales Description & Analysis A search for apartment properties was made in Salinas and surrounding areas. No sales of larger apartment complexes (over 100 units) in Salinas during 1995 and 1996 were found. The most recent larger apartment transaction in Salinas occurred in 1994; a 60 unit complex sold in 1993 and an 112-unit property transferred in late 1991. A summary of these sales is summarized on the following pages. Additional information is included in the Addenda. To obtain more recent sales data, it was necessary to expand the search into nearby cities and counties. The strongest sales activity at this time is taking place in Santa Clara County, adjacent to the north of Monterey County. A number of larger sales have also taken place in Santa Cruz County, to the west. A brief description of each sales area and how it relates to Salinas is summarized in the following paragraphs. Santa Clara County/San Jose: This is the largest county in the region with a population of over 1.4 million. It contains the City of San Jose, the third largest city in California. "Silicon Valley" originated in Santa Clara County. The county is home to over 2000 electronic firms, including industry leaders such as Intel and Hewlett-Packard. Over the past 20 months, technological employment has dramatically increased resulting in the creation of several new jobs. To fill new jobs, several thousand people have moved into "Silicon Valley" thus creating a demand for housing. As a result, apartment and other housing rents have increased substantially, nearly doubling from previous lows in some cases. Investors have now caught on to increasing rental activity, and sales activity is brisk. This market has "filtered" into nearby communities, including Santa Cruz, Alameda County, and to some lesser degree, Salinas. The resurgence of the Santa Clara County market comes after six years of sluggish performance. The last major upswing was in 1982-85 when rents increased annually by 18 to 20 percent. From 1995 to 1989, rents and vacancy were steady. In late 1989, following the Loma Prieta earthquake and a decline in economic activity, vacancy levels started to increase and rents became soft with rental concessions given in some complexes. Staring in late 1994, the market started to once again turn upward. In 1995, economic conditions improved and rents increased to reflect a landlord's market. Today, vacancy is extremely low with very units available for rent. This is expected to continue for at least the next six to 12 months as little land is available for new apartment construction. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 53 <PAGE> <TABLE> <CAPTION> COMPARABLE MARKET DATA - APARTMENT SALES Project Name Sale Location No. Units Year Sale Price/ GIM Price Per Unit No. A.P.N. RSF-Bldg Sale Date (COE) Built Price Sq. Ft OAR Cash-on-Cash ================================================================================================================ <S> <C> <C> <C> <C> <C> <C> <C> [ 1 ] Willow Gardens Apartments 1750 Stokes Street 186 6/14/96 1971 $13,650,000 $85.17 7.04 $73,387 San Jose, CA 160,260 8.54% 6.8% - ----------------------------------------------------------------------------------------------------------- 2-story apartment garden style built in 1970. Wood frame, wood exterior. Average quality and condition. 190 covered parking spaces (carports). Amenities include pool, spa, laundry, recreation room, balconies/patios, storage lockers, a/c. 6.40 acres (29.06 du/ac). First loan $10,600,000 from St. Paul Federal Bank. Document #13330744. - ----------------------------------------------------------------------------------------------------------- [ 2 ] Ocean Terrace 1630 Merrill Street 100 Santa Cruz, CA 80,724 sf 7/12/96 1972 $6,300,000 $78.04 6.5 $63,000 8.6% 8.1% - ----------------------------------------------------------------------------------------------------------- 100-unit garden style built on 2.7 acres in county area of Santa Cruz. Built in 1972, there are six buildings, a pool, exercise room, sauna, three laundry rooms, and on-site manager's office. Wood frame construction. Average quality and avg+ condition. 130 on-site parking spaces. AEK kitchens. $4,725,000 first from Home Savings of America. - ----------------------------------------------------------------------------------------------------------- [ 3 ] Fox Creek Village 196 West Alvin Rd., 168 9/24/94 1986 $9,350,000 $66.31 6.8 $55,650 Salinas, CA 141,856 sf 9.1% 9.87% - ----------------------------------------------------------------------------------------------------------- Built in 1986, Fox Creek Village consists of 76, 1/br/1ba units measuring 708 sf; 24, 2br/1ba units measuring 875 sf, and 68, 2/br/1ba units 986 sq ft. The gross building area is 145,023; the net rentable has been reported at 141,856 sf. 36 units have wood-burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. There are laundry rooms with washers and dryers in the complex. Above average to good quality and condition. One covered parking space per unit. - ----------------------------------------------------------------------------------------------------------- [ 4 ] Kingdale Oaks 1919 Fruitdale Avenue 331 8/15/95 1970 $16,760,000 $66.22 6.01 $50,634 San Jose, CA 253,098 sf 9.34% 11.1% - ----------------------------------------------------------------------------------------------------------- Average quality, 1, 2 and 3-story buildings built in 1964-1970. Wood frame and stucco. Concrete slab. Average condition. 331 covered parking spaces (carport). 166 open parking. Amenities include 2 heated pools, spa, poolside grills, laundry rooms, volleyball, and recreation building. Elevator served. New first loan from St. Paul Federal Bank, and seller second. Marketing time was reported at six months. 11.76 acres (28.15 du/ac). 1, 2 and 3 bedroom units. - ----------------------------------------------------------------------------------------------------------- ================================================================================================================ </TABLE> Note: The above data was obtained from sources deemed reliable. However, the accuracy of the data cannot be guaranteed by R. Saia, MAI Associates (9/96) 54 <PAGE> <TABLE> <CAPTION> COMPARABLE MARKET DATA - APARTMENT SALES Project Name Sale Location No. Units Year Sale Price/ GIM Price Per Unit No. A.P.N. RSF-Bldg Sale Date (COE) Built Price Sq. Ft OAR Cash-on-Cash ================================================================================================================ <S> <C> <C> <C> <C> <C> <C> <C> Hidden Creek Apartments [ 5 ] 200 Button Street 146 7/14/94 1973 $7,400,000 $77.81 6.78 $50,685 Santa Cruz, CA 95,100 9.6% N/A - ----------------------------------------------------------------------------------------------------------- 3.8 acres (37 du/ac). 2-story, nine buildings. Garden style walk-up. Average quality and condition. 42 studios, 60 1br/1ba, 44 2br/1ba units. About half of complex is subsidized housing tenants. Financing terms n/a. Marketing time = 3 months. Amenities include pools, creek fountain and extensive landscaping. - ----------------------------------------------------------------------------------------------------------- North Bay Apartments [ 6 ] 41 Granview Street 115 12/15/95 1989 $8,550,000 $81.88 6.11 $74,348 Santa Cruz 104,421 10.15% 10.8% - ----------------------------------------------------------------------------------------------------------- Good quality, 2-story garden style complex built in 1989. Average to good location. Buyer had to pay $300,000 in repairs and $175,000 in commissions. Cap Rate is somewhat high based on other sales of similar age, size, and location. Property was never exposed to open market. - ----------------------------------------------------------------------------------------------------------- [ 7 ] 2186-2198 Brutus Street 60 5/26/93 1988 $3,072,000 $61.46 7.83 $51,200 Salinas 49,980 7.9% N/A - ----------------------------------------------------------------------------------------------------------- Average to good quality garden complex located in north Salinas close to shopping, schools and freeway access. There are 23, 1br units, and 37, 2br/2ba units. Average unit size is 833 square feet. No rent control. Financing terms were not available. - ----------------------------------------------------------------------------------------------------------- [ 8 ] Cypress Landing 552 Rico Street 112 11/1/91 1989 $5,950,000 $59.11 6.4 $53,125 Salinas, CA 100,660 9.69 - ----------------------------------------------------------------------------------------------------------- Newer, garden style consisting of 36 1br/1ba and 76, 2br/2ba units. 2-story buildings. Good quality and condition. Amenities include clubjouse, spa, pool weight room, tennis courts. Carport + open spaces. Average monthly rent at time of sale = $689. Average unit size = 899 square feet. All cash to seller. - ----------------------------------------------------------------------------------------------------------- ================================================================================================================ </TABLE> Note: The above data was obtained from sources deemed reliable. However, the accuracy of the data cannot be guaranteed by R. Saia, MAI Associates (9/96) <PAGE> Heather Plaza Apartments, Salinas CA Housing prices in San Jose are higher than they are in Salinas. Good Salinas neighborhoods, such as those found in north Salinas, can be compared to the more average/middle income areas of San Jose as well as the agricultural communities of Gilroy and Morgan Hill, in southern Santa Clara County. Still, downward adjustments are required for location when comparing San Jose to Salinas. Santa Cruz: In general, rental housing in Santa Cruz is less than it is in San Jose, but higher than in Salinas. Although considered more desirable, Santa Cruz is a relatively good area to draw comparable sales for comparison to Salinas. Santa Cruz is a coastal community that relies heavily on tourism and agriculture; some technology has filtered into the area from Silicon Valley. Rents have been increasing, but not nearly at the pace of San Jose. Occupancy is also extremely high in this area. A downward location adjustment is required when comparing a Salinas property to a Santa Cruz property. Monterey: No sales over 100 units were found in Monterey. This is mainly due to the limited number of larger units in the city. Although the City of Monterey is superior to Salinas in residential desirability, nearby cities such as Seaside and Marina are overall comparable. However, no sales of larger units were found in this area as well. Adjustment Process The most common unit of comparison indicator for apartments is price per unit. As such, the subject has been adjusted to the comparable sales on this basis. A sequence for making adjustments must be followed when percentage adjustments are calculated and added together. The first adjustment is for property rights conveyed. In this case, all properties sold fee simple or leased fee (short term leases of less than one year); no leasehold sales were included. Thus, no adjustment was required. The second adjustment converts the transaction price of the comparable into its cash-equivalent or modifies it to match the financing terms projected for the subject property. No sales with financing favorable enough to significantly influence the sales price were included, no adjustment was required. The third adjustment is made for conditions of sale or other (e.g., personal property included in sale price). No REO or distressed sales were included, and no sales with furnished units were considered. Every apartment has some amount of personal property that transfers with the property; however, these items are nominal. Other adjustments considered were based on differences in market conditions, appeal, quality/density, condition, and size. No specific adjustment was made for rent control (i.e., San Jose complexes), although this is considered in the location adjustments. Shown on the following pages is a table summarizing eight apartment sales. Additional information concerning each sale, including recording data and a photograph, is in the Addenda. Apartment Sale Number 1, at $73,387 per unit, is a June 1996 sale of the Willow Gardens Apartments, an 186-unit garden style walk-up apartment located in a centrally located middle-income neighborhood in San Jose. This is an average quality complex in average condition at time of sale. There are 162, two bedroom/two bath units, and 24, three bedroom/two bath units. The average unit size is 861 square feet. Amenities consist of a pool, spa, recreation building, and laundry rooms. The Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 55 <PAGE> Heather Plaza Apartments, Salinas CA project sits on 6.40 acres, indicating a density of 29.06 units per acre. The project falls under San Jose Rent Control, which limits rental increases to eight percent with pass-through for extraordinary and capital expenses. The purchase price of $13,650,000 represents a rentable per square foot indicator of $85.17, and a per room value of $17,773. The GIM on actual rental income is 7.04. On market rents, the GIM is 6.29, indicating reasonably good upside rental potential. The Overall Capitalization Rate is 8.54 percent on actual income less actual expenses adjusted for new taxes and reserves. The cash-on-cash rate is 6.8 percent. In comparison to the subject, a downward adjustment is required for location. As noted, San Jose rent levels are higher than those found in Salinas. For example, a two bedroom/two bath unit at Willow Garden is $1,000+, or about $300 per month per unit higher than in Salinas. A downward adjustment of 25 percent as based on rental differential appears reasonable. The subject's average unit size at only 676 square feet is well below the comparable, resulting in a 15 percent downward adjustment. The quality and condition are similar. the subject has a lower density, but this has already been reflected in the location adjustment. Adjusting this comparable by 40 percent, results in an indicated subject per unit value of $44,000 (rounded). Apartment Sale Number 2, at $63,000 per unit, is a July 1996 sale of the Ocean Terrace Apartments; an 10-unit garden style walk-up apartment located in an unincorporated area of Santa Cruz County between the cities of Capitola and Santa Cruz. This is an average plus quality complex in above average condition at time of sale. There are 52, two bedroom/ units, and 32, one bedroom/ units. There are also 16, 3 bedroom units. The average unit size is 807 square feet. Amenities consist of a pool, sauna, exercise room, and laundry rooms. The project sits on 2.70 acres, indicating a density of 37 units per acre. The purchase price of $6,300,000 represents a rentable per square foot indicator of $78.04, and a per room value of $16,406. The GIM on annual rental income is 6.5. Market rents were about 3 percent higher than actual income during the six month marketing period. The Overall Capitalization Rate is 8.6 percent on actual income less actual expenses adjusted for new taxes and reserves. The cash-on-cash rate is 8.1 percent. In comparison to the subject, a downward adjustment is required for location. As noted, Santa Cruz rent levels are higher than those found in Salinas. For example, a two bedroom/two bath unit at Ocean Terrace is $800-850+, or about $100-250 per unit higher than in Salinas as compared to a similar complex. A downward adjustment of 15 percent as based on rental differential appears reasonable. The subject's average unit size is smaller, resulting in a 10 percent downward adjustment. In addition, a downward adjustment of 10 percent is made for the subject's larger size. Smaller properties tend to sell at higher unit values because they appeal to a larger group of buyers. Adjusting downward by a total of 35 percent, results in an indicated subject per unit value of $41,000 (rounded). Apartment Sale Number 3, at $55,655 per unit, represents Fox Creek Village, an 168-unit two-story garden complex built in 1986, located nearby the subject in north Salinas. Fox Creek includes a pool, tennis court, recreation building and laundry facilities. There are 76, one bedroom units; and, 92 two Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 56 <PAGE> Heather Plaza Apartments, Salinas CA bedroom units. The average unit size is 844 square feet - almost 25 percent higher than the subject. Some of the units have fireplaces. Parking is by carport stalls and open spaces. The overall quality and condition are good, superior to the subject. In comparison to the subject, a downward adjustment of 10 percent is required for size. Another adjustment of 20 percent is made for this property's lower effective age and superior quality and amenities. Although there are no sales in Salinas to determine whether apartment property value has increased since the September 1994 sale date, it is logical to assume that since rents are now somewhat higher that values are likely higher as well. Consequently, an upward adjustment of 5 percent is made. Overall, the adjustments total downward by 25 percent, indicating a subject unit value of $42,000 (rounded). Apartment Sale Number 4, at $50,634 per unit, is located south of Freeway 280 near San Jose City Community College within single family and apartment neighborhood. the project is under San Jose Rent Control Ordinance. This is average quality and condition. The buildings are wood frame and stucco with flat T&G roofs built in 1964 and 1970. There are 36, studios; 264 1br/1ba units; 20, 2br/1ba units; 5, 3br/2ba; and, 6 2br/2ba units. Amenities include 2 heated pools, poolside grills, laundry rooms, recreation room, and volleyball. Elevator served. Units have either balcony or patio and are separately metered. Average condition. 1.5 parking spaces per unit (166 open spaces and 331 carport). According to selling broker Bruce Hermann with Marcus & Millichap, gross scheduled actual income at time of sale was $2,787,000, or approximately $700 per unit per month. Actual vacancy (and stabilized vacancy) was 4.38%. Factoring-in taxes at market (per Prop 13), total expenses were reported at approximately $1,100,000. Net operating income is estimated at $1,565,000. Financing consisted of a 1st from St. Paul Federal Bank of $14,850,000 (VIR) 8%, 25-yr amortization and a seller second of $556,000 @ 7%, 2 years resulting in a total annual debt service of $1,414,297. Cash flow (after debt service) is $150,703, indicating a cash-on-cash rate of 11.1% on the cash downpayment of $1,354,000. The marketing time was reported at 6 months. The sale reportedly did not involve an exchange. This sale closed in August 1995, but was negotiated several months prior. In comparison to the subject, a downward adjustment is required for location, although not as great as the adjustment made for Sale 1. The subject has superior appeal, but due to the locational difference a downward adjustment of 15 percent is made. A 5 percent upward adjustment is required for market conditions, that is, rents have moved upward over the past 1.5 years. A 5 percent upward size adjustment was since the subject is a smaller project. The subject's average unit size is smaller, thus requiring a 10 percent downward adjustment. In total, a 15 percent downward adjustment is made resulting in an indicated subject value of $43,000 (rounded). Apartment Sale Number 5, at $50,685 per unit, represents a nine building, two-story, garden style complex of average quality. The project is located near Highway 1 in the City of Santa Cruz. It is in a neighborhood of predominately small bungalow single family homes built from 1930 to 1970; a new zero-lot line SFR development is located directly across. There are 42 studio units with an average size of 550 square feet; 60, 1br/1ba units @ 650 sf, and, 44, 2br/1ba units of 750 sf. The rentable area is 95,100 square feet (avg. unit = 651). There are no recreational amenities except for pool and common utility rooms. Landscaping is extensive in some areas. One-half of Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 57 <PAGE> Heather Plaza Apartments, Salinas CA the units are subsidized housing units. At time of sale, "market" rents were $600 for studio, $750 for 1 bedrooms, and $850 for two bedrooms. The gross and net incomes are estimates based on reported actual income per MLS listing (#369018). According to assessor's office, some buildings had deferred maintenance, however, the cost to repair is not known. In comparison to the subject, a downward adjustment of 20 percent is required by this comparable's superior location. No adjustment are required for average unit size, quality and condition. Applying the 20 percent downward location adjustment, results in an indicated subject unit value of $40,500 (rounded). Apartment Sale Number 6, at $74,348 per unit, is located in west Santa Cruz off Highway 1. This is a good quality walk-up garden design built in 1989. It is the newest complex built in west Santa Cruz area. Amenities include a swimming pool and carport parking. There are no other recreational facilities, although the complex is within a short drive to beaches and three miles to Santa Cruz Beach & Boardwalk (good tenant appeal). The buyer paid $300,000 in repairs and $175,000 commission, thus actual price was somewhat higher than reported above. The property was never exposed to the open market. The higher than normal capitalization rate is reflective of this and the extra cost to the buyer of repairs and commission. There are 18, 1br/1ba units; 69, 2br/2ba units; and, 28, 2br/2.5 ba units. Market rents are about 3-5 % higher than actual. In comparison to the subject, downward adjustments are required for age, location, average unit size and size. We estimate these to be 40 percent. The indicated subject value per unit from this sale is $44,500 (rounded). Apartment Sale Number 7, at $51,200 per unit, represents an average to good quality garden style apartment complex located in north Salinas. There are 23, 1 bedroom units and 37, 2 bedroom units. The 60 unit complex is smaller and newer than the subject, however, it is very similar in location. The subject's average unit size is significantly smaller, thus requiring a 10 percent downward adjustment. In addition, adjusting this sale down by 20 percent for size and effective age, and upward by 5 percent for improved market conditions since date of sale results in an indicated subject value per unit of $38,500 (rounded). Although this is a nearby comparable, because of its smaller size and older sales date less emphasis was placed on it in the final analysis. Apartment Sale Number 8, at $53,125 per unit, represents the sale of the 112-unit Cypress Landing Apartments in north Salinas. One of the last complexes to have been built in Salinas, Cypress was completed in 1989. There are 12, two-story buildings. Amenities include a pool, hot tub, weight room, tennis court and recreation building. All units have patios or balconies, refrigerators, R/O and dishwashers; some have fireplaces. There are 36, 1br/1ba units; and, 76 2br/2ba units measuring between 955 to 985 square feet. Carport and open parking. The average unit size is 899 square feet. Gross annual income at time of sale was $925,740, and net operating income was $573,218, indicating a cap rate of 9.69%. Normally, a 1991 sale would not be used as part of a primary sales analysis. In this case, given the scarcity of large apartment sales in Salinas, it has been used. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 58 <PAGE> Heather Plaza Apartments, Salinas CA No adjustment is required for location. Cypress is newer than the subject, and has superior appeal. It is also smaller, and has a significantly higher average unit size. A 35 percent downward adjustment is reasonable for these factors. On the other hand, an upward adjustment of 5 percent is made for improved market conditions since late 1991. On balance, a negative 30 percent adjustment is applied indicating a subject unit value of $37,000 (rounded). Sales Comparison Approach Summary & Conclusion The sales analyzed in the sales comparison approach range in size from 60 to 331 spaces, and in unadjusted price from $50,634 to $74,387 per unit. After adjustment, the sales indicated the following range of value: Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 Sale 6 Sale 7 - ------ ------ ------ ------ ------ ------ ------ $44,000 $41,000 $42,000 $43,000 $40,500 $44,500 $38,500 Sale 8 ------ $37,000 For one reason or another, the sales are not highly similar. They do, however, provide a reasonably narrow range of potential subject value. The sales consistently group around $40,000. As such, the subject's indicated per unit value is $40,000, or $8,720,000, as outlined below. - -------------------------------------------------------------------------------- 218 units x $40,000/unit = $8,720,000 - -------------------------------------------------------------------------------- Check for Reasonableness: Based on a market value of $8,720,000, the subject property would have the following unit of comparison indicators: Price Per Rentable SF: $59.17 Price Per Room: $12,213 GIM: 5.82 Price Per Rentable SF: The range of the comparables is $59.11 to $85.17. Although at the lower end, the indicated $59.17 per square foot value is supported within the range. Price Per Room: The range of the comparables is $14,157 to $19,344; most are in the $14,000 to $16,000 range. The subject is below the lower end. As such, the price per room method does not supports the above estimate. GIM: The subject has a high expense ratio (in comparison to gross income) which should be considered in selecting the appropriate GIM. The range of the comparables is 6.01 to 7.83; most range from 6.01 to 6.8. At 5.82, the subject is supported by the sales when considering its higher expense ratio. The best overall comparable is Sale 4, in part due to size and similar income and expense levels. Consequently, it is our opinion that the above value estimate is adequately supported by the GIM technique. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 59 <PAGE> Heather Plaza Apartments, Salinas CA Two of the three sales comparison unit-of-comparison indicators support the per unit value conclusion. The most important of the three -- GIM -- supports the conclusion, therefore we have concluded the following Sales Comparison Method value: CONCLUSION: $8,720,000 Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 60 <PAGE> Heather Plaza Apartments, Salinas CA RECONCILIATION OF THE VALUE ESTIMATES The market value of the subject property has been estimated by two of the three traditional appraisal approaches. The indications given by each are summarized as follows: - -------------------------------------------------------------------------------- Income Approach $8,150,000 Sales Comparison Approach $8,720,000 - -------------------------------------------------------------------------------- In order to determine our final opinion of value, the reliability and relevance of each value based upon the quality of data collected, and the applicability of the assumptions underlying each approach was considered. The cost approach was not used in this appraisal. Although it may have some relevancy, it is not a primary valuation method. The Sales Comparison Approach is a more accurate method than the Cost Approach, but is flawed to some degree by the limited number of comparable sales in the Salinas area. The sales that were available, however, provided consistent support. The Income Capitalization Approach is the better of the two methods, but is also flawed to some degree by the lack of recent sales in Salinas. The sales provided a strong central tendency in indicating that capitalization rates are within a range of 8.0 to 9.5 percent; however, market conditions are improving and capitalization rates may be decreasing. Without recent empirical data in Salinas, however, it is difficult to pinpoint a specific rate for the subject property. Still, most weight has been given to the Income Approach in concluding a final value estimate. STATEMENT OF VALUE Based on the foregoing analysis, the value of the subject property, as of September 28, 1996, is estimated as follows: EIGHT MILLION THREE HUNDRED THOUSAND DOLLARS ($8,300,000) Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 61 <PAGE> Heather Plaza Apartments, Salinas CA MARKETING PERIOD ================================================================================ The sales marketing time is the time that it should take to market and sell the property in its "as is" condition as of the date of the appraisal. This should not be confused with exposure time which is the amount of time necessary to expose a property to the open market in order to achieve a sale. Marketing time is a forward estimate of the amount of time necessary to expose a property on the open market in order to achieve a sale from the effective date of the appraisal. Indications of the marketing times associated with the "as is" market value estimates are provided by the marketing time of sale comparables, and interviews with participants in the market. The sales marketing period is a period of time that is reasonable in light of a given property's characteristics and market conditions, based on certain assumptions. To our knowledge, there have been no sales the size of the subject in the Northern Monterey County market area over the past year. Sales from other parts of Northern California indicate that the marketing time would be less than 6 months. Apartment sales that have taken place over the past 24 months indicate that marketing times rarely exceed 6 months, and usually fall between 1 to 6 months. The length of time is not only a function of physical and locational characteristics, but the marketing and pricing. Based on the subject characteristics and assuming a list price close to the estimated market value, marketing time is estimated at 2-5 months. EXPOSURE PERIOD ================================================================================ USPAP requires that an estimate of reasonable exposure time be made in the performance of an appraisal where the value being sought is "as-is". In the USPAP, the Comment to Standards Rule 1-2(b) states: When estimating market value, the appraiser should be specific as to the estimate of exposure time linked to the value estimate. The Comments to Standard Rules 2-2(a)(v) and 2-2(b)(v) state: ...Defining the value to be estimated requires both an appropriately referenced definition and any comments needed to clearly indicate to the reader how the definition is being applied [See Standards Rule 1 -2(b)]... The Statement issued by the Appraisal Standards Board is as follows: Reasonable exposure time is one of a series of conditions in most market value definitions. Exposure time is always presumed to precede the effective date of the appraisal. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 62 <PAGE> Heather Plaza Apartments, Salinas CA Exposure time may be defined as follows: The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market. Exposure time is different for various types of real estate and under various market conditions. It is noted that the overall concept of reasonable exposure encompasses not only adequate, sufficient and reasonable time but also adequate, sufficient and reasonable effort. This statement focuses on that time component. The fact that exposure time is always presumed to occur prior to the effective date of the appraisal is substantiated by related facts in the appraisal process: supply/demand conditions as of the effective date of the appraisal; the use of current cost information; the analysis of historical sales information (sold after exposure and after completion of negotiations between the seller and buyer); and the analysis of future income expectancy estimated from the effective date of the appraisal. Since there are few comparable properties to the subject that have sold in this market area, estimating exposure time is based more on discussions with knowledgeable real estate professionals. All of the sales with known marketing times took less than 6 months. The exposure time period assumes that the subject is appropriately priced and marketed. Obviously, a list price that is significantly higher than what the property is worth will result in a longer than typical marketing period. Although it could be sooner or later, our best estimate of an exposure period (based on our appraised value) is 4 months. ALLOCATION OF FURNITURE, FIXTURES AND EQUIPMENT ================================================================================ For the most part, apartment in the subject region do not require significant furniture, fixtures or equipment as part of the ongoing operation of the property. In the case of the subject, FF&E is minimal and contributes only a nominal value to the overall property worth. Personal property items observed on the premises include pool equipment, furniture in the recreation/clubhouse, office furniture and equipment (e.g., computer/printer) carts, supplies, etc. The market value of the above is estimated at less than $20,000. Some of the personal property items such as the computer and copier (i.e., office equipment) would be removed upon sale. All of the comparables had similar amounts of personal property items that were included in the sale, thus there is no need for an adjustment. Although not as management intensive as a hotel, apartments require management expertise that technically creates some (minor) going-concern value. In valuing the subject, any going-concern/goodwill has effectively been removed by deducting an offsite professional management fee. The net incomes estimated from each sale comparable also had offsite management fees Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 63 <PAGE> Heather Plaza Apartments, Salinas CA deducted. It is assumed that the subject will continue to operate under professional management. In conclusion, the estimated market value of the subject is of the real estate only; FF&E (personal property) is nominal and any going-concern/goodwill value would have been removed in the deduction of an offsite professional management fee. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 64 <PAGE> Heather Plaza Apartments, Salinas CA ASSUMPTIONS AND LIMITING CONDITIONS ================================================================================ The estimate of value contained herein is based upon and subject to the following assumptions and qualifying conditions, to which the addressee shall be deeded to consent by acceptance hereof: It is assumed that merchantable fee simple title, free of encumbrance, is vested in the owner of record. It is recognized that a potential purchaser would likely consider the effect of value through consideration of the maximum conventional financing available for the property type as of the date of value. It is assumed that the property is subject to lawful, competent and informed ownership and management. It is also assumed that all financial information on the business operation is correct; errors or misstatements may have a material impact on the appraised value. We reserve the right to make changes if such errors or misstatements were later discovered. It is assumed that the information supplied by the addressee as to the parcel or parcels of real estate is correct and complete, including the legal description as it appears in this report. The appraisers assume no responsibility for matters of legal nature affecting the property or the title thereto, nor does the appraisers render any opinion as to title. No attempt has been made to render an opinion of or status of easements that may exist. It is understood that exhibits included in this report are solely for the purpose of assisting the reader to visualize or understand its content and are not intended to be exact in scale or detail. It is understood that no survey has been made to render an opinion of or status of easements that may exist. It is understood that material contained herein which is stated to be or is obviously furnished by others is believed to reliable but has not been verified except as specifically stated. Such information is believed to be true and correct; however, no responsibility for accuracy can be assumed by the appraisers. We are not required to give testimony or appear in court because of having made this appraisal, with reference to the property in question, unless arrangements have been previously; made therefor. The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization. The separate valuations of land and building must not be used in conjunction with any other appraisal and are invalid if so used. If this appraisal contains a valuation relating to a geographical portion of a large parcel or tract or real estate, the value reported for such geographical portion relates to such portion only and should not be construed as applying with equal validity to other portions of the larger parcel or tract, and the value of all geographical portion may or may not equal the value to the entire parcel or tract considered as an entity. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 65 <PAGE> Heather Plaza Apartments, Salinas CA We assume that there are no hidden or unapparent conditions of the property, subsoil or structures which would render it more or less valuable. We assume no responsibility for such conditions or for engineering which might be required to discover such factors. The appraisers assume the mechanical equipment to be in good working order unless expressed otherwise. Unless otherwise stated in this report, the existence of hazardous materials, which may not be present on the property, was not observed by the appraisers. The appraisers have no knowledge of the existence of such materials on or in the property. The appraisers, however, are not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired. All information and comments concerning the location, neighborhood, trends, construction quality and costs, loss in value from whatever cause, condition, rents, or any other data of the property appraised herein represent the estimates and opinions of the appraisers formed after an examination and study of the property. While it is believed the information, estimated and analysis given and the opinions and conclusions drawn therefrom are correct, the appraisers do not guarantee them and assumes no liability for any errors in fact in analysis or in judgment. Disclosure of the contents of this appraisal report (especially any conclusions as to value), the identity of the appraisers or the firm with which they are connected, or any reference to the Appraisal Institute, or the SRPA/MAI designations shall not be disseminated to the public through advertising media, public relations media, news media, sales media, or any other public means of communication without the prior written consent and approval of the undersigned The appraisers are considered the owner of the report, and delivery of same has been to addressee only for his specific intended real estate decision. Certain forms, formatting and techniques contained herein are private property and proprietary in nature. As such, they are protected under state and federal laws covering trademarks, copyrighting, etc. Copying or re-use is strictly prohibited without expressed written consent. Certain information contained herein is considered "not for public knowledge" and is provided herein "under strictest confidence." Said information shall be used only in connection with the business decision as specifically described in the function of the Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Heather Plaza Apartments, Salinas CA appraisal. No other use of any information contained herein is permitted. Said information shall not be re- used, shared, disclosed, etc., except in accordance with the certification, limiting conditions, function and purposes as contained herein. Any deviation from the above may subject the user to additional legal action for invasion of privacy. Acceptance and use of this report constitutes specific and implied consent to all condition, limitations, etc. Further, the client shall hold harmless the appraisers for any unpermitted use or action resulting from such use. On appraisals subject to satisfactory completion of repairs, alterations, or new construction, the appraisal report and value conclusions are contingent upon completion of the improvements in a timely and workmanlike manner, and as of the effective date of the appraisal. Any projections in income and expenses in this report are not predictions of the future. Instead, they are an estimate of current thinking of market participants of what future income and expenses will be. No warranty or representation is made that these projections will materialized. This appraisal was prepared for Home Savings as client to be used in lending decisions or any related business pertaining to its interest in the appraised property. If an informational copy has been provided to the owner it should not be utilized for other functions. The Americans with Disabilities Act (ADA) became effective January 26, 1992. The appraiser has not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Heather Plaza Apartments, Salinas CA CERTIFICATION OF APPRAISAL ================================================================================ I certify that, to the best of my knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions and conclusions. 3. I have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. 4. My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. 5. The analyses, opinions and conclusions were developed, and, this report has been prepared, in conformity with Title XI of the Federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and its regulations, as well as the Code of Professional Ethics and Standards of the Professional Conduct of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation and the Appraisal Institute. 6. Robert Saia and James Barcells, SRA have made a personal inspection of the property. Mr. Sam's General Certificate from the State of California is valid and in good standing as of the appraisal date. 7. No one other than the undersigned prepared the analyses, conclusions, and opinions concerning real estate that are set forth in this appraisal report. It should be noted that James Barcells helped with the preparation of the report. 8. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 9. Members of the Appraisal Institute are required to meet certain continuing education requirements. As of the date of this report, Mr. Saia have completed the requirements of the of the Appraisal Institute. /s/ Robert S. Saia, MAI OREA Cert. #AG003191 Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 68 <PAGE> Heather Plaza Apartments, Salinas CA - ADDENDA -- Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Heather Plaza Apartments, Salinas CA PHOTOGRAPHS OF SUBJECT PROPERTY [PHOTO OMITTED] [PHOTO OMITTED] Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> Heather Plaza Apartments, Salinas CA PHOTOGRAPHS OF SUBJECT PROPERTY [PHOTO OMITTED] [PHOTO OMITTED] Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 <PAGE> REGIONAL LOCATION MAP [GRAPHIC OMITTED] <PAGE> NEIGHBORHOOD LOCATION MAP [GRAPHIC OMITTED] <PAGE> ZONING MAP [GRAPHIC OMITTED] <PAGE> PLAT MAP [GRAPHIC OMITTED] <PAGE> RENTAL LOCATION MAP [GRAPHIC OMITTED] <PAGE> COMPARABLE SALES LOCATION MAP [GRAPHIC OMITTED] <PAGE> COMPARABLE SALES LOCATION MAP SAN JOSE [GRAPHIC OMITTED] <PAGE> COMPARABLE SALES LOCATION MAP SANTA CRUZ [GRAPHIC OMITTED] <PAGE> APARTMENT SALE NUMBER 1 Project Name: Willow Garden Apartments Location: 1750 Stokes Street, San Jose Assessor's Parcel No.: 284-24-008 Grantor: Marie Helen Pejcha Trust Grantee: Willow Gardens Ltd. Rec. Doc. #: #13330744 Sales Date: June 14, 1996 Sales Price: $13,650,000 No. of Units: 186 Condition/Quality: Average/average Site Area: 6.40 acres (29.06 du/ac) Year Built: 1971 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $73,487 Price/Room: $17,773 GIM: 7.04 Price/RSF: $85.17 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $1,165,752 - -------------------------------------------------------------------------------- OAR: 8.54% - -------------------------------------------------------------------------------- Occupancy: 99.0% (1 unit vacant @ time of sale) Financing: see comments below Comments: Average quality garden style two-story walk-up built in 1971. Average condition and appeal. There are 162, two bedroom/two bath units, and 24, three bedroom/2 bath units. Gross rentable area is 163,740 sf. Zoning is R-4, high density. Located in area of apartments, condominiums and single family homes (middle income) with commercial/retail along major arterials. Centrally-located, close to shopping, schools, employment and freeway access. Financing terms consisted of $10,600,000 first, and a seller second of $1,275,000 @ 8%, 2 yrs. The buyer put down $1,775,000. The <PAGE> market income is estimated at $2,170,200 and the actual was $1,940,052 at time of sale. The market derived GIM is 6.29, and the market derived OAR is 9.06% (actual OAR = 8.54%). Under San Jose Rent Control Ordinance which limits annual rent increases to 8 percent. Source/Confirmation: various, including public records, inspection, Comps Inc., Stan Jones Marcus & Millichap. [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 2 Project Name: Ocean Terrace Location: 1630 Merrill Street, Santa Cruz Assessor's Parcel No.: 027-274-41 Grantor: Santa Cruz Central Investments Grantee: D&M Piterman Rec. Doc. #: #8760321 Sales Date: July 12, 1996 Sales Price: $6,300,000 No. of Units: 100 Condition/Quality: Average+/Average+ Site Area: 2.7 acres (37 un/ac) Year Built: 1972 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $63,000 Price/Room: $16,406 GIM :6.5 Price/RSF: $78.04 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $543,984 - -------------------------------------------------------------------------------- OAR: 8.6% - -------------------------------------------------------------------------------- Occupancy: 100% (0 unit vacant @ time of sale) Financing: New First from Home Savings (see below) Comments: 100 unit garden style two-story walk-up built in 1972. It is located in an unincorporated area of Santa Cruz County one mile from the city limits of Santa Cruz and two miles north of Capitola Village, a seaside tourist area. The neighborhood is predominately average quality single family and apartments with scattering of mobilehome parks and small retail/shopping centers. The ocean is approximately one-half mile south. Amenities include a pool, sauna, three laundry rooms, <PAGE> on-site manager's office, and exercise room. There are six buildings on the 2.7 acre site. Construction is wood frame and wood siding and stucco. Roofs are flat tar and gravel. Parking is 130 spaces. All units feature AEK kitchens including dishwashers, refrigerators, garbage disposals and R/O's. There are 32, 1br/1ba units containing 624 sf; 40, 2br/1ba units measuring 860 sf, 12 units are 2br/1.5 ba @ 923 sf, and, 16 are 3br/2ba units @ 955 square feet. Market rents range from $680-695 for the 1br units to $955-$980 for the 3br units. The 2 br units range from $780 to $855. Based on market rents, the monthly gross rental income is $79,950. Laundry income is $1,125 per month. The actual income for January 1996 was $77,480, or 3% below market. Based on market rental income and laundry income, gross annual income is projected (over next 12 months) at $972,900. Deducting 4 percent for vacancy and collection loss, results in EGI of $933,984. Expenses estimated by seller are approximately $390,000 (including reserves), resulting in a NOI of $543,984 and a cap rate of 8.6 percent. The Home Savings first loan has an estimated annual debt service of $416,044, yielding cash flow of $127,939 and a cash-on-cash rate of 8.1%. reportedly, the property was purchased by the seller in 1985 at $5,200,000 (unconfirmed). Source/Confirmation: Home Savings of America, South Bay Equities [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 3 Project Name: Fox Creek Village Location: 196 W. Alvin Road, Salinas Assessor's Parcel No.: 261-631-010 Grantor: Sollecito Grantee: Fox Creek Partners Rec. Doc. #: Reel 3151 pg 1419 Sales Date: September 24, 1994 Sales Price: $9,350,000 No. of Units: 168 Condition/Quality: Good/Good Site Area: 7.84 acres (21.43 du/ac) Year Built: 1986 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $55,655 Price/Room: $15,688 GIM: 6.8 Price/RSF: $66.31 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $850,850 - -------------------------------------------------------------------------------- OAR: 9.1% - -------------------------------------------------------------------------------- Occupancy: 96.5% Financing: New loan through Bank of America Comments: Well-located in north Salinas near schools and shopping. Fox Creek consists of 76, 1br/1ba units measuring 708 sf; 24, 2br/1ba units @ 875 sf and, 68, 2br/1ba units @ 986 sf. 36 units have wood burning fireplaces. Units include patios or balconies, refrigerators, microwaves, dishwashers, disposals, and laundry hook-ups. Amenities include a pool, tennis court, and recreation room. Financing terms were not available, although there was a first made by Bank of America at market rate and terms. Assuming normal downpayment and market interest rate at time of sale, cash-on- <PAGE> cash is estimated at 9.87%. No rent control. Vacancy at time of sale was reported at 3.5 percent. One covered parking space plus open parking. Garden-design walk-up. Source/Confirmation: various, including public records, inspection, etc. [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 4 Project Name: Kingdale Oaks Location: 1919 Fruitdale Avenue, San Jose Assessor's Parcel No.: 282-40-022,023 Grantor: Marie Helen Pejcha Trust Grantee: Tod & Catherine Spieker Rec. Doc. #: #12983233 Sales Date: August 15, 1996 Sales Price: $16,760,000 No. of Units: 331 Condition/Quality: Average/Average Site Area: 11.76 acres (28.15/un per ac) Year Built: 1970 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $50,634 Price/Room: $16,878 GIM: 6.01 Price/RSF: $66.22 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $1,565,000 - -------------------------------------------------------------------------------- OAR: 9.3% - -------------------------------------------------------------------------------- Occupancy: 95.62% (14 units vacant @ time of sale) Financing: See Comments Below Comments: Located south of Freeway 280 near San Jose City Community College within single family and apartment neighborhood. Close to shopping, schools and freeway access. Zoned R24 and R4 (high density residential). Under San Jose Rent Control Ordinance. Average quality, wood frame and stucco buildings (flat T&G roofs) built in 1964 and 1970. There are 36, studios; 264 1br/1ba units; 20, 2br/1ba units; 5, 3br/2ba, and, 6 2br/2ba units. Amenities include 2 heated pools, poolside grills, laundry rooms, recreation room, and volleyball. Elevator served. Units have either balcony or <PAGE> patio and are separately metered. Average condition. 1.5 parking spaces per unit (166 open spaces and 331 carport). According to selling broker Bruce Hermann with Marcus & Millichap, gross scheduled actual income at time of sale was $2,787,000. Actual vacancy (and stabilized vacancy) was 4.38%. Factoring-in taxes at market (per Prop 13), total expenses were reported at approximately $1,100,000. Net operating income is estimated at $1,565,000. Financing consisted of a 1st from St.Paul Federal Bank of $14,850,000 (VIR) 8%, 25-yr amortization and a seller second of $556,000 @ 7%, 2 years resulting in a total annual debt service of $1,414,297. Cash flow (after debt service) is $150,703, indicating a cash-on-cash rate of 11.1% on the cash downpayment of $1,354,000. The marketing time was reported at 6 months. The sale reportedly did not involve an exchange. Source/Confirmation: Marcus & Millichap (415)494-8900 [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 5 Project Name: Hidden Creek Apartments Location: 200 Button Street, Santa Cruz Assessor's Parcel No.: 008-202-026 Grantee: Hidden Creek Rec. Doc. #: #5547479 Sales Date: July 24, 1994 Sales Price: $7,400,000 No. of Units: 146 Condition/Quality: Avg/Avg Site Area: 3.8 acres (37 du/ac) Year Built: 1973 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $50,685 Price/Room: $16,818 GIM: 6.78 Price/RSF: $77.81 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $710,400 - -------------------------------------------------------------------------------- OAR: 9.6% - -------------------------------------------------------------------------------- Occupancy: 98% (est) Financing: Not available Comments: Nine two-story buildings, garden style, complex of average quality. Located near Highway 1 in City of Santa Cruz. located in neighborhood of predominately small bungalow single family homes built from 1930 to 1970; a new zero-lot line SFR development is located directly across. There are 42 studio units with an average size of 550 square feet; 60, 1br/1ba units @ 650 sf, and, 44, 2br/1ba units of 750 sf The rentable area is 95,100 square feet (avg unit = 651).There are no recreational amenities except for pool and common utility rooms. Landscaping is extensive in some areas. One-half of the units are subsidized housing units. At time of sale, "market" rents were $600 for studio, $750 for 1 bedrooms, and $850 for two bedrooms. The gross and <PAGE> net incomes are estimates based on reported actual income per MLS listing (#369018). According to assessor's office, some buildings had deferred maintenance, however, cost to repair are not known. Source/Confirmation: various, including public records, assessor, MLS [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 6 Project Name: North Bay Apartments Location: 41 Grandview Street, Santa Cruz Assessor's Parcel No.: 002-051-65 Grantor: EQR Northbay Chicago Inc. Grantee: Sequoia Equities Rec. Doc. #: #7770608 Sales Date: December 1995 Sales Price: $8,550,000 No. of Units: 115 Condition/Quality: Good/Good Site Area: 5.17 (22.2 du/ac) Year Built: 1989 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $74,348 Price/Room: $19,344 GIM: 6.11 Price/RSF: $81.88 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $867,825 - -------------------------------------------------------------------------------- OAR: 10.15% - -------------------------------------------------------------------------------- Occupancy: 100% (no vacancy at time of sale) Financing: $2,425,000 down, $6,300,000 first (see below) Comments: Good quality walk-up garden design built in 1989. Newest complex built in west Santa Cruz area. Located off Highway 1 (Mission Street) in area of single family and apartments/condos. Above average to good location. Buyer paid $300,000 in repairs and $175,000 commission, thus actual price was somewhat higher than reported above. The property was never exposed to the open market. The higher than normal capitalization rate is reflective of this and the extra cost to the buyer of repairs and <PAGE> commission. There are 18, 1br/1ba units; 69, 2br/2ba units; and, 28, 2br/2.5 ba units. Market rents are about 3-5 % higher than actual. Amenities include a swimming pool and carport parking. No other recreational facilities, although the complex is within a short drive to beaches and three miles to Santa Cruz Beach & Boardwalk. Overall good tenant appeal. Source/Confirmation: various, including public records, broker [PHOTO OMITTED] <PAGE> [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 7 Location: 2186-2198 Brutus Street, Salinas Assessor's Parcel No.: 253-081-015 Grantee: Tom Favazza Rec. Doc. #: #35062 Sales Date: May 26, 1993 Sales Price: $3,072,000 No. of Units: 60 Condition/Quality: Good/Good Site Area: 1.8+/- ac (33 du ac) Year Built: 1988+/- - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $51,200 Price/Room: $14,157 GIM: 7.83 Price/RSF: $61.46 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $242,445 - -------------------------------------------------------------------------------- OAR: 7.9% - -------------------------------------------------------------------------------- Occupancy: Not available Financing: Not available Comments: Average to good garden style complex located off N. Main Street in north Salinas. Close to shopping, schools, and freeway access. There are 23, 1br/1ba units, and 37 2br/2a units. Total rentable area is 49,980 sf. Average unit size is 833 sf Market income at time of sale was estimated at $392,445. Vacancy and expenses were estimated at $150,000, resulting in an estimated NOI of $242,445 (7.9% cap rate). Source/Confirmation: public records, damar <PAGE> [PHOTO OMITTED] <PAGE> APARTMENT SALE NUMBER 8 Project Name: Cypress Landing Apartments Location: 552 Rico Street, Salinas Assessor's Parcel No.: 261-201-018 Grantee: William Lewis Rec. Doc. #: Reel 2692 pg: 0774 Sales Date: November 1991 Sales Price: $5,950,000 No. of Units: 112 Condition/Quality: Good/Good Site Area: 6 acres (18. 7du/ac) Year Built: 1989 - -------------------------------------------------------------------------------- Value Indicators: Price/Unit: $53,125 Price/Room: $14,442 GIM: 6.4 Price/RSF: $59.11 - -------------------------------------------------------------------------------- Stabilized NOI Est.: $573,218 - -------------------------------------------------------------------------------- OAR: 9.69% - -------------------------------------------------------------------------------- Occupancy: 2.7% ( 3 units vacant @ time of sale) Financing: AU cash to seller Comments: Two story, garden style apartment complex of good quality and condition, built in 1989. One of the last apartment complexes to have been built in the north Salinas area. Close to shopping, schools and freeway access. 12, two-story buildings. Amenities include pool, hot tub, weight room, tennis court and recreation building. AU units have patios or balconies, refrigerators, R/O and dishwashers; same have fireplaces. There are 36, 1br/1ba units; and, 76 2br/2ba units measuring between 955 to 985 square feet. Carport and open parking. No rent control. 899 sf average unit size. <PAGE> SKETCH ADDENDUM [GRAPHIC OMITTED] <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 1 2:17 pm Heather Plaza Apartments ID 3.6.1 All Units <TABLE> <CAPTION> = Unit Profile = = Scheduled vs Actual Rent = =================== = Moved = Current Lease == Security YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ==== ==== ==== ====== ===== ====== ===== =================== ======== ================== ======== ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1E D1.1 900 775.00 0.861 712.00 0.791 Hernandez, Margarit 03/15/93 11/01/95 375.00 Y -- 1N D.1 900 775.00 0.861 750.00 0.833 Mc Cune, Sam & Donn 07/01/93 300.00 Y -- 1S D.1 900 775.00 0.861 710.00 0.789 Sides, Patricia 11/15/92 06/25/96 410.00 Y -- 1W D.1 900 775.00 0.861 775.00 0.861 Acosta, Raul 07/23/94 06/01/96 01/31/97 520.00 Y -- 2E B.2 850 695.00 0.818 725.00 0.853 Culver, Mattie 09/23/96 09/23/96 10/22/97 410.00 Y -- 2N B.2 850 695.00 0.818 675.00 0.794 Gonzales, Erik 01/01/96 01/01/96 09/30/96 410.00 Y -- 2S B.2 850 695.00 0.818 675.00 0.794 Cital, Juan A 02/15/96 02/15/96 08/14/96 410.00 Y -- 2W B.2 850 695.00 0.818 625.00 0.735 Padilla, Gilbert & 04/14/95 06/01/96 04/30/97 439.00 Y -- 3E B.1 850 695.00 0.818 725.00 0.853 Garcia, Kathy 07/02/96 07/03/96 02/02/97 445.00 Y -- 3N B.1 850 695.00 0.818 675.00 0.794 Steigler, Don 08/17/95 08/20/95 05/19/96 445.00 Y -- 3S B.1 850 695.00 0.818 695.00 0.818 Smith, Robert J 07/10/96 07/10/96 02/09/97 445.00 Y -- 3W B.1 850 695.00 0.818 650.00 0.765 Painter, Teddie 08/15/92 09/16/95 09/15/96 375.00 Y -- 4E B.2 850 695.00 0.818 675.00 0.794 Nunez, Lionso 04/19/96 04/19/96 04/18/97 645.00 Y -- 4N B.2 850 695.00 0.818 0.00 0.000 VACANT 09/20/96 0.00 N VA 4S B1.2 850 695.00 0.818 625.00 0.735 Murillo, Tracy 09/01/93 229.00 Y -- 4W B.2 850 695.00 0.818 695.00 0.818 Garcia, Pablo 05/16/96 05/16/96 05/15/97 785.00 Y -- 5E B.1 850 695.00 0.818 630.00 0.741 Gonzalez, Maryann 11/11/91 375.00 Y -- 5N A.1 616 550.00 0.893 550.00 0.893 Delgadillo, Miguel 04/27/96 04/27/96 04/26/97 410.00 Y -- 5S B.1 850 695.00 0.818 645.00 0.759 Barrera, Kimberly 01/06/95 06/01/96 05/31/97 410.00 Y -- 5W A1.1 616 550.00 0.893 515.00 0.836 Gomez, Lilly 06/03/95 06/01/96 10/31/96 410.00 Y -- 6E B.2 850 695.00 0.818 625.00 0.735 Espinoza-Pimentel, 07/01/95 07/01/96 06/30/97 323.00 Y -- 6N A.2 616 550.00 0.893 525.00 0.852 Spraggins, Tena Mar 10/26/95 09/11/96 04/10/97 645.00 Y -- 6S B.2 850 695.00 0.818 695.00 0.818 Banuelos, Estaban 06/21/96 06/21/96 07/20/97 785.00 Y -- 6W A.2 616 550.00 0.893 0.00 0.000 VACANT 05/29/96 0.00 D VA 7E B.1 850 695.00 0.818 650.00 0.765 Haynes, Vicky 11/02/89 410.00 Y -- 7N A.1 616 550.00 0.893 525.00 0.852 Guerrero, Isaias 07/15/95 07/15/95 04/14/96 410.00 Y -- 7S B.1 850 695.00 0.818 650.00 0.765 Perez, Ogilvie 12/02/94 06/01/96 05/31/97 410.00 Y -- 7W A.1 616 550.00 0.893 535.00 0.869 Fauver, Kenneth 11/17/95 11/17/95 06/16/96 610.00 Y -- 8E B.2 850 695.00 0.818 675.00 0.794 Smith, Wayne 12/01/95 12/01/95 08/31/96 820.00 Y -- 8N A.2 616 550.00 0.893 475.00 0.771 Wanis, Ramiz 01/15/92 06/23/95 06/22/96 375.00 Y -- 8S B.2 850 695.00 0.818 575.00 0.676 Moore, Kevin 07/11/88 11/01/95 10/31/96 375.00 Y -- 8W A.2 616 550.00 0.893 550.00 0.893 Villegas, Daniel 08/07/96 08/09/96 02/28/97 410.00 Y -- 9E A.1 616 550.00 0.893 520.00 0.844 Mendoza, Jose 08/01/94 09/05/96 04/04/97 445.00 Y -- 9N A.1 616 550.00 0.893 520.00 0.844 Flynn, Linda 05/01/94 09/14/96 04/13/97 410.00 Y -- 9S A.1 616 550.00 0.893 550.00 0.893 Page 11, Daniel J. 01/15/94 785.00 Y -- 9W A.1 616 550.00 0.893 550.00 0.893 Miller, Evelyn K 03/14/96 03/14/96 09/13/96 410.00 Y -- 10E A.2 616 550.00 0.893 515.00 0.836 Teraji, Roland 01/14/94 09/11/96 04/10/97 445.00 Y -- 10N A.2 616 550.00 0.893 525.00 0.852 Escobar, Ana 01/01/96 01/01/96 12/31/96 410.00 Y -- 10S A.2 616 550.00 0.893 520.00 0.844 Berlanga, Tina 06/01/94 410.00 Y -- 10W A.2 616 550.00 0.893 550.00 0.893 Matteucci, Devid 07/06/96 07/06/96 01/31/97 410.00 Y -- 11E A1.1 616 550.00 0.893 550.00 0.893 Pasqueda, Sally 07/13/96 07/13/96 07/19/96 410.00 Y -- 11N B.1 850 695.00 0.818 675.00 0.794 Flores, Tonya 11/07/95 11/06/95 11/05/96 820.00 Y -- 11S A.1 616 550.00 0.893 550.00 0.893 Brown, Benjamin 08/30/96 08/30/96 03/29/97 410.00 Y -- 11W A.1 616 550.00 0.893 505.00 0.820 Gardner,Kenneth 05/01/91 06/01/96 05/31/97 375.00 Y -- 12E A.2 616 550.00 0.893 550.00 0.893 Nordin, Jerry 07/18/96 07/18/96 02/17/97 410.00 Y -- 12N B.2 850 695.00 0.818 600.00 0.706 Patel, Kumar Panka 06/01/93 11/01/95 10/31/96 375.00 Y -- 12S A.2 616 550.00 0.893 0.00 0.000 VACANT/PRELEASED 09/23/96 100.00 N VL 12W A.2 616 550.00 0.893 500.00 0.812 Zendejas, Juan 08/27/93 410.00 Y -- 13E A.1 616 550.00 0.893 550.00 0.893 Silva, Emma 08/22/96 08/22/96 03/21/97 410.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 2 2:17 pm Heather Plaza Apartments ID 3.6.1 All Units <TABLE> <CAPTION> = Unit Profile = = Scheduled vs Actual Rent = =================== = Moved = Current Lease == Security YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ==== ==== ==== ====== ===== ====== ===== =================== ======== ================== ======== ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 13N B.1 850 695.00 0.818 725.00 0.853 Molina, Sandra 09/01/96 09/01/96 03/13/97 410.00 Y -- 13S A.1 616 550.00 0.893 550.00 0.893 Shots, Charles 07/13/96 07/13/96 02/12/97 695.00 Y -- 13W A.1 616 550.00 0.893 520.00 0.844 Kidd, Gloria 11/16/94 11/16/94 05/31/95 410.00 Y -- 14E A.2 616 550.00 0.893 550.00 0.893 Chavez, Stacy 10/21/95 06/01/96 01/31/97 610.00 Y -- 14N B.2 850 695.00 0.818 0.00 0.000 VACANT 09/06/96 0.00 N VA 14S A.2 616 550.00 0.893 500.00 0.812 Cadelbert, Mark 09/01/93 06/26/95 06/25/96 410.00 Y -- 14W A.2 616 550.00 0.893 550.00 0.893 Calderon, Carmen 09/21/96 09/21/96 04/15/97 445.00 Y -- 15E A.1 616 550.00 0.893 495.00 0.804 Bacerra, Pedro 03/01/93 05/31/97 410.00 Y -- 15N A.1 616 550.00 0.893 515.00 0.836 Henry, Guevara 10/04/91 06/01/96 01/31/97 375.00 Y -- 15S A.1 616 550.00 0.893 500.00 0.812 Aguilar, Veronica 07/01/95 07/01/95 06/30/96 480.00 Y -- 15W A.1 616 550.00 0.893 525.00 0.852 Guerr, Salvador 12/15/95 12/15/95 06/14/96 410.00 Y -- 16E A.2 616 550.00 0.893 550.00 0.893 Nielsen, Dwight 09/21/96 09/21/96 04/20/97 695.00 Y -- 16N A.2 616 550.00 0.893 520.00 0.844 Zodiacal, Kathy 07/01/94 11/01/95 05/31/96 410.00 Y -- 16S A.2 616 550.00 0.893 500.00 0.812 Luna, Rosa D 12/01/95 12/01/95 11/30/96 785.00 Y OL 16W A.2 616 550.00 0.893 500.00 0.812 Rivas, Gilberto 12/30/94 06/26/95 04/25/96 445.00 Y -- 17E A.1 616 550.00 0.893 525.00 0.852 Ruiz, Carmen Y 11/29/95 11/29/95 11/28/96 410.00 Y -- 17N A1.1 616 550.00 0.893 500.00 0.812 Jackson, Sharon 05/09/90 07/01/96 04/30/97 179.00 Y -- 17S A.1 616 550.00 0.893 525.00 0.852 Anda, Anthony Marc 01/31/96 01/31/96 07/30/96 1110.00 Y -- 17W B.1 850 695.00 0.818 645.00 0.759 Lopez, Antonia 12/01/94 12/01/94 05/31/95 410.00 Y -- 18E A.2 616 550.00 0.893 525.00 0.852 Alcaraz, Maria 03/01/96 09/11/96 04/10/97 445.00 Y -- 18N A.2 616 550.00 0.893 525.00 0.852 Pina, Angelica 03/01/96 03/01/96 08/31/96 410.00 Y -- 18S A.2 616 550.00 0.893 525.00 0.852 Vargas, Guillermo 05/01/95 05/10/95 11/09/95 410.00 Y -- 18W B.2 850 695.00 0.818 725.00 0.853 Garza, Dalia 08/14/96 08/14/96 02/28/97 410.00 Y -- 19E A.1 616 550.00 0.893 520.00 0.844 Williams, Terry 10/05/94 11/01/95 05/31/96 445.00 Y -- 19N A1.1 616 550.00 0.893 500.00 0.812 Davis, Kenneth 11/09/90 158.00 Y -- 19S A.1 616 550.00 0.893 525.00 0.852 Cacatian, Morlesto 11/01/95 11/01/95 05/31/96 410.00 Y -- 19W B.1 850 695.00 0.818 0.00 0.000 VACANT/PRELEASED 09/05/96 140.00 N VL 20E A.2 616 550.00 0.893 525.00 0.852 Jose, Arattu D 01/30/96 01/30/96 07/29/96 430.00 Y -- 20N A.2 616 550.00 0.893 525.00 0.852 Orta, Diana L 01/01/96 01/01/96 09/30/96 1320.00 Y -- 20S A.2 616 550.00 0.893 550.00 0.893 Baca, Jeremy 09/11/96 09/15/96 03/30/97 410.00 Y -- 20W B.2 850 695.00 0.818 725.00 0.853 Cheddar, Michael 07/06/96 07/06/96 02/05/97 445.00 Y -- 21E A.1 616 550.00 0.893 495.00 0.804 Legazpi, Tomasa 03/30/93 06/01/96 06/30/96 445.00 Y -- 21N A.1 616 550.00 0.893 520.00 0.844 Kitawaga, Byron 09/09/94 410.00 Y -- 21S A.1 616 550.00 0.893 525.00 0.852 Gomez, Juana 05/01/95 06/01/96 05/31/97 410.00 Y -- 21W B.1 850 695.00 0.818 625.00 0.735 Cejia, Jose 07/17/93 375.00 Y -- 22E A.2 616 550.00 0.893 550.00 0.893 Lopes, Victor 08/01/96 08/01/96 02/28/97 410.00 Y -- 22N A.2 616 550.00 0.893 500.00 0.812 Vargas, Carlos 05/23/94 05/01/95 06/18/96 445.00 Y -- 22S A.2 616 550.00 0.893 520.00 0.844 Nakagawa, Kiyokaw 04/18/94 11/01/95 05/31/96 445.00 Y -- 22W B.2 850 695.00 0.818 0.00 0.000 VACANT 09/09/96 0.00 N VA 23E A.1 616 550.00 0.893 525.00 0.852 Hernandez, Jesse 09/01/94 05/01/95 10/01/95 410.00 Y -- 23N A.1 616 550.00 0.893 525.00 0.852 Silver, Adam P 03/01/96 03/01/96 03/31/96 410.00 Y -- 23S A1.1 616 550.00 0.893 458.00 0.744 Carrto, Vincent 02/23/93 176.00 Y -- 23W B.1 850 695.00 0.818 675.00 0.794 Giebeller, Adam 11/11/91 375.00 Y -- 24E A.2 616 550.00 0.893 520.00 0.844 Martella, Charles 05/07/93 06/01/96 05/31/97 375.00 Y -- 24N A.2 616 550.00 0.893 525.00 0.852 Leyva, Jessica P 03/08/96 03/08/96 09/07/96 645.00 Y -- 24S A.2 616 550.00 0.893 525.00 0.852 Mohtady, Refaat 11/22/95 11/22/95 11/21/96 410.00 Y -- 24W B.2 850 695.00 0.818 695.00 0.818 Martinez, Tanya 06/22/96 06/22/96 02/21/97 785.00 Y -- 25E A.1 616 550.00 0.893 495.00 0.804 Ascencio, Antonio 03/14/94 410.00 Y -- 25N A.1 616 550.00 0.893 550.00 0.893 Urquidez, David 09/10/96 09/10/96 04/09/97 410.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 3 2:17 pm Heather Plaza Apartments ID 3.6.1 All Units <TABLE> <CAPTION> = Unit Profile = = Scheduled vs Actual Rent = =================== = Moved = Current Lease == Security YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ==== ==== ==== ====== ===== ====== ===== =================== ======== ================== ======== ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 25S A.1 616 550.00 0.893 475.00 0.771 Baltazar, Maria 08/01/94 06/01/96 05/31/97 410.00 Y -- 25W A.1 616 550.00 0.893 525.00 0.852 Hernandez, Mario & 08/26/95 06/01/96 05/31/97 785.00 Y -- 26E A.2 616 550.00 0.893 525.00 0.852 Zepeda, Marcos 11/28/95 11/28/95 05/27/96 445.00 Y -- 26N A.2 616 550.00 0.893 575.00 0.933 Spark, Bruce 06/14/96 06/14/96 03/13/97 410.03 Y -- 26S A.2 616 550.00 0.893 550.00 0.893 Carr, Jefferey 02/10/95 06/01/96 06/30/96 445.00 Y -- 26W A.2 616 550.00 0.893 525.00 0.852 Munoz, Robert 03/22/96 03/22/96 09/21/96 410.00 Y -- 27E A1.1 616 550.00 0.893 550.00 0.893 Alvarez, Belinda 07/10/96 07/10/96 02/09/97 410.00 Y -- 27N A1.1 616 550.00 0.893 500.00 0.812 Lightle, Ed 01/04/93 182.00 Y -- 27S A1.1 616 550.00 0.893 500.00 0.812 Castillo, Monica 07/09/90 07/01/96 06/30/97 185.00 Y -- 27W A.1 616 550.00 0.893 535.00 0.869 Hernandez, Carlos 05/01/93 06/01/96 06/30/96 410.00 Y -- 28E A.2 616 550.00 0.893 525.00 0.852 Castro, Cesar 05/01/96 05/01/96 10/31/96 445.00 Y -- 28N A.2 616 550.00 0.893 525.00 0.852 Wilson, Letha 09/01/95 09/01/95 08/31/96 445.00 Y -- 28S A.2 616 550.00 0.893 500.00 0.812 Starr, Lynna 05/25/95 05/25/95 05/24/96 445.00 Y -- 28W A.2 616 550.00 0.893 550.00 0.893 Navarro, Juan L 06/01/96 06/01/96 05/31/97 410.00 Y -- 29E A.1 616 550.00 0.893 550.00 0.893 Reta, Blanca 02/01/91 06/01/96 06/30/96 375.00 Y -- 29N B.1 850 695.00 0.818 650.00 0.765 Gomez, Eduardo 06/10/95 06/10/95 06/09/96 410.00 Y -- 29S A.1 616 550.00 0.893 550.00 0.893 Chaverria, Victoria 07/20/96 07/20/96 02/19/97 445.00 Y -- 29W A.1 616 550.00 0.893 525.00 0.852 Casillas, Rosemary 11/01/95 11/01/95 05/31/96 410.00 Y -- 30E A.2 616 550.00 0.893 525.00 0.852 Vidales, Maria M 09/01/95 09/01/95 05/31/96 410.00 Y -- 30N B.2 850 695.00 0.818 650.00 0.765 Swinderman, Hoyt 11/15/94 06/01/96 05/31/97 410.00 Y -- 30S A.2 616 550.00 0.893 525.00 0.852 Hernandez, Oscar 02/01/96 02/01/96 07/31/96 410.00 Y -- 30W A.2 616 550.00 0.893 525.00 0.852 Allen, Dale 05/10/95 05/10/95 01/09/96 410.00 Y -- 31E A.1 616 550.00 0.893 525.00 0.852 Miljarak, Patricia 01/04/96 09/11/96 04/10/97 910.00 Y -- 31N B.1 850 695.00 0.818 675.00 0.794 Barton, Julie 11/01/95 11/01/95 07/31/96 820.00 Y -- 31S A.1 616 550.00 0.893 550.00 0.893 Veliz, Joanna 09/11/96 09/13/96 04/01/97 445.00 Y -- 31W A1.1 616 550.00 0.893 500.00 0.812 Wood, Lillian 10/08/90 184.00 Y -- 32E A.2 616 550.00 0.893 550.00 0.893 Ceja, Adolfa 03/26/96 03/26/96 09/30/96 610.00 Y -- 32N B.2 850 695.00 0.818 625.00 0.735 Maturino, Carlos 01/20/95 01/20/95 08/31/95 480.00 Y -- 32S A.2 616 550.00 0.893 515.00 0.836 Bryant, Sandra 03/01/87 375.00 Y -- 32W A.2 616 550.00 0.893 525.00 0.852 Bray, GUY 10/01/88 10/01/95 05/31/96 375.00 Y -- 33E A.1 616 550.00 0.893 475.00 0.771 King, Jessie 10/06/92 06/26/95 04/25/96 410.00 Y -- 33N A1.1 616 550.00 0.893 506.00 0.821 Young, Patricia 10/31/87 171.00 Y -- 33S A.1 616 550.00 0.893 0.00 0.000 VACANT/PRELEASED 08/20/96 100.00 N VL 33W A.1 616 550.00 0.893 535.00 0.869 Aguilar, Oscar 10/21/95 10/21/95 05/20/96 410.00 Y -- 34E A.2 616 550.00 0.893 525.00 0.852 Coleman, Darren 04/01/95 06/01/96 01/31/97 410.00 Y -- 34N A1.2 616 550.00 0.893 500.00 0.812 Contreraz, Marie 01/15/94 410.00 Y -- 34S A.2 616 550.00 0.893 525.00 0.852 Lewis, Gary D 10/01/95 10/01/95 04/30/96 610.00 Y -- 34W A.2 616 550.00 0.893 525.00 0.852 Avalos, Juan 02/15/96 02/15/96 08/14/96 445.00 Y -- 35E A.1 616 550.00 0.893 550.00 0.893 Ramos, Rafelo 08/09/96 08/09/96 03/08/97 445.00 Y -- 35N A.1 616 550.00 0.893 525.00 0.852 Lamb, Jennifer C 10/14/95 10/14/95 10/13/96 410.00 Y -- 35S A.1 616 550.00 0.893 550.00 0.893 Villasenor, Joege 07/15/96 07/15/96 02/04/97 410.00 Y -- 35W A.1 616 550.00 0.893 550.00 0.893 Tavarez, Maria 04/01/94 07/01/96 07/31/96 410.00 Y -- 36E A.2 616 550.00 0.893 550.00 0.893 Barganier, Barbara 05/01/95 05/01/95 12/31/95 410.00 Y -- 36N A.2 616 550.00 0.893 500.00 0.812 Woodard, Monte 05/02/95 06/19/95 12/18/95 445.00 Y -- 36S A.2 616 550.00 0.893 525.00 0.852 Camacha, Yolanda 11/08/95 11/08/95 08/07/96 410.00 Y -- 36W A.2 616 550.00 0.893 525.00 0.852 Scott, Mario 02/03/96 02/03/96 08/02/96 410.00 Y -- 37E A.1 616 550.00 0.893 525.00 0.852 Pato, Evelyn G 09/07/95 09/08/95 06/07/96 410.00 Y -- 37N A.1 616 550.00 0.893 525.00 0.852 Murphy, Scott 07/15/94 06/01/96 05/31/97 410.00 Y -- 37S A.1 616 550.00 0.893 550.00 0.893 Casillas, Gregorio 04/01/95 04/01/95 09/30/95 610.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 4 2:17 pm Heather Plaza Apartments ID 3.6.1 All Units <TABLE> <CAPTION> = Unit Profile = = Scheduled vs Actual Rent = =================== = Moved = Current Lease == Security YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ==== ==== ==== ====== ===== ====== ===== =================== ======== ================== ======== ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 37W A.1 616 550.00 0.893 470.00 0.763 Kam, William 02/15/86 11/01/95 10/31/96 375.00 Y -- 38E A.2 616 550.00 0.893 525.00 0.852 Gamiz, Jose L 02/01/96 02/01/96 07/31/96 410.00 Y -- 38N A.2 616 550.00 0.893 525.00 0.852 Lopez, Gustavo 08/18/94 410.00 Y -- 38S A.2 616 550.00 0.893 525.00 0.852 Guieb, Courtney 05/17/95 06/01/96 01/31/97 410.00 Y -- 38W A.2 616 550.00 0.893 525.00 0.852 Montelongo, Ernesto 05/20/95 06/01/96 05/31/97 445.00 Y -- 39E A.1 616 550.00 0.893 525.00 0.852 Cancino, Jose 11/23/94 06/01/96 05/31/97 410.00 Y -- 39N A.1 616 550.00 0.893 515.00 0.836 Boatman, Juanita 12/01/94 06/01/96 05/31/97 410.00 Y -- 39S A1.1 616 550.00 0.893 500.00 0.812 Lynch, John 06/02/89 08/01/96 06/30/97 100.00 Y -- 39W A.1 616 550.00 0.893 525.00 0.852 Salazar, Jacinto 07/17/95 06/01/96 01/31/97 410.00 Y -- 40E A.2 616 550.00 0.893 550.00 0.893 Carpenter, Patricia 03/04/91 06/01/96 06/30/96 375.00 Y -- 40N A.2 616 550.00 0.893 475.00 0.771 Valencia, Judith 05/01/92 06/01/96 05/31/97 410.00 Y -- 40S A.2 616 550.00 0.893 495.00 0.804 Mercado, Jose 03/29/93 375.00 Y -- 40W A.2 616 550.00 0.893 525.00 0.852 Jacinto, Ignacio 01/15/96 09/25/96 04/24/97 410.00 Y -- 41E A.1 616 550.00 0.893 525.00 0.852 Dunn, Esther M 05/10/96 05/10/96 11/09/96 510.00 Y -- 41N A.1 616 550.00 0.893 550.00 0.893 Jacobson, Beverly 06/01/96 06/01/96 06/30/96 410.00 Y -- 41S A.1 616 550.00 0.893 575.00 0.933 Myers/Berg 09/01/96 09/01/96 03/31/97 450.00 Y -- 41W A.1 616 550.00 0.893 550.00 0.893 Perkins, Carolyn 06/14/96 06/15/96 02/14/97 821.00 Y -- 42E A.2 616 550.00 0.893 525.00 0.852 Olivares, Ramiro 04/14/95 06/01/96 05/31/97 410.00 Y -- 42N A.2 616 550.00 0.893 525.00 0.852 Saenz, Natalia 10/01/95 10/01/95 09/30/96 410.00 Y -- 42S A.2 616 550.00 0.893 525.00 0.852 Reed, Jody 01/31/96 01/31/96 07/30/96 410.00 Y -- 42W A.2 616 550.00 0.893 550.00 0.893 Garcia, Martin 06/22/96 06/22/96 03/31/97 410.00 Y -- 43E A.1 616 550.00 0.893 500.00 0.812 Taylor, George 04/20/94 06/25/95 06/24/96 410.00 Y -- 43N A.1 616 550.00 0.893 550.00 0.893 Fuentes, Leo 11/10/93 375.00 Y -- 43S A.1 616 550.00 0.893 525.00 0.852 Trevino, Christina 01/30/96 01/30/96 07/29/96 610.00 Y -- 43W A.1 616 550.00 0.893 525.00 0.852 Sanders, Irish 08/15/95 08/15/95 05/14/96 410.00 Y -- 44E A.2 616 550.00 0.893 550.00 0.893 Esquvel, Minerva 09/10/96 09/10/96 03/30/97 410.00 Y -- 44N A.2 616 550.00 0.893 470.00 0.763 Esteban, Henry 04/01/91 09/11/96 04/10/97 375.00 Y -- 44S A.2 616 550.00 0.893 525.00 0.852 Delgado, Teresa L 04/10/96 04/10/96 10/09/96 445.00 Y -- 44W A.2 616 550.00 0.893 525.00 0.852 Syx, Sergie E 10/01/95 10/01/95 09/30/96 445.00 Y OL 45E A.1 616 550.00 0.893 525.00 0.852 Avalos, Luis A 03/01/96 09/11/96 04/10/97 445.00 Y -- 45N A1.1 616 550.00 0.893 500.00 0.812 Vargas, Sabina 10/09/92 93.00 Y -- 45W A.1 616 550.00 0.893 550.00 0.893 Ramirez, Roberto 08/24/96 08/24/96 03/23/97 410.00 Y -- 46E A.2 616 550.00 0.893 575.00 0.933 Cain, Alan H 06/15/96 06/15/96 02/14/97 410.00 Y -- 46N A.2 616 550.00 0.893 520.00 0.844 Young, Kelli 01/13/95 11/01/95 05/31/96 410.00 Y -- 46W A.2 616 550.00 0.893 525.00 0.852 Santana, Ernesto 05/24/95 05/24/95 01/23/96 410.00 Y -- 47E A1.1 616 550.00 0.893 500.00 0.812 Mc Callum, Edna 07/01/94 07/01/96 06/30/97 410.00 Y -- 47N A1.1 616 550.00 0.893 510.00 0.828 Saucedo, Virginia 11/29/90 205.00 Y -- 47W A.1 616 550.00 0.893 550.00 0.893 Bero, Tom 09/15/96 09/15/96 03/30/97 410.00 Y -- 48E A.2 616 550.00 0.893 550.00 0.893 Calvin Harrison 06/09/95 06/01/96 06/30/96 610.00 Y -- 48N A.2 616 550.00 0.893 550.00 0.893 Zapata, Manual 07/06/96 07/06/96 01/30/97 610.00 Y -- 48W A.2 616 550.00 0.893 525.00 0.852 Hernandez, Jose A 01/31/96 09/11/96 04/10/97 445.00 Y -- 49E A.1 616 550.00 0.893 525.00 0.852 Gardea, Veronica 12/09/94 11/04/95 05/03/96 410.00 Y -- 49W A.1 616 550.00 0.893 525.00 0.852 Cornell, David A 12/05/95 12/05/95 09/04/96 410.00 Y -- 50E A.2 616 550.00 0.893 550.00 0.893 Felix, Jesus A 06/07/96 06/07/96 07/06/96 410.00 Y -- 50W A.2 616 550.00 0.893 550.00 0.893 Santiago, Jose 07/17/96 07/17/96 02/16/97 410.00 Y -- 51E B.1 850 695.00 0.818 675.00 0.794 Galvan, Luis 05/17/96 05/17/96 05/16/97 820.00 Y -- 51W A.1 616 550.00 0.893 500.00 0.812 Ramirez, Jesus J 10/04/95 10/04/95 05/07/96 410.00 Y -- 52E B.2 850 695.00 0.818 675.00 0.794 Saito, Noriko 03/30/96 04/01/96 09/30/96 980.00 Y -- 52W A.2 616 550.00 0.893 550.00 0.893 Hunt, Travis 08/24/96 08/24/96 03/17/97 410.00 Y -- </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 4 2:17 pm Heather Plaza Apartments ID 3.6.1 All Units <TABLE> <CAPTION> ==== Unit Profile ===== ======= Scheduled vs Actual Rent === =================== = Moved = Current Lease == Security YNAD I.D. Type SqFt Amount /SqFt Amount /SqFt Current Lease In Begin End Deposit Stat ==== ======== ======= ========= ===== ========= ===== =================== ======== ================== ======== ==== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 53E B.1 850 695.00 0.818 725.00 0.853 Gomez, Carlos 07/30/96 07/30/96 02/28/97 445.00 Y -- 53W A.1 616 550.00 0.893 550.00 0.893 Moschetti, David 08/10/96 08/10/96 03/03/97 509.67 Y -- 54E B.2 850 695.00 0.818 675.00 0.794 Rios, Daniel 04/02/95 10/01/95 09/30/96 445.00 Y -- 54W A.2 616 550.00 0.893 525.00 0.852 Adams, Araceli 03/12/94 06/01/95 10/31/95 445.00 Y -- 55E B.1 850 695.00 0.818 650.00 0.765 Cuevas, Everado 06/01/93 375.00 Y -- 55W A.1 616 550.00 0.893 525.00 0.852 Garcia, David M 11/04/95 11/06/95 08/05/96 410.00 Y -- 56E B.2 850 695.00 0.818 675.00 0.794 Estrada, Daniel 03/15/96 09/11/96 04/10/97 410.00 Y -- 56W A.2 616 550.00 0.893 550.00 0.893 Lopez, Raul 03/10/95 03/10/95 08/11/95 410.00 Y -- 57E B.1 850 695.00 0.818 675.00 0.794 Sanchez, Victor H 01/22/96 01/22/96 07/21/96 445.00 Y -- 57W B.1 850 695.00 0.818 650.00 0.765 Reyes, Benjamin 06/01/94 09/01/95 08/31/96 445.00 Y -- 58B B.2 850 695.00 0.818 675.00 0.794 Spraggins, Kelli I 03/15/96 03/15/96 04/14/96 410.00 Y -- 58W B.2 850 695.00 0.818 725.00 0.853 Tippideaux, Mercede 08/01/96 08/01/96 02/28/97 820.00 Y -- 59W B.1 850 695.00 0.818 675.00 0.794 Alaniz, Antonia Jr 03/15/96 03/15/96 09/14/96 410.00 Y -- 60W B.2 850 695.00 0.818 725.00 0.853 Erwin, Donna 09/05/96 09/05/96 03/24/97 456.67 Y -- 61W B.1 850 695.00 0.818 695.00 0.818 Troncoso, Jose A 07/13/96 07/13/96 04/12/97 410.00 Y -- 62W B.2 850 695.00 0.818 675.00 0.794 Jimenez, Clemente 02/28/96 02/28/96 08/27/96 410.00 Y -- 63W B.1 850 695.00 0.818 675.00 0.794 Owens, Stacy 01/30/96 01/30/96 07/29/96 410.00 Y -- 64W B.2 850 695.00 0.818 625.00 0.735 Gonzales, Martha 06/03/95 06/03/95 06/02/96 445.00 Y -- 65W A.1 616 550.00 0.893 470.00 0.763 Pacheco, Robert 03/15/92 11/01/95 05/31/96 445.00 Y -- 66W A.2 616 550.00 0.893 515.00 0.836 Young, Stanley 10/01/88 04/01/96 03/31/97 385.00 Y -- 67W A.1 616 550.00 0.893 500.00 0.812 Kosbud, Greg 06/17/95 09/11/96 04/10/97 445.00 Y -- 68W A.2 616 550.00 0.893 470.00 0.763 Zarate, Cleofos 05/08/93 410.00 Y -- ==== ======== ======= ========= ===== ========= ===== =================== ======== ================== ======== ==== TOTAL: 218 147592 128340.00 0.870 118551.00 0.833 142344 SF Occupied ==== ======== ======= ========= ===== ========= ===== =================== ======== ================== ======== ==== </TABLE> <PAGE> 09/28/96 LINCOLN RESIDENTIAL MGMT SERVICES Page 4 2:17 pm Heather Plaza Apartments ID 3.6.1 All Units <TABLE> <CAPTION> PHYSICAL OCCUPANCY: Occupied Pct Vacant Pct Total OCCUPANCY PERCENT: Excl. Off-Line Incl. Off-Line =================== ======== ===== ====== ==== ======= =================== ============== ============== <S> <C> <C> <C> <C> <C> <C> <C> <C> Square Footage.: 142,344 96.4% 5,248 3.6% 147,592 Incl. Vac. Leased.: 98.6% 98.2% Unit Count.: 211 96.8% 7 3.2% 218 Excl. Vac. Leased.: 97.2% 96.8% <CAPTION> EXPOSURE TO VACANCY: Number Pct MOVES/TRANSFERS: MAKE-READY STATUS.: Number Pct ========================== ====== ==== ================ ===================== ====== ====== <S> <C> <C> <C> <C> <C> <C> Currently Vacant Units.: 7 3.2% Oct In.: 3 Total Vacant Units.: 7 100.0% Less Vacant Leased.: -3 1.4% Oct Out.: 2 Ready To Rent (Y).: 0 0.0% Less Occupied Pre-Leased.: -2 0.9% Need Make-Ready (N).: 6 85.7% Plus Occupied On Notice.: 13 6.0% Off-Line Down (D).: 1 14.3% Occupied But Skipped.: 0 0.0% Off-Line Admin (A).: 0 0.0% --- --- Net Exposure To Vacancy.: 15 6.9% <CAPTION> RENTAL RATES: Occupied /SqFt Pct Vacant /SqFt Pct Total /SqFt Pct =================== ========== ===== ===== ======== ===== ==== ========== ===== ====== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Scheduled Rent.: 123,910.00 0.870 96.5% 4,430.00 0.844 3.5% 128,340.00 0.870 100.0% Actual Status.: 118,551.00 0.833 92.4% 4,430.00 0.844 3.5% 122,981.00 0.833 95.8% Loss To Lease.: 5,359.00 0.038 4.2% <CAPTION> STATUS OF UNIT TYPES, SUBTOTALED BY FIRST 8 CHARACTERS OF UNIT TYPE: =========================================================================================================================== Unit Total # % Avg. Occup. Total Sch. $ Avg. $ Act. $ Rent Sched. Loss to Made Not OffLn OffLn Type Units 0cc. 0cc. SqFt SqFt SqFt /Unit /SqFt /Unit /SqFt Rent Lease Rdy. Rdy. Adm. Down ==== ===== ==== ==== ==== ======= ====== ====== ====== ====== ===== ========= ======= ==== ==== ===== ===== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> A.1 67 66 99% 616 40656 41272 550.00 0.893 526.74 0.855 36850.00 1535.00 0 1 0 0 A.2 80 78 98% 616 48048 49280 550.00 0.893 526.99 0.855 44000.00 1795.00 0 1 0 1 A1.1 14 14 100% 616 8624 8624 550.00 0.893 506.36 0.822 7700.00 611.00 0 0 0 0 A1.2 1 1 100% 616 616 616 550.00 0.893 500.00 0.812 550.00 50.00 0 0 0 0 B.1 24 23 96% 850 19550 20400 695.00 0.818 670.00 0.788 16680.00 575.00 0 1 0 0 B.2 27 24 89% 850 20400 22950 695.00 0.818 671.25 0.790 18765.00 570.00 0 3 0 0 B1.2 1 1 100% 850 850 850 695.00 0.818 625.00 0.735 695.00 70.00 0 0 0 0 D.1 3 3 100% 900 2700 2700 775.00 0.861 745.00 0.828 2325.00 90.00 0 0 0 0 D1.1 1 1 100% 900 900 900 775.00 0.861 712.00 0.791 775.00 63.00 0 0 0 0 ==== ===== ==== ==== ==== ======= ====== ====== ====== ====== ===== ========= ======= ==== ==== ===== ===== 9 218 211 97% 677 142344 147592 588.72 0.870 561.85 0.833 128340.00 5359.00 0 6 0 1 =========================================================================================================================== </TABLE> <PAGE> HEATHER PLAZA INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE - ----------- ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 330,665.84 (330,665.84) RENTAL INCOME VARIANCE (49,049.11) 49,049.11 ---------- ---------- ---------- ---------- ---------- NET CURRENT RENT 118,447.40 107,735.78 869,249.43 788,578.45 80,670.98 OTHER RENTAL INCOME SECURITY DEPOSITS 5,071.53 3,996.65 45,518.06 32,189.97 13,328.09 FORFEITED SECURITY DEPOSITS 547.68 111.08 7,392.91 542.80 6,850.11 LAUNDRY INCOME 2,067.00 2,552.40 17,201.25 19,103.45 (1,902.20) CHARGES TO TENANTS 1,270.00 480.00 5,216.93 3,480.00 1,736.93 MISCELLANEOUS 590.00 (590.00) UTILITIES 1.14 (1.14) DAMAGE 55.00 11.27 393.29 435.44 (42.15) LATE CHARGES 855.00 1,169.70 5,045.00 3,254.70 1,790.30 NSF FEES 20.00 50.00 560.00 115.00 445.00 CREDIT CHECK 399.93 275.00 2,124.89 2,960.00 (835.11) TRANSFER CHARGE 140.00 (140.00) ---------- ---------- ---------- ---------- ---------- TOTAL OTHER RENT INCOME 10,286.14 8,646.10 83,452.33 62,812.50 20,639.83 TOTAL RENTAL INCOME 128,733.54 116,381.88 952,701.76 851,390.95 101,310.81 ---------- ---------- ---------- ---------- ---------- OTHER INCOME REFUNDED DEPOSITS (4,630.00) (3,345.00) (29,832.00) (19,830.70) (10,001.30) INTEREST INCOME 127.25 86.49 624.34 399.77 224.57 OTHER INCOME 9,600.00 (9,600.00) ---------- ---------- ---------- ---------- ---------- TOTAL OTHER INCOME (4,502.75) (3,258.51) (29,207.66) (9,830.93) (19,376.73) TOTAL INCOME 124,230.79 113,123.37 923,494.10 841,560.02 81,934.08 ========== ========== ========== ========== ========== TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 175.00 3,943.50 1,765.00 2,178.50 CLEANING PAYROLL 1,937.36 (1,937.36) REPAIRS/MAINT. PAYROLL 5,702.67 13,392.44 46,537.80 50,730.91 (4,193.11) MANAGERS SALARIES 1,996.92 3,837.74 18,952.03 15,624.14 3,327.89 OFFICE SALARIES 1,789.64 1,025.74 12,410.67 8,790.35 3,620.32 GROUNDS PAYROLL (4,035.75) 21,826.39 (21,826.39) DECORATING PAYROLL 3,237.95 (3,237.95) STATE COMP. INS.-PAYROLL 637.19 832.64 5,326.52 7,865.03 (2,538.51) PAYROLL-HOSPITAL INS. 1,185.90 1,665.25 9,913.31 11,141.38 (1,228.07) FICA - PAYROLL TAX 672.60 870.89 5,622.47 7,485.60 (1,863.13) FUTA - PAYROLL TAX 70.80 92.51 591.84 803.37 (211.53) SDI TAX-PAYROLL-UNEMPLOY 88.50 115.64 739.81 2,676.49 (1,936.68) </TABLE> <PAGE> HEATHER PLAZA INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE - ----------- --------- ---------- ------------ ------------ -------- <S> <C> <C> <C> <C> <C> --------- --------- ---------- ---------- ---------- PAYROLL EXPENSES 12,319.22 17,805.10 104,037.95 133,883.97 (29,846.02) ADMINISTRATIVE EXPENSES PROMOTIONS 50.00 50.00 ADVERTISING 137.16 674.20 4,268.05 6,339.28 (2,071.23) SIGNS, FLAGS, BANNERS 1,185.30 (1,185.30) BROCHURES 83.92 83.92 OFFICE SUPPLIES 272.02 496.94 1,344.77 1,792.98 (448.21) FURNITURE RENTAL 919.08 497.38 4,603.74 497.38 4,106.36 LEGAL EXPENSES 561.46 1,799.14 426.48 1,372.66 MISCELLANEOUS 31.50 495.04 145.81 843.02 (697.21) CREDIT CHECK EXPENSE 368.00 850.00 1,491.20 2,507.42 (1,016.22) BANK CHARGES 28.72 (26.00) 219.44 219.44 PETTY CASE REIMB. 131.61 (131.61) POSTAGE 67.65 80.99 695.60 372.70 322.90 DUES AND SUBSCRIPTIONS (77.09) 653.60 (730.69) LINCOLN FEE 4,279.87 3,883.45 31,396.24 18,019.55 13,376.69 EMPLOYEE TRAINING 100.00 333.29 (233.29) OUTSIDE STATIONARY MISC 160.37 25.72 410.71 1,462.32 (1,051.61) --------- --------- ---------- ---------- ---------- ADMINISTRATIVE EXPENSE 6,825.83 6,977.72 46,531.53 34,564.93 11,966.60 CONTRACT SERVICES SEC SUP/EXP-FIRE PROTECT 623.48 756.23 6,806.80 3,054.28 3,752.52 EXTERMINATING CONTRACT 381.17 220.00 1,987.42 1,540.00 447.42 CABLE T.V. 1,766.13 3,532.90 15,897.73 14,131.60 1,766.13 GARDENING CONTRACT 9,377.90 3,991.22 22,834.79 6,091.22 16,743.57 --------- --------- ---------- ---------- ---------- CONTRACT SERVICES 12,148.68 8,500.35 47,526.74 24,817.10 22,709.64 UTILITY SERVICES TELEPHONE EXPENSE 214.25 43.19 1,710.05 1,197.02 513.03 TRASH REMOVAL 3,598.95 3,969.05 28,601.30 27,841.70 759.60 PGE - HOUSE 2,321.00 1,359.17 11,745.15 33,068.41 (21,323.26) GAS - HOUSE 7,078.98 4,653.62 29,738.90 14,853.63 14,885.27 PGE APARTMENT METERS 111.06 72.07 879.83 1,454.33 (574.50) WATER 2,972.25 2,164.37 19,800.16 13,713.76 6,086.40 SEWER CHARGES 18,652.08 18,652.08 --------- --------- ---------- ---------- ---------- UTILITY SERVICES 16,296.49 12,261.47 111,127.47 110,780.93 346.54 MAINTENANCE EXPENSES CARPET REPAIRS/MAINT. 560.00 500.00 3,950.97 1,614.79 2,336.18 CARPET REPLACEMENT 7,165.50 25,722.11 47,626.78 (21,904.67) GROUNDS SUPPLY/REPLACEMENT (3,627.90) (1,354.22) 2,850.41 5,530.88 (2,680.47) POOL SUPPLY/REPLACEMENT 429.16 350.00 2,884.45 1,777.05 1,107.40 </TABLE> <PAGE> HEATHER PLAZA INCOME STATEMENT FOR THE 8 MOS. ENDING AUGUST 31, 1996 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- --------- --------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> DECORATING SUPPLIES 3,477.15 3,210.62 11,851.57 9,669.84 2,181.73 CLEANING SUPPLIES/SERV. 1,045.00 310.00 7,223.32 6,821.61 401.71 BLDG MAINT SUPPLIES 4,135.26 6,067.66 9,259.61 43,990.60 (34,730.99) PLUMBING MAINTENANCE 536.56 6,940.37 10,856.72 9,491.99 1,364.73 APPLIANCE REPLACEMENT 1,926.16 4,989.23 3,712.68 22,247.54 (18,534.86) BLDG MAINT SVC/CONTRACT (140.00) 2,848.00 5,024.77 7,336.98 (2,312.21) ELECTRIC MAINTENANCE 362.93 3,180.90 3,697.92 (517.02) MISC. MAINT. EXPENSES (336.00) (366.00) 366.00 --------- --------- ---------- ---------- ---------- MAINTENANCE EXPENSES 15,869.82 23,525.66 86,517.51 159,439.98 (72,922.47) CONTROLLABLE EXPENSES 63,460.04 69,070.30 395,741.20 463,486.91 (67,745.71) --------- --------- ---------- ---------- ---------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE (376.37) (376.37) PROPERTY TAXES 25,133.88 25,133.88 LICENSES & PERMITS 2,616.00 2,896.00 (280.00) --------- --------- ---------- ---------- ---------- FIXED EXPENSES 27,373.51 2,896.00 24,477.51 NET OPERATING INCOME (NOI) 60,770.75 44,053.07 500,379.39 375,177.11 125,202.28 ========= ========= ========== ========== ========== DEBT SERVICE --------- --------- ---------- ---------- ---------- OPERATING CASH FLOW 60,770.75 44,053.07 500,379.39 375,177.11 125,202.28 ========= ========= ========== ========== ========== NON OPERATING EXPENSES REFURBISHMENT & DEFERRAL (1,464.77) 6,393.07 50,422.25 42,768.61 7,653.64 --------- --------- ---------- ---------- ---------- NON OPERATING EXPENSES (1,464.77) 6,393.07 50,422.25 42,768.61 7,653.64 PROFIT/LOSS 62,235.52 37,660.00 449,957.14 332,408.50 117,548.64 ========= ========= ========== ========== ========== </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ---------- ---------- ------------ ------------ ------------- <S> <C> <C> <C> <C> <C> GROSS POTENTIAL INCOME 110,676.34 330,665.84 1,330,892.44 (1,000,226.60) RENTAL INCOME VARIANCE (11,433.74) (49,049.11) (126,948.47) 77,899.36 ---------- ---------- ------------ ------------ ------------- NET CURRENT RENT 106,419.10 99,037.60 1,214,238.07 1,203,738.97 10,499.10 OTHER RENTAL INCOME SECURITY DEPOSITS 4,425.00 3,820.00 51,668.97 46,967.33 4,701.64 FORFEITED SECURITY DEPOSITS 1,756.06 4,683.57 4,683.57 LAUNDRY INCOME 1,824.90 27,021.20 26,683.82 337.38 CHARGES TO TENANTS 1,510.00 720.00 7,553.67 9,875.00 (2,321.33) MISCELLANEOUS 440.00 590.00 595.30 (5.30) UTILITIES 1.14 66.97 (65.83) DAMAGE 235.90 620.44 1,988.95 (1,368.51) LATE CHARGES 550.00 320.00 5,180.58 4,012.78 1,167.80 NSF FEES 10.00 10.00 295.00 149.00 146.00 CREDIT CHECK 275.00 170.00 4,160.00 2,040.00 2,120.00 TRANSFER CHARGE 140.00 140.00 ---------- ---------- ------------ ------------ ------------- TOTAL OTHER RENT INCOME 10,350.96 5,715.90 101,914.57 92,379.15 9,535.42 TOTAL RENTAL INCOME 116,770.06 104,753.50 1,316,152.64 1,296,118.12 20,034.52 ---------- ---------- ------------ ------------ ------------- OTHER INCOME REFUNDED DEPOSITS (9,465.00) (6,059.19) (45,275.70) (50,105.26) 4,829.56 INTEREST INCOME 134.10 832.95 12.08 820.87 OTHER INCOME (32.16) 9,600.00 9,600.00 ---------- ---------- ------------ ------------ ------------- TOTAL OTHER INCOME (9,330.90) (6,091.35) (34,842.75) (50,093.18) 15,250.43 TOTAL INCOME 107,439.16 98,662.15 1,281,309.89 1,246,024.94 35,284.95 ========== ========== ============ ============ ============= TOTAL CONTROLLABLE EXPENSES PAYROLL EXPENSES BONUS 595.72 3,350.00 3,480.33 3,350.00 130.33 CLEANING PAYROLL 388.50 1,937.36 388.50 1,548.86 REPAIRS/MAINT. PAYROLL 10,613.50 5,264.73 85,026.87 39,819.76 45,207.11 MANAGERS SALARIES 3,295.38 1,752.88 27,022.62 13,153.27 13,869.35 OFFICE SALARIES 3,152.23 115.00 16,594.76 5,465.50 11,129.26 GROUNDS PAYROLL 4,000.50 21,826.39 32,653.25 (10,826.86) DECORATING PAYROLL 1,717.40 3,237.95 13,079.66 (9,841.71) STATE COMP. INS.-PAYROLL 1,164.05 1,587.64 11,411.53 10,627.34 784.19 PAYROLL-HOSPITAL INS. 2,328.10 1,167.75 18,234.35 7,246.62 10,987.73 FICA - PAYROLL TAX 1,228.74 937.28 11,229.15 8,255.15 2,974.00 FUTA - PAYROLL TAX 129.34 273.00 1,197.43 790.57 406.86 SDI TAX-PAYROLL-UNEMPLOY 161.68 41.21 3,169.06 3,470.18 (301.12) </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE - ----------- ---------- --------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> PAYROLL EXPENSES 22,668.74 20,595.89 204,367.80 138,299.80 66,068.00 ---------- --------- ---------- ---------- ---------- ADMINISTRATIVE EXPENSES PROMOTIONS (175.04) ADVERTISING 1,195.29 564.65 12,968.00 5,292.94 7,675.06 SIGNS, FLAGS, BANNERS 1,560.30 1,560.30 OFFICE SUPPLIES 451.66 449.66 3,852.28 1,919.67 1,932.61 FURNITURE RENTAL 537.52 2,842.42 2,842.42 LEGAL EXPENSES 398.64 2,021.25 1,943.50 77.75 MISCELLANEOUS (7.30) 156.81 1,838.51 663.02 1,175.49 CREDIT CHECK EXPENSE 95.90 2,736.17 1,229.25 1,506.92 BANK CHARGES 16.00 67.00 160.07 (93.07) PETTY CASH REIMB. 131.61 542.85 (411.24) POSTAGE 290.75 618.08 618.08 DUES AND SUBSCRIPTIONS 115.26 115.26 LINCOLN FEE 3,705.19 33,122.63 33,122.63 NSF CHECK 425.00 630.00 (630.00) EMPLOYEE TRAINING 100.00 933.29 933.29 OUSTIDE STATIONARY MISC 448.26 2,310.41 2,310.41 ---------- --------- ---------- ---------- ---------- ADMINISTRATIVE EXPENSE 6,960.97 1,692.02 65,117.21 12,381.30 52,735.91 CONTRACT SERVICES SEC SUP/EXP-FIRE PROTECT 4,043.16 9,855.07 9,855.07 EXTERMINATING CONTRACT 705.00 2,910.00 2,910.00 CABLE T.V. 3,532.90 18,632.52 21,245.17 (2,612.65) GARDENING CONTRACT (25,684.13) 17,083.00 17,083.00 ---------- --------- ---------- ---------- ---------- CONTRACT SERVICES (20,935.97) 3,532.90 48,480.59 21,245.17 27,235.42 UTILITY SERVICES TELEPHONE EXPENSE 334.43 165.89 3,568.28 1,519.04 2,049.24 TRASH REMOVAL 3,616.25 3,969.05 44,385.27 44,921.90 (536.63) PGE - HOUSE 1,224.35 6,726.44 37,654.34 64,729.50 (27,075.16) GAS - HOUSE 4,758.88 32,898.67 1,347.77 31,550.90 PGE APARTMENT METERS 491.72 272.87 2,612.90 1,630.13 982.77 WATER 2,073.29 26,188.72 24,730.07 1,458.65 SEWER CHARGES 4,663.02 27,978.12 27,978.12 ---------- --------- ---------- ---------- ---------- UTILITY SERVICES 15,088.65 13,207.54 175,286.30 166,856.53 8,429.77 MAINTENANCE EXPENSES CARPET REPAIRS/MAINT. 1,065.00 250.00 3,931.39 5,309.99 (1,378.60) CARPET REPLACEMENT 570.67 1,072.47 82,072.85 13,186.83 68,886.02 GROUNDS SUPPLY/REPLACEMENT 866.48 5,910.00 5,377.82 532.18 EQUIPMENT RENTAL (401.69) 80.62 (80.62) </TABLE> <PAGE> INCOME STATEMENT FOR THE 12 MOS. ENDING DECEMBER 31, 1995 <TABLE> <CAPTION> MONTH MONTH CURRENT PRIOR DOLLAR DESCRIPTION ACTUAL PRIOR YEAR YEAR TO DATE YEAR TO DATE VARIANCE ----------- ----------- ---------- ---------- ---------- ----------- <S> <C> <C> <C> <C> <C> POOL SUPPLY/REPLACEMENT 646.21 4,069.95 4,792.00 (722.05) DECORATING SUPPLIES 2,577.21 546.53 28,356.95 7,428.49 20,926.46 CLEANING SUPPLIES/SERV. 1,766.55 1,030.00 12,007.23 7,850.00 4,157.23 EXTERMINATING SUPPLIES 445.00 1,895.00 (1,895.00) BLDG MAINT SUPPLIES (61.91) 5,535.79 54,564.69 50,352.65 4,212.04 PLUMBING MAINTENANCE 6,270.58 199.00 19,965.79 1,697.00 18,268.79 APPLIANCE REPLACEMENT 3,853.17 41,010.36 2,300.19 38,710.17 BLDG MAINT SVC/CONTRACT (97.72) (43,245.92) 9,791.34 2,357.13 7,434.21 BLDG DAMAGE REPAIRS 20,500.00 (20,500.00) ELECTRIC MAINTENANCE (110.08) 132.30 4,502.75 3,565.97 936.78 MISC. MAINT. EXPENSES 366.00 38.28 38.28 ----------- ---------- ---------- ---------- ----------- MAINTENANCE EXPENSES 16,443.99 (33,168.35) 266,221.58 126,693.69 139,527.89 CONTROLLABLE EXPENSES 40,226.38 5,860.00 759,473.48 465,476.49 293,996.99 ----------- ---------- ---------- ---------- ----------- TOTAL UNCONTROLLABLE EXPENSES FIXED EXPENSES PROPERTY INSURANCE 4,780.90 69,597.69 9,561.80 69,597.69 (60,035.89) PROPERTY TAXES 24,667.90 25,133.88 49,335.80 (24,201.92) LICENSES & PERMITS 2,896.00 280.00 2,616.00 ----------- ---------- ---------- ---------- ----------- FIXED EXPENSES 4,780.90 94,265.59 37,591.68 119,213.49 (81,621.81) NET OPERATING INCOME (NOI) 62,431.88 (1,463.44) 484,244.73 661,334.96 (177,090.23) =========== ========== ========== ========== =========== DEBT SERVICE INTEREST ON 1ST MORTGAGE 2,412.71 (2,412.71) ----------- ---------- ---------- ---------- ----------- DEBT SERVICE 2,412.71 (2,412.71) OPERATING CASH FLOW 62,431.88 (1,463.44) 484,244.73 658,922.25 (174,677.52) =========== ========== ========== ========== =========== NON OPERATING EXPENSES DEPRECIATION EXPENSE 262,519.00 262,519.00 262,519.00 262,519.00 REFURBISHMENT & DEFERRAL 63,429.64 63,769.77 239,943.53 63,769.77 176,173.76 ----------- ---------- ---------- ---------- ----------- NON OPERATING EXPENSES 325,948.64 326,288.77 502,462.53 326,288.77 176,173.76 PROFIT/LOSS (263,516.76) (327,752.21) (18,217.80) 332,633.48 (350,851.28) =========== ========== ========== ========== =========== </TABLE> <PAGE> HEATHER PLAZA LPC Employee Compensation Report 05 SEP 1996 Page 16 <TABLE> <CAPTION> CO# LOC HOME RC EMPL# EMP NAME ......... RT HIRE.. MONTHLY HOURLY MONTHLY MONTHLY AUTO MONTHLY 100 PERCENT.. PROJ DATE CASH CASH NONCASH SALARY ALLOW RENT DISTRIBUTION <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> LP6 939 1786 SC 60927 BETANCOURT, LUIS E R 04/01/95 1040.00 6.00 1,040.00 1786 0503 0002 LP6 939 1786 SC 61408 CIUCCI, SAUNDRA C R 05/15/95 1450.00 8.37 1,450.00 1786 0502 0003 LP6 939 1786 SC 65545 MCCUNE, DONNA J R 04/01/95 1350.00 7.79 500.03 1,850.03 750.00 1786 0501 0001 LP6 939 1786 SC 65553 MCCUNE, SAMUEL T R 04/01/95 1350.00 7.79 1,350.00 1786 0503 0004 LP6 939 1786 SC 66552 PADILLA, IGNACIO R 04/01/95 1248.00 7.20 1,248.00 1786 0503 0001 LP6 939 1786 SC 66555 PADILLA, MIGUEL M R 04/01/95 1084.00 6.25 1,084.00 1786 0503 0002 LP6 939 1786 SC 67780 SEPEDA, OSCAR G R 06/26/96 1040.00 6.00 1,040.00 1786 0503 0002 ------- ------ -------- --- ------ 1786 8562.00 500.03 9,062.03 .00 750.00 </TABLE> CO# MULTIPLE DIST PERCENT PROJ ACCT SUB LP6 LP6 LP6 LP6 LP6 LP6 LP6 PRINT.EMP.COMP.REGION <PAGE> QUALIFICATIONS OF ROBERT SAIA, MAI, SRA Calif. OREA Certificate #AG003191 EXPERIENCE Independent real estate appraiser since 1981. EDUCATION Associate Arts Degree from West Valley College. Major in Real Estate. Bachelor of Arts Degree in Economics from San Jose State University. Graduated with distinction. Graduate Studies in the Master of Business Administration Program at Golden Gate University, San Francisco. Advanced courses in appraisal taken at California State University, Hayward, University of San Francisco and San Jose State University, through the Appraisal Institute. MEMBERSHIPS Former Member of the Society of Real Estate Appraiser (SRPA designation) Current Member of the Appraisal Institute, MM #8841 Current Member of Admissions Committee Appraisal Institute Board of Directors, South Bay Chapter Appraisal Institute 1993-95. National admissions board member. STATE CERTIFICATES AND LICENSES State of California "Certified-General" Appraiser Certificate No. AG003191 State of California Real Estate License (non-active) State of Nevada "Certified-General" Appraiser Certificate No. 00621 APPRAISAL ASSIGNMENTS Some of the types of properties appraised in the past are outlined below: Commercial: Retail stores, office buildings, service stations, vacant land, Residential: Single family, multi-family, townhouse/condominium, vacant land, subdivision, apartments and mobile home parks. Industrial: Vacant land, warehouses, research and development facilities, industrial condominiums and manufacturing facilities, mini-storage warehouses, food processing facilities, truck terminals. <PAGE> Special Use: Airport carwash, landfill, right-of-way, easement valuation, commercial nursery, and golf courses. Lodging Facilities: Motels, hotels, inns, SRO, Recreational vehicle parks CLIENTS A brief partial list of past clients with whom Mr. Saia has worked with includes: American Savings Bank County of Santa Clara Comerica Bank Bank of America NT&SA First National Bank of Central California Bank of Salinas Home Savings of America Metropolitan Securities & Trust City of Monterey City of San Jose City of Palo Alto Imperial Thrift & Mortgage Nations Bank Pacific Western Bank Bay View Federal Bank Wells Fargo Bank Phoenix Home Life ================================================================================ COMPLETE APPRAISAL OF THE FEE SIMPLE ESTATE IN THE RITZ-CARLTON HOTEL CLAYTON (ST. LOUIS), MISSOURI Effective Date of the Appraisal: October 1, 1997 Prepared For: Mr. Timothy S. Koltermann Assistant Vice President Merrill Lynch Mortgage Capital, Inc. World Financial Center, North Tower New York, New York 10281-1386 Prepared By: PKF Consulting San Francisco, California Date of the Report: October 20, 1997 ================================================================================ <PAGE> [Letterhead of PKF Consulting] October 20, 1997 Mr. Timothy S. Koltermann Assistant Vice President Merrill Lynch Mortgage Capital, Inc. World Financial Center, North Tower New York, New York 10281-1326 Re: The Ritz-Carlton Hotel, St. Louis, Missouri Dear Mr. Koltermann: In accordance with your request, we have completed an appraisal of the 301-unit Ritz-Carlton Hotel, located at 100 Carondelet Plaza, in the City of Clayton and County of St. Louis, Missouri. The purpose of the appraisal is to estimate the market value "as is" of the fee simple estate in the above-referenced property. The function of the appraisal is for use by Merrill Lynch Mortgage Capital, Inc. for loan underwriting and/or asset evaluation purposes. The property was valued on a going concern basis including all rights in realty, personalty, and intangible value. The effective date of the appraisal is October 1, 1997. The scope of our work included an inspection of the subject property, analysis of local economic and market conditions, examination of the historical operating performance of the hotel, estimation of future operating performance of the property, and derivation of a value estimate using both the Sales Comparison and Income Capitalization Approaches to valuation. As will be discussed in the text of the report, the Cost Approach is not considered to be a meaningful indicator of value for the subject property. Our valuation analysis is considered a complete appraisal as defined by the Uniform Standards of Professional Appraisal Practice. To the best of our belief, this self-contained appraisal report conforms to requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute, the Uniform Standards of Professional Appraisal Practice (USPAP) established by the Appraisal Foundation, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), and the Office of the Comptroller of the Currency. <PAGE> Mr. Timothy S. Koltermann 2 October 20, 1997 ================================================================================ This appraisal is subject to the General Certification and Statement of assumptions and Limiting Conditions presented in the Addenda. Further, for the purpose of this appraisal, we have assumed that the hotel would be sold as encumbered with the existing management contract with the Ritz-Carlton Hotel Company, LLC, and that the hotel would continue to operate as a Ritz-Carlton property. Based on the work undertaken and our experience as real estate analysts and appraisers, we are of the opinion that the market value "as is" of the fee simple estate interest in the Ritz-Carlton Hotel, St. Louis, Missouri, as of October 1, 1997, is: =========================================================== SIXTY MILLION DOLLARS =========================================================== $60,000,000 =========================================================== Of this above value, $5,600,000 is allocated to the depreciated value of the furniture, fixtures, and equipment of the hotel. Yours sincerely, PKF Consulting /s/ Thomas E. Callahan ------------------------------------ By Thomas E. Callahan, CPA, CRE, MAI Executive Vice President /s/ Kenneth Kuchman ------------------------------------ By Kenneth Kuchman Vice President <PAGE> TABLE OF CONTENTS <PAGE> TABLE OF CONTENTS ================================================================================ SECTION I SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS INTRODUCTION SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS I-1 A. Identification of the Property I-3 B. Legal Description I-3 C. Purpose and Use of the Appraisal I-3 D. Property Rights Appraised I-3 E. Important Dates I-4 F. Summary of Ownership and Sales History I-4 G. Definition of Values I-4 1. Market Value I-4 2. Market Value "As Is" I-5 3. Going-Concern Value I-5 H. The Current Investment Climate for Hotel Properties I-5 I. Scope and Methodology of the Appraisal I-7 J. Competency Provision of USPAP I-7 <PAGE> TABLE OF CONTENTS ================================================================================ SECTION II AREA REVIEW AND NEIGHBORHOOD ANALYSIS AREA REVIEW AND NEIGHBORHOOD ANALYSIS II-1 A. Introduction II-2 B. St. Louis Overview II-2 C. St. Louis Economic and Demographic Trends II-2 1. Introduction II-2 2. Population II-3 3. Effective Buying Income II-3 4. Employment II-4 D. Commercial Office Market II-6 1. Introduction II-6 2. St. Louis Metropolitan Area II-6 3. Clayton II-7 E. Tourism and Convention Activity II-7 1. Convention Center II-7 2. Gaming II-8 3. Tourism II-9 F. Transportation II-10 1. Highway II-10 3. Port of Metropolitan St. Louis II-11 4. Commuter Rail Transportation II-12 G. Neighborhood Analysis II-12 H. Conclusion II-15 <PAGE> TABLE OF CONTENTS ================================================================================ SECTION III PROPERTY DESCRIPTION A. SITE DESCRIPTION III-1 A. Site Description III-1 1. Location, Access, and Visibility III-1 2. Topography, Shape, and Size III-1 3. Soil Conditions and Hazardous Materials III-3 4. Flood Zone, Wetlands, and Earthquake Zones III-3 5. Historical, Natural, Cultural, Recreational, and/or Scientific Value III-3 6. Utilities III-4 7. Zoning III-4 8. Easements and Covenants III-4 9. Assessed Value and Property Taxes III-5 B. Improvements Description III-6 1. Property Design and Configuration III-6 2. Basic Construction and Mechanical Systems III-6 3. Guest Rooms III-15 4. Public Areas III-16 5. Other Areas III-19 6. Parking III-19 7. Compliance with the Americans with Disabilities Act III-20 8. Proper Changes and Refurbishment III-20 C. Management and Franchise Agreements III-20 D. Summary of Functional Utility and Condition III-21 <PAGE> TABLE OF CONTENTS ================================================================================ SECTION IV HOTEL MARKET ANALYSIS AND HIGHEST AND BEST USE HOTEL MARKET ANALYSIS IV-1 A. Introduction IV-1 B. St. Louis Market Overview IV-1 C. The Primary Competitive Hotel Market IV-2 1. Hilton Frontenac IV-6 2. Hyatt Regency, Union Station IV-6 3. Marriott Pavilion IV-7 4. Adam's Mark IV-7 5. Secondary Competition IV-7 6. Additions to Supply IV-8 D. Market Performance of the Primary Competitive Properties IV-9 E. Rooms Demand for the Primary Competitive Market IV-10 1. Historical Performance IV-10 F. Performance of the Ritz-Carlton, St. Louis IV-12 1. Occupancy and Average Daily Room Rate IV-12 2. Market Mix IV-13 G. Estimated Growth in Demand for the Overall Market IV-14 H. Projected Future Market Performance of the Subject Hotel IV-15 1. Projected Occupancy IV-15 2. Projected Average Daily Rate (ADR) IV-15 I. Market Analysis Summary IV-16 1. Conversion to a Fiscal Year Basis IV-16 2. Summary of Occupancy and Average Daily Room Rate IV-16 J. Conclusion IV-17 HIGHEST AND BEST USE IV-18 K. Definition of Highest and Best Use IV-18 L. Highest and Best Use As If Vacant IV-19 1. Legally Permissible IV-19 2. Physically Possible IV-19 3. Financially Feasible and Maximally Productive IV-19 M. Highest and Best Use "As Improved" IV-20 <PAGE> TABLE OF CONTENTS ================================================================================ SECTION V VALUATION A. Discussion of the Three Approaches to Value V-1 1. Cost Approach V-1 2. Sales Comparison Approach V-1 3. Income Capitalization Approach V-1 B. Valuation of the Subject Property V-2 SALES COMPARISON APPROACH V-3 A. Introduction V-3 B. Presentation of Comparable Sales V-8 C. Adjustments V-11 D. Conclusion V-13 INCOME CAPITALIZATION APPROACH A. Introduction V-14 B. Methodology V-14 1. Direct Capitalization V-14 2. Yield Capitalization (Discounted Cash Flow Approach) V-15 C. Basis for Cash Flow Projections V-15 D. Historical Operating Results V-16 E. Operating Statistics on Comparable Hotels V-20 F. Stabilized Year Estimate V-23 1. Departmental Revenues and Expenses V-23 2. Undistributed Operating Expenses V-28 3. Management Fee and Fixed Charges V-31 H. Stabilized Year Operating Results V-32 I. Estimated Annual Operating Results for the Holding Period V-34 1. Holding Period V-34 2. Inflation V-34 3. Average Daily Room Rate and Occupancy During the Holding Period V-35 4. Operating Revenues and Expenses During the Holding Period V-36 5. Statement of Estimated Annual Operating Results During the Holding Period V-36 J. Valuation Using Direct Capitalization V-41 1. Capitalization Rate V-41 2. Stabilized Value Calculation - Direct Capitalization V-44 K. Discounted Cash Flow Analysis V-45 1. Net Proceeds Upon Sale (Reversion) V-45 2. Discount Rate V-46 3. Valuation Calculation - Discounted Cash Flow V-47 L. Income Capitalization Approach Valuation Conclusion V-48 <PAGE> TABLE OF CONTENTS ================================================================================ SECTION V VALUATION (Continued) RECONCILIATION AND FINAL ESTIMATE OF VALUE V-50 A. Final Conclusion of Market Value "As Is" V-50 B. Personal Property Allocation V-51 C. Marketing Exposure Periods V-52 <PAGE> ADDENDA A. CERTIFICATION OF THE APPRAISERS B. STATEMENT OF ASSUMPTIONS AND LIMITIING CONDITIONS C. LEGAL DESCRIPTION OF THE PROPERTY D. QUALIFICATIONS OF THE APPRAISERS E. COPY OF APPRAISERS' STATE OF CALIFORNIA CERTIFICATES F. PKF CONSULTING'S HOSPITALITY INVESTMENT SURVEY G. ENGAGEMENT LETTER FOR THE APPRAISAL <PAGE> SECTION I SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS INTRODUCTION <PAGE> SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS ================================================================================ ================================================================================ Summary of Important Facts and Conclusions ================================================================================ Subject Property Ritz-Carlton Hotel 100 Carondelet Plaza Clayton (St. Louis), Missouri 63105 Telephone (314) 863-6300 - -------------------------------------------------------------------------------- Owner: HEF 1 - STL No. 1, LLC / Maritz, Wolff & Co. - -------------------------------------------------------------------------------- US Census Tract 2165.00 Thomas Guide Grid Not available Assessor's Parcel Number 19J431878 - -------------------------------------------------------------------------------- Effective Date of Appraisal October 1, 1997 - -------------------------------------------------------------------------------- Property Rights Appraised Fee Simple Estate - -------------------------------------------------------------------------------- Highest and Best Use - -------------------------------------------------------------------------------- Highest and Best Use As if Vacant Hold for future development As Improved Full-Service Hotel - -------------------------------------------------------------------------------- Property Description - -------------------------------------------------------------------------------- Improvements Year Built 1990 Gross Building Area 383,977 square feet Number of Rooms 301 Parking 745 parking spaces are available in a seven-level attached Number of Floors garage Amenities 18 (17 levels above-ground and one basement level) Compliance with ADA Two restaurants, lobby lounge, cigar club, 30,000 square feet of meeting space, fitness center, indoor pool and spa, sun deck, Club Level guest rooms. Not in full compliance - -------------------------------------------------------------------------------- Site Area (Gross) 2.99 acres (130,244 square feet) Zoning C-4 (Commercial District) Flood Zone Zone X, Panel #290341-0001F, dated September 28, 1990 Alquist Priolo Zone No Wetlands Zone No Historical, Natural, Cultural, Recreational, Scientific Value No - -------------------------------------------------------------------------------- Valuation Conclusion - -------------------------------------------------------------------------------- Cost Approach Not Applicable - -------------------------------------------------------------------------------- Sales Comparison Approach $60,000,000 - -------------------------------------------------------------------------------- Income Capitalization Approach Stabilized Occupancy 75.0% Stabilized Average Daily Room Rate $153.00 Stabilized Net Operating Income $5,413,000 Capitalization Rate 9.0%/9.5% (Going-In/Terminal) 12.0% Discount Rate Indicated Value $60,100,000 Direct Capitalization $59,500,000 Discounted Cash Flow Analysis - -------------------------------------------------------------------------------- Final Estimate of "As Is" Market Value $60,000,000 - -------------------------------------------------------------------------------- Value of Personal Property (FF&E) $5,600,000 - -------------------------------------------------------------------------------- Exposure and Marketing Periods 6 months or less ================================================================================ ================================================================================ I-1 <PAGE> [GRAPHIC OMITTED] View of Hotel from Carondelet Plaza, Looking Northeast [GRAPHIC OMITTED] View of Main Porte-Cochere Entry, Looking Northeast ================================================================================ I-2 <PAGE> SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS ================================================================================ A. IDENTIFICATION OF THE PROPERTY The property to be appraised is the Ritz-Carlton, St. Louis, Missouri, a 301-unit hotel located in Clayton (St. Louis), Missouri, County of St. Louis. The property has a street address of 100 Carondelet Plaza, between Forsyth Boulevard and Forest Park Parkway, in the central business district of Clayton. The property is identified for property tax purposes in St. Louis County Property Tax Records as parcel 19J431878. B. LEGAL DESCRIPTION The legal description of the 130,244 square foot subject site is described in as: "A tract of land in Township 45, North, Range 6 East, St. Louis County, Missouri, and being part of Hanley's Resubdivision of Blocks 6, 7, 8, 9, and 20 of Hanley's Addition to Clayton as per Plat Book 7, Page 62 of the St. Louis County Records and part of Block 12 of Northmoor Park Addition as per Plat Book 14, Pages 84 and 85 of the St. Louis County Records." A copy of this document is presented in Addendum C. C. PURPOSE AND USE OF THE APPRAISAL PKF Consulting was engaged by Merrill Lynch Mortgage Capital, Inc. on September 19, 1997, to perform an appraisal of the subject property. The purpose of this appraisal is to estimate the market value "as is" of the fee simple estate in the subject for loan underwriting and/or asset evaluation purposes. D. PROPERTY RIGHTS APPRAISED The property rights appraised are the fee simple estate in the subject. A fee simple estate is defined as: Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.(1) - ---------- (1) Appraisal Institute, The Dictionary of Real Estate Appraisal, Third Edition (Chicago: Appraisal Institute, 1993), Page 140 ================================================================================ I-3 <PAGE> SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS ================================================================================ E. IMPORTANT DATES The property was inspected on October 1 through 3, 1997, by Kenneth Kuchman, Vice President with PKF Consulting. During the primary inspection of the hotel, Mr. Kuchman was accompanied by Paul E. Mack, the hotel's director of engineering. Mr. Kuchman also met with the hotel's general manager, director of operations, and controller. The physical inspection included a random sampling of guestrooms, all public areas, all back-of-the-house facilities, the roof of the tower, and the exterior of the property. Further, Mr. Kenneth Fearn of Maritz, Wolff & Co. has provided requested documents and additional background information on the property. Our fieldwork was undertaken in October 1997 and the report was also written in October 1997. The date of this report is October 20, 1997 and the effective date of value of the property is October 1, 1997. F. SUMMARY OF OWNERSHIP AND SALES HISTORY The fee simple interest in the subject site is held by HEF 1 - STL No. 1, LLC, a limited partnership related to Maritz, Wolff & Co., which acquired the hotel in November 1994 from Boatmen's Bank, the original owner's lender, who took possession of the hotel through a deed-in-lieu of foreclosure proceeding. We understand that the purchase price for the hotel at that time was $36,800,000. The hotel continues to be managed by the Ritz-Carlton Hotel Company, LLC, for which the Ritz-Carlton is paid a management fee. For the purpose of this appraisal, we have assumed that the hotel would be sold encumbered with the existing management contract in place, and that the hotel would continue to operate as a Ritz-Carlton property. We are not aware of any other transactions involving the Ritz-Carlton, St. Louis, which have occurred during the past three years, from October 1994 to October 1997. G. DEFINITION OF VALUES 1. Market Value "Market value" means 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: ================================================================================ I-4 <PAGE> SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS ================================================================================ 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 U.S. 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.(2) 2. Market Value "As Is" Market value "as is" on appraisal date means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date the appraisal is prepared.(3) 3. Going-Concern Value The value created by a proven property operation; considered as a separate entity to be valued with a specific business establishment.(4) H. THE CURRENT INVESTMENT CLIMATE FOR HOTEL PROPERTIES The investment climate for hotel investments both on a national basis in general and in the Midwest region as well, has improved dramatically over the past few years. The resurgence in the overall health of the hotel industry, as reflected in higher average occupancies and average daily room rates, combined with the lack of construction of new full-service properties, particularly in urban markets such as St. Louis, have caused such hotel properties to again become a desired real estate investment for major investors. - ---------- (2) Federal Register, Vol. 55, 165, Friday, August 24, 1990, Rules and Regulations, 12 CFR Part 34.42(F) (3) Appraisal Policies and Practices of Insured Institutions and Services Corporation Federal Home Loan Bank Board, "Final Rule," 12 CFR Parts 563 and 571, December 31, 1987 (4) Appraisal Institute, op. cit., Page 160 ================================================================================ I-5 <PAGE> SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS ================================================================================ During the period from the late 1980s to the early 1990s, hotels had fallen out-of-favor as an investment class, with a great decline in market value being experience by many hotel properties by the "bottoming out" of the market, which was reached in 1993. Moving beyond 1993, the hotel investment market truly began to strengthen during 1995, and this resurgence was fueled by hotel real estate investment trusts (REITs) such as Starwood Lodging Trust, Patriot American, and FelCor, which have poured Wall Street money into the marketplace. In addition to the recent REIT activity, the re-emergence of both debt and equity players who had sidelined themselves during the downturn in the market have helped fuel the competition for hotel investments. Included in this set of renewed investors are the money center banks, insurance companies, and pension funds that had curtailed hotel investment after the late 1980s. The primarily achievement of hotels, as income properties, over the past few years has been cost-containment and other operational efficiencies instituted during the "lean" years of the late 1980s and early 1990s. With occupancies and room rates now up in most markets, the expense efficiencies achieved have allowed more of the top-line improvement to flow into net operating income, thus enhancing the attractiveness of hotels as an investment class. I. SCOPE AND METHODOLOGY OF THE APPRAISAL The scope of the appraisal included an inspection of the subject property and its immediate area, an analysis of the local hotel market as it relates to the subject, and an estimation of the subject's market value using the Sales Comparison and Income Capitalization Approaches to value. Sources of information for the appraisal included interviews with management personnel of the subject itself, management representatives of competitive hotels, representatives of local government and community agencies, industry professionals, and in-house data. Financial statements for the subject property, prepared by the Ritz-Carlton Hotel Company, LLC, were provided both by Maritz, Wolff & Company and hotel management. Since these statements were not prepared by us, we do not take responsibility for their accuracy, but we have assumed that they are correct. Our research, methodology, analyses, and conclusions are presented in this narrative appraisal as outlined below. ================================================================================ I-6 <PAGE> SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS ================================================================================ Section I presents the appraisal issues, important dates, and background information. Section II contains a review and analysis of the subject's overall market as well as its immediate neighborhood. Section III is the property description, which addresses the overall concept of the subject including a discussion of the site and the improvements. Section IV includes our analysis of the local hotel market. Included in this section is also our opinion of the highest and best use for the subject property. Section V contains our value estimate using the Sales Comparison and Income Capitalization Approaches to value, followed by a reconciliation and our final conclusion of value. The Addenda includes a Certification of the Appraisers, our statement of Assumptions and Limiting Conditions, Legal Description of the Property, Qualifications of the Appraisers, Copy of Appraisers' State of California Certificates, PKF Consulting's Hospitality Investment Survey, and Copy of the Engagement Letter for the Appraisal. J. COMPETENCY PROVISION OF USPAP The Competency Provision of the Uniform Standards of Professional Appraisal Practice, promulgated by the Appraisal Foundation and required as part of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), states that: Prior to entering an agreement to perform any assignment, an appraiser must properly identify the property to be appraised and have the knowledge and experience that will be required to complete the assignment competently or alternatively: 1. Disclose the lack of knowledge and/or experience to the client before accepting the assignment; 2. Take all appropriate steps necessary to complete the assignment competently; and, 3. Describe the lack of knowledge and/or experience and the steps taken to complete the assignment competently in the report. PKF Consulting is a member of Pannell Kerr Forster International, an international firm which has been providing accounting, consulting, and appraisal services within the hospitality industry in the United States for over 80 years. In addition, the firm publishes extensive material, providing aggregate statistics on hotel performance, which serves as a benchmark for the industry. ================================================================================ I-7 <PAGE> SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS ================================================================================ Thomas E. Callahan, CPA, CRE, MAI and Kenneth Kuchman have extensive experience both in the San Francisco Bay area hotel market in specific and in the appraisal of hotel facilities in general as seen in the professional qualifications provided in Addendum D of this report. It should be noted that both Mr. Callahan and Mr. Kuchman are certified general real estate appraisers in the State of California, and Mr. Kuchman is registered as a general real estate appraiser in the State of Missouri with regard to the appraisal of the subject property. ================================================================================ I-8 <PAGE> SECTION II AREA REVIEW AND NEIGHBORHOOD ANALYSIS <PAGE> [GRAPHIC OMITTED] Regional Map <PAGE> AREA AND NEIGHBORHOOD REVIEW ================================================================================ A. INTRODUCTION In commercial real estate valuation, it is recognized that property values are influenced by factors that can be broadly categorized as economic, governmental, social, and environmental. It is therefore necessary to evaluate the dynamics of these factors within a market to understand their effect on property value. The Ritz Carlton, St. Louis is located in Clayton, a small, upscale suburb in the Greater St. Louis Metropolitan Area located to the northwest of the City of St. Louis. Accordingly, an understanding of trends in the above four factors for the Greater St. Louis Metropolitan Area in general, and the City of St. Louis and Clayton in particular are important in valuing the subject property. Presented in the following paragraphs is a discussion of factors impacting the subject. Governmental and environmental issues are primarily discussed in Section III of this appraisal with regard to property taxes, zoning, and other regulatory issues which affect the property. B. ST. LOUIS OVERVIEW The subject property is located proximate to St. Louis, a city situated along the Mississippi River at the eastern extremity of the state of Missouri, across the river from Illinois. Due to St. Louis' central location within the Midwest, it has historically enjoyed a reputation as a desirable convention destination. St. Louis is located within 500 miles of one third of the country's population and businesses, and currently ranks eighth in the nation with respect to corporate headquarters representation. Fortune Magazine recently ranked St. Louis as the sixth best place to live and work in the United States. A sampling of nationally ranked companies located in St. Louis include Anheuser-Busch, Emerson Electric Company, May Department Stores, Boeing/McDonnell Douglas, Monsanto, and Ralston Purina. A review of economic and demographic trends offers an indication of the relative health of the subject market area. C. ST. LOUIS ECONOMIC AND DEMOGRAPHIC TRENDS 1. Introduction To assess the economic and environment in which the subject is operating, data was gathered from a number of different sources including various city and county agencies, and sources within the private sector. Analysis of this data provides a means of measuring the economic climate in which the subject property functions. ================================================================================ II-2 <PAGE> AREA AND NEIGHBORHOOD REVIEW ================================================================================ In the assessment of the general economic climate for a hotel property in the Greater St. Louis Metropolitan Area, particular emphasis was placed on key indicators such as the city's population, effective buying income (EBI), and employment growth. Additionally, in order to understand the dynamics of the local market, we have analyzed commercial office space absorption, convention activity, tourism, and transportation modes and patterns impacting the St. Louis Metropolitan Area. 2. Population Like most older urban areas throughout the nation, the City of St. Louis has experienced a declining population which fell from 453,085 in 1980 to 396,685 in 1990, a compound annual decrease of (1.3) percent. However, the metropolitan area population increased at a moderate compound annual rate of 0.3 percent, from 2,414,091 in 1980 to 2,492,525 in 1990. Both trends are expected to continue with population in 2000 projected at 368,000 in the city, and 2,678,300 for the metropolitan area. The current population of the metropolitan area is 2,561,400, including a population of 13,705 in Clayton. 3. Effective Buying Income Often used as an indicator of market quality, EBI is defined as personal income less personal tax and non-tax payments (also known as disposable income). EBI is also a bulk measurement of market potential indicating the ability to buy. The following chart represents the distribution of EBI per household for the St. Louis Region compared to that of the United States. ================================================================================ II-3 <PAGE> AREA AND NEIGHBORHOOD REVIEW ================================================================================ [BAR GRAPH OMITTED] As can be noted above, St. Louis has a higher than average number of households with an EBI of $35,000 or larger. The median household income for St. Louis is approximately $37,400 compared to $33,500 for the United States. This represents a noticeable level of affluence for the Greater St. Louis Metropolitan Area. 4. Employment The Greater St. Louis Metropolitan Area is the home to a number of Fortune 500 companies such as Ralston Purina, Boeing/McDonnell Douglas Corp, and Monsanto. Despite the abundance of these companies, St. Louis is considered a location of no-growth industries such as defense and auto. With the recent strike at Boeing/McDonnell Douglas, the layoff of 2,500 Chrysler workers, and the potential relocation plans of TWA, the manufacturing sector is not expected to experience the growth that is typically common with other stronger manufacturing industries such as technology and electronics. ================================================================================ II-4 <PAGE> AREA AND NEIGHBORHOOD REVIEW ================================================================================ Total employment growth has increased at a modest compound annual rate of 1.2 percent from a 1994 workforce of 1,224,000 to a 1996 workforce of 1,268,000, and is projected to increase by 2.7 percent for 1997 ranking it twenty-fifth out of 58 Metropolitan Statistical Areas. Employment growth is anticipated at 1.0 percent annually thereafter until the year 2000. The unemployment rate has dropped from 4.8 percent in 1994 to 4.2 percent in 1996. St. Louis's failure to attract a concentration of high-growth companies will contribute to the comparably weak employment growth that is projected until the year 2000. Despite the relative lack of growth in the St. Louis area manufacturing industry, the economy is becoming increasingly service-oriented, with tourism comprising a large portion of the workforce. The services sector currently comprises 31.0 percent of the workforce with wholesale and retail trade accounting for 24.0 percent, manufacturing 16.0 percent. And the balance falling into the government, construction and mining, finance, insurance, real estate, transportation, communication and public utility trades. The following table lists the ten largest private and public sector employers in the Greater St. Louis Metropolitan Area. ================================================ Greater St. Louis Metropolitan Area Largest Employers ================================================ Number of Company Employees ------------------------------------------------ Boeing/McDonnell Douglas 22,100 BJC Health Systems 21,000 Schnuck Markets 12,600 Southwestern Bell 9,000 Washington University 8,800 U.S. Air Force 8,600 Trans World Airlines Inc. 8,200 St. Louis University 7,700 Chrysler Corporation 4,700 Monsanto 4,600 Anheuser-Busch Cos. Inc. 4,600 ================================================ Source: St. Louis Regional Commerce and Growth Association ================================================ ================================================================================ II-5 <PAGE> AREA AND NEIGHBORHOOD REVIEW ================================================================================ D. COMMERCIAL OFFICE MARKET 1. Introduction Since the corporate/commercial office sector represents a potential source of demand for area hotels, a review of recent trends in the office market conditions is considered relevant. Commercial business travelers represent a significant market for the St. Louis hotel industry and the subject property in particular. This market is primarily generated by persons visiting businesses housed in commercial office developments located in the central business district and within the metropolitan area. Accordingly, an analysis of the historical and expected future growth in the area's office market is therefore an important element in understanding the strength of the local commercial hotel market. 2. St. Louis Metropolitan Area The following table represents the net rentable area, historical vacancy rates, annual net absorption, and new construction in the St. Louis Metropolitan Area. ================================================================================ St. Louis Metropolitan Area Summary of Commercial Office Space Building Activity 1990-1997 ================================================================================ Total Net Vacancy Annual Net New Year Rentable Area Rate Absorption Construction - -------------------------------------------------------------------------------- 1990 29,843,662 17.1% 1,143,302 884,000 1991 30,267,762 17.2% 386,348 402,000 1992 30,343,408 16.6% 206,702 80,000 1993 30,252,747 14.1% 890,851 0 1994 30,778,852 11.9% 1,071,327 200,000 1995 31,444,746 10.8% 489,724 280,000 1996 33,040,870 11.4% 335,814 365,000 1997(1) 33,235,348 9.0% 279,604 667,000 - -------------------------------------------------------------------------------- CAGR 1.6% ================================================================================ CAGR: Compound Annual Growth Rate (1) Represents third quarter 1997 Year to Date Source: CB Commercial ================================================================================ As can be noted above, during the early 1990's the net rentable area of office space remained constant at approximately 30 million square feet while vacancy rates slowly declined from 17.0 percent in 1990 to 14.0 percent in 1993. This decrease in vacancy rates is attributed to the cessation in new construction from approximately 880,000 square feet in 1990 to zero new construction in 1993. From 1993 through the third quarter of 1997, the vacancy rates of the Greater Metropolitan Area decreased from 14.0 percent to 9.0 percent, while new construction increased ================================================================================ II-6 <PAGE> AREA AND NEIGHBORHOOD REVIEW ================================================================================ steadily with 667,000 square feet of commercial office space under construction through the third quarter of 1997. This reflects a resurgence in the office market coinciding with the strong economy. 3. Clayton The subject Ritz Carlton, St. Louis benefits from the absorption of commercial office space in the Greater St. Louis Metropolitan Area, its location in Clayton and along the Interstate 40 western corridor ("West Counties") is also advantageous. Since 1992, the vacancy rates for the Highway 40 corridor have decreased from a high of 19.2 percent in 1990 to a remarkable low of 2.5 percent through the third quarter of 1997. During this same time period, the total amount of net rentable area has only increased from 2,372,000 in 1990 to 2,768,000 in 1997 thus reflecting very little new construction. As vacancy rates continue to drop due to increased demand for office space, the Highway 40 corridor is likely to see increased new construction, making the area a continuing attractive alternative to the downtown area. E. TOURISM AND CONVENTION ACTIVITY 1. Convention Center The performance of the subject hotel is tied to local convention activity as large conventions create "spill-over" demand for other hotels in the area. As stated previously, St. Louis, due to its centralized location, has historically enjoyed a reputation as a desirable convention destination. In recognition of this, St. Louis' convention center completed a major expansion in 1993. The center, now called America's Center, incorporates the Cervantes Convention Center, a state-of-the-art Trans World Dome, and the St. Louis Executive Conference Center. The Cervantes Convention Center at America's Center has six exhibit halls, and 502,000 square feet of contiguous exhibition space, including 162,313 square feet in a domed stadium / exhibit hall. The Trans World Dome can seat 70,000 people and the space can be divided from ceiling to floor with an acoustically sound curtain wall. The America's Center is equipped with 84 flexible meeting rooms, including 13 adjacent to the Trans World Dome, and a 28,000 square foot ballroom. America's Center also features a three-level, 1,411 fixed-seat lecture hall. The St. Louis Executive Center is designed to accommodate smaller groups. It contains three individual meeting suites and is the first small conference property located within a convention facility. The expanded convention center has been well received by convention and meeting planners, and this acceptance is reflected in recently increased attendance levels by conventioneers. The following table summarizes the historical results of St. Louis' America's Center. ================================================================================ II-7 <PAGE> AREA AND NEIGHBORHOOD REVIEW ================================================================================ ================================================= America's Center ================================================= Meetings and Hotel Year Conventions Room Nights ------------------------------------------------- 1993 273 385,000 1994 334 378,200 1995 383 376,500 1996 336 448,500 1997 350 429,500 ------------------------------------------------- CAGR 7.2% 5.2% ================================================= Source: St. Louis Convention and Visitors Commission ================================================= As can be noted by the figures above, the compound annual growth rate for conventions is 7.2 percent since 1993, while the compounded growth rate of hotel room nights for the same time period is 5.2 percent. Projections through 1997 indicate 350 meetings and conventions, and 429,000 hotel room nights. Since the expansion of the convention facilities in 1993, the increase in the number of conventions has resulted in a significant increase in hotel room nights. Thus, future expectations for the America's Center appear quite positive, a situation which bodes well for area hotels. This fact was also made known to us during our fieldwork and we understand that all of the major downtown hotels in St. Louis are projecting increased convention business over the next five years. Moreover, both as a result of the success of America's Center and the slow growth of existing resident industries in St. Louis, we understand that city government and the Convention and Visitors Bureau are planning expanded efforts to promote tourism to St. Louis. The convention and leisure industries are seen as a "clean" industry with far-ranging economic benefits. These efforts are expected to begin in 1998 with an extensive new "Midwestern Civilization" advertising campaign. The culmination of new tourism development is expected to occur in 2004, the 100th Anniversary of the St. Louis' hosting of the 1904 World's Fair. 2. Gaming Riverboat gaming was introduced into Missouri in May of 1994. In 1995 Missouri riverboat gaming taxes had become the fourth largest tax revenue category after personal income, sales, and corporate taxes. There are currently two riverboats in the Downtown area. The President Casino on the Admiral is located on the Missouri side of the Mississippi River while the Casino Queen is located on the Illinois side. Additionally, there are two riverboats located to the west of the St. Louis on the Missouri River; the Station Casino, and Harrah's. Riverboat gaming has had a positive influence on tourism in general, and the convention industry in particular, although none of the management personnel we interviewed at the hotels comparable to the subject hotel indicated that the casinos generated a significant number of room nights. ================================================================================ II-8 <PAGE> AREA AND NEIGHBORHOOD REVIEW ================================================================================ 3. Tourism Tourist attractions in the St. Louis area are abundant, the most prominent of which is the Gateway Arch, symbolizing the city as the gateway to the west. The Arch, located in Jefferson Memorial Park, along the Mississippi River and two blocks east of the subject, rises 630 feet with tram access and an observation room at the top. Beneath the Arch is the Museum of Westward Expansion and the Arch Odyssey Theater. Other attractions within or near Jefferson Memorial Park include the Old Courthouse, of historical and architectural significance, the site of the first two Dred Scott trials; and the Basilica of St. Louis, 150 years old and St. Louis' first church. The Keil Center, an 18,500- seat arena is the home of the National Hockey League's St. Louis Blues and the University of St. Louis basketball team. It is also used for concerts, ice shows, family shows, and civic events. The 12-story arena adjoins the historic Keil Opera House, which was recently renovated and contains 664,000 square feet, providing seating of 18,500 for hockey games and 19,500 for other events. Bush Stadium is located in the heart of downtown and is the home of the Major League Baseball's St. Louis Cardinals. Union Station, originally constructed in 1894 and formerly the world's largest and busiest railroad terminal, ceased rail operations in 1978. This national historic landmark was completely renovated by the Rouse Company in 1985, and today offers over 125 shops, restaurants, and entertainment facilities, and includes the Hyatt Regency Hotel. Union Station is one of the most popular tourist destinations in St. Louis. La Clede's Landing, located along the River just north of the Arch, is a nine square block area of renovated warehouses offering shopping, restaurants, and night clubs. This area, revitalized in 1975 and designated a national landmark in 1976, is a popular tourist draw. Other popular attractions include the St. Louis Zoo, the Botanical Gardens which span 65 acres and include a rainforest exhibit, the Anheuser-Bush Brew House, the Bowling Hall of Fame, and the St. Louis Car Museum. ================================================================================ II-9 <PAGE> AREA AND NEIGHBORHOOD REVIEW ================================================================================ F. TRANSPORTATION St. Louis is served by an excellent transportation network, offering residents and visitors access to a variety of travel modes. 1. Highway A number of interstate highways serve the St. Louis area. I-70 is an east-west highway linking St. Louis with Kansas City to the west and Illinois to the east. I-64/U.S. 40 begins at I-70 in downtown St. Louis, traverses the City in an east-west direction, and re-links with I-70 west of St. Louis near Lake St. Louis. Similarly, I-44 begins at I-70 in downtown St. Louis, traverses the city in a southwestern direction linking with the City of Springfield, Missouri, and into Kansas. I-55 is a north-south highway, passing through St. Louis linking the state of Arkansas with Bloomington, Illinois. I-270 is a highway comprising a beltway around the city and continuing into Illinois, while I-170 is a north-south expressway linking I-64/U.S. 40, west of the City of Clayton, with I-270 northwest of the city near the airport. Due to St. Louis' centralized location, it benefits from the confluence of a number of important interstate highways, rendering the area readily accessible from all major market areas in the Midwest, and throughout the country. 2. Air Transportation Lambert - St. Louis International Airport, located northwest of the City, is served by nine domestic airlines including America West, Continental, Delta, Northwest, Southwest, TWA, United, and USAir, and is ranked the eighth busiest in the country. Total passenger traffic through the airport has declined over the five year period 1989 through 1993, a period of time which coincides with the recessionary economy. However, since 1993, the total number of passengers has increased to approximately 27,300,000 in 1996 representing a compounded annual growth rate of 11.0 percent. Total passenger counts are listed in the following table. ================================================================================ II-10 <PAGE> AREA AND NEIGHBORHOOD REVIEW ================================================================================ ========================================================= Total Passenger Traffic Lambert - St. Louis International Airport 1989 through 1996 ========================================================= Total Percent Year Passengers Change --------------------------------------------------------- 1989 20,170,060 - 1990 20,065,737 (0.5%) 1991 19,151,278 (4.6%) 1992 20,984,782 9.6% 1993 19,923,774 (5.1%) 1994 23,362,671 17.3% 1995 25,719,351 10.1% 1996 27,274,846 6.1% --------------------------------------------------------- CAGR (1993 to 1996) 11.0% - ========================================================= Source: Lambert - St. Louis International Airport ========================================================= The Lambert - St. Louis International Airport is currently undergoing a $97 million expansion of the East Terminal. This expansion will include 12 new gates to be used by Southwest Airlines allowing additional 89 flights per day. This expansion will also add a new parking facility accommodating 1,000 cars on three levels, and a second MetroLink station. The construction of the new East Terminal is expected to be completed in December of 1998. It should also be noted that Mid-America Airport opened in October of 1997 and will serve as the St. Louis Region's second airport as a reliever to Lambert - International Airport. Mid-America will be a full-service commercial airport and is located approximately 25 miles east of downtown in Illinois. However, at the present time, no scheduled flights utilize this new facility. 3. Port of Metropolitan St. Louis The port of Metropolitan St. Louis is the northernmost point on the Mississippi River that normally remains ice-free and open throughout the year and the southernmost point with lock-free navigation to the Gulf. The Port extends 70 miles along both banks of the Mississippi and takes in parts of the Missouri and Kaskaskia Rivers. The Port Handles in excess of 26 million tones of freight annually. ================================================================================ II-11 <PAGE> AREA AND NEIGHBORHOOD REVIEW ================================================================================ 4. Commuter Rail Transportation A light rail system, Metrolink, completed in 1993, links East St. Louis, Illinois, with northwest St. Louis County, northwest of the city, and the airport. The system connects all key areas of downtown including the riverfront, La Clede's Landing, the convention center, Busch Stadium, the Kiel Center, and Union Station. This system provides convenient access to all points of the city for a reasonable fare of $1.00, and is free between Union Station and La Clede's Landing. G. NEIGHBORHOOD REVIEW The subject site is located in the western suburban area of St. Louis, in the suburb of Clayton, Missouri, a town founded in 1913. Clayton is best described as a quiet, secure, suburban community with a metropolitan flair. The central business district of Clayton blends approximately 4,500,000 square feet of commercial office space with the vitality of approximately 1,000,000 square feet of retail space. Clayton's residential neighborhoods include a housing mix of stately single-family homes, condominiums, and multiple-family apartment dwellings. Much of the residential area is within walking distance of specialty boutiques, shops, and cafes. 93.0 percent of Clayton's area is devoted to residential uses, and 70 acres are developed as park land. The Clayton area is accessed by Interstates 64 and 270, or by expressways such as the Forest Park Parkway. The subject hotel is located in the eastern section of the central business district of Clayton, on Carondelet Plaza between Forest Park Parkway and Forsyth Boulevard. Development in the area is dominated by several large mid-rise and high-rise commercial buildings along the western end of Carondelet Avenue and the major perpendicular thoroughfares of Brentwood Boulevard, Meramec Avenue, Central Avenue, and Benniston Avenue. Notable buildings include the Manufacturers Bank, UMB Bank, the 8000 Maryland Avenue Building, and a number of smaller retail structures, shops, hotels, and many restaurants. At the southwestern end of Brentwood Boulevard is the upscale St. Louis Galleria shopping center, one of the largest such developments in the St. Louis area. A map of the neighborhood area is presented on the following page. Offices in Clayton house over 2,000 business and professional firms, with 68 of these companies being Fortune 500 firms, such as Boeing/McDonnell Douglas, Anheuser-Busch, and Monsanto. Clayton is also the location of the majority of St. Louis County governmental offices. In total, over 28,000 workers are employed in the central Clayton area on a daily basis. ================================================================================ II-12 <PAGE> AREA AND NEIGHBORHOOD REVIEW ================================================================================ As will be discussed in the following section of this report, there are several vacant parcels of land near the subject property. According to our discussions with the City of Clayton Planning Department, we understand that plans exist for a proposed in-fill development of commercial office and retail shops in the Plaza at Clayton area. However, this development is still speculative at this time, and new construction is not forecast to start for another two years, at the earliest. ================================================================================ II-13 <PAGE> [GRAPHIC OMITTED] Neighborhood Map <PAGE> AREA AND NEIGHBORHOOD REVIEW ================================================================================ H. CONCLUSION After reviewing the various sources of socio-economic data for the market encompassing the subject, it is evident that the local and regional economy has been experiencing overall stable growth during the past several years. Due to the manufacturing-based regional economy, projections are expected to remain stable over the short-term. Long-term projections also indicate that continued stable economic growth is expected. For the lodging industry in particular, the recent expansion of the convention facilities and the emphasis on convention and leisure tourism will result in growth in transient hotel demand over the next three to five years. It is also likely that this growth in demand will stimulate construction of new hotels, but, as will be indicated in more detail in Sections III and IV of this report, no new hotels of the quality and stature of the subject property are foreseen. The subject site benefits from a good location in relation to upscale commercial and leisure hotel demand generated within the St. Louis Metropolitan Area. The hotel site is equidistant to both downtown St. Louis and the Lambert - St. Louis International Airport. Situated in the vibrant commercial hub of Clayton, the hotel is oriented towards the West Counties, that area of the greater St. Louis Metropolitan Area which is expected to see the most new development over the next ten years. Overall, we project that the proposed subject's locational characteristics will enable it to capture or exceed its fair share of demand. Analyzing the impact on future demand of anticipated changes in the proposed subject property's market, the following variables have been taken into account: o Despite the nature of many of the manufacturing companies in the Greater St. Louis Metropolitan area, unemployment is expected to drop to 4.1 percent in 1997 while employment growth remains modest at 2.7 percent o The St. Louis Metropolitan Area has medium household income of $37,400 compared to the national average of $33,500. This represents an effective buying income of 31.0 percent over $50,000 compared to the national average of 27.6 percent o The St. Louis Metropolitan Area's commercial office space vacancy rates have been decreasing from 11.9 percent in 1994 to 9.0 percent through the third quarter of 1997. o Commercial office space vacancy rates for the Interstate 40 corridor, encompassing Clayton, are substantially lower, decreasing from a high of 19.2 percent in 1990 to a low of 2.5 percent through the third quarter of 1997. ================================================================================ II-15 <PAGE> AREA AND NEIGHBORHOOD REVIEW ================================================================================ o New office construction is projected, and the majority of this development is forecast to occur in the west county area of the St. Louis region. o Lambert - St. Louis International Airport is experiencing steady growth in passenger travel, indicating a CAGR of 11.0 percent between 1993 and 1996; o Lambert - St. Louis International Airport is undergoing a $97 million expansion program, expected to be completed by year-end 1998. This expansion, along with the opening of the Mid-America Airport, will enable the St. Louis to meet air travel needs into the next century. o The recent expansion in 1993 of the America's Center Convention Center has resulted in a CAGR of 7.2 percent in convention bookings and CAGR of 5.2 percent in hotel room nights. Tourism and convention business is further expected to grow from 1998 to 2004. In summary, while St. Louis maintains a high base of moderate growth manufacturing industry, recent expansions to the convention center, and planned improvements to the airport and tourism development have positioned the city to become a continued favorable destination for travel and tourism. ================================================================================ II-16 <PAGE> SECTION III PROPERTY DESCRIPTION <PAGE> PROPERTY DESCRIPTION ================================================================================ A. SITE DESCRIPTION 1. Location, Access, and Visibility The subject site is located at 100 Carondelet Plaza, at the eastern end of Carondelet Avenue near Forsyth Boulevard, in the central business area of suburban Clayton, St. Louis, St. Louis County, Missouri. The site is bounded to the west by Carondelet Plaza, to the east by an adjoining vacant parcel, to the north by the continuation of Carondelet Plaza, and to the south by Forest Park Parkway. The site has frontage along all aforementioned streets and is visible to passing traffic in all directions. The subject has excellent general access to the neighborhood by local expressways, such as Forest Park Parkway, and freeways, including Interstates 64 and 170. Once reaching Clayton, the hotel site is accessible only from Carondelet Avenue and Plaza, a four lane city street, which is reached by off ramp from the Forest Park Parkway or from Forsyth Boulevard. The subject hotel enjoys excellent visibility from the surrounding area due to the height of the structure and its distinctive architecture. The area immediately surrounding the subject is known as the Plaza in Clayton. Immediately surrounding the subject are landscaped, vacant lots held for future development. To the north of the subject property are commercial businesses, such as Selkirks Department Store, and residential homes. To the east is residential and a view to downtown St. Louis. To the west is the central business district of Clayton with major offices such as the Mercantile Bank. To the south, across Forest Park Parkway, are more residential homes. An elevated walkway connects the south side of the subject property across Forest Park Parkway with the residential area to the south of the busy expressway. A map showing the location of the subject property in relation to the surrounding neighborhood is found at the end of Section II, on page II-14. 2. Topography, Shape, and Size The subject site, according to the St. Louis County Tax Assessor's Office, is 2.99 acres in size (130,244 square feet). The parcel approximately rectangular in shape and is level and at grade with surrounding streets. The subject site has approximately 236 feet of frontage along Carondelet Plaza and approximately 400 feet of frontage along both Carondelet Avenue and Forest Park Parkway. An assessor's parcel map of the subject is presented on the second following page. ================================================================================ III-1 <PAGE> [GRAPHIC OMITTED] Parcel Map <PAGE> PROPERTY DESCRIPTION ================================================================================ 3. Soil Conditions and Hazardous Materials A soils report was not provided for the preparation of this appraisal. However, based on the integrity of the existing structure and surrounding developments, it appears that there are stable soil conditions present on-site and that the soils are of sufficient bearing capacity for continued support of the existing structures. We were made aware of the fact that the water table at the site is high, and several sump pumps are in use to pump excess water from the property. An environmental assessment of the subject site and its improvements has not been supplied to us. However, it is our understanding from the hotel's director of engineering that there are no hazardous materials such as asbestos, lead-based paints, urea formaldehyde insulation, stressed vegetation, or unusual or noxious odors affecting the property. One, 12,000 gallon, underground storage tank for diesel fuel is double-walled and modern. Therefore, we have no knowledge of the existence of any hazardous materials affecting the subject site, and for the purpose of this appraisal we have assumed that both the site and the improvements do not contain any contaminants which would adversely affect the market value of the subject. 4. Flood Zone, Wetlands, and Earthquake Zones According to the City of Clayton Planning Department, the subject property is located in an "X" flood zone, an area considered to be outside of the 500-year flood plain, according to Federal Emergency Management Agency Flood Insurance Rate Map panel #290341-0001F, dated September 28, 1990. In addition, the subject site is not located in a designated wetlands zone. Regarding seismicity, the subject is not located in a designated earthquake zone and the State of Missouri is not considered seismically active. 5. Historical, Natural, Cultural, Recreational, and/or Scientific Value The subject property and improvements thereon have no known natural, cultural, recreational, or scientific value. 6. Utilities All utilities are available and connected to the site. Utility services are provided by the following agencies. ================================================================================ III-3 <PAGE> PROPERTY DESCRIPTION ================================================================================ ============================================================ Electricity Union Electric ------------------------------------------------------------ Natural Gas Westar ------------------------------------------------------------ Water St. Louis County Water ------------------------------------------------------------ Sewer Metropolitan Sewer District ------------------------------------------------------------ Telephone Southwestern Bell / AT&T ------------------------------------------------------------ Cable/Satellite Television Charter Cable and LodgeNet ============================================================ 7. Zoning The subject is zoned C-4 (Commercial District/Clayton Plaza Overlay District) by the City of Clayton. This designation allows for a variety of commercial uses including retail, service establishments (such as barber, banks, repair shops), hotels, clubs, and entertainment. The basic requirements of the C-4 zoning classification are summarized below. ============================================================= Maximum Height: No limitation established ------------------------------------------------------------- Setbacks: Front: 10 feet Side: None Rear: None ------------------------------------------------------------- Maximum Floor Area Ratio 3:1 An additional 1:1 ratio is allowed for each one square foot of landscaped open space provided ============================================================= Source: City of Clayton Zoning Ordinance ============================================================= Accordingly, the improvements on the subject site as constructed in 1990 represent a legal, conforming use with regard to current zoning regulations. 8. Easements and Covenants We have not been provided with a Policy of Title Insurance for the subject property which spells out any easements or covenants which pertain to the subject site. We are aware of an apparent easement across the adjoining parcel to the east of the subject site, owned by the Clayton Land Company, which allows access to the hotel's loading dock from Forsyth Boulevard. Further, we understand that an agreement has been made whereby the hotel pays for a portion of the property taxes for both this easement and for the site in front of the hotel in the center of Carondelet Plaza where a decorative fountain is located. We have assumed that there are no unknown title issues which would adversely affect the value of the subject property. ================================================================================ III-4 <PAGE> PROPERTY DESCRIPTION ================================================================================ 9. Assessed Value and Property Taxes The subject is assessed by the St. Louis County on a calendar year commencing January 1 and ending December 31. Real commercial property is assessed based 32.0 percent of fair market value as determined by the income or cost approach to valuation. Personal property is assessed at full market value. Property assessments are updated every two years, or sooner if new construction takes place or if the use of the property is substantially changed. As introduced in Section I of this report, the subject property comprises one land parcel number, parcel 19J4311878. The parcel is located in tax rate area 0888, school code 106, city code 14, site code 0362. The parcel contains assessments for land and improvements. A separate assessment has been made for personal property as parcel number B0068235A. The personal property comprises two vehicles leased by hotel and the furniture, fixtures, and equipment of the hotel. The current, overall assessed value of the subject property on a combined basis is as follows. ==================================================== The Ritz-Carlton, St. Louis 1997 Assessed Value ==================================================== Real Commercial Property (32.0 % of $27,000,000) $8,640,000 Personal Property 766,420 ---------------------------------------------------- Total Taxable Value $9,406,420 ==================================================== The indicated county wide tax rate for real commercial property is $6.663 per $100 of assessed value, plus a surcharge of $1.70 per $100 of assessed value. Therefore, based on an taxable value of $8,640,000, the property tax for the land, buildings, and other improvements is $722,563.20. In addition, assessments on the $766,420 of personal property are $6.593 per $100 of value, plus a fee of $500. Total personal property taxes are $50,535.07. In addition, as indicated, the hotel has entered into an agreement with Clayton Land Company Ltd. to jointly pay property taxes owed for the sites on which a fountain has been constructed in front of the hotel in Carondelet Plaza and on which a service drive has been constructed leading to Forsyth Boulevard from the hotel loading dock. These parcels comprise Assessor's numbers 19J543174 (fountain) and 18J111393 (service drive). Per the agreement, the hotel pays 100.0 percent of property taxes for the fountain site ($5,037.46), and 11.63 percent of the property taxes for the parcel on which the service drive is located ($5,880.80). The total property taxes applicable for the subject property in 1997, therefore, are $784,016.53 and are summarized in the following table: ================================================================================ III-5 <PAGE> PROPERTY DESCRIPTION ================================================================================ ============================================================= Ritz-Carlton, St. Louis Summary of 1997 Property Taxes ============================================================= Parcel Property Taxes ------------------------------------------------------------- 19J431878, Site and Improvements $722,563.20 B0068235A, Personal Property 50,535.07 19J543176, Fountain Parcel 5,037.46 18J111393, Service Drive Parcel 5,880.80 ------------------------------------------------------------- Total $784,016.53 ============================================================= Source: St. Louis County Tax Assessor's Office and The Ritz-Carlton, St. Louis ============================================================= B. IMPROVEMENTS DESCRIPTION 1. Property Design and Configuration The Ritz-Carlton is a 301-unit full-service hotel situated in the central business district of Clayton, Missouri, which is an upscale suburban area of St. Louis, Missouri. The buildings consist of a hotel tower, function room building, and connected parking garage. The hotel includes a basement, lobby, second floor of meeting rooms, and 15 floors of guest rooms. The buildings do not have an attic. Amenities at the hotel include two restaurants, a lobby lounge, a cigar club, approximately 30,000 square feet of meeting space, extensive covered parking, an indoor swimming pool, spa pool, and adjacent fitness center, a gift shop, and complete back-of-the house operational facilities. The Ritz-Carlton Hotel opened in March of 1990 and has largely remained as originally configured since then. Off-site improvements consist of concrete curbs, gutters, brick sidewalks, attractive landscaping, and there are city-maintained street lights. All surrounding thoroughfares are multi-laned, asphalt-paved streets. A selection of photographs of the subject property are presented at the end of this section of the report. 2. Basic Construction and Mechanical Systems The Ritz-Carlton was designed by the architectural firms of Linscott, Haylett, Wimmer and Wheat, and Milton Pate and Associates, in conjunction with interior designers Hirsch-Bedner and Associates. The building was opened on March 26, 1990. We understand that the hotel had been originally planned to open as an Alameda Plaza Hotel or Raphael Hotel, but in the late 1980's, after construction and planning had reached an advanced stage, a decision was made to affiliate the hotel instead with the Ritz-Carlton Hotel Company. To comply with Ritz-Carlton standards, significant structural and interior design changes were made to the building, and the construction cost for the facility in total is reported at $82,000,000. ================================================================================ III-6 <PAGE> PROPERTY DESCRIPTION ================================================================================ The main hotel tower is a 17-story structure plus basement, making for a total of 18 levels. Located behind the hotel tower is a two-level structure housing majority of the banquet and meeting facilities. Attached to the rear of this structure is a seven-level parking garage. A full basement runs under all structures. The main hotel tower is oriented with its entry facing west to Carondelet Plaza and the central area of Clayton. As a result of the design of the structure, all guest rooms face outside, either west or east, with small balconies. A site map showing the location of the structures on the parcel is found on page III-9. A summary of the basic structural and mechanical and electrical systems of the hotel are summarized in the following table. The total interior area is reported at 383,977 square feet. ================================================================================ III-7 <PAGE> PROPERTY DESCRIPTION ================================================================================ <TABLE> <CAPTION> ================================================================================================================= Ritz-Carlton, St. Louis Summary of Basic Construction and Mechanical Systems ================================================================================================================= <S> <C> Foundation: Below grade concrete slab with structural steel reinforcement - ----------------------------------------------------------------------------------------------------------------- Frame: Concrete pillars and structural steel - ----------------------------------------------------------------------------------------------------------------- Exterior Walls: Main Buildings: Precast concrete panels and exterior brick facing Garage: Concrete - ----------------------------------------------------------------------------------------------------------------- Partition Walls: Galvanized metal studs covered with sheet rock - ----------------------------------------------------------------------------------------------------------------- Floor: Concrete slabs covered with carpet, marble, or synthetic surfaces - ----------------------------------------------------------------------------------------------------------------- Roof: Tower: Built up roof membrane and hot asphalt (12 year guarantee from 1990) Meeting and Banquet Rooms: Built up roof membrane, hot asphalt, covered rock (10 year guarantee from 1990) Garage: Exposed concrete decking - ----------------------------------------------------------------------------------------------------------------- Ceiling Heights: Nine-foot typical in guestrooms and corridor; 9 feet to 14 feet elsewhere - ----------------------------------------------------------------------------------------------------------------- Doors: Main Buildings Interior: Solid wood core with wood frame Main Buildings Exterior: Solid wood with glass and wood frames, and hollow metal in metal frame Guest Rooms Entry: Solid wood core with wood frame, electronic keycard lock Guest Rooms Interior: Solid wood core with wood frame - ----------------------------------------------------------------------------------------------------------------- Windows: Wood frame with thermal pane glass - ----------------------------------------------------------------------------------------------------------------- Heating and Cooling: Public Areas, Back-of-House: 350-ton and 750-ton, two-stage chilled water system supplying zoned air handling units; single duct delivery with reheat Guest Rooms: Four-pipe system, controlled by energy management system, supplying individual, thermostat-controlled fan coil units in each room 18th Floor: Five rooftop, package fan coil units serve the Club Lounge and the Ritz-Carlton Suite - ----------------------------------------------------------------------------------------------------------------- Elevators: Guest: Three Montgomery passenger elevators with 17 landings Other: Two Montgomery passenger elevators serving all garage levels Two Montgomery service elevators with 18 landings One Montgomery three-stop hydraulic elevator serving the basement, main kitchen, and second floor meeting and banquet level - ----------------------------------------------------------------------------------------------------------------- Electrical: 3-phase service in basement fed by a utility-owned transformer in vault; transformers and distribution panels are located throughout the buildings - ----------------------------------------------------------------------------------------------------------------- Plumbing: Water Pipes: Copper Sewer Pipes: Cast iron Gas Lines: Black iron - ----------------------------------------------------------------------------------------------------------------- Domestic Hot Water: Public Areas and Back-of-House: Two, low-pressure steam boilers serving two large heat exchanger-type water heaters Guest Rooms: Two boilers with four storage tanks and continuous feed system - ----------------------------------------------------------------------------------------------------------------- Sprinkler System: The entire tower structure is wet sprinkled via fire pump, and dry pipe stacks are accessible from the exterior of the building - ----------------------------------------------------------------------------------------------------------------- Life Safety: Fire Alarm Station: Main alarm panel is located in the fire control room on the lobby level; and several manual pull stations are located on every floor Smoke Detectors: Detectors are in corridors, meeting rooms, and elevator landings and are monitored by the fire alarm panel. Guest rooms detectors are hard-wired Emergency Illumination: local alarm only; not monitored Emergency Generator: All fire exit stairwells, selected corridor fixtures and all exit signage 750kw diesel-powered unit located in basement, supplies: emergency lighting and power panels, electric fire pump, one each guest and service elevator, and all computer systems ================================================================================================================= Source: Ritz-Carlton, St. Louis ================================================================================================================= </TABLE> ================================================================================ III-8 <PAGE> [GRAPHIC OMITTED] Site Plan <PAGE> PROPERTY DESCRIPTION ================================================================================ The subject has its own in-house laundry which is located in the basement; however, presently the washing of bed sheets, bathroom towels, and food and beverage laundry items are primarily handled by an outside linen service, and the hotel laundry is not utilized. The laundry equipment is complete, and features four large washer, three large dryers, a flat ironer, and a sheet folding and towel folding machines. Guest laundry, guest dry cleaning, and employee uniform cleaning is provided by a dry cleaning and valet shop also located in the hotel which is fully operational. The valet shop features a dry-cleaning machine, two small washers and a drier, six pieces of steam pressing equipment, and a chemical spotting board. The common area hallways, public areas, all storage rooms, and all guest rooms are serviced by a wet sprinkler system and hard-wired smoke detectors. In general, the physical plant, common areas, and guest rooms appear to have all been maintained in good physical condition and we understand that there are no major outstanding issues of maintenance which would have a negative effect on the value of the hotel. Floor plans for the basement, main lobby floor, meeting rooms, and a typical guest room floor are found on the following four pages. ================================================================================ III-10 <PAGE> [GRAPHIC OMITTED] Basement Level <PAGE> [GRAPHIC OMITTED] Lobby Level <PAGE> [GRAPHIC OMITTED] Meeting Facilities <PAGE> [GRAPHIC OMITTED] Third Floor Plan <PAGE> PROPERTY DESCRIPTION ================================================================================ 3. Guest Rooms a. Total Room Count Guest rooms are generally of a similar layout and are large by industry standards. Guest rooms are located on floors 3 to 18, with the 17th and 18th floors being the Ritz-Carlton Club Floor offering 28 Club rooms, 6 suites, and the Club Lounge. The third floor houses the fitness center and pool. All standard guest rooms comprise approximately 500 square feet and offer either a king-size bed or two queen-size beds. Executive Suites comprise both a sitting room and a bedroom, with a total of approximately 1,000 square feet of space. The largest suite, named the Ritz-Carlton Suite, is located on the 18th floor, and is the largest rentable unit in the hotel at approximately 2,000 square feet of space. The majority of guest rooms and suites are designated non-smoking, and four guest rooms on the third floor are equipped for disabled persons. The guest room distribution by type is shown in the following table. ================================================== Guest Room Distribution ================================================== Number Room Type of Rooms -------------------------------------------------- Standard, King Beds 160 Standard, Double-Queen Beds 109 Executive Suites 31 Ritz-Carlton Suite 1 -------------------------------------------------- Total 301 ================================================== Source: Ritz-Carlton, St. Louis ================================================== b. Description of the Guest Rooms The rooms are very attractive in appearance and offer furnishings and amenities expected in a Ritz-Carlton property. Upon entering a typical guest room via a solid wooden door fitted with a Saflock electronic door lock, the bathroom and closet are off to one side. The main portion of the guest room is straight ahead. The typical guest room contains the bed or beds, headboard, bedside tables and lamps, bedside multi-line telephone, two upholstered chairs and ottoman, floor lamp, desk with lamp, multi-line telephone, and two desk chairs, television armoire offering a chest of drawers, television, and mini-bar, a clothes horse, and several framed art prints. The guest room walls are covered in attractive wall vinyl and the ceiling is painted drywall. Heavy wood molding decorates both the floor base and walls near the ceiling. The carpet is patterned, low pile wool. The drapes have a black-out backing and sheer drape panels and are operated either by a wand or pull-cords attached to the wall. ================================================================================ III-15 <PAGE> PROPERTY DESCRIPTION ================================================================================ The bathrooms are very spacious and have a marble floor with the walls a combination of marble and vinyl wall covering. The bathroom ceiling is painted drywall. The bathroom fixtures are white porcelain and the plumbing fixtures are chrome. The toilet is located in a small, closed room, equipped with a wall-mounted telephone. In the guest room, the two telephones have modem and fax capability. Guest rooms are serviced by twice-daily room attendants. Extensive personal toiletries are offered in bathrooms, and additional amenities in guest rooms include an iron and ironing board, a private safe in the closet, terry cloth bathrobes, complimentary morning newspaper, and voice mail. The guest rooms and baths are fully air-conditioned with silent, four-pipe system which is self-controlled within each guest room. The guest rooms and baths are fully fire-sprinkled and have hard-wired smoke detectors and emergency annuciator speakers. Guest room corridors are carpeted, with attractive vinyl wall coverings, wall sconce and chandelier lighting, and painted drywall ceilings. Various pieces of furniture and art work decorate the corridors. The corridors are also fire sprinkled. A spacious, furnished elevator lobby is located on each floor. Guests on the Club level enjoy comparable guest rooms, but also the added services offered in the attractively furnished Club lounge on the 18th floor. Guests of the Club are served complimentary beverages and five food presentations each day including continental breakfast, mid-day snack, afternoon tea, and early-evening hors d'oeuvres, and night-time cordials. In addition, the Club offers a private concierge service. 4. Public Areas The main public areas of the hotel present an attractive, elegant appearance and are described in the following paragraphs. The decor is reflective of the Ritz-Carlton standard of interior finish, characterized in general by walnut and mahogany wood wall surfaces, oriental and heavily-patterned carpets, rose and maroon colored marble, crystal chandeliers and wall sconces, gilt-framed, antique paintings and prints, and traditional English and 18th-century American furnishings. a. Lobby The hotel and main lobby are entered through two sets of double doors leading from the porte cochere area off Carondelet Plaza. A second porte cochere entrance, at the north side of the hotel, serves the main ballroom and function rooms. The main lobby contains an entry foyer, a bellman's desk, the registration desk, and a concierge desk. Large sitting areas with traditional-style furnishings are located both in front of the registration desk and also to the area of the lobby which leads towards the north entrance. This 94-seat area is known as the Lobby Lounge, and is served by a large serving bar located opposite of the registration desk. Morning coffee, afternoon tea, ================================================================================ III-16 <PAGE> PROPERTY DESCRIPTION ================================================================================ light meals, and evening beverages characterize the menu offered in the Lobby Lounge. The guest elevator lobby is located adjacent to the Lobby Lounge, to the right of the main entrance. Three elevators serve the upper levels of the guest room tower. The elevators are wood paneled with marbled floors and a crystal chandelier. An oriental-style carpet is placed on top of the marble floor. b. The Restaurant The Restaurant is an elegantly furnished, 120-seat restaurant located to the right of the main entrance on the lobby level, and is open for breakfast, lunch, dinner, and Sunday Brunch. The Restaurant is served by the main kitchen and a separate food preparation area of the main kitchen designated for the Restaurant. This area of the kitchen also handles room service meal requests for guest rooms. The Restaurant is entered through its own entry foyer and presents an off-white and peach color scheme, with rose colored carpet, beige colored silk wall panels, and heavy, ornate draperies. The tables are set widely apart and generally offer seating for two, four, or six patrons. Lighting is provided by crystal chandeliers and wall sconces, in addition to indirect lighting set within the ornate ceiling. Other furnishings in the room include decorative sideboards, breakfronts, and gilt-framed oil paintings. c. The Grill The Grill is a 67-seat facility also located on the lobby level, opposite from the Restaurant. The Grill is open nightly only for dinner and is the premier restaurant for the hotel. Similar to the Restaurant, the Grill is served by the main kitchen and its own separate food service preparation area. The Grill presents a much more dark, formal appearance than the Restaurant as a result of dark wood paneling and heavy upholstery used throughout the room. The room is accentuated with a burgundy-colored marble fireplace, crystal chandeliers, and crystal wall sconces. Seating is offered both at upholstered booth seats and widely-spaced tables with chairs. d. The Cigar Club Located between the Restaurant and the Grill is the newly opened, 40-seat Cigar Club, which replaces the former Grill Bar. The Club is entered directly from the cross hall leading to both the Restaurant and Grill, or from inside of each of the two restaurant facilities. Located between the Cigar Club and the Restaurant is an enclosed adjunct to the Cigar Club which can also be used as a private dining room. The Club resembles the Grill is coloration and interior finishes, as this was the former Grill Bar, and has been newly accentuated with 200 cigar humidors built from light-colored wood and heavy, bold furnishings which evoke a 1930's Moderne-style. ================================================================================ III-17 <PAGE> PROPERTY DESCRIPTION ================================================================================ e. The Gift Shop A small gift shop operated by the hotel is also located in the cross hall near the Restaurant and Grill, to the right of the main hotel entrance. The shop is open daily and sells sundry items, newspapers and magazines, and gift items, many of which bear the Ritz-Carlton logo. Also located in the vicinity are several pay telephones within private telephone booths, a men's and women's rest rooms, and a staff service entry to the basement level of the hotel. f. Banquet and Meeting Rooms The banquet and meeting facilities of the hotel are located on both the lobby level and the second floor of the hotel, at the rear of the hotel tower. The main Ritz-Carlton Ballroom, pre-function space, entry-porte cochere, and a few small rooms are located on the first level. All the other meeting rooms and the 201-seat Amphitheater are located on the second floor, which can be reached either by elevator from the lobby or by the grand staircase at the rear of the Lobby Lounge. The facilities are, in total, the most attractive and elegant in the St. Louis area and are maintained in top condition. Typical finishes include painted, ornate woodwork and moldings, heavy carpeting, silk wall panel inserts, imposing crystal chandeliers and wall sconces, and many antique pieces of furniture and gilt-framed oil paintings. The meeting rooms with regard to size and dining capacity are summarized in the following table: ======================================================================= Ritz-Carlton, St. Louis Summary of Banquet and Meeting Facilities ======================================================================= Square Room Banquet Feet Size Seating ----------------------------------------------------------------------- The Ritz-Carlton Ballroom 12,750 100 x 122 1,000 ----------------------------------------------------------------------- Salon I or II 6,375 100 x 61 450 ----------------------------------------------------------------------- Pre-Function 4,536 54 x 84 - ----------------------------------------------------------------------- The Boardroom 840 21 x 40 18 ----------------------------------------------------------------------- Diplomat Room 432 18 x 24 20 ----------------------------------------------------------------------- Ambassador Room 768 31 x 23 50 ----------------------------------------------------------------------- The Director's Room 483 21 x 21 30 ----------------------------------------------------------------------- The Promenade 754 23 x 24 40 ----------------------------------------------------------------------- Consulate Room 1,188 43 x 26 80 ----------------------------------------------------------------------- Colonnade 880 43 x 19 60 ----------------------------------------------------------------------- The Pavilion 1,416 56 x 24 100 ----------------------------------------------------------------------- The Plaza 1,680 42 x 40 120 ----------------------------------------------------------------------- The Amphitheater 3,300 65 x 40 201(1) ----------------------------------------------------------------------- The Monarch Room 752 43 x 17 49 ----------------------------------------------------------------------- Total 30,079 1,768 ======================================================================= (1) Note: Fixed theater-style seating only. Source: Ritz-Carlton, St. Louis ======================================================================= ================================================================================ III-18 <PAGE> PROPERTY DESCRIPTION ================================================================================ The banquet and meeting rooms are service from the main kitchen directly on the lobby level and via the hydraulic elevator and serving pantries on the second floor. Rest rooms and nicely decorated telephone booths are offered for the use of guests. g. Fitness Center and Swimming Pool On the third floor of the hotel is located the hotel's fitness center, swimming pool, whirlpool, and small, outdoor sun deck. Workout facilities include a stretching area and free weights adjacent to the pool, and lifecycles, treadmills, and other weightlifting equipment in the general fitness area. The men's and women's locker rooms are serviced by fitness center staff and each offer lockers, showers, dry and steam saunas, a dressing area with lavatories, private massage rooms, and restroom areas. The swimming pool is suitable for three lanes of lap swimming. The use of the facilities is free to guests of the hotel. For local residents, memberships may be purchased with the current rate being approximately $800 annually, per person. In addition, a number of spa and massage treatments may be obtained at the fitness center and are available for an extra fee as arrange through Fitness Center staff. 5. Other Areas As previously mentioned, room service is offered at the hotel 24-hours a day from the main kitchen and the Restaurant kitchen. Ice machines are located on each guest room floor. In each guest room, a mini-bar offers snacks, beverages, and limited summary items for a reasonable charge. An Avis car rental office is located in the garage building and offers car rental services on a limited basis. Administrative and operational offices for hotel staff are located behind the front desk, on the second floor, and in the basement. Staff facilities in the basement include men's and women's locker rooms, a uniform room, a staff dining room, and the human resources office. The basement level also provides room for a large loading dock, a security office with closed-circuit televisions, and an extensive receiving office and related storerooms. Housekeeping, accounting, reservations, and the telephone departments are also located in the basement. The quality and condition of all of these back-of-the-house areas is excellent. 6. Parking Hotel guests may self-park their cars in the hotel garage or may leave their car with the car-park valets who are stationed at the main entry porte-cochere. The multi-level garage offers approximately 745 parking spaces. There is an overnight charge of $15.00 for overnight parking for either option. Staff are allowed parking in the basement levels except when large functions require the use of all parking spaces for hotel guests. Upon such occasions, arrangements are made for staff to park elsewhere. ================================================================================ III-19 <PAGE> PROPERTY DESCRIPTION ================================================================================ 7. Compliance with the Americans with Disabilities Act In 1990, the United States Congress enacted the Americans with Disabilities Act (ADA) which required that buildings be made fully accessible to disabled persons. The subject currently has four guest rooms which are specially designed to accommodate the handicapped. Based on our inspection of the property, most of the other areas of the hotel appear fully accessible by disabled persons with the exception of the swimming pool area and outdoor sun deck which can only be reached by climbing several steps. Accordingly, the subject is generally, but not fully, in compliance with the basic requirements of the ADA. 8. Property Changes and Refurbishment As a result of the new construction of the hotel in 1990, we understand that only $1,500,000 in renovation work had been found necessary at the property from opening through the end of 1996. In 1997, present management of the hotel instituted comprehensive soft goods upgrade of the hotels including reupholstery work in all public areas, new draperies, bedspreads, and carpeting in guest rooms, and the replacement of all double-double beds with double-queen beds. The cost of this latest renovation has been estimated at $2,000,000 by management. In future years, continual, on-going maintenance and renewal of the hotel is scheduled in tandem with a reserve for replacement fund a 4.0 percent of annual revenue. Currently, a budget of $381,000 is scheduled for 1998, $467,000 in 1999, $424,000 in 2000, and $2,100,000 in 2000. The larger amount scheduled for 2000 reflects another rooms redo, which, similar to that just completed, is also estimated at approximately $2,000,000. In the preceding years, most expenditures are for normal, expected replacement of operating equipment and furnishings, although between 1998 and 2001, virtually all the computer systems of the hotel are to be upgraded or replaced at a total of $410,000 over the four year period. C. MANAGEMENT AND FRANCHISE AGREEMENTS The hotel is currently operated by the Ritz-Carlton Hotel Company pursuant to an existing operating agreement dated November 16, 1988 between Plaza Hotel, as owner, and the Ritz-Carlton Hotel Company, as operator. For the purpose of this appraisal, it is assumed that upon sale, this contract would be continued and the hotel would be sold with the existing management contract intact. Currently, the hotel is ranked four diamonds by the American Automobile Association and four stars by the Mobile Travel Guide. ================================================================================ III-20 <PAGE> PROPERTY DESCRIPTION ================================================================================ The Ritz-Carlton Hotel Company, LLC is a well-known and widely respected owner and operator of upscale, full-service hotels. The number of properties bearing the Ritz-Carlton name numbers 32 world-wide, and Marriott International owns 51.0 percent of the Ritz-Carlton Hotel Company, LLC as part of a recent merger. The current operating terms of the hotel management agreement, as most recently amended on December 28, 1995, will expire in February 2015. Ritz-Carlton has the option to extend the agreement for four additional terms of 10 years each, or until February 2055. The base fee is 3.5 percent of gross revenue. The operator is also entitled to an incentive management fee of 2.5 percent in total based on calculated defined gross operating profit. A reserve for replacement of 4.0 percent of gross revenues is required. There is no separate franchise agreement for the hotel as the use of the Ritz-Carlton name for the hotel is part of the overall operating agreement. D. SUMMARY OF FUNCTIONAL UTILITY AND CONDITION The subject is located in an upscale commercial and residential market in a suburban area of St. Louis and in proximity to other major commercial areas of significance in the region. The area surrounding the subject is well-known and recognized by local residents and traveling business persons alike. The subject's improvements consist of a 18-story hotel (17 levels above-ground plus a basement) containing 301 rooms, two restaurants, extensive meeting space, and other miscellaneous amenities. The property was constructed in 1990, and is well maintained and in excellent condition. The Ritz-Carlton is well designed to serve the lodging needs for corporate, upscale group, and leisure travelers in the St. Louis area. The hotel is physically attractive, has adequate guest room accommodations, is efficiently laid out and designed, and has commensurate operating systems. An intended on-going renovation of approximately is expected to be completed annual and should assist in maintaining the subject property's reputation and stature in the market. ================================================================================ III-21 <PAGE> [GRAPHIC OMITTED] View of North Side of Hotel From Carondelet Plaza [GRAPHIC OMITTED] View of Central Clayton From North Side of Hotel Subject Property <PAGE> [GRAPHIC OMITTED] Entry Hall Viewed From Lobby [GRAPHIC OMITTED] Lobby Lounge Subject Property <PAGE> [GRAPHIC OMITTED] The Grill [GRAPHIC OMITTED] The Restaurant Subject Property <PAGE> [GRAPHIC OMITTED] Typical Meeting Room (Ritz - Carlton Ballroom) [GRAPHIC OMITTED] The Ampitheater Subject Property <PAGE> [GRAPHIC OMITTED] View of Indoor Swimming Pool Area [GRAPHIC OMITTED] Fitness Center Subject Property <PAGE> [GRAPHIC OMITTED] Typical King - Bed Room [GRAPHIC OMITTED] Typical Double - Queen Bed Room Subject Property <PAGE> [GRAPHIC OMITTED] Ritz - Carlton Suite [GRAPHIC OMITTED] Executive Suite Subject Property <PAGE> SECTION IV HOTEL MARKET ANALYSIS AND HIGHEST AND BEST USE <PAGE> HOTEL MARKET ANALYSIS ================================================================================ A. INTRODUCTION A hotel includes a going-concern business as well as real property; therefore, the market value of a lodging facility is a direct function of the supply and demand for the hotel rooms within its market area. Accordingly, an analysis of the hotel market of the local area, and the position of the subject property within this market, is a key component of our valuation process. B. ST. LOUIS MARKET OVERVIEW The St. Louis market offers more than 21,000 hotel rooms, of which some 5,300 are located downtown. For year-end 1996, the composite average occupancy of the overall St. Louis Metropolitan Area hotel market was 68.4 percent as reported by PKF Consulting's St. Louis Trends in the Hotel Industry. The corresponding year-end 1996 average daily room rate (ADR) was $76.35. For the seven months ending July 1997, Trends reports an average occupancy of 66.2 percent, decreased from 69.3 percent occupancy the same period last year. On the other hand, July year-to-date ADR is up 10.3 percent from 1996, from $76.99 to $84.91. PKF Consulting's recent interviews with area hoteliers reveal that many hotel properties are making an effort to maintain occupancy levels while focusing growth efforts in the ADR sector. A historical review of occupancy and ADRs for the overall St. Louis Metropolitan Area for the period from 1993 to year-end is presented in the following table, in addition to the market's estimated year-end 1997 and projected year-end 1998 performance. <TABLE> <CAPTION> =========================================================================================== St. Louis Metropolitan Area Hotel Market ADR and Occupancy 1993 to 1997 (Estimated) and 1998 (Projected) =========================================================================================== Percentage Percentage Year Occupancy Change ADR Point Change - ------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> 1993 62.5% - $63.17 - 1994 66.4% 6.2% $65.44 3.6% 1995 67.6% 1.8% $76.26 16.5% 1996 68.4% 1.2% $76.35 0.1% 1997 (E) 64.4% (5.8)% $84.00 10.0% - ------------------------------------------------------------------------------------------- CAGR 1993 - 1997 0.7% - 7.4% - - ------------------------------------------------------------------------------------------- 1998(P) 64.0% (0.6)% $89.50 6.5% - ------------------------------------------------------------------------------------------- CAGR 1993 - 1998 0.5% - 7.2% - =========================================================================================== Source: PKF Consulting's Trends in the Hotel Industry =========================================================================================== </TABLE> ================================================================================ IV-1 <PAGE> HOTEL MARKET ANALYSIS ================================================================================ After a period of occupancy growth from 1994 to 1996, overall market occupancy is estimated to drop to 64.4 percent as of year-end 1997 and is further projected to stabilize at 64.0 percent as of year-end 1998. This decline in occupancy is not attributed to a decline in demand for hotel accommodations, but is a result of an increase in the supply of hotel accommodations in the form of new construction of limited service and extended stay hotels in suburban regions of St. Louis. In 1996 and 1997, six new limited-service properties and three extended stay properties opened in the St. Louis region. At the present time, five additional extended stay hotels are either under construction or are close to opening. Further, we understand that three additional extended stay projects are being considered to start construction in 1998. The limited service hotels are characterized by Courtyard by Marriott, Hampton Inn, Holiday Inn Express, and Ramada Limited products. The extended stay properties are characterized by Extended Stay America and other budget-oriented products. At an average size of 100 to 120 rooms, the 17 new properties identified represent approximately 2,000 new rooms being added to the metropolitan market supply, or approximately a 9.5 percent increase in supply. By comparison, the selected primary competitive supply of the Ritz-Carlton, St. Louis, all full service hotels, has historically performed above the overall market in terms of both annual occupancy and ADR; these statistics will be further analyzed in the following pages. C. THE PRIMARY COMPETITIVE HOTEL MARKET As discussed in Section III of this report, the Ritz-Carlton, St. Louis is the finest hotel in the metropolitan area in terms of overall quality of guest experience. In a market characterized by good, but ordinary hotels, the subject property stands out as the quality and service leader. An indication of the attractive exterior appearance and sumptuousness of interior decor, as compared to other hotels, is evidenced by the original construction cost of the subject, which we understand to be $82,000,000, or $22,000,000 higher than the value concluded to in this report. Further, operated in accordance with the standards established by its parent company, the Ritz-Carlton, St. Louis has superior day-to-day operational standards than any other hotel in the St. Louis area. In addition to the outstanding physical and operational characteristics of the subject property, as discussed in Section II of this report, the hotel is located in the upscale suburb of Clayton, halfway between downtown St. Louis and the Lambert St. Louis International Airport. Clayton is recognized as one of the premier office and residential areas of metropolitan St. Louis, and it is home to the corporate headquarters of several Fortune 500 companies. ================================================================================ IV-2 <PAGE> HOTEL MARKET ANALYSIS ================================================================================ Therefore, as a result of the marked superiority of the physical plant, service standards, and location of the Ritz-Carlton, St. Louis, the subject property has no direct competitors. However, to illustrate the most comparable recent market trends for the full-service hotel market in the St. Louis area, we have analyzed the composite occupancy, room rate, and market mix performance of five hotels, including the subject property. This competitive lodging market consists of a total number of rooms of 2,687. The competitive properties were identified on the basis of location, rate structure, overall quality, and the fact that management of each hotel has stated that their hotel and the subject property compete for selected demand segments from time-to-time. As a matter of interest, all of the properties in the competitive supply are nationally affiliated. A profile of the primary competitive lodging market is presented on the following page. A map of the competitive lodging facilities is presented on page IV-5, followed by a brief discussion of each property. Photographs of the competitive hotels are presented at the end of this section. ================================================================================ IV-3 <PAGE> HOTEL MARKET ANALYSIS ================================================================================ <TABLE> <CAPTION> ============================================================================================================================= Census of the Primary Competitive Hotel Market ============================================================================================================================= Ritz-Carlton, Hyatt Regency St. Louis Hilton Frontenac Union Station Marriott Pavilion Adam's Mark - ----------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Year Opened 1990 1993 (Conversion) 1986 1976 and 1980 1987 - ----------------------------------------------------------------------------------------------------------------------------- Number of Rooms 301 266 538 672 910 - ----------------------------------------------------------------------------------------------------------------------------- Stories/Corridor Type 18/Interior 3/Both types 6/Interior 26/Interior 17/Interior - ----------------------------------------------------------------------------------------------------------------------------- Distance from Subject (Miles) - 4.0 4.0 5.0 5.0 - ----------------------------------------------------------------------------------------------------------------------------- Rate Schedule (Rack) Single $135.00 - $395.00 $99.00 $105 - $185 $115 - $135 $119.00 Double $135.00 - $395.00 $119.00 $105 - $210 $115 - $150 $139.00 - ----------------------------------------------------------------------------------------------------------------------------- Amenities/Services Restaurant Yes Yes Yes Yes Yes Bar Yes Yes Yes Yes Yes Swimming Pool Yes Yes Yes Yes Yes Whirlpool/Spa Yes Yes Yes Yes Yes Exercise Room Yes No Yes Yes Yes Airport Shuttle Yes Yes Yes No Yes - ----------------------------------------------------------------------------------------------------------------------------- Square Feet of Meeting Space 30,000 23,850 32,300 28,000 76,000 Square Feet per Guest Room 99.7 89.6 60.0 41.7 78.2 - ----------------------------------------------------------------------------------------------------------------------------- AAA Rating (Hotel) (Hotel) (Hotel) (Hotel) (Hotel) ============================================================================================================================= Source: PKF Consulting/Individual Properties/American Automobile Association (AAA) 1997 Tour Book ============================================================================================================================= </TABLE> ================================================================================ IV-4 <PAGE> [GRAPHIC OMITTED] Competitive Hotels <PAGE> HOTEL MARKET ANALYSIS ================================================================================ The following paragraphs provide a brief description of each of the competitive hotels. 1. Hilton Frontenac The 266-room Hilton Frontenac is a 1993 conversion of an early 1980's vintage property to a Hilton Hotel. The property is located at 1335 South Lindbergh Avenue in Frontenac, in the suburban West County area of St. Louis. The hotel is a sprawling, two- and three-story gray brick complex with an elegant interior decor with a heavy French influence. Facilities at the property include two restaurants and a bar, 23,850 square feet of meeting space, a business center, a fitness center, and a swimming pool and spa. The Hilton competes to a limited extent with the Ritz-Carlton as it is another upscale property in the Clayton vicinity. While the Frontenac area is also an upscale suburb like Clayton, and the hotel is well-located directly off Interstate 40, the property's occupancy level has underperformed the market. This factor is attributable to the lingering effects of the change in affiliation of the property, one of several that had occurred prior to 1993. The market mix at the hotel is divided primarily between corporate and group business, with some leisure demand also accommodated. 2. Hyatt Regency, Union Station The 538-room Hyatt Regency is located at 18th and Market Streets in central St. Louis. The hotel is unique as it is built within the existing, Victorian-era central train station, and many of the public areas of the hotel are the former public areas of the train station. The Hyatt Regency, Union Station, opened in 1986 and first operated as an Omni Hotel until Hyatt assumed control of the property in 1989. The property includes renovated rooms in the original hotel that was part of the station, as well as new rooms that we constructed in a former train yard. Elsewhere in the complex are 160,000 square feet of retail space and 100 food and retail outlets. The hotel offers 32,300 square feet of meeting space. The hotel primarily caters to corporate and group demand, but does a fair amount of tourist business, attributable to the unique location and setting of the property as compared to other similarly-priced hotels in St. Louis. The hotel's ADR is the second highest of the competitive group, and like the Ritz-Carlton, St. Louis, is a AAA four-diamond-rated hotel. But at approximately a $110.00 ADR expected for year-end 1997, the ADR of the Hyatt Regency is over $40.00 below that of the subject hotel for the same period. ================================================================================ IV-6 <PAGE> HOTEL MARKET ANALYSIS ================================================================================ 3. Marriott Pavilion The 26-story, 672-room Marriott Pavilion was built in two phases, the first in 1976 and the second in 1980. The hotel is located at 1 South Broadway and Market Streets in the central area of Downtown St. Louis. The property features three restaurants and lounges, an indoor swimming pool, spa, and fitness center, and 28,000 square feet of meeting space, gift shop, and a number of other services. A number of guestrooms at the property are Marriott's "Rooms that Work" rooms, which are designed to appeal to business travelers through the use of spacious desks, well-lit work areas, comfortable working chairs. In terms of market mix, despite the size of the hotel, it is primarily a corporate demand house, although group demand is nearly equal to the amount of corporate demand. Leisure business comprises a rather small segment of overall demand accommodated. 4. Adam's Mark The Adam's Mark is considered by many to be the premier hotel of the St. Louis area overall, based on the size and location of the property. Further, the hotel frequently serves as the headquarters hotel for major conventions that are meeting in downtown St. Louis. The property is well located in the downtown area, directly across from the Gateway Arch and the Mississippi River at 4th and Chestnut Streets, and approximately four blocks from America's Center. The hotel opened in 1987, and has 910 guestrooms and 96 suites. The hotel also has 36,800 square feet of meeting and exhibit space. The hotel caters largely to groups, associations, and convention-oriented demand. 5. Secondary Competition There are several hotels in the market area which are not considered to be primary competition with the subject due to a variety of factors such as location; quality level; facilities and services offered; market orientation; and room rates, despite a proximate location. These hotels include the Clayton hotels of the Radisson Hotel Clayton, the Holiday Inn Clayton Plaza, and the Danielle, and major airport hotels including the Renaissance, Hilton, and Marriott. Other full-service West County hotels are also not considered competitors, and these properties include the St. Louis Marriott West and the Holiday Inn Westport. ================================================================================ IV-7 <PAGE> HOTEL MARKET ANALYSIS ================================================================================ 6. Additions to Supply As previously discussed, a number of new, limited service and extended stay hotels have recently opened in the suburban areas, and we understand that a few additional such properties will be opened in the next two years. However, given the full-service nature of the subject property and its wide array of services, these far simpler facilities are not felt to represent present or future competition for the subject hotel or those other, sizable hotels included in our composite sample. On the other hand, it should be noted that three new, full-service hotels are proposed for construction in the St. Louis area. Two of these projects are scheduled to break ground within the next few months, and one project is still in a formative planning stage. A Sheraton Four Points hotel comprising 250-rooms is scheduled to break ground by the end of this year adjacent to the Casino Queen hotel in East St. Louis, directly opposite from the St. Louis Arch along the Mississippi River, approximately six miles east from the subject property. The hotel will include food and beverage operations and limited meeting space. The property is being constructed by the present leasehold owners of the Casino Queen. The new hotel is expected to cater primarily to group and leisure demand and is intended to serve the casino with regard to accommodating bus tour and other group travelers. The identified opening date for the hotel is the fourth quarter 1999. A second Adam's Mark hotel is planned in the growing West County area. The property is to be located off Interstate 270 in the Westport neighborhood of Maryland Heights, approximately six miles northwest of the subject property. Groundbreaking is schedule for the first quarter of 1998. Located in a 32-acre business park owned by the HBE Company, the parent company for the Adam's Mark Group, the hotel is proposed to have 540 rooms and 40,000 square feet of meeting and banquet space. The construction period of the property is estimated at two years, indicating an early 2000 opening date as likely. The City of St. Louis is actively involved in the solicitation of development interest for a major new convention hotel to be constructed adjacent to the existing America's Center convention center in downtown St. Louis. Currently, no definitive proposal has been agreed upon, but in principal, both the Marriott and Hilton hotel companies are considering separate proposals to construct a 1,000 room convention hotel facility. We have been unable to determine more precise details on either of these facilities, but we are of the opinion that one of these projects will be finalized in 1998, with a construction start in 1999. It is fair to assume that the earliest possible opening date for the new convention center hotel would be early in 2001. ================================================================================ IV-8 <PAGE> HOTEL MARKET ANALYSIS ================================================================================ We are of the opinion that the both the proposed Adam's Mark property and the proposed Convention Center property have the potential of impacting the occupancy of the subject property in future years. While the Adam's Mark is not expected to be built to as high a standard of interior finish as the subject property, its location in the growing West County area indicates that new Adam's Mark stands to capture some corporate and group business that otherwise may have utilized the subject property. The proposed convention center hotel will specifically compete for large convention and association business, and part of the potential development agreement for the hotel may stipulate that the new property work closely with the America's Center in accommodating demand for the convention center. While this demand segment is not one in which the subject property competes, the new presence of a large hotel in the downtown market, while projected to induce new convention demand into St. Louis, is also projected to absorb overflow demand from other downtown hotels that might otherwise have been accommodated by the subject property. As will be discussed in more detail in this section of the report, we have accounted for the potential affect of these two potential hotels in our future occupancy estimations of the subject property for the period 1998 to 2008. D. MARKET PERFORMANCE OF THE PRIMARY COMPETITIVE PROPERTIES The estimated year-end 1996 composite occupancy level for the primary competitive supply was 73.6 percent, with a corresponding ADR of $102.76. Based on year-to-date performance levels, the primary competitive supply is estimated to achieve a slightly increased 73.8 percent occupancy and an ADR of $109.45 by year-end 1997. The ADRs shown in our tables are net of any applicable transient occupancy taxes. The following table summarizes the overall growth in market demand for the competitive properties, the resulting occupancy levels, and the ADR for the period 1994 through 1997 (estimated). <TABLE> <CAPTION> =============================================================================================================================== Growth of Rooms Supply and Demand Primary Competitive Hotel Market 1993 to 1997 (Estimated) =============================================================================================================================== % Total % Occupancy % Year Room Supply Change Demand Change Percent ADR Change - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> 1994 980,755 0.0% 709,151 - 72.3% $92.61 - 1995 980,755 0.0% 704,887 (0.6)% 71.9% $97.02 4.8% 1996 980,755 0.0% 721,732 2.4% 73.6% $102.76 5.9% 1997(E) 980,755 0.0% 724,182 0.3% 73.8% $109.45 6.5% - ------------------------------------------------------------------------------------------------------------------------------- CAGR 0.0% - 0.7% - - 5.7% - =============================================================================================================================== Source: PKF Consulting =============================================================================================================================== </TABLE> ================================================================================ IV-9 <PAGE> HOTEL MARKET ANALYSIS ================================================================================ As summarized in the previous table, with supply remaining constant, the growth in ADR has exceeded the growth in demand accommodated over the four-year period. As the occupancy has stabilized in the 73.0 percent range, the competitive hotels have been able to show significant increases in ADR, above levels of inflation as measured by CPI. At the same time, the market mix in most hotels has shifted from a dominance of group demand towards a balance of both group and commercial demand, and, some cases, a dominance of corporate demand. At all the hotels, leisure demand is the smallest segment. This new mix of demand is enabling the hotels to capitalize on the higher occupancy rate by accommodating fewer room nights in the lower group-rated categories (which typically demand a lower ADR), allowing for a greater proportion of business from the corporate segment (which usually pays a higher ADR). This market dynamic enables hotels to thereby increase their profitability without sacrificing occupancy percentage. E. ROOMS DEMAND FOR THE PRIMARY COMPETITIVE MARKET 1. Historical Performance The market occupancy of 73.8 percent estimated for year-end 1997 includes a busy operation during the peak weekdays of Monday through Thursday, and balanced by quieter weekend periods (especially Friday and Sunday). The busiest periods of the year are the spring months of March, April, May, and the fall months of September and October. The slowest periods of the year are the months of November, December, January, and February. Rooms demand for the competitive market is derived primarily from three principal market segments: group meetings, corporate, and leisure. For 1997, we estimate that the competitive market is primarily composed of group demand (52.8 percent), with the corporate demand representing approximately 37.0 percent, and the leisure market at 10.2 percent. The following table summarizes the estimated 1997 market mix for the overall market ================================================================================ Demand by Primary Competitive Market 1996 ================================================================================ Competitive Market ----------------------------------------------------- Rooms Percent Market Segment Occupied of Total - -------------------------------------------------------------------------------- Group 382,274 52.8% Corporate 268,033 37.0% Leisure 73,958 10.2% - -------------------------------------------------------------------------------- Total 724,182 100.0% ================================================================================ Note: Figures may not foot due to rounding. Source: PKF Consulting ================================================================================ ================================================================================ IV-10 <PAGE> HOTEL MARKET ANALYSIS ================================================================================ The group market segment is comprised primarily of group conferences held at hotels in the suburban areas and convention and association group meetings held in the downtown hotels. The group market also includes room nights generated by company meetings during the week, as well as SMERF groups (social, military, educational, religious, and fraternal) on weekends. In 1997, group demand is estimated to account for approximately 382,300 room nights in the competitive market, or approximately 52.8 percent of total demand. Demand in this segment fluctuates depending on group activity at the major convention-oriented hotels in the area such as the Adam's Mark and the Marriott Pavilion. The commercial market segment is the is comprised primarily of visitors to local companies, independent sales people, employees in training, and other business people associated with firms in the St. Louis area. Other activities creating strong demand in this segment include product launches, mergers, and research and design sessions. The demand for rooms in this segment is at its peak from Monday through Thursday. In 1997, commercial demand is estimated to account for approximately 268,000 occupied room nights, or 37.0 percent of the market total. The top five major corporate accounts for the hotel, for example, are: Maritz Travel, Boeing/McDonnell Douglas, Monsanto, Anheuser-Busch, and Washington University. Further, also according to management, the primary geographic sources of business include Chicago and New York, as the first tier, followed by Washington, DC, San Francisco, Dallas, and other comparable business centers. The leisure market segment is estimated to account for approximately 10.2 percent of total market demand in 1997, or 74,000 occupied room nights. Leisure travelers include those who fly into St. Louis and rent cars, and those who drive from neighboring regions of the Midwest. This segment also includes domestic, European, and Asian tour groups, which tend to be high in the summer and fall months. Leisure demand is more rate-sensitive than the commercial and group meetings segments. As a result, as ADRs in the area continue to escalate, some leisure travelers are more likely to seek the limited-service and lower-tier products in the market area. ================================================================================ IV-11 <PAGE> HOTEL MARKET ANALYSIS ================================================================================ F. PERFORMANCE OF THE RITZ-CARLTON, ST. LOUIS 1. Occupancy and Average Daily Room Rate The following table summarizes the historical market performance of the subject property from 1993 through 1996, and also for year-to-date August 1996 and 1997. ========================================================================= Ritz-Carlton, St. Louis Historical Operating Performance Year-End 1993 to 1996, and Year-to-Date August 1996 and 1997 ========================================================================= Occupancy Average Daily Percent Year Level Room Rate Change ------------------------------------------------------------------------- 1993 69.5% $121.28 - 1994 75.3% $125.34 3.3% 1995 74.2% $136.68 9.0% 1996 74.0% $145.13 6.2% ------------------------------------------------------------------------- CAGR +2.1% +6.2% - ------------------------------------------------------------------------- YTD August 1996 72.9% $142.63 YTD August 1997 75.2% $149.63 +4.9% ------------------------------------------------------------------------- Increase +3.2% +4.9% ========================================================================= Source: Ritz-Carlton, St. Louis ========================================================================= The occupancy of the subject has, since 1994, remained in the 74.0 to 75.0 percent range. As of year-to-date 1997, occupancy is up 3.2 percent from the same period in 1996. With a strong month of October forecast by management, the revised estimation for occupancy as of December 1997, for the twelve-month period, is approximately 76.0 percent. With regard to ADR, the subject has posted strong room rate increases, again since 1994, of between 3.0 and 9.0 percent annually, and the ADR for 1996 was $145.13. As of year-to-date August 1997, ADR is up 4.9 percent over 1996, from $142.63 to $149.63. Management's estimation of ADR for year-end 1997 is approximately $152.00. As a point of comparison, in the following table we provide an overview of the individual estimated market performance for the competitive properties for year-end 1997. We are unable to disclose the names of the hotels due to the confidential nature of the data, and therefore the data is also presented in a rounded format. ================================================================================ IV-12 <PAGE> HOTEL MARKET ANALYSIS ================================================================================ ======================================================= Competitive Properties Estimated 1997 Market Performance ======================================================= Percentage Property Occupancy ADR ------------------------------------------------------- Subject 76.0% $152.00 A High 70s High $100s B Mid 70s High $90s C Low 70s High $100s D High 60s High $90s ------------------------------------------------------- Average 73.8% $109.45 ======================================================= Source: PKF Consulting ======================================================= As can be seen, as alluded to earlier in this report, the Ritz-Carlton performs close to the top of the competitive market in terms of occupancy, and well out-performs the competitive market in terms of ADR. 2. Market Mix Similar to the competitive market, management at the subject property has also shifted the market mix over the past few years to take advantages of changes in the marketplace which have allowed for an increase in both occupancy and ADR. Presently the market mix at the subject property, for estimated year-end 1997 is 48.3 percent commercial, 38.6 percent group, and 13.2 percent leisure. This can be contrasted with the 1993 market mix of the property, following the recessionary period, when the market mix was 44.5 percent corporate, 43.8 percent group, and 11.7 percent leisure. The shift from fewer groups to more corporate and more leisure has allowed, in part, growth in ADR. The following table summarizes the market mix of demand at the subject property for 1993 and for estimated 1997. These mixes of demand can be compared that of the competitive market, as illustrated on page IV-10. ====================================================================== Ritz-Carlton, St. Louis Market Mix, 1993 and Estimated 1997 ====================================================================== Market Segment 1993 Estimated 1997 Percent Change ---------------------------------------------------------------------- Corporate 44.5% 48.3% +8.5% Group 43.8% 38.6% -11.9% Leisure 11.7% 13.2% 12.8% ---------------------------------------------------------------------- Total 100.0% 100.0% - ====================================================================== Source: PKF Consulting and Ritz-Carlton, St. Louis ====================================================================== ================================================================================ IV-13 <PAGE> HOTEL MARKET ANALYSIS ================================================================================ Further, shifts within market segments have also occurred. For example, the percentage of volume corporate accounts, a compared to standard corporate accounts and rack rate business, has dropped from 17.3 percent of room nights occupied in 1995 to estimated 11.5 percent of room nights occupied in 1997. A push has successfully been made by management to focus on higher room-rated standard corporate accounts as compared to lower room-rated volume accounts. For 1998, management has announced a program to continue with a similar market mix as for 1997, but with the added emphasis on growing group business only during select slow periods of the year, such as in January, for example. Further, an effort will be made to solicit group business, which would bring along significant food and beverage revenue, rather than generating only occupancy and ADR benefits. Examples of this desired business would be corporate group meetings and private, leisure-oriented business such as select weddings and other upscale events. G. ESTIMATED GROWTH IN DEMAND FOR THE OVERALL MARKET Based on our analysis of the historical growth rates in the competitive market's three principal segments, coupled with our study of the positive economic variables currently impacting the St. Louis and West County areas, we believe that the market will experience limited growth over the next five years and that the overall occupancy rates for the competitive properties analyzed have stabilized, on average, in the low- to mid-70s percent range. In deriving our estimations of this growth rate, we have specifically analyzed the overall growth in manufacturing and services, employment, airline passenger traffic, and the expansions expected by employers in the local area. As noted, in particular, the upcoming focus on promoting tourism over the 1998 to 2004 period by the City of St. Louis and the Convention and Visitors Bureau, in combination with increased performance results at the America's Center, bode well for the lodging industry in St. Louis in general, and for full-service convention hotels in particular. 1998 and 1999 are estimated to be strong years, and area hotels are estimated to accommodate demand comparable or above 1997 year-end levels. For 2000 and beyond, as the effect of the proposed new hotel facilities begins to be felt, occupancy rates are forecast to dip somewhat over the 2000 to 2003 period, and then stabilize at a slightly lower level than that experienced presently. ================================================================================ IV-14 <PAGE> HOTEL MARKET ANALYSIS ================================================================================ H. PROJECTED FUTURE MARKET PERFORMANCE OF THE SUBJECT HOTEL 1. Projected Occupancy As previously discussed, over the past several years, the subject has achieved an occupancy level of 74.0 to 75.0 percent, with 76.0 percent estimated for 1997. In 1993, a lower level of occupancy, 69.5 percent, was experienced; however, this was at the end of the late 1980's and early 1990's recession that had plagued the nation overall. However, as the current economic and hotel demand markets are now at significantly higher level, the prospect for the subject property to perform in the mid- to high-70.0 percent level appears sustainable for the short-term. Of most importance, the subject property in particular enjoys a unique position in the market as a one-of-a-kind facility. Based on our analysis of the local market and of the subject property, we are of the opinion that the occupancy level of the Ritz-Carlton, St. Louis will remain at 76.0 percent for 1998 through 2000, which is also in-line with management's projections for the period. After the year 2000, with the expected opening of the Adam's Mark property and the new convention center hotel in the early years of the new century, we project the occupancy of the subject to drop slightly to 75.0 percent from 2001 to 2003. After the year 2003, we estimated that the subject hotel will stabilize at 74.0 percent from 2004 and onwards. The average level of occupancy, therefore, for the analysis period is 75.0 percent, which we are of the opinion represents the likely stabilized occupancy performance of the hotel in the foreseeable future. 2. Projected Average Daily Rate (ADR) With regard to average daily room rate, the Ritz-Carlton Hotel has achieved steady growth over the past four years as illustrated in the following table. ====================================================================== Ritz-Carlton, St. Louis Historical Average Daily Room Rate Year-End 1993 to 1996 And Year-to-Date August 1996 and 1997 ====================================================================== Average Daily Percent Year Room Rate Change ---------------------------------------------------------------------- 1993 $121.28 - 1994 $125.34 3.3% 1995 $136.68 9.0% 1996 $145.13 6.2% ---------------------------------------------------------------------- CAGR +6.2% - ---------------------------------------------------------------------- YTD August 1996 $142.63 YTD August 1997 $149.63 +4.9% ---------------------------------------------------------------------- Increase +4.9% ====================================================================== Source: Ritz-Carlton, St. Louis ====================================================================== ================================================================================ IV-15 <PAGE> HOTEL MARKET ANALYSIS ================================================================================ As previously stated, with regard to ADR, the subject has posted strong room rate increases, again since 1994, of between 3.0 and 9.0 percent annually, and the ADR for 1996 was $145.13. As of year-to-date August 1997, ADR is up 4.9 percent over 1996, from $142.63 to $149.63. Management's estimation of ADR for year-end 1997 is approximately $152.00, a 4.7 percent increase from year-end 1996, and consistent with year-to-date 1997 trends. Based on our analysis of the competitive market trends and the current performance of the subject hotel, we are of the opinion that the Ritz-Carlton will achieve and average daily room rate of $152.00 as of year-end 1997. For the next twelve-month period, we project that the achieved ADR of the subject property will be $158.00, which is equivalent of $153.00 in 1997 dollars. For the balance of our projection period, we have assumed that the ADR of the subject hotel will increase at the projected inflation rate, estimated at 3.0 percent annually. I. MARKET ANALYSIS SUMMARY 1. Conversion to a Fiscal Year Basis Our appraisal uses a fiscal year analysis effective October 1, 1997. As a result of the fact that this fiscal year from October 1 to September 30 is only three months different than a standard calendar year, the conversion from a calendar year to a fiscal year at this point is not expected to result in a significant change in the measure of occupancy or average daily room rate as presented in the preceding pages. 2. Summary of Occupancy and Average Daily Room Rate Based on our foregoing analysis, presented in the following table is a summary of our projection of the occupancy and ADR for the subject over the 11-year period beginning October 1, 1997 and ending September 30, 2008, which is the ten-year analysis period plus the 11th year reversion year. ================================================================================ IV-16 <PAGE> HOTEL MARKET ANALYSIS ================================================================================ ======================================================================== Ritz-Carlton, St. Louis Projected Occupancy Levels and ADR Fiscal Year 1997/1998 to 2007/2008 ======================================================================== Occupancy Fiscal Year Level ADR ------------------------------------------------------------------------ 1997/1998 76.0% $158.00 1998/1999 76.0% $163.00 1999/2000 76.0% $168.00 2000/2001 75.0% $173.00 2001/2002 75.0% $178.00 2002/2003 75.0% $183.00 2003/2004 74.0% $189.00 2004/2005 74.0% $194.00 2005/2006 74.0% $200.00 2006/2007 74.0% $206.00 2007/2008 74.0% $212.00 ======================================================================== CAGR - 3.0% ======================================================================== Note: The above estimated ADRs are rounded to the nearest dollar. Source: PKF Consulting ======================================================================== It should be noted that discounting the proposed subject property's 1997/1998 ADR of $158.00 into 1997 value dollars, using the 3.0 percent inflation rate, renders a "stabilized ADR" of $153.00 (in 1997 dollars). J. CONCLUSION While it is possible that the subject property will experience growth in occupancy and ADRs above those estimated in this report, it is also possible that sudden economic downturns, unexpected additions to the room supply or other external factors will force the property below the selected point of stability. Consequently, the estimated occupancy and ADR are representative of the most likely potential operations of the subject hotel over the projected holding period based on our analysis of the market as of the date of this report. Furthermore, our projections of annual occupancy and ADR, as outlined in this section of the report, are predicated on the following assumptions: 1. The subject hotel will continue to be affiliated with the Ritz-Carlton Hotel Company, LLC; 2. The subject hotel will be well-maintained over the next ten years; and, 3. The subject hotel will be effectively managed and promoted via a well-targeted marketing effort. ================================================================================ IV-17 <PAGE> HIGHEST AND BEST USE ================================================================================ K. DEFINITION OF HIGHEST AND BEST USE The appraisal of real estate always includes a determination of highest and best use. According to the Appraisal Institute's Dictionary of Real Estate Appraisal (Third Edition), 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. As noted above, in determining highest and best use, there are essentially four criteria that must be considered. Each of these criteria must be satisfied sequentially in order to arrive at a highest and best use conclusion. 1. Legally Permissible: The use of a site can be limited by various private and public restrictions including zoning and building codes, environmental regulations, and deed or lease restrictions, among others. 2. Physically Possible: Use is restricted by the physical characteristics of the site. Characteristics include, but are not limited to size, shape, terrain, soil composition, and accessibility of utilities. 3. Financially Feasible: The ability of a project or an enterprise to meet defined investment objectives; an investment's ability to produce sufficient revenue to pay all expenses and charges and to provide a reasonable return on and recapture of money invested. 4. Maximally Profitable: This item refers to that use that produces the highest price, or value, consistent with the rate of return warranted by the market. Since the subject site is currently unimproved, it is necessary to consider the highest and best use of the site as if vacant. The highest and best use as if vacant is analyzed as follows. ================================================================================ IV-18 <PAGE> HIGHEST AND BEST USE ================================================================================ L. HIGHEST AND BEST USE AS IF VACANT 1. Legally Permissible Legal restrictions, as they apply to the subject property, are private restrictions, associated with covenants, and the public restrictions of zoning regulations. There are no known private restrictions affecting title. Common restrictions such as utility easements are presumed to exist; however, they generally would not adversely affect the subject site. The subject site is zoned C4 (Commercial District/Clayton Plaza Overlay District). This designation provides for a wide range of commercial uses, including retail, service establishments (such as barber, banks, and repair shops), hotels, clubs, and entertainment uses. Residential and industrial uses are not permitted. An office use would be permissible by exception to the general zoning ordinance as approved by the Board of Aldermen, the area's city council. 2. Physically Possible The second constraint imposed on the possible use of the site is dictated by the physical aspects of the site itself, such as size, frontage, topography, and accessibility. The size and location within a given block are the most important determinants of value. In general, the larger the site, the greater its potential to achieve economies of scale and flexibility in development. The subject site encompasses a total of 2.99 acres (130,244 square feet) of land in a level, generally rectangular-shaped parcel. The site is of sufficient depth and width to permit most types of development. The site is in a commercial area with some areas remaining to be developed, and has no unusual deficiencies which would hinder its development. A geotechnical study of the subsoil was not provided for our review, but it appears that the soil is adequate to support most common building improvements. All types of commercial improvements suitably scaled and zoned to the site are physically possible. However, given the character of the local area along Carondelet Avenue and Plaza, a hotel, retail, or office use would be the most complementary type of real estate development. 3. Financially Feasible and Maximally Productive Financial feasibility is based on whether the proposed project will attain a cash flow of sufficient quantity, quality, and duration to allow investors to recover the capital invested and achieve the necessary and expected rate of return. Factors to be considered are the timing of inflows and outflows of cash, revenues, costs, debt service, and the proceeds of a sale or refinancing. ================================================================================ IV-19 <PAGE> HIGHEST AND BEST USE ================================================================================ In analyzing the subject property, principal reliance was placed on growth trends in the area, present occupancy of neighboring properties, and proposed development. Principal indicators of financial feasibility for the subject site as vacant are the current development and/or operation of similar uses on nearby or otherwise comparable sites, as well as an analysis of current market conditions. Uses in place in the immediate area of the subject site include large retail buildings, hotels, office buildings, and restaurants. The retail market is well-served by several upscale malls in the area, such as the St. Louis Galleria and the elegant Frontenac shopping mall. In the vicinity of the subject property, a number of existing buildings better located proximate to pedestrian and concentrated automobile traffic cater to retail trade. While a retail development on the subject site would be a compatible use in terms of the overall neighborhood, we are of the opinion that retail developers would be able to locate a more desirable site elsewhere. As discussed previously, the occupancy and ADRs of hotels in the St. Louis market have been stable or increasing during the 1994 to 1996. Hotel supply and lodging market conditions of the St. Louis Metropolitan Area market started to substantiate a need for additional accommodations during that time, at least in the eyes of hotel developers. Extensive construction of limited service and extended stay facilities in 1997 and 1998, which would not be appropriate for the subject site, and several likely new full-service hotel projects, appear to satisfy quantifiable excess lodging demand for the foreseeable future. The commercial office market is also strong, as witnessed by declining vacancies since 1993. However, most new office construction is forecast to occur farther west in the West Counties area, although eventual in-fill in the Plaza at Clayton area is foreseen. To that end, our opinion of the highest and best use of the subject as vacant would be to hold for future development, most likely to be a Class A office building in the short term, or perhaps a full-service hotel in the long term. M. HIGHEST AND BEST USE "AS IMPROVED" The subject is currently improved as a multi-story, full-service hotel. Construction of the building was completed in 1990, and an interior update has been completed in 1997. The facility is in excellent physical condition and the future operating performance of the hotel is expected to increase during the foreseeable future. ================================================================================ IV-20 <PAGE> HIGHEST AND BEST USE ================================================================================ Although other legally permitted uses are considered physically possible for the subject property, they would require extensive renovation or demolition of the existing structure. The subject property was designed and is used as a hotel. As such, its space configuration, features, and facilities are specific to hotel use. The only other alternative use for the property, as improved, would be to demolish the improvements and sell the vacant land. Although we did not value the subject site as vacant, we are of the opinion that the existing structure contributes significant overall value to the site. Thus, there is no alternative, legal use that could economically justify the restructuring or removal of the existing improvements at this time. As a result, the subject property, as improved, represents the highest and best use of the site, as of the date of this report. ================================================================================ IV-21 <PAGE> [GRAPHIC OMITTED] Hilton Frontenac [GRAPHIC OMITTED] Hyatt Regency - Union Station Competitive Supply <PAGE> [GRAPHIC OMITTED] Marriott Pavilion [GRAPHIC OMITTED] Adam's Mark Competitive Supply <PAGE> SECTION V VALUATION <PAGE> VALUATION ================================================================================ A. DISCUSSION OF THE THREE APPROACHES TO VALUE Estimating the market value of real property involves a systematic process in which the problem is defined, the work necessary to solve the problem is planned, and the essential data is acquired, analyzed, and interpreted. The appraisal of real estate can include the Cost, Sales Comparison, and Income Capitalization Approaches to value, with the conclusion of value based on the reconciliation of these approaches. An explanation of each approach follows. 1. Cost Approach In the Cost Approach, the value is based on the estimate of the cost of reproducing the improvements, less any accrued depreciation from physical deterioration, functional obsolescence, and/or external obsolescence. Physical deterioration measures the deterioration of the physical improvements. Functional obsolescence reflects a lack of desirability by reason of layout, style, or design. External obsolescence denotes a potential loss in value caused from something other than the physical property itself. The value of the land is then added to the depreciated replacement cost of the property to develop a value estimate. 2. Sales Comparison Approach This approach is based on the principle of substitution. When a property is replaceable within the market, its value tends to be set at the cost of acquiring an equally desirable substitute property, assuming no costly delay in making the substitution. Since no two properties are identical, adjustments are made for differences in quality, location, size, services, and market appeal between the comparable properties and the subject. 3. Income Capitalization Approach The Income Capitalization Approach involves a valuation of the property in terms of its ability to provide a net annual income in dollars. Traditionally, the estimated stabilized income is capitalized into value at a rate commensurate with the risk involved in ownership of the property. This process is known as direct capitalization. Another technique used in estimating value by the Income Capitalization Approach is the discounted cash flow method. This method is accepted in the marketplace and has become an essential tool of the most prudent investors in valuing complex income producing properties. This technique involves explicit year-by-year forecasting of net income (cash flow) over a typical holding period. In addition, the reversionary value of the property upon resale at the end of the holding period is then estimated and added to the final year's cash flow. Then, these benefits are discounted to a present value by applying a market-derived yield rate (discount rate). ================================================================================ V-1 <PAGE> VALUATION ================================================================================ B. VALUATION OF THE SUBJECT PROPERTY In our analysis of the subject property, we have used two of the three traditional approaches to value, the Sales Comparison and the Income Capitalization Approaches. The Cost Approach was not utilized as it was not considered a meaningful approach to value the subject. The effective date of valuation of the report is as of October 1, 1997, under economic conditions prevailing as of the completion of our fieldwork at that time. We believe that a value estimate utilizing the Cost Approach would not be a reliable indicator of the market value of the subject property. The Cost Approach is defined in The Dictionary of Real Estate Appraisal, Third Edition (Appraisal Institute, 1993) as: A set of procedures through which a value indication is derived from the fee simple interest in a property by estimating the current cost to construct a reproduction of, or replacement for, the existing structure; deducting accrued depreciation from the reproduction or replacement cost; and adding the estimated land value plus an entrepreneurial profit. Adjustments may then be made to the indicated fee simple value of the subject property to reflect the value of the property interest being appraised. Investors in income-producing property in the market today typically do not rely on the Cost Approach to arrive at a value indication when determining a purchase price. The Cost Approach is primarily used to test the feasibility of new construction in relation to the estimation of value produced by the Income Capitalization Approach. Further, accrued depreciation estimates and external obsolescence that must be determined for the subject property, which was opened in 1990, under the Cost Approach would be subjective and without clearly adequate market support. Accordingly, we have not utilized this approach in developing our estimate of the market value of the subject. In the Sales Comparison Approach, relevant sales and current listings of comparable hotels were analyzed, and appropriate adjustments were considered for such factors as market conditions, financing terms, conditions of sale, planned renovations, local market conditions, and physical characteristics. A conclusion of value was derived based on the value parameters established by these sales. In the Income Capitalization Approach, the value of the property is based on analysis of the income and expenses generated by the operation of the facility. The value of the property was estimated using both a direct capitalization technique and a discounted cash flow analysis. We then performed a reconciliation of the value indications under these approaches to conclude to a final estimate of value. ================================================================================ V-2 <PAGE> SALES COMPARISON APPROACH ================================================================================ A. INTRODUCTION The Sales Comparison Approach is based on the premise that knowledgeable investors will pay no more for a specific property than the cost of acquiring a substitute property of equal utility. The basis for this analysis is a comparison of the subject to sales of other similar facilities. Key elements in an analysis of the value of the subject based on the Sales Comparison Approach are the location of the property, physical elements of the improved property, as well as the motivations of the buyer and the seller underlying the transaction. The reliability of this technique depends on the degree of comparability of each sale to the property being appraised, the length of time since the sale, the accuracy of the sales data, and the absence of any unusual conditions affecting the sale. By analyzing sales which qualify as arms-length transactions between willing, knowledgeable buyers and sellers, we can identify market value and price trends. The basic steps involved in the application of this approach are as follows: 1. Research recent, relevant property sales, and current offerings throughout the competitive area; 2. Select and analyze those properties considered most similar to the subject, giving consideration to the time of sale, any change in economic conditions which may have occurred since the date of sale, and other physical, functional, or locational factors; 3. Reduce the sales price to a common unit of hotel sales comparison, such as price per room or the rooms revenue multiplier; 4. Make appropriate adjustments to equate the comparable properties to the property appraised; 5. Identify sales which include favorable financing and calculate the cash equivalent price; and, 6. Interpret the adjusted sales data and draw a logical value conclusion. In our analysis of the subject, we conducted a thorough search for recent sales, identifying those transactions which involved properties most similar to the subject. Our search for sales was initially limited to the St. Louis Metropolitan Area. Based on this search and the fact that the Ritz-Carlton represents a truly superior asset, we were unable to identify any recent sales in that St. Louis region that would be considered comparable. Therefore, we have expanded our search to include other, luxury hotels located in major metropolitan areas throughout the United States. ================================================================================ V-3 <PAGE> SALES COMPARISON APPROACH ================================================================================ B. PRESENTATION OF COMPARABLE SALES Presented in the following table is a summary of the selected sales which have some degree of comparability to the Ritz-Carlton, St. Louis. <TABLE> <CAPTION> ================================================================================================================== Comparable Hotel Sales ================================================================================================================== Rooms Overall Sale Sale Year No. of Price per Revenue Capitalization No. Hotel Name Location Date Built Rooms Unit Multiplier Rate - ------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> 1 Four Seasons Hotel Philadelphia 1/97 1983 371 $172,507 3.48 9.02% - ------------------------------------------------------------------------------------------------------------------ 2 Ritz-Carlton, Buckhead Atlanta 9/96 1984 553 $209,765 7.12 11.21% - ------------------------------------------------------------------------------------------------------------------ 3 Ritz-Carlton, Downtown Atlanta 9/96 1984 447 $139,821 4.31 10.56% - ------------------------------------------------------------------------------------------------------------------ 4 Mayfair Baglioni New York 5/96 1925 201 $303,483 3.98 7.62% - ------------------------------------------------------------------------------------------------------------------ 5 Regent, Beverly Wilshire Beverly Hills 2/96 1928 295 $290,439 N/A 6.00% - ------------------------------------------------------------------------------------------------------------------ 6 Plaza Hotel New York 8/95 1907 808 $404,229 5.48 7.71% ================================================================================================================== Source: PKF Consulting ================================================================================================================== </TABLE> ================================================================================ V-4 <PAGE> SALES COMPARISON APPROACH ================================================================================ Comparable Hotel Sale No. 1 [GRAPHIC OMITTED] <TABLE> <CAPTION> ==================================================================================================================================== <S> <C> Name: Four Seasons, Philadelphia - ------------------------------------------------------------------------------------------------------------------------------------ Location: 144 North 18th Street, Philadelphia, PA - ------------------------------------------------------------------------------------------------------------------------------------ Number of Rooms: 371 - ------------------------------------------------------------------------------------------------------------------------------------ Year of Construction: 1983 - ------------------------------------------------------------------------------------------------------------------------------------ Sales Data: Seller: Circle Associates ( Aetna) Buyer: Blackstone R.E. Advisors & The Rubenstein Company Interest Conveyed: Fee Simple Closing Date: January 1997 Sales Price: $64,000,000 Sales Price Per Room: $172,507 Terms of Sale: All cash to seller Occupancy Percentage: 71.7% Average Daily Room Rate: $189.26 REVPAR: $135.72 Net Operating Income: $5,771,000 Overall Capitalization Rate: 9.02% Rooms Revenue Multiplier: 3.48 - ------------------------------------------------------------------------------------------------------------------------------------ Property Description: Eight-story luxury hotel containing 371 rooms located on Logan Square in the Philadelphia CBD. Hotel was acquired as part of a multi-use project comprised of the 30-story One Logan Square office tower, and the 642-space Logan Square parking garage. - ------------------------------------------------------------------------------------------------------------------------------------ Remarks: This transaction was a result of a sealed bid sale as part of a pre-packaged plan of reorganization of One Logan Square. The total acquisition price was reported to be $115,000,000, with $64,000,000 internally allocated to the Four Seasons Hotel. The investment parameters noted are based upon year-end financials, adjusted for a 3.0 percent reserve for replacement. The Four Seasons budget for 1997 reflects an ADR of $203.92 at an occupancy rate of 73.5 percent, resulting in a budgeted REVPAR of $149.86. Net operating income is budgeted at $6,995,000. - ------------------------------------------------------------------------------------------------------------------------------------ Confirmation: Representatives of Blackstone Real Estate Advisors ==================================================================================================================================== </TABLE> ================================================================================ V-5 <PAGE> SALES COMPARISON APPROACH ================================================================================ Comparable Hotel Sale No. 2 [GRAPHIC OMITTED] <TABLE> <CAPTION> ==================================================================================================================================== <S> <C> Name: Ritz-Carlton, Buckhead - ------------------------------------------------------------------------------------------------------------------------------------ Location: 3434 Peachtree Road, N.E., Atlanta, GA - ------------------------------------------------------------------------------------------------------------------------------------ Number of Rooms: 553 - ------------------------------------------------------------------------------------------------------------------------------------ Year of Construction: 1984 - ------------------------------------------------------------------------------------------------------------------------------------ Sales Data: Seller: W.B. Johnson Properties Buyer: Host Marriott Interest Conveyed: Fee Simple Closing Date: September 1996 Sales Price: $116,000,000 Sales Price Per Room: $209,765 Terms of Sale: All cash to seller Occupancy Percentage: 80.1% Average Daily Room Rate: $173.75 REVPAR: $139.17 Net Operating Income: $13,002,857 Overall Capitalization Rate: 11.21% Rooms Revenue Multiplier: 7.12 - ------------------------------------------------------------------------------------------------------------------------------------ Property Description: Amenities include heated 60-foot indoor swimming pool and refreshment bar; outdoor sun deck; fitness center with whirlpool; sauna; steam; massage; and locker rooms; 8,970-square-foot room; 19 meeting rooms; two boardrooms; 5,000-square-foot pre-function space. The Dining Room, was voted "Best of Atlanta" for eight consecutive years, Georgia's only AAA Five-Diamond-rated restaurant; The Cafe; The Lobby Lounge; Expresso's; Afternoon tea; and 24-hour room service. - ------------------------------------------------------------------------------------------------------------------------------------ Remarks: This acquisition was part of the overall merger between the Ritz-Carlton Hotel Company and Marriott International. - ------------------------------------------------------------------------------------------------------------------------------------ Confirmation: Representatives of Marriott International ==================================================================================================================================== </TABLE> ================================================================================ V-6 <PAGE> SALES COMPARISON APPROACH ================================================================================ Comparable Sale No. 3 [GRAPHIC OMITTED] <TABLE> <CAPTION> ==================================================================================================================================== <S> <C> Name: Ritz-Carlton, Downtown Atlanta - ------------------------------------------------------------------------------------------------------------------------------------ Location: 181 Peachtree, N.E., Atlanta, GA - ------------------------------------------------------------------------------------------------------------------------------------ Number of Rooms: 447 - ------------------------------------------------------------------------------------------------------------------------------------ Year of Construction: 1984 - ------------------------------------------------------------------------------------------------------------------------------------ Sales Data: Seller: Metropolitan Life Insurance Company Buyer: Marriott International Interest Conveyed: Fee Simple Closing Date: September 20, 1996 Sales Price: $62,500,000 Sales Price Per Room: $139,821 Terms of Sale: All cash to seller Occupancy Percentage: 73.0% Average Daily Room Rate: $132.00 REVPAR: $96.36 Net Operating Income: $6,600,000 Overall Capitalization Rate: 10.56% Rooms Revenue Multiplier: 3.98 - ------------------------------------------------------------------------------------------------------------------------------------ Property Description: Amenities include The Restaurant; The Cafe; meeting space totaling 16,724 square feet, including a 6,500-square-foot ballroom; 12 conference rooms; and three boardrooms. 22 suites, each with bay window view and honor bar; 39 Ritz Carlton Club rooms; two suites with private lounge; fitness center; afternoon tea; musical entertainment at lunch and dinner; and 24-hour room service. - ------------------------------------------------------------------------------------------------------------------------------------ Remarks: The buyer looked at the historic performance of the property as well as considering future estimated pro forma cash flows. They based their purchase price on an unleveraged internal rate of return of 15.0 percent. - ------------------------------------------------------------------------------------------------------------------------------------ Confirmation: Representatives of Marriott International ==================================================================================================================================== </TABLE> ================================================================================ V-7 <PAGE> SALES COMPARISON APPROACH ================================================================================ Comparable Hotel Sale No. 4 [GRAPHIC OMITTED] <TABLE> <CAPTION> ==================================================================================================================================== <S> <C> - ------------------------------------------------------------------------------------------------------------------------------------ Name: Mayfair Baglioni (Formerly Mayfair Regent) - ------------------------------------------------------------------------------------------------------------------------------------ Location: 610 Park Avenue at East 65th Street - ------------------------------------------------------------------------------------------------------------------------------------ Number of Rooms: 201 - ------------------------------------------------------------------------------------------------------------------------------------ Year of Construction: 1925 - ------------------------------------------------------------------------------------------------------------------------------------ Sales Data: Seller: Investment group led by Norman Perlmutter Buyer: Investment group led by Colony Capital Interest Conveyed: Fee simple Closing Date: May 1996 Sales Price: $61,000,000 Sales Price Per Room: $303,483 Terms of Sale: All cash Occupancy Percentage: 65.0% Average Daily Room Rate: $310.00 REVPAR: $201.50 Net Operating Income: $4,646,100 Overall Capitalization Rate: 7.62% Rooms Revenue Multiplier: 4.13 - ------------------------------------------------------------------------------------------------------------------------------------ Property Description: Amenities include one restaurant; one lounge located in restaurant area; meeting space includes 12,212 square feet total in three rooms; an 11,052-square-foot meeting room; a 638-square-foot boardroom; and a 522-square foot boardroom (no ballroom); business services; fitness center with putting green; and some rooms with fireplaces. The Mayfair is located on Manhattan's Upper East Side. An independent affiliation, it is known for luxury and gracious, low-key service. Several years prior to sale, the property achieved one of the city's highest ADR's, but its rate had fallen. The buyer intends to spend an estimated $30,000,000 in required renovations. It is estimated that this capital infusion will return the property to its top rated tier. - ------------------------------------------------------------------------------------------------------------------------------------ Remarks: Teachers Insurance and Annuity Association (TIAA) held the first mortgage position on the property. The mortgage was $96 million and TIAA was in the process of taking it back. The property was purchased by Colony at New York State Court auction. - ------------------------------------------------------------------------------------------------------------------------------------ Confirmation: Representatives Management of property ==================================================================================================================================== </TABLE> ================================================================================ V-8 <PAGE> SALES COMPARISON APPROACH ================================================================================ Comparable Hotel Sale No. 5 [GRAPHIC OMITTED] <TABLE> <CAPTION> ==================================================================================================================================== <S> <C> - ------------------------------------------------------------------------------------------------------------------------------------ Name: Four Seasons - Regent Beverly Wilshire - ------------------------------------------------------------------------------------------------------------------------------------ Location: 9500 Wilshire Boulevard, Beverly Hills, CA - ------------------------------------------------------------------------------------------------------------------------------------ Number of Rooms: 283 (Potential for 387) - ------------------------------------------------------------------------------------------------------------------------------------ Year of Construction: 1928 - ------------------------------------------------------------------------------------------------------------------------------------ Sales Data: Seller: Regent International Hotels Buyer: Polylinks Interest Conveyed: Fee Simple Closing Date: February 1996 Sales Price: $105,000,000 Sales Price Per Room: $371,025 ($290,439 after renovation/expansion) Terms of Sale: All cash to seller Occupancy Percentage: 69.8% Average Daily Room Rate: $281.75 REVPAR: $137.26 Net Operating Income: $4,377,200 Overall Capitalization Rate: 4.17% (6.0% after renovation) Rooms Revenue Multiplier: N/A - ------------------------------------------------------------------------------------------------------------------------------------ Property Description: The subject is a luxury hotel located on Wilshire Boulevard between Rodeo Drive and El Camino Drive, in the heart of Beverly Hills. Amenities include two restaurants; lobby lounge; meeting space of 25,000 square feet total; including a 14,300-square-foot ballroom; outdoor swimming pool; fitness/spa facility; gift shop; 11,350-square-feet of retail. Buyer intends to renovate at a cost of $7.5 million, adding guest rooms, for a total of 387, (total investment $112.4 million). - ------------------------------------------------------------------------------------------------------------------------------------ Remarks: The Wilshire Wing of the hotel was completely renovated in 1987 and the Beverly Wing was refurbished up to the sixth level between 1990 and 1991. Total cost of the renovation was expected to be $16 million. In 1995, the hotel's rooms inventory was reduced by 20 in the Beverly Wing, which resulted in more suite-type rooms and a total room inventory of 278, according to management. Long-term plans include renovating and reopening floors 7 through 12 in the Beverly Wing which would add 109 rooms for a total of 387 guest rooms, which are reflected in our cost per room. - ------------------------------------------------------------------------------------------------------------------------------------ Confirmation: Representatives of Management of property ==================================================================================================================================== </TABLE> ================================================================================ V-9 <PAGE> SALES COMPARISON APPROACH ================================================================================ Comparable Hotel Sale No. 6 [GRAPHIC OMITTED] <TABLE> <CAPTION> ==================================================================================================================================== <S> <C> - ------------------------------------------------------------------------------------------------------------------------------------ Name: Plaza Hotel - ------------------------------------------------------------------------------------------------------------------------------------ Location: Fifth Avenue & Central Park South, New York, NY - ------------------------------------------------------------------------------------------------------------------------------------ Number of Rooms: 808 - ------------------------------------------------------------------------------------------------------------------------------------ Year of Construction: 1907 - ------------------------------------------------------------------------------------------------------------------------------------ Sales Data: Seller: Plaza Operating Partners Buyer: CDL Hotels Partnership Interest Conveyed: Fee Simple Closing Date: August 1995 Sales Price: $325,000,000 Sales Price Per Room: $404,229 Terms of Sale: All cash to seller Occupancy Percentage: 80.8% Average Daily Room Rate: $250.17 Estimated REVPAR: $202.14 Net Operating Income: $25,073,492 Overall Capitalization Rate: 7.71% Rooms Revenue Multiplier: 5.48 - ------------------------------------------------------------------------------------------------------------------------------------ Property Description: Amenities include three restaurants; two lounges; 27,000 square feet total meeting space; many original marble fireplaces; crystal chandeliers; elegant furnishings; 22,300 square feet of leased retail space; and an adjacent 7-story apartment building. - ------------------------------------------------------------------------------------------------------------------------------------ Remarks: The hotel was acquired by Donald Trump in 1988, who spent $44 million in renovations from 1988 to 1992. Mr. Trump maintains a very small minority interest in the property. The new investors expect to spend $28 million to renovate the property (mostly replace soft goods) and to develop high-end condominiums on the upper floors. - ------------------------------------------------------------------------------------------------------------------------------------ Confirmation: Representatives of Management of property ==================================================================================================================================== </TABLE> ================================================================================ V-10 <PAGE> SALES COMPARISON APPROACH ================================================================================ C. ADJUSTMENTS To arrive at our opinion of value, we have analyzed six upscale hotel transactions which have occurred nationally over the past two years. Since no two properties are ever identical, adjustments are made to the sales prices of the comparable properties for differences in such items as financing terms, conditions of sale, market conditions (time), location, and physical characteristics. These adjustments are defined in the following paragraphs. o Use: An appraiser must address any difference in the "as is" use and "highest and best use" of a comparable and the subject property. This is one of the primary factors in determining the appropriateness of a comparable. The subject property consists of a 301-unit, full-service hotel in a major market. We selected comparables with generally similar uses and situations, therefore, no adjustments were necessary. o Property Rights Conveyed: The subject property involves a fee simple interest. All six sales are also of the fee simple interest, so no adjustment for this factor is required. o Financing Terms: The transaction price of one property may differ from that of an identical property because financing arrangements vary. We understand that the financing terms of each sale were typical and no adjustment for this factor is required. o Conditions of Sale: When the conditions of sales are atypical, the result may be a price that is higher or lower than that of a normal market transaction. Such transfers might include distress or liquidation sales, non-arms-length sales, assemblage acquisitions, eminent domain sales, sales with unusual tax considerations, or sales with lack of exposure on the open market. We understand that all of the sales had typical conditions of sale and thus required no adjustments for this element. o Market Conditions (Time): Market conditions may change between the time of sale of a comparable property and the date of the appraisal of the subject property. Under such circumstances, the price of the comparable property would be different at a later time (the date of appraisal), and an adjustment would have to be made to the actual transaction if the sale were used as a comparable. We are of the opinion that all of the sales have occurred recently enough that no adjustment for market conditions or time needs to be made as transactions represent a current market outlook with regard to hotel investments. ================================================================================ V-11 <PAGE> SALES COMPARISON APPROACH ================================================================================ o Planned Renovation: In analyzing a sale, it is important to take into consideration any renovation costs or refurbishment which the purchaser planned to perform, as the cost of these refurbishments would be an integral part of the investment decision. A number of the sales would require adjustments for this factor to reflect planned changes to the physical plant after acquisition by the buyer. o Location and Market Factors: An adjustment for location and/or market factors may be required if the locational or market characteristics of a property are significantly different from those of the subject property. As some of the sales are located in superior markets, such as New York City, adjustments would therefore be required to equate such properties more closely to the subject. This aspect of the comparable sales would require some rather significant adjustments in several cases. o Physical and Operating Characteristics: Physical characteristics include such items as size, construction quality, operational design, age and condition, and visibility. Adjustments for physical differences are generally based on observation of the physical characteristics of each sales property. Accordingly, adjustments were required all of the sales for this factor. Generally the subject is equal to or superior in physical characteristics, but lags behind some of the sales in operating characteristics due to the lower room rate ceiling present in St. Louis. Dollar or percentage adjustments are made to the sale price per room of each comparable property when applicable. Positive adjustments are made for deficiencies in the comparable property relative to the subject. Negative adjustments are made for superior characteristics of the comparable property relative to the subject. Through this procedure, a logical estimate of the probable price for the subject property, as of the date of appraisal, can be determined. It is often difficult, however, to quantify the appropriate adjustment factors accurately because of the number and complexity of the adjustments, as well as the difficulty in obtaining specific, detail information Moreover, it should be noted that, in particular, adjustments for differences in location, market factors, and historical and operating characteristics are very difficult to quantify for a lodging facility. Accordingly, adjustments for these areas are often very subjective as a means to further equate each sale to the subject hotel. As noted the sales price per room of the identified sales ranges from a low of $139,821 to a high of $404,220 per room, with an average price of $266,805 per room. We have estimated through the Income Approach a value of approximately $200,000 per unit, which appears supported by the range in prices paid recently for other deluxe hotels on a nationwide basis. The low end of the range is characterized by the Ritz-Carlton, Atlanta, which, while an upscale property, is located in a ================================================================================ V-12 <PAGE> SALES COMPARISON APPROACH ================================================================================ downtown area with some undesirable characteristics and this is reflected in the operating performance of the property. The upper end of the scale is represented by the Regent Beverly Wilshire and the Plaza Hotel, both world-renowned properties in prime urban locations. D. CONCLUSION The foregoing hotel sales were conveyed under a variety of circumstances, including different motivations of the buyer and/or seller, different renovation and reposition strategies (or lack of same), and different financing terms. In addition, the sale properties differ from the subject property in location, operating history, hotel amenities, physical condition, and other factors. As will be explained in further detail in the Income Capitalization Approach, we estimated the market value of the subject to be $60,000,000. This equates to roundly $200,000 per available room. This value estimate places the subject towards the middle of the range of identified sales. Given the quality and condition of the subject, we are of the opinion that such a position within the identified range is reasonable and supportive of our value conclusion derived via the Income Capitalization Approach. The value estimate derived for the hotel is summarized in the following table. ====================================================== 301 Rooms x $200,000 per Room $60,200,000 ------------------------------------------------------ Rounded $60,000,000 ====================================================== Accordingly, we have concluded that the stabilized market value of the Ritz-Carlton, St. Louis hotel via the Sales Comparison Approach, as of October 1, 1997, to be: =============================================================================== SIXTY MILLION DOLLARS =============================================================================== $60,000,000 =============================================================================== ================================================================================ V-13 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ A. INTRODUCTION The Income Capitalization Approach is defined in the Dictionary of Real Estate (Third Edition), Appraisal Institute as follows: A set of procedures through which an appraiser derives a value indication for income-producing property by converting anticipated benefits (cash flows and reversion) into property value. This conversion can be accomplished in two ways. One year's income expectancy can be capitalized at a market-derived capitalization rate or a capitalization rate that reflects a specified income pattern, return on investment, and change in the value of the investment. Alternatively, the annual cash flows for the holding period and the reversion can be discounted at a specified yield rate. For the purpose of our valuation of the subject, we have utilized both methods outlined above. Based on our discussions with persons familiar with the purchase and sale of hotels such as the subject, these techniques are considered the most appropriate methods of value estimation for a complex hotel property like the subject. The first method, which is typically referred to as the direct capitalization approach, is a less involved process, which is commonly utilized by investors for a stabilized hotel property. B. METHODOLOGY 1. Direct Capitalization Under the direct capitalization approach, the projected earnings stream attainable by the property is first established. This earnings stream is then converted into a value estimate by dividing the income estimate by an appropriate income capitalization rate. The capitalization rate represents the relationship between income and value observed in the market and is derived through comparable sales analysis as well as other analyses. Direct capitalization is market-oriented; an appraiser analyzes market evidence and values the property by considering the assumptions of typical investors. Direct capitalization does not explicitly differentiate between the return on and return of capital because investor assumptions are not specified. However, it is assumed that the selected capitalization rate will satisfy a typical investor and that the prospects for future monetary benefits, over and above the amount originally invested, are sufficiently attractive. ================================================================================ V-14 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ The earnings stream most commonly used as the basis for the both valuation methods is the projected net operating income profit (NOI) from operations after the deduction of real estate taxes, insurance, and ground rent (if applicable), but before the deduction of interest, depreciation, amortization, and taxes on income which vary from owner to owner. Also deducted from the profit from operations is a reserve for capital improvements to the property. The income expectancy used for valuation is frequently the anticipated income for a typical or stabilized year of operation, stated in current value dollars. The performance of the property in the stabilized year reflects the normal level or operation of the hotel at its expected stabilized occupancy (in the case of the subject 75.0 percent), unaffected by temporary non-recurring expenses such as extraordinary start-up marketing, administrative, or operation costs, which can occur in the initial years of a new hotel or upon repositioning of the facility. The financial format used in our analysis is the Uniform System of Accounts for Hotels, developed by the American Hotel & Motel Association and in general use throughout the hospitality industry. In conformity with this system of account classifications, only direct operating expenses are charged to operating departments of the hotel. The general overhead items which are applicable to operations as a whole are classified as deductions from income and include administrative and general expenses, marketing expenses, property operations and maintenance expenses, energy costs, and a reserve for replacement. 2. Yield Capitalization (Discounted Cash Flow Approach) In yield capitalization, the value of a property is the present value of the net operating income of the property in each year of a holding period (here assumed to be ten years) and the value of the property when sold at the end of the holding period (the reversion). The present value of these elements is obtained by applying a market-derived discount rate. The value of the reversion is obtained through the capitalization of the adjusted income in the eleventh year, which should be a normalized or typical year, with a deduction for the costs of sale. The cash flow projection over the holding period is based on the stabilized year estimate, adjusted to reflect such factors as change in room rates, occupancy, inflation, and the fixed and variable components of each revenue and expense item. C. BASIS FOR CASH FLOW PROJECTIONS In order to develop our estimate of the net operating income (cash flow) for the subject for both a stabilized year of operation (direct capitalization) and each year of the aforementioned holding period (yield capitalization), we have analyzed in detail the following: ================================================================================ V-15 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ 1) The actual operating results for the subject for years 1993, 1994, 1995, and 1996. We have placed a focus on the more recent results. The historical financial statements are for the period January 1 to December 31 each year. It should be noted that our projected financial statements, presented later in this section, are for the fiscal year period October 1 to September 30 so as to coordinate with the effective date of this appraisal. 2) The year-to-date August 1996 and 1997 results for the subject as of August 31, 1997 (eight months). 3) The current budget prepared by management for calendar year 1997. 4) The 1996 year-end financial performance of five comparably sized and operated hotel properties in the United States. D. HISTORICAL OPERATING RESULTS Presented on the following two pages are tables which summarize the historical operating statements of the subject for 1993, 1994, 1995, 1996, and the year-to-date results for 1996 and 1997 (as of August 31). The projected 1997 operating budget is also presented. These financial statements reflect income before the deduction of interest, depreciation, amortization, and taxes on income. However, these statements do not reflect the deduction of reserve for capital replacement. While the operating figures are not from audited financial statements, we have assumed that they are accurate. As can be noted, over the past three years, the total revenues generated by the hotel have increased from approximately $20.8 to $25.3 million. For 1997, the hotel's management team is projecting the hotel to generate in excess of $27.1 million in sales. As previously discussed, this increase in revenues is primarily the result of the increase in the hotel's average daily room rate combined with continuing strong food and beverage sales. Over the same period, total operating expenses at the hotel have increased only modestly from $17.8 million in 1993 to $19.2 million in 1996. As a result, the operating income of the hotel increased from approximately $3.1 in 1993 to $6.1 million in 1996. For 1997 management is budgeting total operating expenses to be approximately $20.4 million. The resulting net operating income for the year is projected to be $6.7 million. ================================================================================ V-16 <PAGE> ================================================================================ The Ritz-Carlton Hotel, St. Louis Historical Operating Results <TABLE> <CAPTION> =================================================================================================================================== 1993 1994 ------------------------------------------------------------------------------------------- $ % PAR(1) POR(2) $ % PAR(1) POR(2) ------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Number of Keys 301 301 Occupancy 69.5% 75.3% Average Daily Room Rate $121.28 $125.43 Revenues Rooms $ 9,259,099 44.4% $ 30,761 $ 121.28 $ 10,370,700 47.3% $ 34,454 $ 125.43 Food 7,847,801 37.7% 26,072 102.79 7,991,340 36.5% 26,549 96.65 Beverage 2,104,159 10.1% 6,991 27.56 2,003,036 9.1% 6,655 24.23 Telephone 434,120 2.1% 1,442 5.69 473,396 2.2% 1,573 5.73 Other Operating Departments 696,264 3.3% 2,313 9.12 726,131 3.3% 2,412 8.78 Rental and Other Income 500,248 2.4% 1,662 6.55 338,580 1.5% 1,125 4.10 ----------- ----- -------- -------- ------------ ----- -------- -------- Total Revenue 20,841,691 100.0% 69,241 272.99 21,903,183 100.0% 72,768 264.92 Departmental Expenses (3) Rooms 2,681,233 29.0% 8,908 35.12 2,884,283 27.8% 9,582 34.88 Food and Beverage 7,478,545 75.1% 24,846 97.95 7,561,108 75.7% 25,120 91.45 Telephone 288,740 66.5% 959 3.78 316,348 66.8% 1,051 3.83 Other Operated Departments 563,659 81.0% 1,873 7.38 591,998 81.5% 1,967 7.16 Rental and Other Income 129,106 25.8% 429 1.69 146,654 43.3% 487 1.77 ----------- ----- -------- -------- ------------ ----- -------- -------- Total Departmental Expenses 11,141,283 53.5% 37,014 145.93 11,500,391 52.5% 38,207 139.10 ----------- ----- -------- -------- ------------ ----- -------- -------- Departmental Profit 9,700,408 46.5% 32,227 127.06 10,402,792 47.5% 34,561 125.82 Undistributed Operating Expenses Administrative and General 1,403,617 6.7% 4,663 18.38 1,482,639 6.8% 4,926 17.93 Marketing 1,589,955 7.6% 5,282 20.83 1,628,913 7.4% 5,412 19.70 Property Operations and Maintenance 754,868 3.6% 2,508 9.89 797,566 3.6% 2,650 9.65 Energy and Utilities 749,581 3.6% 2,490 9.82 803,960 3.7% 2,671 9.72 ----------- ----- -------- -------- ------------ ----- -------- -------- Total Undistributed Expenses 4,498,021 21.6% 14,944 58.92 4,713,076 21.5% 15,658 57.00 ----------- ----- -------- -------- ------------ ----- -------- -------- Gross Operating Profit 5,202,387 25.0% 17,264 68.14 5,689,714 26.0% 18,903 68.82 Fixed Charges and Management Fees Management Fees 717,134 3.4% 2,383 9.39 749,185 3.4% 2,489 9.06 Incentive Management Fees 203,765 1.0% 677 2.67 246,748 1.1% 820 2.98 Property Taxes 780,000 3.7% 2,591 10.22 777,196 3.5% 2,582 9.40 Insurance 354,000 1.7% 1,176 4.64 235,234 1.1% 782 2.85 Lease Expenses 91,389 0.4% 304 1.20 95,792 0.4% 318 1.16 ----------- ----- -------- -------- ------------ ----- -------- -------- Total Fixed Charges 2,146,288 10.3% 7,131 28.11 2,104,155 9.6% 6,991 25.45 ----------- ----- -------- -------- ------------ ----- -------- -------- Net Operating Income $ 3,056,099 14.7% $ 10,153 $ 40.03 $ 3,585,559 16.4% $ 11,912 $ 43.37 =========== ===== ======== ======== ============ ===== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- <CAPTION> 1995 ------------------------------------------- $ % PAR(1) POR(2) ------------------------------------------- <S> <C> <C> <C> <C> Number of Keys 301 Occupancy 74.2% Average Daily Room Rate 5136.68 Revenues Rooms $ 11,145,723 47.2% $ 37,029 $ 136.68 Food 8,678,793 36.8% 28,833 106.42 Beverage 2,028,440 8.6% 6,739 24.87 Telephone 525,545 2.2% 1,746 6.44 Other Operating Departments 813,605 3.4% 2,703 9.98 Rental and Other Income 405,752 1.7% 1,348 4.98 ----------- ----- -------- ------- Total Revenues 23,597,858 100.0% 78,398 289.37 Departmental Expenses (3) Rooms 3,060,524 27.5% 10,168 37.53 Food and Beverage 7,947,519 74.2% 26,404 97.46 Telephone 314,913 59.9% 1,046 3.86 Other Operated Departments 683,838 84.1% 2,272 8.39 Rental and Other Income 56,997 14.0% 189 0.70 ----------- ----- -------- ------- Total Departmental Expenses 12,063,791 51.1% 40,079 147.93 ----------- ----- -------- ------- Departmental Profit 11,534,067 48.9% 38,319 141.44 Undistributed Operating Expenses Administrative and General 1,661,229 7.0% 5,519 20.37 Marketing 1,671,705 7.1% 5,554 20.50 Property Operations and Maintenance 809,432 3.4% 2,689 9.93 Energy and Utilities 742,684 3.1% 2,467 9.11 ----------- ----- -------- ------- Total Undistributed Expenses 4,885,050 20.7% 16,229 59.90 ----------- ----- -------- ------- Gross Operating Profit 6,649,017 28.2% 22,090 81.53 Fixed Charges and Management Fees Management Fees 805,161 3.4% 2,675 9.87 Incentive Management Fees 127,515 0.5% 424 1.56 Property Taxes 784,724 3.3% 2,607 9.62 Insurance 231,320 1.0% 769 2.84 Lease Expenses 100,393 0.4% 334 1.23 ----------- ----- -------- ------- Total Fixed Charges 2,049,113 8.7% 6,808 25.13 ----------- ----- -------- ------- Net Operating Income $ 4,599,904 19.5% $ 15,282 $ 56.41 =========== ===== ======== ======= - ------------------------------------------------------------------------------------ </TABLE> Notes: (1) PAR- Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department revenue, not total revenue. (4) Net cash flow after reserves, but before interest, amortization, depreciation, rent, and income taxes. Numbers may not foot due to rounding. ================================================================================ Source: Ritz-Carlton Hotel Company, L.L.C. ================================================================================ <PAGE> ================================================================================ The Ritz-Carlton Hotel, St. Louis Historical Operating Results and Current Budget <TABLE> <CAPTION> ========================================================================================================================== 1996 1997 Budget ---------------------------------------------------------------------------- $ % PAR(1) POR(2) $ % PAR(1) POR(2) ---------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Number of Keys 301 301 Occupancy 74.0% 77.5% Aver 4 $145.13 $151.24 Revenues Rooms $11,833,143 46.8% $39,313 $145.13 $12,882,130 47.5% $42,798 $151.24 Food 9,589,002 38.0% 31,857 117.60 10,247,212 37.8% 34,044 120.31 Beverage 2,190,101 8.7% 7,276 26.86 2,324,796 8.6% 7,724 27.29 Telephone 560,275 2.2% 1,861 6.87 595,616 2.2% 1,979 6.99 Other Operating Departments 682,874 2.7% 2,269 8.38 724,371 2.7% 2,407 8.50 Rental and Other Income 407,291 1.6% 1,353 5.00 362,144 1.3% 1,203 4.25 ----------- ----- ------- ------- ----------- ----- ------- ------- Total Revenues 25,262,686 100.0% 83,929 309.83 27,136,269 100.0% 90,154 318.59 Departmental Expenses (3) Rooms 2,995,144 25.3% 9,951 36.73 3,208,744 24.9% 10,660 37.67 Food and Beverage 7,987,434 67.8% 26,536 97.96 8,463,980 67.3% 28,120 99.37 Telephone 293,548 52.4% 975 3.60 335,164 56.3% 1,114 3.93 Other Operated Departments 500,066 73.2% 1,661 6.13 532,627 73.5% 1,770 6.25 Rental and Other Income 78,898 19.4% 262 0.97 60,865 16.8% 202 0.71 ----------- ----- ------- ------- ----------- ----- ------- ------- Total Departmental Expenses 11,855,090 46.9% 39,386 145.40 12,601,380 46.4% 41,865 147.95 ----------- ----- ------- ------- ----------- ----- ------- ------- Departmental Profit 13,407,596 53.1% 44,544 164.44 14,534,889 53.6% 48,289 170.65 Undistributed Operating Expenses Administrative and General 1,641,448 6.5% 5,453 20.13 1,751,074 6.5% 5,818 20.56 Marketing 1,649,323 6.5% 5,479 20.23 1,693,026 6.2% 5,625 19.88 Property Operations and Maintenance 816,804 3.2% 2,714 10.02 860,449 3.2% 2,859 10.10 Energy and Utilities 715,066 2.8% 2,376 8.77 742,250 2.7% 2,466 8.71 ----------- ----- ------- ------- ----------- ----- ------- ------- Total Undistributed Expenses 4,822,641 19.1% 16,022 59.15 5,046,799 18.6% 16,767 59.25 ----------- ----- ------- ------- ----------- ----- ------- ------- Gross Operating Profit 8,584,955 34.0% 28,521 105.29 9,488,090 35.0% 31,522 111.39 Fixed Charges and Management Fee Management Fees 860,249 3.4% 2,858 10.55 929,000 3.4% 3,086 10.91 Incentive Management Fees 655,512 2.6% 2,178 8.04 699,000 2.6% 2,322 8.21 Property Taxes 765,586 3.0% 2,543 9.39 780,000 2.9% 2,591 9.16 Insurance 177,683 0.7% 590 2.18 252,000 0.9% 837 2.96 Lease Expense 61,281 0.2% 204 0.75 84,000 0.3% 279 0.99 ----------- ----- ------- ------- ----------- ----- ------- ------- Total Fixed Charges 2,520,311 10.0% 8,373 30.91 2,744,000 10.1% 9,116 32.22 ----------- ----- ------- ------- ----------- ----- ------- ------- Net Operating Income $ 6,064,644 24.0% $20,148 $ 74.38 $ 6,744,090 24.9% $22,406 $ 79.18 =========== ===== ======= ======= =========== ===== ======= ======= - -------------------------------------------------------------------------------------------------------------------------- </TABLE> Notes: (1) PAR - Per Available Room. (2) POR- Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net cash flow after reserves, but before interest, amortization, depreciation, and income taxes. Numbers may not foot due to rounding. ================================================================================ Source: Ritz-Carlton Hotel Company, L.L.C. ================================================================================ <PAGE> ================================================================================ The Ritz-Carlton Hotel, St. Louis Historical Operating Results <TABLE> <CAPTION> ============================================================================================================================ 1996 August Year to Date 1997 August Year to Date --------------------------------------------------------------------------- $ % PAR(1) POR(2) $ % PAR(1) POR(2) --------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Number of Keys 301 301 Occupancy 72.9% 75.2% Average Daily Room Rate $ 142.63 $ 149.63 Revenues Rooms $ 7,631,445 48.4% $37,927 $142.63 $ 8,229,566 47.1% $41,067 $149.63 Food 5,835,816 37.0% 29,003 109.07 6,408,516 36.7% 31,980 116.52 Beverage 1,291,367 8.2% 6,418 24.13 1,565,695 9.0% 7,813 28.47 Telephone 354,732 2.2% 1,763 6.63 446,895 2.6% 2,230 8.13 Other Operating Departments 425,677 2.7% 2,116 7.96 462,714 2.6% 2,309 8.41 Rental and Other Income 238,304 1.5% 1,184 4.45 354,510 2.0% 1,769 6.45 ----------- ---- ------- ------- ----------- ---- ------- ------- Total Revenues 13,777,341 0.0% 78,410 294.87 17,467,896 100.0% 87,169 317.59 Departmental Expenses (3) Rooms 1,950,752 25.6% 9,695 36.46 2,178,981 26.5% 10,874 39.62 Food and Beverage 4,990,483 70.0% 24,802 93.27 5,615,953 70.4% 28,025 102.11 Telephone 200,391 56.5% 996 3.75 216,975 48.6% 1,083 3.94 Other Operated Departments 319,377 75.0% 1,587 5.97 296,306 64.0% 1,479 5.39 Rental and Other Income 37,097 15.6% 184 0.69 40,654 11.5% 203 0.74 ----------- ---- ------- ------- ----------- ---- ------- ------- Total Departmental Expenses 7,498,160 47.5% 37,264 140.14 8,348,869 47.8% 41,663 151.79 ----------- ---- ------- ------- ----------- ---- ------- ------- Departmental Profit 8,279,241 52.5% 41,146 154.73 9,119,027 52.2% 45,506 165.80 Undistributed Operating Expenses Administrative and General 1,103,383 7.0% 5,484 20.62 1,128,901 6.5% 5,633 20.53 Marketing 1,125,093 7.1% 5,591 21.03 1,089,857 6.2% 5,439 19.82 Property Operations and Maintenance 539,006 3.4% 2,679 10.07 531,777 3.0% 2,654 9.67 Energy and Utilities 498,441 3.2% 2,477 9.32 462,353 2.6% 2,307 8.41 ----------- ---- ------- ------- ----------- ---- ------- ------- Total Undistributed Expenses 3,265,923 20.7% 16,231 61.04 3,212,888 18.4% 16,033 58.42 ----------- ---- ------- ------- ----------- ---- ------- ------- Gross Operating Profit 5,013,318 31.8% 24,915 93.70 5,906,139 33.8% 29,473 107.38 Fixed Charges and Management Fees Management Fees 544,491 3.5% 2,706 10.18 596,246 3.4% 2,975 10.84 Incentive Management Fees 331,709 2.1% 1,649 6.20 457,262 2.6% 2,282 8.31 Property Taxes 520,000 3.3% 2,584 9.72 520,000 3.0% 2,595 9.45 Insurance 160,000 1.0% 795 2.99 112,797 0.6% 563 2.05 Lease Expense 34,730 0.2% 173 0.65 64,129 0.4% 320 1.17 ----------- ---- ------- ------- ----------- ---- ------- ------- Total Fixed Charges 1,590,930 10.1% 7,907 29.73 1,750,434 10.0% 8,735 31.83 ----------- ---- ------- ------- ----------- ---- ------- ------- Net Operating Income $ 3,422,388 21.7% $17,008 $ 63.96 $ 4,155,705 23.8% $20,738 $ 75.56 =========== ==== ======= ======= =========== ==== ======= ======= </TABLE> Notes: (1) PAR - Per Available Room. (2) POR- Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net cash flow after reserves, but before interest, amortization, depreciation, and income taxes. Numbers may not foot due to rounding. ================================================================================ Source: Ritz-Carlton Hotel Company, L.L.C. ================================================================================ <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ E. OPERATING STATISTICS ON COMPARABLE HOTELS In order to develop our estimate of the value of the subject, we have also utilized information on the operating performance of other comparable hotel facilities. This information is primarily obtained from confidential information submitted in compilation of the upcoming 1997 edition (1996 year-end data) of the PKF Consulting publication Trends in the Hotel Industry. Our composite used for comparison purposes is made up of five upscale, full-service hotels located in other major metropolitan area of the United States. These hotels are considered comparable with the subject, due to their size and market orientation. The hotels range in size from 291 to 905 guestrooms, with an average size of 512 rooms. Financial statements for these comparable hotels follow in the next two pages. For reasons of confidentiality, we have not disclosed the identity of these comparable hotels. ================================================================================ V-20 <PAGE> ================================================================================ Ritz-Carlton Hotel, St. Louis Statistics from Operating Results of Comparable Hotels <TABLE> <CAPTION> ==================================================================================================================================== Hotel A Hotel B Hotel C -------------------------------------------------------------------------------- % PAR(1) POR(2) % PAR(1) POR(2) % PAR(1) POR(2) -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Occupancy 68.8% 77.9% 71.2% Average Daily Room Rate $101.17 $99.32 $131.70 Revenues Rooms 56.6% $25,404 $101.17 56.2% $28,242 $ 99.32 50.5% $34,233 $131.70 Food 26.1% 11,699 46.59 28.8% 14,450 50.82 32.8% 22,266 85.66 Beverage 8.1% 3,644 14.51 10.9% 5,454 19.18 9.8% 6,654 25.60 Telephone 3.3% 1,502 5.98 2.5% 1,278 4.49 2.4% 1,627 6.26 Other Operated Departments 5.4% 2,399 9.55 0.7% 339 1.19 2.8% 1,922 7.39 Rentals and Other Income 0.4% 196 0.78 0.9% 461 1.62 1.7% 1,120 4.31 ----- ------- ------- ----- ------- --------- ------ ------- ------- Total Revenues 100.0% 44,846 178.60 100.0% 50,223 176.62 100.0% 67,821 260.92 Departmental Expenses (3) Rooms 20.1% 5,113 20.36 24.4% 6,892 24.24 25.3% 8,653 33.29 Food and Beverage 79.4% 12,179 48.50 67.9% 13,522 47.55 78.1% 22,588 86.90 Telephone 31.4% 472 1.88 44.3% 565 1.99 33.3% 541 2.08 Other Operated Departments 56.4% 1,353 5.39 118.9% 403 1.42 40.1% 770 2.96 ----- ------- ------- ----- ------- --------- ------ ------- ------- Total Departmental Expenses 42.6% 19,117 76.13 42.6% 21,383 75.20 48.0% 32,552 125.23 ----- ------- ------- ----- ------- --------- ------ ------- ------- Departmental Profit 57.4% 25,729 102.46 57.4% 28,841 101.42 52.0% 35,269 135.68 Undistributed Expenses Administrative and General 6.1% 2,717 10.82 7.3% 3,661 12.87 9.0% 6,125 23.56 Franchise Fees 0.0% -- -- 4.8% 2,394 8.42 -- -- -- Marketing 4.0% 1,808 7.20 6.1% 3,055 10.74 5.7% 3,868 14.88 Property Operations and Maintenance 4.1% 1,843 7.34 3.5% 1,749 6.15 5.4% 3,640 14.01 Energy and Utilities 5.3% 2,399 9.55 3.0% 1,496 5.26 2.6% 1,746 6.72 Other Unallocated Operating Expenses -- -- . -- . -- -- -- ----- ------- ------- ----- ------- --------- ------ ------- ------- Total Undistributed Expenses 19.6% 8,768 34.92 24.6% 12,354 43.45 22.7% 15,379 59.17 ----- ------- ------- ----- ------- --------- ------ ------- ------- Gross Operating Profit 37.6% 16,962 67.55 32.8% 16,486 57.98 29.3% 19,889 76.52 Fixed Charges and Management Fees Management Fees 1.5% 673 2.68 4.0% 2,009 7.06 3.4% 2,282 8.78 Property Taxes 2.6% 1,152 4.59 3.6% 1,789 6.29 1.8% 1,249 4.81 Insurance 0.9% 404 1.61 1.0% 504 1.77 0.6% 388 1.49 ----- ------- ------- ----- ------- --------- ------ ------- ------- Total Fixed Charges 5.0% 2,229 8.88 8.6% 4,302 15.13 5.8% 3,919 15.08 ----- ------- ------- ----- ------- --------- ------ ------- ------- Net Operating Income (4) 32.9% $14,733 $ 58.67 24.3% $12,184 $ 42.65 23.5% $15,970 $ 61.44 ===== ======= ======= ===== ======= ========= ====== ======= ======= - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> Notes: (1) PAR - Per Available Room. (2) POR- Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, amortization, depreciation, rent, and income taxes. All figures are based on actual operating statements for 1996. Numbers may not foot due to rounding. ================================================================================ PKF Consulting ================================================================================ <PAGE> ================================================================================ Ritz-Carlton Hotel, St. Louis Statistics from Operating Results of Comparable Hotels <TABLE> <CAPTION> ==================================================================================================================================== Hotel D Hotel E Weighted Average Hotel A Hotel B Hotel C --------------------------------------------------------------------------------- % PAR(1) POR(2) % PAR(1) POR(2) % PAR(1) POR(2) --------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Occupancy 76.5% 67.4% 70.9% Average Daily Room Rate $158.16 $103.95 $114.16 Revenues Rooms 58.2% $44,149 $158.16 58.1% $25,577 $103.95 55.7% $29,525 $114.16 Food 27.2% 20,593 73.77 28.4% 12,501 50.80 28.6% 15,152 58.59 Beverage 6.8% 5,165 18.50 5.7% 2,512 10.21 8.1% 4,316 16.69 Telephone 2.9% 2,233 8.00 3.1% 1,384 5.63 2.9% 1,554 6.01 Other Operated Departments 3.5% 2,621 9.39 2.6% 1,146 4.66 3.4% 1,804 6.98 Rentals and Other Income 1.4% 1,040 3.73 2.0% 889 3.61 1.2% 3,573 2.53 ----- ------- ------- ------ ------- ------- ----- ------- ------- Total Revenues 100.0% 75,801 271.55 100.0% 44,008 173.85 100.0% 53,006 204.94 Departmental Expenses (3) Rooms 25.9% 11,444 41.00 31.1% 7,951 32.31 24.9% 7,349 28.42 Food and Beverage 75.0% 19,312 69.18 71.6% 10,742 43.65 75.6% 14,718 56.91 Telephone 48.6% 1,085 3.89 37.6% 521 2.12 37.1% 577 2.23 Other Operated Departments 105.6% 2,769 9.92 48.5% 556 2.26 61.6% 1,111 4.29 ----- ------- ------- ------ ------- ------- ----- ------- ------- Total Departmental Expenses 45.7% 34,610 123.99 44.9% 19,769 30.34 44.8% 23,754 91.84 ----- ------- ------- ------ ------- ------- ----- ------- ------- Departmental Profit 54.3% 41,191 147.56 55.1% 24,239 96.51 55.2% 29,252 113.10 Undistributed Expenses Administrative and General 9.2% 7,006 25.10 7.0% 3,070 12.48 7.6% 4,021 15.55 Franchise Fees 0.9% 654 2.34 2.4% 1,038 4.22 1.9% 1,287 4.88 Marketing 3.7% 2,796 10.02 5.8% 2,553 10.38 4.9% 2,617 10.12 Property Operations and Maintenance 4.3% 3,284 11.77 5.7% 2,494 10.14 4.7% 2,476 9.57 Energy and Utilities 2.8% 2,145 7.68 4.4% 1,922 7.81 3.8% 2,034 7.86 Other Unallocated Operating Expenses 1.9% 1,451 5.20 -- -- -- 1.6% 1,451 5.20 ----- ------- ------- ------ ------- ------- ----- ------- ------- Total Undistributed Expenses 22.9% 17,337 62.11 25.2% 11,076 45.02 22.5% 11,909 46.05 ----- ------- ------- ------ ------- ------- ----- ------- ------- Gross Operating Profit 31.5% 23,854 85.46 29.9% 13,163 53.50 32.7% 17,343 67.05 Fixed Charges and Management Fees Management Fees 3.1% 2,347 8.41 4.3% 1,898 7.72 3.0% 1,599 6.18 Property Taxes 3.6% 2,694 9.65 3.0% 1,330 5.41 2.8% 1,462 5.65 Insurance 0.6% 456 1.63 1.2% 514 2.09 0.8% 444 1.72 ----- ------- ------- ------ ------- ------- ----- ------- ------- Total Fixed Charges 7.3% 5,497 19.69 8.5% 3,743 15.21 6.6% 3,505 13.55 ----- ------- ------- ------ ------- ------- ----- ------- ------- Net Operating Income (4) 24.2% $18,357 $ 65.76 21.4% $ 9,420 $ 38.28 26.1% $13,838 $ 53.50 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> Notes: (1) PAR - Per Available Room. (2) POR- Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenue, not total revenue. (4) Net operating income before reserves, interest, amortization, depreciation, rent, and income taxes. All figures are based on actual operating statements for 1996. Numbers may not foot due to rounding. ================================================================================ PKF Consulting ================================================================================ <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ F. STABILIZED YEAR ESTIMATE As indicated previously, we have estimated the performance of the subject for a stabilized year of operation. This estimate is primarily based on the estimated operating results of the subject hotel coupled with our review of the performance of other comparable hotels. The basis for our stabilized year estimate is detailed in the following paragraphs and is stated in fiscal year 1997 dollars . 1. Departmental Revenues and Expenses In the Uniform System of Accounts for Hotels, revenues to the facility are categorized by the department from which it is derived. In the case of the subject, these include income from rooms, food and beverage, telephone, other operated departments, and rental and other income. In the Uniform System of Accounts for Hotels, only direct operating expenses associated with each department are charged to the operating departments. General overhead items which are applicable to the overall operation of the facility are classified as undistributed operating expenses. Direct or departmental revenues and expenses, which typically vary with occupancy, are generally analyzed on a per occupied room (POR) basis, which varies with occupancy, while undistributed expenses, which are more fixed in nature, are typically analyzed on a per available room (PAR) basis. For the subject, the number of available rooms is 301. a. Rooms Revenues and Expenses Rooms revenues are based on the number of occupied rooms multiplied by the average daily room rate for each respective year as presented in this report. As indicated in our previous analyses, we estimated that the stabilized occupancy rate of the subject hotel will be 75.0 percent with an average daily room rate equal to $153.00 (expressed in 1997 dollars, as of October 1, 1997). ======================================================================== 301 Rooms x 365 Days x 75.0% Occupancy x $153.00 Room Rate = $12,607,000 ======================================================================== Rooms expenses consist of salaries and wages, employee benefits, commissions, contract cleaning, laundry and uniform cleaning, linens, operating supplies, reservations costs, and other items related to the rooms department. In the three prior years, 1994, 1995, and 1996, the rooms expense of the subject property ranged from 27.8 percent to 25.3 percent of departmental revenues, on a declining percentage trend, or $34.88 per occupied room to $36.73. As is typical in a hotel operation, economies of operation occur as room rates increase in tandem with controlled departmental expenses. The percentage cost will decline somewhat, with the POR cost increasing in accordance with inflationary pressures, rather than operational issues. ================================================================================ V-23 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ The composite operating results for the comparable hotels is generally lower than the subject, in a range of 20.1 percent to 31.1 percent of rooms sales, or an average of 24.9 percent. The average cost per room was $28.42 per occupied room in 1996. Based on our analysis, the subject will incur operating consistently at 75.0 percent occupancy or higher, we estimate that for a stabilized year of operation the rooms department expense for the subject will be approximately $39.62 per occupied room, or approximately 26.0 percent of rooms revenue, comparable on a POR basis to the year-to-date 1997 operating results. The higher cost per room at the subject as contrasted with the comparable hotels is reflective of the higher service levels found at the Ritz-Carlton property. <TABLE> <CAPTION> ========================================================================================================================== Rooms Expenses ========================================================================================================================== Subject Comparables - -------------------------------------------------------------------------------------------------------------- YTD Budget Range of Summary of Stabilized 1994 1995 1996 1997 1997 Comparables Comparables Year - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Per Occupied Room $34.88 $37.53 $36.73 $39.62 $37.67 $20.36 - $41.00 $28.42 $39.62 - -------------------------------------------------------------------------------------------------------------------------- Ratio to Departmental Revenues 27.8% 27.5% 25.3% 26.5% 24.9% 20.1% - 31.1% 24.9% 26.0% ========================================================================================================================== Source: PKF Consulting and The Ritz-Carlton, St. Louis ========================================================================================================================== </TABLE> b. Food and Beverage Revenues and Expenses Food revenues are generated by the restaurant sales in the Grill, Restaurant, Lobby Lounge, room service, and banqueting. Future revenues were projected based on the continued strong utilization of these facilities. Over the past three years, food revenues were in a range of $96.65 to $117.60 POR, with an operating departmental profit shown each year. Food revenue for the comparable properties is not considered to be helpful in this analysis as the scope of food service and the styles of restaurants are vastly different than the subject hotel and are lower that the subject hotel, from $46.59 to $85.66 POR. The lower range of the comparables indicates the very successful operation of the subject hotel, driven largely by its attractive dining areas and superior food service standards. The month of December and January at the subject are particularly strong food service months, and the many holiday parties handled by the hotel during that time act to balance out the low rooms department occupancy traditionally seen during the early winter months. We estimate that food revenue should approximate $118.00 POR on a stabilized basis, stated in 1997 dollars. <TABLE> <CAPTION> ================================================================================================================== Food Revenues ================================================================================================================== Subject Comparables - ------------------------------------------------------------------------------------------------------ YTD Budget Range of Summary of Stabilized 1994 1995 1996 1997 1997 Comparables Comparables Year - ------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Per Occupied Room $96.65 $106.42 $117.60 $116.52 $120.31 Not Comparable Not Comparable $118.00 ================================================================================================================== Source: PKF Consulting and Ritz-Carlton, St. Louis ================================================================================================================== </TABLE> ================================================================================ V-24 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ Beverage revenues are currently generated by the sale of soft drinks, liquor, and wine in the Grill, Restaurant, Lobby Lounge, room service, and banqueting areas. Beverage sales are often viewed as a percentage of food sales. The subject has had a beverage-to-food sale ratio ranging from 25.1 percent to 22.8 percent, on a declining trend, in the three prior years. In view of stricter alcohol-control laws and a general public concern to consume fewer alcoholic beverages, declining or static beverage sales have been common over the past few years in most full-service hotels. The five comparable hotels indicate a beverage ratio of 20.1 to 37.7 percent of food sales, with an average of 28.5 percent, reflecting lower overall food sales at these hotels, thereby deriving a higher beverage sales percentage. For a stabilized year of operation, we estimate beverage sales of $2,334,000 annually, or 24.0 percent of projected food sales, expressed in 1997 dollars. <TABLE> <CAPTION> ============================================================================================================ Beverage Expenses ============================================================================================================ Subject Comparables - ------------------------------------------------------------------------------------------------ YTD Budget Range of Summary of Stabilized 1994 1995 1996 1997 1997 Comparables Comparables Year - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Ratio to Food Revenues 25.1% 23.4% 22.8% 24.4% 22.7% 20.1% - 37.7% 28.5% 24.0% ============================================================================================================ Source: PKF Consulting and The Ritz-Carlton, St. Louis ============================================================================================================ </TABLE> Food and beverage expenses include product costs, payroll and related expenses, and other items such as laundry and linen, china, glassware and silverware, uniform costs, supplies and other miscellaneous items. Over the past three years, food and beverage expenses have ranged from 75.7 percent to 67.8 percent at the subject hotel, in a declining trend. Year-to-date, prior to the busy holiday season, costs reflect 70.4 percent of revenue. The comparable hotels reported food and beverage expenses in a range of 67.9 percent to 79.4 percent, with an average of 75.6 percent. Given the continued expected strong volume of food and beverage service at the subject property in future years, with an emphasis on profitable banquet sales, we are of the opinion that it should be possible stabilized operating costs at their present level on a percentage basis. We project a 68.0 percent food and beverage expense will be maintained throughout the analysis period. <TABLE> <CAPTION> ======================================================================================================================= Food and Beverage Expenses ======================================================================================================================= Subject Comparables - ---------------------------------------------------------------------------------------------------------- YTD Budget Range of Summary of Stabilized 1994 1995 1996 1997 1997 Comparables Comparables Year - ----------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Ratio to Departmental Revenues 75.7% 74.2% 67.8% 70.4% 67.3% 67.9% - 79.4% 75.6% 68.0% ======================================================================================================================= Source: PKF Consulting and Ritz-Carlton, St. Louis ======================================================================================================================= </TABLE> ================================================================================ V-25 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ c. Telephone Revenues and Expenses Telephone revenues are derived primarily from the use of telephones within guestrooms. Telephone revenues are highly dependent on the call surcharges imposed by a property. At the subject, telephone revenues have ranged from $5.73 to $6.87 per occupied room from 1994 to 1996 on an increasing trend. As of year-to-date August 1997, telephone revenue is $8.13 per occupied room. The comparable hotels show a comparable range from $4.49 to $8.00 per occupied room, but for a lower average of $6.01 per occupied room in 1996. Based on the subject's increasing historical trend, the higher year-to-date indications from the subject hotel, and balanced by the expected stable level of market mix in future years, telephone revenues are estimated to be $8.25 per occupied room for a stabilized year, stated in 1997 dollars. <TABLE> <CAPTION> ====================================================================================================== Telephone Revenues ====================================================================================================== Subject Comparables - ------------------------------------------------------------------------------------------ YTD Budget Range of Summary of Stabilized 1994 1995 1996 1997 1997 Comparables Comparables Year - ------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Per Occupied Room $5.73 $6.44 $6.87 $8.13 $6.99 $4.49 - $8.00 $6.01 $8.25 ====================================================================================================== Source: PKF Consulting and Ritz-Carlton, St. Louis ====================================================================================================== </TABLE> Telephone expenses include the cost of calls and any telephone service and equipment charges. This expense has ranged from 66.8 percent to 52.4 percent over the three historical periods, in a decreasing trend as revenues have generally stabilized in total. As of year-to-date August 1997, this expense ratio is at 48.6 percent of departmental revenue. 56.3 percent has been budgeted by management for 1997. The weighted average of the comparable hotels is lower at 37.1 percent of telephone revenue in 1996. For the subject property, we have forecast an expense ratio of 55.0 percent for a stabilized year of operation based on the 1996 year-end performance of the subject hotel in combination with the projected stabilized telephone revenue of $8.25 per occupied room. <TABLE> <CAPTION> =================================================================================================================== Telephone Expenses =================================================================================================================== Subject Comparables - ----------------------------------------------------------------------------------------------------- YTD Budget Range of Summary of Stabilized 1994 1995 1996 1997 1997 Comparables Comparables Year - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Ratio to Departmental Revenues 66.8% 59.9% 52.4% 48.6% 56.3% 31.4% - 48.6% 37.1% 55.0% =================================================================================================================== Source: PKF Consulting and Ritz-Carlton, St. Louis =================================================================================================================== </TABLE> ================================================================================ V-26 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ d. Other Operated Departments Revenue and Expense Other operated departments income at the subject property consists revenues generated from the gift shop, fitness center, and garage and parking valet charges. At the subject hotel, from 1993 to 1996 this revenue item has ranged from $8.38 to $9.98 per occupied room in no discernible trend. As of year-to-date August 1997, other operated departments revenue is $8.41 per occupied room. The 1997 budget is $8.50 per occupied room. The comparables illustrate a wide range from $1.19 to $9.55 in revenue POR in 1996, and reflect a variety of services offered. We have projected other operated departments income at $8.50 per occupied room in a stabilized year, based primarily on the subject property's year-to-date performance and budgeted 1997 estimations. <TABLE> <CAPTION> ===================================================================================================== Other Operated Departments Income ===================================================================================================== Subject Comparables - ----------------------------------------------------------------------------------------- YTD Budget Range of Summary of Stabilized 1994 1995 1996 1997 1997 Comparables Comparables Year - ----------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Per Occupied Room $8.78 $9.98 $8.38 $8.41 $8.50 $1.19 - $9.55 $6.98 $8.50 ===================================================================================================== Source: PKF Consulting and Ritz-Carlton, St. Louis. ===================================================================================================== </TABLE> Other operated departments expense at the subject property consists the expenses associated with each of the various departmental revenue items combined. These expenses have ranged from 81.0 percent to 84.1 percent from 1993 to 1995, and then 73.2 percent in 1996. As of year-to-date August 1997, other operated departments expenses are 64.0 percent of revenue. The 1997 budget is 73.5 percent of revenue. The comparables range from 40.1 to 105.6 percent of revenue, within an average of 61.6 percent. We have projected other operated departments expense at 75.0 percent of revenue in a stabilized year, based primarily on the subject property's 1996 results and budgeted espectations. <TABLE> <CAPTION> ==================================================================================================================== Other Operated Departments Expense ==================================================================================================================== Subject Comparables - -------------------------------------------------------------------------------------------------------- YTD Budget Range of Summary of Stabilized 1994 1995 1996 1997 1997 Comparables Comparables Year - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Percent of Departmental Revenue 81.5% 84.1% 73.2% 64.0% 73.5% 40.1% - 118.9% 61.6% 75.0% ==================================================================================================================== Source: PKF Consulting and Ritz-Carlton, St. Louis ==================================================================================================================== </TABLE> Rentals and other income at the subject property consist of revenues generated from the guest laundry, interest earned, no-show guestroom revenue, and miscellaneous sources. From 1994 to 1996, this revenue item has ranged from $4.10 to $5.00 POR on an increasing basis. Year-to-date, rentals and other income are $6.45 POR, with a budgeted year-end number for 1997 of $4.25 POR. The comparable hotels report rentals and other income, net of expenses, from $0.78 to $4.31 POR, with an average of $2.53 POR. ================================================================================ V-27 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ Restated to be net of expenses, the subject shows a range POR of $2.33 to $4.28 from 1994 to 1996. Year-to-date and budgeted 1997, net of expenses, are $5.71 and $3.54 respectively. We have projected rental income at $4.00, net of expenses, for a stabilized year in 1997 dollars, based on the 1996 performance of the property. <TABLE> <CAPTION> ============================================================================================================= Rental Income (Net of Expenses) ============================================================================================================= Subject Comparables - ------------------------------------------------------------------------------------------------- YTD Budget Range of Summary of Stabilized 1994 1995 1996 1997 1997 Comparables Comparables Year - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Per Occupied Room $2.33 $4.28 $4.03 $5.71 $3.54 $0.78 - $4.31 $2.53 $4.00 ============================================================================================================= Source: PKF Consulting and Ritz-Carlton, St. Louis ============================================================================================================= </TABLE> 2. Undistributed Operating Expenses Operating expenses that are not chargeable to a particular operating department are presented as undistributed operating expenses, in accordance with the Uniform System of Accounts for Hotels. These expenses include administrative and general, franchise fees, marketing, property operations and maintenance, and energy and utilities. These expenses are relatively unaffected by fluctuations in occupancies and room rates. Excluding management and franchise fees (when applicable), which are a fixed percentage based on a contract agreement and market parameters, these expenses are analyzed primarily on a dollar amount per available room basis. In the case of the subject property, however, there is no assessment of franchise fees; however, a higher marketing fee is incurred. a. Administrative and General This category includes the salary and wages of the general manager and office staff, cash overages and shortages, credit card commissions, bad debt expense, security, data processing costs, accounting payroll expense, and professional fees. Liability insurance, formerly also included as an administrative and general expense is grouped with other insurance costs in this report as a separate line item. Administrative and general costs have ranged between $4,926 and $5,453 per available room for 1994 to 1996 at the subject hotel, with $5,633 incurred per room on a year-to-date August basis. $5,818 is budgeted for 1997 by management. The comparable properties showed a range in 1996 of $2,717 to $7,006 PAR in 1996, with a weighted average of $4,021 PAR. We estimate administrative and general expenses of $5,700 for a stabilized year of operation for the subject hotel, in-line with historical and year-to-date results. ================================================================================ V-28 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ <TABLE> <CAPTION> ========================================================================================================= Administrative and General Expenses ========================================================================================================= Subject Comparables - --------------------------------------------------------------------------------------------- YTD Budget Range of Summary of Stabilized 1994 1995 1996 1997 1997 Comparables Comparables Year - --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Per Available Room $4,926 $5,519 $5,453 $5,633 $5,813 $2,717 - $7,006 $4,813 $5,700 ========================================================================================================= Source: PKF Consulting and Ritz-Carlton, St. Louis ========================================================================================================= </TABLE> b. Marketing This expense includes the cost of advertising, printing of brochures, salaries associated with sales and marketing personnel, and other costs associated with an ongoing sales and promotion program. Over the 1994 to 1996 periods, the subject property's marketing expense has ranged from $5,412 to $5,554 PAR. For year-to-date August 1997, the marketing expense is $5,439 PAR; $5,625 is budgeted by management in 1997. The weighted average of marketing and franchise expenses for the comparable hotels was much lower at $3,904 per available room in 1996, although the combined range of marketing and franchise fees is $1,808 to $5,449 per available room. We forecast that, in order to achieve the average occupancy, average daily room rates, and food and beverage revenues estimated in this report, marketing expenses for the successful operation of the subject should not be any less than high-end of the combined marketing and franchise fees incurred by comparable properties. Therefore, for a stabilized year of operation, in-line with historical costs, we have estimated a marketing cost of $5,500 per available room as considered reasonable for the subject. <TABLE> <CAPTION> ============================================================================================================ Marketing Expenses ============================================================================================================ Subject Comparables (1) - ------------------------------------------------------------------------------------------------ YTD Budget Range of Summary of Stabilized 1994 1995 1996 1997 1997 Comparables Comparables Year - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Per Available Room $5,412 $5,554 $5,479 $5,439 $5,625 $1,808 - $5,449 $3,904 $5,500 ============================================================================================================ Note: (1) Includes franchise fee expenses Source: PKF Consulting and Ritz-Carlton, St. Louis ============================================================================================================ </TABLE> c. Property Operations and Maintenance Property operations and maintenance expenses are a function of building age and usage and are comprised of engineering salaries, wages, employee benefits, normal maintenance of the building, normal maintenance of electrical, mechanical and refrigeration equipment, and engineering operating supplies. Over the 1994 to 1996 year-end periods, property operations and maintenance expenses at the subject have been well controlled. The costs were, on a PAR basis, $2,650 in 1994, $2,689 in 1995, and $2,714 in 1996. The budgeted amount by management for 1997 is $2,859, with the cost through year-to-date August 1997 ================================================================================ V-29 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ being $2,654 PAR, which is more in-line with historical costs than the budget. The comparable hotels property operations and maintenance expense range from $1,843 to $3,640 per available room in 1996, with a weighted average of $2,476 per available room. We have estimated that the property operations and maintenance expenses for the subject will be approximately $2,700 per available room at a stabilized operating level, consistent with year-to-date operating results and the historical, controlled nature of these costs. <TABLE> <CAPTION> ============================================================================================================= Property Operations and Maintenance Expenses ============================================================================================================= Subject Comparables - ------------------------------------------------------------------------------------------------ YTD Budget Range of Summary of Stabilized 1994 1995 1996 1997 1997 Comparables Comparables Year - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Per Available Room $2,650 $2,689 $2,714 $2,654 $2,859 $1,843 - $3,640 $2,476 $2,700 ============================================================================================================= Source: PKF Consulting and Ritz-Carlton, S. Louis ============================================================================================================= </TABLE> d. Energy and Utilities Expenses Energy expenses are generally particular to the location, climate, and type of hotel structure. Energy and utility expenses include electricity, gas, water, light bulbs, and sewer charges. In the case of the subject property, through a number of means, including energy management systems and the new use of more efficient light bulbs, the subject's historical energy and utility expense has been declining from $2,671 to $2,376 PAR over the 1994 to 1996 period. The efforts have largely been completed in 1997, and costs are expected to stabilize rather than further decreasing. The budget prepared by management for 1997 is $2,466 per available room. The weighted average of the comparables is $2,034 PAR in 1996. Based on an analysis of the foregoing, energy costs to operate the subject hotel for a stabilized year are estimated at $2,350 per available room, in-line with the decreasing historical trends at the subject. <TABLE> <CAPTION> ============================================================================================================= Energy and Utilities Expenses ============================================================================================================= Subject Comparables - ------------------------------------------------------------------------------------------------ YTD Budget Range of Summary of Stabilized 1994 1995 1996 1997 1997 Comparables Comparables Year - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Per Available Room $2,671 $2,467 $2,376 $2,307 $2,466 $1,496 - $2,399 $2,034 $2,350 ============================================================================================================= Source: PKF Consulting and Ritz-Carlton, St. Louis ============================================================================================================= </TABLE> ================================================================================ V-30 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ 3. Management Fee and Fixed Charges a. Management Fees The subject is currently managed by the Ritz-Carlton Hotel Company, LLC, which operates the hotel in accordance with a management contract as described earlier in Section III of this report. The operating agreement, as amended, provides for the payment of 3.5 percent of total receipts, including rental income, as a base management fee. Further, primary and secondary incentive management fees are allowed, with an overall limit on combined management fees to be 6.0 percent of gross revenue in total. We have assumed that the hotel would be sold encumbered by this agreement so as to allow the continuation of the use of the Ritz-Carlton name and style of operation of the property throughout the analysis period. Therefore, we have reflected the payment of an annual management fee of 3.5 percent of gross revenues and an incentive management fee of 2.5 percent of gross revenues annually in accordance with the existing management agreement and budgeted 1997 expectations as prepared by management. b. Real Estate and Property Taxes The subject property is in the real estate taxing jurisdiction of the St. Louis County Tax Assessor's Office. Our estimate of the property taxes for the subject is based on the existing property tax assessment of the subject property, adjusted for expected inflation in future years. We have therefore utilized the existing property taxes of the subject of approximately $784,000 annually as representative of property taxes in a stabilized year of operation. In future years, we project this expense to increase 3.0 percent per year, in-line with expected future inflation over the projection period. c. Insurance Insurance expense is for liability, property, and workman's compensation insurance. The insurance costs, in total, were between $235,234 and $177,683 during 1994 to 1996, in a declining trend. The year-to-date August 1997 insurance expanses, annualized, indicate a year-end cost of approximately $169,000. The budget for 1997 is $252,000, but we understand that this amount has been over-estimated. The comparable hotels indicate a range in total cost of $133,100 to $366,262 for 1996, with an average of $227,976. Based on the budget prepared by management and the indications of the comparable hotels, we have estimated the insurance for the subject hotel will be $200,000 in a stabilized year of operation. ================================================================================ V-31 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ <TABLE> <CAPTION> ========================================================================================================================= Insurance ========================================================================================================================= Subject Comparables - -------------------------------------------------------------------------------------------------------- YTD Budget Range of Summary of Stabilized 1994 1995 1996 1997 1997 Comparables Comparables Year - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Total Expense $235,234 $231,320 $177,683 169,195 $252,000 $133,100 - $366,262 $227,976 $200,000 ========================================================================================================================= Source: PKF Consulting and Ritz-Carlton, St. Louis ========================================================================================================================= </TABLE> d. Equipment Rental Expense Equipment rental expense at the subject hotel includes the costs of leased automobiles and office equipment. This cost has declined over the past few years as management of the hotel has replaced leased equipment with owned items and has cut the number of hotel vehicles. For 1993 to 1996, equipment rental expense ranged from a high of $100,393 in 1995 to a low of $61,281 in 1996. For 1997 management has budgeted $84,000. For a stabilized year of operation, we also estimate equipment rental expense at $84,000. e. Reserve For Replacement An additional item not typically listed on an owner's income statement is the amount required for the periodic replacement of certain short-lived items such as carpeting, draperies, and other furniture, fixtures, and equipment. We have estimated that a reasonable reserve for capital replacement would be 4.0 percent of total hotel revenues, annually for all years our analysis period. We are of the opinion that this amount is reasonable given the age of the structure and the capital improvement plans identified by management as discussed in Section III of this report. It should be noted, also, that the existing operating agreement for the subject property calls for a 4.0 percent annual reserve for replacement. H. STABILIZED YEAR OPERATING RESULTS Presented on the following page is an estimate of the subject hotel's stabilized year operating results expressed in current value 1997 dollars, based on the foregoing analysis. For this 12 month period (October 1 to September 31), revenues are projected to total approximately $26,374,000. Income before fixed charges, which does not include a management fee, property taxes, insurance, or reserves for replacements, totals approximately $9,118,000 or 34.6 percent of total revenue. This ratio is consistent with the recent historical experience of the subject and is at the high-end of the range established by the comparable hotels, which ranges from 29.3 percent to 37.8 percent, with a weighted average of 32.7 percent. Operating income for the subject, after the deduction of a management fee, property taxes, insurance, equipment leases, and reserve for replacements, totals approximately $5,413,000, or 20.5 percent of total revenue. ================================================================================ V-32 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ <TABLE> <CAPTION> ==================================================================================================================================== Ritz-Carlton, St. Louis Stabilized Year Operating Results (1997 Value Dollars) ==================================================================================================================================== Occupancy Level 75.0% - ------------------------------------------------------------------------------------------------------------------------------------ Average Room Rate $153.00 - ------------------------------------------------------------------------------------------------------------------------------------ REVPAR $114.75 - ------------------------------------------------------------------------------------------------------------------------------------ Total Ratios PAR POR - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Revenues Rooms $12,607,000 47.8% $41,884 $153.00 Food 9,723,000 36.9% 32,302 118.00 Beverage 2,334,000 8.8% 7,754 28.33 Telephone 680,000 2.6% 2,259 8.25 Other Operated Depts. 700,000 2.7% 2,326 8.50 Rentals and Other Income 330,000 1.3% 1,096 4.00 - ------------------------------------------------------------------------------------------------------------------------------------ Total Revenues $26,374,000 100.0% $87,621 $320.08 - ------------------------------------------------------------------------------------------------------------------------------------ Departmental Expenses Rooms $3,265,000 26.0% $10,847 $39.62 Food and Beverage 8,199,000 68.0% 27,239 99.50 Telephone 374,000 55.0% 1,243 4.54 Other Operated Departments 525,000 75.0% 1,744 6.37 - ------------------------------------------------------------------------------------------------------------------------------------ Total Departmental Expenses $12,363,000 46.9% $41,073 $150.04 - ------------------------------------------------------------------------------------------------------------------------------------ Departmental Income $14,011,000 53.1% $46,548 $170.04 - ------------------------------------------------------------------------------------------------------------------------------------ Undistributed Operating Expenses Administrative and General $1,717,000 6.5% $5,700 $20.84 Marketing 1,656,000 6.3% 5,500 20.10 Property Maintenance 813,000 3.1% 2,700 9.87 Energy and Utilities 707,000 2.7% 2,350 8.58 - ------------------------------------------------------------------------------------------------------------------------------------ Total Undistributed Expenses $4,893,000 18.6% $16,256 $59.38 - ------------------------------------------------------------------------------------------------------------------------------------ Income Before Fixed Charges $9,118,000 34.6% $30,292 $110.66 - ------------------------------------------------------------------------------------------------------------------------------------ Management Fees and Fixed Charges Base Management Fees $923,000 3.5% $3,066 $11.20 Incentive Management Fees 659,000 2.5% 2,189 8.00 Property Taxes 784,000 3.0% 2,605 9.51 Insurance 200,000 0.8% 664 2.43 Equipment Leases 84,000 0.3% 279 1.02 - ------------------------------------------------------------------------------------------------------------------------------------ Total $2,650,000 10.0% $8,804 $32.16 - ------------------------------------------------------------------------------------------------------------------------------------ Income Before Reserve $6,468,000 24.5% $21,488 $78.50 - ------------------------------------------------------------------------------------------------------------------------------------ Reserve for Replacement $1,055,000 4.0% $3,505 $12.80 - ------------------------------------------------------------------------------------------------------------------------------------ Net Operating Income(4) $5,413,000 20.5% $17,983 $65.69 ==================================================================================================================================== </TABLE> (1) Income before interest, depreciation, amortization, and taxes on income. Note: Totals may not add due to rounding. Source: PKF Consulting ================================================================================ ================================================================================ V-33 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ I. ESTIMATED ANNUAL OPERATING RESULTS FOR THE HOLDING PERIOD The previous analysis provided for the income and expenses incurred in the operation of the subject in a stabilized year of operation. In the following analysis, we provide estimated income and expenses for the subject during each year of the holding period anticipated by a typical investor. The estimate of the performance for the subject in the stabilized year is used as a basis for our analysis, adjusted to reflect the effects of inflation, business development, and variations in occupancy. 1. Holding Period In the Second Quarter 1997 issue of the PKF Consulting's publication Hospitality Investment Survey, the average holding period for investors interviewed for full-service hotels is 6.7 years, with a range of between two and ten years. In the Spring 1997 edition of the Landauer Hotel Group's Hotel Investment Outlook, the average holding period is 7.9 years with a range of between four and ten years. Based on the foregoing, we have utilized a 10-year holding period, representing the period from October 1, 1997 to September 31, 2007. 2. Inflation To portray price level changes during the holding period, we have assumed an inflation rate of 3.0 percent throughout the projection period. This rate reflects the consensus of several well-recognized economists for the current long-term outlook for the future movement of prices and is consistent with the inflation rates of the last three years in the St. Louis area. All revenues and expenses are projected to increase at 3.0 percent. It should be noted that inflation is caused by many factors, and unanticipated events and circumstances can affect the forecasted rate. Therefore, the estimated operating results computed over the projection period will vary from the actual operating results, and the variations may be material. Our assumption of an annual 3.0 percent inflation factor portrays an expected long-term trend in price movements over the projection period rather than a point in time. This level of inflation is comparable to the compound annual change in the Consumer Price Index for the St. Louis Metropolitan area since 1990, as shown in the following table, which has averaged 2.6 percent over the seven-year period. ================================================================================ V-34 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ ================================================================ St. Louis Metropolitan Area Average Increase in Consumer Price Index (CPI) 1990 to 1996 ================================================================ CPI Year Increase ---------------------------------------------------------------- 1990 5.2% 1991 3.1% 1992 2.0% 1993 2.1% 1994 2.8% 1995 2.8% 1996 3.0% ---------------------------------------------------------------- Compound Average Growth Rate 1990 - 1996 2.6% ================================================================ Source: 1989 - 1996 U.S. Department of Labor Statistics ================================================================ 3. Average Daily Room Rate and Occupancy During the Holding Period As discussed earlier, based on the competitive position of the subject and its anticipated mix of demand, we estimate that the average daily room rate for the subject in a stabilized year, in 1997 dollars, at $153.00. Over the ten-year analysis period, the average daily rate overall is expected to increase with inflation at 3.0 percent per year. Our estimate for the average daily room rate, occupancy, and resulting total annual rooms revenues for the subject hotel during the holding period, plus the eleventh reversion year, is presented as follows. ================================================================================ Ritz-Carlton, St. Louis Estimated Average Daily Room Rate and Occupancy Years 1997/1998 to 2007/2008 - -------------------------------------------------------------------------------- Average Daily Total Fiscal Year(1) Occupancy Room Rate* Rooms Revenue - -------------------------------------------------------------------------------- 1997/1998 76.0% $158.00 $13,193,000 1998/1999 76.0% $163.00 $13,610,000 1999/2000 76.0% $168.00 $14,027,000 2000/2001 75.0% $173.00 $14,255,000 2001/2002 75.0% $178.00 $14,667,000 2002/2003 75.0% $183.00 $15,079,000 2003/2004 74.0% $189.00 $15,366,000 2004/2005 74.0% $194.00 $15,772,000 2005/2006 74.0% $200.00 $16,260,000 2006/2007 74.0% $206.00 $16,748,000 2007/2008 74.0% $212.00 $17,236,000 ================================================================================ *Rounded to the nearest dollar. (1) Fiscal year October 1 to September 30. Source: PKF Consulting ================================================================================ ================================================================================ V-35 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ 4. Operating Revenues and Expenses During the Holding Period Operating revenues and expenses for the subject are projected using a computer model developed by PKF Consulting especially for use in hotel appraisal analysis. The estimated operating revenues and expenses are based on the same assumptions used to develop our stabilized year projection. Each item, however, is adjusted to reflect the varying impact of the fixed and variable component of each, i.e., the proportion of each that is affected by variations in occupancy. In addition, each item is adjusted for inflation as previously discussed. 5. Statement of Estimated Annual Operating Results During the Holding Period The estimated annual operating results for the Ritz-Carlton, St. Louis for the 10-year period (plus the reversion year) beginning October 1, 1997 is presented on four following pages. The following table summarizes the estimated operating income for the subject property throughout the eleven-year projection period. ================================================================================ Ritz-Carlton, St. Louis Summary of Estimated Operating Results 1997/1998 to 2007/2008 ================================================================================ Total Net Operating Ratio to Fiscal Year(1) Revenues Income(2) Total Revenues - -------------------------------------------------------------------------------- 1997/1998 $27,562,000 $5,816,000 21.1% 1998/1999 $28,410,000 $6,006,000 21.1% 1999/2000 $29,271,000 $6,192,000 21.2% 2000/2001 $29,748,000 $6,150,000 20.7% 2001/2002 $30,626,000 $6,322,000 20.6% 2002/2003 $31,517,000 $6,485,000 20.6% 2003/2004 $32,072,000 $6,470,000 20.2% 2004/2005 $32,979,000 $6,617,000 20.1% 2005/2006 $33,982,000 $6,827,000 20.1% 2006/2007 $35,002,000 $7,031,000 20.1% 2007/2008 $36,038,000 $7,230,000 20.1% ================================================================================ Note: (1) Fiscal year beginning October 1, 1997 (2) Income before depreciation, interest, amortization, debt service, and taxes on income. Source: PKF Consulting ================================================================================ ================================================================================ V-36 <PAGE> ================================================================================ Ritz-Carlton St. Louis, Missouri Projected Operating Results <TABLE> <CAPTION> ================================================================================================================== Fiscal Years Oct. 1 to Sept. 30: 1997/1998 1998/1999 ----------------------------------------------------------------------------- $ % PAR(1) POR(2) $ % PAR(1) POR(2) ----------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Number of Keys 301 301 Occupancy 76.00% 76.00% Average Daily Room Rate $158.00 $163.00 Revenues Rooms $13,193,000 47.9% $43,831 $158.01 $13,610,000 47.9% $45,216 $163.00 Food 10,148,000 36.8% 33,714 121.54 10,453,000 36.8% 34,728 125.19 Beverage 2,436,000 8.8% 8,093 29.17 2,509,000 8.8% 8,336 30.05 Telephone 710,000 2.6% 2,359 8.50 731,000 2.6% 2,429 8.75 Other Operated Departments 731,000 2.7% 2,429 8.75 753,000 2.7% 2,502 9.02 Rentals and Other Income 344,000 1.2% 1,143 4.12 354,000 1.2% 1,176 4.24 ----------- ----- ------- ------- ----------- ----- ------- ------- Total Revenues 27,562,000 100.0% 91,568 330.10 28,410,000 100.0% 94,385 340.25 Departmental Expenses (3) Rooms 3,399,000 25.8% 11,292 40.71 3,501,000 25.7% 11,631 41.93 Food and Beverage 8,501,000 67.6% 28,241 101.81 8,756,000 67.6% 29,090 104.87 Telephone 390,000 54.9% 1,296 4.67 402,000 55.0% 1,336 4.81 Other Operated Departments 548,000 159.3% 1,821 6.56 565,000 159.6% 1,877 6.77 ----------- ----- ------- ------- ----------- ----- ------- ------- Total Departmental Expenses 12,838,000 46.6% 42,651 153.75 13,224,000 46.5% 43,934 158.38 ----------- ----- ------- ------- ----------- ----- ------- ------- Departmental Profit 14,724,000 53.4% 48,917 176.34 15,186,000 53.5% 50,452 151.87 Undistributed Expenses Administrative and General 1,774,000 6.4% 5,894 21.25 1,828,000 6.4% 6,073 21.89 Marketing 1,705,000 6.2% 5,664 20.42 1,756,000 6.2% 5,834 21.03 Property Op's and Maint 837,000 3.0% 2,781 10.02 862,000 3.0% 2,864 10.32 Energy and Utilities 738,000 2.7% 2,452 8.84 761,000 2.7% 2,528 9.11 ----------- ----- ------- ------- ----------- ----- ------- ------- Total Undistributed Expenses 5,054,000 18.3% 16,791 60.53 5,207,000 18.3% 17,299 62.36 ----------- ----- ------- ------- ----------- ----- ------- ------- Gross Operating Profit 9,670,000 35.1% 32,126 115.81 9,979,000 35.1% 33,153 119.51 Fixed Charges and Mgt. Fees Base Management Fees 965,000 3.5% 3,206 11.56 994,000 3.5% 3,302 11.90 Incentive Management Fees 689,000 2.5% 2,289 8.25 710,000 2.5% 2,359 8.50 Property Taxes 808,000 2.9% 2,684 9.68 832,000 2.9% 2,764 9.96 Insurance 206,000 0.7% 684 2.47 212,000 0.7% 704 2.54 Equipment Leases 84,000 0.3% 279 1.01 89,000 0.3% 296 1.07 ----------- ----- ------- ------- ----------- ----- ------- ------- Total Fixed Charges 2,752,000 10.0% 9,143 32.96 2,837,000 10.0% 9,425 33.98 ----------- ----- ------- ------- ----------- ----- ------- ------- Income Before Reserves 6,918,000 25.1% 22,983 82.85 7,142,000 25.1% 23,728 85.54 Reserves for Replacements 1,102,000 4.0% 3,661 13.20 1,136,000 4.0% 3,774 13.61 ----------- ----- ------- ------- ----------- ----- ------- ------- Net Operating Incomes (4) $ 5,816,000 21.1% $19,322 $ 69.66 $ 6,006,000 21.1% $19,953 $ 71.93 =========== ===== ======= ======= =========== ===== ======= ======= - ------------------------------------------------------------------------------------------------------------------ </TABLE> =========================================================================== Fiscal Years Oct. 1 to Sept. 30: 1999/2000 -------------------------------------- $ % PAR(1) POR(2) -------------------------------------- Number of Keys 301 Occupancy 76.00% Average Daily Room Rate $168.00 Revenues Rooms $14,027,000 47.9% $46,601 $167.99 Food 10,766,000 36.8% 35,767 128.94 Beverage 2,584,000 8.8% 8,585 30.95 Telephone 753,000 2.6% 2,502 9.02 Other Operated Departments 776,000 2.7% 2,578 9.29 Rentals and Other Income 365,000 1.2% 1,213 4.37 ----------- ----- ------- ------- Total Revenues 29,271,000 100.0% 97,246 350.56 Departmental Expenses (3) Rooms 3,606,000 25.7% 11,980 43.19 Food and Beverage 9,019,000 67.6% 29,963 108.02 Telephone 414,000 55.0% 1,375 4.96 Other Operated Departments 582,000 159.5% 1,934 6.97 ----------- ----- ------- ------- Total Departmental Expenses 13,621,000 46.5% 45,252 163.13 ----------- ----- ------- ------- Departmental Profit 15,650,000 53.5% 51,993 187.43 Undistributed Expenses Administrative and General 1,883,000 6.4% 6,256 22.55 Marketing 1,809,000 6.2% 6,010 21.67 Property Op's and Maint 888,000 3.0% 2,950 10.64 Energy and Utilities 783,000 2.7% 2,601 9.38 ----------- ----- ------- ------- Total Undistributed Expenses 5,363,000 18.3% 17,817 64.23 ----------- ----- ------- ------- Gross Operating Profit 10,287,000 35.1% 34,176 123.20 Fixed Charges and Mgt. Fees Base Management Fees 1,024,000 3.5% 3,402 12.26 Incentive Management Fees 732,000 2.5% 2,432 8.77 Property Taxes 857,000 2.9% 2,847 10.26 Insurance 219,000 0.7% 728 2.62 Equipment Leases 92,000 0.3% 306 1.10 ----------- ----- ------- ------- Total Fixed Charges 2,924,000 10.0% 9,714 35.02 ----------- ----- ------- ------- Income Before Reserves 7,363,000 25.2% 24,462 88.16 Reserves for Replacements 1,171,000 4.0% 3,890 14.02 ----------- ----- ------- ------- Net Operating Incomes (4) $ 6,192,000 21.2% $20,571 $ 74.16 =========== ===== ======= ======= - --------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income taxes. ================================================================================ Source: PKF Consulting ================================================================================ <PAGE> ================================================================================ Ritz-Carlton St. Louis, Missouri Projected Operating Results <TABLE> <CAPTION> ==================================================================================================================== Fiscal Years Oct. 1 to Sept. 30: 2000/2001 2001/2002 ------------------------------------------------------------------------------- $ % PAR(1) POR(2) $ % PAR(1) POR(2) ------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Number of Keys 301 301 Occupancy 75.00% 75.00% Average Daily Room Rate $173.00 $176.00 Revenues Rooms $14,255,000 47.9% $ 47,359 $173.00 $14,667,000 47.9% $ 48,728 $178.00 Food 10,943,000 36.8% 36,355 132.81 11,272,000 36.8% 37,449 136.80 Beverage 2,626,000 8.8% 8,724 31.87 2,705,000 8.8% 8,987 32.83 Telephone 765,000 2.6% 2,542 9.28 788,000 2.6% 2,618 9.56 Other Operated Departments 788,000 2.6% 2,618 9.56 812,000 2.7% 2,698 9.85 Rentals and Other Income 371,000 1.2% 1,233 4.50 382,000 1.2% 1,269 4.64 ----------- ----- -------- ------- ----------- ----- -------- ------- Total Revenues 29,748,000 100.0% 98,031 361.02 30,626,000 100.0% 101,748 371.60 Departmental Expenses (3) Rooms 3,675,000 25.8% 12,209 44.60 3,785,000 25.8% 12,575 45.94 Food and Beverage 9,227,000 68.0% 30,654 111.98 9,504,000 68.0% 31,575 115.34 Telephone 421,000 55.0% 1,399 5.11 433,000 54.9% 1,439 5.25 Other Operated Departments 591,000 159.3% 1,963 7.17 609,000 159.4% 2,023 7.39 ----------- ----- -------- ------- ----------- ----- -------- ------- Total Departmental Expenses 13,914,000 46.8% 46,226 166.86 14,331,000 46.8% 47,611 173.92 ----------- ----- -------- ------- ----------- ----- -------- ------- Departmental Profit 15,834,000 53.2% 52,605 192.16 16,295,000 53.2% 54,136 197.76 Undistributed Expenses Administrative and General 1,933,000 6.5% 6,422 23.46 1,991,000 6.5% 6,615 24.16 Marketing 1,863,000 6.3% 6,189 22.61 1,919,000 6.3% 6,375 23.29 Property Op's and Maint 915,000 3.1% 3,040 11.10 942,000 3.1% 3,130 11.43 Energy and Utilities 796,000 2.7% 2,645 9.66 820,000 2.7% 2,724 9.95 ----------- ----- -------- ------- ----------- ----- -------- ------- Total Undistributed Expenses 5,507,000 18.5% 18,296 66.53 5,672,000 18.5% 18,844 68.84 ----------- ----- -------- ------- ----------- ----- -------- ------- Gross Operating Profit 10,327,000 34.7% 34,309 125.33 10,623,000 34.7% 35,292 128.92 Fixed Charges and Mgt. Fees Base Management Fees 1,041,000 3.5% 3,458 12.63 1,072,000 3.5% 3,561 13.01 Incentive Management Fees 744,000 2.5% 2,472 9.03 766,000 2.5% 2,545 9.30 Property Taxes 882,000 3.0% 2,930 10.70 909,000 3.0% 3,020 11.03 Insurance 225,000 0.8% 748 2.73 232,000 0.8% 771 2.82 Equipment Leases 95,000 0.3% 316 1.15 97,000 0.3% 322 1.18 ----------- ----- -------- ------- ----------- ----- -------- ------- Total Fixed Charges 2,987,000 10.0% 9,924 36.25 3,076,000 10.0% 10,219 37.33 ----------- ----- -------- ------- ----------- ----- -------- ------- Income Before Reserves 7,340,000 24.7% 24,385 89.08 7,547,000 24.6% 25,073 91.59 Reserves for Replacements 1,190,000 4.0% 3,953 14.44 1,225,000 4.0% 4,070 14.87 ----------- ----- -------- ------- ----------- ----- -------- ------- Net Operating Income (4) $ 6,150,000 20.7% 20,432 $ 74.64 $ 6,322,000 20.6% $ 21,003 $ 76.72 =========== ===== ======== ======= =========== ===== ======== ======= - -------------------------------------------------------------------------------------------------------------------- </TABLE> ============================================================================ Fiscal Years Oct. 1 to Sept. 30: 2002/2003 --------------------------------------- $ % PAR(1) POR(2) --------------------------------------- Number of Keys 301 Occupancy 75.00% Average Daily Room Rate $183.00 Revenues Rooms $15,079,000 47.8% $ 50,096 $183.00 Food 11,610,000 36.8% 38,571 140.90 Beverage 2,786,000 8.8% 9,256 33.81 Telephone 812,000 2.6% 2,698 9.85 Other Operated Departments 836,000 2.7% 2,777 10.15 Rentals and Other Income 394,000 1.3% 1,309 4.78 ----------- ----- -------- ------- Total Revenues 31,517,000 100.0% 104,708 382.49 Departmental Expenses (3) Rooms 3,899,000 25.9% 12,953 47.32 Food and Beverage 9,790,000 68.0% 32,525 118.81 Telephone 446,000 54.9% 1,482 5.41 Other Operated Departments 627,000 159.1% 2,083 7.61 ----------- ----- -------- ------- Total Departmental Expenses 14,762,000 46.8% 49,043 179.15 ----------- ----- -------- ------- Departmental Profit 16,755,000 53.2% 55,664 203.34 Undistributed Expenses Administrative and General 2,051,000 6.5% 6,814 24.89 Marketing 1,977,000 6.3% 6,568 23.99 Property Op's and Maint 970,000 3.1% 3,223 11.77 Energy and Utilities 845,000 2.7% 2,807 10.25 ----------- ----- -------- ------- Total Undistributed Expenses 5,843,000 18.5% 19,412 70.91 ----------- ----- -------- ------- Gross Operating Profit 10,912,000 34.6% 36,252 132.43 Fixed Charges and Mgt. Fees Base Management Fees 1,103,000 3.5% 3,664 13.39 Incentive Management Fees 788,000 2.5% 2,618 9.56 Property Taxes 936,000 3.0% 3,110 11.36 Insurance 239,000 0.8% 794 2.90 Equipment Leases 100,000 0.3% 332 1.21 ----------- ----- -------- ------- Total Fixed Charges 3,166,000 10.0% 10,518 38.42 ----------- ----- -------- ------- Income Before Reserves 7,746,000 24.6% 25,734 94.01 Reserves for Replacements 1,261,000 4.0% 4,189 15.30 ----------- ----- -------- ------- Net Operating Income (4) $ 6,485,000 20.6% $ 21,545 $ 78.70 =========== ===== ======== ======= - ---------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income taxes. ================================================================================ Source: PKF Consulting ================================================================================ <PAGE> ================================================================================ Ritz-Carlton St. Louis, Missouri Projected Operating Results <TABLE> <CAPTION> ===================================================================================================================== Fiscal Years Oct. 1 to Sept. 30: 2003/2004 2004/2005 -------------------------------------------------------------------------------- $ % PAR(1) POR(2) $ % PAR(1) POR(2) -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Number of Keys 301 301 Occupancy 74.00% 74.00% Average Daily Room Rate $189.00 $194.00 Revenues Rooms $15,366,000 47.9% $ 51,050 $189.00 $15,772,000 47.8% $ 52,399 $194.00 Food 11,799,000 36.8% 39,199 145.13 12,153,000 36.9% 40,375 149.48 Beverage 2,832,000 8.8% 9,409 34.83 2,917,000 8.8% 9,691 35.88 Telephone 825,000 2.6% 2,741 10.15 850,000 2.6% 2,824 10.46 Other Operated Departments 850,000 2.7% 2,824 10.46 875,000 2.7% 2,907 10.76 Rentals and Other Income 400,000 1.2% 1,329 4.92 412,000 1.2% 1,369 5.07 ----------- ----- -------- ------- ----------- ----- -------- ------- Total Revenues 32,072,000 100.0% 106,551 394.49 32,979,000 100.0% 109,565 405.65 Departmental Expenses (3) Rooms 3,973,000 25.9% 13,199 48.87 4,092,000 25.9% 13,595 50.33 Food and Beverage 10,016,000 68.5% 33,276 123.20 10,317,000 68.5% 34,276 126.90 Telephone 454,000 55.0% 1,508 5.58 467,000 54.9% 1,551 5.74 Other Operated Departments 637,000 159.3% 2,116 7.84 657,000 159.5% 2,183 8.06 ----------- ----- -------- ------- ----------- ----- -------- ------- Total Departmental Expenses 15,080,000 47.0% 50,100 185.49 15,533,000 47.1% 51,605 191.06 ----------- ----- -------- ------- ----------- ----- -------- ------- Departmental Profit 16,992,000 53.0% 56,452 209.00 17,446,000 52.9% 57,960 214.59 Undistributed Expenses Administrative and General 2,106,000 6.6% 6,997 25.90 2,169,000 6.6% 7,206 26.68 Marketing 2,036,000 6.3% 6,764 25.04 2,097,000 6.4% 6,967 25.79 Property Op's and Maint. 1,000,000 3.1% 3,322 12.30 1,030,000 3.1% 3,422 12.67 Energy and Utilities 859,000 2.7% 2,854 10.57 884,000 2.7% 2,937 10.87 ----------- ----- -------- ------- ----------- ----- -------- ------- Total Undistributed Expenses 6,001,000 18.7% 19,937 73.61 6,180,000 18.7% 20,532 76.01 ----------- ----- -------- ------- ----------- ----- -------- ------- Gross Operating Profit 10,991,000 34.3% 36,515 135.19 11,266,000 34.2% 37,429 138.57 Fixed Charges and Mgt. Fees Base Management Fees 1,123,000 3.5% 3,731 13.81 1,154,000 3.5% 3,834 14.19 Incentive Management Fees 802,000 2.5% 2,664 9.86 824,000 2.5% 2,738 10.14 Property Taxes 964,000 3.0% 3,203 11.86 993,000 3.0% 3,299 12.21 Insurance 246,000 0.8% 817 3.03 253,000 0.8% 841 3.11 Equipment Leases 103,000 0.3% 342 1.27 106,000 0.3% 352 1.30 ----------- ----- -------- ------- ----------- ----- -------- ------- Total Fixed Charges 3,238,000 10.1% 10,757 39.83 3,330,000 10.1% 11,063 40.96 ----------- ----- -------- ------- ----------- ----- -------- ------- Income Before Reserves 7,753,000 24.2% 25,757 95.36 7,936,000 24.1% 26,365 97.61 Reserves for Replacements 1,283,000 4.0% 4,262 15.78 1,319,000 4.0% 4,382 16.22 ----------- ----- -------- ------- ----------- ----- -------- ------- Net Operating Income(4) $ 6,470,000 20.2% $ 21,495 $ 79.58 $ 6,617,000 20.1% $ 21,983 $ 81.39 =========== ===== ======== ======= =========== ===== ======== ======= - --------------------------------------------------------------------------------------------------------------------- </TABLE> =========================================================================== Fiscal Years Oct. 1 to Sept. 30: 2005/2006 -------------------------------------- $ % PAR(1) POR(2) -------------------------------------- Number of Keys 301 Occupancy 74.00% Average Daily Room Rate $200.00 Revenues Rooms $16,260,000 47.8% $ 54,020 $200.00 Food 12,517,000 36.8% 41,585 153.96 Beverage 3,004,000 8.8% 9,980 36.95 Telephone 875,000 2.6% 2,907 10.76 Other Operated Departments 902,000 2.7% 2,997 11.09 Rentals and Other Income 424,000 1.2% 1,409 5.22 ----------- ----- -------- ------- Total Revenues 33,982,000 100.0% 112,897 417.98 Departmental Expenses (3) Rooms 4,215,000 25.9% 14,003 51.85 Food and Beverage 10,626,000 68.5% 35,302 130.70 Telephone 481,000 55.0% 1,598 5.92 Other Operated Departments 676,000 159.4% 2,246 8.31 ----------- ----- -------- ------- Total Departmental Expenses 15,998,600 47.1% 53,150 196.78 ----------- ----- -------- ------- Departmental Profit 17,984,000 52.9% 59,748 221.21 Undistributed Expenses Administrative and General 2,234,000 6.6% 7,422 27.48 Marketing 2,160,000 6.4% 7,176 26.57 Property Op's and Maint. 1,060,000 3.1% 3,522 13.04 Energy and Utilities 911,000 2.7% 3,027 11.21 ----------- ----- -------- ------- Total Undistributed Expenses 6,365,000 18.7% 21,146 78.29 ----------- ----- -------- ------- Gross Operating Profit 11,619,000 34.2% 38,601 142.92 Fixed Charges and Mgt. Fees Base Management Fees 1,189,000 3.5% 3,950 14.62 Incentive Management Fees 850,000 2.5% 2,824 10.46 Property Taxes 1,023,000 3.0% 3,399 12.58 Insurance 261,000 0.8% 867 3.21 Equipment Leases 110,000 0.3% 365 1.35 ----------- ----- -------- ------- Total Fixed Charges 3,433,000 10.1% 11,405 42.23 ----------- ----- -------- ------- Income Before Reserves 8,186,000 24.1% 27,196 100.69 Reserves for Replacements 1,359,000 4.0% 4,515 16.72 ----------- ----- -------- ------- Net Operating Income(4) $ 6,827,000 20.1% $ 22,681 $ 83.97 =========== ===== ======== ======= - --------------------------------------------------------------------------- Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income taxes. ================================================================================ Source: PKF Consulting ================================================================================ <PAGE> ================================================================================ Ritz-Carlton St. Louis, Missouri Projected Operating Results <TABLE> <CAPTION> ================================================================================================================================= Fiscal Years Oct. 1 to Sept. 30: 2006/2007 2007/2008 ------------------------------------------------------------------------------ $ % PAR(1) POR(2) $ % PAR(1) POR(2) ------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Number of Keys 301 301 Occupancy 74.00% 74.00% Average Daily Room Rate $206.00 $212.00 Revenues Rooms $16,748,000 47.8% 555,641 $206.00 $17,236,000 47.8% $ 57,262 $212.00 Food 12,893,000 36.8% 42,834 158.59 13,280,000 36.8% 44,120 163.35 Beverage 3,094,000 8.8% 10,279 38.06 3,187,000 8.8% 10,588 39.20 Telephone 901,000 2.6% 2,993 11.08 928,000 2.6% 3,083 11.41 Other Operated Departments 929,000 2.7% 3,086 11.43 957,000 2.7% 3,179 11.77 Rentals and Other Income 437,000 1.2% 1,452 5.38 450,000 1.2% 1,495 5.54 ----------- ----- ------- ------- ----------- ------ -------- ------- Total Revenues 35,002,000 100.0% 116,286 430.53 36,038,000 100.0% 119,728 443.27 Departmental Expenses (3) Rooms 4,341,000 25.9% 14,422 53.39 4,472,000 25.9% 14,857 55.01 Food and Beverage 10,945,000 68.5% 36,362 134.62 11,273,000 68.5% 37,452 138.66 Telephone 496,000 55.0% 1,648 6.10 511,000 5.1% 1,698 6.29 Other Operated Departments 697,000 159.5% 2,316 8.57 717,000 159.3% 2,382 8.82 ----------- ----- ------- ------- ----------- ------ -------- ------- Total Departmental Expenses 16,479,000 47.1% 54,748 202.69 16,973,000 47.1% 56,389 208.77 ----------- ----- ------- ------- ----------- ------ -------- ------- Departmental Profit 18,523,000 52.9% 61,538 227.84 19,065,000 52.9% 63,339 234.50 Undistributed Expenses Administrative and General 2,301,000 6.6% 7,645 28.30 2,370,000 6.6% 7,874 29.15 Marketing 2,225,000 6.4% 7,392 27.37 2,292,000 6.4% 7,615 28.19 Property Op's and Maint. 1,092,000 3.1% 3,628 13.43 1,125,000 3.1% 3,738 13.84 Energy and Utilities 938,000 2.7% 3,116 11.54 966,000 2.7% 3,209 11.88 ----------- ----- ------- ------- ----------- ------ -------- ------- Total Undistributed Expenses 6,556,000 18.7% 21,781 80.64 6,753,000 18.7% 22,435 83.06 ----------- ----- ------- ------- ----------- ------ -------- ------- Gross Operating Profit 11,967,000 34.2% 39,757 147.20 12,312,000 34.2% 40,904 151.44 Fixed Charges and Mgt. Fees Base Management Fees 1,225,000 3.5% 4,070 15.07 1,261,000 3.5% 4,189 15.51 Incentive Management Fees 875,000 2.5% 2,907 10.76 901,000 2.5% 2,993 11.08 Property Taxes 1,054,000 3.0% 3,502 12.96 1,085,000 3.0% 3,605 13.35 Insurance 269,000 0.8% 894 3.31 277,000 0.8% 920 3.41 Equipment Leases 113,000 0.3% 375 1.39 116,000 0.3% 385 1.43 ----------- ----- ------- ------- ----------- ------ -------- ------- Total Fixed Charges 3,536,000 10.1% 11,748 43.49 3,640,000 10.1% 12,093 44.77 ----------- ----- ------- ------- ----------- ------ -------- ------- Income Before Reserves 8,431,000 24.1% 28,010 103.70 8,672,000 24.1% 28,811 106.67 Reserves for Replacements 1,400,000 4.0% 4,651 17.22 1,442,000 4.0% 4,791 17.74 ----------- ----- ------- ------- ----------- ------ -------- ------- Net Operating Income (4) $ 7,031,000 20.1% $23,359 $ 86.48 $7,230,000 20.1% $24,020 $ 88.93 =========== ===== ======= ======= =========== ====== ======== ======= - --------------------------------------------------------------------------------------------------------------------------------- </TABLE> Notes: (1) PAR - Per Available Room. (2) POR - Per Occupied Room. (3) Departmental expense ratios are based on the respective department's revenues, not total revenues. (4) Net operating income before interest, amortization, depreciation, and income taxes. ================================================================================ Source: PKF Consulting ================================================================================ <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ J. VALUATION USING DIRECT CAPITALIZATION As previously discussed, we will first value the subject using a direct capitalization analysis. Direct capitalization converts anticipated net income to an indicated market value by use of an appropriate capitalization rate which reflects the relationship of net income to selling price for comparable properties being sold in the market. Direct capitalization for improved properties uses an overall capitalization rate which provides a return on the investment and a return of the asset. No element of time is introduced. To estimate the value of the subject by direct capitalization, the projected net operating income estimated for a future stabilized year is divided by an overall capitalization rate (OAR). 1. Capitalization Rate The capitalization rate is simply the ratio of the net income of a property to the value or price which an investor would pay for the right to receive that net income. Influences most affecting the price an investor would pay are quality, quantity, and probable duration of the net income expectancy. A capitalization or overall rate (OAR) can be selected by several methods. The methods used in this analysis are: 1) Derivation through comparable sales as presented in this report and as available in recent investor surveys; 2) Derivation through the band of investment technique; and, 3) Derivation through debt coverage formula. Each is discussed below. Derivation through Comparable Sales - In this method, the OAR is developed by dividing the net operating income of hotel sales by their cash equivalent sales prices. As is discussed in detail in the Sales Comparison Approach section, six comparable hotel sales have been identified, carefully analyzed and compared to the subject for the purpose of obtaining an overall hotel capitalization rate. The following table summarizes those properties. =============================================================================== Summary of Indicated Overall Rates for Hotels =============================================================================== Sale Sale Indicated Overall Number Name Date Capitalization Rate - ------------------------------------------------------------------------------- 1 Four Seasons / Philadelphia 1/97 9.02% 2 Ritz-Carlton / Buckhead 9/96 11.21% 3 Ritz-Carlton / Atlanta 9/96 10.56% 4 Mayfair Baglioni / New York 5/96 7.62% 5 Regent / Beverly Wilshire 2/96 6.00% 6 Plaza Hotel / New York 8/95 7.71% =============================================================================== ================================================================================ V-41 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ As can be noted, the indicated capitalization rates for these sales range from a low of 6.0 percent to 11.21 percent. Excluding the low capitalization rate for the Regent Beverly Wilshire Hotel, the average of the five remaining properties is 9.22 percent. In addition, we have also researched several recent investment surveys which collect data on current going-in capitalization rates for full-service hotels. The results are summarized as follows. ======================================================================= Source Range Average ----------------------------------------------------------------------- PKF Consulting Hospitality Investment Survey 8.3% to 15.0% 10.9% Second Quarter 1997 ----------------------------------------------------------------------- Peter F. Korpacz & Associates, Inc. Real Estate Investor Survey 8.0% - 14.0% 10.2% Third Quarter 1997 ----------------------------------------------------------------------- Landauer Hospitality Group Hotel Investment Outlook 7.5% to 13.0% 9.5% First Half 1997 ----------------------------------------------------------------------- Real Estate Research Corporation Real Estate Report 10.0% to 12.0% 10.6% Third Quarter 1996 ======================================================================= The indicated range of going-in capitalization rates from the preceding surveys ranged between 7.5 and 15.0 percent, with an average of between 9.5 and 10.9 percent. Taking into account the comparably recent age, excellent condition, and location of the subject in the stable St. Louis Metropolitan area, we are of the opinion that an OAR of 9.0 percent is appropriate to value the subject hotel. This selection of capitalization rate fits within the range of the identified comparable hotel sales, which represent other luxury hotels sold in major metropolitan areas. Overall Rate Using the Band of Investment Technique - A second approach to deriving the overall capitalization rate is the band of investment technique. Since, historically, most properties are purchased with debt and equity capital, the overall capitalization rate must satisfy the market return requirements of both investment positions. Lenders must receive an interest rate commensurate with the perceived risk or they will not make funds available, and equity investors must anticipate receiving a competitive equity return for the commensurate risks or they will invest their funds elsewhere. A simplified band of investment model focuses on four components: the mortgage constant, the mortgage ratio, the equity dividend and the equity ratio. The mortgage constant is the ratio of annual debt service to the principal amount of the loan. The mortgage ratio is the percentage of the total purchase price comprised of financing. The equity dividend is the ratio of cash flow after debt service (pre-tax) to equity investment. It should be noted that the equity dividend is not the same as the equity yield. The equity ratio is the percentage of the total purchase price comprised of equity investment. The formula for deriving the capitalization rate using this model is shown as follows: ================================================================================ V-42 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ ==================================== Ro = (Rm x M) + (Re x (1 - M)) Ro Overall Rate Rm Mortgage Constant M Loan to Value Ratio Re Equity Dividend 1-M Equity Ratio ==================================== We have surveyed a group of lenders to determine available financing terms for a hotel investment such as the subject property. Capital markets have eased, and financing is available for sufficiently creditworthy borrowers. Based on discussions with these lenders, we have concluded that the terms for a quality, full-service hotel such as the subject would be for financing based on a 70 percent loan to value with an interest rate at between 200 and 400 basis points above corresponding term treasuries or LIBOR. The amortization period for these loans is typically 25 years with a five to ten year term. Based on our knowledge of the subject, we believe that a loan with an interest rate of 8.0 percent could be obtained on the subject hotel. This equates to a mortgage constant (assuming monthly payments) of 9.26 percent. To estimate an equity dividend ratio, we interviewed a number of individuals who are currently active in the acquisition of hotels, to determine their return requirements. These investors indicate that they require a cash on cash return of between 7 and 12 percent on their equity investments in a hotel. Based upon our knowledge of the desirability of an asset such as the Ritz-Carlton, St. Louis, it is our opinion that an equity dividend rate toward the middle of the range is appropriate for the subject property. More specifically, we are of the opinion that a 9.5 percent equity dividend rate properly reflects the return requirements of investors who would leverage their acquisition of the subject. The calculation of the capitalization rate for the subject using this approach is as follows: ============================================================= Ro = (.0926 x 0.70) + (0.095 x (1 - 0.70)) Ro = (0.0648) + (0.0285) Ro = 9.33% ============================================================= Capitalization Rate Using the Debt Coverage Formula - In addition to traditional lending criteria, lenders sometimes use another criteria when making business real estate loans, the debt coverage ratio. This is the ratio of net operating income to annual debt service. Lenders are concerned with the safety of the loan investment and consequently require a spread between the expected NOI and the mortgage payment, so that the borrower will be able to meet debt service obligations. ================================================================================ V-43 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ To estimate the overall rate, the debt coverage ratio can be multiplied by the mortgage constant and the loan to value ratio. The formula is as follows: ================================ Ro = DCR x Rm x M Ro Overall Rate DCR Debt Coverage Ratio Rm Mortgage Constant M Loan to Value Ratio ================================ In the most recent edition of PKF Consulting's Hospitality Investment Survey, the range of required debt coverage ratios was between 1.2 and 2.3 times net operating income, with an average of 1.4. This range is supported by discussions with various lenders. After considering the above information, it is our opinion that a conventional 8.0 percent interest loan could be obtained at a debt coverage ratio of 1.4. This results in the following indicated capitalization rate: ================================================ Ro = 1.4 x 0.0926 x 0.70 Ro = 9.07% ================================================ Capitalization Rate Conclusion - The three techniques used to select a capitalization rate provide varying indicators for the valuation of the subject property. The conclusions reached using each approach are restated below. ========================================================= Derivation from Comparable Sales 9.00% Derivation from Band of Investment 9.33% Derivation from Debt Coverage Formula 9.07% ========================================================= Of the three techniques, the greatest weight in the final selection of a capitalization rate is placed on the comparable sales. The comparable sales approach is useful because it directly reflects the actions of buyers and sellers in the market based on a quantity of information from reliable sources. The band of investment approach looks explicitly at the debt and equity components of the transaction. However, the shortcoming of this technique is that its focus is on the equity dividend and does not focus on total equity yield over a typical holding period. In addition, in today's market, many investors are acquiring properties on an all cash basis, with no leverage. The debt coverage formula is a useful tool, but it should be noted that lenders' debt service coverage ratios are highly variable. ================================================================================ V-44 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ Based on the foregoing analysis, it is our opinion an overall capitalization rate of 9.0 percent is appropriate for the subject property. This rate properly reflects the return expectations for investors in this class of hotel given the property's location, and its age, physical facilities, and market position. 2. Stabilized Value Calculation - Direct Capitalization Based on our projection of net operating income for a stabilized year, and the selected "going in" overall capitalization rate of 9.0 percent, the value of the subject as stabilized is estimated to be as follows. =========================================================== Projected Stabilized Net Operating Income $5,413,000 Overall Capitalization Rate 9.0% ----------------------------------------------------------- Indication of Market Value $60,144,000 ----------------------------------------------------------- Value (Rounded) $60,100,000 =========================================================== Therefore, our conclusion as to the market value "as is" of the fee simple estate interest in the Ritz-Carlton, St. Louis using the Direct Capitalization Technique, as of October 1, 1997, is: ================================================================================ SIXTY MILLION ONE HUNDRED THOUSAND DOLLARS ================================================================================ $60,100,000 ================================================================================ ================================================================================ V-45 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ J. DISCOUNTED CASH FLOW ANALYSIS To estimate the value of the subject using a discounted cash flow analysis, it is assumed that the property will be sold at the end of the tenth year of a typical ten-year holding period. The value of the property at that time is estimated by capitalizing the expected or anticipated net operating income of the property in the eleventh year. Based on an analysis using the Comparable Sales, Band of Investment and Debt Coverage Ratio methods, it is our opinion that an overall fee simple capitalization rate of 9.0 percent would be warranted for the Ritz-Carlton if sold today. This rate would be adjusted to 9.5 percent, 50 basis points higher than the current overall rate for the terminal rate upon reversion. The higher terminal rate reflects the increased age of the improvements at the end of the tenth year, as well as the added uncertainty of the projecting operating performance of the subject ten years hence. 1. Net Proceeds Upon Sale (Reversion) To estimate the reversionary value of the subject at the termination of the holding period, we have capitalized the adjusted net operating income for the property for the year of operation immediately following the sale (in this case, the net operating income in fiscal year 2007/2008). To obtain the net proceeds upon sale, we then deduct from this indicated value a charge for sales commissions and other costs of sale of 2.0 percent. We then calculate the reversionary value of the subject property as shown in the following calculation. =========================================================== Estimated 11th Year Net Operating Income $7,230,000 ----------------------------------------------------------- Reversionary Capitalization Rate 9.5% ----------------------------------------------------------- Reversionary Value $76,105,000 =========================================================== To estimate the net proceeds upon sale, it is necessary to deduct a sales commission from the indicated value upon sale as calculated below: =============================================== Indicated Value in 2006/2007 $76,105,000 Less: Sales Commission at 2.0% (1,522,000) ----------------------------------------------- Net Proceeds Upon Sale $74,583,000 =============================================== ================================================================================ V-46 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ 2. Discount Rate The discount rate reflects the overall rate of return expected by the investor, weighing the relative riskiness of the investment in relation to other investment vehicles and the perceived risk of each component in the operation of the facility. In order to estimate an appropriate discount rate for the subject, several investor surveys were reviewed that report both capitalization and discount rates for hotel investments. The results are presented in the following table. <TABLE> <CAPTION> ====================================================================================================================== Capitalization and Discount Rate Results ====================================================================================================================== Average Overall Average Overall Capitalization Rate Discount Rate - -------------------------------------------------------------------------------------------------------- Average Average Range Average Range Spread - ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> PKF Consulting Hospitality Investment Survey 10.9% 8.3% - 15.0% 13.9% 11.3% - 18.0% 3.0% Second Quarter 1997 - ---------------------------------------------------------------------------------------------------------------------- Peter F. Korpacz & Associates, Inc. Real Estate Investor Survey 10.2% 8.0% - 14.0% 13.7% 9.0%-18.0% 3.5% Third Quarter 1997 - ---------------------------------------------------------------------------------------------------------------------- Real Estate Research Corporation Real Estate Report 10.6% 10.0%-11.5% 13.2% 12.0%-15.0% 2.6% Third Quarter 1996 - ---------------------------------------------------------------------------------------------------------------------- Landauer Hotel Group Hotel Investor Outlook 9.5% 7.5%-13.0% 13.0% 12.0%-16.0% 3.5% First Half 1997 ====================================================================================================================== </TABLE> As can be noted, the discount rates for hotels based on these surveys ranged between 9.0 and 18.0 percent, with an average of between 13.0 and 13.9 percent. In addition, the "spread" between the going-in overall capitalization rates and the discount rates ranged between 3.0 to 3.5 percent, which is consistent with our overall growth rate assumption of 3.0 percent used for most income and expense items. This spread would indicate an appropriate discount rate to value the subject of between 12.0 and 12.5 percent, based on the 9.0 percent going-in overall rate. A second method commonly used to derive a discount rate for a property is to utilize the formula Yo = Ro + CR, where: =============================================== Yo = Overall Yield or Discount Rate; Ro = Overall Capitalization Rate (OAR); and CR = Compound Rate of Change or Appreciation =============================================== ================================================================================ V-47 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ Based on the foregoing discussion of capitalization rates, we have already concluded to an OAR of 9.0 percent for the subject. The compound rate of change or appreciation (CR) can be calculated as that change between our current value conclusion derived through direct capitalization ($60,100,000) and the aforementioned estimated value of the hotel at the end of the ten year holding period ($76,105,000). This results in a compound annual growth rate of 2.7 percent over the ten-year period. Adding this rate of appreciation to the selected going in rate of 9.0 percent results in a discount rate of 11.7 percent. Therefore, based on the foregoing analysis, we are of the opinion that a 12.0 percent discount rate is appropriate to value the subject property, 3.0 percentage points higher than the overall capitalization rate used herein, and within the reported survey ranges. 3. Valuation Calculation - Discounted Cash Flow Analysis To estimate the value of the subject considering the current operations of the hotel and the projected performance of the facility through the holding period, we have used a discounted cash flow analysis. Presented in the following table is our cash flow estimated for the subject for the 10-year holding period, along with the value of the reversion deriving a value estimate. ===================================================================== Ritz-Carlton, St. Louis Discounted Cash Flow Analysis ===================================================================== Cash Flow From Present Value Present Value Year Operations Factor @ 12.0% --------------------------------------------------------------------- 1997/1998 $5,816,000 0.8929 $5,192,857 1998/1999 $6,006,000 0.7972 $4,787,946 1999/2000 $6,192,000 0.7118 $4,407,343 2000/2001 $6,150,000 0.6355 $3,908,436 2001/2002 $6,322,000 0.5674 $3,587,273 2002/2003 $6,485,000 0.5066 $3,285,503 2003/2004 $6,470,000 0.4523 $2,926,699 2004/2005 $6,617,000 0.4039 $2,672,495 2005/2006 $6,827,000 0.3606 $2,461,885 2006/2007 $7,031,000 0.3220 $2,263,794 --------------------------------------------------------------------- Reversion $74,583,000 0.3220 $24,013,730 --------------------------------------------------------------------- Net Present Value $59,507,962 --------------------------------------------------------------------- Value, Rounded $59,500,000 ===================================================================== Note: Present value figures may not foot due to rounding. ===================================================================== Thus, based on the income generated from the hotel operations and its value upon sale, the market value "as is" of the fee simple estate in the subject hotel based on a discounted cash flow analysis is $59,500,000. ================================================================================ V-48 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ L. INCOME CAPITALIZATION APPROACH VALUATION CONCLUSION Our value conclusion under the Income Capitalization Approach was based on both a direct capitalization and a discounted cash flow analysis. Both of these valuation methods are supportive of each, and we have placed equal weight on each analysis. Our conclusion as to the market value "as is" of the fee simple interest of the subject using the Income Capitalization Approach, as of October 1, 1997 is: ================================================================================ SIXTY MILLION DOLLARS ================================================================================ $60,000,000 ================================================================================ ================================================================================ V-49 <PAGE> RECONCILIATION AND FINAL ESTIMATE OF VALUE ================================================================================ A. FINAL CONCLUSION OF MARKET VALUE "AS IS" The reconciliation involves the correlation of the conclusions reached from the valuation methodologies applied, considering the property type and the requirements of the appraisal assignment. This process depends on the appropriateness and reliability of each approach, and of the quality and reliability of the data obtained. The results from the three approaches are as follows: ===================================================== Cost Approach Not Applicable ----------------------------------------------------- Sales Comparison Approach $60,000,000 ----------------------------------------------------- Income Capitalization Approach Direct Capitalization $60,100,000 Discounted Cash Flow Analysis $59,500,000 ===================================================== The Cost Approach estimates the value of the subject property based on the principal of substitution whereby a buyer is not expected to pay more for the property than it would cost to acquire a comparable site providing the same utility and replace the building with one of modern materials and current design, standards and layout. The Cost Approach is most appropriate when the improvements are new or nearly new, and represent the highest and best use of the land. The Cost Approach has limited utility in the valuation of existing hotels. Generally, the Sales Comparison and Income Capitalization Approaches are better indicators of the value of a hotel property in the open market since they more accurately reflect current market activity and the motives of buyers and sellers for investment purposes. Accordingly, we have not utilized the Cost Approach in developing our estimate of the value of the subject. In the Sales Comparison Approach we compared six upscale hotels located in major United States markets which have sold within the past two years. The selected sales indicated a wide range in value, but lent support for our conclusion of value as derived by the Income Capitalization Approach. As a result of the foregoing, this approach was given secondary consideration in our analysis and has been used primarily as a check on the reasonableness of value determined by the Income Capitalization Approach. The Income Capitalization Approach is undoubtedly the most commonly used method to evaluate an income producing property such as a hotel. In this approach, we have utilized two methods of analysis: the direct capitalization method and the discounted cash flow method (yield capitalization). There was good market support for both the projected cash flow of the subject as well as the capitalization and yield rates used to convert our cash flow projections into a value estimate. Both income methods resulted in comparable values, heightening our confidence in this approach. Accordingly, the greatest reliance has been placed by us on this approach. ================================================================================ V-50 <PAGE> RECONCILIATION AND FINAL ESTIMATE OF VALUE ================================================================================ Based on the facts, assumptions, and procedures outlined in this report, it is estimated that the market value "as is" of the fee simple estate in the subject property, as of October 1, 1997, is: ======================================================================= SIXTY MILLION DOLLARS ======================================================================= $60,000,000 ======================================================================= B. PERSONAL PROPERTY ALLOCATION Included in the above estimate of market value is the contributing value of the personal property at the subject property, or the furnishings, fixtures and equipment (FF&E). FF&E is generally considered to be a part of the hotel property and is typically sold with the building. It is therefore considered to be a part of the property's total value. Based on our review of the subject, we have estimated the value of the FF&E as new to be approximately $25,000 per room, or a total replacement cost of $7,525,000. Physical deterioration (depreciation) must be deducted for the FF&E. The subject opened in 1990 and has been maintained in excellent condition, including a recently completed renovation. Based on our inspection of the hotel, we are of the opinion that the property's FF&E, as is, has a useful life of eight years on the average, and a current effective age of two years. This equates to a 25.0 percent depreciation factor, as summarized as follows. ================================================================= Ritz-Carlton, St. Louis Furniture, Fixtures, and Equipment Estimation of Current Value ================================================================= Value of FF&E Per Room As New $25,000 Number of Hotel Room Units 301 ----------------------------------------------------------------- Total Value of FF&E As New $7,525,000 Physical Life 8 Years Average Effective Age 2 Years ----------------------------------------------------------------- Percent Depreciated 25.0 Percent Value Remaining 75.0 ----------------------------------------------------------------- Depreciated Value $5,643,750 (Rounded) $5,600,000 ================================================================= Source: PKF Consulting ================================================================= The contributing value of the FF&E therefore is estimated to be the cost of the FF&E less its accrued depreciation, or $5,600,000. It should be noted that a larger-than-usual proportion of the fixtures and furnishings of the public areas comprise antique items and paintings. The valuation of these items was beyond the scope of this appraisal; however, we are of the opinion that our estimate provides a reasonably accurate assessment of the current value of the FF&E of the subject property. ================================================================================ V-51 <PAGE> RECONCILIATION AND FINAL ESTIMATE OF VALUE ================================================================================ C. MARKETING AND EXPOSURE PERIODS PKF Consulting's Second Quarter 1997 Hospitality Investment Survey, which reports an average marketing period of 7.2 months for hotels, with 3 months up to 24 months being a typical exposure periods. Based on this analysis, we are of the opinion that a reasonable exposure period for the subject, at a price of $60,000,000 would be six months or less. In other words, we believe that the subject property would need to have been exposed on the open market over this period of time in order for a consummated sale to have occurred on the date of appraisal. We are also of the opinion that the marketing period for the subject would be six months or less. ================================================================================ V-52 <PAGE> ADDENDA <PAGE> ADDENDA A. CERTIFICATION OF THE APPRAISERS B. STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS C. LEGAL DESCRIPTION OF THE PROPERTY D. QUALIFICATIONS OF THE APPRAISERS E. COPY OF APPRAISERS' STATE OF CALIFORNIA CERTIFICATES F. PKF CONSULTING'S HOSPITALITY INVESTMENT SURVEY G. ENGAGMENT LETTER FOR THE APPRAISAL <PAGE> ADDENDUM A CERTIFICATION OF THE APPRAISERS <PAGE> CERTIFICATION OF THE APPRAISERS I, Thomas E. Callahan, CPA, CRE, MAI, and Kenneth Kuchman certify that, to the best of our knowledge and belief: o The statements of fact contained in this report are true and correct. o The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. o We have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. o Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. o Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. o Kenneth Kuchman has made a personal inspection of the property that is the subject of this report. o No one provided significant professional assistance to the persons signing this report. o This appraisal engagement was not based on a requested minimum valuation, specific valuation or the approval of a loan. o The reported analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. o The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. o We are Certified General Real Estate Appraisers in the State of California and Kenneth Kuchman is registered as a general real estate appraiser in the State of Missouri for the purpose of this appraisal. o As of the date of this report, Thomas E. Callahan, CPA, CRE, MAI, has completed the requirements of the continuing education program of the Appraisal Institute. <PAGE> Based on the work undertaken and our experience as real estate analysts and appraisers, we are of the opinion that the prospective market value "as is" of the fee simple estate in the Ritz-Carlton Hotel, St. Louis, Missouri, as of October 1, 1997, is: ========================================================================= SIXTY MILLION DOLLARS ========================================================================= $60,000,000 ========================================================================= Of this above amount, $5,600,000 is allocated to the depreciated value of the furniture, fixtures, and equipment of the hotel. Respectfully submitted, /s/ Thomas E. Callahan - --------------------------------- Thomas E. Callahan, CPA, CRE, MAI Executive Vice President /s/ Kenneth Kuchman - ------------------------------- Kenneth Kuchman Vice President <PAGE> ADDENDUM B STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS <PAGE> STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS Date of Value - The conclusions and opinions expressed in this report apply to the date of value set forth in the letter of transmittal accompanying this report. The dollar amount of any value opinion or conclusion rendered or expressed in this report is based upon the purchasing power of the American dollar existing in the date of value. Economic and Social Trends - The appraiser assumes no responsibility for economic, physical or demographic factors which may affect or alter the opinions in this report if said economic, physical or demographic factors were not present as of the date of the letter of transmittal accompanying this report. The appraiser is not obligated to predict future political, economic or social trends. Information Furnished by Others - In preparing the report, the appraiser was required to rely on information furnished by other individuals or found in previously existing records and/or documents. Unless otherwise indicated, such information is presumed to be reliable. However, no warranty, either express or implied, is given by the appraiser for the accuracy of such information and the appraiser assumes no responsibility for information relied upon later found to have been inaccurate. The appraiser reserves the right to make such adjustments to the analyses, opinions and conclusions set forth in this report as may be required by consideration of additional data or more reliable data that may become available. Title - No opinion as to the title of the subject property is rendered. Data related to ownership and legal description was obtained from the attached title report records and is considered reliable. Title is assumed to be marketable and free and clear of all liens, encumbrances, easements and restrictions except those specifically discussed in the report. The property is appraised assuming it to be under responsible ownership and competent management, and available for its highest and best use. Hidden Conditions - The appraiser assumes no responsibility for hidden or unapparent conditions of the property, subsoil, ground water or structures that render the subject property more or less valuable. No responsibility is assumed for arranging for engineering, geologic or environmental studies that may be required to discover such hidden or unapparent conditions. Hazardous Materials - The appraiser has not been provided any information regarding the presence of any material or substance on or in any portion of the subject property or improvements thereon, which material or substance possesses or may possess toxic, hazardous and/or other harmful and/or dangerous characteristics. Unless otherwise stated in the report, the appraiser did not become aware of the presence of any such material or substance during the appraiser's inspection of the subject property. However, the appraiser is not qualified to investigate or test for the presence of such materials or substances. The presence of such materials or substances may adversely affect the value of the subject property. The value estimated in this report is predicted on the assumption that no such material or substance is present on or in the subject property or in such proximity thereto that it would cause a loss in value. The appraiser assumes no responsibility for the presence of any such substance or material on or in the subject property, nor for any expertise or engineering knowledge required to discover the presence of such substance or material. Unless otherwise stated, this report assumes the subject property is in compliance with all federal, state and local environmental laws, regulations and rules. Zoning and Land Use - Unless otherwise stated, the subject property is appraised assuming it to be in full compliance with all applicable zoning and land use regulations and restrictions. Licenses and Permits - Unless otherwise stated, the property is appraised assuming that all required licenses, permits, certificates, consents or other legislative and/or administrative authority from any local, state or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in this report is based. <PAGE> STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS (Continued) Engineering Survey - No engineering survey has been made by the appraiser. Except as specifically stated, data relative to size and area of the subject property was taken from sources considered reliable and no encroachment of the subject property is considered to exist. Subsurface Rights - No opinion is expressed as to the value of subsurface oil, gas or mineral rights or whether the property is subject to surface entry for the exploration or removal of such materials, except as is expressly stated. Maps, Plats and Exhibits - Maps, plats and exhibits included in this report are for illustration only to serve as an aid in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced or used apart from the report. Legal Matters - No opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. Allocation Between Land and Improvements - The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used. Right of Publication - Possession of this report, or a copy of it, does not carry with it the right of publication. Without the written consent of the appraiser, this report may not be used for any purpose by any person other than the party to whom it is addressed. In any event, this report may be used only with properly written qualification and only in its entirety for its stated purpose. Testimony in Court - Testimony or attendance in court or at any other hearing is not required by reason of rendering this appraisal, unless such arrangements are made a reasonable time in advance of said hearing. Further, unless otherwise indicated, separate arrangements shall be made concerning compensation for the appraiser's time to prepare for and attend any such hearing. Structural Deficiencies - The appraiser has personally inspected the subject property, and except as noted in this report, finds no obvious evidence of structural deficiencies in any improvements located on the subject property. However, the appraiser assumes no responsibility for hidden defects or non-conformity with specific governmental requirements, such as fire, building and safety, earthquake or occupancy codes, unless inspections by qualified independent professionals or governmental agencies were provided to the appraiser. Further, the appraiser is not a licensed engineer or architect and assumes no responsibility for structural deficiencies not apparent to the appraiser at the time of this inspection. Termite/Pest Infestation - No termite or pest infestation report was made available to the appraiser. It is assumed that there is no significant termite or pest damage or infestation, unless otherwise stated. Income Data Provided by Third Party - Income and expense data related to the property being appraised was provided by the client and is assumed, but not warranted, to be accurate. Asbestos - The appraiser is not aware of the existence of asbestos in any improvements on the subject property. However, the appraiser is not trained to discover the presence of asbestos and assumes no responsibility should asbestos be found in or at the subject property. For the purposes of this report, the appraiser assumes the subject property is free of asbestos and that the subject property meets all federal, state and local laws regarding asbestos abatement. <PAGE> STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS (Continued) Archeological Significance - No investigation has been made by the appraiser and no information has been provided to the appraiser regarding potential archeological significance of the subject property or any portion thereof. This report assumes no portion of the subject property has archeological significance. Compliance with the Americans with Disabilities Act - The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible non-compliance with the requirements of ADA in estimating the value of the property. Definitions and Assumptions - The definitions and assumptions upon which our analyses, opinions and conclusions are based are set forth in appropriate sections of this report and are to be part of these general assumptions as if included here in their entirety. Utilization of the Land and/or Improvements - It is assumed that the utilization of the land and/or improvements is within the boundaries or property described herein and that there is no encroachment or trespass. Encroachments - It is assumed that the utilization of the land and/or improvements is within the boundaries or property described herein and that there is no encroachment or trespass. Dissemination of Material - Use and disclosure of the contents of this report is governed by the bylaws and regulations of the Appraisal Institute. Neither all or any part of the contents of this report (especially the conclusions as to value, the identity of the appraiser or the firm with which they are connected, or any reference to the Appraisal Institute or to the MAI or RM designations) shall be disseminated to the general public through advertising or sales media, public relations media, new media or other public means of communication without the prior written consent and approval of the appraiser(s). Distribution and Liability to Third Parties - The party of whom this appraisal report was prepared may distribute copies of this appraisal report only in its entirety to such third parties as may be selected by the party for whom this appraisal report was prepared; however, portions of this appraisal report shall not be given to third parties without our written consent. Liability to third parties will not be accepted. Use in Offering Materials - This appraisal report, including all cash flow forecasts, market surveys and related data, conclusions, exhibits and supporting documentation may not be reproduced or references made to the report or to PKF Consulting in any sale offering, prospectus, public or private placement memorandum, proxy statement or other document ("Offering Material") in connection with a merger, liquidation or other corporate transaction unless PKF Consulting has approved in writing the text of any such reference or reproduction prior to the distribution and filing thereof. Limits to Liability - PKF Consulting cannot be held liable in any cause of action resulting in litigation for any dollar amount which exceeds the total fees collected from this individual engagement. Legal Expenses - Any legal expenses incurred in defending or representing ourselves concerning this assignment will be the responsibility of the client. <PAGE> ADDENDUM C LEGAL DESCRIPTION OF THE PROPERTY <PAGE> EXHIBIT "A" A tract of land in Township 45 North, Range 6 East, St. Louis County, Missouri; and being part of Hanley's Resubdivision of Blocks 6, 7, 8, 9, and 20 of Hanley's Addition to Clayton as per Plat Book 7, Page 62 of the St. Louis County Records and part of Block 12 of Northmoor Park Addition as per Plat Book 14, Pages 84 and 85 of the St. Louis County Records; and being more particularly described as follows: Beginning at the point of intersection of the Northwesterly line of Forest Park Parkway (variable width) as established by plat recorded in Book 8012, Page 627 of the St. Louis County Records with the Northeast line of South Carondelet Ave. (variable width) as established by plat recorded in Book 239, Page 42 of the St. Louis County Records and known now as Carondelet Plaza; thence Northwesterly and Northeasterly along the Northeasterly and Southeasterly lines of said Carondelet Plaza as follows: 1st around a curve to the right that has a radius of 90.00 feet (radial bearing at this point being North 11(degree) 48' 14" East) and an arc length of 53.02 feet to a point; 2nd North 44(degree) 30' 00" West, 117.98 feet to the beginning of a curve to the right that has a radius of 40.00 feet; 3rd around said curve for an arc length of 43.88 feet to the beginning of a curve to the left that has a radius of 91.50 feet; 4th around said curve for an arc length of 49.23 feet to the beginning of a curve to the right that has a radius of 50.00 feet; 5th around said curve for an arc length of 68.48 feet to a point; 6th North 66(degree) 00' 00" East, 171.79 feet to a point; 7th South 24(degree) 00' 00" East, 6.00 feet to a point; 8th North 66(degree) 00' 00" East, 238.64 feet to a point; thence South 24(degree) 00' 00" East, 283.82 feet to a point in the Northwesterly line of Forest Park Parkway; thence Southwesterly, along the Northwesterly line of Forest Park Parkway, as follows: 1st South 66(degree) 52' 38" West, 365.13 feet to the beginning of a curve to the right that has a radius of 80.78 feet; 2nd around said curve for an arc length of 3.50 feet to a point; 3rd North 25(degree) 45' 43". West, 6.95 feet to a point; 4th South 80(degree) 01' 57" West, 46.45 feet to a point; 5th South 09(degree) 58' 04" East, 10.88 feet to the point of beginning and containing 2.993 acres of land. <PAGE> ADDENDUM D QUALIFICATIONS OF THE APPRAISERS <PAGE> QUALIFICATIONS OF THOMAS E. CALLAHAN, CPA, CRE, MAI EXECUTIVE VICE PRESIDENT PROFESSIONAL HISTORY Present Executive Vice President, PKF Consulting San Francisco, California Prior Pannell Kerr Forster, Boston and Los Angeles Partner-in-Charge Pannell Kerr Forster, Dallas and Houston Partner AREAS OF EXPERTISE Economic, financial, operational, management and valuation consulting for the real estate, hospitality and related service industries. REPRESENTATIVE PROJECTS Numerous market and economic feasibility studies for hotels, motor hotels, and resorts in the United States, Europe, the Pacific, and Southeast Asia. Acquisition studies and development planning for numerous hotels and motor hotels. Appraisal of the market value of all types of income producing properties including: hotels, restaurants, ski resorts, office buildings, golf courses, mixed-use and retail developments. Market and economic feasibility studies for retirement and long-term health care facilities located in Texas and California. Preparation of master plan studies for the development of multi-use real estate projects in the Republic of China, Singapore, and the United States. These studies include highest and best use analyses for the proposed site, market and financial feasibility analyses, economic valuations and development of the management structure for project implementation. Development of reorganization plans and expert testimony in court for bankruptcy proceedings associated with all types of hotels and resorts. <PAGE> QUALIFICATIONS OF THOMAS E. CALLAHAN, CPA, CRE, MAI REPRESENTATIVE PROJECTS Evaluation of the organization structure, financial controls and management information systems of the Armed Forces Recreation Center located in the Federal Republic of Germany. Operational reviews, financial analyses, management evaluations and systems analyses for hotels, resorts, restaurants, and clubs. Valuation of large, complex real estate and business holdings, including the Aspen Skiing Company, Aspen Colorado; Angel Fire Ski Company, Angel Fire, New Mexico; and the Embarcadero Center, San Francisco, California. Preparation of cash flow and return on investment calculations for proposed, operating and distressed hotels, resorts, restaurants, and clubs. Appraisal of the market value of large real estate portfolios, including all Trusthouse Forte, Inc. hotel properties; all company owned Hilton Hotels; all Vagabond Inns; all Western 6 Motels; and all of the holdings of Hotel Investors Trust. Operational analysis, financial review and long-range development for hotels and resorts. Market and economic feasibility study for a proposed major international class hotel to be located in Bandar Seri Begawan, Brunei. Long-range budgeting, economic feasibility and economic impact analysis for the Industry Hills Civic Recreation Center located in the City of Industry, California. Market and economic feasibility analysis for numerous convention and exhibit centers including the Los Angeles Convention Center and the Taipei World Trade Center. Development of the organizational structure and job descriptions and requirements for a multi-use facility, which includes a hotel, convention center and numerous recreational facilities. <PAGE> QUALIFICATIONS OF THOMAS E. CALLAHAN, CPA, CRE, MAI REPRESENTATIVE PROJECTS (Continued) Development of procedural manuals for the operation of major hotels. Accounting system, internal control procedures and management information system design and implementation for hotel, club, and restaurant operations. EDUCATION WASHINGTON STATE UNIVERSITY Bachelor of Arts in Business Administration APPRAISAL INSTITUTE Completed All Courses Required for Membership PROFESSIONAL QUALIFICATIONS Certified Public Accountant in Massachusetts, California and Texas Certified General Real Estate Appraiser - State of California PROFESSIONAL AFFILIATIONS Member of the Appraisal Institute (MAI) American Society of Real Estate Counselors (CRE) International Society of Hospitality Consultants (ISHC) American Institute of Certified Public Accountants California Society of Certified Public Accountants Texas Society of Certified Public Accountants Massachusetts Society of Certified Public Accountants American Hotel & Motel Association - Research Committee American Institute of Certified Public Accountants - MAS Executive Committee Member PROFESSIONAL ACTIVITIES Guest speaker at various industry seminars EXPERT TESTIMONY Admitted as an expert in both State and Federal courts located in Massachusetts, Illinois, California, Texas and New Mexico <PAGE> QUALIFICATIONS OF KENNETH KUCHMAN VICE PRESIDENT PROFESSIONAL HISTORY Present PKF CONSULTING - San Francisco Vice President Prior BDO SEIDMAN - San Francisco Senior Consultant LAVENTHOL & HORWATH - San Francisco Consultant THE MANDARIN ORIENTAL HOTEL GROUP Hong Kong and San Francisco Various Management Positions AREAS OF EXPERTISE Operational planning and evaluation of hospitality industry activities. Extensive experience in the pre-opening and on-going operations of hotels, motels, resorts, and conference centers. Preparation of market feasibility studies for hotels and related facilities including estimated financial income statements. Preparation of full narrative appraisals of lodging properties and related facilities focusing on valuation of projected operating income. Skills encompass fee simple, leasehold, and leased fee estate interest valuation. Litigation support analysis involving the performance of hotel management services. MAJOR PROJECTS Comprehensive operational review of the lodging and food service operating establishments located within Yosemite National Park. Operational review of lodging, dining, recreation and sports facilities at nine United States Air Force bases. Market feasibility studies for over 15 proposed hospitality industry projects including golf courses and standard and extended-stay hotels to be constructed in Northern California and in Nevada. <PAGE> QUALIFICATIONS OF KENNETH KUCHMAN PAGE TWO MAJOR PROJECTS (CONTINUED) Appraisals and operational analysis of two casino hotels and a 500 room resort-style hotel located in Las Vegas, Nevada. Appraisals of over 20 full-service hotels and major resorts located throughout the mainland United States, Hawaii, and Bermuda. Appraisals of numerous economy lodging facilities, comprising 53 to 175 rooms, and adjacent leased restaurants, in California and in the Southwest. Litigation support services relating to the termination of hotel management contracts by the owning partnerships of several full-service hotels located in California and Hawaii. EDUCATION CLAREMONT GRADUATE SCHOOL THE PETER F. DRUCKER GRADUATE MANAGEMENT CENTER Master of Business Administration CORNELL UNIVERSITY SCHOOL OF HOTEL ADMINISTRATION Bachelor of Science, Hotel Administration PROFESSIONAL ACTIVITIES Certified General Real Estate Appraiser State of California, Certificate #AG022842 State Accredited Affiliate of the Appraisal Institute MAI Candidate, Appraisal Institute, Candidate #M950161 President, Cornell Society of Hotelmen, Northern California Chapter <PAGE> ADDENDUM E COPY OF APPRAISERS' STATE OF CALIFORNIA CERTIFICATIONS <PAGE> STATE OF CALIFORNIA ================================================================================ SEAL COPY Business, Transportation & Housing Agency OFFICE OF REAL ESTATE APPRAISERS REAL ESTATE APPRAISER LICENSE OREA APPRAISER IDENTIFICATION NUMBER AG 009618 --------- THOMAS E. CALLAHAN has successfully met the requirements for a license as a general real estate appraiser in the State of California and is, therefore, entitled to use the title "Certified General Real Estate Appraiser". This license has been issued in accordance with the provisions of the Real Estate Appraisers' Licensing and Certification Law. OFFICE OF REAL ESTATE APPRAISERS /s/ [ILLEGIBLE] -------------------------------- Date Issued: April 19, 1997 Audit No. 20662 Date Expired: April 18, 2001 ================================================================================ THE BACK OF THIS DOCUMENT CONTAINS AN ARTIFICIAL WATERMARK - HOLD AT AN ANGLE TO VIEW <PAGE> ================================================================================ COPY STATE OF CALIFORNIA GOVERNOR PETE WILSON OFFICE OF REAL ESTATE APPRAISERS REAL ESTATE APPRAISER CERTIFICATE OREA APPRAISER IDENTIFICATION NUMBER AG 022842 --------- KENNETH KUCHMAN, has successfully met the minimum requirements for certification as a general real estate appraiser In the State of California and is therefore entitled to use the title "Certified General Real Estate Appraiser". This license is valid until April 15, 1999 and has been issued in accordance with the provisions of the Real Estate Appraisers' Licensing and Certification Law. OFFICE OF REAL ESTATE APPRAISERS BY: /s/ [ILLEGIBLE] ---------------------------- DATE: June 24, 1994 ================================================================================ <PAGE> ADDENDUM F PKF CONSULTING'S HOSPITALITY INVESTMENT SURVEY <PAGE> HOSPITALITY INVESTMENT SURVEY ---------- PKF CONSULTING ---------- A PERIODIC PROFESSIONAL PUBLICATION VOLUME TEN, ISSUE ONE SECOND QUARTER 1997 $75 Optimism Continues to Drive Hotel Investment - -------------------------------------------------------------------------------- The optimistic attitude driving hotel investment continued in 1996 and is expected to remain through 1997. Investors are purchasing hotels at continually rising prices, still confident of continuing upside potential in the marketplace. It is estimated that the average price paid for a hotel in 1997 will approximate 91.3 of replacement cost in 1997. This contrasts to the 47.4 percent mark recorded in 1991, at the depth of the nation's economic and lodging recession. Projected growth in operating profits continues to attract investors to spend their money on lodging. Despite the first signs of overdevelopment and projections of declining occupancy in several markets, a healthy economy and improvements in operating efficiency lead most analysts and investors to believe that hotel profitability should continue to improve through the year 2000. The 1997 edition of PKF Consulting's Hospitality Investment Survey found that hotel investors are projecting revenues to grow annually at 3.9 percent, while expense growth will be limited to 3.4 percent. The end result is a projected annual growth rate of 7.3 percent for hotel net operating incomes. So Many People Can't Be Wrong Further indication of the interest in hotel investment is the response to this year's Hospitality investment Survey (HIS). The 1997 edition of HIS reports the average investment criteria used by 141 companies involved in over 1,500 hotel related transactions in 1996. This is by far the largest interest we have seen in hotel investment since our first survey in 1984. It should also be noted that 82.3 percent of our survey respondents plan to purchase and/or sell one or more hotels in 1997, further indication that the amount of investment dollars flowing into the hospitality industry has yet to subside. Few Changes In Investment Criteria Hotel investors' outlook on values and return on investment have changed little since the optimistic attitudes adopted in 1994. Capitalization rates continue to hover around the 11 percent mark, while the desired return on investment dropped slightly to 14.1 percent. With hotel investors fairly sure that their future return on investment can be derived from improved profitability, they are willing to pay higher prices and accept less of a percentage return in exchange for less perceived risk. Among the different property types, investors appear to be most bullish regarding the future prospects for resort properties. Due to the scarcity of resort properties for sale, combined with the positive future projections of market performance for this segment, transactions involving resorts showed the lowest capitalization rate (10.4 percent) and internal rate of return (13.4 percent). At the other end of the spectrum, limited-service hotels are being purchased at the highest rate of capitalization (11.7 percent) and desired rate of return (14.7 percent). In several markets, the relative cost of construction and market support favors building a new limited-service hotel as opposed to purchasing an existing property. Traditional Lenders Return Responding to the increase in hotel investment activity, traditional sources of financing have re-entered the hotel lending arena to get Continued on page 2 - -------------------------------------------------------------------------------- Table 1 Investment Criteria 1996 1995 1994 1992 1990 1988 1986 - -------------------------------------------------------------------------------- Overall Cap Rate 11.10% 11.04% 11.20% 11.90% 10.20% 11.10% 10.90% Discount Rate 14.10% 14.57% 14.70% 16.00% 15.00% 14.60% 13.80% Holding Period (Years) 6.70 6.27 7.10 8.40 9.60 8.80 9.30 Debt Coverage Ratio 1.40 1.38 1.40 1.60 1.30 1.30 1.30 Income Growth Rate 4.00% 3.89% 3.90% 3.80% 4.80% 4.40% 4.00% Expense Growth Rate 3.30% 3.44% 3.70% 3.60% 4.70% 4.30% 4.30% Interest Rate 9.10% 9.59% 9.90% 8.90% 11.50% 11.60% 10.10% Loan To Value Ratio 69.70% 69.12% 68.00% 67.40% 69.00% 73.60% 72.50% Source: PKF Consulting - -------------------------------------------------------------------------------- <PAGE> HOSPITALITY INVESTMENT SURVEY -- PKF CONSULTING - -------------------------------------------------------------------------------- Continued from front page a piece of the action. Sixty-eight percent of HIS respondents reported that their bank contributed in some part to the financing of their hotel deals in 1996, up from 58 percent in 1995 and 31 percent in 1994. Other sources, such as investment banks, SBA loans, mortgage funds, conduits, and private equity were identified as the second most prominent source of financing. This increase in the availability of financing sources has lessened the need for seller financing, which declined from 24 percent in 1995 to 16 percent in 1996. The financing criteria required by lenders also changed little from 1995 to 1996. Debt coverage ratio stayed constant at 1.4, while the loan-to-value ratio continues to range from 68 to 70 percent for all product types. Indicative of the increased competition among lenders to become involved in hotel transactions, the average interest rate for a hotel loan dropped slightly from 9.6 percent in 1995 to 9.1 percent in 1996. - ---------------------------------------- Table 2 PROFILE OF TRANSACTIONS SURVEYED Location Number Percent Northeast 227 14.7% Southeast 298 19.2% Midwest 298 19.2% Northwest 83 5.3% Southwest 253 16.3% West 272 17.6% Caribbean 12 0.8% Mexico 2 0.2% Other 104 6.7% - ---------------------------------------- Total 1,549 100.0% Type of Transaction Non-R.E.O. 83 5.4% R.E.O. 1,466 94.6% - ---------------------------------------- 1,549 100.0% Respondent Involvement Purchased 351 22.7% Sold 341 22.0% Put Under Contract 349 22.5% Financed 508 32.8% - ---------------------------------------- 1,549 100.0% Source: PKF Consulting - ---------------------------------------- ---------------------------------------- TRENDS VALUE 1996 Constant Dollars Indexed [Line graph omitted] Source: PKF Consulting ---------------------------------------- Show Me The Current Money Somewhat contrary to the expectations of future profit growth are the valuation techniques investors use to help determine the purchase price. As in our 1996 study, a direct capitalization of the property's net income is thought to be the best method to determine the value of a hotel. However, the technique of determining value by discounting the projected future cash flows of the property dropped from the second most preferred practice to the fourth. In addition, our study indicates that a direct capitalization of the existing year's cash flow has been used more often than capitalizing the cash flow projected for the following year. Existing year data is often thought to be a base from which to determine a minimum value for a property in the rising market. By preferring to capitalize existing year data, despite predictions of rising profits, today's buyer might just be responding to the fact that 1995 and 1996 were years of record profit performance in the hotel industry. In other words, 1995 and 1996 performance levels are more predictive of future stabilized performance than existing year performance levels were during the depths of the recession. Time To Analyze Your Investment Options In an effort to see how this favorable financial outlook impacts the investment community, we have analyzed valuation information from our various databases. Using data from PKF Consulting's Trends In The Hotel Industry and Hospitality Investment Survey, we have calculated a "Trends Value" for the typical hotel participating in our surveys. The Trends Value, calculated on a per available room basis, takes into account such factors as the prevailing operating profits, capital reserve requirements, and capitalization rates for each of the years under study. This calculation was made for full-service, limited-service, and resort hotels. It is important to note that this Trends Value does not reflect the actual sales prices for properties bought or sold in any given year. Driven by the expected growth in profits, it is projected that by 1997, the Trends Value (in 1996 constant dollars) of the "typical" hotel will have improved nearly 75 percent from the depths of the early 1990s recession. The value improvement of limited-service hotels occurred earlier in the recovery process, but is expected to taper off somewhat in the future, as market condi- 2 <PAGE> HOSPITALITY INVESTMENT SURVEY -- PKF CONSULTING - -------------------------------------------------------------------------------- tions temper the profit performance of this segment. On the other hand, full-service hotels took a little longer to recover their value, yet show the greatest potential for value improvement in the future. Resort hotels, driven by the combination of lower capitalization rates and relative lagging improvement in profitability, have shown the least resiliency in value recovery. Why Sell Now? With hotel profits on the rise, why would hotel owners consider selling their property at this time? Market experience and projections say that selling now would cut an owner short of enjoying up to four years (depending upon where the property is located) of rising profits and the corresponding rise in the value of the hotel. Obviously, the proper time to sell any individual hotel is dependent upon issues unique to that particular asset. Local market conditions, the physical condition of the property, and the financial motivations of the owner are just some of the factors which need to be analyzed before one can properly judge whether or not it is time to sell. However, when you look at the overall state of the current U.S. hotel industry, more than a few compelling reasons can be made for the consideration of selling your hotel now. The following paragraphs summarize some of the reasons why selling your hotel in 1997 might be a prudent move. - -------------------------------------------------------------------------------- COMPARATIVE ANALYSIS Value Per Room vs Replacement Cost [Bar graph omitted] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Table 3 CLASSIFICATON OF CONTRIBUTORS Contributor Number Percent Owner/Operator 55 39.0% Other (Broker/RE Advisor) 24 17.0% Management Company 22 15.6% Hotel Chain 15 10.6% Private Investor 13 9.2% Developer 6 4.3% Life Insurance 3 2.1% Pension Funds 2 1.4% Commercial Bank 1 0.7% - ----------------------------------------------------- Total 141 100.0% Who Provides Financing? Bank 42.9% Other Source** 22.3% Insurance Company 15.2% Seller 9.8% Pension Fund 6.7% Saving & Loan 3.1% Notes: * = Many respondents noted multiple sources. ** = Other sources included investment banks, SBA Loans, mortgage funds, conduits, and private equity. Source: PKF Consulting - -------------------------------------------------------------------------------- Deal From A Position Of Strength There are several conditions in place now that give the seller leverage over the buyer in the negotiation process. First of all, hotels are a desired asset. Given all the news of improved market and financial performance, hotels are one of the most sought-after forms of real estate for investors. This is most evident on Wall Street, where hospitality related REITs, investment funds, and C-Corporations all need to put their funds to use and are fighting each other to find investment opportunities. Given the recent fluctuations Wall Street, hotel owners should closely monitor the Dow Jones Index. Any large drops in the Dow could forewarn a lessening of hotel acquisition activity, thus indicating a need to sell your property. Leaving Some Crumbs Professionals realize that successful transactions are the result of balanced negotiations and a "meeting of the minds." While a hotel owner desires to maximize the price paid for his hotel, the buyer comes to the table looking for a price that leaves room for asset appreciation. As mentioned earlier, the hotel industry is expected to experience continued growth in profitability for the next few years. This leaves credible prospects for future return on investment for a potential hotel investor. If hotel owners wait until hotel profitability has peaked out, nothing will be left on the table for potential buyers. Continued on page 4 3 <PAGE> HOSPITALITY INVESTMENT SURVEY -- PKF CONSULTING Continued from page 3 More Builders Than Buyers Another effect of improving profitability within the hotel industry is that, eventually, it will cost just as much to buy a hotel as it will to build one. Again, comparing the average Trends Value of the typical hotel in our survey and the cost to construct a similar property, we find that the gap is narrowing. On average, the typical hotel in our study was valued at 47.7 percent of its replacement cost in 1991. This ratio is projected to grow to 91.3 percent by year-end 1997. With the value of the average hotel nearing its replacement costs, the time is approaching when hotel investors will find themselves better off building a new property than investing in an existing one. This narrowing of the gap between purchase price and replacement cost negatively impacts the potential hotel seller in two ways. First, it further shrinks the field of hotel purchasers, many of whom will transform themselves into developers. Secondly, the new hotels that will be built could have a negative impact on the future market performance of the existing hotel, thus lowering its attractiveness. Altering Your Investment Strategy Prudent investors enter a transaction having already developed a proper exit strategy. We believe now is a good time to start reviewing your disposition strategy. What were your goals when you purchased your hotel, and have they been met? Measured in stated-year dollars, Trends Values are double what they were in 1990, and almost 50 percent greater than 1994. These rates of return should meet the return requirements of most investors. Exiting hotel ownership does not necessarily mean that you can't continue to ride the anticipated rise in hotel performance. For example, many sellers will take the proceeds from the sale of their hotel properties and purchase shares of a REIT, a publicly-traded hotel company, or an Investment Fund. Such action makes the "ex" owner's real estate investment more liquid, while allowing him to benefit from any future rise in hotel profitability and values. - -------------------------------------------------------------------------------- Table 4 INVESTMENT CRITERIA Capitalization Rates Average High Low Full-Service 10.9% 15.0% 8.3% Limited-Service 11.7% 16.0% 9.0% Resort 10.4% 13.5% 5.0% - ------------------------------------------------------------ All Properties 11.1% Internal Rate of Return/ Discount Rate Full-Service 13.9% 18.0% 11.3% Limited-Service 14.7% 19.0% 12.4% Resort 13.4% 16.5% 10.0% - ------------------------------------------------------------ All Properties 14.1% Equity Yield Full-Service 18.4% 25.0% 11.5% Limited-Service 18.7% 30.0% 10.5% Resort 17.8% 25.0% 9.0% - ------------------------------------------------------------ All Properties 18.4% Cash on Cash Full-Service 14.4% 25.0% 8.0% Limited-Service 16.2% 25.0% 8.0% Resort 14.5% 25.0% 8.0% - ------------------------------------------------------------ All Properties 15.2% Holding Period (Years) Full-Service 7.1 30.0 3.0 Limited-Service 6.0 10.0 2.5 Resort 7.0 10.0 3.0 - ------------------------------------------------------------ All Properties 6.7 Room Revenue Multiplier Full-Service 2.5 3.5 2.0 Limited-Service 2.8 4.0 2.0 Resort 2.6 3.0 2.2 - ------------------------------------------------------------ All Properties 2.7 Total Revenue Multiplier Full-Service 2.1 2.5 1.7 Limited-Service 3.1 4.0 2.5 Resort 2.5 2.5 2.5 - ------------------------------------------------------------ All Properties 2.5 Marketing Period (Months) Full-Service 7.7 24.0 3.5 Limited-Service 6.4 12.0 3.0 Resort 7.7 12.0 5.0 - ------------------------------------------------------------ All Properties 7.2 Source: PKF Consulting - -------------------------------------------------------------------------------- How To Exit Gracefully For hotel sellers, the use of a professional transaction advisor who can properly represent your hotel is a must in today's marketplace. It is important to make sure your transaction advisor is both credible and qualified to make the case to a prospective buyer that an upside still exists for the hotel asset. Selling a hotel in today's hotel market environment demands more than pretty pictures and multiple listings. It requires an experienced and knowledgeable transaction advisor who can relate to the investment strategies of potential purchasers, while at the same time representing the best interests of the seller. Why Buy Now? If the current hospitality cycle appears to be reaching its peak, why should someone consider investing in the hotel industry at this time? The following paragraphs summarize some of the reasons why investing in a hotel might be a prudent move in 1997. Upscale Plus Urban Equals Opportunity Despite high occupancies and double-digit growth in room rates, the financial feasibility of constructing a new full-service hotel in an urban market is slim. Lack of available land, high labor costs, and hefty municipal charges often push the development budget beyond breakeven. Given these economics, plus the fact that a new full-service 4 <PAGE> HOSPITALITY INVESTMENT -- PKF CONSULTING - -------------------------------------------------------------------------------- Table 5 MORTGAGE TERMS Loan to Value Ratio Average High Low Full-Service 69.1% 92.5% 45.0% Limited-Service 71.0% 92.5% 55.0% Resort 68.7% 85.0% 55.0% - ----------------------------------------------------------- All Properties 69.8% Interest Rates Full-Service 9.0% 11.0% 3.3% Limited-Service 9.0% 11.0% 3.3% Resort 9.3% 11.3% 8.3% - ----------------------------------------------------------- All Properties 9.1% Amortization Period (Years) Full-Service 22.2 30.0 12.0 Limited-Service 21.6 30.0 10.0 Resort 22.0 30.0 15.0 - ----------------------------------------------------------- All Properties 21.9 Loan Term (Years) Full-Service 8.3 22.5 0.0 Limited-Service 8.3 22.5 3.0 Resort 7.6 15.0 5.0 - ----------------------------------------------------------- All Properties 8.2 Debt Coverage Ratio Full-Service 1.4 2.3 1.2 Limited-Service 1.4 1.7 1.2 Resort 1.4 2.0 1.2 - ----------------------------------------------------------- All Properties 1.4 Source: PKF Consulting - -------------------------------------------------------------------------------- urban project would take at least three years to open, it is pretty safe to assume that there will be few new competitors entering the upscale urban markets through the year 2000. If an investor can find an urban hotel for sale (or potentially an alternative-use building adaptable for conversion) he can be relatively assured of an extremely favorable market and profitable operating conditions for the next few years. Disciplined Lenders Aggressive and undisciplined Saving and Loans contributed to the overdevelopment that occurred in the 1980s. ln today's lending circles, it is difficult to find traditional institutions or lending sources that have not implemented strict lending criteria for all real estate loans. While the lending community has had its share of cyclical lapses in discipline, the current conservative bent appears to be fairly well entrenched, thus putting a cap on the availability of funds for new development. As it has been the case since 1990, the lack of available financing will limit the amount of new hotel construction activity, thus preserving the current mature period in the cycle and lessening the depth of the next recession. Few False Incentives Another factor contributing to the funding of hotel projects in the 1980s were tax laws that provided developers with artificial incentives to build. In general, tax benefits helped the financial feasibility of projects that were not market-justified. The result was a glut of hotels that improved the immediate cash flows of the investors, while not serving any market need. Today's tax code provides little relief or loopholes for investors looking for deductible losses and tax shelters. In other words, the direct financial feasibility of the project must provide the return on investment. This is one more factor adding to the prospect for future stability in the market. Some Bargains Still Exist While the overall purchase price for all hotels is projected to exceed 90 percent of replacement cost, some properties in select markets are still selling below 75 percent of replacement cost. These properties tend to be full-service, or may have a large amount of deferred maintenance or market obsolescence attached to them. Nonetheless, for the hotel investor who has the resources to turn a property around, a well located property currently in distress may be a candidate for refurbishment and may well enjoy favorable market conditions for the foreseeable future. ------------------------------------- Table 6 VALUATION TECHNIQUE PREFERENCE Technique Rank* Direct Capitilization 2.1 Other Cash on Cash 2.4 Discount Cash Flow Equity Yield 3.0 Percentage of Replacement 4.1 Multiple of Room Revenue 5.0 Multiple of Gross Revenue 5.7 Note:* 1 = Most Important 8 = Least Important Source: PKF Consulting ------------------------------------- Representation For some hotel companies, the need to have representation in specific markets or to gain critical mass when building a Continued on back page - -------------------------------------------------------------------------------- Table 7 CASH FLOW PROJECTIONS Growth Rates Annual Growth Rate Revenues 4.0% Expenses 3.3% Net Operating Income 7.3% Reserve for Replacement Method Average Percent of Gross Revenue 3.97% Percent of F.F. &E. 7.58% Source: PKF Consulting - -------------------------------------------------------------------------------- 5 <PAGE> HOSPITALITY INVESTMENT SURVEY -- PKF CONSULTING - -------------------------------------------------------------------------------- Continued from page 5 chain, forces them to purchase or construct properties even though the economics may not be favorable. This is especially true for international chains needing properties in gateway cities and for all-suite chains looktng to convert a limited amount of all-suite hotel inventory. Be Careful Out There, It's Diverse Overall, PKF Consulting shares the optimism shown by most hotel investors. However, we do recognize that each transaction needs to be evaluated on its own merits. Today's operating and investment markets vary greatly from product type to product type, and region to region. To give a blanket endorsement to all hotel investment opportunities is absurd. The decision to buy, sell, build, lend, or invest is complex. It is driven by objective criteria like market support, physical condition of the property, and land availability, as well as subjective criteria like relative risk, desired returns, and development/management objectives. A potential hotel investor shouldn't be drawn into the industry simply to ride an overall wave of enthusiasm. On the other hand, a prudent investor would be wise to continue to search the hotel landscape and take advantage of those great deals and opportunities that remain. - -------------------------------------------------------------------------------- Recent Publications Available from PKF Consulting 1996 Annual Trends in the Hotel Industry -- USA. 1997 Annual Trends in the Hotel Industry -- USA. (Available Autumn 1997.) Quarterly Trends in the Hotel Industry. Monthly Trends in the Hotel Industry. (Available for each of more than 50 U.S. cities and regions.) 1996 Annual Trends in the Hotel Industry -- Asia/Pacific Edition. Annual Hospitality Investment Survey. The Conference Center Industry: A Statistical and Financial Profile -- North America 1996. (1996 edition available now. 1997 edition available in July.) 1996 Biennial Bed-and-Breakfast/Country Inns Industry Study. (Available July 1997 through the Professional Association of Innkeepers International 805/569-1853.) Hotel Development Handbook. (Available through the Urban Land Institute 202/624-7000.) 1996 Human Resources Survey: Study of Diversity, Recruitment, and Reward Systems for Employees in the U.S. Hotel Industry. Annual Trends in the Hotel Industry -- Canadian Edition. (Contact 416/360-5000.) For Hotel Industry Trends information for Europe, the U.K., Africa, and the Middle East, contact Pannell Kerr Forster Associates in London at 0171-831-7393. For further information and prices, contact the PKF Consulting Research Department at (415) 421-5378. - -------------------------------------------------------------------------------- ================================================================================ WANT TO TAKE PART IN OUR NEXT INVESTMENT SURVEY? New participants in Hospitality Investment Survey are always welcome. If you are a hotel investor, lender, or otherwise involved in the transaction end of the industry, please contact us. We'll send you a survey form. All survey data is kept strictly confidential. Inquiries may be directed to any PKF Consulting office or to the editor. And all participants get their copy free of charge. ================================================================================ For PKF Consulting Real Estate Services in your region, please contact: New York Philadelphia Houston John A. Fox Lawrence E. Henry, MAI John A. Keeling (212) 867-8000 (215) 563-5300 Florida T. Booth, MAI (713) 621-5252 Los Angeles Atlanta Jeffry Lugosi, MAI Mark Woodwortli (213) 680-0900 (404) 842-1150 Boston San Francisco Thomas A. Ellsworth Thomas E. Callahan, CRE, MAI (508)768-7000 Kiyoshi Sekine Dan Lem Washington, DC Doris Tan Walter C. Williams (415) 421-5378 (703) 684-5589 - -------------------------------------------------------------------------------- Hospitality Investment Survey is compiled and produced by PKF Consulting. Readers are advised that PKF Consulting does not represent the data contained herein to be definitive. Neither should the contents of this publication be construed as a recommendation on policies or actions. Quotations or reproduction, in whole or in part, are permitted with credit to PKF Consulting. Please address inquiries to the Editor, Hospitality Investment Survey, 425 California Street, Suite 1650, San Francisco, CA 94104. Phone: (415) 421-5378. Price $75.00. ---------- PKF CONSULTING ---------- - -------------------------------------------------------------------------------- <PAGE> ADDENDUM G ENGAGEMENT LETTER FOR THE APPRAISAL <PAGE> [Letterhead of PKF Consulting] Sent via Federal Express September 26, 1997 Mr. Timothy S. Koltermann Assistant Vice President Merrill Lynch Mortgage Capital, Inc. World Financial Center North Tower New York, NY 10281-1326 Re: Hotel Appraisals Dear Mr. Koltermann: Pursuant to your request, we are pleased to submit this proposal to perform an appraisal of the market value of the fee simple estate in the following hotels: o Four Seasons Biltmore - Santa Barbara, California o Four Seasons Hotel Austin, Texas o Ritz-Carlton Hotel - St. Louis, Missouri SCOPE OF THE ASSIGNMENT As we understand it, you are evaluating the refinancing of the above referenced hotels. Accordingly, this appraisal will be used for loan underwriting and asset evaluation purposes. The scope of our work program will include an analysis of each property, the nature of the markets in which the properties operate, an analysis of the market position of the hotels, and an estimate of the market value of the fee simple estate in each facility. The property is to be appraised "as is"; however, we will alert you if we uncover areas in which we believe a change may be indicated in the operation of the facilities. Unless otherwise instructed, the date of our valuation will be the date on which we last inspect the property. <PAGE> Mr. Timothy S. Koltermann -2- September 26, 1997 ================================================================================ PKF CONSULTING As a point of background, we would like to provide you with a brief overview of our firm. PKF Consulting is a real estate consulting and appraisal firm with offices in nine major U.S. cities as well as Hong Kong. As a member of the Pannell Kerr Forster International Association, we have an additional 250 offices in 75 countries. The professional staff of PKF Consulting consists of approximately 100 consultants and appraisers, including designated Members of the Appraisal Institute (MAI), the American Society of Real Estate Counselors (CRE), and the International Society of Hospitality Consultants (ISHC). In addition, many of our professional staff are certified general real estate appraisers in the states in which we actively perform work. Since its inception, PKF Consulting has placed a special emphasis on serving the hospitality and real estate industries. This work includes market analyses and feasibility studies in virtually every major domestic market, providing the firm with an unsurpassed body of knowledge regarding past and present market performance. Since 1983, we have also provided market value appraisals for all types of commercial real estate, with a primary focus on hotels, motels, resorts, and golf courses. Additionally, we own a data base on U.S. hotel operating results that extends back to 1935. Presently, real estate appraisal services represent a significant portion of the professional services we perform. Our primary clients are financial institutions, the majority of which require that their appraisals comply with the requirements of FIRREA. PKF Consulting serves our United States and international clients from a base of offices in nine core cities: Boston, New York, Philadelphia, Washington, D.C., Atlanta, Los Angeles, Houston, Hong Kong, and San Francisco, our headquarters. In addition to our long standing expertise in the hotel industry, we would bring to you in this engagement substantial familiarity with the `North Coast" hotel market. Within the past twelve months, we have evaluated several hotels within Sonoma, Humbolt, and Mendocino Counties. In order to give you an understanding of the depth of our experience, attached for your review is a partial listing of hotels, resorts and other types of properties our offices has appraised during the past several years. We have also attached the qualifications of key individuals who will likely be involved in the appraisals. Given the historical role of PKF Consulting in the hospitality industry and our experience in the local market, we are of the opinion that there is no other firm that can provide the services available through us. <PAGE> Mr. Timothy S. Koltermann -3- September 26, 1997 ================================================================================ FORMAT OF THE APPRAISAL Our appraisal report for each property will be prepared in accordance with and subject to the Code of Ethics and Standards of Professional Practice of the Appraisal Institute, the Uniform Standards of Professional Appraisal Practice (USPAP) as established by the Appraisal Foundation, FIRREA regulations, and the current regulatory guidelines. Specifically, this reports will include discussions of the following: o Identification of the real property and property rights appraised o Purpose and use of the appraisal o Assumptions and limiting conditions of the appraisal o Area demographic and economic characteristics o Subject property's physical characteristics and operating history o Local real estate taxes and assessment procedures o Highest and best use of the property o Existing and future supply and demand estimates o Projected market performance of the hotel o Estimated annual operating results for the hotel o Cost Approach, if applicable o Sales Comparison Approach o Income Capitalization Approach o Reconciliation and final estimate of value o Certification of value To insure that the report meets our quality standards, the report will be reviewed by a Senior Vice President in the firm and our staff MAI. Either the Senior Vice President or the MAI, or both, will inspect the subject and all of the comparable facilities and the hotel sales used in the report. PROFESSIONAL FEES Based on our understanding of the scope of this engagement, our professional fee for all three appraisals will be $36,000, plus out-of-pocket expenses, not to exceed $4,500. Services beyond those described in the scope of the appraisal, such as changes in the requirements of the client, are provided at our hourly billing rates, as described below. <PAGE> Mr. Timothy S. Koltermann -4- September 26, 1997 ================================================================================ ======================================================= Hourly Staff Level Billing Rates ------------------------------------------------------- Senior and Executive Vice Presidents $250 - $300 Vice President 175 - 225 Associate 125 - 175 Consultant 85 - 125 ======================================================= As is typical in assignments of this nature, we require a retainer of 50 percent of the fees, or $18,000, in order to start the engagement. The remainder of our professional fees plus expenses will be billed to you at the completion of the engagement. This invoice is due and payable upon receipt. ANTICIPATED DELIVERY DATE We understand you will require the values to be communicated by October 13th, the appraisals completed by October 20th, and we are prepared to meet this time table. We will attempt to have the reports completed by October 17th. Five original copies of each of the final reports will be provided. LIMITATIONS OF THE APPRAISAL The report is subject to the attached Statement Assumptions and Limiting Conditions. REQUIRED DOCUMENTS AND INFORMATION In order to proceed with this assignment, the following documents and information are required for each hotel. 1. Architectural, engineering, grading and landscaping plans as pertain to the facility. 2. Site plan and/or plat showing building and amenity locations. 3. Floor area breakdown (square foot allocation) of various components of the improvements. 4. Name of appropriate on-site contacts (general manager, controller, chief engineer). 5. Complete budget for current year with budget notes and details. 6. Copy of real estate tax bill for previous two years and current year tax bill. <PAGE> Mr. Timothy S. Koltermann -5- September 26, 1997 ================================================================================ 7. Historical operating statements for the past three years, including year-to-date 1997 -- operating results. 8. Insurance premium costs. Provide coverage amount/limits and insurance premiums for current operating year. 9. Loan abstracts (details) of existing mortgages, and/or secondary financing. If new financing is to be secured, please provide details. 10. Copies of the ground lease, with all amendments, and any other leases (i.e., gift shop, parking garage, equipment, etc.) affecting property operations. 11. Copies of any licensing (franchise) and management agreements. 12. Copy of existing title policy. 13. Copies of any previous appraisal report(s) and market studies. 14. Information on any pending or past (within three years) transactions associated with the property, as well as details on the pending sale of the property. 15. Current marketing plans. <PAGE> Mr. Timothy S. Koltermann -6- September 26, 1997 ================================================================================ APPROVAL AND ACCEPTANCE If this letter correctly states the nature of the work to be undertaken and the arrangements are satisfactory, please sign the enclosed copy of this letter and return it to us, together with our requested retainer, as our authorization to commence the assignment. We appreciate the opportunity to submit this proposal and we look forward to working with you on this very interesting assignment. Sincerely, PKF Consulting /s/ A. Corey Limbach ---------------------------- A. Corey Limbach Vice President APPROVED AND ACCEPTED: By: /s/ [ILLEGIBLE] ---------------------- Title: Director Date: 9/29/97 APPRAISAL OF THE FOUR SEASONS HOTEL 98 SAN JACINTO BOULEVARD AUSTIN, TEXAS PREPARED FOR: MERRILL LYNCH MORTGAGE CAPITAL, INC. WORLD FINANCIAL CENTER NORTH TOWER NEW YORK, NEW YORK EFFECTIVE DATE OF VALUATION: OCTOBER 1, 1997 DATE OF REPORT: OCTOBER 17, 1997 [LOGO] <PAGE> [LETTERHEAD OF PKF CONSULTING] October 17, 1997 Mr. Timothy S. Koltermann Assistant Vice President Merrill Lynch Mortgage Capital, Inc. World Financial Center, North Tower New York, New York 10281-1326 Re: Appraisal of the Four Seasons Hotel, Austin, Travis County, Texas Dear Mr. Koltermann: At your request, we have completed an appraisal of the referenced property. The purpose of this appraisal report is to estimate the "As Is" market value of the going concern of the subject as defined in the Engagement letter dated September 26, 1997. The report will be used for loan underwriting and asset evaluation purposes. The legal interest appraised is fee simple subject to management agreements and equipment leases. The date as of which the value estimate shall apply is October 1, 1997 (As Is), the current date of our market research. A complete description of the site and improvements, together with the sources of information and the bases of our estimates, is stated in the accompanying sections of this report. This appraisal report conforms to the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute, the Uniform Standards of Professional Appraisal Practice (USPAP) established by the Appraisal Foundation, Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), the Office of the Controller of the Currency as delineated by ruling 12 U.S.C. 93a, and the requirements of Merrill Lynch Mortgage Capital, Inc. The Departure Provision of the USPAP has not been applied. The report is subject to the Certification and Statement of Assumptions and Limiting Conditions presented in the Addenda. Based upon the work undertaken and our experience as real estate analysts and appraisers, we are of the opinion that the market value of the fee simple estate for the subject property in its "As Is" condition, as of October 1, 1997, subject to the attached Assumptions and Limiting Conditions is: Four Seasons Hotel - Austin, Texas SIXTY MILLION TWO HUNDRED THOUSAND DOLLARS $60,200,000 Of this value, $5,600,000 is allocated to the value of the furniture, fixtures and equipment of the hotel. <PAGE> Mr. Timothy S. Koltermann October 17, 1997 Page 2 The accompanying prospective financial analyses are based on estimates and assumptions developed in connection with the appraisal. However, some assumptions inevitably will not materialize, and unanticipated events and circumstances may occur; therefore, actual results achieved during the period covered by our prospective financial analyses will vary from our estimates. This value includes the contribution of real property and furniture, fixtures and equipment; and is inclusive of the going-concern and business value as defined herein. Further, we have not been engaged to evaluate the effectiveness of management, and we are not responsible for future marketing efforts and other management actions upon which actual results will depend. The estimates provided herein are based upon competent management. This report, the final estimates of value and the prospective financial analysis are intended solely for your information and assistance for the function stated previously, and should not be relied upon for any other purpose. Neither our report nor any of its contents nor any reference to the appraisers or our firm, may be included or quoted in any document, offering circular or registration statement, prospectus, sales brochure, other appraisal, loan or other agreement without PKF Consulting's prior written approval of the form and context in which it will appear. Respectfully submitted, PKF Consulting /s/ John M. Keeling /s/ Florida T. Booth John M. Keeling Florida T. Booth, MAI Senior Vice President Vice President State Certified TX - 1325611-G General Real Estate Appraiser <PAGE> TABLE OF CONTENTS Page ---- I - INTRODUCTION Summary of Important Facts and Conclusions Property Identification......................................................I-1 Purpose and Function of the Appraisal........................................I-1 Legal Interest Appraised.....................................................I-1 Effective Date of Valuation..................................................I-1 Definition of Value..........................................................I-1 History of the Subject Property..............................................I-2 Scope of the Appraisal.......................................................I-3 Competency Provision of USPAP................................................I-4 Significant Issues...........................................................I-5 II - MARKET ANALYSIS Area Overview...............................................................II-1 Neighborhood Review.........................................................II-9 Site Description............................................................II-9 Description of Improvements................................................II-10 Taxes AND Assessments......................................................II-11 Hotel Market Analysis - Supply.............................................II-12 Hotel Market Analysis - Demand.............................................II-17 Historic Market Performance................................................II-17 Future Demand..............................................................II-21 Projected Future Market Performance of the Subject.........................II-22 Market Analysis Summary....................................................II-26 III - HIGHEST AND BEST USE Highest and Best Use.......................................................III-1 Highest and Best Use as if Vacant..........................................III-1 Highest and Best Use "As Improved".........................................III-2 IV - VALUATION Valuation Methodology.......................................................IV-1 Income Approach.............................................................IV-3 Income and Expense Projections..............................................IV-8 Overall Capitalization Rate Analysis.......................................IV-20 Discounted Cash Flow Analysis..............................................IV-28 Sales Comparison Approach..................................................IV-34 Reconciliation and Final Estimate of Value.................................IV-52 Marketing Period...........................................................IV-54 <PAGE> TABLE OF CONTENTS (CONTINUED) ADDENDA A. STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS B. CERTIFICATION OF APPRAISER C. SUBJECT PROPERTY SITE PLAN, LEGAL DESCRIPTION AND PHOTOGRAPHS D. PHOTOGRAPHS OF COMPETITIVE SUPPLY AND COMPARABLE SALES E. MERRILL LYNCH MORTGAGE CAPITAL, INC. ENGAGEMENT LETTER F. QUALIFICATIONS OF APPRAISERS <PAGE> SECTION I INTRODUCTION [LOGO] <PAGE> ================================================================================ SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS ================================================================================ Subject Property Four Seasons Hotel 98 San Jacinto Boulevard Austin, Travis County, Texas - -------------------------------------------------------------------------------- Owner Maritz, Wolff & Company - -------------------------------------------------------------------------------- Effective Date of Value October 1, 1997 - -------------------------------------------------------------------------------- Property Rights Appraised Fee Simple Interest, subject to management agreement and equipment leases - -------------------------------------------------------------------------------- Highest and Best Use - -------------------------------------------------------------------------------- Highest and Best Use As if Vacant Hotel As Improved Hotel - -------------------------------------------------------------------------------- Proposed Property Description - -------------------------------------------------------------------------------- Year Opened 1986 Number of Rooms 291 Parking Spaces 350 Number of Floors 9 Amenities Restaurants, lounge, health club, sauna, meeting space, gift shop, retail space, outdoor pool, laundry/valet services, cable TV, coffee makers, hair dryers and ironing boards in rooms - -------------------------------------------------------------------------------- Site Area (Gross) 3.922 acres, or 170,842 square feet Zoning CBD (Central Business District), DMU (Downtown Mixed Use) & P (Public - Austin Greenbelt) Flood Zone Zone "AE", Community Panel #48453C0165E, revised 6/16/93 - -------------------------------------------------------------------------------- Valuation Conclusion - -------------------------------------------------------------------------------- Cost Approach Not applicable - -------------------------------------------------------------------------------- Sales Comparison Approach $ 61,600,000 - -------------------------------------------------------------------------------- Income Capitalization Approach Stabilized Occupancy 77% Average Daily Room Rate $170.00 (stabilized, uninflated dollars) Operating Income After Reserve $5,392,000 (stabilized, uninflated dollars) Ro 9.0% Indicated Value Discounted Cash Flow $ 60,200,000 Direct Capitalization $ 60,000,000 - -------------------------------------------------------------------------------- Final Estimate of Value (As Is) $ 60,200,000 - -------------------------------------------------------------------------------- Marketing Period 6 to 12 months ================================================================================ <PAGE> INTRODUCTION I-1 - -------------------------------------------------------------------------------- PROPERTY IDENTIFICATION The subject property consists of an approximately 247,000-square foot, nine-story hotel. The improvements were originally constructed in 1986 with 292 keys. In 1996, three rooms were converted into suites with parlors. Management shows 291 rooms to sell on their operating statements. The site parcel containing the improvements is legally described as follows: Tract 1: Lot 2, "SAN JACINTO CENTER," a subdivision in Travis County, Texas, according to the map or plan thereof, recorded in book 89, Page 21, Plat Records, Travis County, Texas. Tract II: All Easements Estates benefitting Tract I and the Owner of Tract I as created in that certain Unified Development Declaration for SAN JACINTO CENTER TOWN LAKE dated March 29, 1990, recorded in Volume 11157, Page 19, Real Property Records, Travis County, Texas, recorded September 26, 1991, in Volume 11530, Page 463, Real Property Records, Travis County, Texas. A copy of the legal which was provided to us by the hotel, is included in the Addenda. We have not verified its accuracy, and assume no liability thereof. In addition, the hotel purchased Lot 4 from within the above tract, and currently utilizes it for parking. PURPOSE AND FUNCTION OF THE APPRAISAL The purpose of this appraisal report is to estimate the "As Is" market value of the subject as of the date specified. The report will be used as support in determining the value of the underlying collateral for refinancing purposes. The legal interest appraised is fee simple subject to existing management agreements and equipment leases. The date as of which the value estimate shall apply is October 1, 1997 (As Is), the current date of our market research. The purpose of this appraisal assignment is to estimate the market value of the fee simple interest in the subject property as of the date specified. The function of this report is to be used in connection with asset valuation purposes. LEGAL INTEREST APPRAISED The legal interest appraised is the fee simple subject to management agreements and equipment leases. The title is assumed to be clear and marketable. Fee Simple Estate: Absolute ownership unencumbered by any interest or estate, subject only to the limitation imposed by the governmental powers of taxation, eminent domain, police power and escheat.(1) EFFECTIVE DATE OF VALUATION The subject site was physically inspected on October 1, 1997 by Florida T. Booth, MAI. The appraisal is based upon market conditions observed as of October 1, 1997, the current date of our market research. - ---------- (1) The Dictionary of Real Estate Appraisal, Third Edition, Appraisal Institute, 1993, p.140. <PAGE> INTRODUCTION I-2 - -------------------------------------------------------------------------------- DEFINITION OF VALUE For the purpose of this report, market value is defined as follows: 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 U.S. 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.(2) Market value "as is" means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date the appraisal is prepared.(3) "Going-Concern Value" is the value created by a proven property operation; considered as a separate entity to be valued with a specific business establishment.(4) HISTORY OF THE SUBJECT PROPERTY The subject opened in 1986. It was built at an estimated cost of $62 million. In December 1994, the current owners, Maritz, Wolff & Co., purchased the hotel through their FRC Properties Partnership fund from Four Seasons Hotels Ltd., who continued to manage the property. The purchase price was $31 million. - ---------- (2) United States Treasury Department, Comptroller of the Currency 12 CFR part 34, & 34.42(f) (3) Appraisal Policies and Practices of Insured Institutions and Services Corporation Federal Home Loan Bank Board, "Final Rule, 2 CFR Parts 563 and 571, December 31, 1987. (4) Appraisal Institute, op.cit., p. 160. <PAGE> INTRODUCTION I-3 - -------------------------------------------------------------------------------- SCOPE OF THE APPRAISAL In general, the procedures used to estimate the value of the property included: o Analysis of specific market data relating to the appraised property, comparable properties sold or leased, and relevant characteristics of the local market. o Analysis of the property's highest and best use. o Consideration of the property's value by the Income Capitalization Approach. This approach analyzes the property's capacity to generate income (or other monetary benefit) and converts this capacity into an indication of market value. The approach is suitable for properties that have obvious earning power and investment appeal, but inappropriate for properties that have no readily discernible income potential. o Consideration of the Sales Comparison Approach. This compares the subject property to other properties that have changed hands fairly recently, at known price levels. This approach is most meaningful when there is adequate market data involving comparable properties. Typically, actual transactions fix the lower limit of value in an advancing market and the higher limit of value in a declining market, while current listings fix the higher limit in any market. The reliability of this technique is dependent upon (a) the availability of comparable sales data, (b) the verification of the sales data, (c) the degree of comparability or extent of the adjustments necessary for differences between the subject and the comparable sales, and (d) the absence of non-typical conditions affecting the sale price. o Consideration of the Cost Approach, whereby the land value is added to the depreciated replacement cost of the building and other improvements. The Cost Approach is based on the premise that an informed purchaser would pay no more than the cost of producing a substitute property with the same utility as the subject property. It is particularly applicable when the property being appraised involves relatively new improvements which represent the highest and best use of the land or when relatively unique or specialized improvements are located on the site and for which no comparable properties exist in the market area. Due to the age of the subject improvements and high degree of subjectivity in determining adjustments for replacement cost estimates, a Cost Approach was not considered applicable. o The Income and Sales Comparison Approaches to value were considered applicable to the subject property. The Cost Approach was not. o Reconciliation of the indications of value into a final estimate of value. <PAGE> INTRODUCTION I-4 - -------------------------------------------------------------------------------- The principal sources of information used in performing our valuation included: o The property owner(s) or their representatives. o Local real estate professionals and investors. o Public officials in the planning, zoning, and assessor's offices. o Published industry data. This report should be read in its entirety for a complete understanding of the scope of the appraisal and the limiting conditions which apply to this valuation and report. Specific attention should be drawn to the Letter of Transmittal, Certification of Appraisers, Statement of Assumptions and Limiting Conditions and Significant Issues. COMPETENCY PROVISION OF USPAP The Competency Provision of the Uniform Standards of Professional Appraisal Practice (USPAP), promulgated by the Appraisal Foundation and required as part of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), states that: Prior to entering an agreement to perform any assignment, an appraiser must properly identify the property to be appraised and have the knowledge and experience that will be required to complete the assignment competently or alternatively: 1. Disclose the lack of knowledge and/or experience to the client before accepting the assignment; 2. Take all appropriate steps necessary to complete the assignment competently; and, 3. Describe the lack of knowledge and/or experience and the steps taken to complete the assignment competently in the report. PKF Consulting is a member of Pannell Kerr Forster International, an international firm which has been providing accounting, consulting, and appraisal services within the hospitality industry in the United States for over 80 years. In addition, the firm publishes extensive research material and provides aggregate statistics on hotel performance, serving as a benchmark for the industry. Florida T. Booth, MAI has extensive experience in the appraisal of hotel facilities, as seen in her professional qualifications provided in the Addenda of this report. <PAGE> INTRODUCTION I-5 - -------------------------------------------------------------------------------- SIGNIFICANT ISSUES The subject Four Seasons Hotel is a Four Star, Four Diamond level of quality hotel located in the downtown area of Austin, overlooking Town Lake. While the city owns the land between the building and the lake, the hotel maintains and landscapes it as well as the hike and bike trail. Located within San Jacinto Center, a mixed-use development containing the hotel, retail, parking and office uses, the property has a secluded feel. It is furnished with "Texana" furniture and ambiance. This includes cowhide chairs, western memorabilia and artifacts from Texas' fight for independence from Mexico. It enjoys the highest average rate of any of the hotels in the city of Austin, and is a popular meeting place for locals and "deal makers". Austin is the State Capital of Texas, as well as home to the University of Texas. While government dominates the local economy, Austin has benefitted from an influx of computer firms relocating to the area due to their perceived pristine environment, high quality of life and, most importantly, a highly educated workforce. The area has been described as the Silicon Valley of the Southwest, and the influx of companies continues. While the high technology industries were originally mostly fairly volatile manufacturing and semi-conductor companies, the industries are now more diversified. MCC and Semi-Tech are currently driving a lot of the growth. Most of the industries are locating in the northern parts of the city. The Texas legislature meets on odd numbered years, which significantly impacts area occupancies. While the subject Four Seasons has experienced less pronounced spikes in its historic occupancies than the market as a whole, it is definitely impacted. Because of this, as well as new hotel rooms proposed for the downtown area with the renovation of the historic Stephen F. Austin hotel, we have estimated the property will stabilize at 77% occupancy in year four of our projections. In addition, our estimates of cash flows reflect fiscal year periods, from October through September. Finally, a Cost Approach to value was not considered applicable to the subject improvements. In addition to the problems associated with estimating replacement costs for an 11-year-old property, the subjectivity in measuring depreciation and obsolescence makes it the least reliable indicator. In addition, it is the least relied upon by buyers of hotels. <PAGE> SECTION II MARKET ANALYSIS [LOGO] <PAGE> MARKET ANALYSIS II-1 - -------------------------------------------------------------------------------- AREA OVERVIEW The City of Austin is the capital of the State of Texas and the county seat of Travis County. It is located on the Colorado River, in the central part of the state. In addition to its governmental role, Austin is a center for commercial, manufacturing and educational interests, and is a well-known location for state and national conventions. The Highland Lakes, a chain of artificial lakes along the Colorado River, are in and around the city. Austin is the home of the University of Texas at Austin (created in 1883), Austin Presbyterian Theological Seminary, Huston-Tillotson College, Concordia Lutheran College and St. Edward's University. Economic development in Austin began in earnest after the civil war (1861-1865). The city benefitted from its location on the Chisholm trail, a major cattle-driving route, by the coming of the railroad in 1871, and in the 20th century, from the construction of power and irrigation projects on the Colorado River. Many firms engaged in developing and manufacturing high-technology items were established in the metropolitan area starting in the 1970's. Austin's economy is expected to continue to grow, although at a slower pace than in the past few years. Job growth is expected to expand by 3% in 1997 and by 2.6% in 1998, according to the Greater Austin Chamber of Commerce. The city will slightly outperform both the U.S. and state economies, both of which are also expected to slow this year. Job growth will expand by 1.6% in the U.S. and 2.4% in Texas this year. Austin's excellent quality of life and low business costs put the city in an excellent position for long-term growth. The outlook is positive for primary employers, although deceleration in the computer chip industry will continue to be felt. Aggregate computer prices will firm later this year, but increasing international competition will limit their rise. A continued dependence on personal computer manufacturers could present problems in the case of a continued industry slump. Software development offers excellent potential growth for Austin and is expected to become an increasingly important technology sector. The completion of Samsung Austin Semiconductor at the end of this year will spur additional growth among suppliers and industrial customers. Population The Austin MSA includes Travis, Hays, Williamson, Bastrop and Caldwell Counties. Bastrop and Caldwell were added on January 1, 1993. Population figures for Travis County and the Austin MSA are detailed in the following chart. <PAGE> MARKET ANALYSIS II-2 - -------------------------------------------------------------------------------- =================================================================== POPULATION TRENDS TRAVIS COUNTY AND AUSTIN MSA (1) ------------------------------------------------------------------- Year Travis County Austin MSA ------------------------------------------------------------------- 4/1/80 419,573 585,046 ------------------------------------------------------------------- 4/1/90 576,407 846,227 ------------------------------------------------------------------- C.A.C.,* 1980-1990 3.2% 3.8% ------------------------------------------------------------------- 7/1/92 611,884 899,919 ------------------------------------------------------------------- 7/1/93 630,631 932,135 ------------------------------------------------------------------- 7/1/94 646,437 963,973 ------------------------------------------------------------------- 7/1/95 664,802 999,936 ------------------------------------------------------------------- 7/1/96 684,800 1,030,640 ------------------------------------------------------------------- CAC*, 1992-1996 2.9% 3.4% ------------------------------------------------------------------- (1) The Austin MSA added Bastrop and Caldwell Counties as of Jan 1, 1993. * compound annual change Source: U.S. Census Bureau, Greater Austin Chamber of Commerce =================================================================== Annual population gains have been close to 3.5% for the past few years, but the growth rate for the remainder of the decade is expected to be closer to 2%, according to representatives of the City of Austin. The slower rate of growth mirrors the slowdown in job creation. The broad-based economic expansion that began in 1991 peaked in 1996 and now shows signs of a gradual slowing. Unlike the "boom-bust" cycle of the 1980's, however, this slowdown shows signs of simply being part of a natural economic cycle. Employment Although the Austin-area economy decelerated in 1996, the region is expected to realize robust long-term growth because of its low costs, solid high-tech research and manufacturing base, excellent quality of life, and employment stability from state government and the University of Texas. Disappointing growth at some of the area's largest employers, primarily those heavily dependent on computer memory prices, has fueled the slowdown. However, slower growth has not relieved the extremely tight labor market, and the unemployment rate remains at only 3%. Low unemployment and rising wages are keeping out relatively low-skill, low-pay jobs, enhancing the importance of high-tech industries and limiting job diversity. The Greater Austin Chamber of Commerce and Regional Financial Associates forecast annual average employment growth to be 3% for 1997 and 2.6% in 1998. The following chart illustrates Austin MSA employment trends for the last five years. <PAGE> MARKET ANALYSIS II-3 - -------------------------------------------------------------------------------- ============================================================== AUSTIN MSA EMPLOYMENT TRENDS -------------------------------------------------------------- Average Average Percent Year Labor Force Employment Unemployed -------------------------------------------------------------- 1992 520,000 496,300 4.6% 1993 547,600 525,900 4.0% 1994 573,400 552,500 3.6% 1995 612,040 594,275 2.9% 1996 634,131 615,117 3.0% CAC 5.1% 5.5% --- -------------------------------------------------------------- Source: Texas Workforce Commission ============================================================== The following table illustrates the distribution of employment in the Austin MSA. ================================================================================ DISTRIBUTION OF NON-AGRICULTURAL EMPLOYMENT ANNUAL AVERAGE - -------------------------------------------------------------------------------- Major Industry 1992 1996 CAC - -------------------------------------------------------------------------------- Mining 1,100 1,100 0.0% Contract Construction 14,700 27,600 17.1% Manufacturing 55,000 73,000 7.3% Transportation/Communications/ 14,000 17,600 5.9% Public Utilities Wholesale/Retail Trade 86,800 115,100 7.3% Finance/Insurance/Real Estate 24,200 28,800 4.4% Service 111,600 150,100 7.7% Government 116,900 125,000 1.7% TOTAL 424,300 538,300 6.1% - -------------------------------------------------------------------------------- Source: Texas Employment Commission ================================================================================ Contract Construction As illustrated, the largest employment growth sector is Contract Construction, with a compound annual growth rate of 17.1% between 1992 and 1996. Construction employment is directly related to growth in population and employment. Residential development is showing signs of softening. Single-family construction permits were up 43% in 1996, but prices rose only 2.7%. Multifamily construction permits rose by 23% in 1996, and the city's vacancy rate rose from 4% to 7% as a result <PAGE> MARKET ANALYSIS II-4 - -------------------------------------------------------------------------------- of new apartment units entering the market. Conversely, office and industrial vacancy rates remain low, and new construction is needed to fill existing demand. Industrial space is especially tight, with 99% occupancy in the favored north sector. Approximately 1.2 million square feet of new industrial space is slated to be completed in 1997. Continued retail growth is also needed to meet existing demand by qualified retailers. Meanwhile, the construction of Austin's new airport at Bergstrom Air Force Base (to the south of the city) continues, and is scheduled for completion in Fall, 1998. Government Government is the second largest employment sector in Austin, directly employing approximately 23% of the work force. State and federal government jobs are considered primary jobs since the money to fund them is generated mainly from outside the city, but spent locally, generating new wealth to the area economy. Therefore, government jobs have a "ripple" effect throughout the local economy, in addition to the stabilizing effect and the cushion they provide during economic downturns. Further population increases in Texas and Austin mean higher levels of staffing needs at school districts, police departments and other social service organizations. Hence, these are the areas in which most new government jobs will occur in the future. Retail and Wholesale Trade The past few years have been strong for Austin's Retail and Wholesale sector, and the city's strong growth in personal income will fuel further retail sales growth. Regional Financial Associates estimates that Austin's 7.7% personal income growth in 1996 outpaced the estimated 6.3% rate for Texas. This growth in income tends to stimulate rapid expansion of retail trade. Because of the anticipated slowdown in employment growth however, Austin's personal income growth will decelerate in 1997 and, at 6.2%, will grow on par with the state's rate. Wholesale trade employment, while only a small portion of total employment, is expected to grow at 8.1% per year, well above the national rate of 2.4%. The increasing importance of trade is revealed by the development of the Austin-Bergstrom International Airport, which will be approximately twice the size of the existing Robert Mueller Municipal Airport. In addition to increased passenger capacity, the new airport will have expanded cargo facilities. Manufacturing Global forces affecting Austin's computer-related manufacturers, especially those producing semiconductors and memory chips, have caused the area's economic slowdown. A glut of memory chips worldwide has depressed prices and dropped profit margins. Weak memory chip prices have been blamed in part for disappointing earnings at such local firms as Motorola and Advanced Micro Devices. As a result, both firms have announced cutbacks and are slowing their Austin expansion plans. Austin's computer industry has reached a critical mass where existing companies attract both suppliers and industrial consumers to the area. Samsung Electronic's decision to locate its first U.S. manufacturing facility in Austin illustrates the economic benefits of industry concentration. <PAGE> MARKET ANALYSIS II-5 - -------------------------------------------------------------------------------- Future Employment Opportunities Although the number of new employers moving into Austin has slowed, growth continues. The charts below summarize the top employers. ================================================================================ NEW CORPORATE ANNOUNCEMENTS AUSTIN MSA -1996 THROUGH MID-YEAR 1997 Partial List - By No. of Jobs Created - -------------------------------------------------------------------------------- Company Type Operation Potential New Jobs - -------------------------------------------------------------------------------- AIM Management Mutual Fund call center 250 Netspeed Telecommunications hardware and 250 software First International Computer Corp. Computer manufacturing 220 Chatsworth Products, Inc. Computer equipment organization 150 manufacturing SAP America Software technical support 150 CompuCom Computer services, sales and 120 training R. Frazier, U.S. Inc. Computer equipment recycler 100 Progressive System Technologies, Hardware, clean room supplier to 92 Inc. semiconductor and flat panel display Digital Anvil Computer game software 66 Keane, Inc. Computer/information services 60 consulting BioCraft Biotech manufacturing 60 - -------------------------------------------------------------------------------- Source: Greater Austin Chamber of Commerce ================================================================================ <PAGE> MARKET ANALYSIS II-6 - -------------------------------------------------------------------------------- ================================================================================ LOCAL EXPANSIONS, AUSTIN MSA 1996 THROUGH MID-YEAR 1997 Partial List - By No. of Potential New Jobs - -------------------------------------------------------------------------------- Company Type Operation Potential new Jobs - -------------------------------------------------------------------------------- Dell Computer Personal computer systems 2,000 Siemens Business Communications Wireless telephone headsets 600 Systems Balfour/Art Carved School ring design & manufacturing 400 Solectron Custom circuit boards 200 Tokyo Electron Semiconductor manufacturing 200 IXC Communications Digital networking 100 SMT Centre, Inc. Electronic assembly 100 Tellabs Telecommunications 100 DuPont Photomasks Photomask research and manufacturing 100 - -------------------------------------------------------------------------------- Source: Greater Austin Chamber of Commerce ================================================================================ Transportation Highway Austin's highway system is comprised of four major arterials. Interstate 35 (I-35) runs north-south, from the State of Kansas through Oklahoma and Texas, travelling through the cities of Dallas, Waco, Austin, San Antonio and finally Laredo. This highway is used heavily by truckers carrying cargo from Mexico into the United States. Loop 1, or the MoPac Expressway, runs north-south on the west side of Austin. US Highway 183 (US 183) runs northeast-southwest through Austin from Interstate 10 (I-10), continuing through the state. US 290 runs east-west through the state. Currently, there are approximately $600 million in highway projects underway. The most significant projects are the upgrades of US 290 and US 183 to freeways. Construction is expected to be completed in 1998. Studies are underway for additional projects, including a highway that would run parallel to I-35, from Seguin to Georgetown, that would offer an alternative for truckers wishing to bypass major metropolitan areas. Air Air traffic is currently being handled through Robert F. Mueller Airport. The former Bergstrom Air Force base is currently under construction and will be the site of Austin's new airport, Austin-Bergstrom International. The new airport will open for cargo operations this year and to passengers in late 1998. Currently, Robert F. Mueller Airport is being served by nine major air carriers - - American, America West, Continental, Delta, Northwest, Southwest, TransWorld, United and USAir. Conquest Airlines <PAGE> MARKET ANALYSIS II-7 - -------------------------------------------------------------------------------- provides commuter service to several Texas locations, and charter airlines provide periodic service to Elko, Nevada and Gulfport, Mississippi. The current airport has exceeded capacity in many areas of the passenger terminal as well as the cargo area. Because the area surrounding the airport is developed with residential areas providing housing to over 29,000 people, expansion of the existing facility was deemed impossible. The following table indicates airline passenger enplanements and deplanements, as well air cargo information. =================================================================== CITY OF AUSTIN AIR TRAFFIC INFORMATION =================================================================== 1992 1996 CAC ------------------------------------------------------------------- Total Passengers 4,369,752 5,691,657 6.8% ------------------------------------------------------------------- Air Cargo Lbs. (Freight) 96,057,587 183,819,087 17.6% =================================================================== Source: Greater Austin Chamber of Commerce =================================================================== As can be seen, air traffic is growing both in terms of total passengers and air cargo volume. Air cargo has grown very quickly, due in large part to two factors: business fueled by NAFTA and the growth of Austin's high tech industry. Office Market Although the residential market is showing signs of weakness, Austin's commercial market remains solid and is projected to remain strong through the end of 1997. The city's office vacancy rate peaked in 1988 at more than 40% and has declined ever since. Despite the large amount of new construction, the vacancy rate has continued to decline and now stands at about 9.4% for the metropolitan area. While downtown remains overbuilt, all areas are experiencing considerable tightening. The suburban Austin vacancy rate dropped to 6.2%, causing prices to rise above $20 per square foot in many areas. Office space is in the most demand in the northwest and southwest. Low suburban vacancy rates have boosted build-to-suit activity. Novell, Dell Computer, State Farm Insurance, and Lockheed each recently moved into new spaces. Office construction should continue to experience robust growth as service companies move in to support the strong manufacturing base. The Austin office market posted a 92% occupancy rate in 1996, the highest rate in 16 years. Demand was fueled by the solid growth of high-tech industries. Many high-growth companies committed to extra space in order to accommodate projected growth, fearful that availability of future expansion opportunities may be limited and costly. Downtown office occupancy ended 1996 with an 86% occupancy rate, again a 16-year high. University of Texas System The University of Texas system is a state-controlled institution comprised of nine general academic <PAGE> MARKET ANALYSIS II-8 - -------------------------------------------------------------------------------- institutions located in Arlington, Austin, Brownsville, Dallas, Edinburg, El Paso, Odessa, San Antonio, and Tyler and six health-related institutions located in Dallas, Galveston, San Antonio, Tyler, and Houston (2). The university was established in 1876; its first classes were held in Austin in 1883. More than two million acres of land from the public domain in western Texas formed the basis of the university endowment, which is shared with the Texas A&M University System. With the largest enrollment in the University of Texas system, the Austin campus (UT Austin) includes colleges of business administration, communication, education, engineering, fine arts, liberal arts, natural sciences, and pharmacy; and schools of architecture, law, library and information science, nursing, public affairs, and social work. The Lyndon B. Johnson Presidential Library and Museum is located on the campus. The University's economic impact on Austin is significant. It is a major site of high-tech research and provides an ample supply of software developers and hardware engineers to the Austin job market. UT - Austin also supports the IC2 Institute, a major international research center for the study of innovation, creativity and capital (hence the "IC2"), which in turn supports many high-tech ventures. UT's Austin Technology Incubator provides entrepreneurial education to its tenants and area businesses, and sometimes joins forces with the IC2 Institute on major projects. Its contribution to the lodging sector of the Austin economy is also significant. There are nine home football games as well as special events such as Homecoming and Parents Weekend that create sell-outs on weekends for area hotels. In addition, visiting professors and researchers utilize area hotels, sometimes requiring long-term stays, and many colleges and departments of the University host meetings, lectures and symposiums that generate room nights. Conventions and Tourism Austin's Convention and Visitor Bureau has been active in soliciting corporate, state association and national association business. The Austin Convention Center, located in the central business district, has over 400,000 square feet of flexible enclosed space. Features include 126,000 square feet of column-free exhibit space, a 24,000-square foot ballroom, 29 meeting rooms that accommodate from 10 to 500, and fiber optic and satellite downlink capabilities. Austin hosts six to eight citywide conventions per year. Since its opening in July 1992, the Convention Center has hosted over 1.5 million people, 800 events and 164 major conventions. Some conventions have outgrown the facility however, and a push is currently underway for public approval to expand the center by at least 250,000 square feet. In terms of tourism, the Texas Department of Economic Development estimates that 7.1 million people visited Austin and stayed overnight in 1996. An additional 9.6 million people made day trips to Austin. The majority of the visitors were Texans. The city is famous as a country and blues music center (Austin was known as the "third coast" in entertainment at one time), for its natural hill country beauty and mild weather, and for its status as state capital. Favorite attractions include: <PAGE> MARKET ANALYSIS II-9 - -------------------------------------------------------------------------------- - The Capitol Building and State Capital complex; - Barton Springs and Zilker Park; - The "Drag" along Guadalupe Street that gives visitors a feeling for university life; - University of Texas and the LBJ library; - Mount Bonnell, the highest point in the city limits; and - Sixth Street, which is similar to New Orleans Bourbon Street with its collection of restaurants and entertainment clubs NEIGHBORHOOD REVIEW The hotel is located in downtown Austin, across Cesar Chavez Boulevard from the new Austin Convention Center and within a short walk of all major downtown office and government buildings and tourist attractions. It is also approximately three blocks from the Congress Street Bridge, which houses the largest concentration of bats in North America. The nightly exodus of the bats to consume billions of mosquitos is a popular tourist attraction. It views of Town Lake and location on the hike and bike trail, makes the subject hotel a gathering point for many locals as well as hotel guests. The San Jacinto Center is a mixed-use development containing the subject hotel, 380,000 square feet of Class A office space, 40,000 square feet of specialty retail shops and restaurants, and common underground parking for 779 cars. A parcel of land adjacent to the north and east of the subject hotel improvements was originally planned as the site of an office building that would be a mirror image of the Class A building located to the north and west of the hotel. The owners of the Four Seasons have since purchased the land, and are holding it for future development. It is currently utilized for above ground parking. Future plans could include additional hotel rooms, condominium and/or retail uses. SITE DESCRIPTION The Four Seasons Austin is located at 98 San Jacinto Boulevard. The subject hotel is situated at the southernmost point of San Jacinto Boulevard, on the banks of the Colorado River (Town Lake). The nearest cross-street is Cesar Chavez Boulevard, located directly north of the subject hotel. The property being appraised consists of 3.922 acres, or 170,842 square feet of land. The tract originally improved with the hotel contains approximately three acres and is rectangular in shape. It has frontage along the Austin Greenbelt, which is part of Town Lake and the Colorado River. The parking lot parcel (0.922 acres) is adjacent to the north and east. The site is at grade level, slightly sloping toward the lake on the south side. The subject hotel is well-located with respect to attracting convention group, individual commercial, and tourist demand, given its location and proximity to local businesses, views of Town Lake, the Convention Center and area attractions. It is within walking distance of most demand generators and area amenities. Restaurants and retail are easily available nearby. <PAGE> MARKET ANALYSIS II-10 - -------------------------------------------------------------------------------- Access to the site is considered to be very good. Access is available via Cesar Chavez Boulevard, the southernmost street of the Austin CBD, and via San Jacinto Boulevard, a major downtown artery running north-south. The site is three blocks west of Interstate 35, which allows easy access from all points in the city. The subject site is visible from across Town Lake and from an approximate two block radius. Because it is located at the southernmost part of the CBD, visibility is obscured due to the number of high-rise buildings, and it is not easily visible from Interstate 35. However, the subject hotel's market orientation is such that visibility is not a key factor; rather the hotel is designed to be secluded and protected to some degree from heavy traffic, in order to allow some privacy and shelter to its guests. The site is located within the City of Austin. Therefore, all public services including water, sanitary sewer, police, and fire protection are available. Zoning The subject hotel site has three zone designations. The north part of the site is zoned CBD, or Central Business district, a general designation that allows for most types of commercial uses including office, retail, multifamily, and hotel. The central part of the site is zoned DMU, or Downtown Mixed Use. The south part of the site is zoned P, or Public, because this part of the site includes the Austin Greenbelt along Town Lake. The improvements are in compliance with current zoning restrictions. Further, we are unaware of any deed restrictions which would limit the development potential of the subject site. DESCRIPTION OF IMPROVEMENTS As previously discussed, the subject is the 291-room, nine-story, Four Seasons Hotel. Gross building area is approximately 247,000 square feet. It was originally developed in 1986 with 292 keyed rooms. One room was converted into a suite in 1996, effectively dropping the number of keys to 291. The property underwent $391,332 in renovations in 1996, and $278,533 year-to-date through August 31, 1997. According to their budgeted capital report, approximately $1,340,172 is planned for 1997. According to the general manager, projects completed included corridors and walk treatments, public carpets, public space, and an upgrade of the patio furniture, as well as new bath vinyl and curtains in the sleeping rooms. The hotel has 18,021 square feet of meeting and banquet space, including two ballrooms and 10 meeting rooms. It also has one 180-seat restaurant overlooking Town Lake (120 seats indoors, 60 seats outdoors), a lobby bar which also serves lunch buffets and seats 70, a health club with men's and women's locker rooms and sauna, and an outdoor pool. Of the 291 rooms, 27 are suites, which include a separate parlor for meetings or gatherings. Guest rooms are furnished with three telephones and a dataport, a smoke detector, sprinkler, and a snack bar. According to information provided to us, the hotel is constructed on a continuous concrete footing and reinforced concrete foundation walls with reinforced concrete grade beams supported on spiral reinforced concrete piers. Framing is reinforced concrete and steel. <PAGE> MARKET ANALYSIS II-11 - -------------------------------------------------------------------------------- The exterior of the hotel has a painted plaster finish over concrete columns of metal lathe. Exterior windows are insulated bronze glass. Special architectural treatments included curved window wall projections at the south elevation, wrought iron railings and canvas awnings at the north and south elevations. Framing consists of steel beams and columns with some reinforced concrete columns in load-bearing areas. The main roof structure has a reinforced concrete slab supported by structural steel beams concrete columns, with a built-up composition and gravel roof cover. Interior finishes in the public areas of the hotel are typical of the superior quality required by Four Seasons Hotels. These finishes typically feature oak or mahogany paneling; granite, marble and carpeted floor; painted plaster or wall covering; and ceilings of acoustical plaster, with wood accents in the lobby and first floor areas. The main lobby, bar and foyer areas have concrete floors, sandstone with tile and painted gypsum board walls and ceilings. Each guest room is independently heated and cooled by a thermostat controlled, three speed air handler. Guest rooms and public areas are heated and cooled by an efficient HVAC system which allows heating and cooling year round. Chilled water is supplied by a 325 ton chiller. TAXES AND ASSESSMENTS The assessed value for the subject hotel is based upon 100% of appraised value for the land and the improvements, as determined by the Travis County Assessor's Office. The 1998 estimation of assessed value for the property is as follows: ===================================================================== Taxes and Assessments --------------------------------------------------------------------- Property Estimated Est. Tax rate Total Value per $100 Assessment --------------------------------------------------------------------- Lot 2 San Jacinto Center $31,482,000 2.56 $805,939 (Four Seasons Hotel) Lot 4 San Jacinto Center $2,444,055 2.56 $62,568 (parking lot parcel) -------------- ---------- Total $33,926,055 $868,507 Assessment per room $2,985 --------------------------------------------------------------------- Source: Four Seasons Hotel, Travis County Appraisal District ===================================================================== According to tax bills provided by the property, total taxes paid in 1996 were $734,615. An additional Downtown Public Improvement District assessment increased their property tax liability to $786,800. According to these records, the property is not delinquent on any real estate taxes. The property is disputing its 1997 tax assessment, which increased 11% over 1996 levels, and has filed an appeal with the City of Austin. <PAGE> MARKET ANALYSIS II-12 - -------------------------------------------------------------------------------- By comparison, several other properties, also located in Austin were assessed as follows: ========================================================================= 1996 Tax Assessments ------------------------------------------------------------------------- Property Rooms Assessment/ Total Assessment Room Omni Austin Hotel 305 $1,754 $534,970 Sheraton Hotel 255 1,422 362,610 DoubleTree Hotel 351 1,340 470,340 Red Lion Hotel 301 1,239 372,939 Hilton Hotel 333 582 193,806 Average(1) 306 $1,520 $465,120 ------------------------------------------------------------------------- Subject Four Seasons(2) 291 $2,785 $810,435 ------------------------------------------------------------------------- (1) averages are calculated on reported numbers only (2) parking lot not included in 1996 totals Source: Travis County Central Appraisal District ========================================================================= As noted in the chart, the subject is assessed significantly higher taxes than those paid by other Austin hotels. According to the Appraisal District, they assess taxes based on an Income Approach to value. If they do not have actual occupancies and rates from the hotels, they can estimate values utilizing the published Hotel Occupancy Tax records. Since the subject is achieving the highest average rate in the city, it is not surprising that it is being assessed at the highest value per guest room. In addition, the subject pays a downtown assessment fee of 1% of value, which equated to $28,111 in 1996. The taxing district has been very aggressive in levying taxes in recent years. While the property is attempting to challenge its assessment, according to the budget prepared by the property, they anticipate a tax liability of $945,000 for 1998. We have assumed this to be a reasonable assumption, based on the unwillingness of the District to provide tax relief. HOTEL MARKET ANALYSIS - SUPPLY The Austin metropolitan area contains approximately 151 hotels and motels of varying quality, with approximately 17,870 available rooms. At year-end 1996, the market had an occupancy of 73.5% with an ADR of $73.50 (rounded). The area experienced explosive growth in the number of available hotel rooms between 1994 and 1996, the majority of which were in the limited service sector. Because of this, occupancies have been negatively affected as the market continues to absorb the new supply. Capacity constraints still exist during peak periods, however, and this has put upward pressure on average daily rates. In the central business district (CBD), the location of the subject, there was little or no growth in the hotel rooms supply, in part because downtown occupancies did not justify new development. The CBD market is expected to continue to strengthen, especially if the proposed expansion to the convention center is approved. The Stephen F. Austin hotel, an Austin landmark which has been closed for several years, is expected to be renovated and re-open within the <PAGE> MARKET ANALYSIS II-13 - -------------------------------------------------------------------------------- next two years. The chart that follows summarizes the historical performance of Austin's hotel market by sector. A second chart summarizes the market's performance year-to-date as of August, 1997. <TABLE> <CAPTION> ====================================================================================== AVERAGE DAILY RATES AND OCCUPANCIES BY SECTOR AUSTIN, TEXAS - --------------------------------------------------------------------------------------- Year-End Occupancy Average Daily Rate RevPAR* ---------------------------------------------------------------------- 1995 1996 Diff. 1995 1996 % change 1995 1996 % change - --------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Austin 77.2% 73.5% (3.7) $69.22 $73.63 6.4% $53.43 $54.11 1.3% CBD 75.4% 70.8% (4.6) $85.70 $92.40 7.8% $64.63 $65.46 1.3% North/Airport 77.0% 73.0% (4.0) $60.05 $63.31 5.4% $46.23 $46.22 0.0% Northwest 83.9% 81.7% (2.2) $87.13 $90.06 3.4% $73.12 $73.59 0.6% South 76.1% 73.0% (3.1) $59.34 $61.42 3.5% $45.19 $44.84 (0.8)% - --------------------------------------------------------------------------------------- * RevPAR is calculated by multiplying average rate with occupancy Source: PKF Consulting - Trends in the Hotel Industry ======================================================================================= </TABLE> <TABLE> <CAPTION> ======================================================================================= AUGUST YEAR-TO-DATE PERFORMANCE AUSTIN, TEXAS - --------------------------------------------------------------------------------------- Occupancy Average Daily Rate RevPAR* ---------------------------------------------------------------------- 1996 1997 Diff. 1996 1997 % change 1996 1997 % change - --------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Austin 76.3% 76.6% 0.3 $73.49 $77.31 5.2% $56.07 $59.19 5.6% CBD 72.5% 75.2% 2.7 $92.14 $98.00 6.4% $66.83 $73.73 10.3% North/Airport 76.4% 75.7% (0.7) $63.66 $64.94 2.0% $48.62 $49.17 1.1% Northwest 84.4% 80.6% (3.8) $90.79 $90.95 0.2% $76.63 $73.31 (4.3)% South 76.1% 77.4% 1.3 $61.65 $64.77 5.1% $46.93 $50.14 6.8% - --------------------------------------------------------------------------------------- * RevPAR is calculated by multiplying average rate with occupancy Source: PKF Consulting - Trends in the Hotel Industry August 1997 ======================================================================================= </TABLE> The Austin hotel market experiences greater demand in odd years, when the State Legislature is in session. This explains the drop in market occupancy in 1996, and the subsequent recovery being experienced year-to-date in 1997. Average daily rate growth is strongest in the CBD market, at 6.4% year-to-date. More impressive however, is the 10.3% growth in RevPAR that the CBD market is currently enjoying. <PAGE> MARKET ANALYSIS II-14 - -------------------------------------------------------------------------------- Competitive Market Analysis Based on our evaluation and analysis of the competitive market and in consideration of the quality level of the subject hotel, we have identified five properties with 1,719 rooms (including the subject hotel) that compete for area lodging demand. These hotels are considered competitive due to their market orientation, location, nature and quality of facilities offered, rate structure, and chain affiliation (or reputation in the market). As is typical in engagements of this nature, we analyzed historic growth in supply and demand for the last five years, 1992 to 1996. A summary of the properties considered competitive is shown on the following page, while their locations are identified on a following map. More detail on the primary competitive properties follows the chart. <PAGE> COMPETITION MAP [GRAPHIC OMITTED] <PAGE> MARKET ANALYSIS II-15 - -------------------------------------------------------------------------------- Summary of Competitive Lodging Facilities Austin, Texas <TABLE> <CAPTION> --------------------------------------------------------------------------------- 1997 Rack Rates Estimated 1996* 1996 % of Demand Sources --------------------------------------------------------------------------------------- Competitive Properties # Rooms Singles Doubles Corp./Dis. Occupancy ADR I.B.T. Grp./Conv Tour/Leisure - --------------------------------------------------------------------------------------------------------------------- <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1 Four Seasons Austin 291 $190-$240 $215-$265 negotiated 76.5% $158.16 33.0% 34.0% 33.0% 98 San Jacinto Blvd 2 Marriott at the Capitol 365 $149.00 $149.00 $149.00 75-79 105-109 40.0% 30.0% 30.0% 701 E. 11th Street 3 Hyatt Regency 446 $155.00 $180.00 $130.00 75-79 95-99 32.0% 40.0% 28.0% 208 Barton Springs 4 Omni Austin Center 304 $169.00 $184.00 negotiated 75-79 100-104 40.0% 50.0% 10.0% 700 San Jacinto Blvd 5 Omni Southpark 313 $129.00 $129.00 $119.00 65-69 75-79 70.0% 20.0% 10.0% 4410 Governors Row ===================================================================================================================== Total/Average 1,719 74.0% $107.0 42.0% 35.0% 23.0% </TABLE> ------------------------------------------ Year Total Seats Square Footage ------------------------------------ Competitive Properties 0pened Rest. Lounge Ballroom Total Mtg. - ---------------------------------------------------------------------- 1 Four Seasons Austin 1986 160 70 7,029 18,021 98 San Jacinto Blvd 2 Marriott at the Capitol 1986 150-160 125 9,600 14,750 701 E. 11th Street 3 Hyatt Regency 1982 240 100 10,290 24,000 208 Barton Springs 4 Omni Austin Center 1986 130 45 3,500 22,000 700 San Jacinto Blvd 5 Omni Southpark 1985 175 40 7,500 14,000 4410 Governors Row ====================================================================== * Reported in ranges, in order to protect the confidentiality of the sample. Source: PKF Consulting <PAGE> MARKET ANALYSIS II-16 - -------------------------------------------------------------------------------- 1. FOUR SEASONS AUSTIN The subject hotel opened in 1986 as a Four Seasons. The hotel is currently undergoing renovations to its public space and guest rooms, and upon completion it will have a more residential ambience. The Four Seasons is on a 3.922-acre parcel of land which overlooks a lake and hike and bike trails. Many rooms have park/lake views. It is capturing the highest rates in the city, and has an average daily rate at least $50 higher than its nearest competitor. This is also its main disadvantage, as it has to compete for corporate accounts with properties offering much lower rate levels. A 100-room addition to the rooms inventory has been under consideration for some time. They would be added on the parcel purchased by the property which is currently utilized as parking. 2. MARRIOTT AT THE CAPITOL The Marriott opened in 1986 with 365 rooms. It is located across the street from the State Capitol building, and therefore benefits the most from business generated by the legislative sessions. This is the favored hotel for state association meetings. Management lists the property's one major drawback to be an insufficient amount of meeting space, which has led to lost opportunities in the group segment. Facilities include an indoor/outdoor swimming pool, sauna and health club. The Cafe Veranda, the property's only restaurant, has been reduced in size over the years. It currently has 150 to 160 seats, and may be reduced again in the future. 3. HYATT REGENCY AUSTIN The Hyatt, which opened in 1982, is the oldest property in the delineated competitive supply. It also is the largest hotel in the competitive set, with 446 rooms. The majority of this hotel's demand is generated by the group segment, but management at this property also feels that additional meeting space would benefit business. The property is currently undergoing approximately $2 million in renovations, including the suites, a new phone system and an update of the wall finishes in the meeting rooms. Turnaway business is usually sent to the Radisson. 4. OMNI AUSTIN CENTER This 304-room hotel opened in 1986, as part of an office development. It considers its location, as the closest hotel to 6th Street, to be a major advantage. The property's inventory may increase next year, with the possible acquisition of 61 existing condominium units which are adjacent to the hotel. Additional meeting space and additional sleeping rooms are on the wish list for this property as well. The hotel was completely renovated in 1994, and is planning on replacing its soft goods next year. 5. OMNI SOUTHPARK The Omni Southpark opened in 1985 as a Wyndham Hotel. Omni acquired the management contract for this hotel in September, 1996. It is located on I-35, south of the CBD, and hopes to benefit from the future relocation of the airport to the south side of the city. This property is obtaining the lowest average daily rates of the competitive set, and captures a higher percentage of individual business travelers than the other properties, which are more group-oriented. Plans currently are being considered to convert the lounge to meeting space. Because it shares its affiliation and reservation system with the downtown Omni, this property has suffered in its performance. <PAGE> MARKET ANALYSIS II-17 - -------------------------------------------------------------------------------- In addition to the competitive supply, we have considered additions to supply which may have an impact on the subject. In terms of new supply, the criteria to determine the probability of construction are: the stage of financial arrangements, the current status of affiliation or management agreements, and/or the length of time the project has been rumored. Our fieldwork uncovered one new addition to the hotel supply in the Austin CBD: the re-opening of the former Stephen F. Austin Hotel. Conversations with city officials, as well as Highgate Hotels, indicate it is expected to have 181 rooms. In addition, it is expected to be chain affiliated and possibly have a luxury orientation. Although renovation has been delayed due to problems with asbestos removal, we consider that the property will be renovated and have included it in our analysis of future market conditions. Other than the Stephen F. Austin, we have not included the potential effects of additional competitive rooms in the market in our quantitative analysis. Should any comparable lodging facility with a similar market orientation or price/value relationship enter the competitive lodging market, the estimated future utilization of the subject hotel could be adversely affected. HOTEL MARKET ANALYSIS - DEMAND The market for hotel accommodations is sub-divided into three major categories which take into account the many types of travelers that visit the local hotel market. Market segmentation is useful because each sub-market exhibits unique characteristics relating to factors such as growth potential, seasonality of demand, average length of stay, price sensitivity, facility requirements and so forth. By identifying the individual characteristics and quantifying the room night demand separately for each sub-market, a more accurate projection can be made for the total market. Demand for hotel rooms in Austin is generated from the following market segments. o Commercial or Individual Business Travelers (IBT) o Groups and Conventions o Tourist and Leisure Travelers State government provides a significant amount of demand, because of the University of Texas and the State Capital. However, this business is comprised of individual business travelers and groups, and is included in those segments, rather than segregated, in order not to dilute the market mix and distort the market's profile. HISTORIC MARKET PERFORMANCE An analysis of the competitive market includes identifying and analyzing historic growth trends, as well as estimating growth rates of lodging supply and demand. The existing hotel demand in each of the major market segments is quantified by multiplying the total annual number of rooms occupied by the market mix for each property. Factors responsible for historic and estimated future growth rates are then assessed to estimate growth rates for each market segment. These growth rates are applied to the current demand base to estimate future lodging demand for the competitive hotels. <PAGE> MARKET ANALYSIS II-18 - -------------------------------------------------------------------------------- A lodging market's demand is perceived as being generated by several major segments, each of which makes use of lodging accommodations for different reasons. In the following table, the change in the estimated demand for the competitive supply is compared from 1992 to 1996. ================================================================================ COMPETITIVE MARKET HOTEL DEMAND AUSTIN, TEXAS 1992 to 1996 - -------------------------------------------------------------------------------- Room Nights ------------------------------------------------------------ Available Room Nights Commercial/IBT Group/Convention Tourist/Transient Total - -------------------------------------------------------------------------------- 1992 627,800 193,100 166,700 103,300 463,100 1993 627,800 207,700 185,800 114,400 507,900 1994 627,800 195,600 171,700 108,000 475,300 1995 627,800 206,600 172,500 112,500 491,600 1996 627,435 193,300 164,300 107,600 465,200 CAC* 0.0% 0.0% -0.3% 1.0% 0.1% - -------------------------------------------------------------------------------- *Compound Annual Change ================================================================================ As the previous chart illustrates, there was very little growth in the market during the period studied. The Commercial/IBT segment and the group/convention segment remained essentially flat. The only growth evidenced was in the tourist/transient market, which grew at 1.0% compounded annually. This can be explained in part by capacity constraints currently being experienced by area hotels on Tuesday and Wednesday nights as well as on Saturday nights. In the course of our interviews, many area hoteliers expressed a desire for additional rooms in their properties to accommodate demand on these nights. The other phenomenon that has had a significant impact on area occupancies over the last two years is the explosive growth of hotel room inventory in the Austin area, especially in the limited service segment. Although these hotels are not considered to compete directly with the defined competitive set, they are new, and offer a good price/value relationship and often are successful at capturing overflow business that otherwise may have stayed in the competitive market. Based on the occupancies and average daily rates (ADR's) of the individual properties in the competitive supply, the market has performed at the following rates: <PAGE> MARKET ANALYSIS II-19 - -------------------------------------------------------------------------------- ========================================================== MARKET CONDITIONS 1992 TO 1996 ---------------------------------------------------------- Year Occupancy ADR ---------------------------------------------------------- 1992 74% $79.17 1993 81% $82.94 1994 76% $91.20 1995 78% $100.15 1996 74% $107.09 ---------------------------------------------------------- Note: Occupancies rounded to the nearest whole percent. ========================================================== The State Legislature is in session in odd years, and this has a pronounced, positive effect on area hotel occupancies, especially in the CBD, as evidenced by the historical occupancy rates of the competitive set. In 1996, the market was absorbing the large amount of new supply that had entered the Austin area, but hotels still had capacity constraint issues, which placed upward pressure on rates. Average daily rate has grown aggressively over the period studied, at 7.9% per year compounded annually. The following table illustrates the market mix of demand for the total competitive supply in 1996. ======================================================================= COMPETITIVE MARKET MIX IN 1996 Segment Room Nights Percent (rounded) ---------------------------------------------------------------------- Individual Business Traveler (IBT) 193,300 41.6% Group/Convention 164,300 35.3% Tourist/Transient 107,600 23.1% ------------------------------------ Total 465,200 100.0% ======================================================================= The following paragraphs summarize characteristics of the market demand base. Commercial This segment generally includes company personnel visiting Austin on regular trips, consultants, salesmen and buyers representing other companies, professionals being actively recruited or relocated, and government personnel. The single commercial market is segregated into three subgroups: managers, engineers and technicians, and sales representatives and buyers. Managers consist of mid and upper-level management personnel who constitute a more affluent subgroup and represent the greatest market opportunity for full service or luxury hotels. Managers meet with and entertain clients or associates <PAGE> MARKET ANALYSIS II-20 - -------------------------------------------------------------------------------- in their hotel and are sensitive to the quality of facilities and services provided. They are looking for those accommodations which are comfortable and close to their business destination. Managers tend to be less price sensitive, travel on expense accounts, and constitute a potential source of valuable recurring patronage. Engineers and technicians constitute a market subgroup characterized by a somewhat greater price sensitivity. However, because of the nature of their travel, this subgroup tends to have a longer length of stay in area hotels and are historically more responsible for the area's level of single commercial occupancy. These travelers utilize their hotels as a second home, thereby requiring good working conditions in their rooms and extensive food and beverage facilities. Sales representatives and buyers constitute the third market subgroup. This subgroup is characterized by greater price sensitivity and a shorter duration of stay in the area. Most are traveling on more restrictive expense budgets and utilize auto transportation. However, these travelers are a lucrative market source for food and beverage operations since they frequently entertain their customers in their hotel. Commercial demand in the market is relatively steady throughout the year. Normal slack periods are experienced during holidays. As is typical of most hotel markets, commercial demand occurs primarily on a Monday through Thursday basis. Groups and Conventions Group/convention demand includes tour groups, corporate meetings and conventions. Convention activity is concentrated in downtown Austin at the Convention Center. Convention delegate counts increased significantly in 1992 with the opening of the Convention Center. The convention segment is characterized by the need for large meeting, banquet and exhibit space, access to recreation, entertainment and shopping facilities, and efficient registration and check-out procedures. Growth within this segment is impacted by the availability of hotels with extensive meeting space. Corporate meetings include sales meetings, seminars, training sessions, regular business meetings and executive conferences. Peak periods of group demand usually occur Monday through Thursday during the fall, winter and spring months; however, fluctuations between weekdays and weekends are less pronounced than for the commercial market as some groups prefer to meet on the weekends. This segment requires first-class accommodations, proximity to transportation facilities, quality meeting space and banquet facilities, and a hotel staff adequately trained to deliver efficient meeting coordination. Growth in this market parallels the growth in commercial demand and is closely related to the activity in the local economy. Tourist/Transient Typically, tourists are families and couples visiting Austin for a weekend or extended weekend, visiting students or during special events such as a University of Texas football game. This demand is greatest during the summer months and lowest during the winter holiday season. <PAGE> MARKET ANALYSIS II-21 - -------------------------------------------------------------------------------- As a tourist destination, Austin has great appeal within the Texas market. It has a reputation as the "third coast" music and entertainment center, it is the gateway to the Texas hill country, is the home of the University of Texas and its Sixth Street entertainment district is well known around the state. This is the only segment that experienced an increase over the period studied, at 1.0% compounded annually. FUTURE DEMAND As illustrated in the table, the combined competitive market experienced little overall demand growth from 1992 to 1996. When estimating future demand growth, it is important to understand the historic operating strength of the market and the local and national economic trends. Assuming the Austin economy will not undergo unexpected or drastic changes, and based on the aforementioned data, historic performance and hotels' projected future occupancies, we estimated the growth rate of each demand segment for the next 10 years as follows: ======================================================================= ESTIMATED DEMAND GROWTH RATE - COMPETITIVE MARKET ----------------------------------------------------------------------- Year I.B.T. Group/Convention Tourist/Leisure ----------------------------------------------------------------------- 1997 6.0% 1.0% 4.0% 1998 (3.0)% 0.0% 0.0% 1999 8.0% 4.0% 5.0% 2000 -4.0% 1.0% -4.0% 2001 7.0% 2.0% 4.0% 2002 -6.0% 0.0% 1.0% ======================================================================= Demand growth in the Austin market runs basically on a positive-negative cycle due to the significant demand growth that occurs in odd years during legislative sessions. This is reflected in our growth rates in the previous chart. The I.B.T. segment experienced the greatest impact of these cycles. It is interesting to note that the Tourist/Leisure segment also experiences the odd-year impact, due to lobbyists that stay through the weekend for leisure activities, and Texas tourists interested in seeing the State Capital in action. The growth rates also take into account the availability of new rooms in the market, due to the renovation/reopening of the Stephen F. Austin Hotel. Reconciliation of Future Supply and Demand Reconciling the assumptions in market demand growth and impact of prospective supply discussed in the previous sections of this report, the resulting estimated market demand and occupancy are illustrated in the following table. <PAGE> MARKET ANALYSIS II-22 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> ============================================================================================== ESTIMATED FUTURE MARKET SUPPLY AND DEMAND AUSTIN, TEXAS - ---------------------------------------------------------------------------------------------- Occupied Room Nights (1) Available Room Estimated Nights Market Year --------------------------------------------------------------------- Occupancy I.B.T. Group/ Leisure/ Total % Total % (2) Convention Tourist Change Change - ---------------------------------------------------------------------------------------------- <C> <C> <C> <C> <C> <C> <C> <C> <C> 1997 204,900 165,900 111,900 482,700 3.8% 627,435 --- 77% 1998 198,800 165,900 111,900 476,600 -1.3% 671,780 7.1% 71% 1999 214,700 172,500 117,500 504,700 5.9% 693,500 3.2% 73% 2000 206,100 174,300 112,800 493,200 -2.3% 693,500 0.0% 71% 2001 220,500 177,800 117,300 515,600 4.5% 693,500 0.0% 74% 2002 207,300 177,800 118,500 503,600 -2.3% 693,500 0.0% 73% 2003(3) 221,800 181,300 123,300 526,400 4.5% 693,500 0.0% 76% - ---------------------------------------------------------------------------------------------- (1) Rounded to the nearest hundreds. (2) Rounded to the nearest whole percent. (3) Stabilized market occupancy level. ============================================================================================== </TABLE> National historical hotel market dynamics suggest that when market occupancy levels reach the mid to upper 70's, and when market average rate growth is evidenced, additional hotel development is likely to occur thus inhibiting market occupancy level to increase beyond a certain point. In addition, timing demand relative to hotel guest room capacity will also pressure market occupancy from exceeding certain levels. We also recognize the changing patterns of occupancy caused by the effect that the state legislature has on the market in odd years. PROJECTED FUTURE MARKET PERFORMANCE OF THE SUBJECT Over the past five years, the subject has achieved an occupancy levels from 74.6% to 79.4%, with an average of approximately 76%. The property is at approximately 80.6% (trailing 12-months through August 1997) and anticipates ending 1997 at 81%. As previously discussed, occupancy levels for the market fluctuate from year to year because of the pronounced effect the state legislature has on occupancies during odd years, when it is in session. However, occupancies for the subject tend to fluctuate less than market occupancies, and as time passes, theses fluctuations are anticipated to become less pronounced. The reopening of the Stephen F. Austin Hotel is expected to have an effect on market occupancy in 1999, as the market absorbs these additional rooms into its inventory, and the Stephen F. Austin's luxury orientation will make it competitive with the subject hotel. However, the subject is well established, and has a good reputation in the Austin market, and we expect that it will be less affected by these external factors than the market will as a whole. Instead, we feel that the addition of a <PAGE> MARKET ANALYSIS II-23 - -------------------------------------------------------------------------------- luxury property in the downtown area will enable the subject to increase its average rate due to the addition of a critical mass of higher quality hotel rooms in the downtown area. Based on this, we have estimated occupancy levels for the subject. They are as follows: ============================================ ESTIMATED OCCUPANCY RATES -------------------------------------------- Fiscal Years: Occupancy -------------------------------------------- 1997/1998 80.0% 1998/1999 78.0% 1999/2000 75.0% 2000/2001* 77.0% Note: fiscal years assumed through September of each year. *stabilized occupancy level. ============================================ We anticipate that the subject will achieve a stabilized occupancy of 77% in its fourth (fiscal) year of our projection period. Average Daily Rate The market average daily rate (ADR) for the primary competitive supply ended 1996 at $107, which represents a 7.9% compound annual increase since 1992. The subject's average rate was $145.92 in 1996, and $166.05 for the previous 12-month period through August 1997. Average daily rates for the subject are summarized in the table that follows. ---------------------------------------- FOUR SEASONS AUSTIN HISTORICAL AVERAGE DAILY ROOM RATE ---------------------------------------- Year ADR % Change 1992 $115.66 -- 1993 $119.96 3.7% 1994 $132.85 10.7% 1995 $145.92 9.8% 1996 $158.16 8.4% ---------------------------------------- C.A.C. 8.7% ---------------------------------------- As can be seen, the subject hotel has experienced rate increases far above normal inflationary levels. This is due to capacity constraints in the market that have put upward pressure on rates during peak weekday periods and during special events, as well as the desirability of the subject facility. According to the general manager, they intend to increase rates for their corporate contract accounts in 1998. Therefore, we expect that rates at the subject hotel will continue to increase above inflationary levels throughout the period studied and have anticipated real rate increases. <PAGE> MARKET ANALYSIS II-24 - -------------------------------------------------------------------------------- Examining the average rates achieved by the individual market segments, along with comparisons of rates achieved by the competitive supply, and taking into account the effect that the State Legislature has on occupancies during odd years, we have estimated ADR to be $168.50 in 1998, $169.00 in 1999, $169.50 in 2000 and stabilize at $170.00 in 2000. These rates are estimated in 1997 dollars. We have given the subject hotel a rate premium above normal inflationary increases due to the scheduled rate increases discussed earlier. Underlying Inflation Assumption An integral part of this analysis is the assumption as to the future expectancy of general inflation, and the resulting impact on revenues and operating expenses. Once this assumption has been established, the impact of real rate increases, or escalations which are not expected to keep pace with inflation can be addressed on an individual basis. Data considered in estimating the underlying inflation rate is summarized in the following chart: - -------------------------------------------------------------------------------- ECONOMIC INDICATORS - -------------------------------------------------------------------------------- Investment Criteria-Hotels (1) - -------------------------------------------------------------------------------- Average Growth Rates 1996 1995 1994 1992 1990 1988 Revenues 4.0% 3.9% 3.9% 3.8% 4.8% 4.4% Expenses 3.3% 3.4% 3.7% 3.6% 4.7% 4.3% - -------------------------------------------------------------------------------- Economy Limited Service Hotel Markets (2) - -------------------------------------------------------------------------------- Current Quarter Avg. Low High Average Daily Rate Change 4.20% 3.0% 10.0% Operating Expense Change 3.64% 2.0% 6.0% - -------------------------------------------------------------------------------- National Full-Service Hotel Market (2) - -------------------------------------------------------------------------------- Current Quarter Avg. Low High Average Daily Rate Change 4.47% 2.0% 10.0% Operating Expense Change 3.50% 2.0% 5.0% - -------------------------------------------------------------------------------- Cash Flow Projections - Hotels Revenues Expenses NOI - -------------------------------------------------------------------------------- Growth Rates (1997 returns)(1) 4.0% 3.3% 7.4% Growth Rates (1997 returns)(3) 3.6% 3.1% NAV DCF Parameters (4) 3.5% 3.4% NAV - -------------------------------------------------------------------------------- Economic Indicators 1996 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------- Real GDP (5) 2.2% 2.0% 3.5% 3.1% 2.3% -0.6% Consumer Price Index 2.8% 2.8% 2.6% 3.0% 3.0% 4.2% (SADJ) (5) - -------------------------------------------------------------------------------- Sources: 1. 1997 Hospitality Investment Survey, PKF Consulting 2. Korpacz Real Estate Investor Survey, Peter F. Korpacz & Associates, In. 1st Qtr 1997 3. Real Estate Report, RERC, Vol. 26, No. 1 - 1997. 4. Hotel Investment Outlook, Landauer Hospitality Services, 1997 5. Texas Regional Outlook, John Sharp, Texas Comptroller of Public Accounts, March 1997 (1996 are projected) - -------------------------------------------------------------------------------- Of the various indices, we are of the opinion that the most relevant indicators of the basic inflation rate for the purpose of this report are the revenue and expense growth rates as reported by PKF Consulting's 1997 Hospitality Investment Survey, forecast indicators based on investor expectations from the Korpacz Real Estate Investor Survey, RERC's Real Estate Report, Landauer's Hotel Investment Outlook, and economic indicators such as the growth in the GDP and CPI. The PKF <PAGE> MARKET ANALYSIS II-25 - -------------------------------------------------------------------------------- Consulting Survey profiled 1,549 transactions in 1996 of which 94.6% were non R.E.O. The Korpacz forecast surveyed hotel acquisition/management companies, investment advisors, real estate investment firms, pension fund advisors and life insurance companies. As noted, it appears that the decline in inflation during the past few years has also had an effect on hotel investment criteria. While still a harbinger of inflationary trends, the GNP, CPI, and the PKF Consulting Survey regarding previous years, reflect a historical number, released after the fact. As such, it is referenced as support for the investor expectations provided by Korpacz, RERC and PKF Consulting. As shown, the expected growth rates for expenses have declined, while revenues have increased. Increases in revenues corresponds to the direction of interest rates, which dipped in 1993 to their lowest level in 20 years. With 6.9 cents out of every dollar going to interest payments versus 14 cents during the hospitality industry's worst years, hotels are more profitable. Inflation also appears to decline with respect to the longer term expectations. Because of the cyclical nature of business trends, we feel that the longer term historical trends are most appropriate. In general, hotels tend to adapt in response to changes in costs by raising room rates. It should be noted that economists differ in their estimates of inflationary pressure in the foreseeable future, with many predicting continuing annual increases from 2.0% to above 5.0%. While the higher rates could be maintained in the short term, we feel that a longer term perspective is appropriate, that would encompass both peaks and dips in inflationary pressures. Considering this, we have utilized an average inflation rate of 3.0% per annum over the 10 year period. Aggregating the average rates achieved by the commercial, tourist and group market segments, along with comparisons of rates achieved by the competitive supply, we have estimated the following rates shown in both constant and inflated dollars. ------------------------------------------------------------------ Estimated Average Room Rates Fiscal Years 1998 - 2007 ------------------------------------------------------------------ Year Constant $1997 $Inflated* 1997/98(**) $168.50 $173.50 1999 $169.00 $174.00 1999 $169.50 $174.50 2000 $170.00 $175.00 2001 $170.00 $180.25 2002 $170.00 $185.75 2003 $170.00 $191.25 2004 $170.00 $197.00 2005 $170.00 $203.00 2006 $170.00 $209.00 2007 $170.00 $215.25 ------------------------------------------------------------------ * rounded to the nearest 25 cents, inflated at 3.0% annually ** Base fiscal year through September, hereinafter referred to as Year 1. ------------------------------------------------------------------ <PAGE> MARKET ANALYSIS II-26 - -------------------------------------------------------------------------------- MARKET ANALYSIS SUMMARY Conversion to a fiscal year basis Our appraisal uses a fiscal year analysis effective October 1, 1997. The conversion to a fiscal year was calculated by projecting the subject's future occupancy levels from a calendar year base, then combining the last three months of 1997 with the first nine months of 1998 for the first fiscal year. Subsequent years repeated the same process. The inclusion of some of the months in the legislative years and some in the even numbered years, helped to normalize occupancy for the subject. Summary of Occupancy and Average Daily Rate Based on our foregoing analysis, the following table summarizes our projections of both occupancy and average daily room rate for the subject Four Seasons hotel over the next eleven years. ------------------------------------------------------- ESTIMATED PERFORMANCE FOUR SEASONS HOTEL AUSTIN ------------------------------------------------------- Fiscal Year Occupancy Average Daily Ending Rate(2) ------------------------------------------------------- 1998 80% $173.50 1999 78% $174.00 2000 75% $174.50 2001 77%(1) $175.00 2002 77% $180.25 2003 77% $185.75 2004 77% $191.25 2005 77% $197.00 2006 77% $203.00 2007 77% $209.00 2008 77% $215.25 ------------------------------------------------------- (1) Stabilized occupancy (2) Presented in stated year (inflated) dollars ------------------------------------------------------- While it is possible that the subject property will experience growth in occupancy and average daily room rates above those estimated in this report, it is also possible that economic factors will force the property below the selected point of stability. Consequently, the estimated occupancy and average daily room rate are representative of the most likely operating potential of the Four Seasons Hotel over the projected holding period based on our analysis of the market as of the date of this appraisal. Furthermore, our projections of annual occupancy and average daily room rate, as outlined in this section of the report, are predicated on the following assumptions. o the hotel will continue to maintain its current or a comparable reservation system; o the hotel will be managed by a competent management team; o management will continue to market the subject actively and maintain effective marketing efforts to all demand segments; and o no additional lodging facilities will enter the competitive field unless as noted within the body of this report. <PAGE> SECTION III HIGHEST AND BEST USE [LOGO] <PAGE> HIGHEST AND BEST USE III-1 - -------------------------------------------------------------------------------- HIGHEST AND BEST USE The appraisal of real estate always includes a determination of highest and best use. According to The Appraisal of Real Estate (Tenth Edition), Appraisal Institute, highest and best use is defined as: "The reasonable and probable use that supports the highest present value, as defined, as of the effective date of the appraisal." In determining highest and best use, there are essentially four criteria that must be considered. These are the site must be legally permissible, physically possible, economically feasible, and maximally productive. Each of these criteria must be satisfied sequentially in order to arrive at a highest and best use conclusion. Since the subject is currently improved, it is necessary to consider the highest and best use of the site as if vacant, in addition to its optimal use as improved. The highest and best use as if vacant is analyzed first. HIGHEST AND BEST USE AS IF VACANT Legally Permissible Legal restrictions, as they apply to the subject, are private restrictions, associated with covenants, and the public restrictions of zoning regulations. There are no known private restrictions affecting title. Common restrictions, such as utility easements do exist, however, they do not adversely affect the subject site. According to the City of Austin, the site is currently zoned CBD and DMU, with the Austin Greenbelt zoned as P. This would allow for many types of commercial utilization including a hotel. Physically Possible The second constraint imposed on the possible use of the site is dictated by the physical aspects of the site itself, such as size, frontage, topography, and accessibility. The size and location within a given block are the most important determinants of value. In general, the larger the site, the greater its potential to achieve economies of scale and flexibility in development. The subject is of sufficient size to allow for a number of potential uses. However, considering the zoning designation, either an office building or hotel would be considered the most probable use. Based upon these factors, it is our belief that a hotel represents the most probable use. Financially Feasible and Maximally Productive Financial feasibility is based on whether the subject will attain a cash flow of sufficient quantity, quality, and duration to allow investors to recover the capital invested and achieve the necessary and expected rate of return. Factors to be considered are the timing of inflows and outflows of cash, revenues, costs, debt service, and the proceeds of a sale or refinancing. As discussed previously, hotel occupancy and average daily room rates in the market area have <PAGE> HIGHEST AND BEST USE III-2 - -------------------------------------------------------------------------------- increased, with the subject hotel being the rate leader in the market. Based on our analysis of existing market conditions, it is our opinion that the highest and best use of the subject, as vacant, is for hotel development. HIGHEST AND BEST USE "AS IMPROVED" The subject is currently improved with a 291-room, hotel. The improvements contribute significant overall value to the site. Therefore, it is our opinion that there is no alternative, legal use that could economically justify the demolition and/or restructuring of the existing improvements at this time. As a result, it is our opinion that the highest and best use of the subject, as improved, is its current use. <PAGE> SECTION IV VALUATION [LOGO] <PAGE> VALUATION IV-1 - -------------------------------------------------------------------------------- VALUATION METHODOLOGY To arrive at an estimate of market value for the given property, special attention must be given to the typical purchaser who would be interested in that particular type of property. Market value is the most probable sales price which a property will bring, and this price depends upon the typical purchaser's reaction to the various supply and demand factors which affect the property being appraised. Of particular importance are the surrounding properties that are in competition with the subject hotel. All of this information must be derived from the market. Considering the above framework, the appraisal process is basically an economic analysis. It consists of an orderly approach by which the problem is defined, then data are acquired, classified, analyzed and interpreted into an estimate of value. These approaches are the Cost Approach, the Income Approach and the Sales Comparison Approach. Regardless of the approach being utilized, the data under consideration are taken from the market in one form or another. Whether or not all three approaches to value are used in the valuation of a particular property depends upon the individual situation. In the event that more than one approach is utilized, the value estimates arrived at from the different approaches are correlated into a single value estimate considered to be the most appropriate for the subject property. The following is a brief discussion of each approach and its application. Income Approach The Income Approach to value is predicated upon a definite relationship between the amount of income a property will earn and its value. Although all of the appraisal principles are involved in this approach, the principle of anticipation is particularly applicable. The Income Approach is an appraisal technique in which the anticipated annual net income of the subject property is processed in order to arrive at an indication of value. This process is called capitalization and it involves multiplying the annual net income by a factor or dividing it by a rate which weighs such consideration as risk, time, return on investment, and return of investment. The appropriateness of this rate or factor is critical and there are a number of techniques by which it may be developed. The net income attributable to the subject property is estimated by subtracting expenses from the property's annual potential gross income. All of these figures are derived from the market comparison of properties similar to the subject. The reliability of the Income Approach is based upon a number of considerations. These considerations include the reliability of the estimate of income and expenses, the duration of the net annual income, the capitalization rate or factor used, and the method of capitalization used. The weakness of this approach lies in the estimation of income and expenses and the fact that not all properties are suitable for this technique. The strength of this approach is that it reflects typical investor considerations as they analyze income-producing properties. Sales Comparison Approach The Sales Comparison Approach to value relies heavily upon the principles of substitution. A comparative analysis between the subject and similar properties that have been sold can often provide an indication of market behavior and response to the subject. The sales are compared to the subject and adjustments for differences in location, time, terms of sale, or physical characteristics <PAGE> VALUATION IV-2 - -------------------------------------------------------------------------------- can be made using the subject as the standard of comparison. Most types of properties which are bought and sold can be analyzed using "common denominators" such as the sales price per unit of comparison. The reliability of the Sales Comparison Approach to value depends to a large extent upon the degree of comparability between the sales and the subject. The major strengths of this approach include the reflection of actual market transactions and the fact the normal "common denominators" tend to be fairly easily determined. The potential weaknesses of this approach arise from the fact that the data are historical and the "ideal" comparables are usually very difficult to obtain. Cost Approach The Cost Approach to value is based upon the premise that a prudent buyer will pay no more for a property than it would cost to reproduce a substitute property with the same utility. The Cost Approach is a method in which the value of a property is developed by estimating the replacement cost, or reproduction cost new, of the subject improvements, deducting the estimated depreciation from all sources, and then adding this depreciated reproduction cost of the improvements to the site value. The site value is based upon a vacant site being utilized to its highest and best use. Generally speaking, the site value is estimated via the Sales Comparison Approach. Replacement cost or reproduction cost new can be derived from reliable cost manuals and/or from interviews with reputable local contractors as well as actual cost data from comparable developments. Depreciation can be from physical, functional, or economic causes. Depreciation can be observed from revenue loss or based upon a cost-to-cure analysis. In all cases, information concerning depreciation is developed from the market by observing comparable properties. Specific application of the various approaches to value are demonstrated in their respective sections in this report. Valuation To derive a value estimate for the subject property, we have used the Income and Sales Comparison approaches to value. These approaches require an extensive investigation of appropriate market data. The market data obtained has been developed and analyzed in the respective approaches to provide an indication of the market value of the fee simple interest in the subject property. We did not utilize the Cost Approach to value due to the age of the improvements, and the degree of subjectivity that would be needed to estimate depreciation and obsolescence. The two approaches to value utilized are developed concurrently and incorporate various findings and conclusions of each other. Our analysis and conclusions via each approach are presented in their respective sections of this report. <PAGE> VALUATION IV-3 - -------------------------------------------------------------------------------- INCOME APPROACH Basis of Estimations On the basis of our evaluation of market findings relative to the indicated existing and potential demand for the subject Four Seasons Hotel, we have prepared schedules of estimated operating results which will likely be generated by the subject. We have utilized the historic performance of the subject hotel, as well as composite averages of 1996 year-end operations of hotels located throughout the US as compiled from our in-house data bank, and further utilized in PKF Consulting's annual Trends in the Hotel Industry for comparison purposes. The specific comparable properties were selected based on the chain affiliation (for an indication of quality level), location, number of available rooms, occupancy level and average daily room rate. These statements, presented in constant 1997 dollars (restated at a 3.0% inflation rate if based on 1996 data), have been given to us on a voluntary basis and have not been audited by PKF Consulting. Although we believe the data to be accurate, we express no opinion as to the reliability of this financial information. In order to protect the confidentiality of the sample, these financial statements for comparable properties are aggregated and summarized on the following pages, after a presentation of the historic performance of the subject property. o Historic Financials: The first set is the historic performance of the subject property from 1993 as well as the property's projected 1997 year-end statement. Management anticipates ending calendar year 1997 at a 81.09% occupancy and $168.59 average daily rate ($136.71 RevPAR, which compares to the stabilized RevPAR of $130.90). The historic information for the subject was afforded the most weight in our analysis. Since the subject property was purchased by the current owners in 1994, and the subject's operating performance has improved dramatically since that time, we afforded the least emphasis to the 1993 revenues and expenses. We were also able to compare management's estimates of 1997 year end performance with the property's performance for the prior 12-month period through August 1997, which is presented in the Sales Comparison approach section of this report. o Sample Group 1: Our financial comparables include aggregate averages for a sample group of six, full service, upscale hotels. The average room count for the sample is 289. This group experienced an average rate of approximately $157.46, in 1996 constant dollars. Inflated at a 3.0% rate, the ADR was $162.19. The average occupancy level was 77.92%. This results in revenue per available room (RevPAR) of $126.38. This sample provided a check for reasonableness regarding operating ratios achievable at the subject based on our estimates of future operating performance. o Sample Group 2: The second sample group was an aggregation of six full service hotels located either downtown Austin or just outside of the downtown Austin area. While both average rate and occupancy, as well as service levels are below that of the subject, this information was useful in comparing payroll information, energy costs relative to the local climate, property taxes per available room and food and beverage utilizations. This sample <PAGE> VALUATION IV-4 - -------------------------------------------------------------------------------- averaged 306 rooms, with a 75.13% occupancy and $95.32 average daily rate. This results in a RevPAR of $71.61. We estimated revenues and expenses based upon the market analysis described herein, the historic performance of the subject over the past four years (including the previous 12-month period through August 1997), and the two sets of comparable properties described previously. We then incorporated such estimates with assumptions we have made regarding inflation and market penetration rates to generate the estimated annual operating results presented at the end of this section. Our estimates are for the (fiscal) years beginning October 1997 to September 1998, through September 2009. The classification of income and expenses in the statements presented in this report follows the Uniform System of Accounts for Hotels, recommended by the American Hotel & Motel Association. This accounting system is in general use by hotels throughout the United States. In conformity with this system of classification, only direct expenses are charged to operating departments of the hotel. The general overhead items which are applicable to the operations as a whole are classified as deductions from income and include administrative and general expenses, marketing, energy costs, and property operations and maintenance. <PAGE> VALUATION IV-5 - -------------------------------------------------------------------------------- HISTORIC PERFORMANCE - FOUR SEASONS HOTEL AUSTIN <TABLE> <CAPTION> Forecast 1993 1994 1995 1996 1997 Departmental Sales Amount % Amount % Amount % Amount % Amount % ---------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Rooms 9,778,900 58.2% 10,593,000 57.0% 12,350,100 58.2% 12,893,700 58.2% 14,518,300 57.4% Food 4,716,400 48.2% 5,313,800 50.2% 5,803,000 47.0% 6,014,000 46.6% 7,046,500 48.5% Beverage 1,253,700 26.6% 1,320,600 24.9% 1,465,600 25.3% 1,508,500 25.1% 1,737,200 24.7% Telephone 439,200 4.5% 444,400 4.2% 517,600 4.2% 652,100 5.1% 0 0.0% Minor Operated 602,000 6.2% 910,500 8.6% 1,070,300 8.7% 1,034,500 8.0% 1,980,700 13.6% Rentals and Other 12,700 0.1% 12,700 0.1% 12,700 0.1% 34,700 0.3% 0 0.0% ---------------------------------------------------------------------------------------------------- Total Revenue 16,802,900 100.0% 18,595,000 100.0% 21,219,300 100.0% 22,137,500 100.0% 25,282,400 100.0% Departmental Costs Rooms 2,694,400 27.6% 2,908,000 27.5% 3,287,700 26.6% 3,342,200 25.9% 3,721,600 25.6% Food & Beverage 4,982,600 83.5% 5,356,300 80.7% 5,748,900 79.1% 5,868,500 78.0% 6,490,400 73.9% Telephone 292,400 66.6% 282,200 63.5% 345,200 66.7% 316,700 48.6% 0 0.0% Minor Operated 556,100 92.4% 754,400 82.9% 823,400 76.9% 728,300 70.4% 1,122,300 56.7% ---------------------------------------------------------------------------------------------------- Total Expenses 8,525,500 50.7% 9,300,900 50.0% 9,661,800 48.1% 10,255,700 46.3% 11,334,300 44.8% Gross Op. Income 8,277,400 49.3% 9,294,100 50.0% 11,014,200 51.9% 11,881,800 53.7% 13,948,100 55.2% Unallocated Costs Admin. & Gen. 1,674,600 10.0% 1,776,400 9.6% 1,770,600 8.3% 1,886,800 8.5% 1,985,100 7.9% Marketing 868,800 5.2% 882,500 4.7% 1,063,200 5.0% 1,007,600 4.6% 1,039,500 4.1% POM 877,100 5.2% 867,800 4.7% 945,800 4.5% 959,200 4.3% 1,028,900 4.1% Energy 676,700 4.0% 659,500 3.5% 637,300 3.0% 626,400 2.8% 676,500 2.7% ---------------------------------------------------------------------------------------------------- Total Unallocated 4,097,200 24.4% 4,186,200 22.5% 4,416,900 20.8% 4,480,000 20.2% 4,730,000 18.7% Inc. Before Fixed 4,180,200 24.9% 5,107,900 27.5% 6,507,300 31.1% 7,401,800 33.4% 9,218,100 36.5% Fixed/Other Costs Management Fee 503,700 3.0% 498,300 2.7% 459,200 2.2% 479,300 2.2% 851,500 3.4% Prop.Taxes/Insurance 897,900 5.3% 889,700 4.8% 835,000 3.9% 923,200 4.2% 976,300 3.9% Incentive Fees(1) 265,900 1.6% 316,200 1.7% 139,000 0.7% 206,200 0.9% 0 0.0% ---------------------------------------------------------------------------------------------------- Total Fixed 1,667,500 9.9% 1,704,200 9.2% 1,433,200 6.8% 1,608,700 7.3% 1,827,800 7.2% Rent 184,800 1.1% 181,400 1.0% 182,300 0.9% 183,100 0.8% 188,300 0.7% Net Operating Inc. 2,327,900 13.9% 3,222,300 17.3% 4,981,800 23.5% 5,610,000 25.3% 7,202,000 28.5% ==================================================================================================== Note: Percentages are of total sales except for departmental expenses, which are a percentage of departmental sales. (1) Incentive fee included in Management Fee in Forecast 1997 totals. Total Rooms 292 292 292 291 291 Occupancy 77.10% 74.80% 79.40% 76.50% 81.09% ADR $118.96 $132.85 $145.92 $158.16 $168.59 </TABLE> Source: Four Seasons Hotel Austin <PAGE> VALUATION IV-6 - -------------------------------------------------------------------------------- SAMPLE GROUP 1: COMPARABLE HOTELS AGGREGATED GROUP RESULTS <TABLE> <CAPTION> Inflated Departmental Sales 1997 Amount Percent Per Available Room/Year ---------------------------------------------------- <S> <C> <C> <C> Rooms $79,876,615 57.5% $46,125 Food and Beverage 48,361,802 60.5% 27,927 Telephone 4,104,207 5.1% 2,370 Minor Operated 3,996,964 5.0% 2,308 Rentals and Other 2,673,079 3.3% 1,544 ---------------------------------------------------- Total Revenue 139,012,667 100.0% 80,274 Departmental Expenses Rooms 19,082,348 23.9% 11,019 Food & Beverage 33,399,919 69.1% 19,287 Telephone 1,561,010 38.0% 901 Minor Operated 3,467,180 86.7% 2,002 ---------------------------------------------------- Total Expenses 57,510,457 41.4% 33,210 Gross Operating Income 81,502,210 58.6% 47,064 Unallocated Expenses Administrative & General 11,179,929 8.0% 6,456 Franchise Fee 1,150,605 0.8% 664 Marketing 7,818,595 5.6% 4,515 Property Operations & Maintenance 5,876,754 4.2% 3,394 Energy 4,209,229 3.0% 2,431 ---------------------------------------------------- Total Unallocated Expenses 30,235,112 21.8% 17,459 Income Before Fixed Charges 51,267,098 36.9% 29,605 Fixed Charges/Other Expenses Management Fee 5,579,647 4.0% 3,222 Property Taxes 3,153,871 2.3% 1,821 Insurance 674,699 0.5% 390 ---------------------------------------------------- Total Fixed Charges 9,408,217 6.8% 5,433 Net Operating Income $41,858,881 30.1% $24,172 ==================================================== </TABLE> Note: Percentages are of total sales except for departmental expenses, which are a percentage of departmental sales. Total Number of Hotels 6 Average Numbers Units Available/Day 289 Average Percentage of Occupancy 77.92% Average ADR Per Occupied Room (1997) $162.19 Source: PKF Consulting/Hospitality Advisory Services <PAGE> VALUATION IV-7 - -------------------------------------------------------------------------------- SAMPLE GROUP 2: COMPARABLE HOTELS AGGREGATED GROUP RESULTS <TABLE> <CAPTION> (Austin Properties) Inflated Departmental Sales 1997 Amount Percent Per Available Room/Year --------------------------------------------------- <S> <C> <C> <C> Rooms $47,995,257 65.0% $26,137 Food and Beverage 20,459,278 42.6% 11,142 Telephone 1,961,458 4.1% 1,068 Minor Operated 1,976,028 4.1% 1,076 Rentals and Other 1,468,748 3.1% 800 --------------------------------------------------- Total Revenue 73,860,769 100.0% 40,223 Departmental Expenses Rooms 12,272,713 25.6% 6,684 Food & Beverage 13,996,645 68.4% 7,622 Telephone 1,294,781 66.0% 705 Minor Operated 1,935,615 98.0% 1,054 --------------------------------------------------- Total Expenses 29,499,754 39.9% 16,065 Gross Operating Income 44,361,015 60.1% 24,158 Unallocated Expenses Administrative & General 7,799,763 10.6% 4,248 Franchise Fee 570,208 0.8% 311 Marketing 5,114,356 6.9% 2,785 Property Operations & Maintenance 3,497,236 4.7% 1,905 Energy 3,308,036 4.5% 1,802 Unallocated Expenses 567,839 0.8% 309 --------------------------------------------------- Total Unallocated Expenses 20,857,438 28.2% 11,359 Income Before Fixed Charges 23,503,577 31.8% 12,800 Fixed Charges/Other Expenses Management Fee 2,246,372 3.0% 1,223 Property Taxes 2,746,721 3.7% 1,496 Insurance 376,712 0.5% 205 --------------------------------------------------- Total Fixed Charges 5,369,805 7.3% 2,924 Net Operating Income $18,133,772 24.6% $9,875 =================================================== </TABLE> Note: Percentages are of total sales except for departmental expenses, which are a percentage of departmental sales. Total Number of Hotels 6 Average Numbers Units Available/Day 306 Average Percentage of Occupancy 75.13% Average ADR Per Occupied Room (1997) $95.32 Source: PKF Consulting/Hospitality Advisory Services <PAGE> VALUATION IV-8 - -------------------------------------------------------------------------------- INCOME AND EXPENSE PROJECTIONS On the basis of our estimates of the future occupancies and average daily room rates achievable at the subject hotel, together with our analysis of operating data from comparable hotels, industry averages and our general knowledge of the hospitality industry as it relates to Austin, we have prepared a stabilized income statement. The following is a brief discussion of the reasoning behind our projections of departmental revenues and expenses, unallocated expenses, and fixed charges/other expenses. Departmental Revenues and Expenses Room Revenue: - There are two major factors in the computation of the room revenue figure: the average daily room rate and the projection of an occupancy curve for the subject. Based on an analysis presented previously in this report, we have projected rooms revenues based upon a stabilized occupancy of 77% and an average daily rate of $170.00 (in constant, 1997 dollars). Room Expense: - Rooms departmental expenses include salaries, wages and related taxes and benefits from employees in the front office, housekeeping, laundry and security departments. Guest supplies such as linens, towels, glasses, ashtrays, shampoo and soap as well as cleaning supplies and uniforms for personnel are included in rooms departmental expenses. Travel agent commissions and other miscellaneous expenses are also included. The following chart reflects the basis for our estimates: ================================================================================ Ratio to Room Sales Range of Ratios Comparable Data Source --------------------------------------- Average Median Low High - -------------------------------------------------------------------------------- Subject Historic (1993 - 1997 forecast) 26.4% 26.3% 25.1% 27.6% Subject 12-Mo. through August 1997 25.1% Sample Group 1 23.9% 23.6% 20.2% 28.8% Sample Group 2 (Austin sample) 25.5% 25.8% 21.6% 30.0% Subject Estimate (stabilized) 25.4% ================================================================================ While the subject's estimate is slightly higher than its previous 12-month performance, it is 0.5% lower than management's forecast for year end 1997. In addition, it is within the ranges indicated by the sample groups. Food and Beverage Revenue: The Four Seasons has a very popular restaurant and bar, as well as a strong banquet/catering business. We have estimated revenues as follows: <PAGE> VALUATION IV-9 - -------------------------------------------------------------------------------- ================================================================================ F&B Ratio to Room Sales Range of Ratios Comparable Data Source ----------------------------------------- Average Median Low High - -------------------------------------------------------------------------------- Subject Historic (1993 - 1997 forecast) 60.2% 60.1% 58.3% 62.6% Subject 12-Mo. through August 1997 59.7% Sample Group 1 58.5% 60.9% 28.5% 82.2% Sample Group 2 (Austin sample) 39.5% 36.5% 25.9% 58.3% Subject Estimate (stabilized) 60.0% ================================================================================ Food and Beverage Expense: Food and beverage expense includes the cost of food and beverage consumed and other typical expenses incurred in the operation of the department. It also accounts for salaries and wages, associated employee benefits, china, glassware, tableware, linen, contract cleaning, kitchen fuel and laundry for the food and beverage operation. The following reflects the basis for our projections. ================================================================================ F&B Ratio to F&B Sales Range of Ratios Comparable Data Source ----------------------------------------- Average Median Low High - -------------------------------------------------------------------------------- Subject Historic (1993 - 1997 forecast) 78.2% 78.6% 73.8% 83.5% Subject 12-Mo. through August 1997 73.8% Sample Group 1 82.4% 80.8% 70.1% 103.4% Sample Group 2 (Austin sample) 77.4% 81.0% 64.0% 85.7% Subject Estimate (stabilized) 75.5% ================================================================================ Telephone Revenue - Telephone revenues, generated by both local and long distance calls were estimated based on the following: <TABLE> <CAPTION> =============================================================================================== Ratio to Room Sales Range of Ratios $ Per Occ. Room Comparable Data Source ---------------------------------------------------------- Average Median Low High Average Median - ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Subject Historic (1993-1997 forecast) 4.6% 4.2% 4.2% 5.1% $6.70 $5.57 Subject 12-Mo. through August 1997 5.1% 8.49 Sample Group 1 5.0% 4.8% 2.9% 7.9% 4.59 14.12 Sample Group 2 4.0% 3.8% 3.1% 5.1% 3.97 3.29 Subject Estimate (stabilized) 5.0% 8.50 ================================================================================================ </TABLE> <PAGE> VALUATION IV-10 - -------------------------------------------------------------------------------- Telephone Expenses - We have assumed telephone expenses to continue at their current rate, which has been improving over the past several years. The property's lowest ratio occurred in 1996 at 48.6% of telephone sales. A comparison of the comparables follows. The subject is in line with the mean and median of the comparable sets. ================================================================================ Ratio to Telephone Sales Range of Ratios Comparable Data Source ------------------------------------------- Average Median Low High - -------------------------------------------------------------------------------- Subject Historic (1993-1997 forecast) 59.1% 63.5% 48.6% 66.7% Subject 12-Mo. through August 1997 50.4% Sample Group 1 40.6% 42.2% 25.1% 53.3% Sample Group 2 (Austin set) 70.0% 64.1% 48.6% 110.1% Subject Estimate (stabilized) 50.4% ================================================================================ It should be noted regarding the comparables that telephone profitability may vary dramatically with the age of the equipment, the type of system, in-house accounting allocations and whether or not the property charges for local calls. As noted, our estimate falls within the range of the comparables. Minor Operated Departments (MOD) - Included in this department are revenues and expenses associated primarily with the valet/guest laundry, mini bars, safe rentals, movie sales, vending and game commissions, the gift shop, health club, garage and miscellaneous sales. A comparison with industry averages is difficult since this revenue item is tied to the amenities offered at the property. As such, we have relied on the historic performance of the subject as follows. <TABLE> <CAPTION> =================================================================================================== Ratio to Room Sales Range of Ratios $ Per Avail. Room Comparable Data Source ------------------------------------------------------------- Average Median Low High Average Median High - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Subject Historic (1993-1997 forecast) 8.9% 8.5% 6.2% 13.6% 3,886 3,610 6,807 Subject 12-Mo. through August 1997 8.4% 4,111 Sample Group 1 5.0% 5.7% 1.7% 7.5% 2,323 2,371 3,922 Sample Group 2 3.6% 4.3% 0.6% 5.9% 1,074 970 2,710 Subject Estimate (stabilized) 8.4% 4,000 =================================================================================================== </TABLE> Expenses in this department for the subject averaged 73.1%, with a median of 73.7%. Most recently, however, the property was at 59.6% through August 1997, and anticipates ending 1997 at 56.7%. It should be noted that the hotel has acquired land for parking that will no longer be an expense to them. As such, we have assumed the lower expense as reasonable. <PAGE> VALUATION IV-11 - -------------------------------------------------------------------------------- Rentals and Other Income (net). Rentals and Other Income includes revenue derived from leased space as well as income from sources not included in the previously mentioned departments. For the subject, this includes several retail shops. Our estimate relies most heavily on actual recent performance, and is based on the following information: <TABLE> <CAPTION> ==================================================================================================== Ratio to Room Sales Range of Ratios $ Per Avail. Room Comparable Data Source -------------------------------------------------------------- Average Median Low High Average Median High - ---------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Subject Historic (1993-1997 forecast) 0.2% 0.1% 0.1% 0.3% 62 43 119 Subject 12-Mo. through August 1997 NAV NAV Sample Group 1 3.1% 1.1% 0.5% 11.1% 1,558 562 5,972 Sample Group 2 3.5% 1.6% 0.3% 11.2% 850 656 2,232 Subject Estimate (stabilized) 0.3% 120 ==================================================================================================== </TABLE> Again, it is difficult to compare to other facilities, since the amount of rental space can vary significantly. Undistributed Operating Expenses Administrative and General Expenses - Expenses in this category include those for the administrative staff salaries and related costs, credit card commissions, data processing, general and liability insurance, administrative telephone expenses, postage, provision for doubtful accounts, legal fees, association dues and other items normally associated with this classification. <TABLE> <CAPTION> ================================================================================================== Ratio to Total Sales Range of Ratios $ Per Avail. Room Comparable Data Source ------------------------------------------------------------ Average Median Low High Average Median - -------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Subject Historic (1993-1997 forecast) 8.7% 8.4% 7.9% 10.0% 6,309 6,284 Subject 12-Mo. through August 1997 7.9% 6,666 Sample Group 1 8.5% 7.4% 6.2% 14.1% 6,475 6,516 Sample Group 2 11.1% 9.9% 9.2% 14.9% 4,303 3,993 Subject Estimate (stabilized) 8.2% 6,766 =================================================================================================== </TABLE> While the subject's estimate is lower than the average and median of its historic performance, it is slightly higher than its most recent expense. Marketing - Marketing expenses reflect the level of expenditure we believe will be necessary to properly promote the subject position in the market and to attain the projected operating results. In addition to salaries, wages and benefits, marketing expenses include advertising and promotional costs, internal merchandising costs, association dues, telephone and postage costs and other items <PAGE> VALUATION IV-12 - -------------------------------------------------------------------------------- normally associated with the operation of the marketing department. <TABLE> <CAPTION> =================================================================================================== Ratio to Total Sales Range of Ratios $ Per Avail. Room Comparable Data Source ------------------------------------------------------------ Average Median Low High Average Median - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Subject Historic (1993-1997 forecast) 4.6% 4.6% 4.1% 5.2% 3,384 3,517 Subject 12-Mo. through August 1997 4.3% 3,632 Sample Group 1 5.7% 5.4% 4.6% 7.7% 4,521 4,420 Sample Group 2 7.5% 6.5% 3.7% 12.0% 2,736 2,567 Subject Estimate (stabilized) 4.5% 3,729 =================================================================================================== </TABLE> The Four Seasons does not pay franchise fees, which was not true of some of the properties in the two sample groups. The property is subject to a royalty fee, fees for corporate sales and marketing services, as well as advertising and reservation fees. The subject is well established in the Austin market, and has no other main competitor in its rate category. As such, we have relied most heavily on the historic performance of the property. Property Operations and Maintenance - Property operations and maintenance expenditures include payroll and related taxes and benefits, costs for preventative maintenance and repairs to mechanical equipment, painting and decorating, grounds maintenance and the supplies necessary to operate this department. <TABLE> <CAPTION> =================================================================================================== Ratio to Total Sales Range of Ratios $ Per Avail. Room Comparable Data Source ------------------------------------------------------------ Average Median Low High Average Median - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Subject Historic (1993-1997 forecast) 4.5% 4.4% 4.1% 5.2% 3,271 3,288 Subject 12-Mo. through August 1997 4.2% 3,578 Sample Group 1 4.4% 4.1% 3.5% 5.7% 3,404 3,397 Sample Group 2 4.8% 4.8% 4.3% 5.7% 1,921 1,758 Subject Estimate (stabilized) 4.4% 3,636 =================================================================================================== </TABLE> Energy - Energy costs to operate the subject hotel have been estimated on the basis of historic performance, supported by average expenditures at comparable properties. Energy costs for hotels are typically estimated on a cost per available room, due to the existence of corridors and public areas which require heating or air conditioning at all times. We have estimated energy costs to be $2,300 per available room, based on the following: <PAGE> VALUATION IV-13 - -------------------------------------------------------------------------------- ================================================================================ $ Per Available Room Comparable Data Source ----------------------------------------- Average Median Low High - -------------------------------------------------------------------------------- Subject Historic (1993-1997 forecast) 2,253 2,271 2,153 2,325 Subject 12-Mo. Through August 1997 2,284 Sample Group 1 2,434 2,510 1,944 2,878 Sample Group 2 (Austin set) 1,812 1,635 1,322 2,624 Subject Estimate (stabilized) 2,300 ================================================================================ Fixed Expenses Management Fee - A negotiated rate, base management fees tend to vary between 3.0% and 5.0% of total sales. Typically, limited service or properties operating in lower revenue environments tend to command the higher percentages, since a base hurdle would need to be met in order to justify fixed payroll costs. Conversely, full-service and luxury oriented properties tend to reflect lower percentages, but of significantly higher achievable revenues. Many times a low base management fee will be paired with an incentive fee which is typically calculated off of profit. Again, these fees vary widely, and are an incentive to control costs for the management company. Incentive fees allow a sharing of profit, and may be calculated off of net operating income, cash flows after reserves and/or debt service, or any number of defined (net) cash flows. The subject's management agreement calls for a base fee of 3% of rooms revenue and 1% of other revenue, a percentage of which would be deferred to the extent NOI is less than $3,100,000. This would not apply in the case of the subject's estimates of future performance. An incentive fee which is fairly complex in its calculation, is equal to 5% of a base amount (relating to cash flows and/or corporate service charges) and 10% of cash flows in excess of the base amount. Historically, combining the management and incentive fees, fees have ranged from 2.8% to 4.6% of total sales. The comparable data sets, adjusted for incentive fees if applicable, reflected the following. ================================================================================ Ratio to Total Sales Range of Ratios Comparable Data Source ----------------------------------------- Average Median Low High - -------------------------------------------------------------------------------- Subject Historic (1993-1997 forecast) 3.6% 3.3% 2.8% 4.6% Subject 12-Mo. through August 1997 3.3% Sample Group 1 3.6% 3.5% 0.0% 7.7% Sample Group 2 (Austin set) 3.0% 3.0% 2.0% 3.9% Subject Estimate (stabilized) 3.5% ================================================================================ <PAGE> VALUATION IV-14 - -------------------------------------------------------------------------------- Estimates by management of total fees for 1997 equal 3.4% of total sales. Based on this, as well as comparing fees paid by the comparable sets, we have assumed 3.5% of total sales as reasonable. Real Estate and Property Taxes - Real estate and property taxes have been estimated based upon the current tax rates in the market area for the subject and Austin comparable properties, as further detailed previously in this report. Based on historic taxes, as well as conversations with the property controller, real estate taxes for the subject have been estimated at $945,000. We have not compared it to our set of aggregated comparables, as tax rates vary widely throughout the country. Building and Contents Insurance - Building and Contents insurance premium levels are difficult to aggregate, based on the many options available in terms of deductibles, limits of liability, business interruption and/or flood riders, in addition to the fact that many companies are self insured. As such, insurance rates for the subject were estimated based on historic costs, which were compared to the average and median comparable group results. Based on the current premium in place, we have projected insurance to be $116,000. This compares to the comparables as follows. ================================================================================ $ Per Available Room Comparable Data Source -------------------------------------------- Average Median Low High - -------------------------------------------------------------------------------- Sample Group 1 392 452 46 625 Sample Group 2 211 129 76 471 Subject Estimate (stabilized) 399 ================================================================================ Rent/CAM - The property pays a common area maintenance fee based on their space within San Jacinto Center. The common area includes the front drive, top parking lot and underground parking. It is shared three ways: the hotel, office tower and retail center. The recently acquired development parcel (to be used for parking in the interim), represented approximately 5% of the 44,335 square feet of common area. As such, historically, this cost has ranged from approximately $181,000 to almost $185,000. A non-typical charge occurred from September 1996 to January 1997, when they purchased the development parcel, so the $235,800 reflected on the 12-month statement through August would not be anticipated in the future. According to the controller, they anticipate the charge at $18,000 per month, or $216,000. Reserve for Replacement - We have deducted a reserve for replacement of furniture, fixtures and equipment as well as other short-lived items such as roof coverings and interior finishes. The reserve represents a fixed amount of 4.0% of total revenues throughout the period utilized in the analysis. This amount is assumed to be used for replacement or renovations of the property as needed to maintain the competitive market position of the hotel. The management agreement reflects a 3.0% reserve until the year 2000, after which the reserve would be equal to 4.0%. In reality, neither reserve amount is indicative of actual expenditures within the industry. Most major capital renovations are financed via new loans or at resale. However, the appraisal industry recognizes a standard of between 3.0% to 4.0% for valuation purposes. We feel that a 4.0% reserve would be appropriate for the subject property. <PAGE> VALUATION IV-15 - -------------------------------------------------------------------------------- Estimated Future Operating Performance The following charts reflect the estimate of future operating performance of the subject. The first chart reflects the stabilized year (fiscal 2001) in constant dollars. The next three pages reflect statements of operating performance for the next 10 years in both constant and inflated dollars. <PAGE> VALUATION IV-16 - -------------------------------------------------------------------------------- Four Seasons Hotel Austin - Stabilized Year Schedule of Stabilized Cash Flow Before Debt Service Constant Dollars 2001 ----------------------------- Amount Percent ------------ ------------ Revenues: Rooms $13,904,000 57.6% Food & Beverage 8,342,000 34.6% Telephone 695,000 2.9% Minor Operating Departments 1,164,000 4.8% Rental & other income, net 35,000 0.1% ------------ ------------ 24,140,000 100.0% ------------ ------------ Departmental expenses: Rooms 3,534,000 25.4% Food & Beverage 6,297,000 75.5% Telephone 350,000 50.4% Minor Operating Departments 698,000 60.0% ------------ ------------ 10,879,000 45.1% ------------ ------------ Gross Operating Income 13,261,000 54.9% ------------ ------------ Unallocated operating expenses: Administrative and general 1,969,000 8.2% Marketing 1,085,000 4.5% Energy costs 669,000 2.8% Property operation and maintenance 1,058,000 4.4% ------------ ------------ 4,781,000 19.8% ------------ ------------ Cash Flow before Management Fee and Fixed Charges 8,480,000 35.1% ------------ ------------ Management Fee and Fixed Charges: Management Fee 845,000 3.5% Property Taxes 945,000 3.9% Property Insurance 116,000 0.5% Lease/CAM 216,000 0.9% Replacement Reserve 966,000 4.0% ------------ ------------ 3,088,000 12.8% ------------ ------------ Cash Flow before debt Service (Net Operating Income) $ 5,392,000 22.3% ============ ============ The comments and assumptions contained in this report are an integral part of this prospective financial presentation <PAGE> VALUATION IV-17 - -------------------------------------------------------------------------------- Four Seasons - Austin, Texas Schedule of Cash Flow Before Debt Service Constant (1997) Dollars (000) <TABLE> <CAPTION> 1998 1999 2000 2001 2002 2003 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Revenues: Rooms $14,318 57.7% $14,001 57.6% $13,503 57.5% $13,904 57.6% $13,904 57.6% $13,904 57.6% Food & Beverage 8,591 34.6% 8,401 34.6% 8,102 34.5% 8,342 34.6% 8,342 34.6% 8,342 34.6% Telephone 722 2.9% 704 2.9% 677 2.9% 695 2.9% 695 2.9% 695 2.9% Minor Operated Departments 1,164 4.7% 1,164 4.8% 1,164 5.0% 1,164 4.8% 1,164 4.8% 1,164 4.8% Rental & other income, net 35 0.1% 35 0.1% 35 0.1% 35 0.1% 35 0.1% 35 0.1% ------- ------- ------- ------- ------- ------- 24,830 100.0% 24,305 100.0% 23,481 100.0% 24,140 100.0% 24,140 100.0% 24,140 100.0% ------- ------- ------- ------- ------- ------- Departmental expenses: Rooms 3,569 24.9% 3,543 25.3% 3,501 25.9% 3,534 25.4% 3,534 25.4% 3,534 25.4% Food & Beverage 6,391 74.4% 6,319 75.2% 6,206 76.6% 6,297 75.5% 6,297 75.5% 6,297 75.5% Telephone 361 50.0% 354 50.3% 343 50.7% 350 50.4% 350 50.4% 350 50.4% Minor Operated Departments 698 60.0% 698 60.0% 698 60.0% 698 60.0% 698 60.0% 698 60.0% ------- ------- ------- ------- ------- ------- 11,019 44.4% 10,914 44.9% 10,748 45.8% 10,879 45.1% 10,879 45.1% 10,879 45.1% ------- ------- ------- ------- ------- ------- Gross Operating Income 13,811 55.6% 13,391 55.1% 12,733 54.2% 13,261 54.9% 13,261 54.9% 13,261 54.9% ------- ------- ------- ------- ------- ------- Unallocated operating expenses: Administrative and general 1,975 8.0% 1,970 8.1% 1,963 8.4% 1,969 8.2% 1,969 8.2% 1,969 8.2% Marketing 1,086 4.4% 1,085 4.5% 1,083 4.6% 1,085 4.5% 1,085 4.5% 1,085 4.5% Energy costs 669 2.7% 669 2.8% 669 2.8% 669 2.8% 669 2.8% 669 2.8% Property operation and maintenance 1,062 4.3% 1,059 4.4% 1,055 4.5% 1,058 4.4% 1,058 4.4% 1,058 4.4% ------- ------- ------- ------- ------- ------- 4,792 19.3% 4,783 19.7% 4,770 20.3% 4,781 19.8% 4,781 19.8% 4,781 19.8% ------- ------- ------- ------- ------- ------- Cash Flow before Management Fee and Fixed Charges 9,019 36.3% 8,608 35.4% 7,963 33.9% 8,480 35.1% 8,480 35.1% 8,480 35.1% ------- ------- ------- ------- ------- ------- Management Fee and Fixed Charges: Management Fee 869 3.5% 851 3.5% 822 3.5% 845 3.5% 845 3.5% 845 3.5% Property Taxes 945 3.8% 945 3.9% 945 4.0% 945 3.9% 945 3.9% 945 3.9% Property Insurance 116 0.5% 116 0.5% 116 0.5% 116 0.5% 116 0.5% 116 0.5% Lease/CAM 216 0.9% 216 0.9% 216 0.9% 216 0.9% 216 0.9% 216 0.9% Replacement Reserve 993 4.0% 972 4.0% 939 4.0% 966 4.0% 966 4.0% 966 4.0% ------- ------- ------- ------- ------- ------- 3,139 12.6% 3,100 12.8% 3,038 12.9% 3,088 12.8% 3,088 12.8% 3,088 12.8% ------- ------- ------- ------- ------- ------- Cash Flow before Debt Service (Net Operating Income) $5,880 23.7% $5,508 22.7% $4,925 21.0% $5,392 22.3% $5,392 22.3% $5,392 22.3% ======= ======== ======= ======= ======== ======= Occupancy 80.0% 78.0% 75.0% 77.0% 77.0% 77 0% Average Rate $168.50 $169.00 $169.50 $170.00 $170.00 $170.00 </TABLE> Note: Percentages are of total sales except for departmental expenses which are a percentage of departmental sales The comments and assumptions contained in this report are an integral part of this financial analysis - -------------------------------------------------------------------------------- <PAGE> VALUATION IV-18 - -------------------------------------------------------------------------------- Four Seasons - Austin, Texas Schedule of Prospective Cash Flow Before Debt Service Stated-year dollars (000) <TABLE> <CAPTION> 1998 1999 2000 2001 2002 2003 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Revenues: Rooms $14,743 57.7% $14,851 57.6% $14,757 57.5% $15,642 57.6% $16,112 57.6% $16,603 57.6% Food & Beverage 8,848 34.6% 8,912 34.6% 8,853 34.5% 9,389 34.6% 9,671 34.6% 9,961 34.6% Telephone 744 2.9% 747 2.9% 740 2.9% 782 2.9% 806 2.9% 830 2.9% Minor Operated Departments 1,199 4.7% 1,235 4.8% 1,272 5.0% 1,310 4.8% 1,349 4.8% 1,390 4.8% Rental & other income, net 36 0.1% 37 0.1% 38 0.1% 39 0.1% 40 0.1% 41 0.1% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 25,570 100.0% 25,782 100.0% 25,660 100.0% 27,162 100.0% 27,978 100.0% 28,825 100.0% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Departmental expenses: Rooms 3,677 24.9% 3,759 25.3% 3,826 25.9% 3,977 25.4% 4,096 25.4% 4,219 25.4% Food & Beverage 6,583 74.4% 6,704 75.2% 6,781 76.6% 7,088 75.5% 7,300 75.5% 7,519 75.5% Telephone 372 50.0% 375 50.2% 375 50.7% 394 50.4% 406 50.4% 418 50.4% Minor Operated Departments 719 60.0% 741 60.0% 763 60.0% 786 60.0% 810 60.0% 834 60.0% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 11,351 44.4% 11,579 44.9% 11,745 45.7% 12,245 45.1% 12,612 45.1% 12,990 45.1% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Gross Operating Income 14,219 55.6% 14,203 55.1% 13,915 54.2% 14,917 54.9% 15,366 54.9% 15,835 54.9% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unallocated operating expenses: Administrative and general 2,034 8.0% 2,090 8.1% 2,145 8.4% 2,216 8.2% 2,282 8.2% 2,351 8.2% Marketing 1,119 4.4% 1,151 4.5% 1,183 4.6% 1,221 4.5% 1,257 4.5% 1,295 4.5% Energy costs 689 2.7% 710 2.8% 731 2.8% 753 2.8% 776 2.8% 799 2.8% Property operation and maintenance 1,093 4.3% 1,123 4.4% 1,153 4.5% 1,191 4.4% 1,227 4.4% 1,264 4.4% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 4,935 19.3% 5,074 197% 5,212 20.3% 5,381 19.8% 5,542 19.8% 5,709 19.8% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Cash Flow before Management Fee and Fixed Charges 9,284 36.3% 9,129 35.4% 8,703 33.9% 9,536 35.1% 9,824 35.1% 10,126 35.1% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Management Fee and Fixed Charges: Management Fee 895 3.5% 902 3.5% 898 3.5% 951 3.5% 979 3.5% 1,009 3.5% Property Taxes 973 3.8% 1,002 3.9% 1,032 4.0% 1,063 3.9% 1,095 3.9% 1,128 3.9% Property Insurance 120 0.5% 123 0.5% 127 0.5% 131 0.5% 135 0.5% 139 0.5% Leases/CAM 222 0.9% 229 0.9% 236 0.9% 243 0.9% 250 0.9% 258 0.9% Replacement Reserve 1,023 4.0% 1,031 4.0% 1,026 4.0% 1,086 4.0% 1,119 4.0% 1,153 4.0% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 3,233 12.6% 3,287 12.7% 3,319 12.9% 3,474 12.8% 3,578 12.8% 3,687 12.8% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Cash Flow before debt Service (Net Operating Income) $6,051 23.7% $5,842 22.7% $5,384 21 0% $6,062 22.3% $6,246 22.3% $6,439 22.3% ======= ======= ======= ======= ======= ======= Occupancy 80.0% 78.0% 75.0% 77,0% 77.0% 77.0% Average Rate $173.50 $179.25 $185.25 $191.25 $197.00 $203.00 </TABLE> Note: Percentages are of total sales except for departmental expenses which are a percentage of departmental sales The comments and assumptions contained in this report are an integral part of this prospective financial analysis - -------------------------------------------------------------------------------- 1<PAGE> VALUATION IV-19 - -------------------------------------------------------------------------------- Four Seasons - Austin, Texas Schedule of Prospective Cash Flow Before Debt Service Stated-year dollars (000Os) <TABLE> <CAPTION> 2004 2005 2006 2007 2008 2009 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Revenues: Rooms $17,093 57.6% $17,604 57.6% $18,136 57.6% $18,688 57.6% $19,240 57.6% $19,833 57.6% Food & Beverage 10,260 34.6% 10,568 34.6% 10,885 34.6% 11,211 34.6% 11,548 34.6% 11,894 34.5% Telephone 855 2.9% 881 2.9% 907 2.9% 934 2.9% 962 2.9% 991 2.9% Minor Operated Departments 1,432 4.8% 1,475 4.8% 1,519 4.8% 1,564 4.8% 1,611 4.8% 1,660 4.8% Rental & other income, net 43 0.1% 44 0.1% 45 0.1% 47 0.1% 48 0.1% 49 0.1% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 29,683 100.0% 30,572 100.0% 31,492 100.0% 32,444 100.0% 33,409 100.0% 34,427 100.0% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Departmental expenses: Rooms 4,346 25.4% 4,476 25.4% 4,611 25.4% 4,749 25.4% 4,891 25.4% 5,038 25.4% Food & Beverage 7,745 75.5% 7,977 75.5% 8,216 75.5% 8,463 75.5% 8,717 75.5% 8,978 75.5% Telephone 431 50.4% 444 50.4% 457 50.4% 471 50.4% 485 50.4% 499 50.4% Minor Operated Departments 859 60.0% 885 60.0% 911 60.0% 939 60.0% 967 60.0% 996 60.0% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 13,381 45.1% 13,782 45.1% 14,195 45.1% 14,622 45.1% 15,060 45.1% 15,511 45.1% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Gross Operating income 16,302 54.9% 16,790 54.9% 17,297 54.9% 17,822 54.9% 18,349 54.9% 18,916 54.9% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Unallocated operating expenses: Administrative and general 2,421 8.2% 2,494 8.2% 2,569 8.2% 2,646 8.2% 2,725 8.2% 2,807 8.2% Marketing 1,334 4.5% 1,374 4.5% 1,415 4.5% 1,458 4.5% 1,501 4.5% 1,546 4.5% Energy costs 823 2.8% 848 2.8% 873 2.8% 899 2.8% 926 2.8% 954 2.8% Property operation and maintenance 1,301 4.4% 1,340 4.4% 1,381 4.4% 1,422 4.4% 1,465 4.4% 1,509 4.4% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 5,879 19.8% 6,056 19.8% 6,238 19.8% 6,425 19.8% 6,617 19.8% 6,816 19.8% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Cash Flow before Management Fee and Fixed Charges 10,423 35.1% 10,734 35.1% 11,059 35.1% 11,397 35.1% 11,732 35.1% 12,100 35.1% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Management Fee and Fixed Charges: Management Fee 1,039 3.5% 1,070 3.5% 1,102 3.5% 1,136 3.5% 1,169 3.5% 1,205 3.5% Property Taxes 1,162 3.9% 1,197 3.9% 1,232 3.9% 1,269 3.9% 1,307 3.9% 1,347 3.9% Property Insurance 143 0.5% 147 0.5% 152 0.5% 156 0.5% 161 0.5% 166 0.5% Leases/CAM 266 0.9% 266 0.9% 274 0.9% 282 0.9% 290 0.9% 299 0.9% Replacement Reserve 1,187 4.0% 1,223 4.0% 1,260 4.0% 1,298 4.0% 1,336 4.0% 1,377 4.0% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 3,797 12.8% 3,903 12.8% 4,020 12.8% 4,141 12.8% 4,263 12.8% 4,394 12.8% ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Cash Flow before debt Service (Net Operating Income) $6,626 22.3% $6,831 22.3% $7,039 22.4% $7,256 22.4% $7,469 22.4% $7,706 22.4% ======= ======= ======= ======= ======= ======= Occupancy 77.0% 77.0% 77.0% 77 0% 77.0% 77.0% Average Rate $209.00 $215.25 $221.75 $228.50 $235.25 $242.50 </TABLE> Note: Percentages are of total sales except for departmental expenses which are a percentage of departmental sales The comments and assumptions contained in this report are an integral part of this prospective financial analysis - -------------------------------------------------------------------------------- <PAGE> VALUATION IV-20 - -------------------------------------------------------------------------------- OVERALL CAPITALIZATION RATE ANALYSIS Capitalization is defined as the process of converting into present value (or obtaining the present worth of) a series of anticipated future periodic installments of net income. The anticipated net income stream is converted into a value estimate by a rate which attracts purchase capital to investments with similar characteristics such as risk, terms and liquidity. The capitalization process takes into consideration the quantity, quality and durability of the income stream in determining which rates are appropriate for valuing the subject property. Direct Capitalization This method of capitalization converts anticipated net income to an indicated market value by use of an appropriate rate which reflects the relationship of net income to selling price for comparable properties being sold in the open market. Direct capitalization for improved properties uses an overall capitalization rate which provides a return on the investment and a return of the wasting assets. No element of time is introduced. Acceptable methods of estimating overall capitalization rates (Ro) include 1) derivation from comparable market data, 2) debt coverage formulas, and 3) band of investment - mortgage and equity components. Derivation from Comparable Market Data For the derivation from market data, we have relied on the analysis of comparable sales data and national surveys. The advantage of using this method of comparison is that differences in location, physical condition, age, access and quality of construction are inherent in the rates being achieved by the various properties, and therefore, require no adjustment to the Ro. The following chart summarizes the data relating to Ro's for the comparable hotel sales presented in the Sales Comparison Approach section. - -------------------------------------------------------------------------------- Summary of Indicated Overall Rates for Hotels - -------------------------------------------------------------------------------- Sale Sale Indicated Overall No. Name/Location Date Capitalization Rate - -------------------------------------------------------------------------------- 1 De La Poste; New Orleans, Louisiana March 1997 9.60% 2 Ritz-Carlton Hotel; Atlanta, Georgia September 1996 10.56% 3 Mayfair Hotel; New York, New York May 1996 7.62% 4 Hyatt Regency; Austin, Texas April 19 96 9.77% 5 Four Seasons; Beverly Hills, California February 1996 4.17% Mean/Median 8.34%/9.60% - -------------------------------------------------------------------------------- The previous overall rates reflect net operating income after a 4.0% reserve for replacement. The cash flows utilized were as of the previous 12-month period prior to sale. As can be noted, the indicated capitalization rates for these hotel sales range from 4.17% to 10.56% with a central tendency of 9.60% and a mean of 8.34%. The low capitalization rate indicated by Sale 5 reflected a sales price which included rooms not currently in operation. Since the structure and land is available, the property would be anticipated to achieve a premium. Utilizing a proforma statement, assuming cash flows to increase with improving occupancies, ADR's or profitability, the capitalization rates would be anticipated to be higher. In analyzing these capitalization rates, it is important to take into <PAGE> VALUATION IV-21 - -------------------------------------------------------------------------------- consideration not only the actual performance of these properties at the time of sale but the purchasers' expectations. As an additional source of market indicated rates, the following chart presents the results of trends of capitalization rates, based on a survey of investment criteria conducted by PKF Consulting. ================================================================================ Investment Criteria - -------------------------------------------------------------------------------- 1996 1995 1994 1992 1990 1988 1986 - -------------------------------------------------------------------------------- Overall Cap Rate 11.1% 11.0% 11.2% 11.9% 10.2% 11.1% 10.9% - -------------------------------------------------------------------------------- Source: 1997 PKF Hospitality Investment Survey ================================================================================ A breakdown of the previous rates by property type is as follows. It should be noted that the investment surveys do not include a replacement reserve within their capitalization estimates, which would effectively result in a higher rate than the sales we presented previously. ===================================================================== Capitalization Rates --------------------------------------------------------------------- High Low Mean --------------------------------------------------------------------- Full Service 15.0% 8.3% 10.9% Limited Service 16.0% 9.0% 11.7% Resort 13.5% 5.0% 10.4% Overall 11.1% --------------------------------------------------------------------- Source: 2nd Quarter 1997 PKF Hospitality Investment Survey ===================================================================== As noted on the chart, the full-service properties ranged from 8.3% to 15.0%, with a mean of 10.9%. The limited service properties reflected higher rates. This is due to the fact that there has been a significant amount of new supply in this category, and because they are usually less expensive to build (fewer services and amenities), and therefore fewer barriers to entry. The resorts reflected the lowest rates. Resorts are generally not dependent upon local economic conditions, and rely instead upon either amenities specific to their location, or they create their own amenities to develop a "destination". In addition, we have also researched several recent investment surveys which collect data on current capitalization rates for hotels. The results are as follows: <PAGE> VALUATION IV-22 - -------------------------------------------------------------------------------- -------------------------------------------------------------------- Source Range Average -------------------------------------------------------------------- Landauer Hotel Group 7.5% to 13.0% 9.45% Hotel Investment Outlook 1997, Volume 6, No. 1 RERC 9.5% to 11.0% 10.10% Real Estate Report, 2nd Quarter 1997 Vol. 26, No. 2 - 1997 LaSalle Partners, Real Estate Finance --- 10.40% Survey, January 1, 1997 Korpacz Real Estate Investment Survey* 8.0% to 14.0% 10.20% 3rd Quarter 1997 Korpacz Real Estate Investment Survey** 10.0% to 13.0% 11.70% 3rd Quarter 1997 Korpacz Real Estate Investment Survey*** 7.0% to 11.0% 8.80% 3rd Quarter 1997 -------------------------------------------------------------------- *Full-service properties ** Economy/limited-service properties *** Luxury hotels -------------------------------------------------------------------- The indicated range of capitalization rates for hotels from the preceding surveys was 7.0% to 14.0%, with an average range of 8.80% to 11.70%. Note that when comparing the types of hotels, the luxury segment reflects significantly lower rates than the full service and economy/limited service properties. In addition, the American Council of Life Insurance, Investment Bulletin, for First Quarter 1997, indicated the average capitalization rate on hotel/motel loans to be 10.2%. Capitalization Rate Using the Debt Coverage Formula - An alternative method of estimating an overall capitalization rate is the debt coverage ratio. This is the ratio of net operating income to annual debt service. Lenders are concerned with the safety of the loan investment and consequently try to provide a cushion so that the borrower will be able to meet debt service obligations. To estimate the overall rate, the debt coverage ratio can be multiplied by the mortgage constant and the loan to value ratio. The formula is as follows: -------------------------------------- Ro = DCR x Rm x M Ro Overall Rate DCR Debt Coverage Ratio Rm Mortgage Constant M Loan to Value Ratio -------------------------------------- In the second quarter 1997 issue of the Hospitality Investment Survey - PKF Consulting, 1,549 transactions were surveyed. Profiling mortgage commitments for the various property types results in the following: <PAGE> VALUATION IV-23 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> =============================================================================================== Average Mortgage Terms Property Type L/V Ratio Interest Rates Amort. Period (Years) DCR Mortgage Constant - ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Full service 69.1% 9.0% 22.2 1.4 10.5% Limited service 71.0% 9.0% 21.6 1.4 10.5% Resort 68.7% 9.3% 22.0 1.4 10.7% All-properties 69.8% 9.1% 21.9 1.4 10.6% Source: 2nd Quarter 1997 PKF Hospitality Investment Survey =============================================================================================== </TABLE> Since the subject property is full service, we have afforded the most weight to that category. The following indicated capitalization rate is therefore calculated: Ro = 1.4 x 0.105 x 0.691 Ro = 10.2% The following definitions and survey data will provide the basis for the band of investment - mortgage equity components and debt coverage formula approach to deriving the capitalization rate. Loan-to-Value Ratio Loan-to-Value ratios are the relationship of the total loan amount to market value. Discussions with hotel lenders indicate typical loan-to-value ratios range from 65.0% to 70.0%. The PKF survey reflected an average loan to value ratio of 69.8% for all properties, with Full-Service properties ranging from 45.0% to 92.5%, Limited Service from 55% to 92.5% and Resorts from 55% to 85%. The 1997 issue of Landauer's Hotel Investment Outlook reflected a 70.0% loan-to-value, which is up from 64.0% a year ago. Their survey range was from 65.0% to 75.0%. According to the May 28, 1997 Investment Bulletin published by the American Council of Life Insurance, eight hotel/motel loans reported as of the 1st quarter 1997, reflected average loan to value ratios of 53.9%. Korpacz indicated debt and equity parameters for full-service/luxury product at 60.0% to 75%. For the purpose of our analysis, we have estimated a range of 65% to 75% for a typical loan-to-value ratio. Mortgage Interest Rate The 1997 PKF Hospitality Investment Survey, published by PKF Consulting, reports the average mortgage interest rate for hotel loans during 1996 at 9.1%. Both Full-Service and Limited-Service properties reflected ranges from 3.3% to 11.0%, with an average of 9.0%. Resorts ranged from 8.3% to 11.3%. The interest rate reported in the 1997 Landauer survey reflected the average interest rate for hotel loans at 8.79%, with a range from 8.10% to 9.25%. The May 28, 1997 Investment Bulletin, published by the American Council of Life Insurance Companies, reports the average mortgage interest rate for eight hotel loans up to the first quarter of 1997 at 8.25%. Our discussions with lenders suggest mortgage interest rates for hotels of this type typically range from the prime lending rate to approximately two to three hundred basis points over the prime rate. According to our review <PAGE> VALUATION IV-24 - -------------------------------------------------------------------------------- of the October 15, 1997 Wall Street Journal, the prime lending rate was 8.50% (effective March 26, 1997). The subject property will be considered "investment-grade" by institutional investors. Korpacz (Third Quarter 1997) reported survey respondents for full-service/luxury product with 7.5% to 8.0% interest rates. Therefore, based on the strength of the U.S. hotel market and the quality of the property, we believe a mortgage interest rate of approximately 8.0% is reflective of typical lender requirements for a luxury property. Mortgage Term Discussion with lenders indicated that typical amortization schedules for loans ranged from 15.0 to 30.0 years. The PKF Survey indicated an average of 21.9 years, with all property types reflecting a high of 30 years, and lows from 10 to 15 years. Landauer estimated 23.17, and Korpacz ranged from 20 to 30 years, with an average of 22.5 years. Korpacz specifically indicated 20 to 25 years for the full-service/luxury product. The typical loan has a balloon payment due within 5.0 to 10.0 years. Consequently, we have selected a 20-year amortization period for analysis purposes. Equity Dividend Rate An equity dividend rate is a rate that reflects the relationship between one year's equity income (before tax cash flow) and equity capital. Typical equity dividend rates for investment-grade properties range from the federal discount rate to the prime lending rate. According to our review of the October 15, 1997 Wall Street Journal, the federal discount rate is 5.0% while the prime lending rate is 8.50%. For comparison, 10-year treasury bonds and high-grade corporate bonds have ranged from approximately 4.9% to 8.5% over the previous three years. According to the second quarter 1997 Real Estate Report published by RERC, equity dividend rates for hotel loans averaged 12.4%. Based on our analysis of the subject property and alternative cash-on-cash returns, we believe an investment of this type would require approximately a 10.5% to 11.0% equity dividend rate to attract equity capital. Debt Coverage Ratio The debt coverage ratio is used as a measure of risk by lenders and borrowers. This ratio reflects the relationship between projected net operating income and debt service. The Investment Bulletin reports debt coverage ratios averaging 1.71 during the first quarter of 1997. The second quarter 1997 PKF Survey reflected an average of 1.4 (low of 1.20, high of 1.7 for all property types). Korpacz reported a range from 1.2 to 1.6 for all property types, with an average of 1.36, while Landauer reported a range of 1.40 to 1.50 (average 1.43). Discussions with lenders support these numbers and indicate typical debt coverage ratios for hotel properties at 1.40. Korpacz reported 1.2 to 1.5 for full-service/luxury product. Based on the physical and locational characteristics, as well as the market position of the subject property, we have selected a mid to lower end of this range, or 1.3 to 1.4, as an appropriate debt coverage ratio for the subject hotel. <PAGE> VALUATION IV-25 - -------------------------------------------------------------------------------- Holding Period Our use of a 10-year holding period has been estimated based upon our review of the Hospitality Investment Survey (6.7 years for all properties, ranging from 2.5 to 30), the Landauer report (14.20 years), the Investment Bulletin (10 years, five months), and RERC (seven years, five months). It should be noted that the surveys reflected conduit financing and the longer term holding periods by insurance companies. In summary, the following assumptions have been made based on current market conditions to estimate an overall capitalization rate. ================================================================================ Overall Capitalization Rate Analysis - Assumptions Mortgage Loan-to-Value Ratio = 65% - 75% Mortgage Interest Rate = 8.0% Mortgage Term = 20.0 years Indicated Mortgage Constant = 10.04% Equity Dividend Rate = 10.5% - 11.0% Debt Coverage Ratio = 1.30 - 1.40 ================================================================================ Debt Coverage Ratio Formula Debt Coverage Ratio and mortgage terms can be used to support overall capitalization rates indicated in the comparable sales by using the following formula: ================================================================================ Debt Coverage Ratio Formula Debt Overall Coverage (x) Mortgage (x) Loan-to-Value = Capitalization Ratio Constant Ratio Rate 1.30 x 10.04 x .65 = 8.5% 1.40 x 10.04 x .75 = 10.5% ================================================================================ The Debt Coverage Ratio formula based on the employed assumptions indicates an overall capitalization rate of 8.5% to 10.5%. Band of Investment Band of Investment is a relatively simple method of estimating an overall capitalization rate. Band of Investment is a weighted average of the equity dividend rate and the annual debt service constant. The following formula shows this relationship: <PAGE> VALUATION IV-26 - -------------------------------------------------------------------------------- ================================================================================ Band of Investment Formula Loan-to Mortgage Equity Equity Overall Value (x) Constant + Percentage (x) Dividend = Capitalization Ratio Rate Rate .65 x 10.04 + .35 x 10.5% = 10.2% .75 x 10.04 + .25 x 11.0% = 10.3% ================================================================================ The estimated overall capitalization rate via the Band of Investment based on the employed assumptions is 10.2% to 10.3%. The previous techniques and investment surveys indicate average overall capitalization rates ranging from 8.34% to 11.7%. Eliminating the outlier, a tighter range reflects 8.5% to 10.5%. Luxury hotels tend to have the lowest capitalization rates. This is due to several factors, some of which are also applicable to resort and full service level properties. These include a buyers perception of revenue appreciation after a renovation/ownership change, the longer physical life of a high end structure, and the lower internal rates of return acceptable to purchasers of trophy properties. Conversely, limited service properties tend to reflect the higher capitalization rates due to the somewhat shorter physical life of the structure (especially for the economy properties), and the fact that as primarily a rooms only operation, there are fewer departments to improve revenues or lower expenses on. The primary factors affecting the Ro at which any property is purchased include the anticipation of the ability to increase the revenue during the holding period, and the level of operating expenses. If the purchaser sees the potential to increase revenue, either through increasing occupancy levels or because the average rates are below market rate levels, he may be willing to purchase the property at a price reflecting a lower Ro since the effective Ro after curing the current aberration will be closer to the sample norm. In analyzing the various expense ratios, if the subject has an unjustifiably high expense ratio, the indicated Ro will tend to be lower. The subject has a relatively low expense ratio. It is also felt that there is a trade off in most markets regarding average rate and occupancy. There is a ceiling to how much over the market rate a property can achieve, and still maintain an acceptable occupancy. In the case of the subject, the Four Seasons currently has no competition for its quality level in the market, and has successfully maintained its increasing rate premium. Based on the existing and proposed hotel supply, the economy and market conditions and particularly our estimated overall capitalization rates via the comparable sales and investment surveys, we believe an appropriate overall capitalization rate for the subject property is 9.0%. Therefore, the direct capitalization technique can be summarized as follows: <PAGE> VALUATION IV-27 - -------------------------------------------------------------------------------- Direct Capitalization Technique Stabilized Year Cash Flow(1) $ 5,392,000 Overall Capitalization Rate / 9.00% ------- Stabilized Value Indication (Before Revenue Loss) $ 59,911,111 =========== (1) fourth (fiscal) year NOI in constant (uninflated) dollars. Note: Numbers may not total due to rounding. Revenue Loss Calculation Revenue loss is the difference in the projected cash flows and the cash flow which would be available if the property were at stabilized performance levels. This amount must be subtracted from the stabilized value to reflect the risk associated with the loss of income of a hotel property during the stabilization period. An analysis of the cash flow projection shows the following: ================================================================================ Revenue Loss/Gain Prior to Stabilization ($000*) - -------------------------------------------------------------------------------- Operating Fiscal Year 1998 1999 2000 2001 Total - -------------------------------------------------------------------------------- Stabilized Projected Cash Flow $5,392 $5,392 $5,392 $5,392 Projected Cash Flow 5,880 5,508 4,925 5,392 Total Revenue Loss/Gain ($488) ($116) $467 $0 ($137) - -------------------------------------------------------------------------------- * in constant, 1997 uninflated dollars ================================================================================ Based upon the preceding calculation, the cumulative revenue adjustment over the stabilization period is $137,000. Since the first two years reflect income over and above the stabilized year, due to the impact of new rooms supply in the market, the adjustment is positive (a negative loss). As noted, the overall rate was applied to the stabilized net operating income (fourth year) of the subject property. An adjustment for the income loss/gain to stabilization is indicated in the calculation. The following chart reflects a summary of the direct capitalization analysis. Direct Capitalization Analysis Stabilized Value Indication $59,911,111 Adjustments to As Is: Revenue Loss/Gain to Stabilization 137,000 ----------- Value Indication $60,048,111 Rounded $60,000,000 =========== <PAGE> VALUATION IV-28 - -------------------------------------------------------------------------------- Implied Per Unit: $206,186 Implied Stabilized Capitalization Rate 9.0% Implied Effective Room Revenue Multiplier 4.3 Implied Effective Gross Income Multiplier 2.5 DISCOUNTED CASH FLOW ANALYSIS This approach is a set of procedures in which the quantity, variability, timing and duration of periodic income, as well as the quantity and timing of reversions, are modeled and discounted to a present value at a specified yield rate. Specific consideration is given to the timing of cash receipts and disbursements. For the purpose of this analysis, we have utilized a hypothetical investment period of 10 years. The bases for the revenue and expense estimates were presented earlier in this section of the report, only, as noted previously, consideration is given to the anticipated timing of the cash flows rather than stabilized amounts. Basis for Property Reversion: In addition to the cash flow from operations, the model hypothecates a sale of the property at the end of the investment period, with the net sale proceeds accruing to the ownership position. The sale is modeled to occur at the end of the 10th (full) year. The method of estimating the terminal sale price is also direct capitalization. The prospective buyer would make a purchase decision based on the anticipated revenue and expenses which should occur in the initial year of ownership. Therefore, the cash flows for the year subsequent to the final year of the investment model were utilized (i.e. year 11). The net sale proceeds accruing to the property owner reflect the "as is" value of the property at that point in time less appropriate transactions costs. Terminal Capitalization Rate (Rt): The terminal capitalization rate (RT) is calculated by adjusting the current market derived overall capitalization rate (RO) for the loss in the competitive market standing realized by the subject property over the holding period due to the normal aging of the property. Properties have a limited economic life. As properties age, the competitive edge is diminished relative to newer properties. This concept is consistent with incurable physical deterioration. This theory holds that the terminal capitalization rate will be higher than the current capitalization rate, given no major renovations during the holding period. One method of calculating the terminal capitalization rate uses the current stabilized overall rate as the going-in rate. This rate is adjusted by using the current age of the property and the anticipated incurable depreciation that is expected to occur over the holding period. By using a land to building value ratio, the decline in competitiveness can be isolated to the improvements only. As a point of reference, residual capitalization rates, as reported in the Third Quarter 1997 Korpacz Real Estate Investor Survey, for the national luxury hotel market ranged from 8.0% to 12.0%, with an average of 9.5%. The national full service hotel market ranged from 9.0% to 14.0%, with an average of 10.60%. The economy/limited service sector reported a range from 10.0% to 14.0%, with <PAGE> VALUATION IV-29 - -------------------------------------------------------------------------------- a survey average of 12.00%. According to the January 1997 LaSalle Partners Real Estate Finance Update, residual capitalization rates for hotels were 10.7%, slightly higher than their average going-in capitalization rate of 10.4%. Landauer reported a range for full service properties of 9.0% to 12.0%, with an average of 10.85% as of 1997, and RERC's Real Estate Report, as of the second quarter of 1997, reported an average residual cap rate of 10.8%, with a range from 10.3% to 11.5%. Since loss of competitive standing is typically reflected in achievable average daily rates, we have assumed a terminal rate at 50 basis points above the going in rate, or 9.50%. Transaction Costs: Typical transaction costs by the seller consist of brokerage commissions, tax proration, title insurance and related fees, survey costs, and legal fees. Discussions with brokers and title companies, based on certain fixed (legal) costs as well as those calculated as a percentage of sale price, indicated costs at approximately 1.30% of the sale price for a hotel of this price level was reasonable. This is supported by a 1996 Korpacz report which reflected selling expenses of 1.0% to 3.0% for the national luxury hotel market, with an average of 2.1%; 1.0% to 5.0% for full-service properties with an average at 2.6%; and 2.0% to 5.0% with an average of 3.5% for economy/limited service properties. The 1997 Landauer report reflected selling costs averaging 2.58%, ranging from 1.0% to 3.5%. Discount Rate Analysis: Since the use of this method of analysis attempts to replicate the overall performance of the investment from its inception to its termination, the appropriate discount rate must reflect the required total yield to the ownership position. By definition, this yield rate is also known as the Internal Rate of Return ("IRR"). The IRR is the rate of return on invested capital that is generated, or is capable of being generated, within an investment during the period of ownership. In other words, it is a rate of profit (or loss) or a measure of performance. It is literally, an interest rate. The effective interest rate on a real estate investment is the equity investor's IRR. The yield to maturity on a bond is the bond holder's IRR, when the bond is held for its full term. The IRR is the rate of return on capital expressed as a ratio per unit of time; for example, 10% per annum.(1) The discount rate utilized herein is therefore the anticipated IRR for the subject property, based on current market expectations and historical performance of investments of this class and quality. Although the investment vehicle being analyzed herein is real property, competition for investment dollars in other investment media is keen, and the prudent investment manager must carefully consider all alternatives. Because real estate is cyclical in nature, it is important to view historic market performance in order to ascertain the stage of the current market cycle, along with the reasonableness - ---------- (1) The Internal Rate of Return in Real Estate Investments, Charles B. Akerson, (c) American Society of Real Estate Counselors, Chicago, IL, 1987. <PAGE> VALUATION IV-30 - -------------------------------------------------------------------------------- of current buyer expectations. The following charts present current yields on hotel investments as reported by PKF industry surveys. The second is a detailed breakdown of the 1997 rates from the first chart. ================================================================================ Investment Criteria - -------------------------------------------------------------------------------- 1996 1995 1994 1992 1990 1988 1986 - -------------------------------------------------------------------------------- Discount Rate 14.10% 14.57% 14.70% 16.00% 15.00% 14.60% 13.80% Holding Period (years) 6.70 6.27 7.10 8.40 9.60 8.80 9.30 - -------------------------------------------------------------------------------- Source: Second Quarter 1997 PKF Hospitality Investment Survey ================================================================================ ================================================================================ Internal Rates of Return/Discount Rate - -------------------------------------------------------------------------------- High Low Mean - -------------------------------------------------------------------------------- Full Service 18.0% 11.3% 13.90% Limited Service 19.0% 12.4% 14.70% Resort 16.5% 10.0% 13.40% Overall 14.10% - -------------------------------------------------------------------------------- Source: Second Quarter 1997 PKF Hospitality Investment Survey ================================================================================ Free and clear yield parameters as reported in other market surveys are as follows: ================================================================================ Internal Rates of Return - -------------------------------------------------------------------------------- Source High Low Mean - -------------------------------------------------------------------------------- Landauer, Hotel Investment Outlook, 1997(1) 16.0% 12.0% 13.50% Korpacz, Real Estate Investor Survey, 3rd Q, 1997(2) 18.0% 9.0% 13.70% Korpacz, Real Estate Investor Survey, 3rd Q, 1997(3) 16.0% 8.0% 12.80% Korpacz, Real Estate Investor Survey, 3rd Q, 1997(4) 20.0% 11.0% 14.70% LaSalle Partners, Real Estate Finance Update, NAV NAV 11.20% January 1, 1997(1) RERC, Real Estate Report, 2nd Q, 1997(1) 13.0% 12.0% 12.40% - -------------------------------------------------------------------------------- (1) all hotels (2) full service hotels only (3) luxury hotels (4) economy/limited-service hotels ================================================================================ The previous data presents a mixture of historic results with current market expectations. Because real estate is cyclical in nature, it is important to view historic market performance in order to ascertain the current stage of the market cycle in which we are dealing, along with the reasonableness of current buyer expectations. <PAGE> VALUATION IV-31 - -------------------------------------------------------------------------------- Certain elements of real estate investments cause the required returns to generally be higher than some of the traditional investment media. Two significant elements include management risk and illiquidity. As a result, the prudent investment manager must compare competitive rates of return, and the risk associated with those returns. Discussions with some participants indicate that because of keen competition for investment grade real estate, these indicators are sometimes compromised if the quality of the property is significant. The discount rate to be applied to the cash flows of the subject property must reflect the quality and durability of the income estimates, as well as the likelihood of long-term gain in asset value. As discussed, the yield to the investor, or IRR, must be at a level commensurate with alternative investment vehicles. With a perceived higher risk, hotel investors are requiring a greater return on their investment, therefore causing the rise in both capitalization rates and discount rates. This is in spite of the fact that interest rates are down. This is due to unusually high equity returns (relative to historical standards) caused by a small pool of buyers with access to cash, as well as motivated sellers. According to the PKF Hospitality Investment Survey, an "optimistic attitude driving hotel investment continued in 1996 and is expected to remain through 1997. Investors are purchasing hotels at continually rising prices, still confident of continuing upside potential in the marketplace. It is estimated that the average price paid for a hotel in 1997 will approximate 91.3% of replacement cost. This contrasts to the 47.4% mark recorded in 1991, at the depth of the nation's economic and lodging recession". Despite the influx of new supply in many markets (in some instances, over development), most analysts and investors feel a healthy economy and improvements in operating efficiencies will continue to positively impact profitability. According to survey respondents, investment dollars flowing into the hospitality industry has yet to subside, with 82% of the 141 companies interviewed planning to purchase or sell one or more hotels in 1997. Heightened competition, especially from REITs, has pushed prices up and investor yields down. A CB Commercial survey that focused on West Coast hotel investment pricing trends found that values rose to more than $63,000 per room last year from just under $47,000 in 1995. According to Landauer, the gap between pricing and replacement cost is narrowing. In fact, they suggest that certain sales are at replacement value, if one considers the cost of what should have been constructed rather than what was developed. Korpacz reported record profits for hotels in 1996, which has continued into 1997. Their survey respondents also reported record sales volumes during that time frame. They speculated there would be fewer transactions in 1997, but at higher prices. While room rate growth was impressive, they anticipated increases in 1997 at more than double the rate of inflation. This increase can be partially attributable to the higher percentage of new full service hotel construction, as well as the fact that there have been limits to new supply additions in most markets, and therefore a certain amount of pent up demand accommodated. In addition, contributing to the phenomenal profit levels are that 6.9 cents out of every one dollar of revenue is used to pay interest expense, compared with 14 cents during the industry's worst year, 1990. Hotels are also operating with fewer employees. Food and beverage services are being paired down. Korpacz indicates that the industry is clearly in an <PAGE> VALUATION IV-32 - -------------------------------------------------------------------------------- expansion mode, with the bulk of new construction in mid-priced, limited-service and extended stay product. Overall, they report that it will be less expensive to build than to buy limited-service product in 1997, and the gap for full-service and luxury hotel replacement costs is narrowing. Construction financing is the most difficult hurdle. A common theme among survey participants is the impact of Wall Street and the increased activity in the public capital markets as a source of financing for the lodging industry. In the case of a hotel, an asset in which the risks are typically higher than other types of real estate due to an ability to react on a daily basis to changes in the market, the profits can also be significantly higher. At a certain average rate and occupancy, because of a high percentage of fixed costs including payroll, additional revenues (increases in occupancy and average daily rate) drop straight to the bottom line. In yield capitalization ( DCF analysis), the yield rate is a complete measure of profitability, with the cash flows and the reversion, the return on and of capital, being specifically set out in the analysis. When an investor purchases a property and anticipates appreciation in value, the total yield rate will be higher than the expected rate of income, i.e., the Ro. As noted previously, the stabilized (going-in) overall capitalization rate was estimated at 9.0%. "Terminal" capitalization rates are typically 25 to 100 basis points above "going-in" rates. Yield rates (discount rates) are directly related to growth in revenues, sales costs and terminal capitalization rates. The terminal capitalization rate was estimated at 9.50%, while sales costs equated to 1.3% of the indicated sales price. The cash flow rate of change from the stabilized year NOI to the reversion year NOI indicates 3.31% annually. Utilizing the estimated DCF value of $60,200,000 via the Income Approach, which was adjusted for revenue gains to stabilization of $137,000 as the present value, ($60,063,000 + $137,000 = $60,200,000) and our estimated net reversion value of $77,607,338 as the future value after a 10 year holding period, the compound annual rate of change in property value based on our cash flow assumptions is 2.60%. The weighted change rate, based on this analysis, is 3.02%. As a further check for reasonableness, the value via the Sales Comparison Approach at $61,600,000, as compared to the future value via the income approach of $77,607,338, reflects a value rate of change of 2.33%. Therefore, the indicated yield rate (discount rate) for the property could be calculated as follows: Overall Capitalization Rate + Weighted Annual Change in Value = Yield 9.0% + 3.02% = 12.02% 9.0% + 2.33% = 11.33% Utilizing the previous calculation as the basis for a reasonable discount rate indicator, the industry surveys noted previously, affording the most weight to the luxury hotel segment indicators ranging from 8.0% to 16.0%, with an average of 12.80%, we have assumed a discount rate of 12.0% as reasonable for the subject property. <PAGE> VALUATION IV-33 - -------------------------------------------------------------------------------- Present Value Analysis: The following chart presents a summary of the cash flow from operations, the terminal capitalization rate calculation, the net sale proceeds from the property resale, and the indicated present value analysis at the discount rate discussed. Four Seasons Hotel, Austin, Texas Discounted Cash Flow Analysis (Fiscal) Net Operating Present Value Year Income Factor at 12.0% Present Value ------ ------------------ ---------------- ------------- 1998 $ 6,050,520 0.892857 $ 5,402,249 1999 5,842,000 0.797194 4,657,207 2000 5,384,000 0.711780 3,832,224 2001 6,062,000 0.635518 3,852,510 2002 6,246,000 0.567427 3,544,149 2003 6,439,000 0.506631 3,262,197 2004 6,626,000 0.452349 2,997,264 2005 6,831,000 0.403883 2,758,925 2006 7,039,000 0.360610 2,538,334 2007 7,256,000 0.321973 2,336,236 --------- Total Present Value of Cash Flows $35,181,295 Value of Reversion Terminal Net Operating Income $ 7,469,000 Terminal Capitalization Rate 9.50% ----------- Reversion Value $78,621,053 Less: Cost of Sale (1,013,715) ----------- Terminal Net Sale Proceeds $77,607,338 Discount Factor 0.321973 ----------- Present Value of Reversion $24,987,467 ----------- Total Value of Cash Flow & Reversion $60,168,762 Rounded $60,200,000 =========== Implied Per Unit: $206,873 Implied Stabilized Capitalization Rate: 8.96% Implied Effective Room Revenue Mult. 4.3 Implied Effective Gross Income Mult. 2.5 Portion of DCF indication from Cash Flows 58.47% Portion of DCF indication from Reversion 41.53% <PAGE> VALUATION IV-34 - -------------------------------------------------------------------------------- Summary of Income Capitalization Approach In a direct capitalization, whereby one year of income is capitalized, the Ro is derived directly from the market, and although not specifically addressed, the expected rate of return on capital and the means of recapture are inherent in that rate. The anticipated growth rate in the discounted cash flow analysis is a function of the escalation assumptions and the growth in property value indicated by the reversion estimate. Therefore, the average annual growth rate (CR, constant ratio change) inferred by the combination of these factors should explain the relative difference between the Ro indicated in a direct capitalization of the subject's stabilized year income (adjusted for revenue loss/gain to stabilization and any major capital expenditures) and the yield rate (or discount rate) selected for the discounted cash flow analysis. Reconciliation of Valuation Methods The valuation based on the Direct Capitalization method resulted in a value of $60,000,000. This estimate reflected a 0.3% value difference from the DCF Approach of $60,200,000. It is our opinion that significant consideration should be given to the anticipated timing of the cash flows over the stabilized amounts, with the amount and duration of the assured income addressed on an individual yearly basis, rather than merely as a global adjustment to the Ro. Specifically, we also feel that there is inherently more risk associated with the investment due to anticipated additions to the competitive supply prior to the completion of the expansion of the convention center, which we feel are reflected in our projected cash flows as well as capitalization and discount rates. Therefore, it is our opinion that the indication of value via the Income Approach, as of the date specified, is as follows: Indication of Value By the Income Capitalization Approach: $60,200,000 SALES COMPARISON APPROACH Introduction The basic appraisal principals which have to be addressed in comparing comparable market transactions to the subject include supply and demand, substitution, balance, and externalities. In analyzing demand, consideration must be given to the number of potential users, their purchasing power and their tastes and preferences. Supply considerations focus on existing properties that are unsold or vacant, and potential new additions of product. Prices tend to change as this relationship changes. When demand is high, prices tend to increase. When demand is low, or supply exceeds demand, prices tend to decline. The principal of substitution holds that the value of a property tends to be set by the cost of acquiring an equally desirable substitute property. Balance is not only important in the supply/demand relationship, but must be considered in the relationship between land and improvements or the property and its environment. Under improved properties where the underlying land value is out of balance with the existing use, or where the improvements have been over-amenitized for that particular market, can cause imbalance which imputes different prices to otherwise comparable properties. <PAGE> VALUATION IV-35 - -------------------------------------------------------------------------------- External forces such as cycles of economic development or depression, as well as locational factors, can affect market value. Two properties with identical physical attributes may vary dramatically in value based on these factors. The reliability of this approach will vary depending on the combination of these factors, and the availability of data reflecting conditions similar to those being realized by the subject. By analyzing sales which qualify as arms-length transactions between willing, knowledgeable buyers and sellers, we can identify market value and price trends. Accordingly, we reviewed a number of recent sales throughout the United States and consider five to be useful for our analysis, of which one is a competitor of the Four Seasons in Austin. The sales occurred from February 1996 to March 1997. The sale properties ranged in size from 100 rooms to 448 rooms. The utilization of comparable sales located throughout the United States is due to the fact that the market for investment real estate such as the subject is national. The inclusion of Sale 1, located in the French Quarter historic district of New Orleans reflects this to the extent that in spite of its smaller size and market orientation, its units of comparison (RRM, RevPARM and R0) are in line with the other sales. It's EGRM is significantly higher, due to its limited food and beverage. It should be noted that adjustments for differences in location and physical condition are very difficult to separate and to quantify for a lodging facility. Accordingly, adjustments for these areas are often very subjective. However, we are of the opinion that economic units of comparison are the most appropriate for comparison purposes. These include the Rooms Revenue Multiplier (RRM) the Effective Gross Revenue Multiplier (EGRM) and the Revenue Per Available Room Multiplier (RevPARM). These approaches are based on the theory that a property location or physical advantage/limitation is reflected in the occupancy and/or's average room rate it achieves as compared to the subject. While the sale item is real estate, the buyers criteria is return on and of investment, which is accomplished through cash flows and property value appreciation. Presented in the following table is a summary of details on the selected comparable hotel sales. Since no two properties are ever identical, adjustments are typically made to the sales prices of the comparable properties for differences in property rights conveyed, financing terms, conditions of sale, market conditions (time), location, and physical characteristics. Common units of comparison to analyze the value of a hotel are the price paid per room and the revenue multipliers. However, the revenue multipliers were given the most weight in our analysis, since the prices paid are typically based on current and anticipated revenues. As such, the ratio of revenues to sale price, should provide a basis for trends in buyer motivation. The inclusion of sales throughout the U. S., supported by industry surveys, shows that the multipliers of income to sales price remain relatively consistent among investors for this grade of real estate. The details of each transaction are shown on the sales data sheets presented on the following pages. A summary chart follows the details. The summary chart includes details on the sales, as well as details regarding the subject. The economic data utilized for both the sales and the subject are the actual (or estimated) 12-month operating history prior to sale. For the subject, we have utilized its previous 12-month operating performance through August 1997. <PAGE> VALUATION IV-36 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> SALES SUMMARY CHART De La Poste Ritz-Carlton Mayfair Hotel Hyatt Regency Four Seasons Four Seasons Hotel - Austin, Texas New Orleans Atlanta New York Austin Beverly Hills Item Subject Sale 1 Sale 2 Sale 3 Sale 4 Sale 6 ------- ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> Date of Sale N/A Mar-97 Sep-96 May-96 Apr-96 Feb-96 Physical Data: Number of Guest Rooms 291 100 447 201 448 283 Sale Price Per Room 160,000 139,821 303,483 84,821 371,025 Year Built 1986 1972 1984 1925 1982 1971 Effective Age 11 25 13 72 15 26 Number of Restaurants 1 leased 1 1 2 2 Number of Stories 9 5 25 15 19 12 Number of Lounges 1 1 1 1 1 1 Total SF Meeting Space 18,021 5,120 16,724 12,212 20,000 25,000 Sale Data: Sale Price N/A $16,000,000 $62,500,000 $61,000,000 $38,000,000 $105,000,000 Percent Equity N/A 100.00% 100.00% 100.00% 100.00% 100.00% Conditions of Sale N/A Cash Cash Cash Cash Cash Cash Equivalent Price N/A $16,000,000 $62,500,000 $61,000,000 $38,000,000 $105,000,000 Cash Equivalent Price/Room N/A $160,000 $139,821 $303,483 $84,821 $371,025 Economic Data: ADR at Sale $166.05 $112.00 $132.00 $310.00 $89.25 $281.75 Occupancy at Time of Sale 80.60% 78.00% 73.00% 65.00% 76.90% 69.80% Room Revenue Per Room 48,870 31,886 35,123 73,547 25,020 71,782 Room Revenue/% Total Revenue 57.74% 88.48% 51.99% 70.00% 61.47% 48.73% Total Revenue Per Room 84,640 36,036 67,562 105,068 40,703 147,306 Total Expenses Per Room 63,962 20,675 52,796 81,953 32,420 131,839 Expense Ratio Total 75.57% 57.38% 78.15% 78.00% 79.65% 89.50% NOI Ratio 24.43% 42.63% 21.85% 22.00% 20.35% 10.50% NOI Per Room 20,678 15,360 14,765 23,115 8,283 15,467 RevPAR 133.84 87.36 96.36 201.50 68.63 196.66 Units Of Comparison: Room Rev. Multiplier (RRM) N/A 5.02 3.98 4.13 3.38 5.17 Total Rev. Multiplier (EGRM) N/A 4.44 2.07 2.89 2.08 2.52 Revenue/Avail. Room (RevPARM) N/A 1,8032 1,451 1,506 1,236 1,887 Ro N/A 9.60% 10.56% 7.62% 9.77% 4.17% Sample Statistics: High Low Mean -------------------------------------- Room Revenue Multiplier (RRM) 5.17 3.39 4.34 Total Revenue Multiplier (EGRM) 4.44 2.07 2.80 Revenue Per Available Room (RevPARM) 1,832 1,236 1,582 Ro 10.56% 4.17% 8.34% </TABLE> Source: PKF Consulting/Hospitality Advisory Services <PAGE> VALUATION IV-37 - -------------------------------------------------------------------------------- Sale 1: Date of Sale: March 13, 1997 Name of Property: The De La Poste Hotel Location: 316 Chartres Street New Orleans, LA Grantor: De La Poste Hotel, Inc. (Lee H. Schlesinger, President) Grantee: SLT Realty Limited Partnership (Starwood Lodging Trust) Land Area: 73,444 square feet Land/Bldg Ratio: NAV Improvements: No. Rooms: 100 No. Floors: 5 Built: 1920/72 No. of Bldgs: 4 Gross Bldg SF: 63,288 Restaurant: one leased to "Bacco" Lounge: one Meeting Space: 5,120 square feet total Facilities: Landscaped brick paved courtyard area with fountain and swimming pool, security gate, parking garage for 70 cars. Consideration: $16,000,000 Terms: Cash to seller Effective Sale Price: $16,000,000 Income Data (1996 year end estimated by appraiser familiar with property after conversations with management co.): Occupancy 78% * cash flows were adjusted to include a 4% reserve for replacement. Average Daily Rate: $112.00 RevPAR 87.36 ================================================================================ 1996 Year End* 100 Total* Per Room % EGR - -------------------------------------------------------------------------------- Rooms Revenue $3,188,640 $31,886 88.48% Other Revenue 414,964 4,150 11.52% Total Revenue 3,603,604 36,036 100.00% Expenses 1,923,424 19,234 53.38% Replacement Reserve 144,144 1,441 4.00% Net Operating Income $1,536,036 $15,360 42.63% ================================================================================ *estimated Units of Comparison: Price Per Room $160,000 RRM (Room Revenue) 5.02 EGRM (Total Revenue) 4.44 RevPAR Multiplier 1,832 Ro 9.60% <PAGE> VALUATION IV-38 - -------------------------------------------------------------------------------- Comments: At the time of this sale, the property from a physical and structural standpoint was said to be in good condition. The hotel had negligible deferred maintenance at time of sale, having been totally renovated over the past seven years at a reported cost of +$2 million, with approximately $300,000 of that spent in 1996. The property is located in the French Quarter (Vieux Carre Commercial District) of New Orleans. The four buildings comprising the property include a five-story building containing guest rooms, lobby, lounge, kitchen and restaurant (leased), service areas and covered garage. The second building is three stories, and contains an addition to the restaurant, as well as the offices for hotel management. A third building is a two-story carriage house containing four rental units. The fourth building is a one-story, warehouse shell built in 1920, containing meeting space and parking. Parts of the ground floor were leased in 1990 to the Brennan family to operate Bacco's Restaurant. <PAGE> VALUATION IV-39 - -------------------------------------------------------------------------------- Sale 2: Date of Sale: September 20, 1996 Name of Property: Ritz-Carlton - Downtown Atlanta Location: 181 Peachtree Street NE Atlanta, Georgia 30303 Grantor: Metropolitan Life Insurance Company Grantee: Marriott International Land Area: NAV Land/Bldg Ratio: NAV Improvements: No. Rooms: 447 No. Floors: 25 Built: 1984 No. of Bldgs: 1 Gross Bldg SF: Not known Restaurant: one ("The Restaurant") Lounge: one ("The Cafe") Meeting Space: 16,724 square feet total, including a 6,500 sf ballroom, 12 conference rooms, three boardrooms. Meeting space is located on three floors. Facilities: 22 suites, each with bay window view and honor bar; 39 Ritz Carlton Club rooms, 2 suites with private lounge; fitness center; afternoon tea; musical entertainment at lunch and dinner; 24-hour room service Consideration: $62,500,000 Terms: Cash to seller Effective Sale Price: $62,500,000 Income Data:* 1995 ------ Occupancy 73% Average Daily Rate: $132 * 1995 occupancy/ADR is actual; 1995 cash flows estimated based on typical Ritz RevPAR 96.36 Carlton operating ratios (rounded). A 4.0% reserve for replacement was deducted. ================================================================================ 1995 Estimate* Total Per Room % EGR - -------------------------------------------------------------------------------- Rooms Revenue $15,700,000 $35,123 52.0% Other Revenue 14,500,000 32,438 48.0% Total Revenue 30,200,000 67,562 100.0% Expenses 23,600,000 52,796 78.1% Net Operating Income $6,600,000 $14,765 21.9% ================================================================================ Units of Comparison: Price Per Room $139,821 RRM (Room Revenue) 3.98 EGRM (Total Revenue) 2.07 RevPAR Multiplier 1,451 Ro 10.56% <PAGE> VALUATION IV-40 - -------------------------------------------------------------------------------- Comments: The property is located in the downtown financial/legal district, at Peachtree and Ellis. It was in excellent condition, according to the buyer. The property is a Triple A, Five Diamond property. The buyer looked at the historic performance of the property as well as considering future estimated proforma cash flows. They based their purchase price on an unleveraged internal rate of return of 15%. <PAGE> VALUATION IV-41 - -------------------------------------------------------------------------------- Sale 3: Date of Sale: May 1996 Name of Property: Mayfair Hotel Park Avenue Location: 610 Park Avenue at East 65th Street New York, New York 10021 Grantor: Investment Group led by Norman Perlmutter Grantee: Investment Group led by Colony Capital Land Area: NAV Land/Bldg Ratio: NAV Improvements: No. Rooms: 201 No. Floors: 15 Built: 1925 No. of Bldgs: 1 Gross Bldg SF: NAV Restaurant: one Lounge: located in restaurant area Meeting Space: 12,212 square feet total in three rooms: an 11,052 sf meeting room, a 638 sf boardroom and 522 sf boardroom (no ballroom) Facilities: Business services, fitness center with putting green, some rooms with fireplaces Consideration: $61,000,000 Terms: Cash Effective Sale Price: $61,000,000 Income Data:* 1995 1994 ------- ------ Occupancy 65.0% 60.0% * Actual occupancies and rates, financial performance estimated Average Daily Rate: $310 $289 utilizing ratios provided by management, including a 4% reserve RevPAR 201.50 173.40 for replacement, rounded ================================================================================ 1995 Estimated Total Per Room % EGR - -------------------------------------------------------------------------------- Rooms Revenue $14,783,000 $73,547 70.0% Other Revenue 6,335,600 31,520 30.0% Total Revenue 21,118,600 105,068 100.0% Expenses 16,472,500 81,953 78.0% Net Operating Income $4,646,100 $23,115 22.0% ================================================================================ Units of Comparison: Price Per Room $303,483 RRM (Room Revenue) 4.13 EGRM (Total Revenue) 2.89 RevPAR Multiplier 1,506 Ro 7.62% <PAGE> VALUATION IV-42 - -------------------------------------------------------------------------------- Comments: The Mayfair is located on Manhattan's Upper East Side. An independent affiliation, it is known for luxury and gracious, low-key service. Several years prior to sale, the property achieved one of the city's highest ADR's, but its rate had fallen. The buyer intends to spend an estimated $30,000,000 in required renovations. It is estimated that this capital infusion will return the property to its top rated tier. Teachers Insurance and Annuity Association (TIAA) held the first mortgage position on the property. The mortgage was $96 million and TIAA was in the process of taking it back. The property was purchased by Colony at New York State Court auction. <PAGE> VALUATION IV-43 - -------------------------------------------------------------------------------- Sale 4: Date of Sale: April 1996 Name of Property: Hyatt Regency Austin Location: 208 Barton Springs Road Austin, Texas 78704 Grantor: Redstone Hotels Inc. Grantee: Patriot America Land Area: 8.87 acres/386,377 sf Land/Bldg Ratio: NAV Improvements: No. Rooms: 448 No. Floors: 19 Built: 1982 No. of Bldgs: 1 Gross Bldg SF: Not known Restaurant: two (170 seats total) + 60-seat patio Lounge: one (70 seats) Meeting Space: 20,000 square feet total, including a 10,290 sf ballroom. Facilities: Atrium lobby with glass elevators and interior stream; outdoor pool and sundeck; health facility and adjacent to jogging trail around Town Lake; 500 surface parking spaces. Consideration: $38,000,000 Terms: Cash to seller Effective Sale Price: $38,000,000 Income Data (1995 year end): Occupancy 76.9% * 1995 occupancy/ADR is actual; cash flows provided by buyer. Average Daily Rate: $89.25 A 4% reserve for replacement was estimated. RevPAR 68.63 ================================================================================ 1995 Year End* 448 Total* Per Room % EGR - -------------------------------------------------------------------------------- Rooms Revenue $11,209,000 $25,020 61.47% Other Revenue 7,026,000 15,683 38.53% Total Revenue 18,235,000 40,703 100.0% Expenses 13,794,600 30,792 75.65% Reserve for Replacement 729,400 1,628 4.00% Net Operating Income $3,711,000 $8,283 20.35% ================================================================================ *rounded Units of Comparison: Price Per Room $84,821 RRM (Room Revenue) 3.39 EGRM (Total Revenue) 2.08 RevPAR Multiplier 1,236 R(O 9.77% <PAGE> VALUATION IV-44 - -------------------------------------------------------------------------------- Comments: The property is located in the south side of Town Lake, directly south of the central business district. It has access to boating, jogging trails and a trolley that transports guests to a popular Sixth Street entertainment district. It has excellent name recognition in Austin, with a popular restaurant and bar utilized by locals as well as guests. The seller indicated they had projected 1996 at a 76.2% occupancy and $92.73 average daily rate. <PAGE> VALUATION IV-45 - -------------------------------------------------------------------------------- Sale 5: Date of Sale: February 1996 Name of Property: The Four Seasons Regent Beverly Wilshire Location: 9500 Wilshire Boulevard Beverly Hills, California 90212 Grantor: Regent International Hotels Grantee: Polylinks (out of Hong Kong) Land Area: NAV Land/Bldg Ratio: NAV Improvements: No. Rooms: 283 No. Floors: 9 and 12 Built: 1928/1971 No. of Bldgs: 2 Gross Bldg SF: NAV Restaurant: two Lounge: lobby Meeting Space: 25,000 square feet total; including a 14,300 sf ballroom Facilities: Outdoor swimming pool; fitness/spa facility; gift shop; 11,350 sf of retail Consideration: $105,000,000; buyer intends to renovate at a cost of $7.4 million, adding guest rooms, for a total of 387, eventually (total investment $112.4 million) Terms: Cash to seller Effective Sale Price: $105,000,000 Income Data: Actual 1995 Occupancy 69.8% Average Daily Rate: $281.75 RevPAR 137.26 *NOI is after a 4.0% reserve for replacement ================================================================================ Actual 1995 Total Per Room % EGR - -------------------------------------------------------------------------------- Rooms Revenue $20,314,400 $71,782 48.7% Other Revenue 21,373,200 75,524 51.3% Total Revenue 41,687,600 147,306 100.0% Expenses 37,310,400 131,839 89.5% Net Operating Income* $4,377,200 $15,467 10.5% ================================================================================ Units of Comparison: Actual Proforma/After Renovation Price Per Room $371,025 $290,439 RRM (Room Revenue) 5.17 EGRM (Total Revenue) 2.52 RevPAR Multiplier 2,703 Ro 4.17% 6.0%, based on budget <PAGE> VALUATION IV-46 - -------------------------------------------------------------------------------- Comments: The subject is a luxury hotel located on Wilshire Boulevard between Rodeo Drive and El Camino Drive, in the heart of Beverly Hills, California. The Regent was originally developed and opened by Walter G. McCarty in 1928. It was sold in the early 1940's to Arnold Kirkeby, who in turn sold it in 1958 to Evelyn Sharp, a New York hotelier. In 1961, the Regent was sold to William Zeckendorf, who after only 11 days sold the hotel to Hernando Courtright. On December 31, 1985, the hotel was purchased by Regent International Hotels for $125,000,000. In 1991, Regent and Four Seasons merged, thereby adding the Four Seasons name. According to the property, they answer their phones as The Regent, since the name is too long, otherwise. The Wilshire wing of the hotel was completely renovated in 1987 and the Beverly wing was refurbished up to the sixth level between 1990 and 1991. Total cost of the renovation was expected to be $16 million. In 1995, the hotel's rooms inventory was reduced by 20 in the Beverly wing, which resulted in more suite-type rooms and a total room inventory of 278, according to management. Financial statements provided by the property indicate 283 rooms, due to the fact that they have permanent residents, which precludes their ability to sell them. However, we have utilized the total 283 for our financial comparisons, as the revenues and expenses for the permanent rooms are included in their statements. Long term plans include renovating and reopening floors 7 through 12 in the Beverly wing which would add 109 rooms for a total of 387 guest rooms. While the sale may not be considered distressed, given the total estimated investment in the property by the current owners, and the additional investment necessary for the property to reach its maximum potential, there may have been pressure to reduce losses through a sale. Therefore, the current price utilized in our analysis represents the property as a 283-room facility before major capital infusion, and not the maximum, or potentially highest and best use of the site, as a 387 room hotel. <PAGE> VALUATION IV-47 - -------------------------------------------------------------------------------- Finally, multipliers from the PKF Consulting, Hospitality Investment Survey 2nd Quarter 1997 were compared to the comparable sales. As noted previously, a sample size of 1,549 transactions was researched. ================================================================================ Revenue Multipliers - -------------------------------------------------------------------------------- Room Revenue Multipliers (RRM) High Low Average - -------------------------------------------------------------------------------- PKF Consulting, Hospitality Investment Survey, 2nd Q 1997 - -------------------------------------------------------------------------------- Full-Service 3.50 2.00 2.50 - -------------------------------------------------------------------------------- Limited-Service 4.00 2.00 2.80 - -------------------------------------------------------------------------------- Resort 3.00 2.20 2.60 - -------------------------------------------------------------------------------- All Properties 2.70 - -------------------------------------------------------------------------------- Effective Gross Revenue Multipliers (EGRM) High Low Average - -------------------------------------------------------------------------------- PKF Consulting, Hospitality Investment Survey, 2nd Q 1997 - -------------------------------------------------------------------------------- Full-Service 2.50 1.70 2.10 - -------------------------------------------------------------------------------- Limited-Service 4.00 2.50 3.10 - -------------------------------------------------------------------------------- Resort 2.50 2.50 2.50 - -------------------------------------------------------------------------------- All Properties 2.50 ================================================================================ Adjustments o Property Rights Conveyed: All of the sales reflect the transfer of fee simple interests, and therefore no adjustments were required for the property rights conveyed. o Financing Terms: The transaction price of one property may differ from that of an identical property because financing arrangements vary. All sales were purchased for cash or reported at a cash equivalent price. o Conditions of Sale: When the conditions of sale are atypical, the result may be a price that is higher or lower than that of a normal market transaction. Such transfers might include distress or liquidation sales, non-arms-length sales, assemblage acquisitions, eminent domain sales, sales with unusual tax considerations, or sales with lack of exposure on the open market. It can be argued that Real Estate Investment Trusts (REITs) are paying premiums over market because of structural efficiencies. Their public ownership gives the "paired-shared" REITs an ability to recoup certain operating expenses such as management fees, as well as benefit from friendly tax structures. In addition, in order to continue returns to owners, the REITs must continue to grow. Wall Street has recognized this by low cost of capital, which has <PAGE> VALUATION IV-48 - -------------------------------------------------------------------------------- driven property values closer to replacement value in many instances. The reality is that the investment climate for a purchase of the magnitude of the comparable sales as well as the subject, tends to be by REITs, C-Corps, limited partnerships, regional hotel companies and major chains/corporations. They can benefit from their established credit ratings and lower cost of money, economies of scale when it comes to buying power and management structure, and tax advantages or important chain expansion considerations. Sales 1 and 4 were purchased by Starwood and Patriot American (both REITs). Sale 2 was purchased by a major hotel chain, and Sales 3 and 5 were purchased by investment groups. From that standpoint, it can be argued that the motivations for the buyers for the subject comparables are typical in the current investment climate. However, there is also a difference between Market Value and the Value to a particular investor or buyer. These properties are certainly more valuable to their respective purchasers than to their lenders, in the event of default. With this in mind, since the Sales Comparison Approach is a further check for reasonableness in conjunction with the Income Approach, and the Income Approach does not take into consideration the "paired-shared" advantages of a REIT, or the intended growth of a hotel company or major chain expansion, we will assume that this approach will support an upper limit to the value of the subject property. o Market Conditions (Time): Market conditions may change between the time of sale of a comparable property and the date of the appraisal. Under such circumstances, the price of the comparable property would be different at a later time (the date of appraisal) and an adjustment would have to be made to the actual transaction if the sale were used as a comparable. The sales included in our analysis occurred between February 1996 and March 1997. The results of investor survey's conclude that there has been upward pressure on hotel values. This is especially apparent in the full service hotel assets. Some of this has been as a result of the fact that there has been limited new supply for more costly hotel product over the past 10 years, coupled with increasing demand. This is reflected in increasing occupancies and average daily rates, which are inherent in the income multipliers utilized in our analysis. o Location: An adjustment for location may be required if the locational characteristics of a comparable property are significantly different from those of the subject neighborhood. With regard to the selected sales, one is located in the very popular French Quarter sector of New Orleans, two are located in downtown areas (Atlanta and New York), with one being located in close proximity to the downtown in Austin, and one in California. Again, since investments of this magnitude are made regarding considerations of potential cash flows, locational advantages or disadvantages are typically reflected in achieved (projected) occupancies and average rates. <PAGE> VALUATION IV-49 - -------------------------------------------------------------------------------- o Physical Characteristics: Physical characteristics include such items as size, construction quality, age and condition, and physical exposure. Adjustments for physical differences are generally based on observation of the physical characteristics of each sales property. For hotel properties, a good indicator of physical characteristics relates to the chain affiliation, which typically sets a corporately mandated standard when the property is built or converts. All of the non-Louisiana sales are chain affiliated. Three of the properties are chain affiliated, with one being a Four Seasons, like the subject. Sales 1 and 3 are not chain affiliated and are located in a popular historic district and densely developed area, respectively. While operating at good occupancies and rates relative to their competition at sale, part of their charm and appeal could be considered functional obsolescence outside of their immediate areas. The subject has undergone periodic capital maintenance expenditures and is in good condition. As noted on the capital expenditure records, not all of the mandated replacement reserve has been spent in 1997. As a reserve, unspent capital should be accumulated until such time as it is needed. Sale 1 had been totally renovated prior to sale, Sale 2 was in excellent condition, Sale 3 was planned by the buyer to undergo major renovation, Sale 4 was in good condition and Sale 5 was to undergo a renovation. Again, since none of these expenditures involved repositioning issues, we are assuming that their present conditions are responsible for their achievable occupancies and average daily rates, meaning that their multipliers should not be impacted, when utilizing previous 12-month operating histories. Room Revenue Multiplier (RRM): The first point of comparison utilized in the analysis. The RRM is a factor reflecting the relationship between the room revenue and its sale price or value. The principal advantage of the technique is that the reflection of rental income is direct. Therefore, differences between properties which could involve adjustments, based on judgement estimates, have been resolved by the free action of the rental market. If the comparable properties have some advantage over the subject in age, condition, accessibility, location or physical characteristics, the difference in actual rental presumably reflects the extent of this advantage. The demand for quality hotel rooms has increased thereby putting upward pressure on values. In addition, the subject hotel is the only luxury property in Austin, located downtown near the State Capitol complex, in one of the most actively developing high-technology business markets in the United States. In addition, it is located on the banks of Town Lake, with jogging and walking trails as well as a crewe dock; and near the Congress Street bridge, which houses the largest concentration of bats in North America - both popular tourist attractions. The comparable properties reflected RRM's from 3.39 to 5.17, with a mean of 4.34. The PKF Industry survey reflected lower indicators, ranging from 2.0 to 3.5 for full service properties, with a mean of 2.5. One very significant factor in the comparison of the RRM is the amount of other income as well as expense ratios. <PAGE> VALUATION IV-50 - -------------------------------------------------------------------------------- When comparing expense ratios and other income characteristics, a trend is noted with Sales 2 through 4. Arraying the sales by ratios, the units of comparison are as follows: ================================================================================ Arrayed in Descending Order ---------------------------------------------------- Subject Sale 3 Sale 2 Sale 4 - -------------------------------------------------------------------------------- Total Revenue Per Room $84,640 $105,068 $67,562 $40,703 Total Expenses Per Room $63,962 $81,953 $52,796 $32,420 Expense Ratio Total 75.57% 78.00% 78.15% 79.65% NOI Ratio 24.43% 22.00% 21.85% 20.35% NOI Per Room $20,678 $23,115 $14,765 $8,283 Room Revenue Multiplier 4.13 3.98 3.39 ================================================================================ Sale 1, with an NOI Ratio of 42.62%, reflected a 5.02 RRM, which would tend to set the upper limit to the indicated multiplier. Considering the information in the chart, the subject would fall between Sale 3 and 1, but closer to Sale 3. Using the previous 12-month operating history of the subject (available through August 31, 1997) the following is our estimate of value via the RRM method. ===================================================== Room Revenue Multiplier ----------------------------------------------------- Rooms Revenue $14,221,300 $14,221,300 X RRM 4.25 4.50 -------------------------------- Total 60,440,525 63,995,850 Rounded $60,400,000 $64,000,000 ===================================================== Effective Gross Revenue Multiplier (EGRM): The second point of comparison utilized in the analysis. The EGRM takes into account all revenue sources including rooms, food and beverage, telephone, minor operated departments and rentals and other income. Here again, the advantage of this technique is that the reflection of income associated with the investment is direct. If the comparable properties have some advantage over the subject in terms of services or amenities, the difference in actual revenue presumably reflects the extent of this advantage. One very significant factor in the comparison of the EGRM is the amount of other income as well as expense ratios. Note the high percentage of room revenue to total revenue for Sale 1, relative to the other sales. New Orleans is world renown for its food (and beverage). One challenge hoteliers have in the French Quarter area, is the utilization of their food and beverage outlets. Many have elected to rent space to well known chefs to operate (as in Sale 1), with the ability for guest utilization, but without an obvious affiliation with the hotel. As such, it would be logical that the New Orleans properties would reflect higher multipliers than the PKF Investment Survey sample. <PAGE> VALUATION IV-51 - -------------------------------------------------------------------------------- The range of EGRMs for the comparables is from 2.07 to 4.44, with a mean of 2.80. Factors influencing this ratio include the extent and utilization of food and beverage, amenities and vending areas, rental space income and the usage of services such as valet and laundry. The subject has both restaurant and lounge, meeting space, gift shop, health club, rental space and garage income, and reflects a percentage of room revenue to total revenue at 57.74%. As such, it would tend to fall somewhere between Sales 2 and 4. However, additional factors need to be considered. Some "other income" is highly profitable, while some can operate at a loss. An example would be rental space, which is typically net, versus food and beverage, which ran approximately 74% expenses for the subject over the previous 12-month period. In addition, in terms of overall expenses, the subject is responsible for a common area maintenance charge for the office complex and garage area. Comparing expense ratios, the subject is most similar (although more profitable) to both Sales 2 and 3. A comparison of the subject with the PKF Investment Surveys ranged from 1.70 to 2.50, with a mean of 2.10 for full service properties. The PKF Investment Survey average was lower than all but two of the comparable sales. Again, we have considered the current demand for hotel properties and the upward pressure on values, as well as quality of the subject facility. Considering the comparable sale indicators, we believe that a range of EGRM's appropriate for the subject are as follows. ======================================================= Total Revenue Multiplier ------------------------------------------------------- Total Revenue $24,630,300 $24,630,300 X EGRM 2.50 2.70 --------------------------------- Total 61,575,750 66,501,810 Rounded $61,600,000 $66,500,000 ======================================================= Revenue Per Available Room Multiplier (RevPARM): The RevPARM compares ratios of the RevPAR to the sales price. RevPAR is calculated by multiplying the occupancy by the average daily rate. By multiplying the two performance indicators, it becomes an equalizer in comparing hotel operations. Although expense ratios or the potential for improving the bottom line via repositioning issues needs to be taken into account, it is another comparison for investor behavior or expectations. RevPARM's ranged from 1,236 to 1,887, with a central tendency at 1,582. The average RevPAR for the five comparables is $130.10, which is very similar to that of the subject at $133.84. The two highest RevPAR's are comparable Sales 3 and 5, primarily due to their extremely high average daily rates. The subject falls somewhere in between Sales 2 and 5, in terms of its RevPAR, though closer to Sale 2. We have therefore considered the range of multipliers appropriate as follows: <PAGE> VALUATION IV-52 - -------------------------------------------------------------------------------- ====================================================== Revenue Per Available Room Multiplier ------------------------------------------------------ RevPAR $133.84 $133.84 Number of Rooms 291 291 X RevPARM 1,550 1,580 -------------------------------- Total 60,368,532 61,536,955 Value Indication $60,400,000 $61,500,000 ====================================================== Conclusion - "As Is" Market Value Our value estimate of the subject, based on the previous three approaches, is as follows: ================================================================================ Rooms Revenue Multiplier $60,400,000 to $64,000,000 Effective Gross Revenue Multiplier $61,600,000 to $66,500,000 Revenue Per Available Room Multiplier $60,400,000 to $61,500,000 ================================================================================ Thus, it is our opinion that the "As Is" market value of the fee simple interest, as of October 1, 1997, by the Sales Comparison Approach is: ============================================================ Four Seasons Hotel - Austin, Texas ------------------------------------------------------------ $61,600,000 ============================================================ RECONCILIATION AND FINAL ESTIMATE OF VALUE The reconciliation involves the correlation of the conclusions reached from the valuation methodologies applied, considering the property type and the requirements of the appraisal assignment. This process depends on the recognition of the appropriateness and reliability of each approach, and of the quality and reliability of the data obtained. The approaches replicate alternative ways of viewing market phenomena. A final estimate of value is selected as the dominant tendency or most probable outcome from a range of possible outcomes. The results from the approaches in estimating the prospective value of the fee simple interest in the subject, "As Is", as of October 1, 1997, are as follows. <PAGE> VALUATION IV-53 - -------------------------------------------------------------------------------- ========================================================== Four Seasons Hotel - Austin, Texas ========================================================== Income Approach $60,200,000 Sales Comparison Approach $61,600,000 Cost Approach not applicable ========================================================== The approaches to value replicate alternative ways of viewing market phenomena. A final estimate of value is selected as the dominant tendency or most probable outcome from a range of possible outcomes. The Income Approach reflects the present value which an investor would be willing to pay for the anticipated benefits to be derived from the ownership of the property. The measurement of investment performance is the primary concern of the market participants dealing with this type property. Since this approach most closely reflects actual market conditions, and properties such as the subject are typically purchased based on their revenue producing potential, the most emphasis was placed on the Income Approach in our final value estimate. The Sales Comparison Approach relies upon the principle of replacement. The comparison utilized in the analysis was the financial performance of the property through the effective gross room revenue multiplier and the total gross revenue multiplier. The Sales Comparison approach supported the Income approach. This approach is generally considered a reliable indicator of value since it reflects the actions of buyers and sellers in the market. Because of the difficulties associated with comparing the locational and physical attributes of properties, as well as the preponderance of purchases generated by REITs, regional hotel companies, major chains, and C-Corps which may reflect financial advantages in terms of operating efficiencies, lower costs of capital, favorable tax considerations as well as marketing opportunities for brand name expansion, we have considered this approach to reflect the upper limit to value. A Cost Approach to value was not performed. The Cost Approach is most reliable when the subject improvements are relatively new. In most instances, this value indication reflects the upper limit of value, since a prospective investor/purchaser would not purchase an existing property if a replacement could be constructed at the same price. In the case of older existing properties, some difficulties in the comparative basis of the Cost Approach value indication arise due to the difficulty in estimating various instances of physical and functional obsolescence. In addition, since no two properties can reflect perfectly identical locations, the theoretical base of this approach sometimes requires excessive subjective judgement. Based on the facts, assumptions, and procedures outlined in this report, it is estimated that the "As Is" market value of the fee simple interest of the Four Seasons Hotel, under market conditions observed as of October 1, 1997, is: <PAGE> VALUATION IV-54 - -------------------------------------------------------------------------------- ============================================================= Sixty Million Two Hundred Thousand Dollars ============================================================= $60,200,000 ============================================================= Of this, we have estimated the value of the personal property (Furniture, Fixtures and Equipment) or FF& E. It should be noted that the subject has many antiques, unusual "Texana" furnishings and seemingly valuable artwork that would be beyond the scope of this appraisers expertise to attempt to value. However, based on the level of quality of the furnishings and the nature of the property, as well as the perceived quality of the Four Seasons affiliation, we have estimated FF & E on the high end of typical prototype furnishings at $25,000 to $30,000 per available guest room. Typical life for hotel FF & E is in the seven to 10 year range, although most replacements are ongoing, and soft goods are typically replaced on a five to seven year cycle. Therefore, we have considered the value of the FF & E at $8,000,000 (291 rooms times $27,500 per room, rounded). Since replacements are made constantly, we have assumed a weighted depreciation rate. According to Marshall & Swift Valuation Service, FF & E is fully depreciated at 79% (there will always be salvage value). We have assumed a 30% depreciation for FF & E. This rate assumes a weighted range of both new and fully depreciated items, and results in a depreciated value of the FF & E at $5,600,000. MARKETING PERIOD The 2nd Quarter 1997 Hospitality Investment Survey - PKF Consulting, indicates that recent sellers of hotel properties have found that approximately six months of exposure is a typical marketing period. We are of the opinion that a reasonable marketing period for the subject, if appropriately priced and marketed would be six to 12 months. <PAGE> ADDENDA ADDENDUM A - STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS ADDENDUM B - CERTIFICATION OF APPRAISERS ADDENDUM C - SUBJECT PROPERTY SITE PLAN, LEGAL DESCRIPTION AND PHOTOGRAPHS ADDENDUM D - PHOTOGRAPHS OF THE COMPETITIVE SUPPLY/COMPARABLE SALES ADDENDUM E - MERRILL LYNCH MORTGAGE CAPITAL, INC. ENGAGEMENT LETTER ADDENDUM F - QUALIFICATIONS OF APPRAISERS [LOGO] <PAGE> ADDENDUM A STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS [LOGO] <PAGE> STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report is made with the following assumptions and limiting conditions: Date of Value - The conclusions and opinions expressed in this report apply to the date of value set forth in the letter of transmittal accompanying this report. The dollar amount of any value opinion or conclusion rendered or expressed in this report is based upon the purchasing power of the United States dollar existing on the date of value. Economic and Social Trends - The appraiser assumes no responsibility for economic, physical or demographic factors which may affect or alter the opinions in this report if said economic, physical, or demographic factors were not present as of the date of the letter of transmittal accompanying this report. The appraiser is not obligated to predict future political, economic or social trends. Information Furnished by Others - In preparing the report, the appraiser was required to rely on information furnished by other individuals or found in previously existing records and/or documents. Unless otherwise indicated, such information is presumed to be reliable. However, no warranty, either express or implied, is given by the appraiser for the accuracy of such information and the appraiser assumes no responsibility for information relied upon later found to have been inaccurate. The appraiser reserves the right to make such adjustments to the analyses, opinions and conclusions set forth in this report as may be required by consideration of additional data or more reliable data that may become available. Title - No opinion as to the title of the subject property is rendered. Data related to ownership and legal description was obtained from the attached title report records and is considered reliable. Title is assumed to be marketable and free and clear of all liens, encumbrances, easements and restrictions except those specifically discussed in the report. The property is appraised assuming it to be under responsible ownership and competent management, and available for its highest and best use. Hidden Conditions - The appraiser assumes no responsibility for hidden or unapparent conditions of the property, subsoil, ground water or structures that render the subject more or less valuable. No responsibility is assumed for arranging for engineering, geologic or environmental studies that may be required to discover such hidden or unapparent conditions. Hazardous Materials - The appraiser has not been provided any information regarding the presence of any material or substance on or in any portion of the subject property or improvements thereon, which material or substance possesses or may possess toxic, hazardous and/or other harmful and/or dangerous characteristics, Unless otherwise atated in the report, the appraiser did not become aware of the presence of any such material or substance during the appraiser's inspection of the subject property. However, the appraiser is not qualified to investigate or test for the presence of such materials or substances. The presence of such materials or substance may adversely affect the value of the subject property. The value estimated in this report is predicated on the assumption that no such material or substance is present on or in the subject property or in such proximity thereto that it would cause a loss in value. The Appraiser assumes no responsibility for the presence of any such substance or material on or in the subject property, nor for any expertise or engineering knowledge required to discover the presence of such substance or material. Unless otherwise stated, this report assumes the subject property is in compliance with all federal, state and local environmental laws, regulations and rules. Zoning and Land Use - Unless otherwise stated, the subject property is appraised assuming it to be in full compliance with all applicable zoning and land use regulations and restrictions. Licenses and Permits - Unless otherwise stated, the property is appraised assuming that all required licenses, permits, certificates, consents or other legislative and/or administrative authority from any local, state or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in this report is based. <PAGE> STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS (Continued - Page 2) Engineering Survey - No engineering survey has been made by the appraiser. Except as specifically stated, data relative to size and area of the subject property was taken from sources considered reliable and no encroachment of the subject property is considered to exist. Subsurface Rights - No opinion is expressed as to the value of subsurface oil, gas or mineral rights or whether the property is subject to surface entry for the exploration or removal of such materials, except as it expressly stated. Maps, Plats and Exhibits - Maps, plats and exhibits included in this report are for illustration only to serve as an aid in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced or used apart from the report. Legal Matters - No opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. Allocation Between Land and Improvements - The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used. Right of Publication - Possession of this report, or a copy of it, does not carry with it the right of publication. Without the written consent of PKF Consulting/Hospitality Advisory Services, this report may not be used for any purpose by any person other than the party to whom it is addressed. In any event, this report may be used only with properly written qualification and only in its entirety for its stated purpose. Testimony in Court - Testimony or attendance in court or at any other hearing is not required by reason of rendering this appraisal, unless such arrangements are made a reasonable time in advance of said hearing. Further, unless otherwise indicated, separate arrangements shall be made concerning compensation for the appraiser's time to prepare for and attend any such hearing. Structural Deficiencies - The appraiser has personally inspected the subject property, and except as noted in this report, finds no obvious evidence of structural deficiencies in any improvements located on the subject property. However, the appraiser assumes no responsibility for hidden defects or non-conformity with specific governmental requirements, such as fire, building and safety, earthquake or occupancy codes, unless inspections by qualified independent professionals or governmental agencies were provided to the appraiser. Further, the appraiser is not a licensed engineer or architect and assumes no responsibility for structural deficiencies not apparent to the appraiser at the time of this inspection. Termite/Pest Infestation - No termite or pest infestation report was made available to the appraiser. It is assumed that there is no significant termite or pest damage or infestation, unless otherwise stated. Income Data Provided by Third Party - Income and expense data related to the property being appraised was provided by the client and is assumed, but not warranted, to be accurate. Asbestos - The appraiser is not aware of the existence of asbestos in any improvements on the subject property. However, the appraiser is not trained to discover the presence of asbestos and assumes no responsibility should asbestos be found in or at the subject property. For the purposes of this report, the appraiser assumes the subject property is free of asbestos and that the subject property meets all federal, state and local laws regarding asbestos abatement. Archaeological Significance - No investigation has been made by the appraiser and no information has been provided to the appraiser regarding potential archaeological significance of the subject property or any portion thereof. This report assumes no portion of the subject property has archaeological significance. Compliance with the Americans with Disabilities Act - The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether <PAGE> STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS (Continued - Page 3) or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible non-compliance with the requirements of ADA in estimating the value of the property. Definitions and Assumptions - The definitions and assumptions upon which our analyses, opinions and conclusions are based are set forth in appropriate sections of this report and are to be part of these general assumptions as if included here in their entirety. Encroachments - It is assumed that the utilization of the land and/or improvements is within the boundaries or property described herein and that there is no encroachment or trespass. Dissemination of Material - Use and disclosure of the contents of this report is governed by the bylaws and regulations of the Appraisal Institute. Neither all nor any part of the contents of this report (especially the conclusions as to value, the identity of the appraiser or PKF Consulting/Hospitality Advisory Services, or any reference to the Appraisal Institute or to the MAI or RM designations) shall be disseminated to the general public through advertising or sales media, public relations media, news media or other public means of communication without the prior written consent and approval of PKF Consulting/Hospitality Advisory Services. Distribution and Liability to Third Parties - The party for whom this appraisal report was prepared may distribute copies of this appraisal report only in its entirety to such third parties as may be selected by the party for whom this appraisal report was prepared; however, portions of this appraisal report shall not be given to third parties without the written consent of PKF Consulting/Hospitality Advisory Services. Liability to third parties will not be accepted. Use in Offering Materials - This appraisal report, including all cash flow forecasts, market surveys and related data, conclusions, exhibits and supporting documentation may not be reproduced or references made to the report or to PKF Consulting in any sales offering, prospectus, public or private placement memorandum, proxy statement or other document ("Offering Material") in connection with a merger, liquidation or other corporate transaction unless PKF Consulting/Hospitality Advisory Services has approved in writing the text of any such reference or reproduction prior to the distribution and filing thereof. However, it is understood and PKF Consulting agrees that the final value conclusion will be published in a securities offering document. Limits to Liability - PKF Consulting/Hospitality Advisory Services cannot be held liable in any cause of action resulting in litigation for any dollar amount which exceeds the total fees collected from this individual engagement. Legal Expenses - Any legal expenses incurred in defending or representing ourselves concerning this assignment will be the responsibility of the client. <PAGE> ADDENDUM B CERTIFICATION OF APPRAISERS [LOGO] <PAGE> CERTIFICATION We certify that, to the best of our knowledge and belief: o The statements of fact contained in the accompanying report dated October 17, 1997, are to the best of our knowledge true and correct. o The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. o We have no present or prospective interest in the property that is the subject of this report and we have no personal interest or bias with respect to the parties involved. o Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. o Our analyses, opinion, and conclusions were developed, and this has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute and in conformity with the Uniform Standards of Professional Appraisal Practice. o The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. o Florida T. Booth, MAI made a personal inspection of the property that is the subject of this report on October 1, 1997. Elizabeth M. Reynolds provided significant assistance to the valuation conclusion, but did not make a personal inspection of the property. o No one other than the undersigned provided significant professional assistance to the persons signing this report. o Subject to all conditions and explanations contained in this report, and based upon our analyses of the subject property and the market, together with our experience and knowledge of the market gained in appraising similar properties, our opinion of the market value of the fee simple interest of the subject, "As Is" under market conditions observed as of October 1, 1997, is: SIXTY MILLION TWO HUNDRED THOUSAND DOLLARS $60,200,000 Of this, $5,600,000 is allocated to the value of the furniture, fixtures and equipment of the hotel. /s/ Florida T. Booth /s/ Elizabeth M. Reynolds Florida T. Booth, MAI Elizabeth M. Reynolds Vice President Associate State Certified TX-1325611-G State of Texas General Real Estate Appraiser Authorized Appraiser Trainee <PAGE> ADDENDUM C SUBJECT PROPERTY SITE PLAN, LEGAL DESCRIPTION AND PHOTOGRAPHS [LOGO] <PAGE> [GRAPHIC OMITTED] SITE PLAN <PAGE> EXHIBIT A Legal Description of the Premises TRACT I: Lot Two (2), SAN JACINTO CENTER, an addition to the City of Austin, Travis County, Texas, according to the map or plat thereof, recorded in Volume 89, Page(s) 21 of the Plat Records of Travis County, Texas. TRACT II: All easement estates benefiting Tract I and the Owner of Tract I as created in that certain Unified Development Declaration for San Jacinto Center Town Lake dated March 29, 1990, recorded in Volume 11157, Page 19 of the Real Property Records of Travis County, Texas, as amended and restated by instrument dated September 23, 1991 and recorded September 26, 1991 in Volume 11530, Page 463 of the Real Property Records of Travis County, Texas, and as further affected by instruments recorded in Volume 11531, Page 249, Volume 11750, Page 1025, Volume 11750, Page 1209 and Volume 11767, Page 14 of the Real Property Records of Travis County, Texas. <PAGE> Representative View of Subject [PHOTO OMITTED] Four Seasons Hotel <PAGE> SUBJECT PHOTOGRAPHS [PHOTO OMITTED] 1. Lobby/Registration Area [PHOTO OMITTED] 2. Lobby Lounge Area <PAGE> SUBJECT PHOTOGRAPHS [PHOTO OMITTED] 3. Lobby Lounge Area [PHOTO OMITTED] 4. Bar Area <PAGE> SUBJECT PHOTOGRAPHS [PHOTO OMITTED] 5. Restaurant [PHOTO OMITTED] 6. Guest Room <PAGE> SUBJECT PHOTOGRAPHS [PHOTO OMITTED] 7. Portion of Guest Suite [PHOTO OMITTED] 8. Portion of Ballroom <PAGE> SUBJECT PHOTOGRAPHS [PHOTO OMITTED] 9. Meeting Space [PHOTO OMITTED] 10. Hospitality Suite Space <PAGE> SUBJECT PHOTOGRAPHS [PHOTO OMITTED] 11. Fitness Room [PHOTO OMITTED] 12. Pool Area <PAGE> SUBJECT PHOTOGRAPHS [PHOTO OMITTED] 13. Outdoor Eating Area [PHOTO OMITTED] 14. Entry of Hotel <PAGE> ADDENDUM D PHOTOGRAPHS OF THE COMPETITIVE SUPPLY/COMPARABLE SALES [LOGO] <PAGE> COMPETITIVE SUPPLY [PHOTO OMITTED] 1. Marriott at the Capital Hotel [PHOTO OMITTED] 2. Hyatt Regency Hotel <PAGE> COMPETITIVE SUPPLY [PHOTO OMITTED] 3. Omni Austin Center Hotel [PHOTO NOT AVAILABLE] 4. Omni Southpark Hotel <PAGE> Comparable Sales [PHOTO OMITTED] 1. De La Poste 2. Ritz Carlton - Not Available <PAGE> Comparable Sales [PHOTO OMITTED] 3. Mayfair Hotel <PAGE> Comparable Sales [PHOTO OMITTED] 4. Hyatt Regency [PHOTO OMITTED] 5. Four Seasons Beverly Wilshire <PAGE> ADDENDUM E MERRILL LYNCH MORTGAGE CAPITAL, INC. ENGAGEMENT LETTER <PAGE> [LETTERHEAD OF PKF CONSULTING] Sent via Federal Express September 26, 1997 Mr. Timothy S. Koltermann Assistant Vice President Merrill Lynch Mortgage Capital, Inc. World Financial Center North Tower New York, NY 10281-1326 Re: Hotel Appraisals Dear Mr. Koltermann: Pursuant to your request, we are pleased to submit this proposal to perform an appraisal of the market value of the fee simple estate in the following hotels: o Four Seasons Biltmore - Santa Barbara, California o Four Seasons Hotel - Austin, Texas o Ritz-CarIton Hotel - St. Louis, Missouri SCOPE OF THE ASSIGNMENT As we understand it, you are evaluating the refinancing of the above referenced hotels. Accordingly, this appraisal will be used for loan underwriting and asset evaluation purposes. The scope of our work program will include an analysis of each property, the nature of the markets in which the properties operate, an analysis of the market position of the hotels, and an estimate of the market value of the fee simple estate in each facility. The property is to be appraised "as is"; however, we will alert you if we uncover areas in which we believe a change may be indicated in the operation of the facilities. Unless otherwise instructed, the date of our valuation will be the date on which we last inspect the property. <PAGE> Mr. Timothy S. Koltermann -2- September 26, 1997 - -------------------------------------------------------------------------------- PKF CONSULTING As a point of background, we would like to provide you with a brief overview of our firm. PKF Consulting is a real estate consulting and appraisal firm with offices in nine major U.S. cities as well as Hong Kong. As a member of the Pannell Kerr Forster International Association, we have an additional 250 offices in 75 countries. The professional staff of PKF Consulting consists of approximately 100 consultants and appraisers, including designated Members of the Appraisal Institute (MAI), the American Society of Real Estate Counselors (CRE), and the International Society of Hospitality Consultants (ISHC). In addition, many of our professional staff are certified general real estate appraisers in the states in which we actively perform work. Since its inception, PKF Consulting has placed a special emphasis on serving the hospitality and real estate industries. This work includes market analyses and feasibility studies in virtually every major domestic market, providing the firm with an unsurpassed body of knowledge regarding past and present market performance. Since 1983, we have also provided market value appraisals for all types of commercial real estate, with a primary focus on hotels, motels, resorts, and golf courses. Additionally, we own a data base on U.S. hotel operating results that extends back to 1935. Presently, real estate appraisal services represent a significant portion of the professional services we perform. Our primary clients are financial institutions, the majority of which require that their appraisals comply with the requirements of FIRREA. PKF Consulting serves our United States and international clients from a base of offices in nine core cities: Boston, New York, Philadelphia, Washington, D.C., Atlanta, Los Angeles, Houston, Hong Kong, and San Francisco, our headquarters. In addition to our long standing expertise in the hotel industry, we would bring to you in this engagement substantial familiarity with the "North Coast" hotel market. Within the past twelve months, we have evaluated several hotels within Sonoma, Humbolt, and Mendocino Counties. In order to give you an understanding of the depth of our experience, attached for your review is a partial listing of hotels, resorts and other types of properties our offices has appraised during the past several years. We have also attached the qualifications of key individuals who will likely be involved in the appraisals. Given the historical role of PKF Consulting in the hospitality industry and our experience in the local market, we are of the opinion that there is no other firm that can provide the services available through us. <PAGE> Mr. Timothy S. Koltermann -3- September 26, 1997 - -------------------------------------------------------------------------------- FORMAT OF THE APPRAISAL Our appraisal report for each property will be prepared in accordance with and subject to the Code of Ethics and Standards of Professional Practice of the Appraisal Institute, the Uniform Standards of Professional Appraisal Practice (USPAP) as established by the Appraisal Foundation, FIRREA regulations, and the current regulatory guidelines. Specifically, this reports will include discussions of the following: o Identification of the real property and property rights appraised o Purpose and use of the appraisal o Assumptions and limiting conditions of the appraisal o Area demographic and economic characteristics o Subject property's physical characteristics and operating history o Local real estate taxes and assessment procedures o Highest and best use of the property o Existing and future supply and demand estimates o Projected market performance of the hotel o Estimated annual operating results for the hotel o Cost Approach, if applicable o Sales Comparison Approach o Income Capitalization Approach o Reconciliation and final estimate of value o Certification of value To insure that the report meets our quality standards, the report will be reviewed by a Senior Vice President in the firm and our staff MAI. Either the Senior Vice President or the MAI, or both, will inspect the subject and all of the comparable facilities and the hotel sales used in the report. PROFESSIONAL FEES Based on our understanding of the scope of this engagement, our professional fee for all three appraisals will be $36,000, plus out-of-pocket expenses, not to exceed $4,500. Services beyond those described in the scope of the appraisal, such as changes in the requirements of the client, are provided at our hourly billing rates, as described below. <PAGE> Mr. Timothy S. Koltermann -4- September 26, 1997 - -------------------------------------------------------------------------------- ======================================================= Hourly Staff Level Billing Rates ------------------------------------------------------- Senior and Executive Vice Presidents $250 -$300 Vice President 175 -225 Associate 125 -175 Consultant 85 -125 ======================================================= As is typical in assignments of this nature, we require a retainer of 50 percent of the fees, or $18,000, in order to start the engagement. The remainder of our professional fees plus expenses will be billed to you at the completion of the engagement. This invoice is due and payable upon receipt. ANTICIPATED DELIVERY DATE We understand you will require the values to be communicated by October 13th, the appraisals completed by October 20th, and we are prepared to meet this time table. We will attempt to have the reports completed by October 17th. Five original copies of each of the final reports will be provided. LIMITATIONS OF THE APPRAISAL The report is subject to the attached Statement Assumptions and Limiting Conditions. REQUIRED DOCUMENTS AND INFORMATION In order to proceed with this assignment, the following documents and information are required for each hotel. 1. Architectural, engineering, grading and landscaping plans as pertain to the facility. 2. Site plan and/or plat showing building and amenity locations. 3. Floor area breakdown (square foot allocation) of various components of the improvements. 4. Name of appropriate on-site contacts (general manager, controller, chief engineer). 5. Complete budget for current year with budget notes and details. 6. Copy of real estate tax bill for previous two years and current year tax bill. <PAGE> Mr. Timothy S. Koltermann -5- September 26, 1997 - -------------------------------------------------------------------------------- 7. Historical operating statements for the past three years, including year-to-date 1997 operating results. 8. Insurance premium costs. Provide coverage amount/limits and insurance premiums for current operating year. 9. Loan abstracts (details) of existing mortgages, and/or secondary financing. If new financing is to be secured, please provide details. 10. Copies of the ground lease, with all amendments, and any other leases (i.e., gift shop, parking garage, equipment, etc.) affecting property operations. 11. Copies of any licensing (franchise) and management agreements. 12. Copy of existing title policy. 13. Copies of any previous appraisal report(s) and market studies. 14. Information on any pending or past (within three years) transactions associated with the property, as well as details on the pending sale of the property. 15. Current marketing plans. <PAGE> Mr. Timothy S. Koltermann -6- September 26, 1997 - -------------------------------------------------------------------------------- APPROVAL AND ACCEPTANCE If this letter correctly states the nature of the work to be undertaken and the arrangements are satisfactory, please sign the enclosed copy of this letter and return it to us, together with our requested retainer, as our authorization to commence the assignment. We appreciate the opportunity to submit this proposal and we look forward to working with you on this very interesting assignment. Sincerely, PKF Consulting /s/ A. Corey Limbach ---------------------------- A. Corey Limbach Vice President APPROVED AND ACCEPTED: By: /s/ [ILLEGIBLE] ---------------------------- Title: Director Date: 9/29/97 - Second original <PAGE> ADDENDUM F QUALIFICATIONS OF APPRAISERS [LOGO] <PAGE> FLORIDA T. BOOTH, MAI Vice President PKF Consulting/Hospitality Advisory Services Member, Pannell Kerr Forster International PROFESSIONAL HISTORY Present Vice President - PKF Consulting/Hospitality Advisory Services Prior Appraiser, Price Waterhouse Associate, Laventhol & Horwath Real Estate Appraisal Services AREAS OF SPECIAL COMPETENCE Real estate market studies and appraisals for all types of land uses. MAJOR PROJECTS Performed market studies and valuations of investment grade real estate specializing in resorts, hotels and motels. Additional property types include office buildings, apartment complexes including campus housing, Adult Congregate Living Facilities (ACLF's), theme parks, retail properties including strip centers and regional malls, mixed use developments and industrial and warehouse properties. Clients include pension funds, financial institutions, individual developers, as well as major hotel corporations and lodging chains. EDUCATION University of Texas, Austin Fashion Institute of America, Atlanta with study program in London, England. PROFESSIONAL The American Institute of Real Estate Appraisers MEMBERSHIPS Boys & Girls Club of Greater Houston, Rotary Board of Directors Greater Houston Hospitality Accountants Association (Past President) Texas Association of Hospitality Accountants (Past President) Rotary Club of University Area, President 1995/1996 LICENSES State Certified General Appraiser, State of Texas, TX-1325611-G Texas Real Estate Salesman's License Candidate for CCIM Designation Member of the Appraisal Institute (MAI) #10,616. <PAGE> QUALIFICATIONS OF ELIZABETH M. REYNOLDS CONSULTANT PROFESSIONAL HISTORY Present Consultant, PKF Consulting/Hospitality Advisory Services Prior Instructor - University of Houston Conrad N. Hilton College of Hotel & Restaurant Management Director of Marketing - University Hilton Hotel Senior Manager - Wyndham Hotels & Resorts Manager - Club Corporation of America Manager - Hyatt Hotels Corporation AREA OF EXPERTISE Market and feasibility analysis relative to hotels, resort properties and golf courses for the hospitality, real estate and related service industries. Areas of specialization include golf course studies, brand analyses and market and impact studies. Operational issues as they relate to the hospitality industry. Licenses by the State of Texas as an Appraiser Trainee. Areas of specialization include: REPRESENTATIVE PROJECTS Market study for a hotel and golf course in Bryan, Texas Market study for a boutique hotel in Dallas, Texas Brand Analysis for the re-flagging and repositioning of the Ramada Hotel Airport, Birmingham, Alabama Market studies for a Hampton Inn and Courtyard by Marriott in the warehouse area of New Orleans, LA Appraisals of the Marriott Hotel in Arlington, TX, the Holiday Inn Express in Addison, TX, and the Holiday Inn Civic Center in Monroe, Louisiana Strategic hotel overview for the City of Bryan, TX Market and impact studies for proposed Holiday Inns in Dallas, Waxahachie, and South Padre Island, TX. EDUCATION St Mary's University - San Antonio, TX, BBA in International Business Management. University of Houston, Conrad N. Hilton College of Hotel & Restaurant Management, MHM - Masters in Hospitality Management ------------------------------------------------ COMPLETE APPRAISAL OF REAL PROPERTY Tower 45 120 West 45th Street New York, New York ------------------------------------------------ IN A SELF-CONTAINED REPORT As of October, 1997 Prepared For: Merrill Lynch World Financial Center North Tower New York, New York 10281-1326 Prepared By: Cushman & Wakefield, Inc. Valuation Advisory Services 51 West 52nd Street, 9th Floor New York, NY 10019 <PAGE> [CUSHMAN WAKEFIELD LETTERHEAD] October 2, 1997 Merrill Lynch World Financial Center North Tower New York, New York 10281-1326 Attention: Mr. Edward J. Welch Director Investment Banking Re: Appraisal of Real Property Tower 45 120 West 45th Street New York, New York Dear Mr. Welch: In fulfillment of our agreement as outlined in the Letter of Engagement, Cushman & Wakefield, Inc. is pleased to transmit our report estimating the market value of the leased fee estate, subject to the air rights lease, in the referenced real property. As specified in the Letter of Engagement, the value opinion reported below is qualified by certain assumptions, limiting conditions, certifications, and definitions, which are set forth in the report. This report was prepared for Merrill Lynch and its affiliates (collectively, "Client"). The Client, rating agencies, and certain limited investors involved in the types of securitizations described below may use and rely on the Appraisal Report in its entirety and we will not require an indemnification agreement. Said securitizations may be either of the following two types: a) A private placement Rule 144A offering to "qualified institutional buyers", as defined by Rule 144A ("Private Offering") or b) If the property appraised will be part of a pool of properties owned by various non affiliated owners which will be the subject of a debt offering ("Pooled Offering"). In the case of Pooled Offering, Client may accurately disclose the appraised value and the identity of our firm as the firm which prepared the report in the Offering Document. In the case of a Private Offering, you must obtain our prior written approval of any reference to our work and firm in the private placement memorandum. <PAGE> Cushman & Wakefield, Inc. Mr. Edward J. Welch Merrill lynch Page 2 October 2, 1997 The property was inspected by and the report was prepared by Douglas H. Larson and Matthew C. Mondanile, MAI. As a result of our analysis, we have formed an opinion that the market value of the leased fee estate, subject to the air rights lease, in the referenced property, subject to the assumptions, limiting conditions, certifications, and definitions, as of October 1, 1997, was: MARKET VALUE AS IS ON APPRAISAL DATE NINETY FIVE MILLION DOLLARS $95,000,000 Based upon the available market data, coupled with our discussions with knowledgeable brokers in the office market, a marketing period of approximately twelve months is believed to be typical in today's market for office buildings such as the subject. This letter is invalid as an opinion of value if detached from the report, which contains the text, exhibits, and an Addenda. Respectfully submitted, CUSHMAN & WAKEFIELD, INC. /s/ Douglas H. Larson Douglas H. Larson Associate Director Valuation Advisory Services /s/ Matthew C. Mondanile Matthew C. Mondanile, MAI Senior Director Valuation Advisory Services DHL:MCM:ec <PAGE> SUMMARY OF SALIENT FACTS AND CONCLUSIONS - -------------------------------------------------------------------------------- Property Name: Tower 45 Location: 120 West 45th Street between Avenue of the Americas & Seventh Avenue, New York, New York General Overview: This is a modern 40-story Class A office building completed in 1989 on a 15,565+/-square foot site. The building contains 443,086+/-square feet of rentable area. The building is modern in appearance and functional in design. On the effective date of appraisal, occupancy was at 100 percent. Assessor's Parcel Number: Block 997, Lot 41 Interest Appraised: Leased Fee Estate, subject to Air Rights Lease Date of Value: October 1, 1997 Date of Inspection: September 26, 1997 Ownership: Tower 45 Associates Limited Partnership c/o Feldman Equities Land Area: 15,565+/- square feet Current Property Assessment: $35,158,000 Current Property Taxes: $3,573,459 Zoning: C6-5.5 Restricted Central Commercial District Highest and Best Use If Vacant: Eventual development as an office building, likely consisting of mid-size floor plates catering to boutique space office users along with floor retail space, storage space, and below grade parking garage. As Improved: Existing use consisting of a multi-tenanted office building containing office space on the upper floors, retail space on the ground floor and below grade parking garage and storage space. Improvements Type: 40-story multi-tenanted office building Year Built: 1989 Type of Construction: Reinforced concrete frame, granite and glass facade. <PAGE> Summary of Salient Facts and Conclusions - -------------------------------------------------------------------------------- Rentable Area: 443,086+/- square feet (per rent roll) Operating Data and Forecasts Current Occupancy: 100% Forecasted Stabilized Occupancy: 99% Value Indicators Sales Comparison Approach: $97,000,000 to $102,000,000 Value Per Square Foot: $220 to $230 Indicated Value: $100,000,000 Income Approach-Discounted Cash Flow Analysis Current Vacancy: 0.00% Estimated First Year Vacancy Rate: 2.00% Stabilized Vacancy Rate: 2.00% Forecasted Date of Stabilized Occupancy: Currently stabilized Estimated Vacancy Between Tenants: 6 months (2 months weighted) Probability of Renewal: 65% Tenant Improvement Allowance Tenants in Previously Occupied Space: $35.00/SF (Major tenants) $25.00/SF (Minor tenants) Renewal Tenants in Same Space: $15.00/SF (Major tenants) $10.00/SF (Minor tenants) Estimated Market Rental Growth Rate: 4% Reversion Year Capitalization Rate: 9.0% Transaction Costs in Reversion Sale: 5.25% Discount Rate: 11.0% Implicit First Year Capitalization Rate: 13.76% Indicated As Is Value: $95,000,000 As Is Value Conclusion: $95,000,000 Value Per Square Foot: $214.41 Implicit Capitalization Rate: 13.76% Marketing Time: 12 months Special Assumptions: 1. Please refer to the complete list of assumptions and limiting conditions included at the end of this report. <PAGE> PHOTOGRAPHS OF SUBJECT PROPERTY - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Front view of lower floors of 120 West 45th Street looking southwest. <PAGE> Photographs of Subject Property - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] View of upper floors of 120 West 45th Street looking southwest. <PAGE> Photographs of Subject Property - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Rear view of upper floors of 120 West 45th Street looking northwest. <PAGE> Photographs of Subject Property - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] A view of the main entrance and atrium from West 45th Street. [GRAPHIC OMITTED] A view looking east along West 45th Street; the subject property is on the right <PAGE> Photographs of Subject Property - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] A view from the lobby. [GRAPHIC OMITTED] A view of a typical hallway. <PAGE> TABLE OF CONTENTS - -------------------------------------------------------------------------------- Page INTRODUCTION...................................................................1 Identification of Property................................................1 Property Ownership and Recent History.....................................1 Purpose and Intended Use of the Appraisal.................................1 Extent of the Appraisal Process...........................................1 Date of Value and Property Inspection.....................................2 Property Rights Appraised.................................................2 Definitions of Value, Interest Appraised, and Other Pertinent Terms.......2 Legal Description.........................................................3 NEW YORK REGIONAL ANALYSIS.....................................................5 MIDTOWN MANHATTAN OFFICE MARKET ANALYSIS......................................13 THE PLAZA OFFICE DISTRICT.....................................................32 PROPERTY DESCRIPTION..........................................................38 Site Description.........................................................38 Improvements Description.................................................39 REAL PROPERTY TAXES AND ASSESSMENTS...........................................42 ZONING........................................................................45 HIGHEST AND BEST USE..........................................................46 VALUATION PROCESS.............................................................48 SALES COMPARISON APPROACH.....................................................50 INCOME CAPITALIZATION APPROACH................................................56 RECONCILIATION AND FINAL VALUE ESTIMATE.......................................78 ASSUMPTIONS AND LIMITING CONDITIONS...........................................80 CERTIFICATION OF APPRAISAL....................................................82 ADDENDA.......................................................................83 <PAGE> INTRODUCTION - -------------------------------------------------------------------------------- Identification of Property This is a 40-story office building identified as Tower 45 and located at 120 West 45th Street along the south side of West 45th Street between Avenue of the Americas and Seventh Avenue in the Plaza office district of Midtown Manhattan. The property's street address is 120 West 45th Street. The property may be identified on the Tax Maps of the City of New York as Lot 41 in Block 997. This is a Class A office building built in 1989 on a 15,565 square foot site. The building contains 443,086+/- rentable square feet. The building is modern in appearance and functional in design. On the effective date of appraisal, occupancy stood at 100 percent. Property Ownership and Recent History The property is currently under the ownership of Tower 45 Associates Limited Partnership, in care of Feldman Equities. Feldman Equities assembled the land site during the late 1980s and constructed the building in 1989. The developers leased air rights over the Belasco Theater which fronts along West 44th Street. The air rights are subject to a 250 year lease which commenced in 1986. No transfers of the property have occurred in the past three years. Purpose and Intended Use of the Appraisal The purpose of this appraisal is to estimate the market value of a leased fee estate in the property in "as is" condition, based upon market conditions, subject to the air rights lease, prevailing as of October 1, 1997. The function of this appraisal is for the mortgage underwriting decisions of Merrill Lynch. Extent of the Appraisal Process In the process of preparing this appraisal, we: o Inspected the exterior of the building and the site improvements and a representative sample of tenant spaces with the building superintendent. o Interviewed Eric S. Reimer of the property management company, Feldman Equities. o Reviewed leasing policy, concessions, tenant build-out allowances, and history of recent rental rates and occupancy with the building's lease agent. o Reviewed a detailed history of income and expense and a budget forecast for 1997 including the budget for planned capital expenditures and repairs. o Conducted market research of occupancies, asking rents, concessions and operating expenses at competing buildings which involved interviews with on-site managers and a review of our own data base from previous appraisal files. o Prepared an estimate of stabilized income and expense for capitalization purposes. o Conducted market inquiries into recent sales of similar buildings to ascertain sales price per square foot, and capitalization rates. This process involved telephone interviews with sellers, buyers and/or participating brokers. - -------------------------------------------------------------------------------- -1- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Introduction - -------------------------------------------------------------------------------- o Prepared Sales Comparison and Income Approaches to value. Date of Value and Property Inspection The date of value is October 1, 1997. We inspected the property on September 26, 1997. Property Rights Appraised Leased fee estate. Definitions of Value, Interest Appraised, and Other Pertinent Terms The definition of market value taken from the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation, is as follows: 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 U.S. 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. Exposure Time Under Paragraph 3 of the Definition of Market Value, the value estimate presumes that "A reasonable time is allowed for exposure in the open market". Exposure time is defined as the estimated 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. Based on our research of recent sales of office buildings considered to be reasonably comparable to the subject, as well as our discussions with local area brokers of investment properties, we have concluded that the probable exposure time for the subject property would have been approximately twelve months. Several of the office building sales included within this report were exposed on the market for a period of approximately eight to twelve months. Thus the aforementioned exposure time appears reasonable. - -------------------------------------------------------------------------------- -2- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Introduction - -------------------------------------------------------------------------------- The following definitions of pertinent terms are taken from the Dictionary of Real Estate Appraisal, Third Edition (1993), published by the Appraisal Institute. 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 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; relates to what physically exists and is legally permissible and excludes all assumptions concerning hypothetical market conditions or possible rezoning. Transferable Development Rights (TDR) A development right that cannot be used by the landowner but can be sold to landowners in another location; generally used to preserve agricultural land; many also be used to preserve historic sites or buildings and open space or to protect scenic features. Development Rights The right to build on or beneath a property, subject to local zoning, building codes, etc. Air Rights The right to undisturbed use and control of designated air space above a specific land area within stated elevations. Such rights may be acquired to construct a building above the land or building of another or to protect the light and air of an existing or proposed structure on an adjoining lot. Legal Description We have not been provided with the metes and bounds legal description of this site, however, the property is identified on the Tax Maps of the City of New York, as Lot 41 in Block 997. - -------------------------------------------------------------------------------- -3- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> [GRAPHIC OMITTED] CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> NEW YORK REGIONAL ANALYSIS - -------------------------------------------------------------------------------- Area Overview The New York metropolitan area, centered in New York City, is the nation's center for finance, the arts, media, fashion, telecommunications and corporate headquarters. The region generally encompasses 20 counties in three states, extending for a radius of approximately 50 miles from New York City. Included in this area are: New York City's five boroughs of Manhattan, Brooklyn, Queens, Bronx and Staten Island; the New York State counties of Nassau, Suffolk, Westchester, Rockland, Orange and Putnam; the northern New Jersey counties of Bergen, Essex, Hudson, Union, Middlesex, Passaic, Somerset and Morris; and the southern Connecticut county of Fairfield. Population Trends The New York area is the largest metropolitan area in the country in terms of population. The following chart provides population growth for the metropolitan area between 1980 and 1990, estimated figures for 1996 and projected population statistics for the year 2001. ================================================================================ New York Metropolitan Area Population ================================================================================ <TABLE> <CAPTION> % Increase % Increase 1980 1990 % Increase 1996 1990-1996 2001 1996-2001 County Census Census 1980-1990 Estimated (Est.) Projection (Projected) - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> New York City 7,071,641 7,322,564 3.5% 7,382,450 0.82% 7,466,689 1.14% - ---------------------------------------------------------------------------------------------------------------- NYS (Nassau/ Suffolk/ Westchester/ Rockland/ Orange/ Putnum 4,068,738 4,141,141 1.8% 4,255,711 2.77% 4,313,220 1.53% - ---------------------------------------------------------------------------------------------------------------- New 4,411,992 4,436,976 0.57% 4,497,693 1.37% 4,434,801 - 1.40% Jersey Counties - ---------------------------------------------------------------------------------------------------------------- Connecticut Fairfield 807,143 827,645 2.5% 834,637 0.84% 845,931 1.35% - ---------------------------------------------------------------------------------------------------------------- TOTAL 16,359,512 16,728,326 2.3% 16,970,491 1.76% 17,060,641 0.53% ================================================================================================================ </TABLE> Source: Equifax National Decision Systems Transportation Metropolitan New York is served by the most diverse transportation system in the United States. The region's transportation network links the area to regional, national and global commerce and trade. A brief synopsis of the region's transportation system follows below. Rail System o NYC Subway system: 710-mile subway line servicing 3.5 million passengers a day. o Metro North: Based in the landmark Grand Central Terminal in Midtown Manhattan, train lines span Westchester and Putnam counties in New York and Fairfield County, Connecticut to an 80-mile radius. Over 100,000 passengers use this system daily. o Long Island Railroad: Commuter line to Pennsylvania Station in Manhattan and to Atlantic Terminal in Brooklyn servicing over 270,000 commuters daily. Improvements are scheduled for the next few years, including the addition of 24 new "dual mode" locomotive engines that allow trains to switch between diesel and electric power while en route so that passengers will no longer have to switch trains when the tracks change. In addition, over 120 new rail - -------------------------------------------------------------------------------- -5- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> New York Regional Analysis - -------------------------------------------------------------------------------- cars will be added to the fleet and 13 additional stations are to be equipped with automatic ticket vending machines. o (PATH) - Port Authority Trans-Hudson subway system: Services nearly 200,000 commuters daily from Newark and Hoboken to Manhattan. o New Jersey Transit-rail: Train service for commuters in the northern part of the state to either Hoboken, New Jersey or Pennsylvania Station in Manhattan. Plans are currently underway for a 20.5-mile technologically advanced light rail system from Bayonne to Hoboken, ultimately extending to Ridgefield, which will make a great improvement in transportation in Hudson County. Construction of the first phase (between Bayonne and Hoboken) is scheduled to begin shortly, with completion expected by the year 2000. Bus System o New York City Transit: Regularly scheduled bus service in New York City's five boroughs handles over one million riders daily. o Port Authority Bus Terminal: Regional bus lines servicing an average of 175,000 passengers daily, with most service to and from New Jersey. Airports o The region contains three major commercial airports: Newark, LaGuardia and Kennedy International (JFK). Newark Airport, in New Jersey, recently opened a new international terminal, doubling the airport's ability to process international passengers. A $350 million monorail system, connecting the three passenger terminals to the airport's long-term parking lots, opened last spring. Plans are being made to extend the monorail to nearby Amtrak and New Jersey Transit rail stations. At JFK Airport in Queens, a $1.1 billion redevelopment project to expand and improve its international arrivals and customs facilities is expected to begin during 1997. Construction of a light rail system providing passengers with a link between terminals as well as connections from the airport to the New York City subway system and the Long Island Rail Road will be scheduled in phases to minimize disruptions at the airport. A $549 million roadway/utility renewal effort and a $63 million air traffic control tower will also greatly improve conditions for travelers. Major improvements at LaGuardia Airport include a new passenger terminal and improved roadways to expedite traffic flow into and out of the airport. Renovation work continues in the main terminal and a new retail and food court is being built. Ferries o Regularly scheduled service runs from Staten Island, Brooklyn and several New Jersey cities to Downtown and Midtown Manhattan. - -------------------------------------------------------------------------------- -6- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> New York Regional Analysis - -------------------------------------------------------------------------------- Regional Economic and Employment Trends The New York metropolitan region saw a net increase of nearly 48,000 new jobs in the last 12-month period ending October 1996, the highest increase so far this decade. Northern New Jersey's employment outlook also improved, though slightly, with a gain of 9,800 new jobs. Outlined below are the most current employment statistics available by industry. o The service industry experienced 94 percent of the area's overall job growth, the largest gain in employment during the last twelve months. The New York area netted 35,300 new jobs, Long Island expanded by approximately 10,000, and New Jersey increased its service sector jobs by 15,000. o The second-largest employment increase in the New York region occurred in the retail trade, with over 11,000 new jobs in New York City, boosted by the surge of retail and entertainment projects. In particular, the Midtown Manhattan area has been transformed by a plethora of retailers, such as Kmart, Tower Records, Barnes & Noble, The Gap, Pottery Barn, the Disney Store, Nike town and Reebok Sports Club. Madison Avenue, one of the most desirable and expensive retail locales in the world, recently opened its doors to highly sought-after designers such as Calvin Klein, Valentino and Giorgio Armani. On Long Island, 6,600 retailing jobs were created. Retail also accounted for the second-largest employment gain in New Jersey, adding 4,200 new jobs. o New York's construction industry added 2,000 new jobs, making it the third largest net gain employment category. On Long Island, construction jobs increased by 300. With a number of major renovations and new retail projects coming on-line on Long Island, construction activity should continue on the upswing. o During this period, wholesale trade added 1,900 jobs in the New York region and the transportation sector increased by 1,800 new jobs in the City and 900 on Long Island. New Jersey suffered in both areas, declining 1,200 jobs in transportation and losing 600 in the wholesale trade industry. o The FIRE (finance, insurance and real estate) sector accounts for the third largest group of the New York region's workforce -- 13 percent -- which greatly exceeds the national average of 5.8 percent. Considering this, FIRE's loss of 1,900 jobs, considered minor, is a significant improvement over the last few years, when the brunt of corporate downsizing, mergers and consolidations took its toll within the sector's workforce. o The two sectors that suffered the largest losses in employment in the metropolitan area were in the public sector. There was a reduction of approximately 12,000 government jobs. In manufacturing, there were losses of 5,900 workers in New York, 3,600 jobs on Long Island and 5,600 unemployed in Northern New Jersey. Lucrative incentive packages in the form of city and state tax breaks and attractive leasing packages have been successful in enticing many large corporations into staying in the region as well as attracting businesses seeking locations elsewhere. The New York Cotton Exchange, - -------------------------------------------------------------------------------- -7- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> New York Regional Analysis - -------------------------------------------------------------------------------- as well as the Coffee, Sugar & Cocoa Exchange will keep its 5,300 employees in New York City at a new facility, encouraged by a reported $99 million tax incentive package, among other municipal-backed financial incentives. Paine Webber, with its 2,650 employees, will maintain its world headquarters at 1285 Avenue of the Americas in Midtown Manhattan through the year 2015, attributed to an attractive lease deal and a series of tax incentives, sales tax exemptions and energy savings. In a deal that marks a first time return to New York after moving out of state, Nine West will relocate to White Plains, bringing with it 1,400 jobs, with an expected addition of 500 jobs during the course of its 25-year lease. They will occupy a 377,000+/- square foot building that was previously the home of NYNEX. The Nine West deal was assisted by a $7.8 million package of tax incentives, grants and electricity savings. In October 1996, New York City Mayor Rudolph Giuliani introduced a series of tax incentives and other benefits to attract tenants and developers to move to certain areas of Downtown Manhattan. American International Group (AIG) will take advantage of that, keeping its headquarters and over 5,100 employees at 175 Water Street, an office tower which the company recently purchased. AIG also expects to add almost 1,900 new jobs as a result of growth and consolidation of other leased properties outside the city. Other encouraging corporate news items include MasterCard, which moved into its new corporate headquarters in Purchase, New York. IBM is planning to consolidate to a new state-of-the-art headquarters facility adjacent to their existing building in Armonk, New York. Ciba-Geigy has relocated its corporate headquarters, along with 1,200 employees, to the Tarrytown Corporate Center, and is constructing a new $40 million laboratory, scheduled for occupancy in 1997. Symbol Technologies Inc., employing 2,500 on Long Island, recently relocated to its new corporate headquarters, encompassing 48+/- acres in Holtsville. Unemployment Unemployment rates have continued to decline nationally and regionally over the past few years. The latest year-end statistics available from the Department of Labor, published in December, include figures as of October 1996. The unemployment rate for the New York region (including New York City, Putnam, Rockland and Westchester) as of October 1996 was 7.6 percent, as opposed to 7.7 percent twelve months earlier. Similarly, Long Island's October 1996 figure fell to 3.7 percent from 4.8 percent the prior year. In New Jersey, the unemployment rates as of September 1996 show 6.0 percent, compared to 6.3 percent the year before. Economists explain that unemployment rates change at a slower rate than other economic indicators and, therefore, may not accurately reflect recent shifts in the job market. Employment figures provide a more accurate reflection of economic performance in the region. - -------------------------------------------------------------------------------- -8- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> New York Regional Analysis - -------------------------------------------------------------------------------- Real Estate Markets o Office Markets Strong leasing performance in the Midtown, Midtown South and Downtown Manhattan Class A office markets has resulted in a shrinking supply of premium space. The Long Island markets have shown improvement with lowered vacancy rates. In Northern New Jersey, leasing of Class A space has also been notable. Midtown Manhattan exhibits the lowest Class A vacancy rate in the region between 10 and 14 percent, and the Downtown, Long Island, and New Jersey markets all report Class A vacancy rates at their lowest points for the year, between 10 and 15 percent. However, Westchester vacancy rates increased, due to fact that more space was vacated than occupied in 1996, and the region is striving to recover from the wave of corporate consolidations and reorganizations that began in 1995. With vacancy rates of prime space falling, the focus has changed to construction to meet the demand for suitable space. Times Square will be the site of one of the first new office developments in the Midtown area. Located at the northeast corner of Broadway between West 42nd and 43rd streets, 4 Times Square, a 1.6+/- million square foot office and retail project, broke ground in August 1996. The Durst Organization acquired the western portion of the same city block which they have a majority ownership. A scheduled completion date of 1999 is expected. Another site that is generating a great deal of interest from prominent developers is the New York Coliseum site at Columbus Circle. Among the bids submitted are plans for a mixed used development with office space, a large retail component, residential apartments condominiums and hotel rooms. The governmental agencies requesting the bids received nine proposals and four finalists are to be announced. There are several projects in the preliminary planning stages on Long Island, including developer Edward J. Minskoff's proposal for a 200,000 square foot office building at the site of the former Roosevelt Raceway, where he also plans a separate 350,000 square foot office building. Anchor tenants have been secured for both buildings. Also slated for development are Brookhaven Town Center and Parr Yaphank, with a potential of 3+/- million additional square feet of new office development. In Jersey City's Waterfront district, the Newport Office Center III will contribute 750,000 square feet of new office space, with developers planning to complete construction within 2 years after securing 25 percent of the space through pre-leasing. o Retail Markets Retailing activity has skyrocketed in both new and expansion projects due to the region's rebounding economy. The New York City area, traditionally served by large department stores and small boutiques, is presently experiencing a different kind of retail experience connected to the multi-media and entertainment fields. Revitalizing projects in the Times Square area, such as Disney's renovation of the New Amsterdam theater, David Copperfield's magic-theme restaurant, the Official All Star Cafe, Sony's State Theatre, and E Walk, an entertainment complex developed in part by Tishman Broadway Corp., has made the area attractive for continued development. Additionally, large retailers such as Kmart, Barnes & Noble, and a new Gap chain, Old Navy Clothing Co. have expanded into Manhattan with one or two signature stores so as to not overextend themselves or saturating the market. The Warner Brothers Studio Store, originally opened in October 1993 on the corner of Fifth Avenue and 57th Street, recently expanded to nine stories, adding 75,000 square feet retail space to include interactive games, a cafe and a 74-seat screening room to feature computer generated 3-D cartoons featuring the well-known Warner Brothers characters. Warner Brothers more recently leased - -------------------------------------------------------------------------------- -9- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> the 1 Times Square building and is to open a second Manhattan studio store on West 42nd Street and Broadway. Luxury retailers also made news, with Chanel moving a few doors away to a completely renovated site with a 99-year lease. Other upscale designers, such as the aforementioned Calvin Klein, Valentino and Giorgio Armani, also opened new retail spaces. Next to Chanel on East 57th Street, Louis Vuitton, the French luxury leather goods designer, is building a 23-story tower, two floors for their retail business and the upper floors designated to the company's corporate offices. Elizabeth Arden and Red Door Salons Inc., slated for extensive renovations and expansion, will close this month and reopen in 1997. Long Island is renovating and expanding many of its retail centers, such as the Walt Whitman Mall in Huntington, the South Shore Mall in Islip, the Tanger Outlet center in Riverhead and the Bellport Outlet Center. Roosevelt Field mall will be adding a Nordstrom's to the second level expansion project and completion is expected by the fall of 1997. In Westbury, a two-level mall expansion project, The Source, will add 525,000 square feet to the existing site and is scheduled to be completed in the summer of 1997. The Source will feature a number of big-name, large-draw retailers such as Fortunoff (the project's joint venture partner), Nordstrom Rack, Old Navy, Saks Off Fifth, Loehmann's, The Disney Store, Bertolini's Restaurant and Virgin Megastore. In addition, a number of new retail developments over 100,000 square feet are being proposed, among them the Brookhaven Town Center in Yaphank, which ultimately may include a significant amount of office space as well. In Westchester, renovations are underway at the Westchester Mall, which will double in size to 766,000 square feet and be renamed the Cortland Town Center. It will feature commanding retailers such as Home Depot, Barnes & Noble, United Artists Theater, and an A&P Superstore. About 80 percent of the space has been pre-leased and completion is scheduled for 1999. Just over the Westchester border in West Nyack, Pyramid Companies has commenced construction of Palisades Center, a 1.85 million square foot power mall, due to open late 1997. It will be host to anchor stores such as JC Penney, Lord & Taylor, Filene's Basement and BJ's Wholesale Club. Other headlining retailers lined up so far include Home Depot, The Wiz, Target, Sony Multiplex Theatre and Burlington Coat Factory. o Residential Markets The New York City residential markets have exhibited a strong recovery from the past recession. Over the past few years in Manhattan, vacancy rates have been at the lowest point in years (from 3.4 percent to as low as 1+/- percent, according to some sources), despite rising supply and market rents. This factor has, in turn, stimulated the outer borough markets, as many renters seek relief from the tight Manhattan market and turn to Brooklyn and Queens as alternatives. Other potential renters have chosen to buy apartments, some more affordably priced than in the past, boosting the lagging sales of co-ops and condominiums. Overall vacancy figures for Northern New Jersey, currently between 4 percent and 5 percent, can vary between submarkets, due to the fact that the region contains some of the most impoverished areas along with some of the most affluent neighborhoods in the nation. The Long Island residential market has shown some improvement, but along with Northern New Jersey, restrictive zoning and rent control ordinances hinder multifamily development and allow for only modest improvements in the existing markets. Legislation proposed to eliminate rent control may alter the development scene dramatically. - -------------------------------------------------------------------------------- -10- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> New York Regional Analysis - -------------------------------------------------------------------------------- New residential construction in the New York region is showing great promise for the near future and is a reflection of increased momentum of the region's economy. In New York City, there are ten or more projects that are at or near completion, which should serve to ease the demand for rental and condominium units for tenants, including low and middle-income families. In Westchester County, Avalon Gardens, a 500-unit project, should be ready for occupancy by late 1998. On Long Island, Avalon is building 300 apartments in Smithtown, which should also be completed by the end of 1998. In Huntington, a complex is in the planning stages for a continuous care facility that would include 1,000 apartments, townhouses and detached homes for senior citizens, as well as another 250-unit senior housing project. o Hotel Markets The region's hotel market is currently in the midst of a dramatic recovery from a period of economic recession. The supply of hotel rooms in New York has changed over the past few years, as many older sites are being replaced by more modern facilities. In some cases, hotels such as the New York Palace, Grand Hyatt, Marriott EastSid and The Roosevelt have been completely renovated, with more accommodating guestrooms and facilities designed to pamper the occupants with more upscale amenities. The demand for hotel space is on the rise and is expected to continue in the near future. This trend is supported by the number of new and proposed hotel developments currently in the planning stages, under construction or near completion. The Downtown area of SoHo is the site of two new hotels and another under proposal. The first hotel to open in this resurgent area, the 367-room SoHo Grand Hotel, was completed in the summer of 1996 and has already made a favorable impression among models, artists and actors. The 73-room Mercer Hotel is currently under construction and has signed a major retailer, J. Crew, to their attractive ground floor space. Developer Hank Sopher has proposed the 160-room SoHo Gateway, which will reportedly cost $25+/- million and is still in the planning stages. The first new hotel to be constructed in the successfully revitalized Downtown Brooklyn area is finally underway. Developer Josh Muss' Renaissance Plaza, a 31-story hotel/office complex will emcompass a 7-story, 384-room Marriott Hotel. The project broke ground in late 1996 and is expected to be completed between 1998 and 1999. The latest new hotel proposal in the Times Square area is a plan by Milstein Properties to build a 500,000 square foot hotel and retail complex on the parking lot located at West 42nd Street and Eighth Avenue, across the street from the Tishman development. The Milsteins have owned the property for 15 years, and have been waiting for the right incentive package from the city and state to catalyze the project. Marriott has plans to open two new Courtyard hotels in midtown Manhattan within the next two years. Targeted at budget-conscious business travelers, is a $50 million plan to build a 300-room Courtyard by Marriott hotel on the top floors of 866 Third Avenue. Construction is scheduled to commence Mid-year 1997 and should be completed in approximately one year. Ground has broken at a second Courtyard hotel, located in the Garment District. On Long Island, Edward J. Minskoff is proposing two hotel projects at the former Roosevelt Raceway property in Westbury. The first hotel would be a 170-room economy rate project, and the second a 130 suite room project to be built on the former racetrack's grandstand site. Construction is to begin Mid-year 1997 and should take about two years to - -------------------------------------------------------------------------------- -11- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> New York Regional Analysis - -------------------------------------------------------------------------------- complete. Another significant proposal is the plan for a 200-room hotel in Jersey City, along the Hudson River waterfront area. The hotel will be a part of the Hudson Exchange mixed-use project and will be located next to the Newport Mall and accessible to the planned light rail system in Hudson County. The hotel will be a vital link to the area's development as a viable business district and will certainly be a factor in its future growth. Conclusion The downward pattern within the New York region in the past few years has made a significant turnaround which, boosted by a stable economy and a strong performance by Wall Street, has prompted some economists to predict that conditions should remain favorable through at least the third quarter of 1997. According to Crain's New York Business, inflation in the region has been below the national average for the last six out of seven months. The latest employment figures are a powerful indication of the strength of the region's economy. - -------------------------------------------------------------------------------- -12- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> MIDTOWN MANHATTAN OFFICE MARKET ANALYSIS - -------------------------------------------------------------------------------- Manhattan Overview Manhattan contains over 350 million square feet of class A, B and C office space and is, by a very wide margin, the largest market in the United States. The Manhattan office market is actually composed of three markets: Midtown, Midtown South and Downtown. The Midtown market, which is identified as that area north of 32nd Street, is widely diversified among legal services, financial institutions, insurance companies, media companies, advertising agencies and accounting firms, among others. The Midtown South market is identified as that area north of Canal Street and south of 32nd Street and is dominated by class B and C buildings which are generally occupied by local service firms, back office divisions of large companies and front offices for local manufacturers. The Downtown market, identified as that area south of Canal Street to the Battery, is linked significantly to financial services, Wall Street firms and New York City government. The Manhattan office market got off to a strong start in 1997 and continued to improve in the second quarter. For the first time since the 1980s, the New York City economy has been stronger than in the surrounding suburbs. Through May, 1997 over 29,000 new jobs were created within the City's private sector, primarily in the services and securities sectors. Midtown Manhattan Market The Midtown Manhattan office market is currently the largest in the country and contains over 220 million square feet of space in 778 properties, with class A space accounting for 76 percent of the total inventory. With strong leasing and positive absorption, the Midtown market continued to improve through mid-year, indicating a healthy outlook for the remainder of 1997. The following chart summarizes the status of the Midtown Office Market (excluding Midtown South) as of the second quarter of 1997. - -------------------------------------------------------------------------------- Midtown Manhattan Office Market Statistics - 2Q1997 <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------- Class A Class B Class C Overall - -------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Number of Built Buildings 342 328 108 778 Inventory - Square Feet 168,126,777 39,395,235 13,127,089 220,649,101 - -------------------------------------------------------------------------------------------------------------- Overall Availabilities - SF 15,306,191 6,012,531 1,750,062 23,068,784 YTD Under Construction - SF 1,614,000 0 0 1,614,000 - -------------------------------------------------------------------------------------------------------------- Total Leasing Activity 1996 - SF 15,134,075 2,641,959 859,620 18,635,654 Total Leasing Activity 2QYTD 1997 - SF 7,379,181 1,597,956 433,643 9,410,780 - -------------------------------------------------------------------------------------------------------------- Total Absorption 1996 - SF 1,530,652 103,212 133,649 1,767,513 Total Absorption 2QYTD 1997 - SF 639,452 931 (69,538) 570,845 - -------------------------------------------------------------------------------------------------------------- Total Vacancy Rate 9.1% 15.3% 13.3% 10.50% Total Avg. Asking Rental Rate $36.91 $23.55 $12.25 $31.56 - -------------------------------------------------------------------------------------------------------------- </TABLE> Source: Cushman & Wakefield Research Services Class A: Buildings which meet three or more of the following criteria: centrally located, professionally managed and maintained; attract high-quality tenants and command upper-tier rental rates. Structures are modern or have been modernized to successfully compete with newer buildings. Class B: Buildings with less than three of the criteria listed above. In addition, the current or prospective tenants must be office space users. Class C: Buildings competing for tenants requiring functional space at rents below average. - -------------------------------------------------------------------------------- -13- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Midtown Manhattan Office Market Analysis - -------------------------------------------------------------------------------- During the 1980s the Midtown Manhattan office market experienced unprecedented growth in leasing activity, new construction and rental rates. In the early 1990s the market softened as new supply entered the market in response to rising rental rates, increased demand from the mid-1980s, as well as several New York City office development incentives. The resulting oversupply of Midtown office space, in conjunction with the past recession, created soft market conditions that persisted well after most of the country had begun its ascent from the past economic downturn. The future shows a more balanced outlook for the Midtown office market. New construction had virtually come to a standstill, which allowed demand to catch up with existing supply and vacancy rates to decline. The New York City region has emerged from the past recession and lenders have begun to provide new financing of well-occupied and stabilized office properties. Finally, new construction has begun on speculative office projects, with partial preleasing mandatory, which is deemed as a positive factor. Supply The last wave of new construction activity in Midtown was initiated by the 1981 rezoning of the West Side of Manhattan centering around Times Square. The temporary zoning change increased the permissible density (FAR) of potential building sites. This prompted many developers to acquire sites and begin construction in order to meet the zoning deadline requirement that foundations be in place by May 13, 1988. East Side sites were conversely downzoned, although the scarcity of sites on the East Side minimized the effects of the downzoning. The 1981 rezoning of the West Side, which was successful in promoting development, was scaled back in 1987. Developers who took advantage of the rezoning have long since completed those buildings. New office construction over the past few years has been almost non-existent, with just nine (primarily owner occupied) buildings completed between 1992 and 1994. This slowdown in construction activity was attributed to the oversupply of office space created by the building boom of the 1980s, the decreased demand for space that was the result of corporate downsizing and relocation out of New York City, and general economic weakness stemming from the past recession. Proposals for construction over the next few years have been minimal, which has had a favorable impact on occupancy levels. The following chart lists the most recent office projects proposed and under construction. - -------------------------------------------------------------------------------- -14- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Midtown Manhattan Office Market Analysis - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Midtown Office Building Projects - Proposed and Under Construction <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------------------- Rentable No. Property Status Office SF Constructed For - ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> 1 German Embassy Under Construction 114,000 Owner/User 871 United Nations Plaza - ---------------------------------------------------------------------------------------------------------------------- 2 4 Times Square - NE Tower Under Construction 1,600,000 Conde Nast and Skadden, Arps have 1480 Broadway committed to 80% of available space - ---------------------------------------------------------------------------------------------------------------------- 3 Park Avenue Place Proposed 1,100,000 Bear Stearns & Co. world 383 Madison Avenue headquarters - ---------------------------------------------------------------------------------------------------------------------- 4 One Rockefeller Plaza West Proposed 1,460,000 Anchor tenants will likely be 745 Seventh Avenue secured prior to construction - ---------------------------------------------------------------------------------------------------------------------- 5 Heron Tower II Foundation in place 125,000 Office/HotelSpeculative 60 East 55th Street - ---------------------------------------------------------------------------------------------------------------------- 6 Columbus Center Developer to be 1,340,000 Mixed Use -- Office,Retail and Columbus Circle & 59th Street announced Residential - ---------------------------------------------------------------------------------------------------------------------- </TABLE> Source: Cushman & Wakefield Research Services There have been no new speculative office building completions since 1992, when Americas Tower, 450 Lexington Avenue and 565 Fifth Avenue were completed. The over-built market and corresponding decrease in market rents during the past recession made new construction infeasible. More recently, a few new office projects have broken ground for construction. The new German Embassy was long identified as a speculative office site. The Albanese development firm sold the site and is constructing a build-to-suit project for the German government. The other new projects, excluding 4 Times Square, will most likely not be built without a commitment from major tenants. This is a standard requirement in many other office markets nationally and a primary condition to secure traditional construction financing. On the following page is a bar graph exhibiting both Midtown and Midtown South construction and direct vacancy rates. The vacancy rate indicated varies from some of the statistics included in this market overview due to the inclusion of Midtown South in this presentation. Proposed New Construction Many of the proposed projects listed on the preceeding chart have been in the planning stage for a number of years. The developers of these projects have been marketing the proposed office space for quite some time. The first two projects listed transferred to new owners and broke ground. Two of the other sites were also sold and new development is coming closer to fruition. In 1996, 871 U.N. Plaza, located on a 50-by-100 square foot site between East 48th and East 49th streets, was purchased by the Federal Republic of Germany. Construction of the 114,000+/- square foot property recently commenced and will take approximately two years to complete. It will be entirely occupied by the German Government, which will consolidate three of its New York offices. The entire project will cost $30 million, which includes the purchase and construction of the existing site and adjacent land. - -------------------------------------------------------------------------------- -15- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Midtown Manhattan Ofice Market Analysis - -------------------------------------------------------------------------------- Four Times Square, which is part of the Times Square redevelopment project, will be the first new office development to take place. The Durst Organization broke ground in August 1996, at the Northeast Tower site, a 1.6+/- million square foot proposed office and retail tower. The Durst Organization purchased the site for an estimated price of over $70 million from Prudential Insurance. Included with the site are a variety of zoning and real estate tax incentives which transferred to Durst in the sale. Construction on the site, located along Broadway between West 42nd and 43rd streets, is underway and a scheduled completion date of 1999 is expected. Conde Nast, its anchor tenant, committed to lease more than 550,000+/- square feet within the proposed building. In November 1996, the law firm of Skadden, Arps, Slate, Meagher & Flom completed a deal for 660,000+/- square feet. It is reported that Morgan Stanley is considering a 400,000+/- square foot commitment in the structure and Bertelsmann, Inc. is also contemplating leasing approximately 300,000+/- square feet in the building. - -------------------------------------------------------------------------------- -16- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> [GRAPHIC OMITTED] CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Midtown Manhattan Office Market Analysis - -------------------------------------------------------------------------------- Bear Stearns & Co. has just entered into a 99-year ground lease at 383 Madison Avenue after a two year search for space in Midtown Manhattan. The securities firm plans to develop and build a 1.1 million square foot office building on the site, which is bounded by Madison and Vanderbilt Avenues and East 46th and 47th streets, to serve as its new world headquarters. The location will be known as Park Avenue Place. Plans are to construct a technologically sophisticated "smart" office tower, to be completed before the expiration of Bear Stearn's current lease at 245 Park Avenue in 2002, which will consolidate employees located at both 245 Park Avenue and 575 Lexington Avenue. The property was purchased from the al-Babtain family of Saudi Arabia, investment partners with CS First Boston, reportedly for more than $100 million and is to be developed by Fred Wilpon, a director of Bear Stearns, and Gerald Hines, the Houston-based developer. The City has granted $75 million in tax breaks for development. Another significant proposed office building project is One Rockefeller Plaza West. Rockefeller Center Properties is marketing the proposed 1.46+/- million square foot, 55-story tower site, controlled by Mitsubishi Estate through Cushman & Wakefield Brokerage Services. At the present time, there is moderate interest in this site. Potential tenants have analyzed the project with rents being determined based on the requested design and scope of the tenants' specific needs. The site, which may be connected to the Rockefeller Center retail concourse, is being used on an interim basis as an open parking facility. A development site that was recently re-introduced to the market is the New York Coliseum site at Columbus Circle. The site is located along Central Park South - West 59th Street and Central Park West - Eighth Avenue with the potential to build over 1.2 million square feet of space on a 3.4 acre parcel. MTA officials which control the site sent out a Request for Proposal in July 1996, and are anticipating a sale price of over $150 million. Reportedly, all of the well-known developers in Manhattan submitted proposals/offers for the site. Most of the submitted proposals are for mixed-use projects combining office, retail and residential components. The bid process has been completed and the MTA announced a short list of developers in February. The winning bidder is expected to be announced within the next several months. Across the street from the Coliseum site is 2 Columbus Circle, another site slated for sale or redevelopment by New York City. Proposals submitted for consideration may either make use of the existing ten-story white marble block building, or include construction of a new building in accordance with current zoning resolutions and compatibility with the surrounding community. A site located at 1530 Broadway was recently reported to be under consideration for development. This parcel contains a footprint of approximately 45,000 square feet and is currently occupied by the Roundabout Theater on Broadway under a lease which expires in March 1999. This parcel can accommodate an as-of-right zoning floor area of 600,000+/- square feet with uses which include retail, signage, hotel and office. The owner, Charles Moss, has not yet announced plans for the site. In other construction news, the site and foundation for the proposed Heron Tower II, located at 60 East 55th Street, was sold in March 1996 to the commercial real estate developers, Americas Tower Partners, the Bernstein Brothers, for $5.3 million. The new owners are considering an office development or possibly a hotel project. - -------------------------------------------------------------------------------- -18- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Midtown Manhattan Office Market Analysis - -------------------------------------------------------------------------------- The most recent wave of speculative office construction was conceived and designed almost a decade ago. Since that time, given the technological advances in terms of building construction and the level of sophisticated build-outs now required by most tenants in the current market, it is reasonable to assume that this next wave of construction will prompt a demand for "smarter buildings" and a more favorable rent-to-expense ratio. As the market continues to tighten, the need for new construction will most likely move forward. There is very strong interest and desire on the part of tenants within the market to find consolidated commitments preferably in new buildings. There are a variety of requirements which influence the decisions of tenants, such as: o Space located on contiguous floors: At the present time, there are very few opportunities to secure large blocks of suitable space in Midtown. Given the number of large tenants in the market, there is likely to be increased competition for large blocks of available supply. o Space in modern buildings designed for high technology users: Businesses today rely heavily on telecommunications, computers and sophisticated mechanical equipment which require an environment that can accommodate "state of the art" technology. Spaces under consideration would require both raised floors and suspended ceilings, making the existing supply of availabilities located in older buildings inadequate to meet the constantly changing needs. Space is limited in many post-1985 "smart buildings" to relatively small units. o Avoidance of functionally obsolescent buildings: Inability to accommodate upgraded electrical and telecommunications risers as well as HVAC coverage is a crucial factor. Additionally, pre-1975 structures often used asbestos-containing materials as a fire retardant. Complete renovation of such spaces may resolve many of these inadequacies, but certain structural factors such as slab to slab heights and column spacing cannot be changed economically. o Proximity to established transportation hubs: Tenants have expressed a strong desire to be near established transportation hubs such as Grand Central Terminal and Pennsylvania Station. At the present time, the existing supply of space within the Midtown Manhattan market cannot fully satisfy the demand for large blocks of contiguous space. Contiguous blocks of class A space 50,000 square feet and larger declined by roughly 17 percent from the beginning of 1996. When the age and location of space is also considered, realistic choices are limited. However, desire to locate out of the Midtown Manhattan area is not apparently a strong trend. Analysis of tenants currently in the market indicates that less than 13 percent contemplate locations outside of New York City. Leasing activity for office space in Midtown Manhattan continues to increase and is expected to remain steady into the near future. - -------------------------------------------------------------------------------- -19- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Midtown Manhattan Office Analysis - -------------------------------------------------------------------------------- Demand The following chart provides a breakdown of overall leasing activity in the Midtown sub-districts (including Midtown South) from 1985 through the second quarter of 1997. - -------------------------------------------------------------------------------- Midtown Leasing Activity by District (SF) <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------- Year Plaza Grand Central Midtown West Midtown South Total - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> 1985 4,026,951 2,829,263 3,289,313 1,782,866 11,923,843 1986 6,913,195 3,730,673 4,411,042 2,459,768 17,542,184 1987 6,161,960 4,806,671 4,780,460 3,428,095 19,181,945 1988 6,040,805 4,027,576 5,982,913 1,847,195 17,898,489 1989 6,089,294 4,039,726 5,286,691 2,902,038 18,318,334 1990 5,660,136 3,406,050 4,998,241 1,828,555 15,892,982 1991 5,195,632 2,875,776 3,682,264 1,667,853 13,421,525 1992 6,059,470 3,792,338 4,714,699 2,184,259 16,750,766 1993 7,039,477 3,491,990 5,172,914 2,345,591 18,049,972 1994 8,403,760 3,587,694 5,228,707 2,979,190 20,199,351 1995 7,798,621 4,344,954 4,699,239 5,058,002 21,900,816 1996 8,165,048 4,960,750 5,509,856 4,351,440 22,987,094 YTD 1997 4,196,883 2,876,147 2,337,750 2,096,391 11,507,171 - -------------------------------------------------------------------------------------------------------------------- </TABLE> Source: Cushman & Wakefield Research Services Leasing activity in 1992 signaled a reversal of the downward trend caused by the past recession, with total square footage leased showing a 24.8 percent increase over 1991. In 1993 annual leasing activity reached 18.0 million square feet, a 7.8 percent increase over 1992, and the highest level of leasing activity achieved in Midtown since 1989. Midtown leasing activity in 1994 was strong, and the year-end total of 20.2+/- million square feet was the highest total recorded for the Midtown market over the previous decade. Leasing activity in 1995 reached nearly 22 million square feet (inclusive of Midtown South), exceeding the record 1994 leasing activity and continuing an upward trend. Total year-end 1996 Midtown leasing activity (excluding Midtown South) reached a healthy 18.6+ million square feet. With the addition of Midtown South, leasing activity shot up to 22.9+ million square feet, an all-time high. As of mid-year 1997 Midtown overall leasing activity (excluding Midtown South) was 9.4+/- million square feet, nearly 20 percent higher than the same period last year. Leasing transactions 10,000 square feet and larger accounted for 58 percent of the total activity for the year. - -------------------------------------------------------------------------------- -20- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Midtown Manhattan Office Market Analysis - -------------------------------------------------------------------------------- The following charts summarize the largest Midtown leases and the major space additions over the past 12 months. - -------------------------------------------------------------------------------- Significant Transactions Last 12 Months <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------- Building Market Tenant Date SF - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> 4 Times Square West Side Skadden, Arps 4Q 1996 659,937 4 Times Square West Side Conde Nast Publications 3Q 1996 568,151 150 East 42nd Street Grand Central Pfizer Inc. 4Q 1996 293,841 55 East 52nd Street Park Avenue ING Capital Markets 1Q 1997 278,200 345 Park Avenue Park Avenue JP Morgan & Company 4Q 1996 242,802 220 East 42nd Street Grand Central Omnicom Group 2Q 1997 179,900 Two Penn Plaza Penn Station Information Builders, Inc. 2Q 1997 178,899 150 East 42nd Street Grand Central Gruner & Jahr Publishing 3Q 1996 174,681 12 East 49th Street Madison/5th Credit Suisse First Boston 2Q 1997 167,750 55 East 52nd Street East Side Swiss Re Holding N.A. 4Q 1996 151,327 150 East 42nd Street Grand Central Bayerische Vereins Bank 1Q 1997 136,684 555 West 57th Street West Side BMW of Manhattan 4Q 1996 130,059 1230 Ave Amer./10 Rock Ctr. 6th/Rock Center Christies International 2Q 1997 125,358 1301 Avenue of the Americas 6th/Rock Center Deutsche Bank A.G. 4Q 1996 125,200 150 East 42nd Street Grand Central Pfizer Inc. 2Q 1997 117,882 150 East 42nd Street Grand Central Bayerische Vereins Bank 2Q 1997 113,523 1211 Avenue of the Americas 6th/Rock Center The News Corporation 3Q 1996 113,102 888 Seventh Avenue West Side Golden Books Publishing, Inc. 1Q 1997 112,290 245 Park Avenue Park Avenue Bear Stearns & Co., Inc. 3Q 1996 98,495 One Park Avenue Murray Hill Public Service Mutual Insurance 1Q 1997 89,700 1211 Avenue of the Americas 6th/Rock Center Nissho Iwai American Corp. 3Q 1996 79,150 - ------------------------------------------------------------------------------------------------------------------------- </TABLE> Source: Cushman & Wakefield Research Services - -------------------------------------------------------------------------------- Major Space Additions Last 12 Months <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------- Direct Date Building Market or Sublease Tenant Vacating Available SF - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> 825 Eighth Avenue West Side Sublease Ogilvy & Mather Jan-98 477,070 9 West 57th Street Mad/Fifth Direct Avon Products Jul-97 450,000 625 Madison Avenue Mad/Fifth Sublease Revlon 4Q 1997 387,395 237 Park Avenue Park Avenue Sublease J.Walter Thompson et al Arranged 342,000 777 Third Avenue East Side Direct Grey Advertising Jan-00 261,600 866 Third Avenue East Side Direct Macmillan Comm. Immediate 225,000 One Penn Plaza West Side Sublease Stone & Webster Eng. Immediate 165,764 410 East 62nd Street East Side Direct Vacant Immediate 125,000 200 Park Avenue Park Avenue Direct Met Life mid-1997 122,916 1211 Ave. of Americas 6th/Rock Center Direct Nissho Iwai Jan-97 118,725 125 Park Avenue East Side Direct Various Immediate 117,932 116 West 32nd Street East Side Direct NYC Comm Human Rights Oct-97 112,500 1230 Ave. of Americas 6th/Rock Center Direct USA Network Immediate 108,301 One Park Avenue Murray Hill Sublease Loews Corporation Immediate 100,000 280 Park Avenue East Park Avenue Direct Bankers Trust Immediate 92,118 - ----------------------------------------------------------------------------------------------------------------------------- </TABLE> Source: Cushman & Wakefield Research Services - -------------------------------------------------------------------------------- -21- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Midtown Manhattan Office Market Analysis - -------------------------------------------------------------------------------- Vacancy and Asking Rents Over 22 percent of Midtown's class A inventory has come on line since 1980, and office construction since 1985 has increased primary inventory by 13.9 percent. The following chart provides total primary and secondary vacancy rates along with weighted average asking rental rates for Midtown and Midtown South from 1984 through the second quarter of 1997. <TABLE> <CAPTION> -------------------------------------------------------------------------------------------------------- Vacancy and Asking Rents -------------------------------------------------------------------------------------------------------- Year Vacancy Rates* Asking Rental Rates* Total Leasing Activity SF Class A Class B Class A Class B (including Midtown South) -------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> 1984 6.60% 7.80% $37.77 $20.50 15,459,000 1985 9.10% 10.50% $38.15 $22.70 11,923,000 1986 9.70% 12.90% $38.55 $21.76 17,497,000 1987 10.20% 13.30% $38.46 $23.76 19,182,000 1988 13.00% 14.70% $39.45 $23.47 17,898,489 1989 14.70% 15.10% $40.28 $23.26 18,317,700 1990 17.20% 16.80% $40.26 $21.10 16,014,023 1991 16.80% 18.50% $37.47 $19.71 13,421,525 1992 16.30% 20.10% $34.38 $19.14 16,750,766 1993 15.50% 18.60% $33.17 $19.56 18,049,972 1994 13.40% 16.40% $33.60 $19.82 20,199,351 1995 12.10% 15.6%* $34.36 $22.36* 21,900,816 1996 9.90% 14.60% $34.75 $21.31 22,987,094 YTD 1997 8.90% 13.90% $36.58 $22.61 11,507,171 -------------------------------------------------------------------------------------------------------- </TABLE> * As of 1995 Class C space is excluded from Class B calculations Source: Cushman & Wakefield Research Services The Midtown total primary (class A) vacancy rate climbed to a year-end high of 17.2 percent in 1990 and remained above 15 percent through 1993. This increase in the vacancy rate was touched off by the substantial amount of new construction completed in the Special Midtown Zoning District, which came on line just as the economy was heading into the past recession. New York City was particularly affected by the recession, with approximately 350,000 jobs eliminated due to corporate consolidations, relocations and downsizing. With the large increase in primary inventory due to the rezoning of the West Side, the loss of nearly one-tenth of the City's job base, and the general downturn in the economy, a rise in the vacancy rate was inevitable. The dearth of new construction coming on-line and moderate job growth predicted over the next couple of years should mean that the vacancy rate will continue to decline in the near term. However, it's expected that over 2.0+/- million square feet of newly constructed office space will be completed by the year 2000. As of the second quarter of 1997 the overall total vacancy rate (excluding Midtown South) declined to 10.5 percent from 12.1 percent one year ago; the class A total vacancy rate was 9.1 percent, the lowest rate since 1987, while the class B total vacancy rate was reported at 15.3 percent. In comparison, as of year-end 1996 both the class A and class B inventory showed continued declines, with total vacancy rates of 10.0 percent and 15.5 percent, respectively. This positive trend is expected to continue thru 1997 due to the City's improving economy and enticing incentive packages, coupled with the lack of new construction. The resulting strong demand for space in the Grand Central, Madison/Fifth - -------------------------------------------------------------------------------- -22- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Midtown Manhattan Office Market Analysis - -------------------------------------------------------------------------------- and Sixth Avenue/Rockefeller Center sub-markets should continue as well since businesses are being encouraged to stay and expand in Manhattan. The total direct asking rental rate in Midtown rose to $31.78 per square foot from $30.78 per square foot one year ago. More substantial increases were seen in Class A rentals, which climbed to $38.09 per square foot from $35.21. This increase is partially attributable to 600,000 square feet of availabilities at 9 West 57th Street, currently the highest priced block of space in Manhattan. It is expected that the shrinking supply of office space will eventually lead to asking rental rates comparable to those seen during the 1980s. Due to the tightening market, landlords have become less flexible in terms of free rent, work allowances, negotiating periods, and other concessions. Absorption Midtown has enjoyed positive overall net absorption over the past few years, though figures from year to year often exhibit wide fluctuations. Net absorption also varies considerably by district, between primary and secondary space, and when space is reclassified or dropped from the survey conducted by Cushman & Wakefield Research Services. Class A net absorption in the Midtown (inclusive of Midtown South) office market from 1993 through the second quarter of 1997, is summarized on the bar graph on the following page. The absorption fiugres shown vary from the following discussion included in this market overview due to the focus on class A space as well as the inclusion of Midtown South activity. Historical overall net absorption figures indicate that Midtown usually experiences positive absorption. In the past decade overall Midtown net absorption was negative in only one year, 1988, the year after the stock market crash. The market rebounded in 1989, resulting in positive overall absorption of space. The largest positive change in overall net absorption occurred between 1993 and 1994. Overall net absorption increased by 1.8 million square feet, resulting in the absorption of over 1.6 million square feet in 1994. This tremendous amount of absorption is explained in large part by the high level of leasing activity that occurred in Midtown in 1994. With leasing activity totaling 20.2 million square feet, the overall vacancy rate dropped 2 percentage points from year-end 1993 to year-end 1994, the largest decrease in the overall vacancy rate on a year-over-year basis since the 1980s. Through year-end 1996, absorption increased significantly to over 2.4 million square, the highest level of overall absorption experienced by the Midtown market in the past decade. Powerful leasing in the class A market offset an abundance of new class C availabilities, allowing second quarter 1997 overall absorption to measure positive 1,028,026 square feet. - -------------------------------------------------------------------------------- -23- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> ABSORPTION BY YEAR [GRAPHIC OMITTED] CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Midtown Manhattan Office Market Analysis - -------------------------------------------------------------------------------- Midtown Manhattan Sub-districts Midtown Manhattan has traditionally been divided into four sub-districts delineated by geographic boundaries: Plaza, Grand Central, Midtown West and Midtown South. Cushman & Wakefield has changed the way in which Midtown is sub-districted to better reflect trends within the various office sub-markets. Both the traditional and the corresponding new office sub-markets are discussed below. Plaza District (East Side, Park Avenue, Madison/Fifth, Sixth/Rockefeller Center) This district had traditionally been defined as the area between 47th and 65th streets, from Fifth Avenue to the East River, and more recently had its western border expanded to Seventh Avenue. The expansion of this district was explained by the willingness of many major companies to locate west of Fifth Avenue to the corporate towers along Avenue of the Americas. The firmly established locations of offices on Park, Madison and Fifth avenues form the cornerstone of the Plaza District. Many familiar and noteworthy buildings, including Rockefeller Center, the Citicorp Building, Trump Tower, the Seagram Building, the Solow Building, the General Motors Building, and several buildings along the Avenue of the Americas office corridor lie within the boundaries of the Plaza District. The sub-districts that form what is otherwise known as the Plaza District reflect the strongest market rents in Midtown. This is the result of the long-standing reputation that these markets have enjoyed as the premier office locations in Manhattan for corporate domestic and international headquarters. These include the banking, legal and financial services industries as well as, but to a lesser degree, communications, publishing and advertising firms. Grand Central District (Murray Hill, Grand Central, United Nations) The traditional Grand Central District continuously exhibited relatively stable vacancy rates, asking rents and leasing activity. The main reason for this situation is that this district contains some of the oldest and most famous Midtown office buildings and new construction has been limited. The area, which extended from 32nd Street to 47th Street and from Fifth Avenue to the East River, offered few sites for redevelopment. Due to the lack of available sites, developers have had to be innovative; 450 Lexington Avenue, constructed atop the Grand Central Post Office, is a prime example. Midtown West District (Westside, Penn Station, Textile/Garment, Lincoln Center) Midtown West was traditionally known as the area bounded by 30th Street and 47th Street west of Fifth Avenue to the Hudson River and by 47th Street to 70th Street west of Seventh Avenue, to the Hudson River. This market experienced a dramatic surge in development from 1985 through 1990, and was widely expected to become the center of new office development in Manhattan, meeting the expansion needs of major Midtown Manhattan space users. The primary reason for this increase in development was a 20 percent zoning bonus (floor area ratio increased from 15 to 18 times the lot area) enacted in 1981, which expired on May 13, 1988. In order to be eligible for this bonus, the full foundation work on new projects had to be completed by that date. Approximately 16 development sites had foundations in place or were under construction at that time. This construction produced a renaissance in the Midtown West District. - -------------------------------------------------------------------------------- -25- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Midtown Manhattan Office Market Analysis - -------------------------------------------------------------------------------- The Midtown West market grew and dominated new construction in Midtown Manhattan through 1991, and from 1989 to the present, Midtown West construction accounts for 57 percent of all construction completions in Midtown. The area that formerly comprised the Midtown West office district is now divided into the four sub-markets mentioned above. Midtown South (SoHo, Greenwich/NoHo, Madison Square/Union Square, Hudson Square/West Village, Chelsea) The Midtown South office district comprises 22 percent of the total Midtown Manhattan inventory of office space. Just 617,988 square feet (3.8 percent of total Midtown's primary) is considered class A space, which is generally considered competitive with some Midtown class B and C buildings. Well-located buildings along Park Avenue South, Madison Avenue, Fifth Avenue and Broadway are some of the district's most desirable. Midtown South has undergone a tremendous renaissance over the past year, enjoying strong leasing activity. The 1996 year-end leasing activity of 4.4+/- million square feet was significant, including the largest fourth quarter transaction of Credit Suisse, which occupies 1.1 million square feet at 11 Madison Avenue. Dynamic leasing activity in this market has also driven the overall year-to-date absorption to positive 457,181 square feet. Year-to-date 1997 overall leasing activity was 2,096,391 square feet. Statiscal Summary Second quarter 1997 statistical summary figures for both the Midtown and Midtown South office markets, including their respective sub-districts, are presented on the following three pages. The terms listed below pertain to the headings found in the summary. Inventory: Includes all existing competitive office buildings located in Manhattan with certificates of occupancy as of June 30, 1997. Total Available Space: Space available through both the building owner and tenants having a possession date within the next six months. Direct Vacancy Rate: Space, available only directly from the building owner, divided by the inventory. Total Vacancy Rate: Space, available both directly and through sublease, divided by the inventory. Rental Rate: The weighted average of rental rates per square foot quoted by the landlord, sublandlord, or its agents. All rates in this report are gross rates per rentable square foot. Both Direct and Total rates are reported for comparison. Absorption Rate: Net change in occupied space for a given period of time, excluding sublet space, preleasing activity, and renewals. Leasing Activity: The sum total of all completed office leasing transactions for a given period of time, including sublet space and preleasing, but exluding renewals. - -------------------------------------------------------------------------------- -26- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------------------------------------- Midtown, New York Office Market Office Market Report Overall Statistical Summary Second Quarter 1997 Total Direct Total Direct Total YTD YTD Available Vacancy Vacancy Wtd.Av. Wtd.Av. Absorption Leasing Submarket Name Inventory Space Rate Rate Rental Rate Rental Rate Rate Activity -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> GRAND CENTRAL DISTRICT Murray Hill 13,281,401 1,766,427 12.1% 13.3% $27.28 $26.56 (8,653) 877,788 Grand Central 40,745,105 3,633,890 7.8% 8.9% $31.70 $31.23 625,062 1,966,064 United Nations 3,093,204 263,167 7.9% 8.5% $31.19 $30.64 4,215 32,295 PLAZA DISTRICT East Side 19,038,255 1,818,584 8.4% 9.6% $34.85 $34.58 (33,765) 652,980 Park Avenue 21,043,271 1,977,560 6.6% 9.4% $45.05 $43.42 (166,194) 1,006,337 Madison/Fifth Avenue 24,114,289 2,954,330 10.3% 12.3% $45.57 $44.50 (346,619) 1,295,616 Sixth Avenue/Rock Ctr 37,027,060 2,127,505 4.2% 5.7% $39.94 $38.00 276,469 1,241,950 MIDTOWN WEST DISTRICT West Side 22,102,063 1,358,273 4.6% 6.1% $26.89 $26.30 377,970 795,536 Penn Station 13,943,971 3,153,385 18.9% 22.6% $25.14 $24.36 (59,752) 664,608 Textile/Garment 23,748,095 3,899,436 15.8% 16.4% $21.44 $21.42 (61,459) 859,851 Lincoln Center 2,512,387 116,227 4.6% 4.6% $20.40 $20.51 (36,429) 17,755 ----------- --------- ---- ----- ------ ------- -------- ------ Midtown Total 220,649,101 23,068,784 8.9% 10.5% $31.78 $31.56 570,845 9,410,780 MIDTOWN SOUTH SoHo 3,294,860 54,270 1.6% 1.6% $20.85 $20.85 8,160 58,613 Greenwich/NoHo 4,610,441 789,823 16.1% 17.1% $19.18 $18.47 87,742 177,154 Madison/Union Square 29,187,132 2,567,974 7.9% 8.8% $21.93 $21.92 148,602 1,143,384 Hudson Sq./W. Village 9,994,272 1,078,871 10.1% 10.8% $17.28 $17.57 149,540 238,329 Chelsea 13,349,944 1,731,775 12.1% 13.0% $12.32 $12.96 63,137 478,911 ---------- --------- ----- ----- ------- ------- ------- ------- Midtown South Total 60,436,649 6,222,713 9.5% 10.3% $18.03 $18.22 457,181 2,096,391 TOTALS 281,085,750 29,291,497 1,028,026 11,507,171 </TABLE> Source: Cushman & Wakefield Research Services - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------------------------------------- Midtown, New York Office Market Office Market Report Overall Statistical Summary Second Quarter 1997 Total Direct Total Direct Total YTD YTD Available Vacancy Vacancy Wtd.Av. Wtd.Av. Absorption Leasing Submarket Name Inventory Space Rate Rate Rental Rate Rental Rate Rate Activity -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> GRAND CENTRAL DISTRICT Murray Hill 7,089,581 1,100,767 13.9% 15.5% $31.03 $29.93 (181,441) 415,662 Grand Central 33,781,805 3,058,783 7.8% 9.1% $33.08 $32.46 526,866 1,662,677 United Nations 2,580,606 235,342 8.4% 9.1% $31.31 $30.70 5,558 32,295 PLAZA DISTRICT East Side 17,505,333 1,523,911 7.5% 8.7% $38.55 $37.87 (38,858) 632,880 Park Avenue 21,043,271 1,977,560 6.6% 9.4% $45.05 $43.42 (166,194) 1,006,337 Madison/Fifth Avenue 22,326,146 2,814,321 10.5% 12.6% $46.59 $45.29 (342,687) 1,224,436 Sixth Avenue/Rock Ctr 35,701,968 2,024,013 4.1% 5.7% $41.00 $38.72 301,712 1,201,359 MIDTOWN WEST DISTRICT West Side 16,441,593 993,674 4.0% 6.0% $31.46 $29.27 312,318 601,706 Penn Station 6,099,415 1,296,542 15.5% 21.3% $31.69 $30.00 135,815 407,974 Textile/Garment 4,102,922 273,994 5.7% 6.7% $28.86 $28.84 93,647 193,855 Lincoln Center 1,454,137 7,284 0.5% 0.5% $30.00 $30.00 (7,284) 0 --------- ----- ---- ---- ------- ------- ------- - Midtown Total 168,126,777 15,306,191 7.3% 9.1% $38.09 $36.91 639,452 7,379,181 MIDTOWN SOUTH SoHo 0 0 0.0% 0.0% N/A N/A 0 0 Greenwich/NoHo 0 0 0.0% 0.0% N/A N/A 0 0 Madison/Union Square 8,404,239 504,605 5.6% 6.0% $29.13 $28.99 15,473 202,547 Hudson Sq./W. Village 1,270,948 65,383 0.0% 5.1% N/A $22.00 0 0 Chelsea 540,000 48,000 8.9% 8.9% $30.00 $30.00 (31,500) 16,500 ------- ------ ---- ---- ------- ------- -------- ------ Midtown South Total 10,215,187 617,988 5.1% 6.0% $29.21 $28.33 (16,027) 219,047 TOTALS 178,341,964 15,924,179 623,425 7,598,228 </TABLE> Source: Cushman & Wakefield Research Services CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------------------------------------- Midtown, New York Office Market Office Market Report Overall Statistical Summary Second Quarter 1997 Total Direct Total Direct Total YTD YTD Available Vacancy Vacancy Wtd.Av. Wtd.Av. Absorption Leasing Submarket Name Inventory Space Rate Rate Rental Rate Rental Rate Rate Activity -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> GRAND CENTRAL DISTRICT Murray Hill 5,466,475 576,660 9.8% 10.5% $22.36 $21.96 178,638 429,476 Grand Central 6,882,300 563,982 7.6% 8.2% $25.03 $24.86 98,196 303,387 United Nations 512,598 27,825 5.4% 5.4% $30.19 $30.19 (1,343) 0 PLAZA DISTRICT East Side 1,472,722 290,673 18.8% 19.7% $17.46 $17.55 5,093 20,100 Park Avenue 0 0 0.0% 0.0% N/A N/A 0 0 Madison/Fifth Avenue 1,762,090 140,009 7.9% 7.9% $28.60 $28.60 (3,932) 71,180 Sixth Avenue/Rock Ctr 1,304,092 101,992 7.5% 7.8% $24.59 $24.17 (25,243) 40,591 MIDTOWN WEST DISTRICT West Side 2,387,277 133,430 5.3% 5.6% $25.77 $25.43 63,364 120,127 Penn Station 5,583,434 1,568,601 28.0% 28.1% $22.10 $22.09 (229,636) 186,334 Textile/Garment 13,020,997 2,509,416 18.7% 19.3% $24.96 $24.86 (64,061) 409,006 Lincoln Center 1,003,250 99,943 9.8% 10.0% $20.64 $20.76 (20,145) 17,755 --------- ------ ---- ----- ------- ------- -------- ------ Midtown Total 39,395,235 6,012,531 14.8% 15.3% $23.65 $23.55 931 1,597,956 MIDTOWN SOUTH SoHo 1,039,880 8,000 0.8% 0.8% $30.00 $30.00 9,860 22,853 Greenwich/NoHo 2,888,613 557,547 19.3% 19.3% $20.55 $20.55 98,068 149,054 Madison/Union Square 15,860,433 1,613,281 8.9% 10.2% $21.57 $21.62 152,467 803,767 Hudson Sq./W. Village 1,998,316 399,782 19.8% 20.0% $22.42 $22.40 65,125 99,030 Chelsea 5,187,510 667,107 10.7% 12.9% $17.43 $18.24 93,029 211,750 --------- ------- ----- ----- ------- ------- ------- ------- Midtown South Total 26,974,752 3,245,717 10.9% 12.0% $20.73 $20.86 418,549 1,286,454 TOTALS 66,369,987 9,258,248 419,480 2,884,410 </TABLE> Source: Cushman & Wakefield Research Services - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Midtown Manhattan Office Market Analysis - -------------------------------------------------------------------------------- Summary The Midtown Manhattan office market has recovered from the effects of the recent recession. After displaying lackluster leasing in 1990 and 1991 during the national recession, Midtown leasing activity began to improve in 1992. Leasing activity in 1993 was brisk, and 1994 posted over 20 million square feet of leasing activity. Year-end 1996 had the highest level of leasing activity in the twelve years that Cushman & Wakefield has reported these statistics, including six Midtown South transactions in the fourth quarter, each in excess of 100,000 square feet, finishing the year at 22.9+ million square feet. Mid-year 1997 overall leasing activity was reported at 9.4+/- million square feet, nearly 20 percent higher than the same period last year. As total Midtown leasing for 1996 substantially outweighed new space availabilities, absorption was positive, totaling 1.8+/- million square feet. As of second quarter 1997 overall absorption was 570,845 square feet. Dynamic leasing activity in Midtown South was also instrumental in driving its overall year-to-date absorption to positive 457,181 square feet, exceeding previous projections. The overall vacancy rate in Midtown fell to 10.5 percent from 10.8 percent at the end of first quarter of 1997 and from 12.1 percent one year ago. The class A total vacancy rate dropped to 9.1 percent in the second quarter of 1997, its lowest level in nearly 12 years. These statistics are a strong indication that the Midtown market has improved, evidencing continued absorption and growing demand for space that entered the market during the late 1980s. New construction was almost non-existent in 1993 through the first half of 1997, with just a few owner occupied buildings completed. New construction completions through the end of the century will be limited to a few significant projects of which most will be pre-leased, given the security most lenders require in the wake of the past recession. This limited construction activity bodes well for the Midtown market since it forces office tenants to take space in existing buildings, thereby lowering the vacancy rate and increasing the rental rate over the long term. Conclusion With year-to-date strong leasing and positive absorption, the Midtown market continues to improve, indicating a healthy outlook for the remainder of 1997. The market should remain active through year-end, with total leasing activity expected to reach approximately 18 million square feet, on par with last year's level. Overall vacancy rates, currently at 10.5 percent, are likely to close the year at just under 10 percent, representing the lowest rate since 1985. The Midtown Manhattan vacancy rate continues to fall, and asking rents have increased albeit slightly. Real estate analysts expect a period of stability within the Midtown Manhattan market over the next year, with base rents remaining level or showing modest increases. It is anticipated, however, that concession packages should continue to decline, resulting in an effective rental rate increase. The overall assessment of the Midtown office market is more positive than in recent years. - -------------------------------------------------------------------------------- -30- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> [Graphic Omitted] CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> THE PLAZA OFFICE DISTRICT - -------------------------------------------------------------------------------- District Overview The subject property, 120 West 45th Street, is located on the southern blockfront of West 45th Street midblock between Avenue of the Americas and Seventh. The area is known as the Plaza District, which is considered Manhattan's premier office and retail location. 120 West 45th Street, also known as Tower 45, is surrounded by many of New York's most well known landmarks, restaurants, hotels, retail shops, and tourist attractions, made accessible by the presence of several transportation hubs. The general vicinity of the subject is the area bounded by 42nd Street and 52nd Street along Madison, Fifth, Sixth, and Seventh Avenues. The Plaza District is comprised of four statistical areas tracked by Cushman & Wakefield: East Side, Park Avenue, Madison/Fifth, and Sixth/Rockefeller Center. As of the second quarter of 1997, the four office subdistricts that comprise the Plaza District contain 96,576,718 square feet of Class A office space and 4,538,904 square feet of Class B office space. There is little Class C office space in these subdistricts, with Class C space totaling 107,253 square feet, or approximately one-tenth of one percent. The Plaza District has historically evidenced the highest rents in Midtown due to the demand generated by its premier location and quality space. The average primary (Class A) asking rental rate in the four Plaza District submarkets was $41.90 in the second quarter of 1997, considerably above the overall Midtown average of $36.91. The primary vacancy rate for these subdistricts was 8.6 percent in the second quarter, and the secondary (Class B) vacancy rate was 11.7 percent. In comparison, the primary vacancy rate for Midtown as a whole was 9.1 percent, while Midtown's secondary vacancy rate was 15.3 percent. The attractiveness of the Plaza District is reflected by the presence of numerous top firms in a diverse array of businesses, including domestic and international banking, legal services, manufacturing, securities/holding, printing and publishing, advertising, and communications. Seventeen Fortune 500 Industrial companies have headquarters in the Plaza District, including RJR Nabisco Holdings, Bristol-Myers Squibb, and Colgate-Palmolive. There are 21 Fortune 500 Service companies in the Plaza District as well, notably, Bankers Trust, Citicorp, Chemical Banking Corp., Travelers Inc., and Equitable Life Assurance. The Plaza District boasts several first class hotels that offer luxury accommodations to business travelers and tourists. Several of New York's finer hotels are located in the vicinity of the subject, including, the New York Palace, the Ritz-Carlton, The Plaza, and the Essex House. Within walking distance are the, Marriot Marquis, the St. Regis Hotel, the Four Seasons, as well as the Waldorf-Astoria. More moderately priced hotels are found in the vicinity as well, including the Best Western, the Helmsley Windsor, the Wyndham, and the New York Hilton. The presence of many fine hotels in the area serve as an important inducement to national and international firms seeking space in Midtown Midtown Manhattan is a retail center with one of the largest selections of merchandise in the world. Within walking distance of the subject are a variety of department stores, boutiques, jewelers, furriers, art galleries, antique shops, rare collector shops, wine merchants, and gourmet food shops. Some of the area's most renowned shopping is found at Saks Fifth Avenue, Cartier, Tiffany & Co., Gucci, Bergdorf Goodman, Henri Bendel, Dunhill, Bloomingdales, and Mark Cross. - -------------------------------------------------------------------------------- -32- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> The Plaza Office District - -------------------------------------------------------------------------------- Many of New York's most famous attractions are located in and near the Plaza District. Southeast of the subject on Fifth Avenue is St. Patrick's Cathedral and across Fifth Avenue is the renowned Rockefeller Center. A short walk from the subject are Carnegie Hall, Radio City Music Hall, the Museum of Modern Art, the New York Public Library, as well as Central Park. Fine dining is another strength of the Plaza District. Notable restaurants within the District include: Lutece, Smith & Wollensky, the Box Tree, Le Cirque 2000, "21" Club, The Sea Grill, the Rainbow Room, China Grill, the Four Seasons, the Russian Tea Room, and La Reserve. Competitive Office Market The immediate vicinity of 120 West 45th Street is the area bounded by West 48th Street to West 43rd Street, between Avenue of the Americas and Seventh Avenue. The avenues that traverse the Plaza District are well known office corridors. Park Avenue is widely considered Manhattan's most prestigious office location, with Madison Avenue a close second. Fifth Avenue is primarily noted for its retail, but does boast several boutique Class A office buildings which attract foreign companies looking for a prestigious New York headquarters location. Avenue of the Americas is a major office corridor comprised of a mix of both modern Class A office towers and prewar Class B office buildings that have undergone significant renovations. The side streets traversing these corridors house the majority of secondary office buildings in the Plaza District as well as several recently constructed office and mixed-use class A towers such as the subject. One measure of the attractiveness of the Plaza District is the success of "boutique" buildings located within its boundaries, including 10 East 50th Street, Park Avenue Plaza, and 712 Fifth Avenue, among others. These boutique buildings are small, high service buildings of recent construction developed primarily to take advantage of their premier location. Despite their small floor plates, these buildings tend to have very high asking rental rates, proof of the allure of a Plaza District address. Another notable feature of the Plaza District is the number of mid-block office towers, most of which were constructed in the 1980s and 1990s. Mid-block towers are generally rare, since their lower floors often have partially or fully truncated access to light and air on two sides. Examples of Plaza District mid-block towers include Park Avenue Tower, Park Avenue Plaza, Tower 49, Heron Tower, and Swiss Bank Tower. These office buildings are viewed as upper echelon locations and command extremely high rents. The subject is accessible from all major Manhattan commuter transportation hubs. Commuters from Grand Central Station have a fifteen minute walk to the subject. The subject property is also in walking distance of Pennsylvania Station and the Port Authority Bus Terminal. Subway access to is provided by several stations within the immediate vicinity. Competitive Building Highlights Several primary office buildings along Fifth Avenue, Sixth Avenue, Madison Avenue, and the surrounding side streets are considered competitive with the subject property. The chart on the following page summarizes these 20 competitive buildings, excluding the subject. It should be noted that all the available space reported reflects available direct space only, and not sublease space, which is not considered a reliable occupancy indicator. - -------------------------------------------------------------------------------- -33- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> COMPETITIVE BUILDING SURVEY <TABLE> <CAPTION> =================================================================================================================================== Property Office Area Year Na. Mm. Floor SlzeI Avail. Asking Rent (Cross Streets) (NRA) Built Stories Max. Floor Size SF Occupied Low High =================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> 21,390 1 l325 Avenueo the Americas 718,397 1989 34 34,592 11,861 98.35% $43.00 $43.00 (N.Side bit Sixth/Seventh to 54th) - ----------------------------------------------------------------------------------------------------------------------------------- The Capitol-EMI Building 8,770 2 1370 Avenue of the Americas 293,674 1971 35 9,400 32,695 88.87% $38.00 $47.00 (S/E Corner 56th) - ----------------------------------------------------------------------------------------------------------------------------------- City Spire 10,800 3 l56 West 56th Street 321,950 1987 75 21,400 0 100.00% N/A N/A (S.Side bit Sixth/Seventh to 55th) - ----------------------------------------------------------------------------------------------------------------------------------- The Deutsche Bank Building 13,650 4 3l West 52nd Street 659,724 1985 30 28,000 0 100.00% N/A N/A (N Side bit Fifth/Sixth to 53rd) - ----------------------------------------------------------------------------------------------------------------------------------- Avenue of the Americas Plaza 1,186 5 ll5 West 55th Street 509,050 1989 24 29,266 0 100.00% N/A N/A (N.Side bit Sixth/Seventh to 56th) - ----------------------------------------------------------------------------------------------------------------------------------- 29,238 6 1095 Avenue of the Americas 840,000 1972 42 29,238 0 100.00% N/A N/A (W.Blockfront bit 4lst/42nd) - ----------------------------------------------------------------------------------------------------------------------------------- Americas Tower 9,000 7 1177 Avenue of the Americas 960,050 1992 50 32,900 76,700 92.01% $37.00 $55.00 (W.Blockfront bit 45th/46th) - ----------------------------------------------------------------------------------------------------------------------------------- The H B 0 Building 22,500 8 ll00 Avenue of the Americas 317,106 1982 15 22,500 0 100.00% N/A N/A (N/E Corner 42nd) - ----------------------------------------------------------------------------------------------------------------------------------- The W.R. Grace Buiiding 26,200 9 lll4 Avenue of the Americas 1,310,000 1971 48 44,381 0 100.00% N/A N/A (E.Blockfront bit 42nd/43rd) - ----------------------------------------------------------------------------------------------------------------------------------- 13,000 10 ll5 Avenue of the Americas 610,191 1983 41 25,439 0 100.00% N/A N/A (W.Blockfront bit 44th/45th) - ----------------------------------------------------------------------------------------------------------------------------------- 33,160 11 1166 Avenue of the Americas 1,430,000 1974 44 40,000 0 100.00% N/A N/A (E.Blockfront bit 45th/46th) - ----------------------------------------------------------------------------------------------------------------------------------- 30,928 12 1211 Avenue of the Americas 1,734,105 1973 45 64,083 118,725 93.15% $20.00 $46.00 (N.Side bit Fifth/Sixth to 58th) - ----------------------------------------------------------------------------------------------------------------------------------- The McGraw-Hill Building 27,846 13 1221 Avenue of the Americas 2,200,000 1971 51 71,000 449,692 79.56% $40.00 $55.00 (Blockfront bit 48th/49th) - ----------------------------------------------------------------------------------------------------------------------------------- 35,757 14 1251 Avenue of the Americas 1,893,652 1971 54 57,000 485,336 74.37% $44.00 $54.00 (W.Blockfront bit 49th/50th) - ----------------------------------------------------------------------------------------------------------------------------------- The Bertelsmann Building 17,730 15 1540 Broadway 868,868 1990 44 65,000 20,000 97.70% $50.00 $50.00 (E.Blockfront bit 45th/46th) - ----------------------------------------------------------------------------------------------------------------------------------- 25,874 16 1585 Broadway 1,220,732 1990 41 61,671 0 100.00% N/A N/A (W.Blockfront bit 47th/48th) - ----------------------------------------------------------------------------------------------------------------------------------- The U.S. Trust Building 15,392 17 114 West 47th Street 540,899 1989 26 21,381 8,471 98.43% $42.00 $42.00 (N.Side bit Sixth/Seventh to 46th) - ----------------------------------------------------------------------------------------------------------------------------------- Equitable Tower 11,750 18 787 Seventh Avenue 1,429,610 1985 54 50,475 27,986 98.04% $44.00 $44.00 (E.Blockfront b/t 51st/52nd) The Center of Fifth 14,000 - ----------------------------------------------------------------------------------------------------------------------------------- 19 575 Fifth Avenue 481,300 1983 40 23,125 0 100.00% N/A N/A (S/E Corner 47th) - ----------------------------------------------------------------------------------------------------------------------------------- Tower 49 14,300 20 12 East 49th Street 643,000 1984 45 15,250 62,571 90.27% $36.00 $45.00 (S.Side bit Madison/Fifth to 48th) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL 18,982,308 19,124 1,294,037 AVERAGE 949,115 1982 42 37,303 64,702 93.18% $39.40 $48.10 - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> The buildings that are competitive with the subject contain a total net rentable area of 19,592,499 square feet. The average overall occupancy rate for these buildings is 93.40 percent, compared to 91.36 percent for the Plaza District as a whole. The average minimum asking rent is $39.40, and the average maximum asking rent is $48.10. By averaging the data for these buildings it is possible to create an image of what a building that is competitive with the subject is like. The typical building would have an average net rentable area of 932,976 square feet; it would have 42 stories; and it would be of 1982 construction. The average minimum floor size would by 18,832 square feet, and the average maximum floor size would be 36,738 square feet. This typical building would have 61,621 square feet available. 1325 Avenue of the Americas is located on West 53rd Street, midblock between Avenue of the Americas and Seventh Avenue. Built in 1989, the 34 story office tower contains 718,397 square feet of rentable office area. Current occupancy was reported at 98.35 percent with asking rents in the $43.00 per square foot range. 1370 Avenue of the Americas, known as The Capital-EMI Building, is situated at the southeast corner of West 56th Street. Current occupancy stands at 88.87 percent with asking rental rates ranging from $38.00 to $47.00 per square foot for office space. The mortgage on the property was recently purchased by S.L. Green Real Estate for $55 million, reportedly as part of a proposed REIT. Tower 49, at 12 East 49th Street, was built in 1984 and contains 643,000 square feet of rentable office area. Current occupancy is 90.27 percent with asking rents ranging from $36.00 to $45.00 per square foot. The Deutsche Bank, located at 31 West 52nd Street, is a 30 story office tower completed in 1985 and containing 659,724 square feet of rentable office space. Currently there is no direct space available for rent. The owner, Deutsche Bank AG, purchased a 74 percent interest in 1997 from the partnership of Kuwaiti Investment & Hines Interests. Hines retains a 26 percent stake in the building. Additional major tenants include Odyssey Partners, Wasserstein Perrella, and Toronto Dominion Bank. The following office buildings presented in our survey are fully occupied and represent the allure of both recently constructed class A prime towers and mid-block "boutique" buildings: City Spire at 156 West 56th Street, The Deutsche Bank Building at 31 West 52nd Street, Avenue of the Americas Plaza at 125 West 55th Street, 1155 Avenue of the Americas, the HBO Building as 1100 Avenue of the Americas, as well The Center of Fifth at 575 Fifth Avenue. 1095 Avenue of the Americas was built in 1972 and is 100 percent occupied by NYNEX. Well known office towers highlighted in our survey, containing over one million square feet of rentable office space each, were constructed in the mid sixties to late eighties along Avenue of the Americas, Broadway, and Seventh Avenue and include: The W.R. Grace Building at 1114 Avenue of the Americas, The McGraw-Hill Building at 1221 Avenue of the Americas, The Equitable Tower at 787 Seventh Avenue, 1166 Avenue of the Americas, as well as 1211 Avenue of the Americas. 1585 Broadway, located between 47th and 59th streets, is owned and occupied by Morgan Stanley & Co. and presently 100 percent occupied. TrizecHahn Office Properties recently acquired a 49.9 percent interest in the W.R. Grace Building in a 2.7 million square foot portfolio consisting of 1114 Avenue of the Americas, 1411 Broadway, and 1460 - -------------------------------------------------------------------------------- -35- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Broadway. Current occupancy of those buildings presented in our survey range from 74 to 100 percent with asking rental rates in the $20 to $55 per square foot range. The competitive buildings exhibited asking rental rates in the range of $31 to $60 per square foot. The lower rents relate primarily to larger blocks of lower floor space, while the higher end of the range is attributed to smaller blocks of tower floor space, some of which is located in superior buildings. Directly Competitive Buildings Of the 20 buildings presented, four are considered to be directly competitive with the subject in terms of building classification, asking rents, rentable office area, and current occupancy. The following chart summarizes the relevant occupancy statistics for the four competitive buildings: 1155 Avenue of the Americas, 1177 Avenue of the Americas, 1540 Broadway, and 114 West 47th Street. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------- DIRECTLY COMPETITIVE BUILDINGS --------------------------------------------------------------------------------------------------- Property Rentable Area SF Available % Occupied --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> 1155 Avenue of the Americas 610,191 0 100% 1177 Avenue of the Americas 960,050 76,700 92.01% 1540 Broadway 868,868 20,000 97.70% 114 West 47th Street 540,899 8,471 98.43% --------------------------------------------------------------------------------------------------- TOTAL/AVERAGE 2,980,008 105,171 96.47% --------------------------------------------------------------------------------------------------- </TABLE> The average asking rents for the buildings directly competitive with the subject range from $37.00 to $50.00 per square foot. Due to the superior views from the upper floors of some of the buildings it is not surprising that some of the asking rents are somewhat higher than those of the subject. The average occupancy rate for these four directly competitive buildings is 96.47 percent, compared to 93.40 percent for all of the buildings competitive with the subject, and 91.36 percent for the Plaza District as a whole. The first building considered to be directly competitive with the subject property is located directly to the east at 1155 Avenue of the Americas between West 44th and 45th streets. Constructed in 1983, the 41 story office tower contains 610,191 square feet of rentable office area and is fully occupied. Major tenants include White & Case, Pennie & Edmunds, Dow Jones & Company, as well as Forstmann & Company. Americas Tower at 1177 Avenue of the Americas is located one block to the north between West 45th and 46th streets and is considered to be directly competitive with the subject. The 50 story class A building was completed in 1992 and contains 960,050 square feet of rentable office area. Current occupancy stands at 92.01 percent with asking rental rates ranging from $37.00 to $55.00 per square foot. Major tenants include Price Waterhouse, Bank Hapoalim BM, Wausau Insurance, and American Home Assurance Company. Located one block to the north is The Bertelsmann Building at 1540 Broadway between West 45th and 46th streets. The 44 story office tower was constructed in 1990 and contains 868,868 square feet of rentable office area. Current occupancy was reported at 97.70 percent with asking rents in the $50.00 per square foot range. The building is owner occupied by Bertelsmann Property Inc. with the major tenant being the Bertelsmann Music Group and is considered to be directly competitive with the subject property. - -------------------------------------------------------------------------------- -36- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> The Plaza Office District - -------------------------------------------------------------------------------- The U.S. Trust Building is located two blocks directly to the north at 114 West 47th Street, midblock between Avenue of the Americas and Seventh Avenue. Completed in 1989, the 26 story building contains 540,899 square feet of rentable office area and is considered to be directly competitive with the subject property. The building is presently 98.43 percent occupied with asking office rents in the $42.00 per square foot range. Major tenants include U.S. Trust Co., Gordon Hurwitz Butowsky et al, Smith Newcourt, as well as Employers Reinsurance Corp. Summary and Conclusions Upon considering the 20 buildings that are competitive with the subject, four buildings may be categorized as being directly competitive. Based upon their similar age, location, occupancy, and asking rents these buildings may be considered to be most similar to the subject. Although some of the 20 competitive buildings have higher asking rents than the subject, this is explained by the superior nature of newer, more modern buildings in the district as well as the premium paid for superior views from upper level floors. It is our opinion that the rents for the subject should be in the range of $30 to $35 per square foot. It is also our opinion that the subject should reach a stabilized occupancy rate above 95 percent. - -------------------------------------------------------------------------------- -37- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> [MAP] CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> PROPERTY DESCRITION - -------------------------------------------------------------------------------- Site Description Location: The site is located on the south side of West 45th Street between Avenues of the Americas and Seventh Avenue in the Plaza District of Midtown Manhattan Shape: Rectangular Land Area: 15,565+/- square feet Frontage: 155' 0" on West 45th Street Topography: Mostly at street grade Street Improvements: Curbing, sidewalks and street lights Soil Conditions: We did not receive or review a soil report. However, we assume that the soil's load-bearing capacity is sufficient to support the existing proposed structure. We did not observe any evidence to the contrary during our physical inspection of the property. The tract's drainage appears to be adequate. Utilities Water: City of New York Sewer: City of New York Electricity: Consolidated Edison Gas: Consolidated Edison Telephone: New York Telephone Access: West 45th Street is a secondary westbound artery, while Avenue of the Americas is a major northbound boulevard and Seventh Avenue is a major southbound boulevard. 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 Hazard: According to Community Panel No. 360497-0039 B, National Flood Insurance Rate Map, effective November 16, 1993, the subject property is in Flood Hazard Zone C and, therefore, does not require flood hazard insurance. - -------------------------------------------------------------------------------- -38- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> 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: None Site Improvements: The site is improved with a 40-story Class A office tower. The ground floor and basement are used for retail and garage space, respectively. Comments: Overall, the subject site is a functional parcel well suited for its existing use. Improvements Description The improvements consist of a 40-story (there is no thirteenth floor) Class A office tower containing a rentable area of 443,086+/- square feet. The property contains street level retail, below grade storage and garage as well as above grade office space. The following description of improvements was based upon our physical inspection of the property as well as information supplied by ownership. General Description Year Built: 1989 Architects: Swanke Hayden Connell Net Rentable Area (Per Rent Roll) Above Grade Office Area: 425,871+/- square feet Retail Area: 4,583+/- square feet Garage Area: 9,732+/- square feet Storage Area: 2,900+/- square feet Total Rentable Area: 443,086+/- square feet Building Height: 40 stories Building Efficiency: 20% loss factor (estimated) Typical Floor Plate: 11,200+/- square feet (average) Construction Detail: Foundation: Poured reinforced concrete columns, spread footings, slabs and perimeter walls. Framing: Reinforced concrete Ceiling Height: Generally, finished ceiling heights are 8 feet 6 inches in the office areas. - -------------------------------------------------------------------------------- -39- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Property Description - -------------------------------------------------------------------------------- Floors: Reinforced lightweight concrete flooring, generally covered with carpeting in the office area. Exterior Walls: Fixed glass panels in metal frames with alternate courses of brick and stone facing. Roof Cover: Four-ply roofing with slag finish. Windows: Sealed tinted panels with metal frames. Pedestrian Doors: Revolving and swinging glass doors with metal frames. Mechanical Detail HVAC is provided by means of multiple HVAC: water cooled heat pump units distributed throughout each floor. Each unit is provided with a thermostat. The heat pumps are self-contained individual heating and cooling units and are placed at intervals along the building's perimeter. Plumbing: Assumed to be adequate for existing use and in compliance with local law and building codes. Electrical Service: Assumed to be adequate for existing use and in compliance with local law and building codes. Elevator Service: Nine high speed passenger elevators and one freight elevator in two elevator banks serving floors 2 through 11 and 14 through 40. Fire Protection: Fully sprinklered. Assumed to be in compliance with local law. Interior Detail The core of the building is located to Layout: the rear of each floor. The building features functional floor plates. Lobby: 14-story pedestrian plaza/atrium on the building east wall with line trees. Finished in granite stonework. Restrooms: Each floor is equipped with one mens and one womens restroom centrally located. The restrooms are fully equipped. Walls: Walls in the office areas are covered with drywall with vinyl wall coverings or paneling in some office areas. Ceilings: The majority of the ceilings are suspended acoustical tile. - ------------------------------------------------------------------------------- -40- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Lighting: A combination of fluorescent and incandescen lighting fixtures. Hazardous Materials: We are not aware of any potentially hazardous materials (such as formaldehyde foam insulation, asbestos insulation, radon gas emitting materials, or to their 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. Improvements Disclaimers 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 consider possible non-compliance with the requirements of ADA in estimating the value of the property. Site Improvements On-Site Parking: 45 car garage is located in the basement of the building. Landscaping: Live trees in building atrium. Physical Condition: The quality of the subject improvements is rated good. The layout and functional plan are adequate. The building is 8 years old, and in good condition. The normal life expectancy of a building of this type is 45 years. Its effective age is 8 years and its estimated remaining economic life is 37 years. We did not inspect the roof of the building or make a detailed inspection of the mechanical systems. The appraiser, however, are not qualified ot 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. - ------------------------------------------------------------------------------- -41- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> REAL PROPERTY TAXES AND ASSESSMENTS - -------------------------------------------------------------------------------- The 1997/98 assessments for the property are as follows: Actual Transitional Land $ 4,950,000 $ 4,950,000 Improvements $32,715,000 $30,208,000 ----------- ----------- Total $37,665,000 $35,158,000 Tax Rate $10.164/$100 of assessed value Taxes $ 3,828,271 $ 3,573,459 The 1996/1997 tentative assessments for the property are as follows: Actual Transitional Land $ 4,950,000 $ 5,310,000 Improvements $35,145,000 $30,389,000 ----------- ----------- Total $40,095,000 $35,699,000 Tax Rate $10.252/$100 of assessed value Taxes $ 4,110,539 $ 3,659,861 Real estate taxes in New York City are normally the product of the transitional assessed value times the tax rate, for the fiscal year July 1 through June 30 (payable July 1 and January 1). The transitional assessed value is based on a five year phase-in of actual assessed value. If the actual assessed value is lower than the transitional assessed value for that year, the actual assessed value is multiplied by the tax rate to determine the tax. In the case of the subject property, the transitional assessed value is less than the actual assessed value. Our tax projection for the subject property, therefore, is based upon the 1996/97 and 1997/98 transitional assessments for calendar year 1997 as follows: 1997/98 Fiscal Taxes $3,573,459 @ 50% = $1,786,730 1996/97 Fiscal Taxes $3,659,861 @ 50% = $1,829,930 ---------- 1997 Calendar Year Taxes $3,616,660 As can be seen from the previous summary of tax liability, the subject property's taxes remained essentially unchanged from 1997/98. In an effort to evaluate the fairness of the subject's current assessed value and future prospects for a change in the assessment, we have 1) compared the most recent assessments (land and building) to that of other similar properties, 2) compared the assessment to the market value estimate concluded in this report, and 3) considered the potential for future changes in the assessed value of the subject property. - -------------------------------------------------------------------------------- -42- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Real Property Taxes and Asesments - -------------------------------------------------------------------------------- Listed below is a summary chart of the 1997/98 assessments for three properties considered to have varying degrees of comparability to the subject property. <TABLE> <CAPTION> ============================================================================================================= No. Year Rentable Land Total Taxes/ Property Built Area A.V. A.V. SF ============================================================================================================= <S> <C> <C> <C> <C> <C> <C> 1 1370 Avenue of the Americas 1971 293,674 $ 9,900,000 $23,850,000 $8.25 - ------------------------------------------------------------------------------------------------------------- 2 1095 Avenue of the Americas 1972 840,000 $31,500,000 $63,000,000 $7.62 - ------------------------------------------------------------------------------------------------------------- 3 114 West 47th Street 1989 540,899 $11,340,000 $48,132,000 $9.04 ============================================================================================================= </TABLE> Our survey of comparable primary office buildings which contain primary office space, indicates taxes ranging from $7.62 to $9.09 per square foot. The average taxes of the three comparables is $8.30 per square foot. This compares with the subject's 1997 calendar year tax liability of $8.16 per square foot. In analyzing the three comparables, it is clear that Comparable No. 3, at 114 West 47th Street, is the most similar in terms of size. This building is substantially occupied at moderately high rents. Comparable No. 1 is at the low end of the range partially owning to its age. Comparable No. 2 is generally comparable to the subject property, although the building size is larger than the subject property. The three tax comparables indicate a fairly consistent pattern of tax liability for office buildings located in the immediate vicinity of the subject property. These properties indicate, occupancy rates which are similar to the subject property. The tax comparables are in the range of the subject property's 1997 calendar year taxes, indicating that the property is fairly assessed based upon an analysis of competing buildings. As will be discussed later within this report, we have concluded an "as is" market value estimate of $95,000,000 for the subject property. The 1997/98 transitional assessed value of $35,158,000 is equivalent to 37 percent of market value. This assessment/sale price ratio is below the range of acceptable ratios found for similar buildings in this marketplace. ICIP Tax Abatement Under provisions of Local Law 71, Chapter 56A, Section 1322(B), as amended on October 9, 1984, the subject property was located in a property tax deferral area at the time of its construction. The tax deferral, in the form of the Industrial and Commercial Incentive Plan was defined as follows: For the first three years following the issuance of a Certificate of Occupancy, the tax payment on 100 percent of the exemption base shall be deferred (exemption base means the portion of assessed value of improvements made since eligibility of deferral and before the fourth taxable year following such eligibility). For the following four tax years, the tax payment on a percentage of the exemption base beginning at 80 percent thereof in the fourth tax year and decreasing by 20 percent each year shall be paid subsequently over the course of ten years as follows: Commencing in the eleventh tax year following the issuance of the Certificate of Eligibility, through and including the twentieth tax year following such issuance, an amount equal to 10 - -------------------------------------------------------------------------------- -43- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Tower 45 ICIP Tax Deferral Projection <TABLE> <CAPTION> EXEMPTION TOTAL AV % DEFERRED TAXABLE TAXES TAXES YEAR TAX YEAR BASE BEFORE DEFERRAL DEFERRED AV AV TAX RATE PAID DEFERRED ---- -------- ----------- --------------- -------- ----------- ---------- -------- --------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1988 1988/89 $2,000,000 $6,467,000 100% $2,000,000 $4,467,000 $9.582 $428,028 $191,640 1989 1989/90 $24,000,000 $29,292,000 100% $24,000,000 $5,292,000 $9.539 $504,804 $2,289,360 1990 1990/91 $33,750,000 $39,800,000 100% $32,950,000 $6,850,000 $10.004 $685,274 $3,296,318 1991 1991/92 $33,750,000 $35,000,000 80% $27,000,000 $8,000,000 $10.631 $850,480 $2,870,370 1992 1992/93 $33,750,000 $34,000,000 60% $20,250,000 $1,3750000 $10.698 $1,470,975 $2,166,345 1993 1993/94 $33,750,000 $31,500,000 40% $13,500,000 $18,000,000 $10.724 $1,930,320 $1,447,740 1994 1994/95 $33,750,000 $32,625,000 20% $6,750,000 $25,875,000 $10.608 $2,744,820 $716,040 1995 1995/96 $33,750,000 $34,025,000 0% $0 $34,025,000 $10.402 $3,539,281 $0 ----------- ----------- $11,725,953 $12,977,813 10 YEAR ANNUAL PAYBACK AMOUNT BEGINNING IN 1996/99 TAX YEARS $1,297,781 </TABLE> <TABLE> <CAPTION> ICIP ANNUAL YEAR TAX YEAR PERIOD LAND AV BUILDING AV TOTAL AV TAX RATE PAYBACK ---- -------- ------ ------- ----------- -------- -------- ------- <S> <C> <C> <C> <C> <C> <C> <C> 1996 1996/97 9 $5,310,000 $30,389,000 $35,699,000 $10.252 $0 1997 1997/98 10 $4,950,000 $30,208,000 $35,158,000 $10.164 $0 1998 1998/99 11 $5,049,000 $30,812,160 $35,861,160 $10.316 $1,297,781 1999 1999/00 12 $5,149,980 $31,428,403 $36,578,383 $10.471 $1,297,781 2000 2000/01 13 $5,252,980 $32,056,971 $37,309,951 $10.628 $1,297,781 2001 2001/02 14 $5,358,039 $32,698,111 $38,056,150 $10.788 $1,297,781 2002 2002/03 15 $5,465,200 $33,352.073 $38,817,273 $10.950 $1,297,781 2003 2003/04 16 $5,574,504 $34,019,114 $39,593,618 $11.114 $1,297,781 2004 2004105 17 $5,685,994 $34,699,497 $40,385,491 $11.280 $1,297,781 2005 2005/06 18 $5,799,714 $35,393,487 $41,193,201 $11.450 $1,297,781 2006 2006/07 19 $5,915,708 $36,101,356 $42,017,065 $11.621 $1,297,781 2007 2007/08 20 $6,034,022 $36,823,383 $42,857,406 $1l.796 $1,297,781 2008 2008/09 $6,154,703 $37,559,851 $43,714,554 $11.973 $0 2009 2009/10 $6,277,797 $38,311,048 $44,588,845 $12.152 $0 2010 2010/l1 $6,403,353 $39,077,269 $45,480,622 $12.335 $0 2011 2011/12 $6,531,420 $39,858,814 $46,390,234 $12.520 $0 2012 2012/13 $6,662,048 $40,655,991 $47,318,039 $12.707 $0 2013 2014/15 $6,795,289 $41,489,111 $48,264,400 $12.898 $0 </TABLE> -----------------FISCAL YEAR----------------- ---CALENDAR YEAR---- PAYABLE PAYABLE PAYABLE TAXES TAXES TAXES YEAR w/o ICIP PER RSF w/ICIP per RSF w/ ICIP per RSF ---- -------- ------- ------ ------- ------- ------- 1996 $3,659,861 $8.26 $3,659,861 $8.26 $3,599,571 $8.12 1997 $3,573,459 $8.06 $3,573,459 $8.06 $3,616,660 $8.16 1998 $3,899,602 $8.35 $4,997,384 $11.28 $4,285,421 $9.67 1999 $3,830,198 $8.64 $5,127,979 $11.57 $5,062,682 $11.43 2000 $3,965,404 $8.95 $5,263,185 $11.88 $5,195,582 $11.73 2001 $4,105,383 $9.27 $5,403,164 $12.19 $5,333,175 $12.04 2002 $4,250,303 $9.59 $5,548,084 $12.52 $5,475,624 $12.36 2003 $4,400,339 $9.93 $5,698,120 $12.86 $5,623,102 $12.69 2004 $4,555,671 $10.28 $5,853,452 $13.21 $5,775,786 $13.04 2005 $4,716,488 $10.64 $6,014,267 $13.57 $5,933,860 $13.39 2006 $4,882,978 $11.02 $6,180,759 $13.95 $6,097,513 $13.76 2007 $5,055,347 $11.41 $6,353,128 $14.34 $6,266,944 $14.14 2008 $5,233,801 $11.81 $5,233,801 $11.81 $5,793,464 $13.08 2009 $5,418,554 $12.23 $5,418,554 $12.23 $5,326,177 $12.02 2010 $5,609,829 $12.66 $5,609,829 $12.66 $5,514,191 $12.44 2011 $5,807,856 $13.11 $5,807,856 $13.11 $5,708,842 $12.88 2012 $6,012,873 $13.57 $6,012,873 $13.57 $5,910,364 $13.34 2013 $6,225,127 $14.05 $6,225,127 $14.05 $6,119,000 $13.81 CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> percent of the total amount of tax payments deferred pursuant to this section shall be added to the amount of tax otherwise assessed and payable each such tax year on the property subject to such deferral. The following table shall illustrate the computation of deferral and payment of taxes for commercial construction work in the deferral area. Tax Year Following Date of Insurance of Certificate of Amount of Tax payments Eligibility To Be Deferred or Paid --------------------------------- ----------------------------------- 1 through 3 Deferral of tax payment on 100% of the exemption base 4 Deferral of tax payment on 80% of the exemption base 5 Deferral of tax payment on 60% of the exemption base 6 Deferral of tax payment on 40% of the exemption base 7 Deferral of tax payment on 20% of the exemption base 8 through 10 No tax payments are to be deferred and no deferral tax payments are required to be made. 11 through 20 Payment each year of 10% of total dollar amount of tax payments deferred pursuant to this chapter. The table on the facing page summarizes our estimate of tax liability for the eleven year projection period. Key assumptions in our analysis are as follows: a) tax rate increase of 1 percent annually; b) assessed valuation increase of 2 percent annually. - -------------------------------------------------------------------------------- -44- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> MAP CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> ZONING - -------------------------------------------------------------------------------- The city zoning map showing 120 West 45th Street and the immediate vicinity may be found on the facing page. The property is zoned C6-5.5. The C6-5.5 designation is classified within the Restricted Central Commercial District. This zoning designation is defined by the City Planning Commission as follows: "These districts are designed to provide for the wide range of retail, office, amusement service, custom manufacturing, and related uses normally found in the central business district and regional commercial centers but to exclude non-retail uses which generate a large volume of trucking." The C6-5.5 zoning district has a maximum floor area ratio which governs building size of 12 times the lot area. Our estimate of the maximum permitted building bulk for this site under the zoning code designation is as follows: Floor Area Ratio: 12 "as-of-right" Land: 15,565+/- square feet Calculation: 12 x 15,565 = 186,780 square feet Permitted uses in the C6 designation include light retail uses, office uses and residential uses. The property is located in the Special Midtown District which is a special purpose district designed to promote and protect public health, safety and general welfare. The subject property is currently improved with a 443,086+/- square foot commercial office building with ground floor retail and commercial uses. The developer of the subject property leased 124,000+/- square feet of Transferable Development Rights (TDR's) "air rights" from the adjacent Belasco Theater prior to construction. The maximum FAR of the area was "down zoned" in 1988. Although commercial office uses with attendant retail are permitted on the site, the existing structure exceeds the current " as of right" density limitation and represents a pre-existing, legal, non-conforming use for the site. We know of no deed restriction, private or public, that further limits the subject property's use. The research required to determine whether or not such a restriction exists, 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 convenants. Thus, we recommend a title search to determine if any such restrictions do exist. - -------------------------------------------------------------------------------- -45- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Highest And Best Use - -------------------------------------------------------------------------------- Highest and Best Use of Site as Though Vacant According to the Dictionary of Real Estate Appraisal, Third Edition (1993), a publication of the Appraisal Institute, the highest and best use of the site as though vacant is defined as: Among all reasonable, alternative uses, the use that yields the highest present land value, after payments are made for labor, capital, and coordination. The use of a property based on the assumption that the parcel of land is vacant or can be made vacant by demolishing any improvements. Our initial consideration of the subject site as vacant concerns the land uses which are physically possible on the subject parcel. The subject site contains approximately 15,565+/- square feet (0.36 acres) of land, with frontage along West 45th Street. The size and configuration of the site is felt to provide a suitable land use and/or development potential for a wide variety of possible and ordinary downtown-oriented land uses. Access and exposure are felt to be excellent for office and ground floor retail uses. Municipal utilities would adequately provide for nearly all uses. Street improvements are also adequate. Therefore, the physical characteristics of the subject site provide for a wide range of potential land uses. Secondly, we must consider land uses which are legally permissible based upon the prevailing zoning and land use ordinances. The subject's zoning classification permits development of office, retail, and service related uses. Office uses with a ground level retail component are consistent with the overall development of the area. Lastly, we have considered possible land uses which would be financially feasible and which would produce the highest net return. As noted in our above discussion, office and retail uses are felt to be the most appropriate land use for the subject site. Vacancy rates of Midtown Manhattan are still comparatively lower than the average vacancy rates of other large U.S. major cities by comparison. For example, Atlanta, Chicago and Los Angeles all report downtown commercial business district office vacancy rates of 20.8, 15.6, and 24.4 percent, respectively, with an average vacancy statistic of 20.27 percent, which exceeds Midtown Manhattan's overall total vacancy rate of 10.5 percent, as of the second quarter of 1997. Several features of the subject property indicate that office use is the highest and best use of the subject property. First, the address of the subject, within Midtown Manhattan, is one which offers a level of prestige to office tenants. In addition, the subject is located within the Plaza Office District, with access to most transportation hubs. Based on the above, we have concluded that the highest and best use of the subject, as vacant, is as an office building with ground floor retail and below grade storage space, once market conditions warrant new construction. 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 as it exists. An existing property should be renovated or retained 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. - -------------------------------------------------------------------------------- -46- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Highest and Best Use - -------------------------------------------------------------------------------- Unlike the previous analysis of the subject site as vacant, this analysis considers the subject property as currently improved with an evaluation as to the physical, legal, and financial appropriateness of the existing land use. Relative to physical considerations, the subject site has been improved with the existing office structure and, based upon our observation, there are no apparent physical factors such as soils, drainage, or other site characteristics that would adversely affect the continued utility and/or existence of the subject improvements. In relation to the legal considerations, the subject site, as presently improved, represents a legal, conforming use. Lastly, in consideration of an appropriately supported and financially feasible land use, the use of the subject improvements is considered to contribute in an economic manner to the subject site. Occupancy levels at properties comparable to the subject property are higher than most Class A office buildings in Midtown Manhattan. We believe the average occupancy of comparable buildings is currently stabilized, which is generally considered to indicate market feasibility. Therefore, based on the subject's location and physical appeal, it is our opinion that the subject property, as it is utilized, represents the highest and best use of the site as improved with a Class A multi-tenanted office building with retail and storage. - -------------------------------------------------------------------------------- -47- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> VALUATION PROCESS - -------------------------------------------------------------------------------- In this appraisal, we have used the Sales Comparison Approach and the Income Capitalization Approach to develop a market value estimate. The Cost Approach was not performed for the following reasons: o This approach is more relevant for new construction or where sufficient information is available to reasonably estimate the replacement cost new of the improvements and land. o The investment marketplace does not typically trade buildings such as the subject on a cost/value basis, particularly in markets where it is generally perceived that cost exceeds value. o The subjectivity of accurately estimating accrued depreciation of the existing improvements significantly limits the reliability of this approach. In the Sales Comparison Approach, we performed the following steps: o Searched the market for recent office building sales within Midtown Manhattan, which contain similar physical and economic characteristics to the subject property. o Analyzed differences between those sales and the subject on the basis of the (sales price per square foot, net income multiplier) and extracted (overall capitalization rates, gross income multipliers). o Correlated the various value indications into a point value estimate from within the range. In developing the Income Capitalization Approach, we: o Studied rents in effect in the immediate and competing areas to estimate potential rental income at market levels for office, retail, garage and storage uses. o Studied the recent history of operating expenses at the subject property and competing properties to estimate an appropriate level of stabilized expenses and reserves for replacement. o Estimated net operating income by subtracting stabilized expenses from potential gross income after deduction for vacancy and collection loss. o Prepared a discounted cash flow analysis in which the estimated income and expenses over a projected holding period, and the estimated property value at the time of reversion, are discounted at an appropriate rate to estimate present market value. - -------------------------------------------------------------------------------- -48- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Valuation Process - -------------------------------------------------------------------------------- In estimating the final value, we performed the following: o Reviewed and re-examined each of the approaches to value which were employed. o Considered the type and reliability of the data used and applicability of each approach. o Reconciled the approaches to a final value conclusion. - -------------------------------------------------------------------------------- -49- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> SALES COMPARISON APPROACH - -------------------------------------------------------------------------------- Methodology In the Sales Comparison Approach, we estimated 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 holds 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. The most widely-used and market-oriented unit of comparison for properties such as the subject is the sales price per net rentable square foot and overall capitalization rate (OAR). All comparable sales were analyzed on these bases. We present on the following facing page a summary of the improved properties that we compared with the subject property. Detail sheets describing these sales can be found in the Addenda. Overview We have researched the market for sales of properties similar in size, vintage, class, condition and in proximity to the subject. We have analyzed sales of properties that sold fully tenanted or stabilized and those that sold substantially vacant to owner/users. The nature of the subject property is such that its appeal as an investment is not limited to a specific geographic area. The subject property would be a high profile investment and prospective purchasers could be regional, national, or international investors. As such, our search for data has been expanded to include all of New York City. Over the past 12 to 24 months, the Midtown Class A office market has shown signs of improvement. In general, rents have increased and concession packages have decreased as positive net absorption is taking place in most sub-markets. In terms of the investment market, demand is primarily being generated by institutional investors including several large REITs, pension funds, European and Asian investors and opportunistic investors such as vulture funds stimulated in an effort to capture current sale prices before they are perceived to rise. In the last six to twelve months, there have been a number of sales of Class A buildings to real estate investment trusts such as Boston Properties, Vornado Realty Trust and Cornerstone Properties. Other domestic investors, such as Cohen Brothers Realty Corporation, have also been active. These investors are driven by solid cash flow, the lack of new office building construction, and the widely held perception that there is a two to three year window of rising rents fueled by economic prosperity and diminished supply. Overall capitalization rates are in the 8 to 10 percent range. The Sales Comparison Approach is used to identify trends and investigate particular investment motivations of purchasers. Investment criteria can be identified in the form of overall rates and yield requirements which allow the valuation to be reflective of prevailing investment market mentality expressed through the price per square foot of net rentable area. Once established, market requirements are utilized as a guide to the assumptions employed within our income analysis. Exhibited on the following facing page is the summary chart of five recent sales of office buildings that we have compared to the subject property. All of the comparables exhibited are located within Manhattan, New York. All of the sales are located in the various Midtown office district, sub-markets. - -------------------------------------------------------------------------------- -50- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------- Property Name Land Area Net Rentable Year No. Sale Grantor/ No. Location (SF) Area (SF) Built Stories DAte Grantee Price - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 1 280 PARK AVENUE Sablons Investors c/o BT/ Btwn 48th & 49th Streets 78,813 1,374,478 1962 28 Sep-97 Boston Properties $321,250,000 New York, New York - ------------------------------------------------------------------------------------------------------------------------------- 2 505 PARK AVENUE First Park Associates N/E/C 59th Street 10,544 190,893 1949 22 Jul-97 Gloious Sun $48,000,000 New York, New York - ------------------------------------------------------------------------------------------------------------------------------- 3 155 EAST 57TH STREET LA Fire, Police, TX State Leasehold N/W/C Lexington Avenue 26,676 412,436 1988 32 Jun-97 Teachers, GE Capital, Al $120,000,000 New York, New YOrk Cohen Bros. Realty - ------------------------------------------------------------------------------------------------------------------------------- 4 90 PARK AVENUE Sumitomo Trust Btwn East 39th & 40th Sts. 38,032 877,889 1964 41 Apr-97 Vornado Realty Trust $185,000,000 New York, New York - ------------------------------------------------------------------------------------------------------------------------------- 5 527 MADISON AVENUE 527 MAdison Holdings- SEC East 54th street 12,678 201,148 1966 26 Feb-97 Louis Dreyfus Corp/ $67,000,000 New York, New York Cornertone Properties - ------------------------------------------------------------------------------------------------------------------------------- TOTALS & AVERAGES 32,949 611,364 1970 30 - ------------------------------------------------------------------------------------------------------------------------------- </TABLE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Occupancy No. Location Price/NRA N0I/SF OAR at Sale Financing Comments - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> 1 280 PARK AVENUE Boston Properties REIT purchased the Btwn 48th & 49th Streets $233.73 $9.99 4.27% 80% All Cash proper structures built in 1961 and 1976 New York, New York 10.87% The first year OAR is 4.29% increasing to 10.49% in the second year. - ------------------------------------------------------------------------------------------------------------------------------------ 2 505 PARK AVENUE Well located boutique sold to Hong N/E/C 59th Street $251.45 $20.89 8.23% 97% All Cash Kong Investors. New York, New York - ------------------------------------------------------------------------------------------------------------------------------------ 3 155 EAST 57TH STREET This building is subject to a 121 year N/W/C Lexington Avenue $290.95 $26.67 9.17% 92% All Cash ground lease. It has 26,975 SF of New York, New YOrk available space. - ------------------------------------------------------------------------------------------------------------------------------------ 4 90 PARK AVENUE Vornado Realty Trust purchased the Btwn East 39th & 40th Sts. $210.74 $22.23 10.60% 83% See Comments mortgage on this propeerty following the New York, New York threat of foreclosure by Sumitomo. - ------------------------------------------------------------------------------------------------------------------------------------ 5 527 MADISON AVENUE Modern Class A building with small floor SEC East 54th street $333.09 $36.44 10.94% 88% All Cash plates. Good retail space, high office New York, New York 10.80% rent pro-forma. - ------------------------------------------------------------------------------------------------------------------------------------ TOTALS & AVERAGES $263.99 $23.20 9.01% 88% - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> PRICE/NRA SUMMARY: LOW $210.74 HIGH $333.09 ------------------ MEAN $263.99 MEDIAN $251.45 CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach - -------------------------------------------------------------------------------- The sales occurred between February 1997 and September 1997. The buildings are relatively new or renovated being built between 1949 and 1988. The comparables consist of large Class A office buildings in Class A locations. They range in height from 22 to 41 stories and in size from a low of 201,148+/- rentable square feet to 1,374,476+/- square feet of net rentable area. Comparability in both physical and economic characteristics are the most important criteria in analyzing the comparable sales in relation to the subject property. However, it is also extremely important to recognize the fact that such office buildings are distinct entities by virtue of age and design, visibility and accessibility, the market segmentation created by the tenant mix and the competency of management. The comparable sales reflect differences in age and the layout of the physical structure, as well as rent roll and occupancy which dramatically effect the value of a building. The gross sale prices of the comparables range from a low of $48.0 million to a high of $321.25 million. The unadjusted unit sale prices range from a low of $210.74 to a high of $333.09 per rentable square foot. The wide range in unit prices is due to the actual or potential income profiles of the various properties. The buildings that have some vacancy and have low income profiles generally establish unit prices toward the low end of the range while the properties that are encumbered by lease agreements and have high potential income profiles generally establish the high end of the unit price range. The mean sale price of the sales exhibited is $263.99 per square foot while the median price is $251.45 per square foot of net rentable area. Analysis of Sales Price per Square Foot The sales listed on the chart show a relatively narrow range in unit prices per square foot when considering the varying magnitudes of the properties. Age and occupancy of the buildings have a significant impact on the varying unit prices. While these unit rates implicitly contain both physical and economic factors effecting the real estate, these statistics do not explicitly convey many of the details surrounding a specific property. Therefore, a single index to the valuation of the subject property has limited direct application in this case. Alternatively, the overall capitalization rate (OAR) is the direct relationship between the net operating income generated by the real estate in the initial year of an investment and the asset's price/value in the marketplace. Overall rates can be affected by any debt which might be incorporated into the capital structure of the investment. Overall rates are also affected by the existing leasing schedule at a specific property, the strength or weakness in the local rental market for that type of real estate, and the risk/return characteristics of comparative investments. Gross income multipliers (GIM) show the relationship between the property's total gross income and sale price. We have not included the various GIMs on our summary chart. Not surprisingly, the investment criteria for these buildings also vary. The overall capitalization rates which have been extracted from the comparable office building sales range from a low of 4.27 percent to a high of 10.94 percent based on actual and/or projected first year incomes. The low end of the overall rate range is generally established by the buildings that were below stabilized occupancy. The high end of the stabilized rate range is established by an investor building with stabilized occupancy. - -------------------------------------------------------------------------------- -51- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach - -------------------------------------------------------------------------------- The major elements of comparison for an analysis of this type include 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 and functional traits and the economic characteristics of the property. Advantageous financing terms or peculiar conditions of sale must first be adjusted to reflect a normal market transaction. Then, changes in market conditions must be accounted for, thereby creating a time adjusted normal unit of comparison. In this analysis we have not attempted to make quantitative adjustments; however, subjective adjustments have been made for location, the physical and functional traits (size and utility), and the economic conditions (market conditions) in order to generate an adjusted unit range which is appropriate for comparison to the subject property. The sales occurred between February 1997 and September 1997. We have considered changing market conditions in the New York City area since their dates of sale. Market research indicates that commercial and institutional grade property values in the New York City area have increased since 1993 and 1994. During 1995, the sales market continued to stabilize as more, smaller transactions were recorded. Active marketing and the sale of investment grade properties has continued through 1996 with some of the highest valued transactions occurring in 1997. As all of our comparable sales occurred between February 1997 and the present, no adjustments for changing market conditions are warranted as we believe the sales are reflective of the current market. Analysis of Sales Comparable Sale No. 1 is located at 280 Park Avenue between East 48th and 49th Streets. The property was sold in September 1997 for a reported price of $321,250,000. The buyer was Boston Properties, a publicly traded REIT. The building contains 1,374,476 square feet of rentable area and was built in 1962. The property was reportedly 80 percent occupied at the time of sale. A portion of the building remains to be leased and capital improvement work is felt necessary. According to industry sources, sales price reflects an overall rate of 4.29 percent in the first year of the investment holding period. This return will increase the 10.86 in the second year as vacant space, in pending deals, is leased. The sales price equates to $233.73 per square foot. Comparable Sale No. 2 is located at 505 Park Avenue at the northeast corner of East 59th Street. The property was sold in July 1997 for a reported price of $48,000,000. The buyer was Glorious Sun, a Hong Kong based investment firm. The building contains 190,893+/- square feet of rentable area and was built in 1949. The property was in good condition at the time of sale and was reportedly 97 percent occupied. According to industry sources, the sales price reflects an overall rate of 8.23 percent based upon the first year's pro forma income. The sales price equates to $251.45 per square foot. Comparable Sale No. 3 is located at 135 East 57th Street at the northwest corner of Lexington Avenue. The property's leasehold interest sold in June 1997 for a reported price of $120,000,000. The buyer was Cohen Brothers Realty Corporation. The building contains 412,436+/- square feet of rentable area and was built in 1988. The property was reportedly 92 percent occupied at the time of sale, although a major tenant, ING Capital, is expected to vacate the building shortly. According to industry sources, the sales price reflects an overall - -------------------------------------------------------------------------------- -52- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach - -------------------------------------------------------------------------------- rate of 9.17 percent based upon the first year's pro forma income. The sales price equates to $290.95 per square foot. Comparable Sale No. 4 is 90 Park Avenue which is located between East 39th and East 40th Streets. The mortgage note was sold in April 1997 for a reported price of $185,000,000. The buyer was Vornado Realty Trust, a publicly traded REIT. After the sale, Vornado negotiated a settlement with the owner of the property, Howard Kaskel. The building contains 877,869 square feet of rentable area and was built in 1964. The property was 83 percent occupied as of the date of sale. The mortgage note sale reflects an overall rate of 10.6 percent based on first year's pro forma income. The sales price equates to $210.74 per square foot. Comparable Sale No. 5 is located at 527 Madison Avenue at the southeast corner of East 54th Street. The property was sold in March 1997 for a recorded price of $67,000,000. the building contains 201,148+/- square feet of net rentable area and was built in 1986. The building was anchored by a foreign Japanese bank at the time of sale with approximately 36 percent of the rental office space. The anchor tenant lease was to expire in 2001. Approximately 20 to 25 percent of the office space was due for renewal in 1997. According to a banker financing the sale, the buyer's purchase price and pro-forma implied an overall rate of 10.8 percent. The sale price equates to $333.09 per square foot. As noted by the summary of comparables, the sales reflect a range in price per square foot indicators from a low of $210.74 per square foot to a high of $333.09 per square foot. The mean price per square foot exhibited by the comparables was calculated to be $263.99 per square foot and the median price per square foot is $251.45. The low end of the unit price range is established by Sale No. 4. Sale No. 4 represents a mortgage note sale in the Grand Central District. This building represented a problem loan for the seller. The high end of the unit price range is established by Sale No. 5. Sale No. 5 is the smallest and one of the newest buildings exhibited. It is located in the prime Madison Avenue corridor. Sale No. 1 is the large, well located former Bankers Trust headquarters. Sale No. 2 is a small, albeit well located boutique building and Sale No. 3 is a leasehold transaction of a modern building in a good, although slightly less than prime, location. This sale requires upward adjustment to account for the purchase of a leasehold estate. The reported and derived overall capitalization rates range from 4.27 percent to 10.94 percent based on projected and/or actual net operating incomes. As displayed, the price per square foot indications vary due to variations in site location, exposure, improvement design, quality, condition and age as well as the image of the property, nature of tenancies, length of lease terms and, most importantly, the level and quality of the net income stream. The most comparable sales to the subject property are those with good locations and average income profiles. The subject property has a potential gross income profile in line with many of the comparables. Rents in the Plaza office district are estimated to be $41.32 per square foot. Comparing Properties Based on NOI per Square Foot Another market measure compares the net operating income (NOI) per square foot of the property appraised with the NOI per square foot of the comparison. If the properties are truly comparable in terms of occupancy, operating expense ratio and stability of income stream, then - -------------------------------------------------------------------------------- -53- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> this can be an effective method of analysis. It is, in effect, the same thing as comparing the capitalization rate derived from the sales to the appropriate capitalization rate for the property appraised. Based upon our analysis of the comparables, the Sales Comparison Approach must be predicated on the property's income producing potential, as opposed to an adjusted per square foot methodology. This is a result of the wide variance in unadjusted per square foot unit values and the high net operating income per square foot of the subject property. Based on the forecasted 1998 fiscal year, the subject is projected to generate $13,074,018 in net operating income. This equates to $29.51 per square foot based on the building's total net rentable area of approximately 443,086+/- square feet. The derivation of the subject's projected 1998 net operating income is presented in the Income Capitalization Approach section of this report. The comparable sales generated stabilized net operating incomes ranging from $9.99 to $36.44 per square foot. The average for the 5 transactions with reported NOIs is $21.78 per square foot. The upper end of the range is established by Sale Nos. 5, 3 and 4. Sale No. 5 was substantially occupied at sale with a higher stabilized net operating income. This sale indicated a 1996 NOI per square foot of $36.44 and a sale price per square foot of $333.09. Sale No. 3 indicated an NOI per square foot of $26.67 based on projected net income. We have considered an upward adjustment to this sale to reflect its purchase as a leasehold estate. Sale No. 4 indicated an NOI per square foot of $22.23 and a sales price of $210.74 per square foot. The subject's NOI per square foot is within the range developed by the comparable sales. The subject property can be characterized as a quality investment due to its location along West 45th Street in the Plaza District, the building's size and its tenant base. In our opinion, a buyer's criteria for the purchase of an office building such as the subject is predicated primarily on the property's income characteristics. Therefore, we have identified a relationship between the net operating income of the subject versus the sales price and the NOIs of the comparables. We adjusted the sales by multiplying the prices per square foot by the ratio of the subject's NOI per square foot, estimated in 1998 at $29.51 per square foot, to the comparable's NOI per square foot. The net operating income ratio analysis accounts for differences between the comparables and the subject relative to location, construction quality, age/condition, exposure, access and other physical characteristics. The following table illustrates the adjustment process. Each comparable's sale price per square foot has been adjusted based on the projected net operating income per square foot of the subject property. - -------------------------------------------------------------------------------- -54- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach - -------------------------------------------------------------------------------- ====================================================================== Comparing Properties Based on NOI Per Square Foot ====================================================================== NOI/SF Sale Subject Unadjusted Sale Adjusted Sale No. Comparable X Price/SF = Price/SF ======================================================================= 1 $ 29.51 ------- 9.99 $233.73 $690.43 ----------------------------------------------------------------------- 2 $ 29.51 ------- 13.58 $274.02 $595.46 ----------------------------------------------------------------------- 3 $ 29.51 ------- 26.67 $290.95 $321.93 ----------------------------------------------------------------------- 4 $ 29.51 ------- 22.23 $210.74 $279.75 ----------------------------------------------------------------------- 5 $ 29.51 ------- 36.44 $333.09 $269.74 ======================================================================= After adjustments, the five transactions reflect adjusted unit prices ranging from $269.74 to $690.43 per square foot. It should be noted however, that Sale No. 1 had an estimated NOI per square foot of $25.41 in the second year of the holding period after burn off of free rent. This would result in a price per square foot of $271.44 per square foot for Sale No. 1. Before this adjustment, the average unit price equates to $431.46 per square foot, after this adjustment, the average unit price is $347.66 per square foot. Based on this analysis, after adjustments to the comparables sales, it is our opinion that the range of investment parameters for subject property is $220 to $230 per square foot. Based on the net rentable area of the building, (443,086+/- SF) we have concluded that the range of leased fee market value, subject to the air rights lease, for the subject property using this analysis is $97,000,000 to $102,000,000. Summary The subject property was designed with the most modern standards used in its era of construction. The building was constructed with quality workmanship and materials. Accessibility is considered very good by virtue of the subways, buses and highway transportation systems which serve the Plaza and Grand Central districts. Economically, the subject is located in a prime office and commercial market with stable/steady growth potential. Based on an analysis of the comparable improved sales, with strong consideration given to the subject's tenancy and current net operating income per square foot, we believe that a unit rate of $220 to $230 per square foot is appropriate. The justification in a unit value conclusion within the average range of the unadjusted sales is exhibited by the fact that the subject's stabilized NOI per square foot is above the average of the comparables. Value Conclusion After considering all market data and the attributes of the subject property relative to the physical and income potential characteristic of the comparable sales, we believe the unit price applicable to the market value of the subject is $225 per square foot of net rentable area "as is". Value by the Sales Comparison Approach (Rounded) $100,000,000 - -------------------------------------------------------------------------------- -55- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> INCOME CAPITALIZATION APPROACH - -------------------------------------------------------------------------------- Methodology The Income Approach is a method of converting the anticipated economic benefits of owning property into a value estimate through capitalization. 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 estimated, 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 analysis. In direct capitalization, net operating income is divided by an overall rate extracted from market sales to indicate a value. In the discounted cash flow method, anticipated future net income streams and a reversionary value are discounted to an estimate of net present value at a chosen yield rate (internal rate of return). In our opinion the discounted cash flow method is appropriate. The discounted cash flow analysis is generally thought to be the best method for evaluating income producing properties purchased for investment. Forecasted future patterns of income and expenses are modeled to reflect perceived investor expectations. Appraisers make forecasts (not predictions) of future events based upon their understanding of market forces and familiarity with the expectations of typical investors in the property type being appraised. Potential Gross Income Generally, Midtown Manhattan office tenants pay fixed gross rent on a rentable area basis which is consistent with space measurement standards for buildings of similar vintage, plus any increases in operating expenses and real estate taxes above stipulated base year amounts. Tenant electric costs are either directly metered, submetered or rent inclusion (charged as additional rent). Existing Leases Tower 45 is currently 100 percent occupied by 35 tenants under 57 leases. The property contains a total of 425,871 square feet of office space, 4,583 square feet of retail space, 2,900 square feet of storage and 9,732 square feet of garage space. A breakdown of average contract rents per space type is as follows: ======================================================================== Use Square Footage Percent Average Rent/SF ======================================================================== Office 425,871 96.08% $37.72 ------------------------------------------------------------------------ Retail 4,583 1.04% $39.32 ------------------------------------------------------------------------ Storage 2,900 0.67% $13.21 ------------------------------------------------------------------------ Garage 9,732 2.21% $23.04 ======================================================================== The subject property is occupied by several major tenants. The largest tenant is D.E. Shaw (63,871+/- square feet). The next several largest tenants leasing approximately 20,000 square feet or greater include Brown Raysman (48,172+/- square feet); Equitable Life (44,081+/- square feet); King & Spalding (35,874+/- square feet); Israels (26,380+/- square feet); Et Al Airlines (26,342+/- square feet); Kellwood Corporation (25,780+/- square feet) and Washington Life (19,688+/- square feet). Based upon our conversations with ownership, we have assumed - -------------------------------------------------------------------------------- -56- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- D.E. Shaw will exercise takeover options on the twenty-second, twenty-third and twenty-fifth floors, once the existing leases encumbering these spaces expire. The four major tenants previously mentioned represent over 65 percent of the property's rentable area. Each of these firms are considered to be good to excellent credit quality. In certain instances, these firms have rated debt classifications while in other instances, they simply show strong operating histories. This unusually large number of credit tenants has a positive effect on the value of the property, particularly as reflected in our selection of the discount rate (IRR) which we believe should be lower than would be applied to a Manhattan office building with a more "typical" leasing profile. Each of these firms are considered major tenants in the building, a classification which necessitates a more generous concession package on rollover (free rent and tenant workletter), than that provided to minor tenants in the property. The balance of the building is occupied by tenants who lease smaller units of space. These firms represent a mixture of industries including publishing, communications, financial service and law. These tenants have a more typical mixture of credit quality ranging from average to good. These tenancies, however, represent less than 35 percent of the property's rentable area. The tenants are classified as minor tenants for the purpose of calculating future concession packages on rollover (free rent and tenant workletter) and are less generous than major tenants' concession packages. Lease Expirations As can be seen from the following lease expiration schedule, 100 percent of the property's rentable area is represented by leases which are due to expire within the next fourteen calendar years. Only 31,209+/- square feet is due to expire within the next 26 months. The major rollover years in the analysis period occur in 2001 and 2005 when 39 percent of the property's occupied area expires for a total of 168,970+/- square feet. Although these years contain fairly sizable square footage expirations, the current relative strength of the Plaza district visa a vis Midtown Manhattan reduces our concern of expiration risk over the course of the holding period. The remaining leases expire fairly evenly over the next twelve years. ================================================================================ Lease Expiration Schedule ================================================================================ Year Annual/SF % of NRA Cumulative/SF % of NRA ================================================================================ 1999 31,209 7.20% 31,209 7.20% - -------------------------------------------------------------------------------- 2000 6,431 1.48% 37,640 8.69% - -------------------------------------------------------------------------------- 2001 75,429 17.41% 113,069 26.09% - -------------------------------------------------------------------------------- 2002 20,960 4.84% 134,029 30.93% - -------------------------------------------------------------------------------- 2003 26,221 6.05% 160,250 36.98% - -------------------------------------------------------------------------------- 2004 48,163 11.11% 208,413 48.09% - -------------------------------------------------------------------------------- 2005 93,541 21.59% 301,954 69.68% - -------------------------------------------------------------------------------- 2006 55,981 12.92% 357,935 82.60% - -------------------------------------------------------------------------------- 2007 61,103 14.10% 419,038 96.70% - -------------------------------------------------------------------------------- 2008 9,935 2.29% 428,973 98.99% - -------------------------------------------------------------------------------- 2009 0 0.00% 428,973 98.99% - -------------------------------------------------------------------------------- 2010 4,383 1.01% 433,356 100.00% ================================================================================ - -------------------------------------------------------------------------------- -57- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> COMPARABLE OFFICE RENTS AND ADJUSTMENTS <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------------------------------------- SUBJECT RENTAL 1 RENTAL 2 RENTAL 3 RENTAL 4 - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> ADDRESS TOWER 45 1230 SIXTH AVE. 1114 SIXTH AVE. 150 E 42 STREET 156 W 56Th STREET NEW YORK CITY NEW YORK CITY NEW YORK CITY NEW YORK CITY NEW YORK CITY YEAR BUILT 1988/89 1939 1971 1956 1987 RENTABLE AREA 433,356 535,200 1,310,000 1,346,822 321,950 NO. STORIES 40 21 48 42 75 OCCUPANCY % 100% 88.1% 86.3% 92.9% 99.3% TENANT NAME USA NETWORKS INTERPUBLIC GROUP PFIZER, INC. INTERSHOE, INC. FLOOR(S) LEASED ENTIRE 15 ENTIRE 16 PART 2 PT. 14. ENTIRE 15 BEGINNING DATE 10/1/96 7/1/96 2/1/97 1/1/97 TERM 10 13.0 10.0 16.0 LEASE TYPE GROSS GROSS GROSS GROSS GROSS TENANT SIZE 31,727 30,387 25,603 25,318 RENT PER SF $35.00 1-5 $31.00 1-3 $28.00 1-5 $30.00 1-6 $38.00 6-10 $34.00 4-8 $32.00 6-10 $32.00 7-11 $37.00 9-13 $35.00 12-16 FREE RENT/MONTHS) 8 6 6 12 16 WORKLETTER (PSF) $35.00 $33.0 $0.00 $45.00 $40.00 ADJUSTMENTS RENT CONCESSIONS $0.40 $2.85 ($1.40) ($0.81) EFFECTIVE ADJUSTED RENT PER SF $35.40 $33.85 $26.60 $29.19 TIME (MARKET CONDiTIONS) 0.00% 0.00% 0.00% 0.00% TIME ADJUSTED RENT PER SF $35.40 $33.85 $26.60 $29.19 LOCATION -5.00% -5.00% 0.00% 5.00% QUALITY 0.00% 0.00% 5.00% 5.00% SIZE 5.00% 5.00% 5.00% 0.00% CONDITION 0.00% 0.00% 0.00% 0.00% TOTAL ADJUSTMENT 0.00% 0.00% 10.00% 10.00% INDICATED RENT PER SF $35.40 $33.85 $29.26 $32.11 - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - --------------------------------------------------------------------------------------------------------- RENTAL 5 RENTAL 6 RENTAL 7 RENTAL 8 - --------------------------------------------------------------------------------------------------------- ADDRESS 1185 SIXTH AVE. 12 E 49Th STREET 666 FIFTH AVE 1155 SIXTH AVE. NEW YORK CITY NEW YORK CITY NEW YORK CITY NEW YORK CITY YEAR BUILT 1971 1984 1955 1983 RENTABLE AREA 1,000,000 643,000 1,260,000 610,191 NO. STORIES 42 45 41 41 OCCUPANCY % 81.3% 83.7% 98.8% 100% TENANT NAME TIME PUBLISHING SAKS FIFTH AVENUE LUCENT TECH. BELL COMUNIC. FLOOR(S) LEASED ENTIRE 27 ENTIRE 15 PART 10 PART 16 BEGINNING DATE 11/1/96 12/1/96 5/1/97 5/1/97 TERM 10 10.0 9.0 6.5 LEASE TYPE GROSS GROSS GROSS GROSS TENANT SIZE 25,000 15,012 9,260 4,133 RENT PER SF $31.00 1-5 $31.00 1-5 $34.00 1-5 $35.00 1-6.5 $35.00 6-10 $35.00 6-10 $37.00 6-9 FREE RENT/MONTHS) 10 0 6 2 WORKLETTER (PSF) $37.50 $10.00 $35.00 $35.00 ADJUSTMENTS RENT CONCESSIONS ($0.45) $3.30 $0.22 $0.92 EFFECTIVE ADJUSTED RENT PER SF $30.55 $34.30 $34.22 $35.92 TIME (MARKET CONDITIONS 0.00% 0.00% 0.00% 0.00% TIME ADJUSTED RENT PER SF $30.55 $35.40 $34.22 $35.92 LOCATION -5.00% -5.00% -5.00% -5.00% QUALITY 5.00% 0.00% 5.00% 0.00% SIZE 0.00% 0.00% 0.00% -5.00% CONDITION 0.00% 0.00% 0.00% 0.00% TOTAL ADJUSTMENT 0.00% -5.00% 0.00% -10.00% INDICATED RENT PER SF $30.55 $32.59 $34.22 $32.33 - --------------------------------------------------------------------------------------------------------- </TABLE> CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- Based upon the lease expiration schedule, and considering rollover of vacant space which is leased-up, we have forecasted an eleven year investment holding period. The twelfth year is estimated to be the reversionary year. As can be seen from the calendar year schedule, the twelfth calendar year will experience a typical number of lease expirations as a percentage of total building area and for analysis purposes is considered a stabilized reversionary year (please refer to fiscal year cash flow). Market Rental Rate - Office Market rent for the office space within the property has been estimated by analyzing seven comparable leases exhibited on the summary chart and adjustment grid on the following facing page. In our analysis, we have considered six lease attributes: rent concessions, time (market conditions), location, quality, size and condition. Percentage adjustments between the subject property and the comparable leases were made for each of these factors. We have adjusted each comparable rental for rent concessions which are significantly different from those offered in the subject property. In this case, the building standard is estimated to include eight months free rent and a $35 per square foot workletter. Comparable leases which provided more generous concessions have been adjusted downward while those with less generous concession packages have been adjusted upward. The comparable office leases, as exhibited on the facing page, range from $28.00 to $35.00 per square foot gross and may be summarized as follows: Rental Comparable No. 1 involves a 31,727 square foot lease within 1230 Avenue of the Americas located between West 48th and West 49th streets. This lease was signed in October 1996 for a ten year term. The base rent is $35.00 per square foot, with an increase to $38.00 per square foot in year six. After adjusting for rent concessions, the equivalent rent is $35.40 per square foot. In comparison with the subject property, a downward adjustment was made for location, while an upward adjustment was made for size. The adjusted rent was $35.40 per square foot. Rental Comparable No. 2 involves a 30,387 square foot office lease within 1114 Avenue of the Americas located between West 42nd and West 43rd streets. This lease was signed in July 1996 for a thirteen year term. The initial base rent was $31.00 per square foot increasing to $34.00 per square foot in year four and $37.00 per square foot in year nine. After adjusting for rent concessions, the equivalent rent is $33.85 per square foot. In comparison with the subject property, a downward adjustment was made for location, while an upward adjustment was made for size. The adjusted rent was $33.85 per square foot. Rental Comparable No. 3 involves a 25,603 square foot office lease within 150 East 42nd Street located between Lexington and Third avenues. This lease was signed in February 1997 for a ten year term. The initial base rent was $28.00 per square foot with an increase to $32.00 per square foot in year six. After adjusting for rent concessions, the equivalent rent is $26.60 per square foot. In comparison with the subject property, upward adjustments were made for quality and size. The adjusted rent was $29.26 per square foot. Rental Comparable No. 4 involves a 25,318 square foot office lease within 156 West 56th Street located between Avenue of the Americas and Seventh Avenue. The lease was signed in January 1997 for a sixteen year term. The initial base rent was $30.00 per square - -------------------------------------------------------------------------------- -58- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- foot increasing to $32.00 per square foot in year seven and $35.00 per square foot in year twelve. After adjusting for rent concessions, the equivalent rent is $29.19 per square foot. In comparison with the subject property, upward adjustment were made for location and quality. The adjusted rent was $32.11 per square foot. Rental Comparable No. 5 involves a 25,000 square foot office lease within 1185 Avenue of the Americas located between West 46th and West 47th streets. This lease was signed in November 1996 for a ten year term. The initial base rent was $31.00 per square foot, increasing to $35.00 per square foot in year six. After adjusting for rent concessions, the equivalent rent is $30.55 per square foot. In comparison with the subject property, a downward adjustment was made for location, while an upward adjustment was made for size. The adjusted rent was $30.55 per square foot. Rental Comparable No. 6 involves a 15,012 square foot office lease within 12 East 49th Street located between Fifth and Madison avenues. The lease commenced in December 1996 for a ten year term. The initial base rent was $31.00 per square foot increasing to $35.00 per square foot in year six. After adjusting for rent concessions, the equivalent rent is $34.30 per square foot. In comparison with the subject property, a downward adjustment was made for location. The adjusted rent was $32.59 per square foot. Rental Comparable No. 7 involves a 9,260 square foot office lease within 666 Fifth Avenue located between West 52nd and West 53rd streets. This lease was signed in May 1997 for a nine year term. The base rent was $34.00 per square foot increasing to $37.00 per square foot in year six. After adjusting for rent concessions, the equivalent rent is $34.22 per square foot. In comparison with the subject property. In comparison with the subject property, a downward adjustment was made for location, while an upward adjustment was made for size. The adjusted rent was $34.22 per square foot. Rental Comparable No. 8 involves a 4,133 square foot office lease within 1155 Avenue of the Americas located between West 43rd and West 44th streets. This lease was signed in May 1997 for a six year and six month term. The initial base rent was $35.00 per square foot. After adjusting for rent concessions, the equivalent rent is $35.92 per square foot. In comparison with the subject property, downward adjustments were made for location and size. The adjusted rent was $32.33 per square foot. Prior to adjustment, the comparables reflect a range in base rent $28.00 to $35.00 per square foot gross. After adjustment to the comparables, a range $29.26 to $35.40 per square foot gross was revealed. Our adjustment for rent concessions considers the difference in the comparables for market standard free rent of eight months and workletters of $35.00 per square foot. This range in actual adjusted comparable leases has been compared with average asking rent for several comparable properties which are summarized on pages 32 through 37 of this report. The most competitive of these properties reflect average asking rents ranging from $37.00 to $50.00 per square foot. Tower 45 office rents average $37.72 per square foot. The adjusted comparable rentals average $32.54 per square foot. Several of the existing leases within the property were signed several years ago during a period of inferior market conditions (1993, for example) while a large number of leases have been signed recently and reflect market conditions. Overall, we believe the average rents in the subject property are above market. The most recent office leases within the property have been in the $28.00 to $36.00 per square foot range. These leases are - -------------------------------------------------------------------------------- -59- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- to major and minor tenants and generally reflect the average market rents in the building, taking into consideration floor height. The most recent office leases may be summarized as follows: - -------------------------------------------------------------------------------- Tower 45 Most Recent Leases <TABLE> <CAPTION> ========================================================================================================================== Area Term Yr/Rent No. Tenant Floors Date (SF) (Yrs) (SF) Base Year/ Concessions ========================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1 Brown Raysman Part 24 Lease Out 6,287 10 $36.00 Tax Base: 1997/98 (Yr. 4) $37.00 Operating Exp: 1998 (Yr. 6) $39.00 Electric: Submetered Workletter: $10.00 - -------------------------------------------------------------------------------------------------------------------------= 2 Brown Raysman Part 10 Lease Out 3,648 10 $30.00 Tax Base: 1997/98 (Yr. 4) $31.00 Operating Exp.: 1998 (Yr. 6) $32.00 Electric: Submetered Workletter: $10.00 - -------------------------------------------------------------------------------------------------------------------------= 3 D.E. Shaw Part 22 3/96 12,479 9 yrs. $29.92 Tax Base: 1995/96 11 mos. (3/01) $30.81 Operating Exp.: 1996 Electric: Direct Workletter: $20.00 Free Rent: 12 mos. - -------------------------------------------------------------------------------------------------------------------------= 4 Gage & Buschman Part 36 3/96 5,194 3 yrs. $29.00 Tax Base: 1995/96 3 mos. (3/98) $30.00 Operating Exp.: 1996 Electric: Submetered Free Rent: 4 mos. - -------------------------------------------------------------------------------------------------------------------------= 5 Scott Rudin Prod. Part 10 4/97 2,032 5 $32.50 Tax Base: 1997/98 (4/99) $34.50 Operating Exp.: 1997 Electric: Submetered - -------------------------------------------------------------------------------------------------------------------------= 6 D.E. Shaw 15 2/97 9,711 10 $28.00 Tax Base: 1997/98 (11/00) $31.00 Operating Exp.: 1997 - -------------------------------------------------------------------------------------------------------------------------= 7 Altman & Selvaggi Part 36 2/96 6,756 7.33 $30.87 Tax Base: 1996/97 (3/96) $21.95 Operating Exp.: 1997 (8/96) $32.00 Electric: Submetered (2/99) $34.00 (2/02) $36.00 ========================================================================================================================== </TABLE> The most recent leases in the subject property reflect base rents ranging from $28.00 to $36.00 per square foot. Additional rent for these leases include a real estate tax and operating expense reimbursement. Concessions associated with these lease terms include free rent ranging from zero to 12 months and workletters ranging from zero to $20 per square foot. Leasing primary office space on an "as is" basis is atypical of the market. The standard lease will include some form of workletter concession. Recent leases within the Midtown Manhattan office leasing market include concessions in the form of free rent and tenant workletter consistent with those offered within the subject property. In addition to analyzing actual deals inside and outside the property, leasing brokers were interviewed in an effort to ascertain competitive packages available in the marketplace today. Most brokers interviewed were of the opinion that eight to twelve months free rent, inclusive of space build-out time, was available for most tenants in midtown office buildings. In addition, tenant workletters were felt to range from $25 to $40 per square foot. The range in concession packages varies by the size of the space leased. The larger the tenant, the more generous the concession package. - -------------------------------------------------------------------------------- -60- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> COMPARABLE RETAIL RENTS AND ADJUSTMENTS <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------ SUBJECT RENTAL 1 RENTAL 2 RENTAL 3 RENTAL 4 - ------------------------------------------------------------------------------------------------------------------------ ADDRESS TOWER 45 45 W 45TH STREET 26 W 39TH STREET 36 W 44TH STREET 1290 AVE AMERICAS NEW YORK CITY NEW YORK CITY NEW YORK CITY NEW YORK CITY NEW YORK CITY <S> <C> <C> <C> <C> <C> TENANT NAME ROSETTA ELECT CONFIDENTIAL ANGLER'S OUTFITTERS AU CROISSANT BEGINNING DATE Jul-97 1997 Feb-97 Aug-96 TERM 10 5 10 15.5 LEASE TYPE GROSS GROSS GROSS GROSS GROSS TENANT SIZE 5,500 GRND 2,200 GRND 700 GRND 4,353 GRND 2.000 MEZZ 2,000 LL 9,500 2,200 700 4.353 RENT PER SF GRND GRND GRND $40.00 1-5 $30.00 GRND $44.67 1 $59.73 GRND 1-15-5 $52.00 6-10 EST. $46.01 2 $54.30 3-10 3% INC/YR. FREE RENT(MONTHS) 6 3 NA 0 9 WORKLETTER (PSP) $0.00 $0.00 $0.00 $0.00 $0.00 ADJUSTMENTS $0.30 $1.20 $0.60 $0.60 RENT CONCESSIONS EFFECTIVE ADJUSTED RENT PER SF $40.30 $31.20 $45.27 $150.60 TIME (MARKET CONDITIONS) 0.00% 0.00% 0.00% 0.00% TIME ADJUSTED RENT PER SF $40.30 $31.20 $45.27 $110.60 LOCATION 0.00% 0.00% 0.00% 0.00% QUALITY 0.00% 0.00% 0.00% 0.00% SIZE 5.00% 0.00% -10.00% -8.00% CONDITION 0.00% 0.00% 0.00% 0.00% TOTAL ADJUSTMENT 5.00% 0.00% -10.00% 5.00% ADJUSTED RENT PER SF $42.32 $31.20 $40.74 $58.74 - ------------------------------------------------------------------------------------------------------------------------ </TABLE> - ------------------------------------------------------------------------------- RENTAL 5 RENTAL 6 RENTAL 7 - ------------------------------------------------------------------------------- ADDRESS 49 W 57TH STREET 57 W 57TH STREET 1460 BROADWAY NEW YORK CITY NEW YORK CITY NEW YORK CITY TENANT NAME ASKING ASKING CONFIDENTIAL BEGINNING DATE N/A N/A Asking TERM 10 10 10 LEASE TYPE GROSS GROSS GROSS TENANT SIZE 4,500 5,601 GRND 1,200 GRND 2,610 LL 4,500 8,211 1,200 RENT PER SF $130.00 GRND $150.00 GRND $150.00 GRND $25.00 LL 3% INC./YR. FREE RENT(MONTHS) 0 0 6 WORKLETTER (PEP) $0.00 $0.00 $0.00 ADJUSTMENTS $0.60 $0.60 $0.00 RENT CONCESSIONS EFFECTIVE ADJUSTED RENT PER SF $130.60 $150.60 $150.00 TIME (MARKET CONDITIONS) 0.00% 0.00% 0.00% TIME ADJUSTED RENT PER SF $130.60 $156.00 $150.00 LOCATION 0.00% 0.00% 0.00% QUALITY 0.00% 0.00% 0.00% SIZE 0.00% 0.00% -5.00% CONDITION 0.00% 0.00% 0.00% TOTAL ADJUSTMENT 0.00% 0.00% -5.00% ADJUSTED RENT PER SF $130.60 $150.60 $142.50 - ------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- The leasing brokers interviewed indicated that Midtown Manhattan's office leasing market has stabilized. Several brokers indicated that the market has improved considerably over the last twenty four months. Rents have increased and concessions have decreased. In the view of many, the leasing market continued to strengthen through the end of 1997. It is expected that further improvement should be seen in 1998 with a materially stronger leasing market by 1999. In keeping with these observations, we have assumed that market rent will increase at a rate of 4 percent per annum through the projection period. In consideration of occupied area, floor height, relative midtown location and lease date, the comparable rental data provide fairly consistent evidence of prime rental rates in the low to mid $30s per square. This results in a range of market rent for Tower 45 Avenue of $30 to $35 per square foot which has been distributed by floor level as follows: Floors 2 -12 $30.00/SF Floors 14 -25 $33.00/SF Floors 26 -40 $35.00/SF The above estimated market rents assume the following concession packages: ================================================================================ Free Rent Tenant Improvements ================================================================================ New Leases Major Tenants 8 months Major Tenants $35.00/SF Minor Tenants 6 months Minor Tenants $25.00/SF - -------------------------------------------------------------------------------- Renewing Leases Major Tenants 4 months Major Tenants $15.00/SF Minor Tenants 3 months Minor Tenants $10.00/SF ================================================================================ We forecast step-ups of 15 percent every 60 months for market leases. Market Rental Rate - Retail Space The retail space within the subject property is located on the ground floor along West 45th Street. The retail space is occupied by a restaurant operating as My Most Favorite Dessert (4,383+/- square feet). In addition, the lobby space is occupied by Soft Touch News (200+/- square feet). Market rent for the retail space within the property has been estimated by analyzing seven comparable leases exhibited on the summary chart and adjustment grid on the facing page. In our analysis, we have considered six lease attributes: rent concessions, time (market conditions), location, quality, size and condition. Percentage adjustments between the subject property and the comparable leases were made for each of these factors. The comparable retail leases, exhibited on the facing page, range from $40.00 to $150.00 per square foot gross and may be summarized as follows: Rental No. 1 involves a 9,500 square foot retail lease within 45 West 45th Street, located between Fifth Avenue and Avenue of the Americas. This lease commenced in July 1997 for a ten year term. The initial base rent is $40.00 per square foot. After adjusting for rent concessions, the equivalent rent is $40.30 per square foot. In comparison with the subject property, an upward adjustment was made for size. The adjusted rent is $42.32 per square foot. - -------------------------------------------------------------------------------- -61- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- Rental No. 2 involves a 2,200 square foot retail lease within 26 West 39th Street located between Fifth Avenue. This lease commenced in early 1997 for a five year term. The initial base rent is $30.00 per square foot. After adjusting for rent concessions, the equivalent rent is $31.20 per square foot. In comparison with the subject property, no adjustments were necessary. The adjusted rent is $31.20 per square foot. Rental No. 3 involves a 700 square foot retail lease within 36 West 44th Street located at between Fifth Avenue and Avenue of the Americas. The lease commenced February 1997 for a ten year term. The initial base rent is $44.67 per square foot with subsequent increases. After adjusting for rent concessions, the equivalent rent is $45.27 per square foot. In comparison with the subject property, a downward adjustment was made for size. The adjusted rent is $40.74 per square foot. Rental No. 4 involves a 4,353 square foot retail lease within 1290 Avenue of the Americas located between West 51st and West 52nd streets. This lease commenced in August 1996 for a fifteen year and six month term. The initial base rent is $59.73 per square foot. After adjusting for rent concession, the equivalent rent is $59.73 per square foot. In comparison with the subject property, a downward adjustment was made for size. The adjusted rent is $56.74 per square foot. Rental No. 5 involves a 4,500 square foot retail space available within 49 West 57th Street located between Fifth Avenue and Avenue of the Americas. The space is available for a ten year term. The initial asking base rent is $130.00 per square foot with subsequent increases. After adjusting for rent concessions, the equivalent rent is $130.60 per square foot. In comparison with the subject property, no adjustment were necessary. The adjusted rent is $130.60 per square foot. Rental No. 6 involves a 8,211 square foot retail space available within 57 West 57th Street located between Fifth Avenue and Avenue of the Americas. This space is available for a ten year term. The initial base rent is $50.00 per square foot for the ground floor. After adjusting for rent concessions, the equivalent rent is $150.60 per square foot for the ground floor. In comparison with the subject property, no adjustment were necessary. The adjusted rent is $150.60 per square foot. Rental No. 7 involves a 1,200 square foot retail space available within 1460 Broadway, located between West 41st and West 42nd streets. This lease is available for a ten year term. The initial base rent is $15.000 per square foot. After adjusting for rent concessions, the equivalent rent is $150.00 per square foot with subsequent increases. In comparison with the subject property, a downward adjustment was made for size. The adjusted rent is $142.50 per square foot. Prior to adjustment, the comparables reflect a range in base rent of $30.00 to $150.00 per square foot gross. After adjustment to the comparable leases, a range of $31.20 to $150.60 per square foot gross was revealed. Our adjustment for rent concessions considers differences in the comparable for market standard free rent period of six months with the space taken on an "as is" basis. The adjusted comparable rentals average $84.96 per square foot. This compares with the subject's retail leases which produce an average rent of $39.32 per square foot. In our - -------------------------------------------------------------------------------- -62- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> COMPARABLE GARAGE RENTS AND ADJUSTMENTS <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------------------------------- SUBJECT RENTAL 1 RENTAL 2 RENTAL 3 RENTAL 4 - ----------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> ADDRESS TOWER 45 80 PARK AVE. 45 EAST 63RD ST. 301 EAST 66TH ST. 200 EAST 62ND ST. NEW YORK CITY NEW YORK CITY NEW YORK CITY NEW YORK CITY NEW YORK CITY YEAR BUILT 1988/89 N/A N/A CIRCA 1950 CIRCA 1950 CAPACITY (NO. SPACES) 45 100 400 70 131 SIZE (SQUARE FEET) 9,732 N/A N/A N/A N/A TENANT NAME CONFIDENTIAL KINNEY CONFIDENTIAL CONFIDENTIAL BEGININNG DATE EARLY 1996 EARLY 1996 Jan-95 Dec-94 TERM 15 5 8 3 LEASE TYPE GROSS GROSS NET GROSS GROSS ANNUAL RENT $224,225 1-46 $450,000 $1,100,000 $198,030 $370,599 RENT ESCALATIONS N/A NONE N/A 3% INCR/YR. RENT PER SPACE $4,500 $2,750 $2,829 $2,829 ADJUSTMENTS TIME 0.00% 0.00% 5.00% 10.00% TIME ADJUSTED RENT PER SF $4,500 $2,750 $2,970 $3,112 LOCATION 0.00% 0.00% 0.00% 0.00% QUALITY 0.00% 0.00% 0.00% 0.00% SIZE 0.00% 0.00% 0.00% 0.00% CONDITION 0.00% 0.00% 0.00% 0.00% TOTAL ADJUSTMENT 0.00% 0.00% 0.00% 0.00% INDICATED RENT/SPACE $4,500 $2,750 $2,970 $3,112 - ----------------------------------------------------------------------------------------------------------------------------- </TABLE> - ---------------------------------------------------------------- RENTAL 5 RENTAL S - ---------------------------------------------------------------- ADDRESS 1250 ROADWAY 105 DUANE ST. NEW YORK CITY NEW YORK CITY YEAR BUILT N/A N/A CAPACITY (NO. SPACES) 200 72 SIZE (SQUARE FEET) N/A N/A TENANT NAME CONFIDENTIAL CONFIDENTIAL BEGININNG DATE Jan-94 Feb-94 TERM 10 11 LEASE TYPE GROSS GROSS ANNUAL RENT $833,400 $249,984 RENT ESCALATIONS N/A N/A RENT PER SPACE $4,167 $3,472 ADJUSTMENTS TIME 10.00% 10.00% TIME ADJUSTED RENT PER SF $4,584 $3,819 LOCATION 0.00% 0.00% QUALITY 0.00% 0.00% SIZE 0.00% 0.00% CONDITION 0.00% 0.00% TOTAL ADJUSTMENT 0.00% 0.00% INDICATED RENT/SPACE $4,664 $3,819 - ---------------------------------------------------------------- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- judgement, side street market rents for retail space within the subject property are $40.00 per square foot. We estimate market rent for the lobby retail at $150.00 per square foot. In our opinion, the market rent for the retail space within the subject property is as follows: Side Street Frontage $ 40.00/SF Lobby Retail $ 150.00/SF The above estimated market rents assume the following concession package. ====================================================================== Free Rent Tenant Improvements ====================================================================== New Leases 6 months None ---------------------------------------------------------------------- Renewing Leases 3 months None ====================================================================== Market Rental Rate - Parking Garage Space Tower 45 contains a 45 licensed space parking garage in the basement of the building. Parking space in the Plaza district of Midtown manhattan is at a premium with garages in many of the office buildings restricting space to tenants only. The parking garage at the property operates within a rate structure near the top end of the range for a valet style parking garage in Midtown Manhattan. The parking garage at the subject property contains 9,732+/- square feet and was leased in November 1989 to Manhattan Parking West 45th Street Corporation for a 46 year and six month term. The current annual rent is $224,225 per annum or $4,983 per space net. Parking garages in New York are leased according to license car capacity which usually has no relation to square footage. Generally, long term operator leases for garage space in Manhattan range from $2,000 to $4,500 per space as exhibited on the chart on the facing page. Tower 45 is superior to a majority of these comparables in terms of location, given its proximity to Rockefeller Center. The parking garage market had been previously depressed requiring a number of renegotiated leases on parking garages which were signed in the late 1980s. Our estimate of market rent for this space is $4,500 per space per annum, assuming a net lease. This is equivalent to $20.81 per square foot of rentable area. Market Rental Rate - Storage Space Tower 45 contains storage space on the basement level and sub-basement levels of the building. Total storage space is approximately 2,900 square feet. Many of the office tenants within the building lease storage space. King & Spalding, Israels, Brown Raysman and Washington Life, as well as some minor office tenants lease storage space. The office tenants within the building generally pay reasonable storage rents ranging from $12.00 to $30.00 per square foot. Competitive rates for storage space in the Plaza Office District vicinity range from $10.00 to $20.00 per square foot. We have assigned a market rent to the storage space in the building of $20.00 per square foot gross in our cash flow projection. Market Rent Storage Space $20.00/SF - -------------------------------------------------------------------------------- -63- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- Assumptions Regarding Existing and Proposed Leases Our analysis specifically assumes that all of the existing leases will remain in the property and continue paying rent under the terms of their lease. Information provided by management indicates that none of the tenants are currently in default. The tenant base appears to be stable and management has indicated that defaults are not anticipated. Regarding lease expirations, we have assumed a 65 percent probability of rollover (sign a new lease) and 35 percent probability of turnover (allow the lease to expire and vacate the property) upon expiration of each primary lease term. This assumption is based on retention rates quoted by owners and managers of competitive Manhattan office buildings. Typical office, retail and storage leases are ten years in duration. Major office tenants typically require longer terms, ranging from 15 to 20 years. We have assumed ten year lease terms for minor tenants, retail tenants and storage tenants. We have assumed fifteen year lease terms for major tenants. Vacancy between leases includes the period of actual downtime and the construction period to build-out tenant spaces. Consistent with our experience, we have assumed a five to six month vacancy between leases which includes a provision for a construction period typically ranging between two and four months. Vacancy between leases is weighted for a renewal probability of 65 percent (35 percent vacate) resulting in an effective downtime of two months upon each lease expiration of each tenant. Free rent, calculated from the time the new tenant takes occupancy, ranges from six to eight months in the current market. We have assumed six months of free rent for minor office tenants and eight months for major tenants. Renewal tenants are provided with one half (50 percent) of the new tenant rate. Ownership reports that the building standard workletter for new tenants is equivalent to actual cost of $25 to $35 per square foot. Workletters quoted in the marketplace today range from $25 to $40 per square foot. The subject property is able to provide workletters similar to those provided in other buildings. We have assumed $25 to $35 workletters for new tenants, and one half (50 percent) of this amount to renewal tenants. Miscellaneous Income Sources of miscellaneous income for the property include revenues for tenant services which has been budgeted in 1997 at $150,000. The second source of miscellaneous income is derived from overtime electric. Overtime electric is projected in 1997 to be $233,000. We have assumed these sources of miscellaneous income will grow thereafter at a rate of 4 percent per annum. The final source of miscellaneous income is derived from lease settlements with tenants. These short term settlements total $83,413 in 1997 and continue until 2000. Reimbursable Expenses (Escalations) Tenants are responsible for their pro-rata share of the real estate taxes when taxes exceed those incurred during the first full year of their occupancy. This type of escalation is typically also applied to operating expenses in the majority of Manhattan office buildings. The majority of current leases in the subject property include this form of escalation whose calculation may be summarized as follows: - -------------------------------------------------------------------------------- -64- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- Billing Year Operating Expense Less: Base Year Operating Expense --------------------------------- Equals: Increase in Operating Expense Multiplied by: Tenant's Pro Rata Share -------------------------------------- Equals: Escalation Computed Existing tenants include a variety of escalations including porter wage increases in lieu of operating expense pass-thru and direct reimbursement amounts. In addition, certain tenants are paying submetered electric, and other miscellaneous charges. We have assumed that future leases in the subject property will be on a full service basis. Tenants will be responsible for a) real estate tax increase over the base calendar year amount billed semi-annually; b) operating expense escalation, billed monthly; and c) tenant electric on a direct basis. 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. Our cash flow projection assumes a tenant vacancy of nine months upon each lease expiration set against our probability of renewal estimated at 65 percent, in addition to a vacancy/global credit loss provision applied to the gross rental income. The vacancy/global loss provision is applied to all tenants. Our estimated vacancy/global credit loss provision applied to the gross rental income is estimated at 1 percent upon stabilization of the property. Based on the subject's weighted average downtime between leases, as well as the preceding absorption schedule for the subject property, the overall average occupancy rate of the subject property over the eleven year holding period is 98.48 percent. Including our overall vacancy/global credit loss allowance estimated at 1 percent, the implied overall occupancy rate of the subject property over the eleven year holding period is 97.48 percent, which is slightly less than the occupancy levels of comparable buildings over the last four years. Operating Expenses We have analyzed the budgeted expenses for 1994 through 1996; and budgeted expenses for 1997. We forecasted the property's operating expenses after reviewing operating expenses of similar buildings and after consulting local building managers and agents, including Cushman & Wakefield property management personnel, etc. We also examined industry norms as reported by the BOMA Experience Exchange Report published by the Building Owners and Managers Association International, a nationally recognized publication. On the following facing page is the income and expense analysis for the property. The following analysis attempts to utilize the subject's budgeted expense data supported by the - -------------------------------------------------------------------------------- -65- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> TOWER 45 ETWEEN SIXTH AND SEVENTH AVENUES NEW YORK CITY Income and Expense Analysis <TABLE> <CAPTION> Actual Actual Actual CY 1984 CY 1985 CY 1986 ------------------------------------------------------------------------------ Annual Annual Annual Amount Per SF Amount Per SF Amount Per SF - ------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Revenue From Operations Base Rent Income $15,821,736 $35.71 $12,719,514 $28.71 $14,101.878 $31.83 Rent ConcessIon $0 %0.00 $0 $0.00 ($124,378) ($0.28) Electric Survey Rent $0 $0.00 $0 $0.00 $0 $0.00 Real Estate Tax Rent $2,269,70 $5.12 $2,961,488 $6.68 $2,807.157 $6.34 CPI Escalation Rent $0 $0.00 $0 $0.00 $503 $0.00 Operatng Expense Eaducation $1,275.609 $2.88 $1,113,151 $2.51 $1,425,931 $3.22 Potters Wage $204,149 $0.46 $204,822 $0.46 $18,567 $0.04 Storage Rent $23,463 $0.05 $0 $0.00 $0 0.00 Metered Electric Rent $0 $0.00 $411,760 $0.93 $234,891 $0.53 Contract Cleaning $0 $0.00 $0 $0.00 $0 $0.00 Miscellaneous income $,694,254 $1.57 $126,506 $0.29 $29,613 $0.07 Less Vacancy Factor $0 $0.00 ($44.512) ($0.10) ($55.653) ($0.13) -- ----- -------- ------ -------- ------ Total Revenue $20,288,916 $45.79 $17,492,727 $39.48 $18,438,509 $41.61 Expenses Payroll and Benefits $694,811 $1.57 $809,735 $1.83 $739,742 $1.67 Utility Expense $518,962 $1.17 $50,563 $1.22 $539,176 $1.22 Janitorial Expense $890,642 $2.01 $826,921 $1.87 $794,667 $1.79 Repairs and Maintenance $500,212 $1.13 $560,224 $1.26 $833,346 $1.43 Security Expense $281,184 $0.63 $190,957 $0.43 $228,099 $0.51 Professional Fees/Admin $207,941 $0.47 $1,471,035 $3.32 $456,104 $1.03 Travel and Entertainment Expense n/a $0.00 $6,955 $0.02 $2,980 $0.01 Promotional n/a $0.00 $34,806 $0.08 $44,344 $0.10 Management Fees $1,201,615 $2.71 $1,128,822 $2.55 $1,070,284 $2.42 Real Estate Taxes $1,966,872 $4.44 $3,679,416 $8.30 $3,719,990 $8.40 BID Tax n/a $0.00 n/a $0.00 n/a $0.00 Vault Tax n/a $0.00 n/a $0.00 n/a $0.00 Insurance $102,240 $0.23 $98,880 $0.22 $78,687 $0.18 Air Rights n/a $0.00 n/a $0.00 n/a $0.00 Other Expenses $188,070 $0.42 n/a $0.00 n/a $0.00 -------- ----- --- ----- --- ----- Total Expenses $6,550,549 $14.78 $9,348.314 $21.10 $8,307,599 $18.75 Net Operating income $13,738,367 $31.01 $8,144,413 $18.38 $10,130,910 $22.86 Capital Expenditures Leasing Commissions $890,703 $2.01 $0 $0.00 $0 $000 Tenant Alterations $417,095 $0.94 $0 $0.00 $0 $000 Capital Improvements $60,000 $4.00 $0 $0.00 $0 $000 ------- ----- -- ----- -- ---- Cash Flow Before Debt Service $12,370,569 $27.92 $8,144,413 $18.38 $10,130,910 $22.86 - ------------------------------------------------------------------------------------------------------------- </TABLE> Net Rentable Area (NRA) 443,086 Square Feet Budget Cushmen & Wakefield CY 1987 Projection CY 1997 ------------------------------------------------ Annual Annual Amount Per SF Amount Per SF - ------------------------------------------------------------------------------- Revenue From Operations Base Rent Income $15,219,364 $36.61 $15,985,217 $38.08 Rent Concession ($20,416) ($0.05) $0 $0.00 Electric Survey Rent $6,516 $0.01 $0 $0.00 Real Estate Tax Rent $2,845,456 $6,42 $2.802.403 $6.32 CPI Escalation Rent $8,748 $0.02 $0 $0.00 Operating Expense Escalation $1,020,434 $2.30 $1,126,657 $2.54 Porters Wage $137,460 $0.31 $130,458 $0.29 Storage Rent $45,804 $0.10 $0 $0.00 Metered Electric Rent $144,000 $0.32 $233,000 $0.53 Contract Cleaning $129,648 $0.29 $150,000 $0.34 Miscellaneous income $680,768 $1.54 $83,413 $0.19 Less Vacancy Factor ($638,533) ($1.44) ($200,447) ($0.45) ----------- ------ ----------- ----- Total Revenue $20,581,249 $46.45 $20,310,699 $45.84 Expenses Payroll end Benefits $492,608 $1.11 $492,608 $1.11 Utility Expense $581,615 $1.31 $581,615 $1.31 Janitorial Expense $994,145 $2.24 $794,667 $1.79 Repairs and Maintenance $688,174 $1.51 $688,174 $1.51 Security Expense $321,092 $0.72 $321,092 $0.72 Professional Fees/Admin $423,940 $0.96 $423,940 $0.96 Travel and Entertainment Expense $5,460 $0.01 $5,460 $0.01 Promotional $11,316 $0.03 $11,316 $0.03 Management Fees $609,278 $1.38 $132,926 $0.30 Real Estate Taxes $3,574,018 $8.07 $3,616,660 $8.16 BID Tax $125,190 $0.28 $125,190 $0.28 Vault Tax $1,597 $0.00 $1,597 $0.00 Insurance $100,000 $0.23 $100,000 $0.23 Air Rights $95,834 $0.22 $575,000 $1.30 Other Expenses $197,395 $0.45 $0 $0.00 -------- ----- -- ----- Total Expenses $8,201,662 $18.51 $7,850,245 $17.72 Net Operating income $12,379,587 $27.94 12,460,454 $28.12 Capital Expenditures Leasing Commissions $34,617 $0.08 $0 $0.00 Tenant Alterations $162.155 $0.37 $0 $0.00 Capital Improvements $301,000 $0.68 $63,881 $0.14 -------- ----- ------- ----- Cash Flow Before Debt Service $11,881,815 $26.82 $12,396,573 $27.98 - ------------------------------------------------------------------------------- Net Rentable Area (NRA) 443.088 Square Feel <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- comparable expense data. The age and unique physical features of the subject warrant consideration of the subject's budget in estimating market operating expenses. Following are the projected operating, recoverable and non-recoverable expenses we have used in our cash flow analysis. We have analyzed each item of expense individually and attempted to project what the typical informed investor would consider reasonable. Although every expense category is addressed herein, only those requiring explanation of variations will be discussed in great detail. The forecast of projected growth rates in all categories of expense reflect typical investor expectations as noted in the Cushman & Wakefield Investor Survey, which has been placed in the Addenda of this report. Except where noted, our projected growth rates for the various types of expense categories generally do not attempt to reflect growth rates for any individual year, but rather the long term trend over the period of analysis. Analysis of Expenses Variable Expenses Payroll Security -Wages, including benefits, covering employees of the building such as concierge, engineers and building managers. This expense has ranged from $694,811 in 1994 to $739,742 in 1996. The 1997 budgeted figure is $492,608. Our forecast of calendar year 1997 expense is $492,608 which is equivalent to $1.11 per square foot. Utility Expense -This category includes building electric, tenant electric and the actual cost of water charges and sewer rent. This expense has ranged from $516,962 in 1994 to $539,176 in 1996. the 1997 budgeted figure is $581,615. Our forecast of calendar year 1997 expense is $581,615 which is equivalent to $1.31 per square foot. Janitorial Expense -The janitorial cleaning expense includes contract cleaning and supplies as well as window cleaning. This expense has ranged from $890.642 in 1994 to $794,667 in 1996. The 1997 budgeted figure is $994,145. Based upon the 1996 expense, our forecast of calendar year 1997 expense is $794,667 which is equivalent to $1.79 per square foot. Repairs and Maintenance -This category includes actual expenses for on-going maintenance. In our opinion, the total expenses appear to be reasonable and in line with competitive buildings. This expense has ranged from $500,212 in 1994 to $633,346 in 1996. The 1997 budgeted figure is $668,174. Our forecast of calendar year 1997 expense is $668,174 which is equivalent to $1.51 per square foot. Security -This category includes security expenses performed by a related party of ownership. Although a related party, our analysis of these costs indicated that the figures are reasonable. This expense has ranged from $281,184 in 1994 to $228,099 in 1996. The 1997 budgeted figure is $321,092. Our forecast of calendar year 1997 expense is $321,092 which is equivalent to $0.72 per square foot. - -------------------------------------------------------------------------------- -66- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- Professional Fees and Administration -Professional fees and administration have ranged from $207,941 in 1994 to $456,104 in 1996. The 1997 budgeted figure is $423,940. We have relied on the budgeted figure of $423,490 or $0.96 per square foot since its is in line with the professional fees category from comparable buildings. Travel and Entertainment --Travel and entertainment costs have ranged form $6,955 in 1995 to $2,980 in 1996. The 1997 budgeted figure is $5,460. Our forecast of calendar year 1997 expense is $5,460 which is equivalent to $0.01 per square foot. Promotional Expense -This expense reflects the actual cost of promotional costs. This expense has ranged from $34,806 in 1995 to $44,344 in 1996. The 1997 budgeted figure is $11,316. Our forecast of calendar year 1997 expense is $11,316 which is equivalent to $0.03 per square foot. Management Fee -Tower Equities, which is controlled by ownership, acts as managing agent for the property. Assuming a third party sale of the property, we have applied a management fee consistent with rates quoted by Manhattan brokerage and management firms. Our forecast of calendar year 1997 expense is $132,926 which is equivalent to $0.30 per square foot. Real Estate Taxes -The first year's real estate taxes are projected to be $3,616,660 which is equivalent to $8.16 per square foot of rentable area. This represent our estimated 1997 calendar year taxes, which have been discussed in detail under the Real Property Taxes and Assessments section of this report. BID Tax -This expense reflects the actual costs of building improvements district taxes. The 1997 budgeted figure is $125,190. Our forecast of calendar year 1997 expense is $125,190 which is equivalent to $0.28 per square foot. Vault -This expense reflects the actual cost of vault taxes. The 1997 budgeted figure is $1,597. Our forecast of calendar year 1997 expense is $1,597. Insurance -This insurance expense includes the actual cost of fire and extended liability coverage. This expense has ranged from $102,240 in 1994 to $78,867 projected in 1996. The 1997 budgeted figure is $100,000. Our forecast of calendar year 1997 expense is $100,000 which is equivalent to $0.23 per square foot. Air Rights -The air rights expense includes the amount the building owner must pay for the rights to use 124,000 square feet of air rights from the adjacent Belasco Theatre c/o Shubert Organization. The air rights lease is for a 250 year term dated November 13, 1986. The base rent increased from $475,000 to $575,000 on April 1, 1992. The base rent includes an escalation clause, effective January 1, 2001, which increases the rent (as additional rent) to 4 percent of "adjusted gross income" in excess of base rent. Based on our analysis, we have determined that the "adjusted gross income" will not exceed the minimum breakpoint during the course of holding period and, therefore, no additional rent will be payable. Our forecast for calendar year 1997 is $575,000 in 1997, which is equivalent to $1.30 per square foot. - -------------------------------------------------------------------------------- -67- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- Total Operating Expenses In our analysis of the subject property, the total operating expenses estimated for calendar year 1997 are $3,533,395 or $7.97 per square foot of net rentable area excluding real estate and BID taxes and air rights expense. Our operating expenses estimated for the subject property are within the range of actual operating expenses of competing primary office buildings located in Midtown Manhattan as presented below. <TABLE> <CAPTION> ========================================================================================================== Primary Office Building Operating Expenses ========================================================================================================== # of Name/Location Age Stories NRA Year Surveyed Expenses/SF NRA ========================================================================================================== <S> <C> <C> <C> <C> <C> 2 Grand Central Tower 1982 44 563,399 1996 Budget $7.72 - ---------------------------------------------------------------------------------------------------------- 1325 Avenue of the Americas 1989 34 748,228 1997 Budget $7.44 - ---------------------------------------------------------------------------------------------------------- 280 Park Avenue 1968 43 636,953 1996 Budget $8.98 ========================================================================================================== </TABLE> The three expense comparables reflect a range of $7.44 per square foot to $8.98 per square foot. These three buildings are very comparable to the subject property and, reflect a percentage variance from Tower 45's reconciled expenses of 3 percent in the case of 2 Grand Central Tower, 7 percent for 1325 Avenue of the Americas and 13 percent in the case of 280 Park Avenue. In our judgment, a reconciled expense figure of $7.97 per square foot is reasonable for the subject property considering its age and size. Leasing Commissions and Tenant Alteration Costs Leasing commissions have been based upon the generally accepted standard schedule. The standard schedule quoted by Cushman & Wakefield, Inc. depends upon the length of the lease: 5 percent for year 1; 4 percent for year 2; 3.5 percent for years 3 through 5; 2.5 percent for years 6 through 10; 2 percent for years 11 through 20. This schedule results in the following percentages of the first year's base rent: 5 Year Lease - 19.5% or 3.90% per year 10 Year Lease - 32.0% or 3.20% per year 15 Year Lease - 42.0% or 2.80% per year 20 Year Lease - 52.0% or 2.60% per year Leasing commissions are typically higher for new tenants than renewal tenants. A new tenant typically causes a full commission to be paid, whereas a renewing tenant typically results in a half commission. We have incorporated this standard assumption in our cash flow projection. Many Manhattan office building owners employ exclusive leasing agents who receive a commission in addition to the commission payable to an outside broker. The subject property, given its size and leasing profile, is felt to be typical of a building whose ownership would employ an exclusive agent. We have, therefore, assumed a full commission on each lease assuming that 50 percent of all new leases would be originated by outside brokers; with the balance of the leases originated by the exclusive agent. Assuming a 50 percent override to the exclusive agent, each new lease would incur a commission expense of 125 percent of the - -------------------------------------------------------------------------------- -68- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- standard rate (50 percent override times 50 percent outside brokers = 25 percent override) plus 100 percent full commission = 125 percent. Manhattan office building owners typically refurbish office areas to tenant specifications. Known as a tenant workletter, the refurbishment typically takes the form of the demolition of the old improvements, the addition of new partitions, lighting and carpeting. In certain instances, new ceilings and renovated bathrooms are provided. Alternatively, a lump sum amount is given to a tenant to spend for improvements. Tenant improvements are expressed as a dollar amount per square foot; like leasing commissions, new tenants typically receive a larger amount than renewing tenants. Tenant workletters are typically offered to office tenants while retail and storage spaces are generally leased on an "as is" basis. Reserves for Replacements It is customary and prudent to deduct an annual sum from effective gross income to establish a reserve for replacing short-lived items throughout the building. These costs may include roof repair, HVAC upgrades and ADA Compliance. Our 1997 projection of $66,463, or $0.15 per square foot of rentable area, is a reasonable amount to cover the cost of capital expenditures over the course of the investment holding period. Discounted Cash Flow Analysis In the discounted cash flow analysis, we employed the ARGUS software program which allowed us to simulate the operating characteristics of the property and to make a variety of operating assumptions. We tried to reflect the most likely investment assumptions of typical buyers and sellers in this particular market segment. Discounted Cash Flow Assumptions We used the following figures and assumptions in the computer model. Years in Forecast: 12 FY 1998 - FY 2009 Holding Period: 11 FY 1998 - FY 2008 Starting Date: October 1, 1997 Market Rental Rate (Year 1) Floors 2 - 12: $30.00/SF Floors 14 - 25: $33.00/SF Floors 26 - 40: $35.00/SF For 10 and 15 year leases, a 15% step-up in base rent is assumed in the sixth and eleventh years of each lease. Ground Floor Retail Space: $ 40.00/SF Lobby Retail Space: $ 150.00/SF Storage Space: $ 20.00/SF - ------------------------------------------------------------------------------- -69- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- Miscellaneous Income: Miscellaneous income was based upon 1997 budgeted figures for overtime HVAC charges along with other service related pass-throughs. Growth in Market Rental Rate: 4% per annum Expense and Tax Pass-Throughs: Gross leases - tenant pays pro-rata share of real estate tax and porters wage cost increases over a lease year base. Expense Growth Rate: 4% per annum Consumer Price Index: 4% per annum Free Rent - New Leases Major Tenants: 8 months Minor Tenants: 6 months Free Rent - Renewing Leases Major Tenants: 4 months Minor Tenants: 3 months Lease Term (Typical) Major Tenants: 15 years Minor Tenants: 10 years Renewal Probability: 65% Tenant Improvements - New Leases Major Tenants: $35.00/SF Minor Tenants: $25.00/SF Tenant Improvements - Renewing Leases Major Tenants: $15.00/SF Minor Tenants: $10.00/SF Leasing Commissions: Depends on length of lease: 5% for year 1; 4% for year 2; 3.5% for years 3 through 5; 2.5% for each year thereafter up to 10 years; 2.0% for each year thereafter up to 15 years. All payable in year 1 of the lease. Vacancy Between Leases Minor Tenants: 6 months (prior to renewal probability of 65%; effective vacancy is 2 months). Credit Loss: 1% (average; applies to all tenants). Reversion Year: FY 2009 - ------------------------------------------------------------------------------- -70- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- Reversion Cap Rate: 9.0% (applied to net operating income). Reversion Selling Expenses: 5.25% (includes brokerage, legal fees and estimated transfer taxes) Discount Rate (IRR): 11.0% Cash Flow Projection On the following pages may be found our 12 year cash flow projections which includes our 11 year holding period and 12th year reversionary year. The cash flows reflect the results of the projection imported to Microsoft Excel. The cash flow exhibits a value matrix end of the cash flow pattern over the projection period. Terminal Capitalization Rate Selection A terminal overall capitalization rate (OAR) was used to estimate the market value of the property at the end of the assumed investment holding period. The rate is applied to the eleventh year estimate of net operating income of the replacements (before general capital reserves). We estimated an appropriate terminal rate based on indicated rates in today's market (approximately 8 to 9 percent). ====================================================== Summary of Capitalization Rates ====================================================== Sale No. Capitalization Rate ====================================================== 1 4.27% ------------------------------------------------------ 2 8.23% ------------------------------------------------------ 3 9.17% ------------------------------------------------------ 4 10.50% ------------------------------------------------------ 5 10.94% ====================================================== A premium was added to today's rates to allow for the risk of unforeseen events or trends which might affect our estimate of net operating income during the holding period, including a possible deterioration in market conditions for the property. Investors typically add 50 to 100 basis points to the "going-in" rate to arrive at a terminal OAR, according to Cushman & Wakefield's periodic investor surveys. - -------------------------------------------------------------------------------- -71- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> ================================================================================ TOWER 45 CASH FLOW ANALYSIS ================================================================================ <TABLE> <CAPTION> ============================================================================================================================ YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 <S> <C> <C> <C> <C> <C> <C> RENTAL INCOME All Tenants $16,383,015 $16,687,177 $16,908,599 $18,725,281 $16,638,290 $16,632,695 Free Rent $0 ($171,021) ($204,616) ($291,094) ($877,270) ($609,291) ----------------------------------------------------------------------------------- TOTAL MINIMUM RENTAL INCOME $16,383,015 $16,516,156 $16,703,983 $16,434,187 $15,761,020 $16,023,404 Real Estate Taxes & ICIP $3,721,229 $4,103,478 $4,119,791 $4,159,312 $3,810,082 $3,512,670 Operating Expenses $1,188,198 $1,363,968 $1,505,071 $1,638,317 $1,506,194 $1,477,017 Porters Wage $145,646 $110,808 $15,093 $0 $0 $0 ----------------------------------------------------------------------------------- TOTAL GROSS RENTAL INCOME $21,438,088 $22,094,410 $22,343,938 $22,231,816 $21,077,296 $21,013,091 Less: Vacancy & Collection Loss ($214,381) ($220,944) ($223,439) ($222,318) ($210,773) ($210,131) ----------------------------------------------------------------------------------- Effective Rental Income $21,223,707 $21,873,466 $22,120,499 $22,009,498 $20,866,523 $20,802,960 Add: Lepatner Settlement $30,167 $0 $0 $0 $0 $0 Add: Pecker Settlement $55,749 $57,979 $60,298 $5,074 $0 $0 Add: Overtime Electric $239,990 $249,590 $259,573 $269,956 $280,754 $291,985 Add: Miscellaneous Services $154,500 $160,680 $167,107 $173,791 $180,743 $187,973 ----------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $21,704,113 $22,341,715 $22,607,477 $22,458,319 $21,328,020 $21,282,918 OPERATING EXPENSES: Real Estate Taxes & ICIP $4,415,698 $5,186,161 $5,313,265 $5,435,124 $5,560,695 $5,690,091 Operating Expenses $3,639,397 $3,784,972 $3,936,372 $4,093,826 $4,257,580 $4,427,883 Air Rights Expense $575,000 $575,000 $575,000 $575,000 $575,000 $575,000 ----------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $8,630,095 $9,546,133 $9,824,637 $10,103,950 $10,393,275 $10,692,974 NET OPERATING INCOME $13,074,018 $12,795,582 $12,782,840 $12,354,369 $10,934,745 $10,589,944 ALTERATIONS $99,350 $309,226 $110,301 $1,202,123 $580,826 $948,833 COMMISSIONS $0 $193,634 $71,217 $658,928 $367,399 $553,290 CAPITAL RESERVES $65,797 $68,429 $71,166 $74,013 $76,973 $80,052 ----------------------------------------------------------------------------------- TOTAL CASH FLOW $12,908,871 $12,224,293 $12,530,156 $10,419,305 $9,909,547 $9,007,769 $0 $0 $0 $0 $0 $0 Annual Overall Capitalization Rate 13.76% 13.47% 13.46% 13.00% 11.51% 11.15% Annual Cash on Cash Return 13.59% 12.87% 13.19% 10.97% 10.43% 9.48% <CAPTION> ========================================================================================================================== YEAR 7 YEAR 8 YEAR 9 YEAR 10 YEAR 11 YEAR 12 FY 2004 FY 2005 FY 2006 FY 2008 FY 2006 FY 2009 <S> <C> <C> <C> <C> <C> <C> RENTAL INCOME All Tenants $16,748,265 $16,243,155 $16,985,891 $18,478,095 $20,010,345 $20,237,014 Free Rent ($399,378) ($1,384,574) ($2,009,299) ($1,862,104) ($219,541) ($9,741) ------------------------------------------------------------------------------------ TOTAL MINIMUM RENTAL INCOME $16,348,887 $14,858,581 $14,976,592 $16,615,991 $19,790,804 $20,227,273 Real Estate Taxes & ICIP $3,360,611 $2,391,844 $1,385,542 $834,688 $682,231 $822,036 Operating Expenses $1,532,438 $1,072,026 $627,810 $525,738 $631,068 $929,607 Porters Wage $0 $0 $0 $0 $0 $0 ------------------------------------------------------------------------------------ TOTAL GROSS RENTAL INCOME $21,241,936 $18,322,451 $16,989,944 $17,976,415 $21,104,103 $21,978,918 Less: Vacancy & Collection Loss ($212,419) ($183,225) ($169,899) ($179,764) ($211,041) ($219,769) ------------------------------------------------------------------------------------ Effective Rental Income $21,029,517 $18,139,226 $16,820,045 $17,796,651 $20,893,062 $21,759,127 Add: Lepatner Settlement $0 $0 $0 $0 $0 $0 Add: Pecker Settlement $0 $0 $0 $0 $0 $0 Add: Overtime Electric $303,664 $315,810 $328,443 $341,581 $355,244 $369,454 Add: Miscellaneous Services $195,492 $203,311 $211,444 $219,902 $228,698 $237,846 ------------------------------------------------------------------------------------ EFFECTIVE GROSS INCOME $21,528,673 $18,658,347 $17,359,932 $18,358,134 $21,477,004 $22,366,427 OPERATING EXPENSES: Real Estate Taxes & ICIP $5,823,429 $5,960,830 $6,102,418 $6,248,322 $5,749,782 $5,255,826 Operating Expenses $4,604,998 $4,789,198 $4,980,766 $5,179,997 $5,387,197 $5,602,884 Air Rights Expense $575,000 $575,000 $575,000 $575,000 $575,000 $575,000 ------------------------------------------------------------------------------------ TOTAL OPERATING EXPENSES $11,003,427 $11,325,028 $11,658,184 $12,003,319 $11,711,979 $11,433,512 NET OPERATING INCOME $10,525,246 $7,333,319 $5,701,748 $6,354,815 $9,765,025 $10,932,915 ALTERATIONS $957,494 $2,741,012 $1,670,247 $2,698,968 $336,478 $50,931 COMMISSIONS $562,269 $1,637,621 $1,003,526 $1,551,190 $184,991 $36,581 CAPITAL RESERVES $83,254 $86,584 $90,046 $93,650 $97,396 $101,292 ------------------------------------------------------------------------------------ TOTAL CASH FLOW $8,922,229 $2,868,102 $2,937,927 $2,011,007 $9,146,160 $10,744,111 $0 $0 $0 $0 $115,011,788 (Reversion) Annual Overall Capitalization Rate 11.08% 7.72% 6.00% 6.69% 10.28% 11.51% Annual Cash on Cash Return 9.39% 3.02% 3.09% 2.12% 9.63% 11.31% </TABLE> - ----------------------------------------------------------------- Sale/Yield Matrix (000's) Terminal Cap Rate -------------------------------------------------- IRR 8.00% 8.50% 9.00% 9.50% - ----------------------------------------------------------------- 9.50% 109,574 106,768 104,273 102,040 -------------------------------------------------- 10.00% 106,103 103,434 101,061 98,938 -------------------------------------------------- 10.50% 102,792 100,252 97,994 95,974 -------------------------------------------------- 11.00% 99,630 97,214 95,065 93,143 -------------------------------------------------- 11.50% 96,611 94,311 92,267 90,437 -------------------------------------------------- 12.00% 93,728 91,538 89,592 87,850 - ----------------------------------------------------------------- - ----------------------------------------------------------------- - -------------------------------------------------------------------------------- VALUATION - -------------------------------------------------------------------------------- Discount Rate 11.00% Terminal Capitalization Rate 9.00% Cost of Sale at Reversion 5.25% Square Footage NRA(sf) 443,086 Holding Period 11 Value of Cash Flow $58,574,030 Value of the Reversion 36,491,321 ------------- Total Value $95,065,351 ESTIMATED MARKET VALUE $95,000,000 Per Square Foot $214 Overall Capitalization Rate (on NOI) 13.76% CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- Discount Rate Analysis Our valuation endeavored to reflect the most likely actions of typical buyers and sellers in this market. We forecasted cash flows and discounted them and the future property value at reversion to a present value at various internal rates of return (yield rates) currently anticipated by investor in similar-quality investments. The yield rate (internal rate of return or IRR) is the single rate that discounts all future equity benefits (cash flows and equity reversion) to an estimated present value. In the discounted cash flow analysis, we employed the Pro-Ject computer program. This program simulates the operating characteristics of the property and allow us to make a variety of operating assumptions. We tried to reflect the most likely investment assumptions of typical buyers and sellers in this particular market segment. Analysis by the discounted cash flow method is examined over a holding period that allows the investment to mature, the investor to recognize a return commensurate with the risk taken and a recapture of the original investment. Typical holding periods usually range from 5 to 15 years (typically 10 years) and are sufficient for the majority of institutional grade real estate such as the subject to meet the criteria noted above. In the instance of the subject, we have analyzed the cash flows anticipated over an 11-year projection period. Our analysis has been performed on a fiscal year basis, commencing October 1, 1997. A sale or reversion is deemed to occur at the end of the 12th year, based upon capitalization of the following year's net operating income. This is based upon the premise that a purchaser in the 11th year is buying the following year's net income. Therefore, our analysis reflects this situation by capitalizing the first year of the next holding period. The present value was formulated by discounting the property cash flows at various rates. The yield rate utilized to discount the projected cash flow and eventual property reversion was based on an analysis of anticipated yield rates of investors dealing in similar investments. The rates reflect acceptable expectations of yields to be achieved by investors currently in the marketplace shown in their current investment criteria and as extracted from office buildings. A yield rate differs from an income rate, such as cash-on-cash (equity dividend rate or cash flow after debt service), in that it takes into consideration all equity benefits including the equity reversion at the time of resale, in addition to annual cash flows. The internal rate of return is the single-yield rate that discount all of the future equity benefits (cash flows and equity reversion) to the original equity investment. The yield rates currently accepted by investors in the market can be applied to a projected cash flow and reversion in order to estimate the present value of the projected income stream, and therefore, the value of the subject property. Since any real estate investment must compete in the open market for capital, it must be competitive with the various alternatives available in the financial marketplace. In developing an appropriate risk rate for the subject, we have given consideration to a number of different investment opportunities. These other non-real estate alternatives are important to an equity investor when contemplating investments including long-term rates such as Corporate AAA bonds and 30 year Treasury Bonds. In addition, consideration was also given to the current prime rate of 8.25 percent and the current discount rate of 5.00 percent. - -------------------------------------------------------------------------------- -73- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- Cushman & Wakefield also regularly publishes an Investor Survey outlining current investment parameters of major forces in the real estate marketplace. The results of this most recent survey, prepared as of Summer 1997 is provided within this section of this report. The investment instruments described above, the pre-tax yield requirements in our survey and the expected yields from the sale transactions previously cited in the Sales Comparison Approach, provide a benchmark for prevailing real estate market conditions, especially when differing investment characteristics are considered. These yields are considered to be the best indicators available of general yield expectations in the marketplace. Major investors in existing investment grade real estate such as office buildings, shopping centers and industrial facilities currently require equity yield rates in the range between 10.0 and 15.0 percent depending upon the attraction, duration and quality of a project's cash flow, the type of property, recent market activity, availability and terms of financing, risk perception, tax benefit potential and future value considerations. Obviously, with risk being commensurate with return, the more secure income streams would tend to fall towards the lower end of current yields, with those properties containing more risk, falling towards the upper end. We also must consider the fact that the subject property, as a primary building located in a prime submarket of Midtown Manhattan is investment grade. This factor will be considered in our analysis of the investment returns cited in the investor survey. The residual cash flows annually generated by the subject property comprise only the first part of the return which an investor will receive. The second component of this investment return is the pre-tax cash proceeds from the resale of the property at the end of a projected investment holding period. Typically, investors will structure a provision in their analysis in the form of a rate differential over a going-in capitalization rate in projecting a future disposition price. The view is that the improvement is then older and the future is more difficult to visualize, hence a slightly higher rate is warranted for added risks in forecasting. The Cushman & Wakefield Valuation Advisory Services has surveyed national real estate investors to determine their investment objectives. Cushman & Wakefield Appraisal Service's National Investor Summer 1997 details the investment requirements of active investors in the marketplace. Regarding office buildings, these investors generally required internal rates of return from 10.00 to 12.00 percent with the average-low and high ranging from 11.00 to 11.8 percent, respectively. Going-in capitalization rates range from 8.00 to 11.00 percent, with the average-low and high ranging from 8.90 to 9.50 percent, respectively. Terminal capitalization rates range from 8.50 to 11.00 percent with the average low and high ranging from 9.20 to 9.70 percent, respectively. Growth rates for income and expenses generally range from 3.00 to 4.00 percent. - -------------------------------------------------------------------------------- -74- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- The following table summarizes Cushman & Wakefield Appraisal Service's National Investor Summer 1997. ================================================================================ Cushman & Wakefield's Investor Survey Summer 1997 Offices - Urban Class A <TABLE> <CAPTION> ====================================================================================================== OAR Growth Rates ---------------------------------- ----------------================== Number of Responses In Out IRR Income Expenses ====================================================================================================== <S> <C> <C> <C> <C> <C> <C> 16 8.00% - 10.50% 8.50% - 11.00% 10.00% - 12.00% 3.50 - 5.00% 3.00% -4.00% ====================================================================================================== </TABLE> Additional publications of investment parameters of national investors lend support to Cushman & Wakefield Appraisal Service's Investor Survey Autumn 1996. National Market Indicators, as of the second quarter 1997 published by Peter F. Korpacz & Associates, Inc. is summarized as follows: ==================================================================== National Market Indicators Second Quarter 1997 Manhattan Office Buildings ==================================================================== Range Average ==================================================================== IRR 10.00% to 18.00% 11.76% -------------------------------------------------------------------- OAR/In 7.50% to 12.00% 9.17% -------------------------------------------------------------------- OAR/Out 7.00% to 11.50% 9.22% ==================================================================== (1) Averages ==================================================================== Source: Real Estate Investor Survey, Peter F. Korpacz & Associates ==================================================================== The wide range of investment parameters indicate that property risk and yield are assessed to a particular investment property based on a variety of variables. Risk is the primary determinant, and the risk variables include: whether the property is purchased for cash or will be leveraged; whether current contract rents are significantly above or below current market rents; the amount and timing of tenant roll-overs; the risk to lease-up the property and the strength of the market during the lease-up period; the durability of the cash flow, and its ability to increase with inflation along with the creditworthiness of the existing tenancy; investor demand for the property type; the diversification of the metropolitan area; the property's location within the local market and the supply and demand for the property type within the market; and the effective age of the property. Our selection of the investment parameters utilized to estimate the market value of the subject property, was based on the preceding data, including Cushman & Wakefield's National Investor Survey and Peter F. Korpacz Real Estate Survey. In our selection of the investment parameters utilized to estimate the market value of the subject property, we have also consulted members of Cushman & Wakefield's Financial Services Group and rates derived from actual sales, as indicated in our Sales Comparison Approach, which reflects the recent downward trend in going-in cap rates, particularly for well located properties with upside potential. In our judgment, the investor survey conclusions should be adjusted downward 50 to 100 basis points to allow for the recent improvement in the marketplace. - -------------------------------------------------------------------------------- -75- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach - -------------------------------------------------------------------------------- Conclusion Based upon the above, it is our opinion that an investor would require a discount rate in the range of 10.5 to 11.5 percent with a terminal capitalization rate ranging from 8.5 to 9.5 percent. Accordingly, we have discounted the projected future pre-tax cash flows to be received by an equity investor in the subject property to a present value from 10.5 to 11.5 percent at 50 basis point intervals. Discounting these cash flows over the range of yields and terminal rates now being required by participants in the market for this type of real estate places additional perspective upon our analysis. A valuation matrix for the subject property is presented below. ================================================================================ Valuation Matrix Tower 45 - Market Value "As Is" ($000) ================================================================================ Terminal Capitalization Rates ========================================================= IRR 8.5% 9.0% 9.5% - -------------------------------------------------------------------------------- 10.5% $100,300 $98,000 $96,000 11.0% $ 97,200 $95,100 $93,100 11.5% $ 94,300 $92,300 $90,400 ================================================================================ The value of the subject property varies with the discount rates and range of terminal capitalization rates from approximately $90,400,000 to $100,300,000, as rounded. Given consideration to all of the characteristics of the subject property previously discussed, we feel that a prudent investor would require a yield which falls near the mid-aspect of the market range outlined above for this property. In view of the analysis presented, it is our opinion that the discounted cash flow analysis indicates a market value of $95,000,000, as rounded, for the subject property. The indices of investment generated through this indication of value are presented as follows. ========================================================== Tower 45 - Market Value "As Is" New York, New York ========================================================== Terminal Capitalization Rate 9.0% ---------------------------------------------------------- Equity Yield 11.0% ---------------------------------------------------------- Price/SF of NRA $214.41 ========================================================== In the final analysis, it is our opinion that the value of the leased fee estate subject to the air rights lease in the land and improvements by the Income Capitalization Approach is $95,000,000. This value estimate produces an actual going-in capitalization rate of 13.76 percent, based upon the annualized net operating income as of the date of value. It is noted that the going-in rate is high, owing to the above market income in the initial years of the holding period. The overall capitalization rate is within the range generally required by investors as noted in the Cushman & Wakefield Investor Survey (8.0 to 11.0 percent). Regarding the composition of the yield, as analyzed on the following page, 61.61 percent of the subject's ultimate yield is represented by cash flow compared to 38.39 percent being attributable to the reversion. Overall, this relationship is believed acceptable in today's environment as an appropriate distribution of risk for a property with stabilized occupancy. - -------------------------------------------------------------------------------- -76- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> TOWER 45 BETWEEN SIXTH AND SEVENTH AVENUES NEW YORK CITY Discounted Cash Flow Analysis - -------------------------------------------------------------------------------- NET DISCOUNT PRESENT ANNUAL FISCAL CASH FACTOR @ VALUE OF COMPOSIlION CASH ON CASH YEAR FLOW 11.00% CASH FLOWS OF YIELD RETURN - -------------------------------------------------------------------------------- One $ 12,908,871 X 0.900901 = $ 11,629,614 12.23% 13.59% Two $ 12,224,293 X 0.811622 = $ 9,921,510 10.44% 12.87% Three $ 12,530,156 X 0.731191 = $ 9,161,942 9.64% 13.19% Four $ 10,419,305 X 0.658731 = $ 6,863,519 7.22% 10.97% Five $ 9.909,547 X 0.593451 = $ 5,880,834 6.19% 10.43% Six $ 9,007,769 X 0.534641 = $ 4,815,921 5.07% 9.48% Seven $ 8,922,229 X 0.481658 = $ 4,297,467 4.52% 9.39% Eight $ 2,868,102 X 0.433926 = $ 1,244,545 1.31% 3.02% Nine $ 2,937,927 X 0.390925 = $ 1,148,508 1.21% 3.09% Ten $ 2,011,007 X 0.352184 = $ 708,245 0.75% 2.12% Eleven $ 9,146,160 X 0.317283 = $ 2,901,924 3.05% 9.63% -------- Total Present Value of Cash Flows $ 58,574,030 61.61% 8.81% Averge -------- Reversion: Twelve $10,932,915 (1) / 9.00% = $121,476,833 Less: Cost of Sale @ 5.25% $8,377,534 Less: T.1. and Comm. $87,512 Net Reversion $115,011,788 X Discount Factor 0.317283 -------- Total Present Value of Reversion $36,491,321 38.39% ------ Total Present Value $95,065,351 100.00% ROUNDED: $95,000,000 =========== -------------------------------------------------------- Net Rentable Area (S.F.): 443,086 Per Square Foot of Net Rentable Area $214.41 Implicit Going-In Capitalization Rate: Year One NOI ( 12 Months ) $13,074,018 Going-In Cap Rate 13.76% -------------------------------------------------------- Note: (1) Net Operating Income - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> RECONCILIATION AND FINAL VALUE ESTIMATE - -------------------------------------------------------------------------------- We have considered all of the traditional approaches to estimating market value of commercial real estate in our analysis. Two of the three traditional approaches were utilized, indicating the following values for the subject property. Sales Comparison Approach $100,000,000 Income Capitalization Approach $95,000,000 The Cost Approach has not been utilized in this report. The Cost Approach requires an estimation of the cost to reproduce or replace the existing improvements of the property. From this cost new of improvements accrued depreciation from physical, functional and economic sources is deducted to arrive at a cost less depreciation. The estimated land value is then added to arrive at total value. The Cost Approach was not utilized in this report due to the lack of comparable data to estimate the site's land value. The subjectivity of estimating accrued depreciation of aged existing improvements limits the reliability of this approach. Although the Midtown Manhattan office leasing market is strengthening, it is questionable whether the subject property would be replaced today since market rents are not at a level to justify construction costs. In addition, we know of few investors who utilize replacement cost as the basis for their investment decisions. The Sales Comparison Approach consists of the collection and analysis of data relevant to actual sales of properties deemed comparable to the subject property. Properties which have been sold are compared to the property under appraisal and adjustments to the sale prices are made based on differences between the subject property and the comparable sales. Adjustments are typically made for location, date of sale, building size, quality of construction and other relevant characteristics. The Income Capitalization Approach converts anticipated future cash flows into a present value estimate. This method is based on the premise that the motivation for a property purchase is a function of the anticipation of future benefits to be gained from the investment. The potential purchaser, in essence, will trade the purchase price of the property for a projected income stream to be received in the future. Conversion of the anticipated cash flow into a value indication commonly occurs in the form of discounted cash flow analysis or application of a single capitalization rate to a stabilized income estimate. These three traditional methods of estimating the market value of commercial real estate are not mutually exclusive approaches to deriving an estimate of most probable selling price, but are inter-dependent methodologies, each relying on components from at least one of the other approaches. Hence, the Cost Approach requires extensive market data to derive estimates of depreciation and to determine the value of land as if vacant. This approach may also require income data in order to make adjustments for functional and economic obsolescence. The Sales Comparison Approach requires application of methods from the Income Capitalization Approach in order to make adjustments for differences in income that have influenced the sale price. Consideration of market data is also required for the Income Capitalization Approach in the selection and application of equity, capitalization and discount rates, and estimation of income and expenses. Consequently, it is our opinion that the purchasers and sellers, at least intuitively, consider components of all three approaches in the process of negotiating an acceptable price for a particular property. - -------------------------------------------------------------------------------- -78- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Reconciliation and Final Value Estimate - -------------------------------------------------------------------------------- It is the Income Capitalization Approach, however, that is logically considered the most appropriate technique for estimating the value of income-producing property. Not only does this approach represent the most direct and accurate simulation of market behavior, it is the method explicitly employed by buyers and sellers in acquisition and disposition decisions. Therefore, following the implied dictum of the market, we have used an approach based primarily on projected income as the foundation for our valuation of the subject property. There are several additional reasons why the Sales Comparison Approach does not form the basis of our value estimate for the subject property. The quantity and quality of market information inhibits the use of the Sales Comparison Approach. Inadequacy of information regarding gross and net income, lease details and expenses of comparable sales often deters accurate and relevant adjustments of unit price indicators. Comparison at one dollar per square foot level precludes the analysis of those key factors which form the basis for projections on which the purchase decision was made. In light of the above, we are of the opinion that the market value of the leased fee estate in the property, subject to the air rights lease, as of October 1, 1997, was: MARKET VALUE "AS IS" ON APPRAISAL DATE NINETY FIVE MILLION DOLLARS $95,000,000 Marketing Time Marketing time is an estimate 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 occurs subsequent to the effective date of the appraisal and exposure time is presumed to precede the effective date of the appraisal. The estimate 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, our value conclusions represent a price achievable within one year's marketing time on the open market. - -------------------------------------------------------------------------------- -79- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> ASSUMPTIONS AND LIMITING CONDITIONS - -------------------------------------------------------------------------------- "Appraisal" means the appraisal report and opinion of value stated therein, or the letter opinion of value, 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(s)" means the employee(s) of C&W who prepared and signed the Appraisal. The Appraisal has been 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 estimates, 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. 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 considered 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 estimate contained in the Appraisal is based. - -------------------------------------------------------------------------------- -80- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Assumptions and Limiting Conditions - -------------------------------------------------------------------------------- 7. The physical condition of the improvements considered by 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 forecasted potential gross income referred to in the Appraisal may be based on lease summaries provided by the owner or third parties. The Appraiser 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 forecasts of income and expenses are not predictions of the future. Rather, they are the Appraiser's best estimates of current market thinking on future income and expenses. The Appraiser and C&W make no warranty or representation that these forecasts will materialize. The real estate market is constantly fluctuating and changing. It is not the Appraiser's task to predict or in any way warrant the conditions of a future real estate market; the Appraiser can only reflect what the investment community, as of the date of the Appraisal, envisages for the future in terms of rental rates, expenses, supply and demand. 10. Unless otherwise stated in the Appraisal, the existence of potentially hazardous or toxic materials which may have been used in the construction or maintenance of the improvements or may be located at or about the Property was not considered 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 considered 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. - -------------------------------------------------------------------------------- -81- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> CERTIFICATION OF APPRAISAL - -------------------------------------------------------------------------------- We certify that, to the best of our knowledge and belief: 1. Douglas H. Larson and Matthew C. Mondanile, MAI inspected the property. 2. The statements of fact contained in this report are true and correct. 3. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. 4. We have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. 5. Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. The appraisal assignment was not based on a requested minimum valuation, a specific valuation or the approval of a loan. 6. No one provided significant professional assistance to the persons signing this report. 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. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 9. As of the date of this report, Matthew C. Mondanile has completed the requirements of the continuing education program of the Appraisal Institute. /s/Douglas H. Larson /s/Matthew C. Mondanile, MAI Douglas H. Larson Matthew C. Mondanile, MAI Associate Director Senior Director Valuation Advisory Services Valuation Advisory Services - -------------------------------------------------------------------------------- -82- CUSHMAN & WAKEFIELD --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> ADDENDA - -------------------------------------------------------------------------------- COMPARABLE OFFICE BUILDING SALES APPRAISERS' QUALIFICATIONS - -------------------------------------------------------------------------------- -83- <PAGE> COMPARABLE OFFICE BUILDING SALE - -------------------------------------------------------------------------------- [PHOTO OMITTED] 527 Madison Avenue S/E/C East 54th Street New York, New York <PAGE> OFFICE BUILDING SALE 1 - -------------------------------------------------------------------------------- Location Data Property Name: 280 Park Avenue Location: 280 Park Avenue Btwn. East 48th & East 49th Streets City: New York County: New York State/Zip: New York Assessor's Parcel No(s): BLOCK 1284 LOT 33 Atlas Reference: N/A Physical Data Type: CBD Land Area: 76,813 Sqft Gross Building Area: 1,214,080 SF Net Rentable Area: 1,542,618 SF Usable Building Area: 1,542,618 SF Year Built: 1962 # of Stories: 28 Parking: None Condition: Good Exterior Walls: Steel & Glass Amenities: Security/24hr. access/freight & pass. elevators Class: A Sale Data Transaction Type: Contract Date of Transaction: 09/97 Marketing Time: N/A Grantor: Sablons Investors, Inc. c/o Bankers Trust Grantee: Boston Properties Document No.: UNDER CONTRACT Sale Price: $321,250,000 Financing: Cash to Seller Cash Equivalent Price: $321,250,000 Required Capital Cost: $0 Adjusted Sale Price: $321,250,000 Verification: C&W VAS NY 9/97 Financial Data Assumptions & Forecast: Appraiser Occupancy at Sale: 78% Existing or Pro Forma Income: Existing TOTAL P.S.F. ----- ------ Potential Gross Income: $35,189,000 $22.81 Vacancy and Credit Loss: N/A N/A Effective Gross Income: $35, 189,000 $22.81 Expenses: $21,453,000 $13.91 Net Operating Income: $13,736,000 $8.90 PARK AVE 280 <PAGE> OFFICE BUILDING SALE 1 - -------------------------------------------------------------------------------- Analysis Value Indicators: Direct Cap,DCF and P.S.F Overall Capitalization Rate (OAR): 4.28% Projected IRR: N/A% Effective Gross Multiplier (EGIM): 9.13 Operating Expense Ratio (OER): 60.97% Price Per Square Foot: $208.25 Comments Based on the first year, non-stabilized net operating income, the overall capitalization rate equates to approximately 4.30 percent. The overall rate was forecasted to increase to 10.87 percent in year two of the holding period. The net operating Income was reported to be $13,736,000 at the time the building was under contract and is scheduled to increase to $34,778,000, in 1999. A comprehensive renovation program was completed in 1997, which included lobby renovations, and updated amenities. Bankers Trust, the grantor, has leased back approximately 221,716+/- square feet, at the time of the sale, becoming the major tenant. Three new tenants have recently leased space in the building at a rental rate of $40 per square foot. PARK AVE 280 <PAGE> COMPARABLE OFFICE BUILDING SALE - -------------------------------------------------------------------------------- [PHOTO OMITTED] Bankers Trust Building 280 Park Avenue Btwn. East 48th & 49th Streets New York, New York <PAGE> OFFICE BUILDING SALE 2 - -------------------------------------------------------------------------------- Location Data Property Name: 505 Park Avenue Location: 505 Park Avenue N/EIC East 59th Street and Park Avenue City: New York County: New York State/Zip: New York Assessor's Parcel No(s): BLOCK 1394, LOT I Atlas Reference: NIA Physical Data Type: CBD Land Area: 10,545 Sqft Zoning: C5-3, Rest. Cent. Comm. Dist. Gross Building Area: 200,000 SF Net Rentable Area: 190,893 SF Usable Building Area: 190,893 SF Year Built: 1949 # of Stories: 22 Parking: None Condition: Good Exterior Walls: Brick Veneer Amenities: 24 Hr. Coverage/24 Security Class: A Sale Data Transaction Type: Escrow Date of Transaction: 08/97 Marketing Time: 6 months Grantor: First Avenue Associates c/o Devon Properties Grantee: Glorious Sun Document No.: UNDER CONTRACT Sale Price: $48,000,000 Financing: Not Available Cash Equivalent Price: $48,000,000 Required Capital Cost: $0 Adjusted Sale Price: $48,000,000 Verification: C&W VAS 9197 Financial Data Assumptions & Forecast: Advisor Occupancy at Sale: 97% Existing or Pro Forma Income: Existing TOTAL P.S.F. Potential Gross Income: $7,840,000 $41.07 Vacancy and Credit Loss: N/A N/A Effective Gross Income: $7,840,000 $41.07 Expenses: $3,890,000 $20.38 Net Operating Income: $3,950,000 $20.69 PARK AVENUE 505 <PAGE> OFFICE BUILDING SALE 2 - -------------------------------------------------------------------------------- Analysis Value Indicators: Direct Cap,DCF and P.S.F Overall Capitalization Rate (OAR): 8.23 % Projected IRR: N/A % Effective Gross Multiplier (EGIM): 6.12 Operating Expense Ratio (OER): 49.62 % Price Per Square Foot: $251.45 Comments Major tenants include the Olvyan Grup, Perry H. Koplik & Sons, and Loeb, Block, PARK AVENUE 505 <PAGE> COMPARABLE OFFICE BUILDING SALE - -------------------------------------------------------------------------------- [PHOTO OMITTED] 505 Park Avenue N/E/C 59th Street New York, New York <PAGE> OFFICE BUILDING SALE 3 - -------------------------------------------------------------------------------- Location Data Property Name: 135 East 57th Street - Leasehold Location: 135 East 57th Street, N/W/C Lexington Avenue City: New York County: New York State/Zip: New York 10022 Assessor's Parcel No(s): BLOCK 1312, LOT 15 Atlas Reference: N/A Physical Data Type: CBD Land Area: 26,676 Sqft Zoning: C5-3, Rest.Cent.Comm.Dist. Gross Building Area: 400,000 SF Net Rentable Area: 412,436 SF Usable Building Area: 412,436 SF Year Built: 1988 # of Stories: 32 Parking: None Condition: Excellent Exterior Walls: Masonry Amenities: Retail on grade East 57th St and Lexington Avenue w/Plaza Class: A Sale Data Transaction Type: Sale Date of Transaction: 06/96 Marketing Time: 6 months Grantor: LA Fire/Police; TX State Teachers; GE Captl; Alask Grantee: Cohen Bros. Realty Document No.: NOT AVAILABLE Sale Price: $115,000,000 Financing: Cash to Seller Cash Equivalent Price: $115,000,000 Required Capital Cost: $0 Adjusted Sale Price: $115,000,000 Verification: C&W VAS NY 11/96 Financial Data Assumptions & Forecast: Appraiser Occupancy at Sale: 92% Existing or Pro Forma Income: Pro Forma TOTAL P.S.F. ----- ------ Potential Gross Income: $17,387,831 $42.16 Vacancy and Credit Loss: $233,345 $0.57 Effective Gross Income: $17,154,486 $41.59 Expenses: $7,458,113 $18.08 Net Operating Income: $9,696,373 $23.51 E 57 ST 135 <PAGE> OFFICE BUILDING SALE 3 - -------------------------------------------------------------------------------- Analysis Value Indicators: Direct Cap,DCF and P.S.F Overall Capitalization Rate (OAR): 8.43 % Projected IRR: N/A % Effective Gross Multiplier (EGIM): 6.70 Operating Expense Ratio (OER): 43.48 % Price Per Square Foot: $278.83 Comments The building is subject to a 121 year ground lease held by Stafford Wallace, et al. The ground rent is next reset in January 2008 at 7% of land value, as vacant. Four pension funds took control of the property after completing foreclosure proceedings against the original developer, Madison Realty Associates. The building currently has 26,975 square feet of available space. The vacancy includes 6,900 square feet of retail space with an asking rent blended at $70 psf and increasing to $90 psf through 2010. The available office space ranges from $35 psf to $47 psf with two full floor opportunities. E 57 ST 135 <PAGE> COMPARABLE OFFICE BUILDING SALE - -------------------------------------------------------------------------------- [PHOTO OMITTED] 135 East 57th Street N/W/C Lexington Avenue New York, New York <PAGE> OFFICE BUILDING SALE 4 - -------------------------------------------------------------------------------- Location Data Property Name: 90 Park Avenue - Mortgage Location: 90 Park Avenue Btwn. East 39th & East 40th Streets City: New York County: New York State/Zip: New York Assessor's Parcel No(s): BLOCK 869 LOT 34 Atlas Reference: N/A Physical Data Type: CBD Land Area: 38,032 Sqft Zoning: C5-3/C5-2.5 Rest Cent Com'l Gross Building Area: 877,869 SF Net Rentable Area: 877,869 SF Usable Building Area: 877,869 SF Year Built: 1964 # of Stories: 41 Parking: 156 space below grade parking Condition: Good Exterior Walls: Steel & Glass Amenities: N/A Class: A Sale Data Transaction Type: Sale Date of Transaction: 04/97 Marketing Time: N/A Grantor: Sumitomo c/o Brad Gillman Grantee: Vornado Realty c/o Steven Roth Document No.: SEE COMMENTS Sale Price: $185,000,000 Financing: See Comments Cash Equivalent Price: $185,000,000 Required Capital Cost: $0 Adjusted Sale Price: $185,000,000 Verification: C&W VAS NY 7/97 Financial Data Assumptions & Forecast: Advisor Occupancy at Sale: 82.7% Existing or Pro Forma Income: Pro Forma TOTAL P.S.F. ----- ------ Potential Gross Income: N/A N/A Vacancy and Credit Loss: N/A N/A Effective Gross Income: N/A N/A Expenses: N/A N/A Net Operating Income: $19,607,142 $22.33 PARK AVE 90 <PAGE> OFFICE BUILDING SALE 4 - -------------------------------------------------------------------------------- Analysis Value Indicators: Price Per S.F. Overall Capitalization Rate (OAR): 10.60 % Projected IRR: N/A % Effective Gross Multiplier (EGIM): N/A Operating Expense Ratio (OER): N/A % Price Per Square Foot: $210.74 Comments The buyers, Vomado Realty, purchased mortgages on this property following the threat of foreclosure by Sumitomo There was no controlling interest included in the transaction. PARK AVE 90 <PAGE> COMPARABLE OFFICE BUILDING SALE - -------------------------------------------------------------------------------- [PHOTO OMITTED] 90 Park Avenue Btwn. East 39th & 40th Streets New York, New York <PAGE> OFFICE BUILDING SALE 5 - -------------------------------------------------------------------------------- Location Data Property Name: 527 Madison Avenue Location: 527 Madison Avenue S/E/C East 54th Street City: New York County: New York State/Zip: New York Assessor's Parcel No(s): BLOCK 1289, LOT 52 Atlas Reference: N/A Physical Data Type: CBD Land Area: 12,675 Sqft Zoning: C5-3; Restricted Cent'l Com'l Gross Building Area: 248,321 SF Net Rentable Area: 201,148 SF Usable Building Area: 215,686 SF Year Built: 1986 # of Stories: 26 Parking: 40-45 space parking garage Condition: Excellent Exterior Walls: Stone Amenities: Quality retail, small floor plates Class: A Sale Data Transaction Type: Sale Date of Transaction: 02/97 Marketing Time: 12 months Grantor: 527 Madison Holding c/o Louis Dreyfus Property Grp Grantee: Cornerstone Properties Inc. do Scott Darymple Document No.: LIBER 2439 PAGE 604 Rec. Date:03/28/97 Sale Price: $67,000,000 Financing: Cash to Seller Cash Equivalent Price: $67,000,000 Required Capital Cost: $0 Adjusted Sale Price: $67,000,000 Verification: C&W - VAS 3/97 FinancIal Data Assumptions & Forecast: Appraiser Occupancy at Sale: 88% Existing or Pro Forma Income: Existing TOTAL P.S.F. ----- ------ Potential Gross Income: $12,104,748 $60.18 Vacancy and Credit Loss: N/A N/A Effective Gross Income: $12,104,748 $60.18 Expenses: $4,773,960 $23.73 Net Operating Income: $7,330,788 $36.44 MADISON AVE 527 <PAGE> OFFICE BUILDING SALE 5 - -------------------------------------------------------------------------------- Analysis Value Indicators: Direct Cap,DCF and P.S.F Overall Capitalization Rate (OAR): 10.94 % Projected IRR: N/A% Effective Gross Multiplier (EGIM): 5.54 Operating Expense Ratio (OER): 39.44 % Price Per Square Foot: $333.09 Comments The property also contains a 9,271+/- square foot garage area and 5,267+/- square feet of storage area which is included in the usable size. The building was anchored by a foreign Japanese bank at the time of sale with approximately 36% of the rental office space. The anchor tenant lease was to expire in 2001. Approximately 20-25% of the office space was due for renewal in 1997. The financial data was based on 1996 stabilized income and expenses prior to the sale. According to a banker financing the sale, the buyer's purchase price and pro-forma implied an overall rate of 10.8%. The building contains small floorplates and caters to smaller-boutique type office tenants. Asking rents for the vacant space at sale ranged from $50 to $54 per square foot. MADISON AVE 527 <PAGE> COMPARABLE OFFICE BUILDING SALE - -------------------------------------------------------------------------------- [PHOTO OMITTED] 527 Madison Avenue S/E/C East 54th Street New York, New York <PAGE> QUALIFICATIONS OF DOUGLAS H. LARSON - -------------------------------------------------------------------------------- Professional Affiliations Candidate MAI designation, Appraisal Institute, Candidate Number M91-0280 Certified General Real Estate Appraiser (#30443) - State of Arizona Licensed Real Estate Salesperson - State of Arizona Experience Appraiser, New York Appraisal Services, Cushman & Wakefield Appraisal Division. Cushman & Wakefield is a national full service real estate organization and a Rockefeller Group Company. Mr. Larson's experience has been in appraising and reviewing various property types including industrial, office, and retail developments in Arizona, California, Nevada, Texas, New Mexico and Utah. Staff Appraiser, Arthur Andersen & Co., Real Estate Services Group, Phoenix, Arizona, preparing narrative appraisal reports of commercial real estate assets and performing market analysis studies from August 1992 to February 1993. Appraiser, Appraisal Department, Valley National Bank of Arizona, Phoenix, Arizona, reviewing income property appraisals for compliance of OCC standards and FIRREA guidelines and assisting in appraisal preparation of commercial property from April 1990 to June 1992. Education Arizona State University, Tempe, Arizona Bachelor of Science degrees, Economics & Sociology American Institute of Real Estate Appraisers, Chicago, Illinois Capitalization Theory and Techniques Part B - 1992 Capitalization Theory and Techniques Part A - 1991 Standards of Professional Practice Parts A and B - 1991 Basic Valuation Procedures - 1991 Real Estate Appraisal Principles - 1990 <PAGE> QUALIFICATIONS OF MATTHEW C. MONDANILE - -------------------------------------------------------------------------------- Background Actively involved in the analysis and appraisal of real estate since 1977. Nationwide experience on a variety of property types including apartment buildings, office buildings, shopping centers, regional malls, motels and hotels, manufacturing plants, warehouses and mixed use projects. Assignments have been completed for mortgage loan purposes, condemnations, arbitrations, estates, tax assessment hearings and as an aid in the decision making process in the acquisition, disposition and marketing of real estate. Professional Affiliations Appraisal Institute (M.A.I. Designation # 6811) Metropolitan New York Chapter Experience Senior Director - New York Appraisal Services, Cushman & Wakefield, Inc. 51 West 52nd Street, New York, New York from January, 1994 until the present. Previous position as a Director from May, 1991 until December, 1993 and Senior Appraiser from April, 1984 until May, 1991. Formerly manager of the Appraisal Division of Douglas Elliman Knight Frank, Inc. New York, New York from April, 1983 until April, 1984. Previous position as a Senior Appraiser from July, 1982 until April, 1983. Prior employment included appraisal positions with Richard W. Boyce, MAI, San Diego, California (1981-1982); R.S.T. Real Estate Company, Inc., Los Angeles, California (1978-1982); and the City of Paterson Tax Assessor's Office, Paterson, New Jersey (1976-1978). Testimony in Courts of Law and Quasi-Judicial Hearings Qualified as an expert witness - New York State Supreme Court - United States Bankruptcy Court Education William Paterson College of New Jersey Bachelor of Arts - 1977 American Institute of Real Estate Appraisers Courses 1A Basic Principles and Procedures 1B Capitalization Theory and Techniques II Urban Properties VI Real Estate Investment Analysis VII Industrial Valuation <PAGE> Qualifications of Matthew C. Mondanile - -------------------------------------------------------------------------------- Memberships, Licenses and Certificates Broker "C" Member The Real Estate Board of New York, Inc. Licensed Real Estate Broker - State of New York Certified General Real Estate Appraiser (#46000004616) - State of New York Certified General Real Estate Appraiser (#RG01789) - State of New Jersey Certified General Real Estate Appraiser (#RCG00000747) - State of Connecticut Certified General Real Estate Appraiser (#X1-0000194) - State of Delaware State Certified Appraiser (12-01-005298) - State of Michigan Certified Tax Assessor - State of New Jersey =========================================== Complete Appraisal of the Fee Simple Estate in the Four Seasons Biltmore Hotel and Coral Casino 1260 Channel Drive Santa Barbara, California ------------------------------------------- Effective Date of the Appraisal: October 1, 1997 Prepared For: Mr. Timothy S. Koltermann Assistant Vice President Merrill Lynch Mortgage Capital, Inc. World Financial Center, North Tower New York, New York 10281-1326 Prepared By: PKF Consulting Los Angeles, California Date of the Report: October 17, 1997 ------------------------------------------- <PAGE> [Letterhead of PKF CONSULTING] October 17, 1997 Mr. Timothy S. Koltermann Assistant Vice President Merrill Lynch Mortgage Capital, Inc. World Financial Center North Tower New York, New York 10281-1 326 Dear Mr. Koltermann: In accordance with your request, we have completed an appraisal of the 217-room Four Seasons Biltmore Hotel and Coral Casino, an adjacent beach and cabana club, located at 1260 Channel Drive, just east of the City of Santa Barbara, in the community of Montecito, Santa Barbara County. California. The purpose of the appraisal is to estimate the "as is" market value of the fee simple estate in the above-referenced property. The function of the appraisal is for use by Merrill Lynch Mortgage Capital, Inc. in connection with the potential refinancing of the property. The effective date of the appraisal is October 1, 1997. The scope of our work included an inspection of the subject property, a review of the historical financial statements, an analysis of local economic and market conditions, estimation of future operating performance of the property, and derivation of a value estimate using the Sales Comparison and Income Capitalization Approaches to valuation. To the best of our belief, this appraisal report conforms to the Code of Ethics and Standards of Professional practice of the Appraisal Institute, the Uniform Standards of Professional Appraisal Practice (USPAP) established by the Appraisal Foundation, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the Office of Thrift Supervision (OTS), and the Federal Deposit Insurance Corporation (FDIC). This report is subject to the General Assumptions and Limiting Conditions presented in the Addenda. In addition, this appraisal is subject to the existing management agreement with Four Seasons Hotels Limited. ------------------------------------------ Member, Pannell Kerr Forster International <PAGE> Mr. Timothy Koltermann ii Merrill Lynch Mortgage Capital, Inc. Based upon the work undertaken and our experience as real estate analysts and appraisers, we are of the opinion that the "as is" market value of the Four Seasons Biltmore and Coral Casino, as of October 1, 1997 and subject to the Assumptions and Limiting Conditions is: ============================================= Ninety Million Five Hundred Thousand Dollars -------------------------------------------- $90,500,000 -------------------------------------------- Of the above amount, $5,208,000 is allocated to the depreciated value of the furniture, fixtures, and equipment of the hotel. Respectfully submitted, /s/ Jeff Lugosi ------------------------- Jeff Lugosi Vice President, MAI California Certificate #AG3755 <PAGE> iii Table Of Contents SECTION I EXECUTIVE SUMMARY ....................................................... I-2 INTRODUCTION ............................................................ I-4 IDENTIFICATION OF THE PROPERTY AND LEGAL DESCRIPTION .............. I-4 SUMMARY OF OWNERSHIP AND SALES HISTORY ............................ I-4 PURPOSE AND USE OF THE APPRAISAL .................................. I-5 PROPERTY RIGHTS APPRAISED ......................................... I-5 IMPORTANT DATES ................................................... I-5 DEFINITION OF VALUES .............................................. I-5 Market Value ................................................ I-5 Going-Concern Value ......................................... I-6 SCOPE AND METHODOLOGY OF THE APPRAISAL ............................ I-6 COMPETENCY PROVISION OF THE UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE ................................. I-7 SECTION II AREA REVIEW AND NEIGHBORHOOD ANALYSIS ................................... II-2 INTRODUCTION ...................................................... II-2 Southern California Overview ............................... II-2 Los Angeles County ................................... II-2 Orange County ........................................ II-2 Riverside County ..................................... II-3 San Bernardino County ................................ II-3 Ventura County ....................................... II-3 Economic and Demographic Overview .......................... II-3 Population ........................................... II-4 Income ............................................... II-4 Retail Sales ......................................... II-5 Eating and Drinking Place Sales ...................... II-5 Employment ........................................... II-5 FUTURE ECONOMIC OUTLOOK .......................................... II-8 SANTA BARBARA OVERVIEW ........................................... II-10 Employment ................................................. II-11 Tourism .................................................... II-11 Tourist Amenities .......................................... II-12 Transportation ............................................. II-13 Air .................................................. II-13 MONTECITO - NEIGHBORHOOD REVIEW ................................... II-15 CONCLUSION ........................................................ II-15 SECTION III PROPERTY DESCRIPTION .................................................... III-1 SITE DESCRIPTION .................................................. III-1 Location, Access and Visibility ............................ III-1 Topography, Shape and Size ................................. III-1 Soil Conditions and Hazardous Materials .................... III-3 Flood and Earthquake Zones ................................. III-3 Utilities .................................................. III-4 <PAGE> iv Table Of Contents Zoning ..................................................... III-4 Title and Easements ........................................ III-5 Assessed Value and Property Taxes .......................... III-5 IMPROVEMENT DESCRIPTION ................................................. III-6 General Layout ............................................. III-6 Guest Accommodations ....................................... III-8 Food and Beverage Facilities ............................... III-8 Banquet and Meeting Facilities ............................. III-10 Coral Casino Beach and Cabana Club ......................... III-14 Other Facilities and Amenities ............................. III-14 Operational Systems ........................................ III-14 Parking .................................................... III-14 Basic Construction and Mechanical Systems .................. Ill-14 Fire/Life Safety Systems ................................... III-15 Compliance with the Americans with Disabilities Act (ADA) .. III-15 Hazardous Materials ........................................ III-15 Historical, Natural, Cultural, Recreational, and Scientific Value ......................................... III-16 Condition and Functional Utility of the Improvements ....... III-16 Renovation ................................................. III-16 CORAL CASINO MANAGEMENT AND MEMBERSHIP STRUCTURE .................. III-17 CONCLUSION ........................................................ III-18 SECTION IV MARKET ANALYSIS AND MARKET POSITION ..................................... IV-1 OVERVIEW .......................................................... IV-1 MARKET ANALYSIS ................................................... IV-1 Existing Supply ............................................. IV-1 Inn At Spanish Bay ................................... IV-4 Lodge At Pebble Beach ................................ IV-4 Ritz-Carlton Laguna Niguel ........................... IV-4 La Costa Hotel and Spa ............................... IV-4 Hotel del Coronado ................................... IV-4 Four Seasons Aviara .................................. IV-5 Additions to Supply ........................................ IV-5 Long Point Resort .................................... IV-6 Undetermined Fess Parker Hotel (Santa Barbara) ....... IV-6 Treasure Island Resort ............................... IV-6 Santa Barbara Club Resort and Spa .................... IV-6 Pointe on Catalina Island ............................ IV-7 HOTEL ROOMS DEMAND ................................................ IV-7 Historical Performance of the Competitive Supply ........... IV-8 Transient Market Segment ............................. IV-9 Group Market Segment ................................. IV-9 SUMMARY OF DEMAND GROWTH AND MARKET OCCUPANCIES ................... IV-9 HISTORICAL AND ESTIMATED PERFORMANCE OF THE SUBJECT ............... IV-11 Penetration analysis ....................................... IV-11 Average Daily Rate and Yield Analysis ...................... IV-14 HIGHEST AND BEST USE ................................................... IV-17 <PAGE> v Table Of Contents HIGHEST AND BEST USE AS IF VACANT ................................ IV-17 Legally Permissible ........................................ IV-17 Physically Possible ........................................ IV-18 Financially Feasible and Maximally Productive .............. IV-18 HIGHEST AND BEST USE "AS IMPROVED" ............................... IV-18 SECTION V VALUATION ............................................................... V-1 COST APPROACH ..................................................... V-1 SALES COMPARISON APPROACH ......................................... V-1 INCOME CAPITALIZATION APPROACH .................................... V-1 VALUATION OF THE SUBJECT PROPERTY ................................. V-1 SALES COMPARISON APPROACH ............................................... V-3 INTRODUCTION ...................................................... V-3 Hotel Sales ................................................ V-3 ANALYSIS OF HOTEL SALES .......................................... V-9 Price Per Room Analysis .................................... V-9 INCOME CAPITALIZATION APPROACH .......................................... V-11 METHODOLOGY ....................................................... V-11 Historical Operating Results ............................... V-11 Operating Statistics On Comparable Hotels .................. V-14 Representative Year Estimates .............................. V-14 DEPARTMENTAL REVENUES AND EXPENSES ................................ V-14 Rooms Department Revenue and Expense ....................... V-14 Rooms Department Revenue ............................. V-14 Rooms Department Expense ............................. V-15 Food and Beverage Revenues and Expenses .................... V-15 Food and Beverage Revenues ........................... V-15 Food and Beverage Expenses ........................... V-16 Telecommunication Revenues and Expenses .................... V-16 Telecommunication Revenues ........................... V-16 Telecommunication Expenses ........................... V-16 Coral Casino Revenues and Expenses ......................... V-17 Coral Casino Revenues ................................ V-17 Coral Casino Expenses ................................ V-17 Other Operated Departments Revenues and Expenses ........... V-17 Other Operated Departments Revenues .................. V-17 Other Operated Departments Expenses .................. V-18 Rentals and Other Income ................................... V-18 Undistributed Operating Expenses ........................... V-18 Administrative and General ........................... V-18 Marketing ............................................ V-19 Utility Costs ........................................ V-19 Property Operations and Maintenance .................. V-19 Fixed Charges .............................................. V-20 Based Management Fee ................................. V-20 Sewer Assessment ..................................... V-20 <PAGE> vi Table Of Contents Real Estate Taxes ..................................... V-20 Insurance ............................................. V-20 Reserves for Replacements ............................. V-2i Incentive Management Fee .............................. V-21 STABILIZED YEAR OPERATING RESULTS ................................. V-22 ESTIMATED ANNUAL OPERATING RESULTS FOR THE HOLDING PERIOD ......... V-24 Holding Period ............................................. V-24 Inflation .................................................. V-24 Statement of Estimated Annual Operating Results ............ V-24 Capitalization Rate ........................................ V-27 Derivation through Comparable Sales ........................ V-27 Overall Rate Using the Band of Investment Technique ........ V-28 Capitalization Rate Using the Debt Coverage Formula ........ V-29 Capitalization Rate Conclusion ............................. V-30 DISCOUNTED CASH FLOW ANALYSIS ..................................... V-30 Net Proceeds Upon Sale (Reversion) ......................... V-30 Discount Rate .............................................. V-31 Valuation Calculation - Discounted Cash Flow ............... V-32 RECONCILIATION AND FINAL ESTIMATE OF VALUE ........................ V-33 PERSONAL PROPERTY ALLOCATION ...................................... V-34 Exposure and Marketing Period ................................ V-34 ADDENDA A STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS B CERTIFICATION OF THE APPRAISERS C QUALIFICATIONS OF THE APPRAISER D PKF CONSULTING'S HOSPITALITY IN VESTMENT SURVEY E HOSPITALITY VALUATION SERVICES' DEVELOPMENT COST SURVEY F LANDAUER HOSPITALITY SERVICES' HOTEL INVESTMENT OUTLOOK G 1996 - 1997 CAPITAL EXPENDITURES H MERRIL LYNCH MORTGAGE CAPITAL ENGAGEMENT LETTER <PAGE> Section I EXECUTIVE SUMMARY INTRODUCTION - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Four Seasons Biltmore Hotel [GRAPHIC OMITTED] <PAGE> Section 1 -- Executive Summary and Introduction I-2 - -------------------------------------------------------------------------------- EXECUTIVE SUMMARY The Four Seasons Biltmore Hotel and Coral Casino Beach and Cabana Club is a luxury resort located in a picturesque oceanfront setting near Santa Barbara, California. The Four Seasons Biltmore is one of an elite group of oceanfront resorts along the California coast that compete for luxury transient and group demand. The Biltmore's primary competitors include the Lodge at Pebble Beach and the Inn at Spanish Bay near Monterey, the Ritz-Carlton Laguna Niguel in Orange County, La Costa Hotel and Spa located in northern San Diego County, the recently opened Four Seasons Aviara near Carlsbad, and the Hotel Del Coronado located in Coronado, San Diego County. As a competitive group, the California coastal luxury resorts have achieved strong levels of performance in the past. The Four Seasons Biltmore has a long history as an outstanding resort property dating from its initial construction in 1927. In 1987, the hotel was sold to Santa Barbara Biltmore Associates, a group which includes Four Seasons Hotel Limited, and the property underwent a $20,000,000 renovation which was completed in 1989 and 1990. Since the renovation, Four Seasons has marketed the hotel on a national and international basis and has repositioned the hotel upward in terms of average daily rate. The recession, which impacted the market from mid-1989 to 1993, had a detrimental impact on the property's efforts in this regard. However, the hotel has shown a much stronger performance beginning in 1994 and has achieved a significant shift in its market mix that has brought the Four Seasons Biltmore into more of a full competitive posture relative to the other upper-tier California resorts. In November, 1995, the property was again sold, this time to Channel Drive L.L.C., and underwent additional renovation and repositioning. We believe that over the projection period, the property will be able to capitalize on this recent success and continue to shift its mix of demand and average daily rate to maximize its operating performance. A summary of our conclusions regarding the property as well as a summary of the important appraisal facts follow. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section 1 -- Executive Summary and Introduction I-3 - -------------------------------------------------------------------------------- ================================================================================ SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS ================================================================================ Subject Property Four Seasons Biltmore Hotel and Coral Casino 1260 Channel Drive Near Santa Barbara, California 93108 - -------------------------------------------------------------------------------- Owner Channel Drive, L.L.C. - -------------------------------------------------------------------------------- Effective Date of Appraisal October 1, 1997 - -------------------------------------------------------------------------------- Property Rights Appraised Fee Simple Estate - -------------------------------------------------------------------------------- Highest and Best Use - -------------------------------------------------------------------------------- Highest and Best Use As if Vacant Development of a resort hotel As Improved Resort hotel - -------------------------------------------------------------------------------- Property Description - -------------------------------------------------------------------------------- Improvements Year Built 1927, 1937 and 1983; renovated in 1988-90 Number of Rooms 217 Parking 320 spaces Number of Floors One and two Amenities Four restaurants, two lounges, gift shop, five meeting rooms, two swimming pools, two whirlpools, three tennis courts, putting green, shuffleboard courts, croquet Court, business center, sandy beach, and retail shops Compliance with ADA In compliance - -------------------------------------------------------------------------------- Site Gross Area 18.267 Acres (795,733 square feet) Zoning CV (Visitor-Serving Commercial) by the County of Santa Barbara Flood Zone Zones C, A6 and V4, Map Panel #060331 0765D, dated September 5, 1990 Alquist Priolo Zone No Wetlands Zone No Historical, Natural, Cultural, Recreational, Scientific Value No - -------------------------------------------------------------------------------- Valuation Conclusion - -------------------------------------------------------------------------------- Cost Approach Not applicable - -------------------------------------------------------------------------------- Sales Comparison Approach Inconclusive - -------------------------------------------------------------------------------- Income Capitalization Approach Stabilized Occupancy 78% Average Daily Room Rate $251 Operating Income(1) $7,104,000 Overall Capitalization Rate 8.5% Terminal Capitalization Rate 9.0% Discount Rate 12.0% Indicated Value $90,500,000 - -------------------------------------------------------------------------------- Final Estimate of "As Is" Market Value $90,500,000 - -------------------------------------------------------------------------------- Value of Depreciated FF&E $5,208,000 - -------------------------------------------------------------------------------- Exposure Period 12 months or less ================================================================================ (1) Net operating income after reserves and incentive management fees. ================================================================================ - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section 1 -- Executive Summary and Introduction I-4 - -------------------------------------------------------------------------------- INTRODUCTION IDENTIFICATION OF THE PROPERTY AND LEGAL DESCRIPTION The property to be appraised is the 217-room Four Seasons Biltmore Hotel and Coral Casino Beach and Cabana Club, located at 1260 Channel Drive, near the City of Santa Barbara, Santa Barbara County, California. The property is identified for property tax purposes in Santa Barbara County Tax Records as Assessor's Parcel Numbers 009-351-12-003, 009-352-09-008, 009-353-15-009, and 009-354-01-006. A legal description of the subject property is given in the Addenda, as taken from the map entitled "ALTA/ACSM Land Title Survey, Four Seasons-Biltmore Hotel, Santa Barbara County, California," dated August 12, 1995. A copy of the survey is also attached in the Addenda. The hotel is a luxury lodging facility situated on an 18.3-acre site. The hotel offers 217 oversized guestrooms and suites. Additional facilities include 15,000 square feet of meeting space, two restaurants, a lounge, a pool, and three tennis courts. The Coral Casino Beach and Cabana Club is a private membership beach club that is also operated as a part of the hotel. (We note that the name of the club is not related in any way to gambling and that there has never been a "casino" operation in that sense at the Coral Casino.) This facility, built in 1937, has a dramatic oceanfront location. The focal point of the Club is an Olympic-sized swimming pool. Spacious sundecks, shower and locker facilities, private cabanas, a restaurant and lounge, and a second informal restaurant complement the pool. At the time of inspection, the Coral Casino had a membership of 600 persons, the maximum number of active members allowed. Overall, the property is considered to be one of the finest luxury resorts in the State of California. SUMMARY OF OWNERSHIP AND SALES HISTORY The Bowman-Biltmore Company, together with a group of local Santa Barbara businessmen, acquired the subject property for purposes of constructing a luxury resort, to replace the two major hotels lost in the 1925 earthquake. The name is taken from the 253-room Biltmore mansion erected in 1895 near Asheville, North Carolina, for George Washington Vanderbuilt. Reginald Johnson, the renowned architect, was hired to design three main buildings and thirteen cottages, and the hotel opened on December 16, 1927. In 1936, a conglomerate headed by Robert S. Odell (Allied Properties) purchased the hotel out of foreclosure, investing money in improving the property and developed the Coral Casino Beach and Cabana Club, which opened on July 24, 1937. In 1977, Allied Properties was having financial difficulties and sold the Biltmore to the Marriott Corporation. Renovations during their ownership included an expansion of an additional 61 guestrooms in 1983, which were placed around a new swimming pool in the hotel's inner gardens. In April 1987, Santa Barbara Biltmore Associates purchased the Biltmore for $58,000,000. Santa Barbara Biltmore Associates is a joint venture between Four Seasons Hotels and Resorts (now Four Seasons Hotel Limited) and VMS Realty Partners. In January 1988, an extensive $15,000,000 restoration began which included the redecoration of all rooms. In 1990, approximately $4,600,000 was invested to upgrade the Coral Casino Beach and Cabana Club. In the mid-1990s, Four Seasons began divesting itself of its real estate holdings, including the Four Seasons Biltmore Hotel, in which it was a partial interest. Subsequently, the property was sold in November 1995 for $47,000,000 to the current owners Channel Drive, L.L.C. Channel Drive - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section 1 -- Executive Summary and Introduction I-5 - -------------------------------------------------------------------------------- L.L.C. consists of two partners; Hotel Equity Fund II, which owns 99.0 percent of the property and Hotel Capital Partners II, which owns the remaining one percent. At the time of the purchase, the management arm of Four Seasons renegotiated their management contract to a more favorable agreement, entailing a "buy-down" payment of $10,000,000 (included in the $47,000,000). PURPOSE AND USE OF THE APPRAISAL PKF Consulting was engaged by Merrill Lynch Mortgage Capital, Inc. to perform an appraisal of the subject property. The purpose of this appraisal is to estimate the "as is' market value of the fee simple estate interest in the subject based on its continued management by and affiliation with Four Seasons Hotel Limited. The function of the appraisal is for potential refinancing, loan underwriting, and/or asset evaluation purposes relating to the property. PROPERTY RIGHTS APPRAISED The property rights appraised are the fee simple estate in the subject. A fee simple estate is defined as: Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.(1) The property rights in the fee simple estate for a going concern include rights in realty (land and improvements to the land), rights to tangible personal property (furniture, fixtures, and equipment), and rights to intangible personal property (management rights, franchise agreements, and goodwill, etc.). IMPORTANT DATES The effective date of the appraisal is October 1, 1997. The property was inspected by Bruce Baltin and, subsequently by Jeff Lugosi, MAI on October 1 3, 1997. Mr. John Indrieri, General Manager of the subject hotel, led the property tour, which included an inspection of all public areas including the Coral Casino facility, a selection of guestrooms, back-of-the-house facilities, and the grounds. The fieldwork was undertaken and the report was written in October 1997. It is assumed that the condition of the property on the effective date of the appraisal, October 1, 1997, is consistent with that on the date of inspection. DEFINITION OF VALUES Market Value "Market value" means the most probable price that 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) Appraisal Institute, The Dictionary of Real Estate Appraisal, Third Edition (Chicago: Appraisal Institute. 1993,) page 140 - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section 1 -- Executive Summary and Introduction I-6 - -------------------------------------------------------------------------------- Buyer and seller are typically motivated; Both parties are well informed or well advised, and acting in what they consider their own best interests; A reasonable time is allowed for exposure in the open market; Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 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.(2) "Market value "As-Is" means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualification as of the date the appraisal is prepared."(3) Going-Concern Value The value created by a proven property operation; considered as a separate entity to be valued with a specific business establishment.(4) SCOPE AND METHODOLOGY OF THE APPRAISAL The scope of the appraisal included an inspection of the subject property and its immediate area, an analysis of the local hotel market as it relates to the subject, and an estimation of the subject's market value using the Income Capitalization and Sales Comparison Approaches to value. The Income Capitalization Approach is considered most relevant as it simulates the manner in which prospective purchasers would view the property. This involves an analysis of the economic performance potential of the property, considering historical experience of both the property and its defined market, and reasonably anticipated future performance. Extensive market analysis and research including interviews with managers of competitive facilities support this approach. The Sales Comparison Approach, which involves analyses of transactions involving comparable hotels, is considered most useful as a check on the reasonableness of the Income Approach value conclusion. The Cost Approach is usually considered to be a reliable approach for new development. For an existing property, like the Four Seasons Biltmore, it is considered the least reliable approach in today's market due to the overall age of the building improvements, and the inherent difficulty in accurately estimating all forms of applicable depreciation. We have not included a value based on this approach. Sources of information for the appraisal included interviews with management personnel of the subject and competitive hotels, representatives of local government and community agencies, industry professionals, and in-house data. Four Seasons Hotel Limited provided financial statements - ---------- (2) Federal Register, Vol. 55, 165, Friday, August 24, 1990, Rules and Regulations, 12 CFR Part 34.42(F). (3) Appraisal Policies and Practices of Insured Institutions and Services Corporation, Federal Home Loan Bank Board, "Final Rule," 12 CFR Parts 563 and 571, December 21, 1987. (4) Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), pg. 160. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section 1 -- Executive Summary and Introduction I-7 - -------------------------------------------------------------------------------- for the subject. Since we did not prepare these statements, we do not take responsibility for their accuracy and have assumed that they are correct. Our research, methodology, analyses, and conclusions are presented in this narrative appraisal as outlined below. Section I: presents the appraisal issues, important dates and background information. Section II: contains a review and analysis of the subject's overall market as well as its immediate neighborhood. Section III: is the property description, which addresses the overall concept of the subject including a discussion of the site and the improvements. Section IV: includes our analysis of the local hotel market, the estimated performance of the subject, and a discussion of the highest and best use for the subject property. Section V: contains our value estimate using the Sales Comparison and Income Capitalization Approaches to value, followed by a reconciliation and our final conclusion of value. Addenda: includes the Statement of Assumptions and Limiting Conditions, Certification of the Appraisers, Qualifications of the Appraisers, a copy of State Certification for Jeff Lugosi, Legal Description, PKF Consulting's Hospitality Investment Survey, the Hospitality Valuation Service's Development Cost Survey, and Landauer Hotel Services' Hotel Investment Outlook Survey. COMPETENCY PROVISION OF THE UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE The Competency Provision of the Uniform Standards of Professional Appraisal Practice, promulgated by the Appraisal Foundation and required as part of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), states that: Prior to entering an agreement to perform any assignment, an appraiser must properly identify the property to be appraised and have the knowledge and experience that will be required to complete the assignment competently or alternatively: Disclose the lack of knowledge and/or experience to the client before accepting the assignment; and Take all appropriate steps necessary to complete the assignment competently; and Describe the lack of knowledge and/or experience and the steps taken to complete the assignment competently in the report. PKF Consulting is a part of Pannell Kerr Forster International, an international firm that has been providing accounting, consulting, and appraisal services within the hospitality industry for over 80 - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section 1 -- Executive Summary and Introduction I-8 - -------------------------------------------------------------------------------- years. In addition, the firm publishes extensive material, providing aggregate statistics on hotel performance, which serves as a benchmark of the industry. Bruce Baltin and Jeff Lugosi have extensive experience in the appraisal of hotel facilities, as seen in the qualifications provided in the Addenda of this report. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section II AREA REVIEW AND NEIGHBORHOOD ANALYSIS - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> [GRAPHIC OMITTED] REGIONAL MAP PKF CONSULTING <PAGE> Section II -- Area Review and Neighborhod Analysis II-2 - -------------------------------------------------------------------------------- AREA REVIEW AND NEIGHBORHOOD ANALYSIS INTRODUCTION The purpose of this section is to review available economic and demographic data to determine whether the market area will experience future economic growth. Santa Barbara has evolved into a tourist destination for the Greater Southern California area, which includes the counties of Los Angeles, Ventura, San Bernardino, Riverside and Orange. Although the subject property is located in Santa Barbara County, its success is primarily dependent on the Greater Los Angeles economy and secondarily by the local area of Santa Barbara. Accordingly, presented in the following section is a brief overview of the area. Southern California Overview The Southern California economy began to slow in mid-1989. This business contraction was initiated by cutbacks in defense spending, a major component of the Los Angeles Basin's manufacturing sector, at the end of the Cold War. As job losses spread, levels of consumer spending fell. Local real estate markets were negatively impacted due to the tightening of credit by financial institutions as a result of the oversupply and over-leverage of commercial real estate developed in the 1980's. The combination of all these identified factors resulted in an extremely severe recession that lasted until 1994; a recovery began at that time and moderate growth has been experienced over the past three years and even stronger growth is expected in the near term. During 1996, the State of California outpaced the rest of the nation in job growth. Employment growth in the entertainment industry, the financial services sector, and in small businesses has offset some of the cutbacks in aerospace employment. Paralleling the now-strengthening economy, Southern California's gross product increased 2.3 percent in 1996 and the latest inflation-adjusted figures reflect a 4.1 percent gain in gross product in 1997. Consumer confidence is also increasing and the economic outlook for the U.S., California, and Los Angeles County are all forecasted to continue slow steady growth. Los Angeles County Los Angeles County includes 87 incorporated cities, covers an area of 4,752 square miles and currently has a population of approximately 9.4 million people. In the past 75 years, the county has evolved into a large commercial/industrial urban community and business and financial center of California and the Western United States. Los Angeles is the home of many of the nations leading financial and insurance institutions and utility, merchandising and transportation firms, as well as the center of the entertainment industry. Los Angeles County plays a prominent role in Pacific Basin trade, with two deep-water ports, at Long Beach and San Pedro, and the Los Angeles International Airport providing trade capabilities for a wide range of international importing and exporting activities. The Los Angeles Customs District has now surpassed New York, as the nation's largest in terms of dollar revenue. To the south of Los Angeles County lie Orange, Riverside and San Bernardino Counties. Orange County Orange County includes 31 incorporated cities and a number of unincorporated communities, and had a 1996 population of approximately 2,655,700 persons. During the past 30 years, the county has evolved from an agriculturally based economy into a large commercial, industrial, and urban community. As a result of this growth, Orange County has developed into a well-respected business, - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section II -- Area Review and Neighborhod Analysis II-3 - -------------------------------------------------------------------------------- financial, and recreational center in California and the Western United States. The county has attracted the national or regional offices of a number of the nation's most successful electronic, computer, wholesale and retail firms. The county is also home to two of the region's most popular recreational attractions, the Disneyland and Knott's Berry Farm theme parks. Riverside County Riverside County encompasses an area of approximately 7,300 square miles, with most of the population located in the western portion of the county, which is separated from the eastern portion of the county (which includes the Palm Springs area) by the San Jacinto and Santa Ana mountain ranges. The majority of commercial activity in the eastern portion of the county is centered in the cities of Riverside and Corona. Agriculture has historically been the primary source of economic activity; however, during the 1980s, numerous manufacturing and industrial companies relocated in the area, attracted by Riverside County's proximity to the Los Angeles Basin and the relatively low cost of living. Concurrently, the county's population grew significantly as a result of vast housing development that attracted people from Los Angeles, San Diego and Orange Counties who were looking for lower cost homes than were found in those areas and who were willing to commute long distances. San Bernardino County San Bernardino County is the largest county in the United States in terms of acreage. There are 1,620,700 residents spread over 20,064 square miles, which is larger than the combined area of Delaware, Massachusetts, Rhode Island and New Jersey. The majority of the county's acreage is comprised of a mixture of mountainous terrain and arid deserts. The San Bernardino Mountains are located in the southwestern portion of the county. The majority of the county's population and much of San Bernardino's agricultural production are concentrated in the lower elevation and are separated from the "High Desert" by the mountain range. Ventura County Ventura County, the smallest of the five counties, is to the north of Los Angeles County. The County of Ventura encompasses approximately 1,843 square miles of land. In addition, the county also governs eight islands located 11 miles off of the coastline, five of which were dedicated in 1980 to become the Channel Islands National Park. Ventura County has historically been an agricultural center as its soils are so rich that it is possible to harvest some crops two to three times per year. For this reason, many farmers came to the area and eventually formed Sunkist, the world's largest organization of citrus production. However, Ventura's economic base has shifted over the last few years. The density of development in Los Angeles County, the resulting pressure on wages, transportation and general congestion, and the scarcity of developable and affordable land have encouraged many companies to relocate or expand into Ventura County. Ventura County is gaining popularity as a light-manufacturing center. The commercial and residential growth has also spurred a tremendous amount of retail development. Santa Barbara County is located directly northwest of Ventura County. Economic and Demographic Overview As a result of its location, the economy of Santa Barbara is inherently linked to that of the Greater Los Angeles area. The Greater Los Angeles area is the focal point for the State of California. This five county area contains over 15.8 million people and covers more than 34,000 square miles. Approximately 94 percent of the five-county population live within a 60-mile radius of downtown Los Angeles. The data relating to these five counties is represented by the Los Angeles-Riverside-Orange County Consolidated Area (CMSA). - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section II -- Area Review and Neighborhod Analysis II-4 - -------------------------------------------------------------------------------- In our assessment of the economic climate of the Southern California area, we have considered trends in the following economic indicators: population, effective buying income (EBI), retail sales, and eating/drinking place sales. The table on the following page outlines growth in key economic indicators for the Los Angeles-Riverside-Orange County CMSA and State of California between 1992 and 1996. <TABLE> <CAPTION> ============================================================================================================================= Economic and Demographic Profile Los Angeles/Riverside/Orange CMSA(1) and the State of California 1992 to 1996 - ----------------------------------------------------------------------------------------------------------------------------- Compound 1992 1993 1994 1995 1996 Annual Change 1992-1996 - ----------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Population LA/Riverside/0range CMSA 15,397,000 15,411,700 15,509,600 15,644,000 15,842,600 0.7% State of California 31,577,600 31,728,200 31,957,300 32,362,300 32,686,800 0.9 Total EBI(2). ($000s) LA/Riverside/0range CMSA $248,976,490 $255,327,319 $265,913,598 $221,617,661 $227,179,153 2.5%(3) State of California 509,152,677 528,958,745 552,074,838 477,640,503 492,516,991 3.1(3) Median household EBI LA/Riverside/0range CMSA $ 38,702 $ 40,437 $ 42,113 $ 34,384 $ 34,793 1.2%(3) State of California 37,686 39,330 40,969 34,533 35,216 2.0(3) Retail sales - ($000s) LA/Riverside/0range CMSA $113,209,959 $112,967,447 $115,872,430 $119,799,691 $121,845,892 1.9% State of California 233,688,182 233,724,937 247,688,993 257,661,917 268,441,784 3.5 Eating and drinking place sales - ($000s) LA/Riverside/0range CMSA $ 12,268,304 $ 11,185,353 $ 11,365,481 $ 12,372,976 $ 11,643,620 (1.3)% State of California 25,726,711 23,486,884 24,113,145 28,812,086 25,915,517 0.2 - ----------------------------------------------------------------------------------------------------------------------------- </TABLE> (1) Consolidated Metropolitan Statistical Area. (2) Effective buying income. As of 1995, Sales and Marketing Management changed the benchmark of EBI from personal Income by the Bureau of Economic Analysis to Money Income by the U.S. Census Bureau. Census Data was deemed by this organization more credible for long-term tracking. (3) Compound annual change 1995 to 1996. Source: PKF Consulting and Sales and Marketing Management Survey of Buying Power - -------------------------------------------------------------------------------- Population Los Angeles County led all California counties in population growth between 1980 and 1990, adding over two million residents; half of this growth came from immigration. Currently, approximately half of California's population resides in the greater five-county area. The population of the five-county area has increased in each of the past five years. Since 1992, the population of the Los Angeles-Riverside-Orange CMSA has increased from approximately 15.4 to 15.8 million, a compound annual growth rate of 0.7 percent for the five-year period, which is lower than the growth rate experienced by the state as a whole. Income The total effective buying income for the Los Angeles-Riverside-Orange CMSA was $227,179,153 in 1996, ranking second in Sales and Marketing Management's CMSA rankings trailing only the New York-Northern New Jersey-Long Island CMSA. The unrealistic negative compounded annual - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section II -- Area Review and Neighborhod Analysis II-5 - -------------------------------------------------------------------------------- change from 1992 to 1996 is the result of a change in criteria by which the survey calculated effective buying income. Southern California and the state as a whole are growing, however, as the 1996 total effective buying income grew 1.9 percent for the Los Angeles-Riverside-Orange CMSA and 3.5 percent for California over 1995. Overall, the income level for the Los Angeles- Riverside-Orange SMSA is generally high with a substantial number of households having an effective buying income above $50,000. The median household effective buying income was $34,384 in 1996, lower than the state's average of $35,216. The median household effective buying income grew 1.2 percent for the CMSA and 2.0 percent for the state from 1995 to 1996, reflecting moderate growth. Retail Sales As a result of Los Angeles' extensive manufacturing base, the area experiences robust retail and trade activity. In 1996, the Los Angeles-Riverside-Orange CMSA accounted for 45.4 percent of all retail sales in California. Retail sales in the Los Angeles-Riverside-Orange CMSA has increased in each of the past five years with the exception of the slight decrease in 1993 compared to 1992. The decline in 1993 was reversed in 1994, concurrent with the improvement in the local economy. The compounded annual change for retail sales was 1 .9 percent for the Los Angeles-Riverside-Orange CMSA between 1992-1996, lower than the state's growth of 3.5 percent. Eating and Drinking Place Sales Eating and drinking place sales in the county fell from $12,268,304,000 in 1992 to $11,643,620,000 in 1996. The overall decline in sales can be attributed to the extended economic recession in the area during this period of time. The change in sales equates to a negative 1 .3 percent compound annual rate over the five-year period for the five-county area. The State of California experienced compound annual growth of only 0.2 percent due mainly to the wide-fluctuations from year to year. Employment During the period from 1987 to the present, the area economy has undergone certain structural changes. The total labor force peaked in 1990 and between 1990 and 1994 the Los Angeles --Long Beach MSA lost approximately 436,700 jobs. Much of this job loss came in the aerospace and defense industries, where employees are typically older and better paid than in other manufacturing sectors. However, this trend has begun to reverse and since 1994, several sectors reported gains in employment. Between 1994 and 1996, the civilian employment total grew 1.2 percent, regaining nearly 100,000 of the jobs lost. The services and construction industries led job growth posting 3.8 and 1.7 percent gains respectively in the last two years. With regard to the composition of the labor force, presented in the following table is a ten year historical summary of the work force by industry. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section II -- Area Review and Neighborhod Analysis II-6 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> ================================================================================================================================= Los Angeles-Long Beach MSA Annual Average Labor Force and Industry Employment (In 000s) - --------------------------------------------------------------------------------------------------------------------------------- Industry 1987 1988 1989 1990 1991 1992 1993 1994 1995 1995 - --------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Civilian Labor Force 4,225.3 4,333.2 4,418.0 4,511.0 4,514.5 4,503.8 4,404.1 4,366.2 4,359.7 4,415.5 Civilian Employment 3,977.3 4,109.8 4,176.4 4,244.8 4,146.4 4,062.4 3,970.7 3,957.0 4,016.2 4,052.6 Civilian Unemployment 248.0 223.4 241.6 266.2 368.1 441.4 433.4 409.2 343.5 362.9 Civilian Unemployment Rate 5.9% 5.2% 5.5% 5.9% 8.2% 9.8% 9.8% 9.4% 7.9% 8.2% - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- Total Non-Farm 3,953.4 4,034.0 4,111.5 4,133.3 3,982.7 3,804.4 3,701.7 3,791.9 3,746.5 3,801.9 Mining 8.7 8.5 8.1 7.9 7.5 7.8 7.5 6.7 5.9 5.7 Construction 121.8 128.8 133.4 133.1 121.7 105.9 98.1 105.1 109.8 108.6 Manufacturing 887.2 875.8 864.0 834.6 774.9 714.9 660.2 641.5 638.4 646.1 Transportation & Public Utilities 204.6 207.4 210.5 211.6 207.7 202.7 199.6 201.6 202.6 204.4 Trade 919.1 937.9 954.3 949.6 894.3 848.0 821.8 821.5 835.8 841.8 Finance, Insurance & Real Estate 268.7 270.0 273.2 277.6 265.6 254.9 250.0 237.1 221.1 216.7 Services 1,048.4 1,100.0 1,146.1 1,179.2 1,169.3 1,130.8 1,139.0 1,154.8 1,196.2 1,245.3 Government 494.9 505.6 521.8 539.8 539.9 539.4 531.4 533.7 535.7 533.3 Total All Industries (including farm) 3,964.7 4,046.4 4,124.8 4,147.1 3,992.6 3,813.5 3,716.9 3,710.4 3,754.5 3,809.6 - --------------------------------------------------------------------------------------------------------------------------------- </TABLE> - --------------------------------------------------- C.A.G. C.A.G. Industry 1987-1996 1994-1996 - --------------------------------------------------- Civilian Labor Farce 0.5% 0.6% Civilian Employment 0.2% 1.2% Civilian Unemployment 4.3% -5.8% Civilian Unemployment Rate - --------------------------------------------------- - --------------------------------------------------- Total Non-Farm -0.4% 1.3% Mining -4.6% -7.8% Construction -1.3% 1.7% Manufacturing -3.5% 0.4% Transportation & Public Utilities 0.0% 0.7% Trade -1.0% 1.2% Finance, Insurance & Real Estate -2.4% -4.4% Services 1.9% 3.8% Government 0.8% 0.0% Total All Industries (including farm) -0.4% 1.3% - --------------------------------------------------- Source: California Department of Labor - --------------------------------------------------- - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section II -- Area Review and Neighborhod Analysis II-7 - -------------------------------------------------------------------------------- As noted in the preceding table, the unemployment rate for Los Angeles County increased significantly through 1992. In 1994 and 1995, the unemployment rate declined to 9.4 and 7.9 percent, respectively. In 1996, new data gathering procedures implemented by the household survey may have resulted in skewed results. The 1996 unemployment rate finished slightly higher than in 1995 and is attributed to the different methodology used in the study, in addition to several large-scale mergers by financial institutions. This sector lost 4,400 jobs in 1996 and is anticipated to lose another 3,000 jobs by year-end 1997. There are several sectors of the economy that are experiencing growth in new jobs. In 1996, the apparel design and manufacturing industry achieved 5,000 new jobs, the business and professional management services segment gained 12,000 new jobs, the motion picture industry experienced employment growth of 9,000 new positions, and the wholesale trade and distribution sector of commerce grew by 17,000 jobs in the five county area. Despite the trend for hospitals to consolidate their facilities and continue to "manage" health care, the health services segment also reported a gain of 6,000 new jobs in 1996. While the technology and aerospace industry unemployment rate has continued to grow, this figure is expected to have peaked in 1996. Modest growth in employment is forecasted for the remainder of 1997 and 1998, led by jobs created in the computer-programming and other high technology and service-related fields. Furthermore, the Economic Development Corporation (EDC) of Los Angeles County anticipates a 2.1 percent compound annual growth in non-agricultural employment between 1996 and 1998 for the five-county area. Based on the most recent information available, major employers in the area are as follows: ================================================================================ Largest Employers In The Five-County Area - -------------------------------------------------------------------------------- Number of Employer Employees - -------------------------------------------------------------------------------- Los Angeles County 84,616 U.S. Government 64,404 City of Los Angeles 55,964 Los Angeles Unified School District 55,727 Bank of America 26,563 Kaiser Permanents 24,163 UCLA 23,492 American Stores 23,525 Sears, Roebuck & Company 21,370 The Vons Company 20,010 Boeing Corp. 19,764 Pacific Telesis Group 19,415 Dayton-Hudson Corporation (Mervyn's, Target) 18,815 Walt Disney Company 18,000 Rockwell International Corporation 17,200 Northrop-Grumman 17,000 USC 16,940 Ralph's Grocery Company 16,151 Robinson's May 15,861 Edison International 15,782 - -------------------------------------------------------------------------------- NOTE: As of April 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section II -- Area Review and Neighborhod Analysis II-8 - -------------------------------------------------------------------------------- FUTURE ECONOMIC OUTLOOK As a basis for our growth estimates for the regional economy, we have utilized the consensus of economists of the state's largest banks, who expect modest levels of growth in the realm of two percent annually as the local economy refocuses away from defense contracting to services and infrastructure development such as transportation industries. The area economy has continued its recovery during the first three-quarters of 1997 and we anticipate moderate growth in 1998. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> [GRAPHIC OMITTED] LOCATION MAP SHOWING SUBJECT PROPERTY IN RELATION TO THE SURROUNDING NEIGHBORHOOD <PAGE> Section II -- Area Review and Neighborhod Analysis II-10 - -------------------------------------------------------------------------------- SANTA BARBARA OVERVIEW Santa Barbara, located approximately 95 miles north of Los Angeles, has emerged as a major resort area for Southern California and a significant destination stop for regional, national and international visitors to Los Angeles. The Four Seasons Biltmore, a premier resort hotel, is located in the unincorporated affluent community of Montecito, near the City of Santa Barbara within Santa Barbara County. Santa Barbara, considered one of the most exclusive and prestigious California destination markets, is a picturesque resort community located 95 miles north of Los Angeles on the Pacific Ocean. In addition to the numerous tourist attractions and amenities, the community has a diversified economy that has allowed the area to weather the recession better than most of Southern California. The following table indicates the key economic indicators for the City of Santa Barbara during the period 1992 to 1996. <TABLE> <CAPTION> ================================================================================================================= Economic and Demographic Profile Santa Barbara SMSA(1) 1992 to 1996 - ----------------------------------------------------------------------------------------------------------------- Compound Annual Change 1992 1993 1994 1995 1996 1992-1996 - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Population City of Santa Barbara 89,000 86,300 86,000 89,300 89,800 0.2% Santa Barbara/Santa Maria/Lompoc 384,300 386,100 388,400 396,200 398,000 0.9 Total EBI(2) - ($100s) City of Santa Barbara $1,657,708 $1,661,073 $1,716,959 $1,514,890 $1,548,276 2.2%(3) Santa Barbara/Santa Maria/Lompoc 6,483,047 6,733,043 7,021,150 6,081,724 6,217,004 2.2(3) Median household EBI City of Santa Barbara $ 35,918 $ 37,499 $ 39,189 $ 32,618 $ 33,132 1.6%(3) Santa Barbara/Santa Maria/Lompoc 37,716 39,348 41.039 34,452 34,958 1.5(3) Retail sales - ($100s) City of Santa Barbara $1,154,652 $1,090,231 $1,071,287 $1,170,267 $1,238,564 1.8% Santa Barbara/Santa Maria/Lompoc 3,052,758 2,992,633 3,068,176 3,218,806 3,407,639 2.8 Eating and drinking place sales - ($100s) City of Santa Barbara $ 173,945 $ 157,969 $ 131,139 $ 155,317 $ 148,057 (3.9)% Santa Barbara/Santa Maria/Lompoc 390,955 365,368 323,738 363,631 352,176 (2.6) - ----------------------------------------------------------------------------------------------------------------- </TABLE> (1) Standard Metropolitan Statistical Area (2) Effective buying income. As of 1995, Sales and Marketing Management changed the benchmark of EBI from personal Income by the Bureau of Econonic Analysis to Money Income by the U.S. Census Bureau. Census Data was deemed by this organization more credible for long-term tracking. (3) Compound annual change 1995 to 1996. Source: PKF Consulting and Sales and Marketing Management Survey of Buying Power - -------------------------------------------------------------------------------- The foregoing chart indicates a pattern of moderate economic growth. Population has increased 0.2 percent on a compound annual basis reflecting the difficulty in developing new housing in the area due to land use and water use restrictions. Total effective buying income and median household effective buying income have increased at levels commensurate of inflation indicating the continued affluence of the community. Retail sales growth has been moderate; however, eating - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section II -- Area Review and Neighborhod Analysis II-11 - -------------------------------------------------------------------------------- and drinking place sales have decreased at a compound annual rate of 3.9 percent over the past five years. Employment The following chart presents the historical distribution of jobs across industry sectors in the Santa Barbara area as prepared by the University of California, Santa Barbara. As detailed below, the wide distribution of jobs in the community across industry sectors coupled by strong employment growth in agriculture, natural resource extraction and services has moderated job losses in other sectors, primarily manufacturing. <TABLE> <CAPTION> ==================================================================================================================== Santa Barbara County Historical and Future Wag. and Salary Employment Statistics Employment History by Economic Sector - -------------------------------------------------------------------------------------------------------------------- Historical ------------------------------------------------------- Compound Annual Economic Sector 1992 1993 1994 1995 1996 Growth Rate - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Agriculture 11,567 13,242 13,858 14,117 14,575 5.9% Natural Resource Extraction 1,058 925 1,017 1,158 1,108 1.7 Construction 5,925 5,067 5,142 5,375 5,825 (0.4) Durable Manufacturing 15,500 14,542 13,317 12,042 12,050 (6.1) Non-Durable Manufacturing 3,700 3,750 3,725 3,892 4,150 2.9 Transportation, Communication and Utilities 5,283 4,842 5,117 5,142 5,333 0.2 Wholesale and Retail Trade 33,709 34,134 34,834 35,242 34,967 0.9 Finance, Insurance and Real Estate 7,608 7,475 7,742 7,225 7,100 (1.7) Tourism 15,021 15,399 15,555 16,376 16,027 1.6 Services 42,717 43,400 43,708 44,675 46,417 2.1 Government 29,242 29,225 29,325 29,692 29,633 0.3 - -------------------------------------------------------------------------------------------------------------------- Total Non-Farm Employment 159,763 158,759 159,482 160,819 162,610 0.4% - -------------------------------------------------------------------------------------------------------------------- Total Employment 171,330 172,001 173,340 174,936 177,185 0.8 - -------------------------------------------------------------------------------------------------------------------- </TABLE> Note: Numbers have been presented exactly as furnished. These projection figures represent the alternative case scenario. Source: The 1997 Santa Barbara County Economic Outlook - UCSB Economic Forecast Project - -------------------------------------------------------------------------------- Tourism Tourism is a major component of the Santa Barbara area economy. While the majority of visitors are from Southern California, both out-of-state and out-of-country visitors continue to be an integral part of the Santa Barbara area visitor base. According to the Santa Barbara County Economic Outlook, the total number of daily visitors to the Santa Barbara area has increased at a compound annual rate of three percent from 17,254 in 1992 to 19,387 in 1996. This daily visitation level is projected to grow at a compound annual growth rate of two percent over the next eight years. The economic impact of tourism to the region has been significant as total visitor expenditures have increased from approximately $250.2 million in 1992 to $296.6 million in 1996. Adjusting this expenditure level into 1996 dollars, has resulted in a 4.3 percent compound annual increase with future growth expected to be at a compound annual rate of five percent from 1997 to 2005. Of these visitor expenditures in 1996, eating and drinking place sales represent the largest portion - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section II -- Area Review and Neighborhod Analysis II-12 - -------------------------------------------------------------------------------- of the visitor expenditure (38 percent), followed by hotel/motel room sales (37 percent) and shopping expenditures (25 percent). The following table outlines the historical and projected number of visitors to the Santa Barbara area, and their related expenditures in the community. <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------ Visitor Statistics and Expenditures Southern Santa Barbara County 1992-1998 - ------------------------------------------------------------------------------------------------------------ Compound Annual Historical Projected Growth Rate - ------------------------------------------------------------------------------------------------------------ 1994 1995 1996 1997 1998 1999 2000 (1994-1996) - ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Total Number of Visitors Per Day 0vernight 7,883 8,251 8,285 8,302 8,491 8,649 8,969 2.2% Daily 10,563 11,056 11,102 11,124 11,378 11,589 12,018 2.2 - ------------------------------------------------------------------------------------------------------------ Total 18,446 19,307 19,387 19,426 19,869 20,238 20,987 2.2 - ------------------------------------------------------------------------------------------------------------ Total Visitors Expenditures (*000,000) Overnight 186.5 199.6 222.4 244.6 273.1 300.9 333.8 10.5% Daily 68.3 72.6 74.2 76.0 79.7 83.5 89.1 4.5 - ------------------------------------------------------------------------------------------------------------ Total 254.8 272.2 296.6 320.6 352.8 384.4 422.9 8.8 - ------------------------------------------------------------------------------------------------------------ Total Visitor Expenditures 263.2 276.9 296.6 313.7 336.5 356.5 381.3 6.4 In 1996 Dollars (*000,000) - ------------------------------------------------------------------------------------------------------------ Total Eating and Drinking 97.6 104.2 112.1 120.0 131.0 141.8 155.2 8.0 Expenditures (*000,000) - ------------------------------------------------------------------------------------------------------------ Total Shopping Expenditures 63.9 68.2 73.3 78.3 85.3 92.2 100.8 7.9 ($000,000) - ------------------------------------------------------------------------------------------------------------ Total Hotel/Motel Room Sales 93.2 99.8 111.2 122.3 136.5 150.4 166.9 10.2 (*000,000) - ------------------------------------------------------------------------------------------------------------ Note: Numbers have been presented exactly as furnished. Source: The 1995 Santa Barbara County Economic Outlook- UCSB Economic Forecast Project - ------------------------------------------------------------------------------------------------------------ </TABLE> Tourist Amenities The appeal of the area is due to its setting and numerous amenities. The following are some of the key local tourist attractions: > Mission Santa Barbara, a unique twin bell tower and lovely facade have earned it the title "Queen of the Missions". > State Street shopping and historic area, as Santa Barbara's main thoroughfare connects the diverse area of the city with excellent shopping and restaurants. > Sterns Wharf, the oldest operating jetty on the west coast offering several restaurants, gift and souvenir shops, wine tasting rooms, a seafood market and a palmist. > Santa Barbara Zoo, a charming garden setting with nearly 500 animals from around the world and with a spacious picnic area, botanical gardens, miniature train, playground and snack bar. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section II -- Area Review and Neighborhod Analysis II-13 - -------------------------------------------------------------------------------- > Santa Barbara County wineries, approximately 15 wineries are established offering wine tasting rooms, tour and picnic areas. > Solvang, a "Danish" village located about 44 miles north of Santa Barbara is a picturesque town with the thatched roof atop Tudor-style shops, gas street lights and Danish windmills edged with cobblestone streets. In addition to the foregoing, Santa Barbara has a relaxed affluent beachfront ambiance that visitors find appealing much like the French Riviera. Transportation Air The Santa Barbara Municipal Airport serves the immediate Santa Barbara area and is located north of the subject site in Goleta. The airport is currently served by United, United Express, American Eagle, Skywest (Delta Connection), and Trans-State Airlines which provides connecting service for Continental, Trans World Airlines and Northwest. Santa Barbara Airport has service to major west coast cities including Los Angeles, San Jose, San Luis Obispo, Palm Springs, Long Beach, Bakersfield, and San Francisco. The airport is currently 20,000 square feet and expansion plans are being proposed to expand the facility by an additional 50,000. The expansion is pending environmental review and ultimate city approval at this time. Passenger volume at the Santa Barbara Municipal Airport increased from approximately 587,000 passengers in 1986 to 674,000 passengers in 1996. There was a one-year aberration of approximately 675,000 passengers in 1987 as Continental Airlines offered a $29 rate for a large part of the year. From 1989 to 1995, total passenger counts declined substantially until 1996 when passenger counts experienced its largest increase since the airport began tracking passenger counts. According to management at the Santa Barbara Municipal Airport, the dramatic increase in passenger counts can be attributed to the improving economy and Shuttle by United and Mesa Air's entrance into the market. Fares have been reduced substantially and are for regional flights i.e. Phoenix and San Diego comparable to that paid for LAX or Burbank. Presented in the following table is a summary of airport activity at Santa Barbara Municipal Airport from 1988 to 1996. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section II -- Area Review and Neighborhod Analysis II-14 - -------------------------------------------------------------------------------- ======================================= Santa Barbara Municipal Airport Passenger Volume --------------------------------------- Number of Year Passengers --------------------------------------- 1986 587,000 1987 675,000 1988 621,000 1989 642,000 1990 625,000 1991 592,000 1992 576,000 1993 532,000 1994 564,000 1995 531,000 1996 674,000 --------------------------------------- Compound Annual Growth Rate 1.4% 1986-1996 --------------------------------------- Note: All figures are rounded. Source: Santa Barbara Municipal Airport --------------------------------------- Los Angeles International Airport (LAX) is the largest of five airports serving the Los Angeles five county region. International travel between 1986 and 1996 grew at a rate of approximately eight percent compounded annually, far outpacing the growth in domestic travel. This indicates that the region has increased in popularity for both international business and pleasure purposes. The following table presents the total passenger counts at LAX from 1986 through 1996. ================================================================== Total Passenger Counts Los Angeles International Airport ------------------------------------------------------------------ Year Domestic International Total ------------------------------------------------------------------ 1986 35,000,000 6,500,000 41,500,000 1987 37,400,000 7,400,000 44,800,000 1988 36,300,000 8,100,000 44,400,000 1989 34,200,000 8,800,000 43,000,000 1990 36,000,000 9,800,000 45,800,000 1991 35,300,000 10,400,000 45,700,000 1992 35,500,000 11,500,000 47,000,000 1993 35,900,000 11,900,000 47,800,000 1994 38,400,000 12,700,000 51,100,000 1995 40,500,000 13,400,000 53,900,000 1996 43,900,000 14,000,000 57,900,000 ------------------------------------------------------------------ Compound annual growth 2.3% 8.0% 3.4% ------------------------------------------------------------------ Source: Department of Airports ------------------------------------------------------------------ - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section II -- Area Review and Neighborhod Analysis II-15 - -------------------------------------------------------------------------------- MONTECITO - NEIGHBORHOOD REVIEW The Four Seasons Biltmore is located in the unincorporated community of Montecito, an affluent area nestled at the foot of the Santa Ynez Mountains and looking over the Pacific Ocean to the Channel Islands. Montecito is a prestigious, affluent, beachfront community located approximately 95 miles north of Los Angeles on U.S Highway 101, and 330 miles south of San Francisco. The surrounding residential neighborhood area has a Mediterranean charm with over 25 miles of palm-lined beaches overlooking the Pacific Ocean. In Spanish, Montecito means "little forest". The name is appropriate for this exclusive residential area east of Santa Barbara. The hedges and stucco walls which line the narrow, winding Montecito roads have afforded privacy for the rich and famous. The main attractions in this area are the upper Montecito Village shopping area, Butterfly Beach, Lookout Park and Manning Park. The borders of the Montecito community are as follows: to the west are Coast Village Road, Sycamore Road and Coyote Road (City of Santa Barbara); to the north is East Camino Cielo Road (Santa Ynez Mountains); to the east is Ortega Hill Road (Summerland/Carpenteria); and to the south is the Pacific Ocean. In relation to Montecito, the Four Seasons Biltmore Hotel is located at the southernmost portion of this community. The immediate neighborhood is bounded by the Pacific Ocean to the south, Butterfly Lane and affluent residential homes to the west, the Southern Pacific Railroad tracks and the Upper Montecito Village shopping area to the north, and Olive Mill Road and condominiums to the east. In general, the area is a very attractive mix of luxury retail, residential and hotel/resort properties. CONCLUSION Due to the region's economic recovery over the past several years, the Santa Barbara area and the Four Seasons Biltmore Hotel in particular have benefited. Tourism, which is a major industry for Santa Barbara, is showing particular signs of strength. Historical visitor expenditures have exhibited strong growth in recent years and forecasts for the near future are bullish. The increased passenger counts at the regional airport and hotel/motel revenues are further indicative of the strength of this area and its tourist appeal. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section III PROPERTY DESCRIPTION - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section III -- Property Description III-1 - -------------------------------------------------------------------------------- PROPERTY DESCRIPTION SITE DESCRIPTION Location, Access and Visibility The Four Seasons Biltmore is located at 1260 Channel Drive in the community of Montecito, County of Santa Barbara and State of California. The main entrance to the subject is via Channel Drive, a two-lane arterial approximately 60 feet wide, with a parking lane, concrete curb and concrete sidewalks in each direction. This arterial leads to the circular driveway of the Four Seasons Biltmore and also to the parking spaces in front of the Coral Casino Beach Club. Channel Drive looks immediately to the south onto the Pacific Ocean and provides a scenic drive through the Santa Barbara area along Montecito Shores. The site is accessible from U.S. Highway 101 via the Coast Village/Montecito exit ramp. This freeway links the cities of Los Angeles and San Francisco via a coastal route. The property is also accessible via Amtrak, which stops daily in downtown Santa Barbara, running as far south as San Diego and north to Seattle, Washington. The Santa Barbara Airport is located approximately 15 miles west of the property providing accessibility to and from major hub cities. Topography, Shape and Size As detailed on the plat maps presented in the Addenda, the subject site is composed for four parcels containing a total net land area of 18.267 acres (795,733 square feet). Hill Road, which bisects the site to the north, and Channel Road, which bisects the site to the south, divide the site into these four parcels. An overall site plan is presented on the following page. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> [GRAPHIC OMITTED] SITE PLAN <PAGE> Section III -- Property Description III-3 - -------------------------------------------------------------------------------- Parcel One is a roughly triangular parcel of 2.021 acres (88,054 square feet) in the northwest corner of the property. The site has 684.82 feet of frontage on Hill Road and 570.03 feet on the Southern Pacific Railroad right-of-way. Parcel Two is also nearly triangular and contains 1.681 acres (73,201 square feet). This parcel has 286.16 feet of frontage on Olive Mill road, 531.11 feet on Hill Road, and 434.27 on Southern Pacific Railroad. Each of these parcels comes to a point where the Hill Road and Southern Pacific Railroad rights-of-way coincide between the parcels. Both are used for hotel parking lots; the tennis courts are also located on Parcel Two. Parcel Three is the main hotel site and contains 11.305 acres (492,455 square feet), net of a variable-width easement to Santa Barbara County for public road purposes (the gross area is 12.317 acres, or 536,531 square feet). This parcel is surrounded on three sides by public streets and adjoins an exclusive residential section to the west. Road frontage includes 1,215.07 feet on Olive Mill Road and Channel Drive and 1,145.37 feet on Hill Road, although all three roads flow into one another, and the exact division points are not distinct. Parcel Four is composed of the site of the Coral Casino and a strip of land between Channel Drive and the Pacific Ocean opposite the hotel. The parcel contains 3.260 acres (142,023 square feet) and has 1,116.76 feet of frontage on Channel Drive and 1,072.21 feet on the mean high water mark (high tide line) of the Pacific Ocean. However, about one half of this road frontage is for land having a depth of less than 100 feet. The site is very gently rolling in topography, sloping gradually downward to the ocean. A reinforced concrete seawall has been built along the shoreline (as indicated by a dashed line on the survey map); the seawall was heavily damaged by storms in the area in January 1995 and has been partially rebuilt. The land is generally at or near road grade along all of the public streets. Soil Conditions and Hazardous Materials A soil report was not provided for the preparation of this appraisal. However, based on the integrity of the existing structure and surrounding developments, it appears that there are stable soil conditions and that the soils are of sufficient bearing capacity for continued support of the existing structures. The presence of asbestos in the building identified in the Report of Asbestos Abatement Observations, as discussed on page III-13. We have no knowledge of the existence of any other hazardous materials such as ureaformaldehyde foam insulations, radon gas, or lead paints in the soil or building. We have assumed that the soils and improvements do not contain any other toxic or hazardous materials. Flood and Earthquake Zones According to the National Flood Insurance Rate Map 060331 0765D, dated September 5, 1990, the subject property is primarily located in Zone "C," an area considered to have minimal flood hazard. A strip of land along the eastern boundary of the property, just 50 feet wide on Parcel Two and Parcel Three (as identified on the survey map) and 200 feet wide on Parcel Four, is located in Zone "A6," an area considered to be within the 100-year floodplain. The remainder of Parcel Four, with the exception of the northernmost 50 feet, is located in Zone "V4," which is within the 100-year coastal floodplain, with velocity. Thus, Parcels One, Two and Three, for all intents and purposes, are outside of the floodplain, since the small strips of land in Zone A6 lie along Olive Mill Road and are largely in required setbacks already. Parcel Four, lying between Channel Drive - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section III -- Property Description III-4 - -------------------------------------------------------------------------------- and the Pacific Ocean, is essentially in the floodplain in its entirety. Therefore, the Coral Casino structures could not be built today. There are no designated wetlands on the property to our knowledge. According to representatives of the California Division of Mines, Department of Conservation, the subject is not in an Alquist-Priolo Special Studies Zone. Utilities All utilities are available and connected to the site. Utility services are provided by the following agencies: --------------------------------------------------- Electricity Southern California Edison Natural Gas Broad Street Oil and Gas Water and Sewer Montecito Water District Telephone GTE Telephone/U.S. Sprint --------------------------------------------------- Zoning The subject property is currently zoned C-V, Resort-Visitor Serving Commercial, by the County of Santa Barbara. As taken from the Zoning Ordinance, the permitted uses include: 1. Resort, guest ranch, hotel, motel, country club, convention and conference center. 2. Light commercial uses (i.e., barber and beauty shops, gift shops, restaurants, etc.) normally associated with the needs of visitors, provided such commercial activities are so designed and limited as to be incidental and directly oriented to the needs of visitors and do not substantially change the character of the resort/visitor-servicing facility. 3. Recreational facilities, including but not limited to piers, boat docks, golf courses, parks, playgrounds, riding and hiking trails, tennis courts, swimming pools, beach clubs. 4. Non-residential child care centers, that are accessory and subordinate to uses permitted [herein], for use by on-site employees of the development when sited and designed to ensure compatibility with other permitted uses on the project site and on adjacent parcels. 5. Accessory uses, buildings, and structures which are customarily incidental to the above uses. With a major conditional use permit, public-riding stables, campgrounds, and hostels are permitted; and residences are permitted with a minor conditional use permit. Required setbacks for all structures are 20 feet on all sides, or 50 feet from a residential zone (street setbacks are at least 50 feet from the centerline). Other regulations include a 35-foot height limit and a requirement that a minimum of 40 percent of the net area be left in open space. Parking regulations for hotel properties call for one space per guestroom plus one space per five employees. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section III -- Property Description III-5 - -------------------------------------------------------------------------------- The Four Seasons Biltmore Hotel and Coral Casino Beach Club comply with the current zoning designation. Title and Easements A title policy issued on August 8, 1991, by American Land Title Association does not refer to any significant easements affecting the property (the title policy for the new owner has not been made available to us). References are made to a 1937 easement for public road to Santa Barbara County; a utility easement to Southern California Edison Company; the rights which the general public may have by reason of access to a portion of the beachfront; restrictive covenants on portions of the land; and some minor encroachments on the western property line. The survey given in the Addenda shows the outline of the public road easement to the County. While we do not believe that the utility of the subject property is likely to be affected, we have deducted the land area within this easement from the reported net land area in this appraisal. No other easements, encroachments or encumbrances were noted which would adversely affect the usage or value of the subject. Assessed Value and Property Taxes Real estate taxes payable by the subject property include real and personal property taxes. The subject property has real estate taxes assessed and billed by the Santa Barbara County Tax Assessor's Office. The current method of taxation of real property in California is mandated by the Jarvis-Gann Property Tax Initiative, under which real estate taxes were reduced to one percent of the property's full market value as of the 1975/76 fiscal year, plus any voter-approved bond indebtedness. The subject site consists of four parcels containing a total of 18.3 acres or 795,733 square feet. The current assessed value is presented in the following table. It is important to note that the basis for this valuation was established some time ago and, therefore, does not reflect a current indication of market value of the subject property. ================================================================================ Four Seasons Biltmore Property Assessment - -------------------------------------------------------------------------------- 1996-97 Assessed Value Assessor's -------------------------------------------- Parcel Number Land Improvements Total Taxes(1) - -------------------------------------------------------------------------------- 009-351-12-00 $ 1,280,416 $ 230,479 $ 1,510,895 $ 15,172 009-352-09-00 7,809,267 21,360,307(2) 29,169,574 292,921 009-353-15-00 2,085,425 1,651,767 3,737,192 37,529 009-354-01-00 1,064,890 134,446 1,199,336 12,229 - -------------------------------------------------------------------------------- Total $12,239,998 $23,376,999 $35,616,997 $357,851 - -------------------------------------------------------------------------------- (1) Basic property tax only (excludes fixed tax assessments). (2) Includes personal property assessed at $4,150,000. Source: County of Santa Barbara - -------------------------------------------------------------------------------- The current real estate tax assessment is $35,616,997 or $164,134 per available guestroom. Based on the current effective tax rate of 1.00420 percent of assessed value, gross annual real estate taxes are indicated at $357,851 or approximately $1,649 per guestroom. In addition to real estate taxes, the subject pays the county a fixed sewer assessment of $78,000 per year. Unlike real estate taxes, this assessment is inflated at 3.0 percent annually. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section III -- Property Description III-6 - -------------------------------------------------------------------------------- The assessor's assessment of market value is limited to a two percent annual increase unless the property is transferred or there is substantial new construction. In either of these two events, the property is re-appraised to current market value, usually as evidenced by the sales price or the construction cost. IMPROVEMENT DESCRIPTION General Layout Situated on 18.3 immaculately groomed, landscaped acres, the Four Season Biltmore is comprised of the hacienda-like, central hotel which houses the main lobby, 9,800 square feet of conference and meeting space, and two restaurants, La Marina and the Patio, plus La Sala Bar and Lounge. The circular driveway off Channel Drive leads to the lobby and reception area. This main structure and all of the hotel's other buildings are decorated in remembrance of Santa Barbara's Spanish Colonial heritage with exposed wood beams, mosaic tiles, tapestries, warm colored fabrics and furnishings from early California. Throughout the hotel there are fine art works and an abundance of fresh cut flowers that brings a contemporary touch to this classic setting. To the west side of the lobby area is the entrance to La Sala Lounge. La Marina and the Patio are located at the north section of this building along with most of the meeting and banquet space. On the second level of this structure are guestrooms, and other guestroom buildings can be accessed through a second-level hallway. Located in the basement are the operation departments such as the accounting, marketing and sales staff, while the executive offices, business center and retail shops are on the ground floor. Surrounding the central structure are spacious lawns with exotic tropical plants and flower beds, royal palms, oaks and eucalyptus trees. Noted landscape architect Ralph Stevens designed the grounds, which feature hundreds of species of rare and exotic plants. Because of the mild climate, flowering plants are in bloom most of the year. There are also 13 guest cottages providing the ultimate in privacy. To the east of the main structure is an open lawn providing a gaming area for croquet, shuffleboard, and a putting green; it is also used for outdoor luncheons. The pool and workout room is located just east of this area. The tennis courts are located at the northeasternmost portion of the site, with the parking areas also at the outskirts of the hotel. A facilities profile and site plan are presented on the following pages. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section III -- Property Description III-7 - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Santa Barbara, California Facilities Summary - -------------------------------------------------------------------------------- Guest Rooms Number of Rooms Square Footage - -------------------------------------------------------------------------------- Moderate 11 330 Superior 93 330 Cottage 34 330 Deluxe Pool View 24 330 Deluxe Fireplace 29 330 Deluxe Ocean View 4 330 Junior Suite (Biltmore Rooms) 5 400 Main-Building Suite 2 544-768 Cottage Suite 4 544-1,216 Executive Suite Cottage 1 600-1,320 San Miguel and Santa Cruz Suites 1 674-898 Odell Cottage (Premier Suite) 1 1,264 Suite Parlors 8 674-898 - -------------------------------------------------------------------------------- Total 217 - -------------------------------------------------------------------------------- Food and Beverage Square Footage Seating - -------------------------------------------------------------------------------- La Manna 2,200 85 The Patio 3,800 115 The Patio Terrace N/A 46 La Sala Bar and Lounge 2,100 105 La Perla (Coral Casino) 2,200 75 The Raft (Coral Casino) 800 75 - -------------------------------------------------------------------------------- Total 11,100 601 - -------------------------------------------------------------------------------- Meeting and Banquets Square Footage Seating - -------------------------------------------------------------------------------- Loggia Ballroom 3,150 88-375 La Bella Vista 2,735 78-325 La Fonda 589 22-50 El Rincon 390 20-40 La Salita 741 20-100 La Sala Verde 600 22-75 El Mar 1,140 36-150 El Galeon (via stairs) 435 20-25 Alto 450 20-40 La Pacifica Ballroom (Coral Casino) 4,200 45-500 La Concha (Coral Casino) 850 25-70 - -------------------------------------------------------------------------------- Total 15,280 396-1,750 - -------------------------------------------------------------------------------- Coral Casino Club Recreational Facilities Square Footage - -------------------------------------------------------------------------------- Showers 875 Locker/Changing Areas 4,300 Sauna 240 Steam 200 Exercise Room 400 - -------------------------------------------------------------------------------- Total 6,015 - -------------------------------------------------------------------------------- Source: Four Seasons Biltmore Hotel - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section III -- Property Description III-8 - -------------------------------------------------------------------------------- Guest Accommodations Each of the Biltmore's 217 rooms and suites look out onto either the Pacific Ocean, the Santa Ynez Mountains, the hotel's own quiet gardens, or the swimming pool. Many rooms have patios, fireplaces and vaulted ceilings, and a few have balconies or roof terraces. The rooms are generally oversized by modern standards, having sitting areas or adjoining rooms in suite arrangements. Most rooms have king beds, although there are 48 double-bed units. Of the rooms with two beds, the majority are double-double and a few have double-twin (in the cottage). All rooms feature a refrigerator/mini-bar, clock radio, remote controlled color television sets (with On Command and Spectravision in-room movies and a VCR), iron and ironing boards, humidifier, umbrella, room safe, ceiling fans, and individual climate controls. The bathrooms offer a full compliment of amenities, including terry cloth robes and hair dryers. The suites also have coffeemakers and generally enhanced amenities, and three of the suites also have stereo systems. The guestrooms are not air conditioned, but the temperate climate in Santa Barbara makes this unnecessary. The guestroom walls are painted plaster, the floors are carpeted and the windows are covered with plantation-style wooden shutters and drapery. Guest bathrooms typically have marble walls and floors, with cast-iron tub and marble shower enclosure; a few rooms also have shower stalls. Some bathrooms have ceramic tile in place of marble. There are a variety of suites on the property, ranging from the Junior Suites at 400 square feet (only slightly larger than the typical guestroom) to the 1,264-square foot Premier Suite that encompasses the bulk of the Odell Cottage. (The suite parlors in the 17 suites, other than the Junior Suites, were counted as two units until early 1997.) Two other notable suites are the San Miguel and Santa Cruz Suites, which are located on the second floor of the main building. The suites also have at least one connecting guestroom that can be used as a second bedroom. There are also 15 pairs of connecting rooms not attached to suites. The guestrooms are typically of the same basic size, with the distinguishing of "moderate," "superior" and "deluxe" rooms referring mainly to furnishings and amenities in the rooms. For example, there are three levels of toiletries (shampoo, lotion, etc.) offered in various rooms in the property. Approximately 55 percent of the rooms are designated for non-smokers. While the basic size, layout, and in-room amenities are consistent throughout the property, there are distinct differences among the various types of buildings on the property. The main building offers guests convenience, the second-floor rooms or suites offer beautiful views, while the cottages tend to be more secluded. Small groups or families often rent all or part of a cottage together, since all but one are built around a central parlor. The Odell Cottage was the residence of Robert S. Odell when he owned and operated the hotel, and it has been placed on an architectural register as an outstanding example of a classic American cottage. The window banquettes are a particularly noteworthy item, as are the enclosed patio and gardens at the rear. Food and Beverage Facilities The Four Seasons Biltmore Hotel has two primary restaurants, La Marina and the Patio, as well as the La Sala lounge. Hotel guests may also use the two restaurants at the adjacent Coral Casino Beach and Cabana Club. In addition, several meeting and banquet rooms offer attractive settings for social or business events. Each of the major outlets is described in the following paragraphs. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> [GRAPHIC OMITTED] MAIN-BUILDING SUITE - -------------------------------------------------------------------------------- Guest Room Inventory - -------------------------------------------------------------------------------- Room Category Number Size (sq. ft.) - -------------------------------------------------------------------------------- Superior 104 330 Cottage 34 330 Deluxe Pool View 24 330 Deluxe Fireplace 29 330 Deluxe Ocean View 4 330 Junior Suite 5 400 Main-Building Suite 4 544-768 Cottage Suite 8 544-1,216 Executive Suite Cottage 2 600-1,320 San Miguel and Santa Cruz Suites 2 674-898 Odell Cottage (Premier Suite) 1 1,264 (Plus 17 Parlors with the Suites.) - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] COTTAGE Floor Plans - Rooms and Amenities FOUR SEASONS RESORT- SANTA BARBARA - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section III -- Property Description III-10 - -------------------------------------------------------------------------------- La Marina, seating 85, is the Biltmore's signature restaurant. Serving dinner nightly, it features an ocean view, the elegant restaurant is celebrated in Santa Barbara for its fine continental cuisine, serving sophisticated specialties in a setting of candlelight, flowers, and high arched windows framing the ocean. There are attractive French doors to give the room extended outdoor function capability. La Marina is located at the western portion of the main structure. The Patio is a less formal, but offers a casually elegant glass-enclosed atrium featuring al fresco dining on the terrace overlooking the ocean. The Patio serves as a multi-purpose room and the image and decor has been slanted towards a Spanish colonial/mission-style setting, with water fountains, plants and an exposed kitchen. Soft colors through Southwestern decor compliment the greenhouse ceiling artwork and ceramics. The ceiling features a glass roof that can be retracted for open-air dining, and also fabric shutters that can be opened or closed. The restaurant serves as the property's three-meal facility and offers a famous Sunday brunch as well as numerous dinner buffets. The Patio is located immediately west of the main lobby area and east of La Marina and seats 115, with its adjacent outdoor Terrace seating another 46. La Sala Lounge is a 105-seat, lobby area cocktail lounge that enables guests to enjoy appetizers and cocktails looking out to the Pacific Ocean. The La Sala Lounge is elegantly decorated with deep colors, gracefully shaped chandeliers, wall scones and luxurious seating arrangements. Original oil paintings adorn the walls and sculptures are situated throughout the room. The area is open from late morning to late in the evening. The lounge is located to the east of the Patio, which allows guests ocean views through the French doors. The Raft and La Perla Restaurant and Lounge, the two restaurants in the Coral Casino Beach and Cabana Club, both seat 75. The Raft serves lunch, while La Perla serves both lunch and dinner. Both of these restaurants offer seating indoors or on the terrace overlooking the pool and the Pacific Ocean. In addition to the aforementioned restaurants, the hotel offers 24-hour room service. A pool menu is also available daily with light selections and an extensive beverage service. Four Seasons Alternative Cuisine is offered with all menus, featuring foods low in sodium, cholesterol and calorie count. The on-site pastry kitchen produces fresh breads, pastries, sherbet, ice cream and fine chocolates. Banquet and Meeting Facilities Over 15,000 square feet of meeting space is divided among two ballrooms and nine meeting rooms, many of which can be broken down further into smaller rooms. Most open onto a terrace or garden, ideal for breakouts and pre-function events. Groups from 10 to 500 can be served. Smaller groups may opt for the space and privacy of a garden cottage with up to five bedrooms and a sheltered patio. State-of-the-art audio-visual equipment and full catering services are available on request. The Loggia Ballroom, providing a dramatic clear span area of 3,150 square feet for meetings and banquets, is the hotel's premier function room. The ballroom has ornate chandeliers and wall fixtures while at the same time preserving the original trimmings of the room. The recent renovations to the hotel allowed the ballroom to return to its former elegance. The smaller meeting rooms are the La Bella Vista, La Fonda, El Rincon, La Sala Verde, El Mar, and Alto rooms which have all been completely refurbished. Pleasant new wall and window - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section III -- Property Description III-11 - -------------------------------------------------------------------------------- treatments, carpet, artwork and upgrading lighting capabilities combine to make the rooms suitable for either banquet or meetings. The El Galeon has been richly designed as a ship's interior and serves as a boardroom with a permanent meeting table, built-in audio-visual equipment, a display wall, wet bar and adjacent serving pantry; it is located up a short flight of steps. La Pacifica, the hotel's second ballroom, is located in the Coral Casino and offers full ocean views and an outdoor function area situated at the edge of the beach. It is one of the few oceanfront ballrooms in California. La Concha is another, smaller meeting room in Coral Casino. In addition to the indoor accommodations, the grounds offer additional opportunities for outdoor luncheons, banquets, receptions and meetings; and the mild climate and very low rainfall make these areas available for most of the year. The Recreation Lawn contains 3,200 square feet and can handle up to 350 at reception and 250 for meals. Other areas include the North Patio, South Patio, Loggia Patio (outside the Ballroom), and the 500 Courtyard, which can handle 65 to 120 for receptions and 60 to 100 for banquets. A floor plan and square footage breakdown of the subject's conference facilities are presented on the following pages. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> [GRAPHIC OMITTED] Floor Plans - Conference Facilities FOUR SEASONS RESORT - SANTA BARBARA <PAGE> QUICK REFERENCE GUIDE o Four Seasons Resort Santa Barbara Conference Facilities - -------------------------------------------------------------------------------- <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ CAPACITIES -------------------------------------------------------------------------------- Room Dimensions Ceiling Sq. Ft. Round Rectangle Reception Dinner/ Conferencee Theater U Shape Classroom Height Dance - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Resort Loggia Ballroom 70' x 45' 18' 3,150 230 275 350 200 88 375 55 200 La Bella Vista -- 10' 2,735 250 -- 250 220 78 325 63 150 El Jardin 34' x 23' 10' 782 60 25 65 60 25 75 27 46 Les Flores 32' x 23' 10' 736 60 25 65 60 25 75 23 45 La Loma 32' x 19' 10' 608 50 22 50 40 22 60 20 28 El Presidente 29' x 21' 10' 609 50 22 66 60 22 75 20 36 La Fonda 31' x 19' 10' 589 40 22 50 -- 28 30 22 27 El Mar 30' x 38' 10' 1,140 80 36 150 100 36 90 36 60 La Sala Verde 30' x 20' 10' 600 50 22 75 -- 23 48 22 30 La Salita 39' x 19' 10' 741 60 36 100 -- 32 60 20 30 El Galeon 29' x 15' 10' 435 24 22 25 -- 20 25 21 -- El Rincon 13' x 30' 10' 390 30 22 40 -- 20 25 20 20 Alto 15' x 30' 10' 450 30 -- 40 -- 20 25 20 20 Coral Casino La Pacifica Ballroom 50' x 84' 12' 4.200 300 -- 500 300 -- 400 45 150 La Concha 25' x 34' 10' 850 60 -- 65 -- 25 70 25 45 Outdoors Loggia Patio 15' x 50' -- 750 60 25 65 -- -- -- -- -- North Patio 40' x 40' -- 1,600 100 50 120 -- -- -- -- -- South Patio 40' x 40' -- 1,600 100 50 120 -- -- -- -- -- Recreation Lawn 80' x 40' -- 3,200 250 -- 350 -- -- -- -- -- 500 Courtyard 30' x 30' -- 900 60 -- 100 -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <PAGE> Section III -- Property Description III-14 - -------------------------------------------------------------------------------- Coral Casino Beach and Cabana Club Originally built in 1937 on a dramatic oceanfront location, the Coral Casino Beach and Cabana Club cannot be duplicated, since it lies primarily in the floodplain. It is a private swim club with a 50-meter, Olympic-sized lap pool as its focal point of activity. The pool is complimented by spacious sundecks, shower and locker facilities, exercise room, whirlpool spa, sauna, steam room, massage rooms, private cabanas, changing areas, a lounge and dining facilities. The 4,200-square-foot La Pacifica Ballroom, with its ocean-view glamour is the focal point for social events. A 600-member ceiling on club membership has been set to maintain the exclusive ambiance and controlled use of the facilities. A surge in membership has occurred in the past 36 months, which has brought the total roster to the maximum 600 members. Hotel guests may also use the club facilities for a nominal fee. The $4,600,000 renovation program was completed in 1990. It dramatically upgraded the existing facilities to the same luxury standard as the hotel and has repositioned the Coral Casino as one of the premier beach clubs on the West Coast. Other Facilities and Amenities Hotel services include a beauty salon, a gift shop, a jewelry store, business center, complete laundry and valet services, twice-daily maid service, full concierge service, and complimentary overnight shoeshine service. Complimentary bicycles are also available, and there are exceptional supervised children's activities. Fitness facilities include two swimming pools, including a 50-meter Olympic pool at the Coral Casino Beach and Cabana Club, two whirlpools, three lighted tennis courts, putting green, shuffleboard and croquet courts. Golf outings are also available through special arrangements at three nearby courses, Montecito Country Club, La Cumbre Country Club, and Sandpiper County Club, the latter being an oceanfront course considered one of the three best in the state, and the former being only two miles from the subject. Bookings are arranged readily for sailing, charter sport fishing, racquetball, polo and horseback riding. Operational Systems The back-of-house facilities include the dry cleaning facility, laundry equipment (three Unimac washers, three Cissell dryers and sheet ironer), the main kitchen, Coral Casino kitchen, the loading lock, the water recycler, and two wells. Parking There are four guest parking lot areas with a total of approximately 320 parking spaces for the hotel. One is located at the circular driveway entrance to the facility, another small lot is located at the western perimeter, and the remaining two are at the northern perimeter between Hill Road and the railroad tracks. A row of parking spaces is also available in front of Coral Casino directly off Channel Drive. Basic Construction and Mechanical Systems The subject is mainly a wood-frame structure with stucco finish. The exteriors of the buildings are painted stucco with mission tile roofing. The Coral Casino 1993 addition (except for the perimeter - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section III -- Property Description III-15 - -------------------------------------------------------------------------------- mission-tile roof) and selected sections of the main building have flat built-up roofs. Most of the cottages have cedar shake roofs. The structure and the roof are in good condition, with the Coral Casino roof receiving $70,000 in repair work a few years ago. With regard to the mechanical systems, the subject has two public hydraulic elevators, a 125-ton Carrier chiller for public areas, two hydronics boilers rated at 5 million BTU each, two wells to supplement irrigation and a filtration system. In addition to the central plant, there are smaller hydronics boiler systems serving a group of three cottages. Heat is supplied to 70 percent of the guestrooms through circulating hot-water baseboard Modine units from the central plant, radiant forced-air heat from modified Modine units and gas heaters each supplying about 15 percent. Domestic hot water is also supplied from the boilers, through systems running parallel with the heat. The electrical system has been continually upgraded with new breakers and switches now being installed throughout the property. Fire/Life Safety Systems The subject property is fully sprinklered except for one building (the 700's Building, attached to the main building and in the southeast corner of the property). Hard-wired smoke detectors are provided at all building lobby and corridor locations and in all guestrooms. In addition, a life-safety speaker system and fire alarm pull station are a part of the life-safety system. Compliance with the Americans with Disabilities Act (ADA) In 1992, Congress enacted the Americans with Disabilities Act (ADA), which requires that buildings be made accessible to the disabled. The Four Seasons Biltmore Hotel has an existing program in place to bring the facilities into compliance with the act. According to the Four Seasons Biltmore ADA Compliance Schedule, issues that apparently have been resolved include curbing ramps, reconstructing the lobby desk, adding handrails to various areas, making outside entrances accessible, purchasing tables with knee clearance requirements, insulating hot water pipes, replacing handles, providing accessible public telephones, and installing both audible and visible emergency warning systems. In addition, two guestrooms were made accessible, including roll-in showers, bringing the total to four. The hotel is considered to be in substantial compliance. Hazardous Materials We were provided a copy of the Report of Asbestos Abatement Observations for the subject, with the report prepared by Letco Associates, Inc. In this report, it was stated that asbestos was removed from the pipe and exterior duct insulation from selected areas during September through October 1988. According to the building engineer, asbestos is present in the pipes from the engineering building to the main structure, in the walls, underneath the building, and in the ceiling. Management has plans to remove the material but has not projected a future date of completion nor cost. We have not estimated the impact of the cost of removal on the value of the subject. We have not been provided information on the potential presence of other possible hazardous materials, and we are not aware of any which may be present. We alert the client to the fact that we are not experts in the field and are not qualified to make a determination as to their possible presence. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section III -- Property Description III-16 - -------------------------------------------------------------------------------- Historical, Natural, Cultural, Recreational, and Scientific Value The property has no designated historical, natural, cultural, recreational or scientific value. However, we do recognize that the property was designed by noted architect Reginald Johnson in 1926 and is well recognized within the community. The Santa Barbara County Historical Landmark Advisory Committee stated that, although the property is not designated as a historical landmark, in the unlikely event that it should be considered for demolition, a review process would probably eventually lead to a historical designation by the county. In addition, the Odell Cottage has a recognized architectural designation, as previously noted. Condition and Functional Utility of the Improvements Since the 1988-1990 renovation, the Four Seasons Biltmore Hotel and Coral Casino Beach Club have been maintained in excellent condition. Expenditures for capital improvements over the past several years are noted below. ======================================================= Four Seasons Biltmore Hotel ------------------------------------------------------- Historical Capital Improvements ------------------------------------------------------- Year Capital Additions ------------------------------------------------------- 1993 $ 1,038,795 1994 394,101 1995 581,721 1996 1,253,180 1997 2,037,195(1) ------------------------------------------------------- (1) The 1997 figures represent actual dollars spent through August and the budget for the remaining months. Source: Four Seasons Biltmore Hotel ------------------------------------------------------- The new management agreement mandates capital expenditures equal to four percent of gross revenues at the property, a level that is generally higher than historical costs, and we believe that this level of capital additions should maintain the hotel's competitiveness in the future. Considering the age of the property, we found the facility to be highly functional and well-designed for its current usage as a luxury resort hotel. While the size and appointments of the guestrooms and suites are consistent with newer properties (such as the Ritz-Carlton Laguna Niguel), guest bathrooms outside the suites are typically small by today's standards, the only deficiency in the property of note. This does not appear to present a significant marketing challenge at present. We are of the opinion that the temperate climate, the exceptionally manicured grounds featuring hundreds of rare and exotic plants, the charm of the Santa Barbara area, and the access to a private beach counter-balance any deficiencies in the guest accommodations. Renovation Between early 1988 and May 1989, a total renovation costing $15,000,000 was completed on the main hotel and guest cottages, restoring the uniqueness of this historical property. It was completed to reposition the hotel as an exclusive, world-class coastal luxury resort. The following is a list of the major renovations completed. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section III -- Property Description III-17 - -------------------------------------------------------------------------------- 1. All restaurants were completely refurbished. 2. All guestrooms, suites, and villas were completely refurbished and the bathrooms were renovated. 3. The entry road and arrival court was redesigned with a grand entrance with 18 majestic palm trees added. The parking area was also shifted to avoid having vehicles visible from the street. 4. The exterior stucco and trim was repaired and repainted. 5. The lobby and public corridors were renovated. There is new lighting that brightens the main rooms, cast stone wall brackets and other fixtures produce a soft ambient feel. The ceiling and beams are a lighter color. 6. The Loggia Ballroom was restored to its former elegance with a refinished ceiling, new all coverings, carpeting, window treatments, and a new lighting system. 7. The banquet and meeting rooms were given new all and window treatments, carpeting, artwork and upgrading lighting capabilities. In 1990, approximately $4,600,000 was invested to upgrade the Coral Casino Beach and Cabana Club to reposition it as a full-service recreational resort and private club. Since the major renovation, the property has been maintained in immaculate condition through an above-average maintenance program and judicious capital improvements. Management of the subject indicated that recent and proposed improvements include plans to expand the health club and pool deck, refurbish the entry canopy, and replace the soft goods in the guestrooms. The 1996 actual and 1997 actual/forecast capital improvement budgets are presented in the Addenda. CORAL CASINO MANAGEMENT AND MEMBERSHIP STRUCTURE The Coral Casino Beach and Cabana Club is managed by Four Seasons along with the hotel. The Conditional Use Permit on the club calls for a membership "cap" of 600, and when the permit was issued, management apparently never thought that the membership would actually reach this level. In recent years, Coral Casino has been promoted more heavily, especially to younger prospective members, and as a result membership grew to the maximum allowable under the Conditional Use Permit. At present, there are eight types of memberships at Coral Casino, which are summarized below. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section III -- Property Description III-18 - -------------------------------------------------------------------------------- ================================================================================ Coral Casino Beach and Cabana Club Membership Options - -------------------------------------------------------------------------------- Quarterly Food and Membership Type Initiation Fee Monthly Dues Beverage Minimum - -------------------------------------------------------------------------------- Lifetime - Family $15,000 $155 $145 Lifetime - Single 15,000 145 145 Lifetime - Non-Resident 15,000 145 (exempted) Lifetime -- Monthly 2,500 265 145 3-Year Conversion(1) 5,000 165 145 Junior Conversion(2) 7,500 135 145 3-Year Junior Conversion(3) 3,750 135 145 Social Membership(4) 3,000 145 145 - -------------------------------------------------------------------------------- (1) Can be converted to lifetime membership after the third year with a payment of $11,000. (2) Ages 21 to 32. Can be converted to a Lifetime membership for $7,500 when member reaches the age of 33. (3) Can be converted to full junior membership after the third year with a payment of $3,750. (4) Limited to 25 memberships. Source: Coral Casino Beach and Cabana Club - -------------------------------------------------------------------------------- Additional fees are charged for those members who desire lockers ($10 per month), dressing rooms ($45 per month), or cabanas ($165 per month, or $50 per day). Guest fees are $8 for adults and $4 for children under 16. Members must meet the food-and-beverage minimum of $145 each quarter, but receive a 15 percent discount on all charges. Management has devised a number of strategies to deal with the membership cap. A second class of membership, seasonal members, can be added under the existing Conditional Use Permit, limited to 50. In addition, the club could apply to the County for an increase in the number of permitted members, although there are capacity issues at the club that would preclude the practical addition of more members beyond the 600. CONCLUSION The Four Seasons Biltmore is currently among the premier luxury resorts in the United States. Its unique architecture, oceanfront setting, superior recreation, meeting and dining facilities, and high quality level will continue to attract new and returning guests to this unique resort property. The overall construction, condition, and quality of the subject are excellent and comparable to other world-class destinations resorts found throughout the United States and California. The layout of the property is spacious with 18.3 acres of land giving the guests a relaxed and comfortable environment. Because the guestrooms are spread throughout the property, the hotel does not "feel" crowded even when it is fully occupied, adding to the guest experience. Additional photographs are presented on the following pages. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Four Seasons Biltmore Hotel [GRAPHIC OMITTED] <PAGE> Section III -- Property Description III-20 - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] GUEST COTTAGE SUITE [GRAPHIC OMITTED] GUEST COTTAGE BATHROOM - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section III -- Property Description III-21 - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] CORAL CASINO AND SWIMMING POOL [GRAPHIC OMITTED] EL MAR MEETING ROOM - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV MARKET ANALYSIS, MARKET POSITION, AND HIGHEST AND BEST USE - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-1 - -------------------------------------------------------------------------------- MARKET ANALYSIS AND MARKET POSITION OVERVIEW A destination resort is by definition a facility that has the ability to attract demand that might not otherwise visit a destination. This distinction is important to note because it differentiates a resort hotel from other types of lodging facilities. Guests visiting destination resorts tend to come to a particular market because of the attributes of a particular property located therein. Characteristics of a destination resort typically include: o Location in a desirable climate (i.e., destination golf resorts are located in sunny climates; destination ski resorts are located in snowy climates); o Availability and quality of various food and beverage outlets; o Availability of a wide variety of recreational activities; o A unique range of services designed to pamper the guests; o Self-contained; and o Tends to have a strong repeat business. Resorts primarily target the group and tourist segments which, relative to a typical commercial hotel, are not typically affected by the same economic factors and supply conditions found in the immediate area. The nature of a world-class luxury destination resort is such that its competitive environment is geographically much broader. The Four Seasons Biltmore Hotel, by virtue of its intended exclusivity, location, amenities, services, and other facilities, can be classified as a destination resort. As such, the property is expected to compete within the worldwide luxury resort market, with world-renowned coastal California properties and throughout the Western United States, including Hawaii, as well as other warm climate destinations. MARKET ANALYSIS Existing Supply In order to identify the competitive market of the Four Seasons Biltmore, we have analyzed the overall California coastal-resort hotel market and selected six properties that we feel offer primary competition to the subject hotel. The hotels in the competitive market include the Inn at Spanish Bay, the Lodge at Pebble Beach, the Ritz-Carlton Laguna Niguel, La Costa Hotel and Spa, the Hotel Del Coronado, and the Four Seasons Aviara, which opened last month. The selection of the competitive supply was based on each hotel's coastal location, number of guestrooms, support facilities and amenities, room rate structure and market orientation. The selected hotels represent facilities that cater predominantly to the high-end California coastal leisure (43 percent) and group meeting (57 percent) demand. In 1996, the competitive supply achieved an aggregate occupancy level of 77.2 percent at a composite average daily rate of $222.06. Over the past five years, both occupancy and average rate have steadily increased. Average rates ranged from $175 to almost $350 within the competitive market in 1996. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-2 - -------------------------------------------------------------------------------- The chart on the following page presents the anticipated primary competitive supply for the Four Seasons Biltmore Resort. A description of each of the competitive hotels and a map indicating their locations follow. ================================================================ Competitive Supply ---------------------------------------------------------------- Map Code Property Number of Rooms ---------------------------------------------------------------- Subject Four Seasons Biltmore 217 1 Inn at Spanish Bay 270 2 Lodge at Pebble Beach 161 3 Ritz Carlton Laguna Niguel 393 4 La Costa Hotel and Spa 482 5 Hotel Del Coronado 691 6 Four Seasons Aviara 337 ----- Total 2,551 ---------------------------------------------------------------- Source: PKF Consulting ---------------------------------------------------------------- The subject currently has 217 units. However, it should be noted that prior to early 1997, the subject counted the 17 suites as two units each, which resulted in a room count of 234. In early 1997, management of the subject began to count the suites as one unit each resulting in a drop in the number of available rooms to the current number. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> [GRAPHIC OMITTED] COMPETITIVE HOTEL SUPPLY PKF CONSULTING <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-4 - -------------------------------------------------------------------------------- Inn At Spanish Bay The 270-room Inn at Spanish Bay is situated along the northern end of the "17 Mile Drive" in the Pebble Beach-Monterey area. Completed in November 1987, the Inn is a luxury hotel providing guests with ocean, forest or fairway views, two restaurants, two lounges and 14,000 square feet of meeting space. It was developed to complement its sister hotel, the Lodge at Pebble Beach, by offering more extensive meeting facilities to cater to group meeting demand. Guests staying at the Inn at Spanish Bay have access to the Lodge at Pebble Beach facilities and the two golf courses, Spyglass and Spanish Bay. In 1996, this property was one of the two occupancy leaders, while average rate was also above the market average. Lodge At Pebble Beach Overlooking the 18th-hole fairway and the scenic Monterey coastline, the Lodge at Pebble Beach offers 161 guestrooms and suites. Opened in 1919 and known primarily for its famous golf complex, the Lodge at Pebble Beach also provides its guests with access to a private tennis and swim club, four restaurants, and 10,915 square feet of ballroom and meeting space. Because of its relatively small number of rooms and lack of significant meeting facilities, the property focuses on attracting high-end tourist demand, as well as smaller social and recreation oriented groups. In 1996, this property was the rate leader and was one of the two occupancy leaders. Ritz-Carlton Laguna Niguel The five-star, 393-room Ritz-Carlton is located atop a 150-foot bluff overlooking the Pacific Ocean in Laguna Niguel. The hotel offers 31 suites (8 percent), 89 ocean-view rooms (22 percent), and 35 coastline-view room (9 percent). The hotel opened in 1984 and is designed as a four-story, Mediterranean-style villa. The interior common areas are outfitted with marble floors inset with hand-woven rugs, crystal chandeliers, imported limestone and marble fireplaces, all of which generate an old world ambiance. The hotel features four restaurants, two cocktail lounges, two outdoor swimming pools with jacuzzis, a fitness center, four tennis courts, and 16,200 square feet of meeting space. The occupancy and average daily rate were slightly above the market averages in 1996. This property was the subject of a recent sale as noted in the sales Comparison section of this report. La Costa Hotel and Spa Located in an inland valley 30 minutes north of San Diego, the La Costa Hotel and Spa was originally built over 40 years ago and offers 482 guestrooms in two-story stucco, Spanish-motif buildings. La Costa is famous for its two championship 18-hole golf courses, 23 tennis courts and extensive spa facility. In addition, the resort offers five indoor and two outdoor restaurants, several small pools with jacuzzis and 50,000 square feet of meeting and ballroom space. This property has become somewhat dated and in need of renovation, and subsequently had the lowest occupancy in the competitive market in 1996. The average daily rate was also below the market average. Hotel del Coronado The Hotel Del Coronado is a historical resort property and convention facility. Originally built in 1890 as the Traditional Grand Hotel, the property completed the modern seven-story Tower in 1974. Located on Coronado Beach ten minutes from downtown San Diego and the San Diego International Airport, the Hotel del Coronado offers activities and facilities for both tourists and group travelers. The modern convention complex adjacent to the Traditional Grand Hotel can accommodate up to 3,000 patrons and is booked for much of the year. Guest amenities include - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-5 - -------------------------------------------------------------------------------- seven tennis courts, two swimming pools, a health spa, and golf facilities across the street. The hotel has 691 rooms of which 117 are suites. With a resort-style concept and proximity to downtown San Diego, the property is positioned to continue to attract a wide variety of guests to its facility. In spite of having the most rooms of all of the competitive hotels, this property achieved an above market occupancy in 1996. Much of this demand came from convention groups with discounted rates, however, resulting in the lowest average rate in the competitive market. This property also recently sold, as discussed later in this report. Four Seasons Aviara The Four Seasons Aviara is part of the 1,015-acre master planned community of Aviara, which is located in southern Carlsbad, approximately 40 miles north of San Diego. Although the site is somewhat secluded and offers views of the Batiquitos Lagoon, the location is still convenient to local tourist attractions and commercial centers. The hotel contains 337 guestrooms, a restaurant and cafe, a lobby lounge, 4,835 square feet of retail shops, and 26,065 square feet of enclosed meeting and banquet space (plus a 5,000-square foot exterior tent structure). Recreation facilities at the Four Seasons Hotel Aviara consist of a 5,000 square foot health club/spa with a child care center, a swimming pool and jacuzzi, and a children's pool. The Aviara Golf Club, featuring an Arnold Palmer designed golf course and a clubhouse with restaurant, bar, pro shop and locker rooms, are also be available for hotel guest use. In addition, guests have access to the Aviara Sports Club, which offers a 25-meter lap pool, family and children's pools, tennis courts, racquetball courts, squash courts, basketball courts, exercise/aerobic areas, weight training, a restaurant, and six tennis courts. The 337-room resort opened a portion of its rooms in August and all 337 units on September 1, 1997. Additions to Supply In addition to the existing supply, we have identified five proposed coastal-oriented resort projects totaling 1,488 rooms as possible future additions to the competitive supply. Most of those projects are in the planning stages. The certainty and timing of the development of each is somewhat speculative at this time. However, given the current strength of the market and the overall hotel market, it is likely that at least several of these proposed properties will be developed in the near term future. We have reflected that fact in our analysis. The only project that has received more attention recently is the 400-room Santa Barbara Club Resort & Spa, which broke ground in July 1997 in Goleta, Santa Barbara County. The project broke ground without all of its financing committed and is currently seeking the balance of its financing, with all of the government approvals in place. The following table identifies those projects, that we believe are still active and their current status. ================================================================================ Future Additions to Supply - -------------------------------------------------------------------------------- Number Project/Location Of Rooms Status - -------------------------------------------------------------------------------- Long Point Resort, Ranchos Palos Verdes 350 On Hold To Be Determined, Santa Barbara 150 On Hold Treasure Island, Laguna Beach 295 Preliminary Santa Barbara Club Resort and Spa 400 Construction Started Pointe on Catalina Island 293 Financing Sought ----- 1,488 - -------------------------------------------------------------------------------- Source: PKF Consulting - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-6 - -------------------------------------------------------------------------------- Long Point Resort Located in Los Angeles County, the proposed resort development in Rancho Palos Verdes is planned for the top of a 1 25-foot-ridge overlooking the Pacific Ocean. Situated on an approximate 40 acre parcel which is, in turn, part of a planned 230 acre resort development, the Long Point Resort is planned to feature significant high quality meeting space, a health spa, separate cabanas/casitas, food and beverage facilities commensurate with the quality level of the resort, limited retail space, swimming pools and other amenities and facilities typically found in a luxury destination resort. The development is also expected to include a time share/vacation ownership and other resort/residential components that at this time have not been specifically defined. It is our understanding, management of the resort will operate the golf course planned for the adjacent site and hotel guests will have priority tee times. The developers are in the process of securing financing and finalizing design plans. We have assumed that the proposed Long Point Resort will open and enter the competitive market in 2003, after the projection period. Undetermined Fess Parker Hotel (Santa Barbara) Fess Parker has a development agreement that allows him to begin development of a 150-room five-star hotel located adjacent to the Doubletree Resort (formerly the Red Lion) through the year 2007. In an effort to provide more luxurious guestrooms and a higher ratio of rooms with ocean views, the approved project plans were modified. The city required several new provisions in conjunction with the proposed modifications; subsequently, the plans were withdrawn. Based on discussions with Fess Parker's representatives, various development options are being discussed by Mr. Parker and Doubletree Hotels. A plan seeking to transfer the previously approved development rights to an expansion of the Doubletree Resort may be proposed. The project has not been included in our market projections. Treasure Island Resort Located in South Laguna, the possible hotel development at Treasure Island is proposed to be situated atop and sloping down a 60 foot bluff overlooking the Pacific Ocean immediately north of Aliso Beach. The resort is to be part of a master planned development including condominiums and beach homes. City planning officials indicated that the project would be in the planning stages through 1997. Following city approval, the plans must be reviewed by the California Coastal Commission. Due to the uncertainty surrounding the development, we have not included the Treasure Island Resort in our projections. Santa Barbara Club Resort and Spa The 400-room Santa Barbara Resort & Spa commenced construction in July of this year, near Sandpiper Golf Course in Goleta, Santa Barbara County, approximately 100 miles northwest of the subject. The hotel is planned to include 26,000 square feet of meeting space with a state-of-the-art multi-media screening room, a 25,000 square foot spa, two swimming pools and a lap pool, a gourmet restaurant plus a cafe and lounge, 48 cabanas and a poolside bar, and 8,000 square feet of retail space, in addition to other amenities and facilities typically found in a luxury destination resort. The project was granted a one-year extension to begin development and recently began construction. The hotel is planned to be opened by mid-2000. While this project has been in the planning stages for 15 years, we have assumed the opening of this project in mid-2000 in our future projections. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-7 - -------------------------------------------------------------------------------- Pointe on Catalina Island The proposed Pointe on Catalina Island is to be developed situated in a cove along the shoreline of the Pacific Ocean on Santa Catalina Island, approximately 25 miles off the coast of Los Angeles. The resort will is planned to have a casual California ambiance while maintaining the highest quality and standards. This island location will afford an array of activities unique to Catalina Island and provide a convenient get-away for both individual and group travelers. This project has secured the necessary approvals to begin development and is seeking financing options. We have assumed the opening of the Pointe on Catalina Island in January 2000. There are several other permitted resort sites along the Southern California coast, including two at Newport Coast, an Irvine Company development adjacent to Newport Beach. However, there are no current plans for development on these sites. To account for potential hotel development opportunities along the coast, we have assumed the opening of the Santa Barbara Resort & Spa in mid-2000, the 293-unit Pointe on Catalina Island Resort in January 2000, the, and the 350-unit Long Point Resort in 2003. The following table illustrates the historical room count and projected changes for the period 1996 to 2004. <TABLE> <CAPTION> ================================================================================================= Growth In Supply - ------------------------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Four Seasons Biltmore(1) 234 221 217 217 217 217 217 217 217 Inn at Spanish Bay 270 270 270 270 270 270 270 270 270 Lodge at Pebble Beach 161 161 161 161 161 161 161 161 161 La Costa Resort & Spa 482 482 482 482 482 482 482 482 482 Ritz Carlton Laguna Niguel 393 393 393 393 393 393 393 393 393 Hotel del Coronado 691 691 691 691 691 691 691 691 691 Four Seasons Aviara 0 112 337 337 337 337 337 337 337 Santa Barbara Hotel & Spa 0 0 0 0 200 400 400 400 400 Points on Catalina Island 0 0 0 0 293 293 293 293 293 Long Pointe Resort 0 0 0 0 0 0 0 350 350 - ------------------------------------------------------------------------------------------------- Total 2,231 2,330 2,551 2,551 3,044 3,244 3,244 3,594 3,594 Percent Change 0.0% 4.5% 9.5% 0.0% 19.3% 6.6% 0.0% 10.8% 0.0% - ------------------------------------------------------------------------------------------------- (1) Historically, the subject counted suites as two units. Beginning in early 1997, the subject's room count dropped by 17 units, as 17 of the suites are now counted as one unit each. Source: PKF Consultiug - ------------------------------------------------------------------------------------------------- </TABLE> HOTEL ROOMS DEMAND Demand for hotel rooms is categorized in three ways: Demonstrated Demand: the demand already captured at competitive hotels; Induced Demand: the demand that does not presently seek accommodations in the competitive market, but could be persuaded to do so through marketing efforts, room rates, facilities, services and amenities. Unsatisfied Demand: the demand that seeks accommodations in the market but is not satistied due to one of a number of factors: sell-outs during peak season; lack of a particular type of accommodation; lack of meeting space; or high room rates. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-8 - -------------------------------------------------------------------------------- Historical Performance of the Competitive Supply The aggregate average annual available and occupied rooms, resulting occupancy levels, average daily rate, and REVPAR (revenue per available room) for the competitive supply from 1992 to 1996 are presented in the following table. <TABLE> <CAPTION> ========================================================================================================= Historical Market Performance - --------------------------------------------------------------------------------------------------------- Average Annual Average Annual Percent Market Market Percent Market Percent Year Supply Demand Change Occupancy ADR Change REVPAR Change - --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 1992 814,315 562,700 N/A 69.0% $193.79 N/A $133.67 N/A 1993 814,315 566,500 0.9% 69.6 196.61 1.5% 136.79 2.3% 1994 814,315 590,600 4.3 72.5 200.99 2.2 145.79 6.6 1995 814,315 611,100 3.5 75.0 209.76 4.4 157.42 8.0 1996 814,315 628,800 2.3 77.2 222.06 5.9 171.48 8.9 - --------------------------------------------------------------------------------------------------------- Compounded Annual Growth 0.0% 2.9% 3.5% 6.4% 1992-1996 - --------------------------------------------------------------------------------------------------------- Source: PKF Consulting - --------------------------------------------------------------------------------------------------------- </TABLE> The preceding charts depict the demonstrated demand in the subject's competitive market, which showed no change in the supply of rooms over the last five years. Occupied room nights increased during this period by 2.9 percent annually and the average daily rate increased 3.5 percent annually. As can be noted, the market has strengthened significantly since 1994. This reflects an improving economy and the related increase in discretionary spending. It should be noted that there are now substantial periods of time in which the overall market is operating at capacity levels and thus cannot accommodate any added demand. As a result, growth rates in demonstrated demand in recent years may be artificially low due to the amount of unsatisfied demand. In 1996, the competitive market's accommodated demand increased 2.3 percent while the average daily rate grew 5.9 percent as compared to 1995. The market's REVPAR (revenue per available room, a combination of occupancy and average daily room rate) increased approximately 8.9 percent for the same period. The demand captured by the competitive supply is derived primarily from the group meeting and tourist market segments. A small amount of commercial demand is captured by a few properties, which we have included with the tourist demand in the figures for total transient demand. The following table summarizes historical accommodated demand by segment from 1992 to 1996. <TABLE> <CAPTION> =============================================================================================================== Historical Segmentation of Demand - --------------------------------------------------------------------------------------------------------------- Transient Group Total Average - --------------------------------------------------------------------------------------------------------------- Annual Ratio to Percent Annual Ratio to Percent Annual Percent Year Demand Total Change Demand Total Change Demand Change - --------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 1992 242,000 43.1% 319,000 56.8% 561,700 1993 239,000 42.1 -1.5% 328,000 57.8 2.8% 566,500 0.9% 1994 247,000 41.8 3.6 344,000 58.2 4.9 590,600 4.3 1995 250,000 40.9 1.3 361,000 59.1 4.9 611,100 3.5 1996 267,000 42.5 6.8 361,000 57.5 0.0 628,800 2.3 - --------------------------------------------------------------------------------------------------------------- Compound Annual Growth 2.5% 3.1% 2.9% - --------------------------------------------------------------------------------------------------------------- Note: Figures may not foot due to rounding. Source: PKF Consulting - --------------------------------------------------------------------------------------------------------------- </TABLE> - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-9 - -------------------------------------------------------------------------------- As noted in the table, the group meeting segment has increased at a higher rate than the transient segment. However, this trend reversed in 1996 when transient demand grew by 6.8 percent and group meeting demand remained relatively flat. In a resort market, new supply of destination resorts such as those under development in this market have the ability to induce new demand into the marketplace due to their facilities, location, amenities and marketing efforts. Thus future accommodated demand in the market can include previously unsatisfied demand, induced demand and demand growth due to general economic conditions. Using the historical growth in the market as a base, and taking into account the current demonstrated and future projected economic conditions, we have estimated future growth in overall market demand. Each market segment is discussed in the following paragraphs, followed by a summary table setting forth our estimated growth in supply and demand. Transient Market Segment The transient segment consists of pleasure travelers who visit California resorts for recreational purposes in addition to a small number of high-end commercial travelers (who primarily stay at three of the competitive properties). This segment is comprised of a significant amount of domestic weekend travel and international travel from the Pacific Rim and Europe. In recent years, currency fluctuations of the US dollar have positively impacted this market, and coupled with targeted marketing efforts, have led to an annual increase. In 1996, the transient market segment is estimated to have accounted for 42.5 percent of total demand, or approximately 267,000 room nights of captured demand. We anticipate that the transient segment will continue to grow at a moderate rate throughout the projection period. This growth reflects the continued rebound of California tourism, the slowly improving economy, and the increased marketing efforts of the individual properties to target international travelers. Group Market Segment The group market segment consists of room nights generated from corporate, association, and social meetings. In the competitive resort market, demand consists of incentive meetings for sales and marketing teams, executive level conferences, educational sessions for professionals such as doctors and attorneys, and high-end social and fraternal retreats. As outlined in the previous table, the group meeting segment represents the largest demand source for the competitive supply, representing 57.5 percent of the total occupied rooms in 1996, or 361,000 room nights of captured demand. Fortune 500 companies, the bulk of the client base, have largely completed their downsizing and have been reporting higher productivity and improved profitability. These firms needed to reward their remaining sales staffs and executives, and the California coastal market has been a prime destination for incentive trips in recent years. This market segment is estimated to grow moderately throughout the projection period. SUMMARY OF DEMAND GROWTH AND MARKET OCCUPANCIES Using the historical growth actually achieved in the market as a benchmark and analyzing the impact of expected changes in available supply and the economy, we have estimated future growth in demand by segment. The following table illustrates the growth rates, which factors in the - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-10 - -------------------------------------------------------------------------------- demand induced from the new supply, for each of the principle segments of demand during the projection period. <TABLE> <CAPTION> ==================================================================================================================== Projected Growth By Segment - -------------------------------------------------------------------------------------------------------------------- Projected 1996 ------------------------------------------------------------------------------ Actual 1997 1998 1999 2000 2001 2002 2003 2004 C.A.C.(1) - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Transient Demand 267,362 284,600 306,700 317,400 341,400 356,200 366,800 385,600 397,100 4.8% Percent Growth 6.5% 7.7% 3.5% 7.5% 4.3% 3.0% 5.7% 3.0% Group Demand 361,465 389,200 428,100 443,100 486,600 513,500 528,900 565,900 582,900 5.9% Percent Growth 7.7% 10.0% 3.5% 9.8% 5.5% 3.0% 7.0% 3.0% Total Demand 628,827 673,900 734,800 760,500 828,000 869,600 895,700 951,500 980,000 5.5% Percent Growth 7.2% 9.0% 3.5% 8.9% 5.0% 3.0% 6.2% 3.0% Market Occupancy 77% 79% 79% 82% 75% 73% 76% 73% 75% - -------------------------------------------------------------------------------------------------------------------- (1) Compound Annual Change from 1997 to 2004. Source: PKF Consulting - -------------------------------------------------------------------------------------------------------------------- </TABLE> Based on the foregoing analysis by market segment, we have estimated future market occupancies as outlined in the following table. <TABLE> <CAPTION> ====================================================================================== Projected Market Performance - -------------------------------------------------------------------------------------- Average Percent Annual Percent Market Market Percent Year Annual Supply Change Demand Change Occupancy ADR Change - -------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> 1997 850,572 4.5% 673,900 7.2% 79% $240.00 8.0% 1998 931,115 9.5 734,800 9.0 79 254.00 6.0 1999 931,115 0.0 760,500 3.5 82 267.00 5.0 2000 1,111,060 19.3 828,000 8.9 75 278.00 4.0 2001 1,184,060 6.6 869,600 5.0 73 286.00 3.0 2002 1,184,060 0.0 895,700 3.0 76 295.00 3.0 2003 1,311,810 10.8 951,500 6.2 73 303.00 3.0 2004 1,311,810 0.0 980,000 3.0 75 312.00 3.0 - -------------------------------------------------------------------------------------- Compound Annual Change 6.4% 5.5% 3.8% 1997-2004 - -------------------------------------------------------------------------------------- Source: PKF Consulting - -------------------------------------------------------------------------------------- </TABLE> As can be seen from this chart, we expect the market occupancy to increase in 1997 to 79 percent and remain at this level through 1998 as the remaining new rooms from the Four Seasons Aviara Resort are absorbed into the market. With no additions to supply expected to enter the market in 1999, we have estimated that the market occupancy will grow to 82 percent. However, the Santa Barbara Resort & Spa and the Pointe on Catalina Island Resort are anticipated to enter the market in the year 2000. We have estimated the market occupancy will drop to 75 percent in 2000 and 73 percent in 2001 as a result of the supply growing faster than demand. As the new rooms are absorbed into the resort market, we have estimated market occupancy will slowly climb and stabilize at 75 percent beginning in 2004. The average daily rate is estimated to increase above the rate of inflation through 2000, reflecting the strength of the coastal-resort hotels and the new - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-11 - -------------------------------------------------------------------------------- supply anticipated to enter the market. The market average daily rate is expected to stabilize and increase with inflation beginning in 2001. HISTORICAL AND ESTIMATED PERFORMANCE OF THE SUBJECT Presented in the following table is a summary of the subject's historical occupancy, average daily rate, and REVPAR. ================================================================================ Historical and Estimated Performance - -------------------------------------------------------------------------------- Average Percent Percent Year Occupancy Daily Rate Change REVPAR Change - -------------------------------------------------------------------------------- 1992 69.3% $190.86 -- $132.27 -- 1993 68.7 200.68 5.1% 137.87 4.2% 1994 68.0 205.74 2.5 139.90 1.5 1995 73.9 205.34 (0.2) 151.75 8.5 1996 78.7 220.79 7.5 173.76 14.5 - -------------------------------------------------------------------------------- C.A.G. 3.7% 7.1% - -------------------------------------------------------------------------------- 1996 ytd(1) 79.8 220.04 -- 175.59 -- 1997 ytd(1) 82.5 252.10 14.6% 207.98 18.4 - -------------------------------------------------------------------------------- (1)Through August. Source: PKF Consulting and Four Seasons Biltmore Hotel - -------------------------------------------------------------------------------- The subject property has historically performed at levels consistent with the competitive market. Concurrent with the competitive market's growth in occupied rooms and average rates, the subject experienced substantial growth in REVPAR (revenue per available room) in 1995 and 1996. In 1996, the subject achieved an occupancy of 78.7 percent with a corresponding average daily rate of $220.79; this resulted in REVPAR growth of 14.5 percent over 1995. For year to date 1997 (through August), the subject's occupancy was 82.5 percent, up from 79.8 percent for the same period in 1996. The average daily rate increased 14.6 percent for year to date and is attributed to the subject increasing their rack rates and the overall strength of the California coastal resort market as well as the local strength of the Santa Barbara hotel market. The change in method of counting has also had an impact on the calculated average room rates. Based on year to date and 1996 year-end numbers, the subject is forecasted to end 1997 with an occupancy of 82 percent and an average daily rate of $251.00. At this occupancy level, the subject is penetrating the market at 103 percent, slightly above its fair share. Penetration analysis Estimated occupancy levels for the subject resort have been projected on the basis of a market penetration analysis that is supported by our analysis of the competitive hotels and anticipated quality level of the subject hotel. Market penetration is defined as the actual capture of room demand in relation to the hotel's fair share of demand. Market penetration levels in excess of 100 percent of fair share suggest a hotel has competitive advantages while competitive weaknesses or positioning strategies are reflected in market penetration levels of less than 100 percent of fair market share. The actual penetration of each market segment by the subject property may deviate from fair market share for the following reasons: - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-12 - -------------------------------------------------------------------------------- > The competitive advantages or disadvantages of the subject resort, taking into consideration such factors as exclusivity, location, room rate structure, quality and extent of amenities offered, chain affiliation, quality of management, marketing efforts and image; > The characteristics and composition of each market segment; > The restraint on demand captured due to capacity constraints during certain periods of the week or season, or due to the accommodation of certain market segments; and, > Management decisions concerning target markets. Based on year to date results, we estimate that the subject will have an overall market penetration level of 103 percent and a corresponding occupancy of 82 percent in 1997. The subject's penetration is estimated to fluctuate during the projection period while the new supply is absorbed into the market. The subject's occupancy level is estimated to stabilize in 2001, the fifth year of the projection period. Based on our analysis, the subject's 1996 and stabilized market mix levels are presented below, followed by a discussion of the subject's estimated penetration by market segment. ================================================================================ Four Seasons Biltmore Hotel Market Mix and Penetration - -------------------------------------------------------------------------------- 1996 Stabilized Level - -------------------------------------------------------------------------------- Percentage Room Percentage Room Market Segment Mix Nights Penetration Mix Nights Penetration - -------------------------------------------------------------------------------- Transient 49 32,600 116 43 26,200 110 Group 51 34,600 91 57 35,400 103 ------ ------ ------ ------ ------ ------ Total 100% 67,200 102% 100% 61,600 106% - -------------------------------------------------------------------------------- Source: PKF Consulting and the Four Seasons Biltmore Hotel - -------------------------------------------------------------------------------- Transient: The transient market, which mainly consists of individual leisure travelers, represents the highest rated demand in the peak summer periods and on weekends throughout the year. The exclusivity of the Four Seasons Biltmore Hotel as well as the availability of recreational amenities are likely to continue to induce and sustain a substantial level of transient demand. The subject penetrated this segment at 116 percent of fair share in 1996. This segment is estimated to remain the strongest for the subject due to the superior product quality, the popularity of Santa Barbara as a tourist destination, and the property's proximity to Los Angeles, the main feeder market. We have estimated that the subject's transient penetration will stabilize at 110 percent beginning in 1999. The slight drop in penetration is the result of the new supply entering the market. In addition, we have assumed that the subject will change its mix slightly to maintain its position within the competitive market. (As presented above, the group segment is estimated to grow faster than transient demand.) The subject is projected to capture 43 percent of its total business once stabilizing it reaches a stabilized penetration and occupancy. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-13 - -------------------------------------------------------------------------------- Group: The Four Seasons Biltmore Hotel is expected to capture approximately 57 percent of its demand from the group market. This segment consists of high-end retreats, incentive trips, corporate meetings and a limited amount of association business. The subject's location, orientation, and recreational amenities compared to that of the competition is estimated to help the subject increase its position within the competitive market. Taking these factors into consideration, we have estimated a penetration rate at or above fair share upon stabilizing. In the competitive market, several properties have a significant amount of meeting space. Due to the enormous amount of meeting space in the competitive market, this segment is estimated to remain one of the most competitive. The subject penetrated the market at 91 percent in 1996. Although the subject has less meeting space than other competitive properties, the meeting facilities are above the competitive market standards. We have estimated group meeting segment penetration of 94 percent in 1997, decreasing to 90 percent in 1998 and 1999, increase back to 95 percent in 2000, before stabilizing at 103 percent beginning in 2001. ================================================================================ Penetration Analysis - -------------------------------------------------------------------------------- 1997 1998 1999 2000 2001 - -------------------------------------------------------------------------------- Available Room Nights Total Market 850,572 931,115 931,115 1,111,060 1,184,060 Four Seasons Biltmore 80,665 79,205 79,205 79,205 79,205 Fair Share 9.5% 8.5% 8.5% 7.1% 6.7% - -------------------------------------------------------------------------------- Penetration Transient 116 116 110 110 110 Group Meeting 94 90 90 95 103 Total 103% 101% 98% 101% 106% - -------------------------------------------------------------------------------- Room Nights Captured Transient 31,300 30,300 29,700 26,800 26,200 Group Meeting 34,700 32,800 33,900 33,000 35,400 Total 66,000 63,100 83,600 59,800 61,600 - -------------------------------------------------------------------------------- Estimated Occupancy 82% 80% 80% 76% 78% - -------------------------------------------------------------------------------- The subject is positioned in a competitive market where both supply and demand are anticipated to increase dramatically. We have estimated that the subject will achieve an overall penetration rate of 103 percent in 1997, which corresponds to an occupancy of 82 percent. The subject is estimated to experience a modest decrease in its market penetration in 1998 and 1999 as the rooms from the Four Seasons Aviara are absorbed into the market. The subject is estimated to achieve the stabilized occupancy of 78 percent beginning in 2001. At 78 percent occupancy, the subject's overall market penetration is 106 percent, which is reasonable given the subject's facilities, orientation, and mix. It is likely that the subject's occupancy will fluctuate above and below the 78 percent level. The stabilized level is meant to reflect an average over the long-term. The Four Seasons Biltmore Hotel is an exceptional hotel that has been carefully positioned in the market by its current ownership and management. The competitive strengths and weaknesses of the property can be summarized in the following text. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-14 - -------------------------------------------------------------------------------- Strengths > Location: The Four Seasons Biltmore Hotel is located in Santa Barbara, a destination which has a great deal of inherent appeal, outstanding tourist amenities, and a location within a two-hour drive of the Los Angeles market. Further, the property is located in a beautiful residential setting and cannot be replicated. > Facilities: The Four Seasons Biltmore's rambling Spanish hacienda-style buildings, oversized guest rooms, and gardens and open spaces would be nearly impossible to construct today due to the economics of today's hotel industry. The historical ambiance of the property, likewise, probably would not be replicated. > Quality of Service: The Four Seasons Biltmore has a consistently high service standard that has led to a higher frequency of repeat guests. The property's service offerings are at par or in excess of the other hotels within the competitive supply. The facility is consistently ranked among the top 15 resorts in the nation in surveys by Conde Nast. > History: Having been built in the 1920s and having a long-standing reputation in the Southern California community is a significant advantage to the property. Four Seasons Biltmore Hotel has been successful in translating this regional reputation to more of a national one. Competitive Disadvantages > Physical Plant: The magnificent, historical physical plant does have certain disadvantages that impact the property's performance. Guest bathrooms in most guestrooms are smaller than in comparable luxury resorts. The hotel's meeting space is spread throughout the hotel and is less flexible than meeting space in some of its competitors. On the other hand, the meeting space is much less generic than in newer hotels and, therefore, has greater appeal to meeting planners seeking a unique venue. While the hotel is in an oceanfront setting, the property does not physically orient itself towards the ocean. The wide front lawn and beach retaining wall partially obscure views of the ocean from the public space, and only a few of the guest rooms have actual ocean views. Compared to the Ritz-Carlton Laguna Niguel and the two Pebble Beach properties, this is somewhat of a disadvantage. However, the high quality of the gardens and courtyards where most of the hotel guestrooms are located mitigates some of this disadvantage and create a unique lush atmosphere for the hotel. > Recreational Amenities: While packages are available at the hotel with Santa Barbara area golf courses, the direct availability of a golf course at the resort is a marketing disadvantage, particularly in the Asian market. Average Daily Rate and Yield Analysis Our derivation of the average daily rate for the subject property in a stabilized year of operation is based primarily on the historical average daily rates achieved by the subject and the other hotel - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-15 - -------------------------------------------------------------------------------- properties in the competitive supply, and how these properties compare to the subject in terms of quality of facility, location, and mix of demand. The following table highlights the change in average daily rates for the competitive market and the subject and the resulting REVPAR and yield for 1993 through year to date 1997. - -------------------------------------------------------------------------------- Historical ADR, REVPAR, & Yield - -------------------------------------------------------------------------------- Market Subject REVPAR --------------------------------------------------------------------- Year ADR Change ADR Change Market Subject Yield - -------------------------------------------------------------------------------- 1992 $193.79 -- $190.86 -- $133.67 $132.27 99% 1993 196.61 5.1% 200.68 5.1% 136.79 137.87 101 1994 200.99 2.5% 205.74 2.5% 145.79 139.90 96 1995 209.70 -0.2% 205.34 -0.2% 157.42 151.75 96 1996 222.06 7.5% 220.79 7.5% 171.48 173.70 101 - -------------------------------------------------------------------------------- C.A.C.(1) 3.5% 3.7% 6.4% 7.0% - -------------------------------------------------------------------------------- (1) Compound annual change 1992 to 1996. Source: PKF Consulting - -------------------------------------------------------------------------------- The Four Seasons Biltmore has historically achieved an average daily rate consistent with the average of competitive market. However, from 1993 through 1996, the subject's rate averaged an annual increase of 3.7 percent, while the competitive market had rate growth of 3.5 percent. In 1996 the subject's average daily rate increased 7.5 percent and year to date 1997 reflects an increase of 14.6 percent over the same period last year. The jump in average rates is attributed to subject's management, which has driven the rack rates, the strength of the competitive market, and the strength of the Santa Barbara hotel market. The Four Seasons Biltmore is projected to finish 1997 at an average rate of $251.00, 13.7 percent above the 1996 average rate. With demand growing in both the competitive market and the subject's immediate sub-market, we estimate that the subject will improve its average daily rate above inflation through 2001. We have estimated that the average daily rate will increase to $271.00 in 1998, an increase of 8.0 percent over 1997. The average daily rate in 1999 and 2000 is estimated at $287.00 and $299.00. The subject's average rate is estimated to increase with inflation beginning in 2001. The following table summarizes our estimates of the subject's average rate growth for the period 1997 to 2006. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-16 - -------------------------------------------------------------------------------- ================================================================================ Inflated Subject Inflation Room Property Subject Percent Year Factor Rate Occupancy REVPAR Change - -------------------------------------------------------------------------------- 1997 0.0% $251.00 82.0% $205.82 1998 8.0 271.00 80.0 216.80 5.3% 1999 6.0 287.00 80.0 229.60 5.9 2000 4.0 299.00 76.0 227.24 (1.0) 2001 3.0 308.00 78.0 240.24 5.7 2002 3.0 317.00 78.0 247.26 2.9 2003 3.0 327.00 78.0 255.06 3.2 2004 3.0 336.00 78.0 262.08 2.8 2005 3.0 347.00 78.0 270.66 3.3 2006 3.0 357.00 78.0 278.46 2.9 - -------------------------------------------------------------------------------- Source: PKF Consulting - -------------------------------------------------------------------------------- As can be seen in the table above, we have estimated the stabilized average room rate of the Four Seasons Biltmore at $251.00, stated in 1997 dollars. To test our revenue projections for reasonableness, we have also employed a variation of the penetration analysis, called a revenue yield analysis that takes into account both the occupancy and average daily rate performance. Presented in the following table is a summary of the subject's estimated performance with regard to revenue yield. ================================================================================ Projected ADR, REVPAR. & Yield - -------------------------------------------------------------------------------- Market Subject REVPAR --------------------------------------------------------------------- Year ADR Change ADR Change Market Subject Yield - -------------------------------------------------------------------------------- 1997 $240.00 8.0% $251.00 13.7% $189.60 $205.82 109% 1998 254.00 6.0 271.00 8.0 200.66 216.80 108 1999 267.00 5.0 287.00 6.0 218.94 229.60 105 2000 278.00 4.0 299.00 4.0 208.50 227.24 109 2001 286.00 3.0 308.00 3.0 208.78 240.24 0115 - -------------------------------------------------------------------------------- C.A.C.(1) 4.5% 5.2% 2.4% 3.9% - -------------------------------------------------------------------------------- (1) Compound annual change 1997 to 2001. Source: PKF Consulting - -------------------------------------------------------------------------------- Historically, the subject's occupancy and average daily rate had resulted in REVPAR penetration rates in the 96 to 101 percent range. Our forecast of occupancy and rate indicate that the revenue yield for the subject will increase through 2001 before stabilizing. Revenue yield for the subject is estimated to be to 109 percent of fair share in 1997 increasing to 115 percent beginning in 2001. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-17 - -------------------------------------------------------------------------------- HIGHEST AND BEST USE The appraisal of real estate always includes a determination of highest and best use. According to the Appraisal Institute's Dictionary of Real Estate Appraisal (Third Edition), 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 the legal permissibility, physical possibility, financial feasibility and maximum profitability. As noted above, in determining highest and best use, there are essentially four criteria that must be considered. Each of these criteria must be satisfied sequentially in order to arrive at a highest and best use conclusion. 1. Legally Permissible: The use of a site can be limited by various private and public restrictions including zoning and building codes, environmental regulations, and deed or lease restrictions, among other things. 2. Physically Possible: Use is restricted by the physical characteristics of the site. Characteristics include, but are not limited to size, shape, terrain, soil composition, and accessibility of utilities. 3. Financially Feasible: The ability of a project or an enterprise to meet defined investment objectives; an investment's ability to produce sufficient revenue to pay all expenses and charges and to provide a reasonable return on and recapture of money invested. 4. Maximally Profitable: This item refers to that use that produces the highest price, or value, consistent with the rate of return warranted by the market. Since the subject property is currently improved, it is necessary to consider the highest and best use of the site as if vacant, in addition to its optimal use as improved. The highest and best use as if vacant is analyzed first. HIGHEST AND BEST USE AS IF VACANT Legally Permissible Legal restrictions as they apply to the subject property are private restrictions, in the case of covenants, and the public restrictions of zoning regulations. There are no known private restrictions affecting title. Common restrictions, such as utility easements do exist; however, they do not affect the development potential of the subject site. The 18.3 acre land area is classified "CV," Resort-Visitor Serving Commercial by the County of Santa Barbara. Under this designation, the permitted uses include hotels and motels; light commercial uses, provided such commercial activities are so designated and limited as to be incidental; recreational facilities, such as boat docks, golf courses, parks, and beach clubs; in-house - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-18 - -------------------------------------------------------------------------------- child care centers; and incidental and accessory uses, buildings and structures. According to the County of Santa Barbara Department of Planning, the Four Seasons Biltmore as it exists today either complies with all approved conditional use permits which were established within one year after approval, or it is a legal non-conforming use. The Coral Casino structure, including height and parking, was approved by the County Planning Commission in April 1987. Physically Possible The second constraint imposed on the possible use of the site is dictated by the physical aspects of the site itself, such as size, frontage, topography, and accessibility. The size and location within a given block are the most important determinants of value. In general, the larger the site, the greater its potential to achieve economies of scale and flexibility in development. The subject site encompasses 18.267 acres (795,733 square feet) of beachfront land in four parcels. The site is generally at grade, and of sufficient length and width to permit most types of development. All types of improvements suitably scaled to the site are physically possible. However, given the affluent character of the local area, a destination resort or luxury residential homes would be the most complementary type of development to the area in which the site is located. Financially Feasible and Maximally Productive Financial feasibility is based on whether the proposed project will attain a cash flow of sufficient quantity, quality, and duration to allow investors to recover the capital invested and achieve the necessary and expected rate of return. Factors to be considered are the timing of inflows and outflows of cash, revenues, costs, debt service, and the proceeds of a sale or refinancing. The demand for coastal luxury resorts has been historically strong due to the very limited supply of this type of facility and the significant demand for beachfront accommodations. While the recession has impacted the coastal resort market during the 1990s, the recent economic improvement has allowed the market to regain its past strength and continue to experience moderate levels of growth. For various reasons including the limited availability of financing, there are no resorts under construction, with the exception of the Santa Barbara Resort Club and Spa. The capital for real estate, particularly hotels, has, until recently, been limited in supply and the long entitlement process found in many California municipalities continue to limit the growth of new resort development. Furthermore, resort development in the coastal zone is extremely difficult due to the stringent coastal commission regulations and community opposition. Given the recent upturn in the financing markets for hotels, along with the demonstrated strength in the market, we believe that the highest best use as vacant would be for resort hotel development. HIGHEST AND BEST USE "AS IMPROVED" The subject site is currently improved with a luxury resort. Construction of the building began in the mid-1920s, and there have been additions to the property while at the same time the historic significance has been preserved. The facility is in excellent physical conditions with the most recent renovation having occurred from 1988 to 1990. The hotel is highly competitive with the California coastal luxury resort market. As built, the property represents the most optimal use of the - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-19 - -------------------------------------------------------------------------------- site. There is no alternative, legal use that could economically justify the removal of the existing improvements. Therefore, the current use of the subject property represents the highest and best use of the improved property. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V VALUATION - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-1 - -------------------------------------------------------------------------------- VALUATION Estimating the market value of real property involves a systematic process in which the problem is defined, the work necessary to solve the problem is planned, and the essential data is acquired, analyzed, and interpreted. The appraisal of real estate can include the Cost, Sales Comparison, and Income Capitalization Approaches to value, with the conclusion of value based on the reconciliation of these approaches. An explanation of each approach follows. COST APPROACH In the Cost Approach, the value is based on the estimate of the cost of reproducing the improvements, less any accrued depreciation from physical deterioration, functional obsolescence, and/or external obsolescence. Physical deterioration measures the deterioration of the physical improvements. Functional obsolescence reflects a lack of desirability by reason of layout, style, or design; while external obsolescence denotes a potential loss in value caused from something other than the physical property itself. The value of the land is then added to the depreciated replacement cost of the property to develop a value estimate. SALES COMPARISON APPROACH This approach is based on the principle of substitution. When a property is replaceable within the market, its value tends to be set at the cost of acquiring an equally desirable substitute property, assuming no costly delay in making the substitution. Since no two properties are identical, adjustments are made for differences in quality, location, size, services, and market appeal between the comparable properties and the subject. INCOME CAPITALIZATION APPROACH The Income Capitalization Approach involves a valuation of the property in terms of its ability to provide a net annual income in dollars. Traditionally, the estimated net annual stabilized income is capitalized into value at a rate commensurate with the risk involved in ownership of the property. This process is known as direct capitalization. Another technique used in estimating value by the Income Capitalization Approach is the discounted cash flow method. This method is accepted in the marketplace and has become an essential tool of the most prudent investors of income producing properties in the 1990s. This technique involves explicit year-by-year forecasting of net income (cash flow) over a typical holding period. In addition, the reversionary value of the property upon resale at the end of the holding period is then estimated and added to the final year's cash flow. Then, these benefits are discounted to a present value by applying a market-derived yield rate (discount rate). VALUATION OF THE SUBJECT PROPERTY In our analysis of the subject property, we have used two of the three traditional approaches to value. The effective date of valuation of the report is as of October 1, 1997, under economic conditions prevailing as of the same date. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-2 - -------------------------------------------------------------------------------- The Cost Approach is defined in The Dictionary of Real Estate Appraisal, Third Edition (Appraisal Institute, 1993) as: A set of procedures through which a value indication is derived from the fee simple interest in a property by estimating the current cost to construct a reproduction of, or replacement for, the existing structure; deducting accrued depreciation from the reproduction or replacement cost; and adding the estimated land value p1us an entrepreneurial profit. Adjustments may then be made to the indicated fee simple value of the subject property to reflect the value of the property interest being appraised. We believe that a value utilizing the Cost Approach would not be a reliable indicator of value of the subject property as typical investors in income-producing property in the market today are not relying on the Cost Approach to arrive at a value indication when determining a purchase price. With regard to the subject, a lack of recent comparable land sales in the vicinity of Santa Barbara makes an estimation of the current market value of the subject site difficult to ascertain. Further, the Cost Approach is primarily used in today's market to test the feasibility of new construction in relation to the estimation of value produced by the Income Capitalization Approach. Finally, accrued depreciation estimates that must be determined for the subject property under the Cost Approach would be subjective and without adequate market support. In the Sales Comparison Approach, relevant sales of hotels were analyzed, and appropriate adjustments were considered for such factors as property rights conveyed, financing terms, conditions of sale, renovations, and physical characteristics. In the Income Capitalization Approach, the value of the property is based on analysis of the income and expenses generated by the operation of the facility. The value of the property was estimated using a discounted cash flow analysis. We then performed a reconciliation of the value indications under these approaches to conclude to a final estimate of value. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-3 - -------------------------------------------------------------------------------- SALES COMPARISON APPROACH INTRODUCTION The Sales Comparison Approach is based on the premise that knowledgeable investors will pay no more for a specific property than the cost of acquiring a substitute property of equal utility. The basis for this analysis is a comparison of the subject to the sale of other similar facilities. Key elements in an analysis of the value of the subject based on the Sales Comparison Approach are the location of the property, physical elements of the improved property, as well as the motivations of the buyer and the seller underlying the transaction. The reliability of this technique depends on the degree of comparability of each sale to the property being appraised, the length of time since the sale, the accuracy of the sales data, and the absence of any unusual conditions affecting the sale. By analyzing sales that qualify as arms-length transactions between willing, knowledgeable buyers and sellers, one can identify market value and price trends. The basic steps involved in the application of this approach are as follows: 1) Recent research, relevant property sales, and current offerings throughout the competitive area; 2) Select and analyze those properties considered most similar to the subject, giving consideration to the time of sale, any change in economic conditions which may have occurred since the date of sale, and other physical, functional or locational factors; 3) Reduce the sales price to a common unit of comparison; 4) Identify sales which include favorable financing and calculate the cash equivalent price; 5) Make appropriate adjustments to equate to comparable properties to the property appraised; and, 6) Interpret the adjusted sales data and draw a logical value conclusion. We have reviewed a number of recent hotel sales and focused on those sales considered most comparable in providing support for the market value of the subject. Hotel Sales Our search for hotel sales was initially limited to California; however, due to the limited number of recent comparable hotel sales in the area, our search was widened to include the sale of similar hotels located throughout the United States. Based on this search, eight sales were identified to use as the basis for our valuation of the subject under this approach. Presented on the following table is a summary of the selected comparable hotels, all of which occurred between February 1996 and September 1997. Details of each hotel sale are presented on the following pages. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-4 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> ================================================================================ Comparable Sales Summary - ------------------------------------------------------------------------------------------------------------------------- Date of Number of Sale Price Per Room Revenue Cap. Interest Name of Property Sale Rooms Price Room Multiplier Rate(1) Conveyed - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Le Meridian, Coronado 9/97 300 $60,000,000 $200,000 4.8 6.0% Leasehold Hotel Del Coronado, Coronado 8/97 692 330,000,000 476,879 8.8 N/A Fee Simple Ritz Carlton, Laguna Niguel 8/97 393 $225,000,000 572,519 8.2 8.5 Fee Simple Ritz Carlton, Marina Del Rey 1/97 306 56,600,000 184,967 3.6 9.9 Leasehold Sonoma Mission Inn & Spa, Sonoma 11/96 168 53,400,000 317,857 5.9 9.7 Fee Simple Four Seasons, New York 8/96 370 191,300,000 517,027 4.6 N/A Leasehold Mayfair Hotel, New York 5/96 201 61,000,000 303,483 4.6 N/A Fee Simple Regent Beverly Wilshire, Beverly Hills 2/96 279 $105,000,000 376,344 5.2 5.7 Fee Simple - ------------------------------------------------------------------------------------------------------------------------- (1) Most recent year performance. Source: PKF Consulting - ------------------------------------------------------------------------------------------------------------------------- </TABLE> - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-5 - -------------------------------------------------------------------------------- Comparable Hotel Sale No.1 - -------------------------------------------------------------------------------- Property Name: Le Meridien Location: 2000 Second Street Coronado, California Number of Guest Rooms: 300 Year Opened: 1988 Sales Information Grantor: N/A Grantee: Host Marriott Interest Conveyed: Leasehold Closing Date: September 1997 Sale Price: $60,000,000 Sale Price Per Room: $200,000 Terms of Sale: All Cash Room Revenue Multiplier: 4.8 (based on 1996 actuals) Capitalization Rate: 6.0% Amenities: 7,500 square feet of indoor meeting space, 1,200 square feet of outdoor meeting space, two restaurants, lounge, full-service spa, three outdoor swimming pools, business center, and gift shop. - -------------------------------------------------------------------------------- Comparable Hotel Sale No.2 - -------------------------------------------------------------------------------- Property Name: Hotel Del Coronado Location: 1500 Orange Avenue Coronado, California 92118 Number of Guest Rooms: 692 Year Opened. 1888/1974 Sales Information: Grantor: Travelers Group Inc. Grantee: Lowe Enterprises Inv. Mgmt. (on behalf of pension fund clients) Interest Conveyed: Fee Simple Closing Date: August 1997 Sale Price: $330,000,000 Sale Price Per Room: $476,879 Terms of Sale: All Cash Room Revenue Multiplier: 8.77 (based on 1996 actuals) Capitalization Rate: N/A Amenities: Located on Coronado Beach, the property offers 66,000 square feet of meeting space, business center, nine restaurants, two lounges, six tennis courts, two swimming pools, a health spa, a marina, and golf facilities across the street. Remarks: This transaction includes the right to develop timeshare on the site, which has reportedly driven up the value. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-6 - -------------------------------------------------------------------------------- Comparable Hotel Sale No.3 - -------------------------------------------------------------------------------- Property Name: Ritz Carlton Laguna Niguel Location: 33533 Ritz Carlton Drive Dana Point, California 92629 Number of Guest Rooms: 393 Year Opened: 1983 Sales Information Grantor: Prutel Joint Venture Grantee: Whitehall Group, Ltd. Interest Conveyed: Fee Simple Closing Date: August 1997 Sale Price: $225,000,000 Sale Price Per Room: $572,519 Terms of Sale: All Cash Room Revenue Multiplier: 8.2 (based on 1996 actuals) Capitalization Rate: 8.5% Amenities: 198,000 square foot parking garage, four restaurants, lounge, two outdoor pools, outdoor hot tubs, 2-mile beach, golf course access, 31,109 square feet of meeting space, health facility, business center, beauty salon, four tennis courts, and gift shop. Remarks: The hotel is a luxury destination resort on an oceanfront bluff above the Pacific Ocean south of Laguna Beach, California. AAA rates the hotel as five-star. - -------------------------------------------------------------------------------- Comparable Hotel Sale No.4 - -------------------------------------------------------------------------------- Property Name: Ritz Carlton Location: 4375 Admiralty Way Marina Del Rey, California Number of Guest Rooms: 306 Year Opened: 1990 Sales Information: Grantor: Martel, California Grantee: HMH Properties, Inc. Interest Conveyed: Leasehold Closing Date: January 28, 1997 Sale Price: $56,600,000 Sale Price Per Room: $184,967 Terms of Sale: All Cash Room Revenue Multiplier: 3.6 (based on 1996 actuals) Capitalization Rate: 9.9% Amenities: Restaurants, health club and spa and 12,000 square feet of meeting space. Remarks: The buyer, Host Marriott plans to spend $1.0 million on renovation in 1997. Based on conversations with the buyer the lease is considered to be at market levels. Adjusting for the leasehold assuming a 9.0 percent return to the land results in a price per room of $245,700 for the fee simple interest in the hotel. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-7 - -------------------------------------------------------------------------------- Comparable Hotel Sale No.5 - -------------------------------------------------------------------------------- Property Name: Four Seasons New York Location: 57 East 57th Street New York, New York Number of Guest Rooms: 370 Sales Information: Grantor: 57 East 57 Associates Grantee: Polylinks Interest Conveyed: Leasehold Closing Date: August 1996 Sale Price: $191,300,000 Sale Price Per Room: $517,027 Terms of Sale: All Cash Room Revenue Multiplier: 4.6 (based on 1995 actuals) Capitalization Rate: N/A Amenities: Subject is located in Manhattan. Facilities include restaurant, bar, 7,500 square feet of meeting space, business center, fitness center, and spa. Remarks: The same group that purchased the Regent Beverly Wilshire purchased the property. It is our understanding that the sale was an all-cash purchase of the leasehold interest in the property. - -------------------------------------------------------------------------------- Comparable Hotel Sale No.6 - -------------------------------------------------------------------------------- Property Name: Sonoma Mission Inn & Spa Location: Sonoma, California Number of Guest Rooms: 168 Year Opened: 1927 Sales Information Grantor: Rahn Properties Grantee: Crescent REIT Interest Conveyed: Fee Simple Closing Date: November 18, 1996 Sale Price: $53,400,000 Sale Price Per Room: $317,857 Terms of Sale: Cash plus assumption of debt Room Revenue Multiplier: 5.9 Capitalization Rate: 9.7% Amenities: 7,000 square feet of meeting space, 13,000 square foot spa complex, two restaurants, and two retail outlets. Remarks: The resort was acquired for $53.4 million, including the issuance of $25.2 million of operating partnership units and assumption of debt, which the Company subsequently retired for $19.0 million. A $10.0 million expansion and enhancement of the resort is currently in process, including the addition of 30 suites during 1997. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-8 - -------------------------------------------------------------------------------- Comparable Hotel Sale No.7 - -------------------------------------------------------------------------------- Property Name: Mayfair Hotel Location: 610 Park Avenue at East 65th Street New York, New York Number of Guest Rooms: 201 (including 105 suites) Sales Information Grantor: Investment Group led by Norman Perlmutter Grantee: Investment Group led by Colony Capital Interest Conveyed: Fee simple Closing Date: May 1996 Sale Price: $61,000,000 (plus an estimated $30,000,000 in required renovations) Terms of Sale: All Cash Unrenovated Renovated ----------- --------- Sale Price Per Room: $303,483 $452,736 Room Revenue Multiplier: 4.6 6.9 Capitalization Rate: N/A N/A Amenities: Subject is located on Manhattan's Upper East Side. Facilities include restaurant, bar, meeting rooms, business services, fitness center with putting green, and some rooms with fireplaces. Remarks: Teachers Insurance and Annuity Association (TIAA) held first mortgage position on property. Mortgage had accrued to $96.0 million and TIAA was in process of taking property back. Property was purchased by Colony at New York State Court auction. Hotel is known for luxury and gracious, low-key service. Several years ago, the property garnered one of the City's highest ADRs, but position has fallen in recent years. It is estimated that the capital infusion can return the property to top-rated tier. - -------------------------------------------------------------------------------- Comparable Hotel Sale No.8 - -------------------------------------------------------------------------------- Property Name: Regent Beverly Wilshire Location: 9450 Wilshire Boulevard Beverly Hills, California 90212 Number of Guest Rooms: 279 (387 as renovated) Year Opened: 1928/1971 Sales Information Grantor: Regent International Hotels Grantee: Polylinks Interest Conveyed: Fee Simple Closing Date: February 1996 Sale Price: $105,000,000 (plus an estimated $7,400,000 in required renovations) Terms of Sale: All Cash Unrenovated Renovated ----------- --------- Sale Price Per Room: $376,344 $290,439 Room Revenue Multiplier: 5.2 5.6 Capitalization Rate: 5.7% 5.4% Amenities: Subject is 278-room luxury hotel located on Wilshire Boulevard between Rodeo and El Camino Drives in the heart of Beverly Hills. Hotel includes two restaurants, lobby lounge, pool, spa, 25,000 square feet of meeting, gift shop, and retail space. Remarks: Hotel was purchased by Regent International in 1985 for $125.0 million. Wilshire Wing was renovated in 1987 and Beverly Wing was renovated (up to sixth level) between 1990-1991. Total cost of renovation was estimated at $16.0 million. Long-term renovation plans include renovation and reopening of floors 7-12 in Beverly Wing, which will bring room count to 387. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-9 - -------------------------------------------------------------------------------- ANALYSIS OF HOTEL SALES Sale No. 1, the Le Meridien has been included because it a very recent transaction in Southern California. The physical product is inferior to the subject and the sales price of $200,000 per room was for the leasehold interest in the property. In comparison to the subject, an adjustment upwards would be necessary to reflect the fee simple interest and a comparable quality level. Sale No. 2 is the sale of the Hotel Del Coronado to Lowe Enterprises Investment Management. This hotel was built in 1888 and is listed as a National Historic Landmark. The property sold last month for a reported $333 million, or $476,879 per room. The sale of the fee simple interest in the property included development rights to construct timeshare units on the site, which has increased the property value. An adjustment is necessary to account for the property's development rights and for being in a higher rated market. Sale No. 3 is the Ritz Carlton in Laguna Niguel. This August 1997 sale of the fee simple interest in the property was $572,519 per room, the highest price per room of all the comparable sales. This is the closest sale to the subject in terms of the physical quality level, ocean-orientation, competitive positioning, and performance. Sale No. 4 is the Ritz Carlton in Marina Del Rey. This January 1997 sale of the leasehold interest was 184,967 per room. In comparison to the subject this property requires an upward adjustment for the fee simple interest in addition to the inferior physical characteristics (the subject has more recreational amenities and higher quality landscaping and grounds). Sale No. 5 is the Four Seasons New York located in Manhattan. This hotel sold in August 1996 for $517,027 per room, the second highest price on a per room basis. Adjustments are necessary to account for the leasehold interest in the subject is located in a resort market. The comparables' location requires a downward adjustment being in a higher rated market. The sale price per room is $134,408, but was recently renovated. Sale No. 6 is the Sonoma Mission Inn & Spa. This property sold on November 18, 1996 and the transaction included cash plus the assumption of debt. This property was acquired for $53.4 million, or $317,857 per room by Crescent Real Estate Investment Trust. Sale No. 7 is the Mayfair hotel. Located in Manhattan's Upper East Side, the Mayfair Hotel sold in May 1996 for $303,483 per room. The buyer, an Investment Group led by Colony Capital, invested a reported $30.0 million in required renovations after the sale. This brings the total price up to $452,736 per room. Sale No. 8, the Regent Beverly Wilshire sold for $105,000,000 in February 1996. The buyer, Polylinks out of New York, spent an additional $7,400,000 in renovations, which included adding guestrooms to the existing inventory (from 279 to 387 units). With the additional units (and renovation), the total price per room drops to $290,439. Price Per Room Analysis Of the five sales presented, Sale Nos. 1, 2 and 3 are the best indication of value for the subject property because of their coastal California position, recent date of transfers, full service resort amenities, and general condition and quality level. These sales range from $476,879 to $572,519 per room. Based on an analysis of these two sales, we estimate a value for the subject in the range of $500,000 per room. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-10 - -------------------------------------------------------------------------------- In reviewing the comparable hotels presented above, it is evident that the adjustments which would be required for such items as location, age, quality of facilities, amenities available, condition at the time of sale and terms of the sales would be extensive and extremely subjective. If attempted, the reliability of the resulting indication of value would be low. However, the results of our comparable hotel sales research can provide a range in sales price per room from which to test the reasonableness of the Income Capitalization Approach. The price per room value for the subject property based on the Income Capitalization Approach is $90,500,000, or $417,050 per room. This value places the subject property at the upper end of the sales price range, but below the two most recent California coastal resort sales. Based on the above analysis, we estimate that the market value of the subject property using the Sales Comparison Approach is inconclusive, but supportive of the value derived by the Income Capitalization Approach. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-11 - -------------------------------------------------------------------------------- INCOME CAPITALIZATION APPROACH The Income Capitalization Approach is defined in the Dictionary of Real Estate (third edition), Appraisal Institute as follows: A set of procedures through which an appraiser derives a value indication for income-producing property by converting anticipated benefits (cash flows and reversion) into property value. This conversion can be accomplished in two ways. One year's income expectancy can be capitalized at a market-derived capitalization rate or a capitalization rate that reflects a specified income pattern, return on investment, and change in the value of the investment. Alternatively, the annual cash flows for the holding period and the reversion can be discounted at a specified yield rate. For the purpose of our valuation of the subject, we have utilized discounted cash flow analysis. Based on our discussions with persons familiar with the purchase and sale of hotels such as the subject, this approach is considered the most appropriate method of income capitalization for a hotel property like the subject property. The first method, which is typically referred to as the direct capitalization technique, is a less involved process that is commonly utilized by investors for a hotel property that is still transitioning into a stabilized operating level. METHODOLOGY In order to estimate the value of the subject through the Income Capitalization Approach, we first estimate the expected operating performance of the property in a representative, stabilized year of operation. The stabilized year represents the results of the property adjusted for efficiencies that are possible or planned for the future. Each income and expense item is analyzed in detail using industry standards, as well as information on the property's past performance. The figures for the stabilized year are in "current value" (1997) dollars. With the discounted cash flow analysis, the value is obtained as a present value of the net operating income of the property in each year of the holding period and the present value of the property when sold at the end of the holding period (the reversion). The present value of these elements is obtained by using a market derived discount rate. The value of the reversion is obtained through the capitalization of the adjusted income in the year following the holding period, with a deduction for the costs of sale. Historical Operating Results Presented on the following pages are the historical operating statements of the subject for calendar years 1995 and 1996, and the year-to-date (January through August) results for 1996 as compared to the same period in 1997. These statements reflect income before the deduction of interest, depreciation, amortization, taxes on income, and reserves for capital replacements. While these figures are not from audited financial statements, we have assumed that they are accurate. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> <TABLE> <CAPTION> Four Seasons Biltmore - 1995 Four Seasons Biltmore - 1996 Rooms 234 ROOMS 234 OCCUPANCY 73.9% OCCUPANCY 78.7% ADR $205.24 ADR $220.79 DAYS 365 DAYS 366 AMOUNT AMOUNT AMOUNT % P.O.R.(4)/P.A.R.(5) AMOUNT % P.O.R.(4)/P.A.R.(5) <S> <C> <C> <C> <C> <C> <C> OPERATING DEPARTMENTS REVENUES (4) Rooms $12,963,300 46.6% $205.38 $14,886,800 46.7% $220.87 Food $11,243,900 40.4% $178.14 $12,833,700 40.3% $190.41 Coral Casino $ 2,203,200 7.9% $ 34.91 $ 2,557,600 8.0% $ 37.95 Telecommunications $ 455,400 1.6% $ 7.22 $ 516,000 1.6% $ 7.66 Other Operated Departments $ 880,000 3.2% $ 13.94 $ 979,800 3.1% $ 14.54 Rentals and Other Income $ 74,400 0.3% $ 1.18 $ 96,100 0.3% $ 1.43 ----------- ------ ------- ----------- ------ ------- Total Revenues $27,820,200 100.00% $440.76 $31,870,000 100.00% $472.84 ----------- ------ ------- ----------- ------ ------- DEPARTMENTAL EXPENSES (1), (4) Rooms $ 3,078,400 23.7% $ 48.77 $ 3,329,400 22.4% $ 49.40 Food $ 8,965,100 79.7% $142.04 $ 9,979,600 77.8% $148.06 Coral Casino $ 1,267,700 57.5% $ 20.08 $ 1,457,200 57.0% $ 21.62 Telecommunications $ 274,100 60.2% $ 4.34 $ 307,300 59.6% $ 4.56 Other Operated Departments $ 441,300 50.1% $ 6.99 $ 489,100 49.9% $ 7.26 ----------- ------ ------- ----------- ------ ------- Total Departmental Expenses $14,026,600 50.4% $222.23 $15,562,600 48.8% $230.89 ----------- ------ ------- ----------- ------ ------- TOTAL OPERATING PROFIT (4) $13,793,600 49.6% $218.54 $16,307,400 51.2% $241.94 ----------- ------ ------- ----------- ------ ------- UNDISTRIBUTED OPERATING EXPENSES (5) Administrative & General $ 1,843,600 6.6% $ 7,879 $ 2,291,400 7.2% $ 9,766 Marketing $ 1,809,400 6.5% $ 7,732 $ 1,908,700 6.0% $ 8,135 Property Operations and Maintenance $ 1,626,600 5.8% $ 6,951 $ 1,807,300 5.7% $ 7,702 Utility Costs $ 718,900 2.6% $ 3,072 $ 692,700 2.2% $ 2,952 ----------- ------ ------- ----------- ------ ------- Total Undistributed Operating Expenses $ 5,998,500 21.6% $25,635 $ 6,700,100 21.0% $28,555 ----------- ------ ------- ----------- ------ ------- INCOME BEFORE FIXED CHARGES (5) $ 7,795,100 28.0% $33,312 $ 9,607,300 30.1% $40,945 ----------- ------ ------- ----------- ------ ------- FIXED CHARGES (2), (5) Management Fees (Base) $ 1,018,400 3.7% $ 4,352 $ 765,300 2.4% $ 3,262 Property Taxes $ 730,700 2.6% $ 3,123 $ 415,000 1.3% $ 1,769 Insurance $ 622,500 2.2% $ 2,660 $ 346,000 1.1% $ 1,475 Incentive Management Fees $ 642,800 2.2% $ 2,747 $ 115,500 0.4% $ 492 ----------- ------ ------- ----------- ------ ------- Total Fixed Charges $ 3,014,400 10.8% $12,882 $ 1,641,800 5.2% $ 6,997 ----------- ------ ------- ----------- ------ ------- INCOME BEFORE OTHER FIXED CHARGES (3), (5) $ 4,780,700 17.2% $20,430 $ 7,965,500 25.0% $33,948 ----------- ------ ------- ----------- ------ ------- RESERVE FOR REPLACEMENT (5) $ 1,112,800 4.0% $ 4,756 $ 1,270,800 4.0% $ 5,416 ----------- ------ ------- ----------- ------ ------- INCOME AFTER RESERVE BUT BEFORE OTHER CHARGES (5) $ 3,667,900 13.2% $15,675 $ 6,694,700 21.0% $28,532 =========== ====== ======= =========== ====== ======= </TABLE> Notes: (1) Each departmental expense ratio is based on the department's estimated revenues. (2) Fixed charges do not include interest expense, depreciation, amortization or income tax. (3) Income before reserve for replacement, interest, depreciation, amortization and income tax. (4) Amount Per Occupied Room (P.O.R.) (5) Amount Per Available Room (P.A.R.) Source: Four Seasons Biltmore Hotel <PAGE> <TABLE> <CAPTION> Four Seasons Biltmore - 1995 Four Seasons Biltmore - 1996 Rooms 223 ROOMS 234 OCCUPANCY 82.5% OCCUPANCY 79.8% ADR $252.10 ADR $220.04 DAYS 243 DAYS 244 AMOUNT AMOUNT AMOUNT % P.O.R.(4)/P.A.R.(5) AMOUNT % P.O.R.(4)/P.A.R.(5) <S> <C> <C> <C> <C> <C> <C> OPERATING DEPARTMENTS REVENUES (4) Rooms $11,278,800 46.6% $252.29 $10,026,100 47.9% $220.05 Food $ 9,323,100 38.5% $208.54 $ 8,077,000 38.6% $177.27 Coral Casino $ 2,070,000 8.6% $ 46.30 $ 1,791,100 8.6% $ 39.31 Telecommunications $ 362,200 1.5% $ 8.10 $ 354,800 1.7% $ 7.79 Other Operated Departments $ 1,084,600 4.5% $ 24.26 $ 624,200 3.0% $ 13.70 Rentals and Other Income $ 71,600 0.3% $ 1.60 $ 61,100 0.3% $ 1.34 ----------- ------ ------- ----------- ------ ------- Total Revenues $24,190,300 100.00% $541.10 $20,934,300 100.00% $459.46 ----------- ------ ------- ----------- ------ ------- DEPARTMENTAL EXPENSES (1), (4) Rooms $ 2,327,100 20.6% $ 52.05 $ 2,220,200 22.1% $ 48.73 Food $ 6,937,600 74.4% $155.18 $ 6,439,500 79.7% $141.33 Coral Casino $ 1,094,400 52.9% $ 24.48 $ 974,300 54.4% $ 21.38 Telecommunications $ 205,400 56.7% $ 4.59 $ 197,300 55.6% $ 4.33 Other Operated Departments $ 549,500 50.7% $ 12.29 $ 336,700 53.9% $ 7.39 ----------- ------ ------- ----------- ------ ------- Total Departmental Expenses $11,114,000 45.9% $248.60 $10,168,000 48.6% $223.17 ----------- ------ ------- ----------- ------ ------- TOTAL OPERATING PROFIT (4) $13,076,300 54.1% $292.50 $10,766,300 51.4% $236.30 ----------- ------ ------- ----------- ------ ------- UNDISTRIBUTED OPERATING EXPENSES (5) Administrative & General $ 1,665,900 6.9% $11,221 $ 1,452,500 6.9% $ 9,285 Marketing $ 1,294,400 5.4% $ 8,719 $ 1,269,600 6.1% $ 8,116 Property Operations and Maintenance $ 1,232,100 5.1% $ 8,299 $ 1,212,300 5.8% $ 7,750 Utility Costs $ 458,800 1.9% $ 3,090 $ 465,100 2.2% $ 2,973 ----------- ------ ------- ----------- ------ ------- Total Undistributed Operating Expenses $ 4,651,200 19.2% $31,329 $ 4,399,500 21.0% $28,125 ----------- ------ ------- ----------- ------ ------- INCOME BEFORE FIXED CHARGES (5) $ 8,425,100 34.8% $56,749 $ 6,366,800 30.4% $40,701 ----------- ------ ------- ----------- ------ ------- FIXED CHARGES (2), (5) Management Fees (Base) $ 570,500 2.4% $ 3,843 $ 510,100 2.4% $ 3,261 Property Taxes $ 284,500 1.2% $ 1,916 $ 270,200 1.3% $ 1,727 Insurance $ 237,200 1.0% $ 1,598 $ 230,200 1.1% $ 1,472 Incentive Management Fees $ 0 0.0% $ 0 $ 0 0.0% $ 0 ----------- ------ ------- ----------- ------ ------- Total Fixed Charges $ 1,092,200 4.5% $ 7,357 $ 1,010,500 4.8% $ 6,460 ----------- ------ ------- ----------- ------ ------- INCOME BEFORE OTHER FIXED CHARGES (3), (5) $ 7,332,900 30.3% $49,392 $ 5,356,300 25.6% $34,241 ----------- ------ ------- ----------- ------ ------- RESERVE FOR REPLACEMENT (5) $ 967,600 4.0% $ 6,517 $ 837,400 4.0% $ 5,353 ----------- ------ ------- ----------- ------ ------- INCOME AFTER RESERVE BUT BEFORE OTHER CHARGES (5) $ 6,365,300 26.31% $42,875 $ 4,518,900 21.59% $28,888 =========== ====== ======= =========== ====== ======= </TABLE> Notes: (1) Each departmental expense ratio is based on the department's estimated revenues. (2) Fixed charges do not include interest expense, depreciation, amortization or income tax. (3) Income before reserve for replacement, interest, depreciation, amortization and income tax. (4) Amount Per Occupied Room (P.O.R.) (5) Amount Per Available Room (P.A.R.) Source: Four Seasons Biltmore Hotel <PAGE> Section V-Valuation V-14 - -------------------------------------------------------------------------------- Operating Statistics On Comparable Hotels In order to develop our estimate of the value of the subject, we have also utilized information from the operating performance of other comparable facilities. This information is primarily obtained from confidential information submitted in compilation of PKF Consulting's publication Trends in the Hotel Industry. Our composite is made up of four luxury hotels considered comparable with the subject, due to their location, size, market orientation, and hotel affiliation. For reasons of confidentiality, we cannot disclose the identity of the comparable hotels. Representative Year Estimates As indicated previously, we have estimated the performance of the subject for a representative, or stabilized year of operation. This estimate is primarily based on the historical operating results of the subject hotel and the performance of other comparable facilities. The basis for our stabilized year estimate is detailed in the following paragraphs and is stated in 1997 dollars. DEPARTMENTAL REVENUES AND EXPENSES In the Uniform System of Accounts, hotel revenues are categorized by the department from which they are derived. In the case of the subject, these include income from rooms, food and beverage, the Coral Casino, telephone, other operated departments, and the category of rentals and other income. In the Uniform System of Accounts, only direct operating expenses associated with each department are charged to the operating departments. General overhead items that are applicable to the overall operation of the facility are classified as undistributed operating expenses. Rooms Department Revenue and Expense Rooms Department Revenue Rooms revenue is based on the number of occupied rooms multiplied by the average daily room rate for each of the next ten years as presented in this report. As indicated in our previous analysis, we have estimated the stabilized average rate of the hotel to be $251.00, stated in 1997 dollars. Stabilized occupancy is estimated at 78 percent; therefore, gross rooms revenue in a typical year is calculated as follows: 217 rooms x 365 days x 78% occupancy x $251.00/day = $15,507,000 rounded The following table summarizes the average daily room rates (in 1997 value dollars), occupancies, and rooms revenues estimated for the projection period. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-15 - -------------------------------------------------------------------------------- ======================================================= Rooms Revenue ------------------------------------------------------- Average Daily Estimated Estimated Year Room Rate Occupancy Rooms Revenue ------------------------------------------------------- 1997 $251.00 82% $ 4,075,000(1) 1998 271.00 80 17,172,000 1999 287.00 80 18,185,000 2000 299.00 76 18,048,000 2001 308.00 78 19,028,000 2002 317.00 78 19,584,000 2003 327.00 78 20,202,000 2004 336.00 78 20,758,000 2005 347.00 78 21,438,000 2006 357.00 78 22,055,000 ------------------------------------------------------- (1) Based upon a three months of operations. ------------------------------------------------------- Rooms Department Expense Rooms expense consists of salaries and wages, employee benefits, commissions, contract cleaning, guest transportation, laundry and dry cleaning, linen, operating supplies, reservation costs, uniforms, complimentary benefits, and other items related to the rooms department operation. The cost per occupied room in 1996 was $49.40 per occupied room. The rooms expense is up for year to date 1997 over the same period in 1996 due to the substantial increase in average daily rate. The rooms expense at comparable hotels ranged from $38.23 and $61.17. Based on the comparable properties and a 78 percent stabilized occupancy, we estimate that rooms expenses will be approximately $52.00 per occupied room in a stabilized year in 1997 dollars. <TABLE> <CAPTION> ============================================================================================================= Subject Comparables ------------------------------------------------------------ Representative Rooms Expense 1996 1997 A B C D Year 1995 1996 YTD YTD <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Percent of Departmental Revenue 23.7% 22.4% 22.1% 20.8% 19.2% 21.8% 23.3% 21.9% 20.7% - ------------------------------------------------------------------------------------------------------------- Amount Per Occupied Room $48.77 $49.40 $48.73 $52.05 $48.71 $38.23 $61.17 $62.01 $52.00 ============================================================================================================= </TABLE> Food and Beverage Revenues and Expenses Food and Beverage Revenues Food and beverage revenues are generated by the sale of meals to guests and outside patrons in the Patio and La Marina restaurants, room service, lounge buffets, and banquet revenues, including banquet room and audio/visual rental income, and other associated revenues. Food revenues from the Raft and La Perla restaurants are included in the department for the Coral Casino (although banquet revenues from meetings held in the Coral Casino meeting space are included). The revenues were projected based on the estimated utilization of these facilities. Between 1995 and year to date 1997, food and beverage revenues increased from $178.14 to $208.54 per occupied room. Food and beverage revenues for the comparable properties ranged from $177.27 to $208.54 per occupied room in 1996. Based on a review of the historical experience of the subject, in addition to consideration of the four comparable hotels, it is our opinion that a stabilized year estimate for food and beverage revenue of $210.00 per occupied room is appropriate for the Four Seasons Biltmore Hotel. This - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-16 - -------------------------------------------------------------------------------- equates to total food sales of approximately $12,974,000 in a stabilized year of operation. This level of sales is in line with the growth shown in recent historical figures. <TABLE> <CAPTION> ==================================================================================================================== Subject Comparables Food and Beverage ------------------------------------------------------------------- Representative Revenue 1996 1997 A B C D Year 1995 1996 YTD YTD <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Amount Per Occupied Room $178.14 $190.41 $177.27 $208.54 $207.53 $122.78 $210.63 $153.02 $210.00 ==================================================================================================================== </TABLE> Food and Beverage Expenses Food and beverage expenses include product costs, payroll and related expenses, and other items such as laundry and linen, china, glassware and silverware, uniform costs, supplies and other miscellaneous items. From 1995 to 1997 year to date, food and beverage expenses declined substantially from 79.7 percent to 74.4 percent. The comparable properties incurred food and beverage expenses ranging from 62.4 percent to 83.5 percent. We estimate that this expense will be 76.0 percent of departmental revenues in a stabilized year of operation. <TABLE> <CAPTION> ==================================================================================================================== Subject Comparables Food and Beverage ------------------------------------------------------------------- Representative Expense 1996 1997 A B C D Year 1995 1996 YTD YTD <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Percent of Departmental Revenue 79.7% 77.8% 79.7% 74.4% 62.4% 75.9% 76.9% 83.5% 76.0% ==================================================================================================================== </TABLE> Telecommunication Revenues and Expenses Telecommunication Revenues Telecommunication revenues are derived from the use of telephones within guestrooms. Telecommunication revenues are highly dependent on the surcharges imposed by a property and have ranged from $7.22 to $8.10 per occupied room over 1995 to year to date 1997. The comparable hotels ranged from $6.34 to $26.97 per occupied room. Based on the historical trends and the indications from the comparable hotels, telecommunication revenues for the Four Seasons Biltmore Hotel are estimated to be $8.00 per occupied room for a stabilized year. <TABLE> <CAPTION> ==================================================================================================================== Subject Comparables Telecommunication ------------------------------------------------------------------- Representative Revenue 1996 1997 A B C D Year 1995 1996 YTD YTD <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Amount Per Occupied Room $7.22 $7.66 $7.79 $8.10 $12.08 $6.34 $12.55 $26.97 $8.00 ==================================================================================================================== </TABLE> Telecommunication Expenses Telecommunication expenses include the cost of calls and any telephone service charges. Between 1995 and year to date 1997, telephone expenses have ranged from 55.6 percent to 60.2 percent of revenues. The comparable hotels ranged from 21.2 percent to 47.1 percent of telecommunication revenues. We have projected a telephone expense ratio of 60.0 percent for a stabilized year of operation. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-17 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> ==================================================================================================================== Subject Comparables Telecommunication ------------------------------------------------------------------- Representative Expense 1996 1997 A B C D Year 1995 1996 YTD YTD <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Percent of Departmental Revenue 60.2% 59.6% 55.6% 56.7% 21.2% 47.1% 31.1% 33.6% 60.0% ==================================================================================================================== </TABLE> Coral Casino Revenues and Expenses Coral Casino Revenues Coral Casino revenues are primarily derived from monthly membership dues and initiation fees, although food and beverage revenues are also substantial for the club. Currently, there are approximately 600 members, the maximum allowable under the Conditional Use Permit. In 1996, the Coral Casino generated approximately $37.95 per occupied room, an 8.7 percent increase over 1996, and for year to date 1997, the subject has generated approximately $46.30 per occupied room. While food and beverage revenues have also been increasing, most of the growth has been in membership dues. Based on our review, we estimate that a stabilized level of $45.00 per occupied room is reasonable. ================================================================================ Coral Casino Revenues - -------------------------------------------------------------------------------- Actual Actual Actual Actual Stabilized 1995 1996 1996 ytd 1997 ytd Year - -------------------------------------------------------------------------------- Amount Per Occupied Room $34.91 $37.95 $39.31 $46.30 $45.00 ================================================================================ Coral Casino Expenses Coral Casino expenses include payroll and related costs, the costs of operating the Club's food and beverage operations, and other miscellaneous expenses. Over the past two years, the operating costs of this facility have been consistent ranging from 52.9 percent to 57.5 percent. We have therefore estimated the Coral Casino Expense at 55.0 percent of revenues in the representative year, stated in 1997 dollars. ================================================================================ Coral Casino Expense - -------------------------------------------------------------------------------- Actual Actual Actual Actual Stabilized 1995 1996 1996 ytd 1997 ytd Year - -------------------------------------------------------------------------------- Percentage of Departmental Revenue 57.5% 57.0% 54.4% 52.9% 55.0% ================================================================================ Other Operated Departments Revenues and Expenses Please note that Comparable property 'D' operates a golf course, which was included in this classification. Therefore, this property was not included in our analysis of the subject. Principal reliance of our other operated department representative year estimates for the subject was placed on the subject's historical operating results and the other three comparable hotels. Other Operated Departments Revenues Other operated departments revenues at the subject property consist of revenues generated from guest laundry and valet service, health club, valet parking, and other miscellaneous sources. From 1995 to year to date 1997, other operated departmental revenues ranged from $13.70 to $24.26 per occupied room. The large increase for year to date 1997 is attributed to the health club and - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-l8 - -------------------------------------------------------------------------------- miscellaneous line items, which experienced 150.0 percent and 85.8 increases respectively. (Miscellaneous revenues include cancellation, attrition, and interest income.) The comparable hotels show a range from $15.71 to $121.21 per occupied room. We have projected other operated departments revenues at $16.00 per occupied room in a stabilized year, based mainly on the property's historical results. <TABLE> <CAPTION> ============================================================================================================= Subject Comparables -------------------------------------------------------------- Representative Other Operated Revenue 1996 1997 A B C Year 1995 1996 YTD YTD <S> <C> <C> <C> <C> <C> <C> <C> <C> Amount Per Occupied Room $13.94 $14.54 $13.70 $24.26 $47.53 $78.05 $121.21 $16.00 ============================================================================================================= </TABLE> Other Operated Departments Expenses Other operated departments expenses are the costs associated with the above revenue items. Historical other operated departments expenses for the subject property ranged from 49.9 to 53.9 percent of departmental revenue. Other operated departments expenses for the comparables range from 42.1 percent to 71.1 percent of departmental revenues. Based on the historical experience of the subject, our stabilized year estimate of other operated departments expenses is approximately 50.0 percent of departmental revenues. <TABLE> <CAPTION> ============================================================================================================= Subject Comparables -------------------------------------------------------------- Representative Other Operated Expense 1996 1997 A B C Year 1995 1996 YTD YTD <S> <C> <C> <C> <C> <C> <C> <C> <C> Percent of Departmental Revenue 50.1% 49.9% 53.9% 50.7% 42.7% 71.1% 67.9% 50.0% ============================================================================================================= </TABLE> Rentals and Other Income Generally, this category reflects the revenues and expenses associated with the rental of offices and stores, concessions, commissions, cash discounts earned, forfeited advance deposits, service charges, interest income and other. We have estimated this figure to be $110,000 in the representative year based on the historical operating results. This includes $300 per day in revenues from the leased space, which includes the beauty salon, Silverhorn, Accents Gift Shop, and Hunter Gallery. Our estimate of daily office rental income assumes that these merchants will continue their current financial arrangements with the subject. Undistributed Operating Expenses Undistributed operating expenses are those expenses associated with the general operation of a hotel. These expenses include administrative and general, marketing, energy, and property operations and maintenance. These expenses are relatively less affected by fluctuations in occupancies and room rates. Due to the highly fixed nature of these expenses, they are examined as dollar amounts per available room. As discussed in the Property Description section, the subject changed the methodology for tracking guest suites, which resulted in a "loss" of 17 rooms from the daily room count. We have considered this in our per available room estimates. Administrative and General Expenses in this category include salaries and wages associated with the operation of the administrative function of the property, cash overages and shortages, credit card commissions, bad - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-19 - -------------------------------------------------------------------------------- debt expense, data processing, executive office expenses, professional fees, trade association dues, travel and supplies. For year to date 1997, administrative and general expense was $11,221 per available room, or 6.9 percent of total revenue. The comparable properties showed a range of $8,066 to $12,890 per available room, or 7.6 percent of total revenue. For a stabilized year of operation we have used $11,500 per available room. <TABLE> <CAPTION> ==================================================================================================================== Subject Comparables Administrative and ------------------------------------------------------------------- Representative General Expense 1996 1997 A B C D Year 1995 1996 YTD YTD <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Amount Per Available Room $7,879 $9,766 $9,285 $11,221 $8,066 $10,269 $12,890 $11,741 $11,500 Percent of Total Revenue 6.6% 7.2% 6.9% 6.9% 5.2% 9.1% 7.3% 9.0% 7.6% ==================================================================================================================== </TABLE> Marketing This expense includes the cost of advertising, printing of brochures, salaries associated with sales and marketing personnel, and other costs associated with an ongoing sales and promotion program. Between 1995 and year to date 1997, the subject property's historical marketing expenses increased from $7,732 to $8,719 per available room. The comparable hotels ranged from $5,834 to $10,178 per available room. For a stabilized year of operation, and in view of the increased competition that will be created with the opening of the Four Seasons Aviara Resort, a marketing cost of $8,500 per available room is considered reasonable for the subject. <TABLE> <CAPTION> ==================================================================================================================== Subject Comparables Marketing Expense ------------------------------------------------------------------- Representative 1996 1997 A B C D Year 1995 1996 YTD YTD <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Amount Per Available Room $7,732 $8,135 $8,116 $8,719 $10,178 $7,381 $7,720 $5,834 $8,500 Percent of Total Revenue 6.5% 6.0% 6.1% 5.4% 6.6% 6.6% 4.4% 4.5% 5.6% ==================================================================================================================== </TABLE> Utility Costs Utility costs include electricity, gas, and water charges. Sewage charges are billed by Santa Barbara County; thus, we have treated sewage charges as a fixed expense and not included it in our utility costs estimates. The subject's historical utility costs have ranged between $2,952 and $3,090 per available room. The comparables ranged from $2,157 to $4,449 per available room. Based on an analysis of the foregoing, utility costs to operate the subject hotel for a stabilized year are estimated at $3,100 per available room, or $673,000 total. <TABLE> <CAPTION> ==================================================================================================================== Subject Comparables Utility Costs ------------------------------------------------------------------- Representative 1996 1997 A B C D Year 1995 1996 YTD YTD <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Amount Per Available Room $3,072 $2,952 $2,973 $3,090 $2,718 $2,157 $4,449 $3,682 $3,100 Percent of Total Revenue 2.6% 2.2% 2.2% 1.9% 1.8% 1.9% 2.5% 2.8% 2.0% ==================================================================================================================== </TABLE> Property Operations and Maintenance Property operations and maintenance expenses are a function of building age and usage and are comprised of engineering salaries, wages, employee benefits, normal maintenance of the building, normal maintenance of electrical, mechanical and refrigeration equipment, and engineering - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-20 - -------------------------------------------------------------------------------- operating supplies. Between 1995 and 1997 year to date, property operations and maintenance expenses at the subject were between $6,951 to $8,299 per available room. The comparable hotels' property operations and maintenance expenses are from $5,832 to $8,242 per available room. We have estimated that the property operations and maintenance expenses for the subject will be approximately $8,000 per available room at a stabilized operating level, or 5.3 percent of total revenues. <TABLE> <CAPTION> ==================================================================================================================== Subject Comparables Property Operations and ------------------------------------------------------------------- Representative Maintenance 1996 1997 A B C D Year 1995 1996 YTD YTD <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Amount Per Available Room $6,951 $7,702 $7,750 $8,299 $5,832 $7,890 $8,242 $6,735 $8,000 Percent of Total Revenue 5.8% 5.7% 5.8% 5.1% 3.8% 7.0% 4.7% 5.2% 5.3% ==================================================================================================================== </TABLE> Fixed Charges Based Management Fee The subject is currently managed by Four Seasons Hotel Limited, under an agreement that calls for a base management fee, of 4.0 percent of room revenues and 1.0 percent of all other revenues, plus an incentive fee, as summarized in Section III. The base management fee in the representative year of operations is approximately $788,000, stated in 1997 dollars. Sewer Assessment Sewage charges are fixed charges not limited (in annual increases) by the Jarvis-Gann Amendment. Based on the 1997 county assessment, we have estimated sewer charges of $78,000 in the representative year. Real Estate Taxes Pursuant to Proposition 13, properties are reassessed upon sale. Consistent with a basic premise of the definition of market value, we have assumed a sale on the date of value, triggering a reassessment of the property based on its market value, as estimated in this report. Based solely on the value as an operating hotel and marina, we have applied the stated tax rate of 1.00420 percent (which is exclusive of sewage district charges) to our estimate of value, which equates to real estate taxes of approximately $909,000 in a representative year. This figure has been inflated at two percent per year in accordance with the Jarvis-Gann Amendment. Insurance The subject's historical expenses for insurance ranged between $1,472 to $2,660. The comparables ranged from $252 to $1,285 per available room. Based on the subject's historical operating results, insurance expenses are estimated at $1,600 per available room for a stabilized year. <TABLE> <CAPTION> ==================================================================================================================== Subject Comparables Insurance ------------------------------------------------------------------- Representative 1996 1997 A B C D Year 1995 1996 YTD YTD <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Amount Per Available Room $2,660 $1,475 $1,472 $1,598 $1,692 $555 $252 $1,285 $1,600 Percent of Total Revenue 2.2% 1.1% 1.1% 1.0% 1.1% 0.5% 0.1% 1.0% 1.1% ==================================================================================================================== </TABLE> - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-21 - -------------------------------------------------------------------------------- Reserves for Replacements An additional item not typically listed on an owner's income statement is the amount required for the periodic replacement of certain short-lived items such as carpeting, draperies, and other furniture, fixtures, and equipment. We have utilized reserves for replacements of 4.0 percent of gross revenues for a typical year of operation. This is in line with the reserves being set aside at the property under the terms of the new management agreement. Incentive Management Fee The incentive management fee is based on the lesser of the following: Scenario A Percentage of Net Cash Flow, which is calculated: Net Cash Flow = Net Operating Income after reserves less (-) owners' return o 10% of the first $2,000,000, plus o 15% of the second $2,000,000, plus o 20% of amount over $4,000,000 Scenario B 10% of income before fixed charges Based on this formula, we have calculated the incentive management fee from October 1, 1997 to December 31, 2006 as presented in the following table. <TABLE> <CAPTION> =============================================================================================== Incentive Management Fee Calculation - ----------------------------------------------------------------------------------------------- Scenario A Scenario B -------------------------------------------------------------------- Net Operating Less Owners Assessable 10% of Cash ACTUAL FEE Year Income Return Revenue Incentive Fee Flow (Rounded) - ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> 1997 $ 2,071,000 $1,391,733 $ 679,267 $ 67,927 $ 295,400 $ 68,000 1998 8,764,000 5,566,932 3,197,068 379,560 1,239,200 300,000 1999 9,504,000 5,566,932 3,937,068 490,560 1,326,300 491,000 2000 8,866,000 5,566,932 3,299,068 394,860 1,264,000 395,000 2001 9,701,000 5,566,932 4,134,068 526,814 1,363,000 527,000 2002 9,990,000 5,566,932 4,423,068 584,614 1,402,600 585,000 2003 10,327,000 5,566,932 4,760,068 652,014 1,447,700 652,000 2004 10,599,000 5,566,932 5,032,068 706,414 1,486,000 706,000 2005 10,981,000 5,566,932 5,414,068 782,814 1,536,300 783,000 REP YEAR 7,275,000 $5,566,932 $1,708,068 $170,807 $1,071,100 $171,000 - ----------------------------------------------------------------------------------------------- </TABLE> As can be noted, incentive management fees are calculated to be $171,000 in the representative year of operations. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V-Valuation V-22 - -------------------------------------------------------------------------------- STABILIZED YEAR OPERATING RESULTS Presented on the following page is an estimate of the subject hotel's stabilized year operating results expressed in current value (1997) dollars, based on the foregoing analysis. For this 12-month period, revenues are projected to total approximately $32,853,000. Income before fixed charges, which does not include the management fees, property taxes, insurance or reserves for replacements, totals approximately $10,711,000, or 32.6 percent of total revenue, within the range of the comparables. Operating income for the subject, after the deduction of a management fee, property taxes, insurance, and reserves for replacements, totals approximately $7,104,000, or 21.6 percent of total revenues. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS FOR A REPRESENTATIVE YEAR OF OPERATIONS STATED IN 1997 DOLLARS ----------- ----------- ------------------ OCCUPANCY LEVEL / AVERAGE DAILY ROOM RATE 78.0% AT $251.00 ----------- ----------- ------------------ AMOUNT AMOUNT % P.O.R.(4)/P.A.R.(5) ----------- ----------- ------------------ <S> <C> <C> <C> OPERATING DEPARTMENTS REVENUES(4) Rooms $15,507,000 47.2% $ 251.00 Food and beverage 12,974,000 39.5% $ 210.00 Telecommunications 494,000 1.5% $ 8.00 Coral Casino 2,780,000 8.5% $ 45.00 Other Operated Depts. 988,000 3.0% $ 15.99 Rentals and other income 110,000 0.3% $ 1.78 ----------- ----------- ----------- Total Operating Departments 32,853,000 100.0% $ 531.77 ----------- ----------- ----------- DEPARTMENTAL EXPENSES(1,4) Rooms 3,213,000 20.7% $ 52.01 Food and beverage 9,860,000 78.0% $ 159.60 Telecommunications 296,000 59.9% $ 4.79 Coral Casino 1,529,000 55.0% $ 24.75 Other Operated Depts. 494,000 50.0% $ 8.00 ----------- ----------- ----------- Total Departmental Expenses 15,392,000 46.9% $ 249.14 ----------- ----------- ----------- TOTAL OPERATING PROFIT(4) 17,461,000 53.1% $ 282.63 ----------- ----------- ----------- UNDISTRIBUTED OPERATING EXPENSES(5) Administrative and general 2,496,000 7.6% 11,502 Marketing 1,845,000 5.6% 8,502 Utility Costs 673,000 2.0% 3,101 Property operation and maintenance 1,736,000 5.3% 8,000 ----------- ----------- ----------- Total Undistributed Operating Expenses 6,750,000 20.5% 31,106 ----------- ----------- ----------- INCOME BEFORE FIXED CHARGES(5) 10,711,000 32.6% 49,359 ----------- ----------- ----------- FIXED CHARGES(2,5) Management Fee 788,000 2.4% 3,631 Sewer Assessment 78,000 0.2% 359 Taxes 909,000 2.8% 4,189 Insurance 347,000 1.1% 1,599 ----------- ----------- ----------- Total Fixed Charges 2,122,000 6.5% 9,779 ----------- ----------- ----------- INCOME BEFORE OTHER FIXED CHARGES(3,5) $ 8,589,000 26.1% $ 39,581 =========== =========== =========== RESERVE FOR REPLACEMENT(5) 1,314,000 4.0% 6,055 ----------- ----------- ----------- INCOME AFTER RESERVE BUT BEFORE INCENTIVE FEES(5) $ 7,275,000 22.1% $ 33,525 =========== =========== =========== INCENTIVE MANAGEMENT FEE(5) 171,000 0.5% 788 ----------- ----------- ----------- INCOME AFTER INCENTIVE FEE BUT BEFORE OTHER CHARGES(5) $ 7,104,000 21.6% $ 32,737 =========== =========== =========== </TABLE> Note: Figures may be slightly different than stated as a result of rounding. Notes: (1) Each departmental expense ratio is based on the department's estimated revenues. (2) Fixed charges do not include interest expense, depreciation, amortization or income tax. (3) Income before reserve for replacement, interest, depreciation, amortization and income tax. (4) Amount Per Occupied Room (P.O.R.). (5) Amount Per Available Room (P.A.R.). SOURCE: PKF CONSULTING <PAGE> Section V --Valuation V-24 ================================================================================ ESTIMATED ANNUAL OPERATING RESULTS FOR THE HOLDING PERIOD The previous analysis provided for the income and expenses incurred in the operation of the subject in a representative or stabilized year of operation. In the following analysis, we provide estimated income and expenses for the subject during each year of the holding period anticipated by a typical investor. The estimate of the performance for the subject in the stabilized year is used as a basis for our analysis, adjusted to reflect the effects of inflation, business development, and variations in occupancy. Holding Period From our analysis we have used a holding period of nine years and three months, representing the period from October 1, 1997 to December 31, 2006. In today's investment climate, this holding period is considered appropriate by most investors. Inflation To portray price level changes during the holding period, we have assumed an inflation rate of 3.0 percent throughout the projection period. This rate reflects the consensus of several well-recognized economists for the current long-term outlook for future movement of prices and is consistent with the inflation rates of the late 1980s and early 1990s. All expenses are projected to increase at 3.0 percent throughout the holding period. It should be noted that inflation is caused by many factors and unanticipated events and circumstances can affect the forecasted rate. Therefore, the estimated operating results computed over the projection period can vary from the actual operating results, and the variations may be material. Statement of Estimated Annual Operating Results The estimated annual operating results for the Four Seasons Biltmore, Santa Barbara, California for the ten-year period are presented on the following pages. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA CALIFORNIA STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS STATED IN INFLATED YEAR DOLLARS; 1997 217 AVAILABLE ROOMS ----------- ------- ------- ----------- ------- ------- ----------- Year 1997 Year 1998 Year OCCUPANCY LEVEL/AVERAGE DAILY ROOM RATE 82.0% AT $251.00 80.0% AT $271.00 80.0% ----------- ------- ------- ----------- ------- ------- ----------- AMOUNT AMOUNT AMOUNT % /ROOM AMOUNT % /ROOM AMOUNT ----------- ------- ------- ----------- ------- ------- ----------- OPERATING DEPARTMENTS REVENUES (4) <S> <C> <C> <C> <C> <C> <C> <C> Rooms $ 4,075,000 47.6% $18,779 $17,172,000 48.6% $79,134 $18,185,000 Food and beverage 3,343,000 39.0% 15,406 13,569,000 38.4% 62,530 13,976,000 Telecommunications 130,000 1.5% 599 522,000 1.5% 2,406 538,000 Coral Casino 731,000 8.5% 3,369 2,937,000 0.0% 13,535 3,025,000 Other Operated Depts 260,000 3.0% 1,198 1,044,000 3.0% 4,811 1,076,000 Rentals and other income 27,000 0.3% 124 113,000 0.3% 521 116,000 ----------- ------- ------- ----------- ------- ------- ----------- Total Operating Departments 8,566,000 100.0% 39,475 35,357,000 91.7% 162,935 36,916,000 ----------- ------- ------- ----------- ------- ------- ----------- DEPARTMENTAL EXPENSES (1,4) Rooms 820,000 20.1% 3,779 3,343,000 19.5% 15,406 3,443,000 Food and beverage 2,503,000 74.9% 11,535 10,234,000 75.4% 47,161 10,541,000 Telecommunications 76,000 58.5% 350 309,000 59.2% 1,424 319,000 Coral Casino 382,000 52.3% 1,760 1,575,000 53.6% 7,258 1,622,000 Other Operated Depts 127,000 48.8% 585 516,000 49.4% 2,378 531,000 Total Departmental Expenses 3,908,000 45.6% 18,009 15,977,000 45.2% 73,627 16,456,000 ----------- ------- ------- ----------- ------- ------- ----------- TOTAL OPERATING PROFIT (4) 4,658,000 54.4% 21,465 19,380,000 54.8% 89,309 20,460,000 ----------- ------- ------- ----------- ------- ------- ----------- UNDISTRIBUTED OPERATING EXPENSES (5) Administrative and general 630,000 7.4% 2,903 2,584,000 7.3% 11,908 2,661,000 Marketing 466,000 5.4% 2,147 1,910,000 5.4% 8,802 1,967,000 Utility Costs 170,000 2.0% 783 697,000 2.0% 3,212 718,000 Property operation and maintenance 438,000 5.1% 2,018 1,787,000 5.1% 8,281 1,851,000 Total Undistributed Operating Expenses 1,704,000 19.9% 7,853 6,988,000 19.8% 32,203 7,197,000 ----------- ------- ------- ----------- ------- ------- ----------- INCOME BEFORE FIXED CHARGES (5) 2,954,000 34.5% 13,613 12,392,000 35.0% 57,106 13,263,000 ----------- ------- ------- ----------- ------- ------- ----------- FIXED CHARGES (2,5) Management Fee 206,000 2.4% 949 849,000 2.4% 3,912 886,000 Sewer Assessment 20,000 0.2% 92 80,000 0.2% 369 82,000 Taxes 227,000 2.7% 1,046 927,000 2.6% 4,272 946,000 Insurance 87,000 1.0% 401 358,000 1.0% 1,650 368,000 ----------- ------- ------- ----------- ------- ------- ----------- Total Fixed Charges 540,000 6.3% 2,488 2,214,000 6.3% 10,203 2,282,000 ----------- ------- ------- ----------- ------- ------- ----------- INCOME BEFORE OTHER FIXED CHARGES (3,5) $ 2,414,000 28.2% $11,124 $10,178,000 28.8% $46,903 $10,981,000 =========== ======= ======= =========== ======= ======= =========== RESERVE FOR REPLACEMENT (5) 343,000 4.0% 1,581 1,414,000 4.0% 6,516 1,477,000 ----------- ------- ------- ----------- ------- ------- ----------- INCOME AFTER RESERVE BUT BEFORE INCENTIVE FEES (5) $ 2,071,000 24.2% $ 9,544 $ 8,764,000 24.8% $40,387 $ 9,504,000 =========== ======= ======= =========== ======= ======= =========== INCENTIVE MANAGEMENT FEE (5) 68,000 0.8% 313 380,000 1.1% 1,751 491,000 ----------- ------- ------- ----------- ------- ------- ----------- INCOME AFTER INCENTIVE FEE BUT BEFORE OTHER CHARGES (5) $ 2,003,000 23.4% $ 9,230 $ 8,384,000 23.7% $38,636 $ 9,013,000 =========== ======= ======= =========== ======= ======= =========== <CAPTION> ------ ------- ----------- ------ ------- ----------- ------ ------- 1999 Year 2000 Year 2001 OCCUPANCY LEVEL/AVERAGE DAILY ROOM RATE AT $287.00 76.0% AT $299.00 78.00% AT $308.00 ------ ------- ----------- ------ ------- ----------- ------ ------- AMOUNT AMOUNT AMOUNT % /ROOM AMOUNT % /ROOM AMOUNT % /ROOM ------ ------- ----------- ------ ------- ----------- ------ ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> OPERATING DEPARTMENTS REVENUES (4) Rooms 49.3% $83,802 $18,048,000 49.2% $83,171 $19,028,000 49.4% $87,687 Food and beverage 37.9% 64,406 13,959,000 38.1% 64,327 14,602,000 37.9% 67,290 Telecommunications 1.5% 2,479 526,000 1.4% 2,424 556,000 1.4% 2,562 Coral Casino 8.2% 13,940 2,960,000 8.1% 13,641 3,129,000 8.1% 14,419 Other Operated Depts 2.9% 4,959 1,052,000 2.9% 4,848 113,000 2.9% 5,129 Rentals and other income 0.3% 535 120,000 0.3% 553 123,000 0.3% 567 ------ ------- ----------- ------ ------- ----------- ------ ------- Total Operating Departments 100.0% 170,120 36,665,000 100.0% 168,963 38,551,000 100.0% 177,654 ------ ------- ----------- ------ ------- ----------- ------ ------- DEPARTMENTAL EXPENSES (1,4) Rooms 18.9% 15,866 3,474,000 19.2% 16,009 3,616,000 19.0% 16,664 Food and beverage 75.4% 48,576 10,692,000 76.6% 49,272 11,098,000 76.0% 51,143 Telecommunications 59.3% 1,470 320,000 60.8% 1,475 334,000 60.1% 1,539 Coral Casino 53.6% 7,475 1,671,000 56.5% 7,700 1,721,000 55.0% 7,931 Other Operated Depts 49.3% 2,447 533,000 50.7% 2,456 556,000 50.0% 2,562 ------ ------- ----------- ------ ------- ----------- ------ ------- Total Departmental Expenses 44.6% 75,834 16,690,000 45.5% 76,912 17,325,000 44.9% 79,839 ------ ------- ----------- ------ ------- ----------- ------ ------- TOTAL OPERATING PROFIT (4) 55.4% 94,286 19,975,000 54.5% 92,051 21,226,000 55.1% 97,816 ------ ------- ----------- ------ ------- ----------- ------ ------- UNDISTRIBUTED OPERATING EXPENSES (5) Administrative and general 7.2% 12,263 2,713,000 7.4% 12,502 2,809,000 7.3% 12,945 Marketing 5.3% 9,065 2,005,000 5.5% 9,240 2,076,000 5.4% 9,567 Utility Costs 1.9% 3,309 730,000 2.0% 3,364 757,000 2.0% 3,488 Property operation and maintenance 5.0% 8,530 1,887,000 5.1% 8,696 1,954,000 5.1% 9,005 ------ ------- ----------- ------ ------- ----------- ------ ------- Total Undistributed Operating Expenses 19.5% 33,166 7,335,000 20.0% 33,802 7,596,000 19.7% 35,005 ------ ------- ----------- ------ ------- ----------- ------ ------- INCOME BEFORE FIXED CHARGES (5) 35.9% 61,120 12,640,000 34.5% 58,249 13,630,000 35.4% 62,811 ------ ------- ----------- ------ ------- ----------- ------ ------- FIXED CHARGES (2,5) Management Fee 2.4% 4,083 880,000 2.4% 4,055 925,000 2.4% 4,263 Sewer Assessment 0.2% 378 84,000 0.2% 387 84,000 0.2% 401 Taxes 2.6% 4,359 964,000 2.6% 4,442 984,000 2.6% 4,535 Insurance 1.0% 1,696 379,000 1.0% 1,747 391,000 1.0% 1,802 Total Fixed Charges 6.2% 10,516 2,307,000 6.3% 10,631 2,387,000 6.2% 11,000 INCOME BEFORE OTHER FIXED CHARGES (3,5) 29.7% $50,604 $10,333,000 28.2% $47,618 $11,243,000 29.2% $51,811 ====== ======= =========== ====== ======= =========== ====== ======= RESERVE FOR REPLACEMENT (5) 4.0% 6,806 1,467,000 4.0% 6,760 1,542,000 4.0% 7,106 ------ ------- ----------- ------ ------- ----------- ------ ------- INCOME AFTER RESERVE BUT BEFORE INCENTIVE FEES (5) 25.7% $43,797 $ 8,866,000 24.2% $40,857 $ 9,701,000 25.2% $44,705 ====== ======= =========== ====== ======= =========== ====== ======= INCENTIVE MANAGEMENT FEE (5) 1.3% 2,263 395,000 1.1% 1,820 527,000 1.4% 2,429 ------ ------- ----------- ------ ------- ----------- ------ ------- INCOME AFTER INCENTIVE FEE BUT BEFORE OTHER CHARGES (5) 24.4% $41,535 $ 8,471,000 23.1% $39,037 $ 9,174,000 23.8% $42,276 ====== ======= =========== ====== ======= =========== ====== ======= </TABLE> Note: Figures may be slightly different than stated as a resulty of rounding. Notes: (1) Each departmental expense ratio is based on the department's estimated revenue. (2) Fixed charges do not include interest expense, depreciation, amortization or income tax. (3) Income before reserve for replacement, interest, depreciation, amortization and income tax. (4) Amount Per Occupied Room (P.O.R.). (5) Amount Per Available Room (P.A.R.). (6) Reflects three months of operations. SOURCE: PKF CONSULTING <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA CALIFORNIA STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS STATED IN INFLATED YEAR DOLLARS; 1997 217 AVAILABLE ROOMS ----------- ------- ------- ----------- ------- ------- ----------- Year 2002 Year 2003 Year OCCUPANCY LEVEL/AVERAGE DAILY ROOM RATE 78.0% AT $317.00 78.0% AT $327.00 78.0% ----------- ------- ------- ----------- ------- ------- ----------- AMOUNT AMOUNT AMOUNT % /ROOM AMOUNT % /ROOM AMOUNT ----------- ------- ------- ----------- ------- ------- ----------- OPERATING DEPARTMENTS REVENUES (4) <S> <C> <C> <C> <C> <C> <C> <C> Rooms $19,584,000 49.3% $90,249 $20,202,000 49.4% $93,097 $20,758,000 Food and beverage 15,040,000 37.9% 69,309 15,491,000 37.9% 71,387 15,956,000 Telecommunications 573,000 1.4% 2,641 590,000 1.4% 2,719 608,000 Coral Casino 3,223,000 8.1% 14,853 3,320,000 8.1% 15,300 3,419,000 Other Operated Depts 1,146,000 2.9% 5,281 1,180,000 2.9% 5,438 1,216,000 Rentals and other income 127,000 0.3% 585 131,000 0.3% 604 135,000 ----------- ------- ------- ----------- ------- ------- ----------- Total Operating Departments 39,693,000 100.0% 182,917 40,914,000 100.0% 188,544 42,092,000 ----------- ------- ------- ----------- ------- ------- ----------- DEPARTMENTAL EXPENSES (1,4) Rooms 3,724,000 19.0% 17,161 3,836,000 19.0% 17,677 3,951,000 Food and beverage 11,430,000 76.0% 52,673 11,773,000 76.0% 54,253 12,127,000 Telecommunications 344,000 60.0% 1,585 354,000 60.0% 1,631 365,000 Coral Casino 1,773,000 55.0% 8,171 1,826,000 55.0% 8,415 1,881,000 Other Operated Depts 573,000 50.0% 2,641 590,000 50.0% 2,719 608,000 ----------- ------- ------- ----------- ------- ------- ----------- Total Departmental Expenses 17,844,000 45.0% 82,230 18,379,000 44.9% 84,696 18,932,000 ----------- ------- ------- ----------- ------- ------- ----------- TOTAL OPERATING PROFIT (4) 21,849,000 55.0% 100,687 22,535,000 55.1% 103,848 23,160,000 ----------- ------- ------- ----------- ------- ------- ----------- UNDISTRIBUTED OPERATING EXPENSES (5) Administrative and general 2,893,000 7.3% 13,332 2,980,000 7.3% 13,733 3,069,000 Marketing 2,138,000 5.4% 9,853 2,202,000 5.4% 10,147 2,269,000 Utility Costs 780,000 2.0% 3,594 803,000 2.0% 3,700 827,000 Property operation and maintenance 2,012,000 5.1% 9,272 2,073,000 5.1% 9,553 2,135,000 ----------- ------- ------- ----------- ------- ------- ----------- Total Undistributed Operating Expenses 7,823,000 19.7% 36,051 8,058,000 19.7% 37,134 8,300,000 ----------- ------- ------- ----------- ------- ------- ----------- INCOME BEFORE FIXED CHARGES (5) 14,026,000 35.3% 64,636 14,477,000 35.4% 66,714 14,860,000 ----------- ------- ------- ----------- ------- ------- ----------- FIXED CHARGES (2,5) Management Fee 953,000 2.4% 4,392 982,000 2.4% 4,525 1,010,000 Sewer Assessment 90,000 0.2% 415 93,000 0.2% 429 96,000 Taxes 1,003,000 2.5% 4,622 1,023,000 2.5% 4,714 1,044,000 Insurance 402,000 1.0% 1,853 415,000 1.0% 1,912 427,000 ----------- ------- ------- ----------- ------- ------- ----------- Total Fixed Charges 2,448,000 6.2% 11,281 2,513,000 6.1% 11,581 2,577,000 ----------- ------- ------- ----------- ------- ------- ----------- INCOME BEFORE OTHER FIXED CHARGES (3,5) $11,578,000 29.2% $53,355 $11,964,000 29.2% $55,134 $12,283,000 =========== ======= ======= =========== ======= ======= =========== RESERVE FOR REPLACEMENT (5) 1,588,000 4.0% 7,318 1,637,000 4.0% 7,544 1,684,000 ----------- ------- ------- ----------- ------- ------- ----------- INCOME AFTER RESERVE BUT BEFORE INCENTIVE FEES (5) $ 9,990,000 25.2% $46,037 $10,327,000 25.2% $47,590 $10,599,000 =========== ======= ======= =========== ======= ======= =========== INCENTIVE MANAGEMENT FEE (5) 585,000 1.5% 2,696 652,000 1.6% 3,005 706,000 ----------- ------- ------- ----------- ------- ------- ----------- INCOME AFTER INCENTIVE FEE BUT BEFORE OTHER CHARGES (5) $ 9,405,000 23.7% $43,341 $ 9,675,000 23.6% $44,585 $ 9,893,000 =========== ======= ======= =========== ======= ======= =========== <CAPTION> ------ ------- ----------- ------ ------- ----------- ------ ------- 2004 Year 2005 Year 2006 OCCUPANCY LEVEL/AVERAGE DAILY ROOM RATE AT $336.00 78.0% AT $347.00 78.00% AT $357.00 ------ ------- ----------- ------ ------- ----------- ------ ------- AMOUNT AMOUNT AMOUNT % /ROOM AMOUNT % /ROOM AMOUNT % /ROOM ------ ------- ----------- ------ ------- ----------- ------ ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> OPERATING DEPARTMENTS REVENUES (4) Rooms 49.3% $95,659 $21,438,000 49.4% $98,793 $22,055,000 49.4% $101,636 Food and beverage 37.9% 73,530 16,435,000 37.9% 75,737 16,928,000 37.9% 78,009 Telecommunications 1.4% 2,802 626,000 1.4% 2,885 645,000 1.4% 2,972 Coral Casino 8.1% 15,756 3,522,000 8.1% 16,230 3,627,000 8.1% 16,714 Other Operated Depts 2.9% 5,604 1,252,000 2.9% 5,770 1,290,000 2.9% 5,945 Rentals and other income 0.3% 622 139,000 0.3% 641 143,000 0.3% 659 ------ ------- ----------- ------ ------- ----------- ----- ------- Total Operating Departments 100.0% 193,972 43,412,000 100.0% 200,055 44,688,000 00.0% 205,935 ------ ------- ----------- ------ ------- ----------- ----- ------- DEPARTMENTAL EXPENSES (1,4) Rooms 19.0% 18,207 4,070,000 19.0% 18,756 4,192,000 19.0% 19,318 Food and beverage 76.0% 55,885 12,491,000 76.0% 57,562 12,865,000 76.0% 59,286 Telecommunications 60.0% 1,682 376,000 60.1% 1,733 387,000 60.0% 1,783 Coral Casino 55.0% 8,668 1,937,000 55.0% 8,926 1,995,000 55.0% 9,194 Other Operated Depts 50.0% 2,802 626,000 50.0% 2,885 645,000 50.0% 2,972 ------ ------- ----------- ------ ------- ----------- ----- ------- Total Departmental Expenses 45.0% 87,244 19,500,000 44.9% 89,862 20,084,000 44.9% 92,553 ------ ------- ----------- ------ ------- ----------- ----- ------- TOTAL OPERATING PROFIT (4) 55.0% 106,728 23,912,000 55.1% 110,194 24,604,000 55.1% 113,382 ------ ------- ----------- ------ ------- ----------- ----- ------- UNDISTRIBUTED OPERATING EXPENSES (5) Administrative and general 7.3% 14,143 3,161,000 7.3% 14,567 3,256,000 7.3% 15,005 Marketing 5.4% 10,456 2,337,000 5.4% 10,770 2,407,000 5.4% 11,092 Utility Costs 2.0% 3,811 852,000 2.0% 3,926 878,000 2.0% 4,046 Property operation and maintenance 5.1% 9,839 2,199,000 5.1% 10,134 2,265,000 5.1% 10,438 ------ ------- ----------- ------ ------- ----------- ----- ------- Total Undistributed Operating Expenses 19.7% 38,249 8,549,000 19.7% 39,396 8,806,000 19.7% 40,581 ------ ------- ----------- ------ ------- ----------- ----- ------- INCOME BEFORE FIXED CHARGES (5) 35.3% 68,479 15,363,000 35.4% 70,797 15,798,000 35.4% 72,802 ------ ------- ----------- ------ ------- ----------- ----- ------- FIXED CHARGES (2,5) Management Fee 2.4% 4,654 1,042,000 2.4% 4,802 1,073,000 2.4% 4,945 Sewer Assessment 0.2% 442 99,000 0.2% 456 102,000 0.2% 470 Taxes 2.5% 4,811 1,065,000 2.5% 4,908 1,086,000 2.4% 5,005 Insurance 1.0% 1,968 440,000 1.0% 2,028 453,000 1.0% 2,088 ------ ------- ----------- ------ ------- ----------- ----- ------- Total Fixed Charges 6.1% 11,876 2,646,000 6.1% 12,194 2,714,000 6.1% 12,507 ------ ------- ----------- ------ ------- ----------- ----- ------- INCOME BEFORE OTHER FIXED CHARGES (3,5) 29.2% $56,604 $12,717,000 29.3% $58,604 $13,084,000 29.3% $60,295 ====== ======= =========== ====== ======= =========== ===== ======= RESERVE FOR REPLACEMENT (5) 4.0% 7,760 1,736,000 4.0% 8,000 1,788,000 4.0% 8,240 ------ ------- ----------- ------ ------- ----------- ----- ------- INCOME AFTER RESERVE BUT BEFORE INCENTIVE FEES (5) 25.2% $48,843 $10,981,000 25.3% $50,604 $11,296,000 25.3% $52,055 ====== ======= =========== ====== ======= =========== ===== ======= INCENTIVE MANAGEMENT FEE (5) 1.7% 3,253 783,000 1.8% 3,608 846,000 1.9% 3,899 ------ ------- ----------- ------ ------- ----------- ----- ------- INCOME AFTER INCENTIVE FEE BUT BEFORE OTHER CHARGES (5) 23.5% $45,590 $10,198,000 23.5% $46,995 $10,450,000 23.4% $48,157 ====== ======= =========== ====== ======= =========== ===== ======= </TABLE> Note: Figures may be slightly different than stated as a resulty of rounding. Notes: (1) Each departmental expense ratio is based on the department's estimated revenue. (2) Fixed charges do not include interest expense, depreciation, amortization or income tax. (3) Income before reserve for replacement, interest, depreciation, amortization and income tax. (4) Amount Per Occupied Room (P.O.R.). (5) Amount Per Available Room (P.A.R.). (6) Reflects three months of operations. SOURCE: PKF CONSULTING <PAGE> <PAGE> Section V --Valuation V-27 - -------------------------------------------------------------------------------- Capitalization Rate The capitalization rate is a mathematical relationship that exists between the net income derived by a property and the value or price that an investor would pay for the right to receive that net income stream. Influences most affecting the price an investor would pay are quality, quantity and probable duration of the net income expectancy. A capitalization or overall rate (OAR) can be selected by several methods. The methods used in this analysis are: 1) Derivation through comparable sales; 2) Derivation through the band of investment technique; and, 3) Derivation through debt coverage formula. Each is discussed below. Derivation through Comparable Sales In this method, the OAR is developed by dividing the net operating income of selected comparable sales by their cash equivalent sales prices. As is discussed in detail in the Sales Comparison Approach section, eight comparable hotel sales have been identified and analyzed for the purpose of obtaining an overall capitalization rate. The following table summarizes these and their indicated overall capitalization rates. ================================================================================ Comparable Sales Summary - -------------------------------------------------------------------------------- Date of Price Per Cap. Interest Name of Property Sale Room Rate(1) Conveyed - -------------------------------------------------------------------------------- Le Meridien, Coronado 9/97 $200,000 6.0% Leasehold Hotel Del Coronado, Coronado 8/97 476,879 N/A Fee Simple Ritz Carlton, Laguna Niguel 8/97 572,519 8.5 Fee Simple Ritz Carlton, Marina Del Rey 1/97 184,967 9.9 Leasehold Sonoma Mission Inn & Spa, Sonoma 11/96 317,857 9.7 Fee Simple Four Seasons, New York 8/96 517,027 N/A Leasehold Mayfair Hotel, New York 5/96 303,483 N/A Fee Simple Regent Beverly Wilshire, Beverly Hills 2/96 376,344 5.7 Fee Simple - -------------------------------------------------------------------------------- (1) Most recent year performance. Source: PKF Consulting - -------------------------------------------------------------------------------- As can be noted, the indicated capitalization rates for these sales range from 5.7 percent to 9.9 percent. In addition, we have also researched several recent investment surveys that collect data on current going-in capitalization rates for hotels. The results are summarized in the following table: - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V --Valuation V-28 - -------------------------------------------------------------------------------- ================================================================================ National Survey Capitalization Rates - -------------------------------------------------------------------------------- Source Range Average - -------------------------------------------------------------------------------- Hospitality Investment Survey, PKF Consulting, Second Quarter 1997, 5.0 to 13.5% 10.4% Resort Hotels Hotel Investment Outlook, Landauer Real Estate, 1997 No. 1 7.5 to 13.0% 9.45% Real Estate Research Corporation Third Quarter 1996 10.0 to 12.0% 10.6% Real Estate Investor Survey, Korpacz Fourth Quarter 1995, 8.0 to 15.0% 10.7% Full Service Hotels - -------------------------------------------------------------------------------- The indicated range of going-in capitalization rates from the published surveys ranged from 5.0 to 15.0 percent, with averages of 9.45 to 10.9 percent. Weighing the subject's age, location, resort orientation and market positioning, we believe that an OAR of 8.5 percent is appropriate to value the Four Seasons Biltmore Hotel. Overall Rate Using the Band of Investment Technique A second approach to deriving the overall capitalization rate is the band of investment technique. Since most properties are purchased with debt and equity capital, the overall capitalization rate must satisfy the market return requirements of both investment positions. Lenders must receive an interest rate commensurate with the perceived risk or they will not make funds available, and equity investors must anticipate receiving a competitive equity return for the commensurate risks or they will invest their funds elsewhere. A simplified band of investment model focuses on four components: the mortgage constant, the mortgage ratio, the equity dividend and the equity ratio. The mortgage constant is the ratio of annual debt service to the principal amount of the loan. The mortgage ratio is the percentage of the total purchase price comprised of financing. The equity dividend is the ratio of cash flow after debt service (pre-tax) to equity investment. It should be noted that the equity dividend is not the same as the equity yield. The equity ratio is the percentage of the total purchase price comprised of equity investment. The formula for deriving the capitalization rate using this model is shown as follows. R(o) = (R(m) x M) = (R(e) X (1-M)) R(o) = Overall Rate R(m) = Mortgage Constant M = Mortgage Ratio R(e) = Equity Dividend 1-M = Equity Ratio A group of lenders was surveyed to determine available financing terms for an investment such as the subject property. While all lenders noted that it is difficult to obtain financing for a hotel, financing is available for sufficiently creditworthy borrowers. Based on discussions with these lenders, we have concluded that the terms for a quality, full-service hotel such as the subject would - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital. Inc. <PAGE> Section V --Valuation V-29 ================================================================================ be for financing based on a 60 percent loan to value with an interest rate at between two and five points above corresponding term treasuries for a fixed rate loan, or two to four points above LIBOR for an adjustable rate loan. The amortization period for these loans is typically 25 years with a five to ten year term. Based on our knowledge of the subject, we believe that a loan with an interest rate of 9.00 percent could be obtained on the subject hotel. This equates to a mortgage constant (assuming monthly payments) of 10.07 percent. To estimate an equity dividend ratio, we interviewed a number of individuals who are active in the acquisition of hotels, to determine their return requirements. These investors indicate that they require a cash on cash return of between 7.0 and 13.0 percent on their equity investments in a hotel. Based upon our knowledge of the desirability of the luxury resorts in California for acquisition by many investors, and considering the specific characteristics of the subject hotel, it is our opinion that an equity dividend rate toward the lower end of the range is appropriate for the subject property. More specifically, we are of the opinion that an 8 percent equity dividend rate properly reflects the return requirements of investors who would leverage their acquisition of the subject. The calculation of the capitalization rate for the subject using this approach is as follows: Ro = (.1007 x 0.60) + (0.08) x (1 -0.60)) Ro = (0.060) + (0.032) Ro = 9.2 % Capitalization Rate Using the Debt Coverage Formula In addition to traditional lending criteria, lenders sometimes use another criterion when making business real estate loans--the debt coverage ratio. This is the ratio of net operating income to annual debt service. Lenders are concerned with the safety of the loan investment and consequently require a spread between the expected NOI and the mortgage payment, so that the borrower will be able to meet debt service obligations. To estimate the overall rate, the debt coverage ratio can be multiplied by the mortgage constant and the loan to value ratio. The formula is as follows: Ro = DCR x Rm x M Ro = Overall Rate DCR = Debt Coverage Ratio Rm = Mortgage Constant M = Loan to Value Ratio In the most recent edition of the PKF Hospitality Investment Survey, the range of required debt coverage ratios for resort properties like the subject was 1.2 to 2.0, with an average of 1.4. Most lenders surveyed have reverted to more cautious practices, which is having some effect on the ability to finance purchases at the overall rates noted in the late 1980s. After considering the above information, it is our opinion that a conventional 9.25 percent interest loan could be obtained at a debt coverage ratio of 1.5. This results in the following indicated capitalization rate: - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V --Valuation V-30 ================================================================================ Ro = 1.5 x 0.1007 x 0.60 Ro = 9.1% Capitalization Rate Conclusion The three techniques used to select a capitalization rate provide varying indicators for the valuation of the subject property. The conclusions reached using each approach are restated in the following table. =============================================== Capitalization Rate Conclusion ----------------------------------------------- Approach Rate ----------------------------------------------- Comparable Sales/National Surveys 5.7 -- 9.9% Band of Investment 9.2% Debt Coverage Formula 9.1% ----------------------------------------------- Of the three techniques, the greatest weight in the final selection of a capitalization rate is placed on the comparable sales. The comparable sales approach is useful because it directly reflects the actions of buyers and sellers in the market. The band of investment approach is also given consideration in that it looks explicitly at the debt and equity components of the transaction. The shortcoming of this technique is that its focus is on the equity dividend and does not focus on total equity yield over a typical holding period. In addition, in today's market, many investors are acquiring properties on an all cash basis, with no leverage. Least weight is placed on the debt coverage formula, as lenders' debt service coverage ratios are highly variable. Based on the foregoing analysis, it is our opinion an overall capitalization rate of 8.5 percent is appropriate for the subject property, and properly reflects the return expectations for investors in this class of hotel given the property's placement among California coastal resorts, and its age, physical facilities and market position. DISCOUNTED CASH FLOW ANALYSIS To estimate the value of the hotel component through the discounted cash flow analysis, it is assumed that the property will be sold at the end of the tenth year of a typical ten-year holding period. The value through this analysis reflects the present value of the income for each year of the holding period as well as the present value of the net proceeds of the sale of the property in the terminal year, with these amounts discounted back to present value at a market derived discount rate. Net Proceeds Upon Sale (Reversion) To estimate the reversionary value of the subject at the termination of the holding period, we have capitalized the adjusted net operating income for the property for the year of operation immediately following the sale (in this case the net operating income in 2007). To estimate the net operating income in 2007, we first add back property taxes to the tenth year (2006) cash flow estimate. This calculation yields an estimated pre-tax operating income. This pretax net operating income is then escalated to 2007 value dollars at 3.0 percent. We then capitalize this net income by the terminal capitalization rate as described above. Lastly, to obtain the net - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V --Valuation V-31 - -------------------------------------------------------------------------------- proceeds upon sale of the property, we have deducted a sales commission of 2.0 percent. This level of commissions was based on discussions with hotel brokers at Colliers International, Grubb & Ellis, CB Commercial, and Hotel Partners. Our calculation of the proceeds upon sale is as outlined below. ================================================================================ Reversionary Calculation - -------------------------------------------------------------------------------- 2006 Net Operating Income $ 10,450,000 Add: 2006 Property Taxes 1,086,000 ------------ Pre-Tax Net Operating Income 11,536,000 Inflation Factor 1.03% ------------ Estimated 11th Year Net Operating Income 11,882,080 Capitalization Rate 9.00000% Tax Rate 1.00420% ------------ Effective Capitalization Rate 10.00420% Reversionary Value $118,770,916 Less: Sales Commission @ 2.0% 2,375,418 ------------ Net Proceeds upon Sale (rounded) $116,395,498 ============ - -------------------------------------------------------------------------------- Discount Rate The discount rate reflects the overall rate of return expected by the investor, weighing the relative riskiness of the investment in relation to other investment vehicles and the perceived risk of each component in the operation of the facility. In order to estimate an appropriate discount rate for the subject, the investor surveys were reviewed. The results are presented in the table below: ================================================================================ Capitalization and Discount Rates - -------------------------------------------------------------------------------- Free and Clear Average Overall Yield Rate Discount Rate - -------------------------------------------------------------------------------- Hospitality Investment Survey, PKF Consulting, Second Quarter 1997, Resort Hotels 10.0 - 16.5% 13.4% Hotel Investment Outlook, Landauer Real Estate, 1997 No.1 12.0 - 16.0% 13.5% Real Estate Research Corporation Third Quarter 1996 11.5 - 14.0% 12.8% Real Estate Investor Survey, Korpacz, Fourth Quarter 1995, 9.0 - 20.0% 15.1% Full Service Market - -------------------------------------------------------------------------------- As can be noted, the discount rates for hotels based on these surveys ranged between 9.0 and 20.0 percent, with an average of between 12.8 and 15.1 percent. In addition, the "spread" between the going-in overall capitalization rates and the discount rates ranged between 2.2 to 4.4 percent, which is consistent with the overall growth rate assumption of 3.0 percent used for most income and expense items. This spread would indicate an appropriate discount rate to value the subject of between 11.2 and 13.4 percent, based on the 8.5 percent going-in overall rate. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V --Valuation V-32 - -------------------------------------------------------------------------------- Based on our analysis of the subject, we are of the opinion that a 12.0 percent discount rate is appropriate to value the subject property. The 12.0 percent is three percentage points higher than the overall capitalization rate used herein and within the reported survey ranges at the high end of the range of average rates. We are of the opinion that this reflects the perceived risk of the subject. Valuation Calculation - Discounted Cash Flow To estimate the value of the subject hotel considering the current operations of the hotel and the projected performance of the facility through the holding period, we have used a discounted cash flow analysis. Presented in the table below is our cash flow estimated for the subject for the ten-year holding period, along with the value of the reversion deriving a value estimate. ================================================================================ Discounted Cash Flow Analysis - -------------------------------------------------------------------------------- Cash Flow Present Value Year from Operations Factor Present Value - -------------------------------------------------------------------------------- 1997 $ 2,003,000 0.97206542 $ 1,947,047 1998 8,384,000 0.86791555 7,276,604 1999 9,013,000 0.77492460 6,984,395 2000 8,471,000 0.69189697 5,861,059 2001 9,174,000 0.61776515 5,667,377 2002 9,405,000 0.55157603 5,187,573 2003 9,675,000 0.49247859 4,764,730 2004 9,893,000 0.43971303 4,350,081 2005 10,198,000 0.39260092 4,003,744 2006 10,450,000 0.35053654 3,663,107 Reversion $116,395,498 0.35053654 $40,800,875 ----------- Net Present Value $90,506,593 Rounded Value $90,500,000 - -------------------------------------------------------------------------------- Therefore, our conclusion as to the "as is" market value of the fee simple interest of the Four Seasons Biltmore Resort hotel using the Discounted Cash Flow Analysis, as of October 1, 1997, is: ============================================ Ninety Million Five Hundred Thousand Dollars -------------------------------------------- $90,500,000 -------------------------------------------- This value gives a price per room for the hotel of $417,051. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V --Valuation V-33 ================================================================================ RECONCILIATION AND FINAL ESTIMATE OF VALUE The reconciliation involves the correlation of the conclusions reached from the valuation methodologies applied, considering the property type and the requirements of the appraisal assignment. This process depends on the appropriateness and reliability of each approach, and of the quality and reliability of the data obtained. The results from the three approaches are as follows: ======================================================== Cost Approach Not Applicable -------------------------------------------------------- Sales Comparison Approach Inconclusive -------------------------------------------------------- Income Capitalization Approach $90,500,000 ======================================================== The Cost Approach estimates the value of the subject property based on the principle of substitution whereby a buyer is not expected to pay more for the property than it would cost to acquire a comparable site providing the same utility and replace the building with one of modern materials and current design, standards and layout. The Cost Approach is most appropriate when the improvements are new or nearly new, and represent the highest and best use of the land. The Cost Approach has limited utility in the valuation of existing hotels. Generally, the Sales Comparison and Income Capitalization Approaches are better indicators of the value of a hotel property in the open market since they more accurately reflect current market activity and the motives of buyers and sellers for investment purposes. Accordingly, we have not utilized this approach in developing our estimate of the value of the subject. In the Sales Comparison Approach we compared eight recently sold resort and/or luxury hotels, as well as the current contract on the subject property. The selected sales indicated a wide range in value. In addition, the sales were located in varying market areas, and no property was identical to the subject. These factors would require large adjustments to be applied to each sale, greatly reducing the reliability of this approach. As a result of the foregoing, this approach was considered to be inconclusive. The Income Capitalization Approach is undoubtedly the most commonly used method to evaluate an income producing property such as a hotel. In this approach, we have utilized the discounted cash flow method. There was good market support for both the projected cash flow of the subject as well as the capitalization and yield rates used to convert our cash flow projections into a value estimate. Accordingly, the greater reliance was placed on this approach. Based on the facts, assumptions, and procedures outlined in this report, we have calculated that the market value "as is" of the fee simple estate in the subject property, as of October 1, 1997, is: ============================================ Ninety Million Five Hundred Thousand Dollars -------------------------------------------- $90,500,000 -------------------------------------------- - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> Section V --Valuation V-34 ================================================================================ PERSONAL PROPERTY ALLOCATION Included in the above estimate of "as is" market value is the contributing value of the personal property at the subject property, or the furnishings, fixtures and equipment (FF&E). FF&E is generally considered to be a part of the hotel property and is typically sold with the building. It is therefore considered to be a part of the property's total value. FF&E includes the hotel's guestroom and public area furnishings, kitchen equipment, service/maintenance equipment and other machinery. The most recent survey performed by Hospitality Valuation Services indicates the cost for FF&E for a luxury hotel to range from $14,300 to $31,000 per room. Based on our review of the subject, and considering the presence of the Coral Casino and the extensive food-and-beverage outlets, we have estimated the value of the FF&E as new to be approximately $40,000 per room, or a total replacement cost of $8,680,000 (rounded). Physical deterioration (depreciation) must be deducted for the FF&E. The subject opened in 1927, but most FF&E was replaced in the major renovation in 1987-1 990, and soft goods were replaced in 1993. Based on our physical inspection of the property, we are of the opinion that the property is in excellent physical condition. We have estimated that the FF&E has a useful life of ten years on the average and has a current effective age of four years. This equates to a 40 percent depreciation factor, as summarized below. =================================================== Furniture, Fixtures and Equipment --------------------------------------------------- Value of FF&E Per Room As New $ 40,000 Number of Hotel Rooms 217 --------------------------------------------------- Total Value of FF&E As New (Rounded) $8,680,000 Physical Life 10 Years Average Effective Age 4 Years --------------------------------------------------- Percent Depreciated 40% Percent Value Remaining 60% --------------------------------------------------- Depreciated Value (Rounded) $5,208,000 --------------------------------------------------- Source: PKF Consulting --------------------------------------------------- Exposure and Marketing Period Competition for the acquisition of good quality hotel assets is intense. The February issue of Hotel Investment Outlook, produced by Landauer Real Estate Counselors, indicates that recent sellers of hotel properties have found that six months of exposure is now a typical marketing period. Further, Landauer states that a hotel property might be able to be sold faster than six months if seller financing were available. The PKF Hospitality Investment Survey says exposure period is 3.5 - 24 months, with 7.7 as average. We are of the opinion that a reasonable exposure period for the subject hotel, at a price of $90,500,000, is twelve months or less. - -------------------------------------------------------------------------------- Four Seasons Biltmore Hotel Merrill Lynch Mortgage Capital, Inc. <PAGE> ADDENDUM A ASSUMPTIONS AND LIMITING CONDITIONS <PAGE> STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report is made with the following assumptions and limiting conditions: Date of Value - The conclusions and opinions expressed in this report apply to the date of value set forth in the letter of transmittal accompanying this report. The dollar amount of any value opinion or conclusion rendered or expressed in this report is based upon the purchasing power of the American dollar existing on the date of value. Economic and Social Trends - The appraiser assumes no responsibility for economic, physical or demographic factors which may affect or alter the opinions in this report if said economic, physical or demographic factors were not present as of the date of the letter of transmittal accompanying this report. The appraiser is not obligated to predict future political, economic or social trends. Information Furnished by Others - In preparing this report, the appraiser was required to rely on information furnished by other individuals or found in previously existing records and/or documents. Unless otherwise indicated, such information is presumed to be reliable. However, no warranty, either express or implied, is given by the appraiser for the accuracy of such information and the appraiser assumes no responsibility for information relied upon later found to have been inaccurate. The appraiser reserves the right to make such adjustments to the analyses, opinions and conclusions set forth in this report as may be required by consideration of additional data or more reliable data that may become available. Title - No opinion as to the title of the subject property is rendered. Data related to ownership and legal description was obtained from the attached title report records and is considered reliable. Title is assumed to be marketable and free and clear of all liens, encumbrances, easements and restrictions except those specifically discussed in the report. The property is appraised assuming it to be under responsible ownership and competent management, and available for its highest and best use. Hidden Conditions - The appraiser assumes no responsibility for hidden or unapparent conditions of the property, subsoil, ground water or structures that render the subject property more or less valuable. No responsibility is assumed for arranging for engineering, geologic or environmental studies that may be required to discover such hidden or unapparent conditions. Hazardous Materials - The appraiser has not been provided any information regarding the presence of any material or substance on or in any portion of the subject property or improvements thereon, which material or substance possesses or may possess toxic, hazardous and/or other harmful and/or dangerous characteristics. Unless otherwise stated in the report, the appraiser did not become aware of the presence of any such material or substance during the appraiser's inspection of the subject property. However, the appraiser is not qualified to investigate or test for the presence of such materials or substances. The presence of such materials or substances may adversely affect the value of the subject property. The value estimated in this report is predicated on the assumption that no such material or substance is present on or in the subject property or in such proximity thereto that it would cause a loss in value. The appraiser assumes no responsibility for the presence of any such substance or material on or in the subject property, nor for any expertise or engineering knowledge required to discover the presence of such substance or material. Unless otherwise stated, this report assumes the subject property is in compliance with all federal, state and local environmental laws, regulations and rules. Zoning and Land Use - Unless otherwise stated, the subject property is appraised assuming it to be in full compliance with all applicable zoning and land use regulations and restrictions. Licenses and Permits - Unless otherwise stated, the property is appraised assuming that all required licenses, permits, certificates, consents or other legislative and/or administrative authority from any local, state or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in this report is based. Engineering Survey - No engineering survey has been made by the appraiser. Except as specifically stated, data relative to size and area of the subject property was taken from sources considered reliable and no encroachment of the subject property is considered to exist. <PAGE> STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS (Continued) Subsurface Rights - No opinion is expressed as to the value of subsurface oil, gas or mineral rights or whether the property is subject to surface entry for the exploration or removal of such materials, except as is expressly stated. Maps, Plats and Exhibits - Maps, plats and exhibits included in this report are for illustration only to serve as an aid in visualizing matters discussed within the report. They should not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced or used apart from the report. Legal Matters - No opinion is intended to be expressed for matters which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. Allocation Between Land and Improvements - The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used. Right of Publication - Possession of this report, or a copy of it, does not carry with it the right of publication. Without the written consent of the appraiser, this report may not be used for any purpose by any person other than the party to whom it is addressed. In any event, this report may be used only with proper written qualification and only in its entirety for its stated purpose. Testimony in Court - Testimony or attendance in court or at any other hearing is not required by reason of rendering this appraisal, unless such arrangements are made a reasonable time in advance of said hearing. Further, unless otherwise indicated, separate arrangements shall be made concerning compensation for the appraiser's time to prepare for and attend any such hearing. Structural Deficiencies - The appraiser has personally inspected the subject property, and except as noted in this report, finds no obvious evidence of structural deficiencies in any improvements located on the subject property. However, the appraiser assumes no responsibility for hidden defects or non-conformity with specific governmental requirements, such as fire, building and safety, earthquake or occupancy codes, unless inspections by qualified independent professionals or governmental agencies were provided to the appraiser. Further, the appraiser is not a licensed engineer or architect and assumes no responsibility for structural deficiencies not apparent to the appraiser at the time of his inspection. Termite/Pest Infestation - No termite or pest infestation report was made available to the appraiser. It is assumed that there is no significant termite or pest damage or infestation, unless otherwise stated. Income Data Provided by Third Party - Income and expense data related to the property being appraised was provided by the client and is assumed, but not warranted, to be accurate. Asbestos - The appraiser is not aware of the existence of asbestos in any improvements on the subject property. However, the appraiser is not trained to discover the presence of asbestos and assumes no responsibility should asbestos be found in or at the subject property. For the purposes of this report, the appraiser assumes the subject property is free of asbestos and that the subject property meets all federal, state and local laws regarding asbestos abatement. Archeological Significance - No investigation has been made by the appraiser and no information has been provided to the appraiser regarding potential archeological significance of the subject property or any portion thereof. This report assumes no portion of the subject property has archeological significance. Compliance with the American Disabilities Act - The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible non-compliance with the requirements of ADA in estimating the value of the property. <PAGE> STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS (Continued) Definitions and Assumptions - The definitions and assumptions upon which our analyses, opinions and conclusions are based are set forth in appropriate sections of this report and are to be part of these general assumptions as if included here in their entirety. Encroachments - it is assumed that the utilization of the land and/or improvements is within the boundaries or property described herein and that there is no encroachment or trespass. Dissemination of Material - Use and disclosure of the contents of this report is governed by the bylaws and regulations of the Appraisal Institute. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers or the firm with which they are connected, or any reference to the Appraisal Institute or to the MAI or RM designations) shall be disseminated to the general public through advertising or sales media, public relations media, news media or other public means of communication without the prior written consent and approval of the appraiser(s). Distribution and Liability to Third Parties - The party for whom this appraisal report was prepared may distribute copies or this appraisal report only in its entirety to such third parties as may be selected by the party for whom this appraisal report was prepared; however, portions of this appraisal report shall not be given to third parties without our written consent. Liability to third parties will not be accepted. Use in Offering Materials - This appraisal report, including all cash flow forecasts, market surveys and related data, conclusions, exhibits and supporting documentation, may not be reproduced or references made to the report or to PKF Consulting in any sale offering, prospectus, public or private placement memorandum, proxy statement or other document ("Offering Material") in connection with a merger, liquidation or other corporate transaction unless PKF Consulting has approved in writing the text of any such reference or reproduction prior to the distribution and filing thereof. Limits to Liability - PKF Consulting cannot be held liable in any cause of action resulting in litigation for any dollar amount which exceeds the total fees collected from this individual engagement. Legal Expenses - Any legal expenses incurred in defending or representing ourselves concerning this assignment will be the responsibility of the client. <PAGE> ADDENDUM B CERTIFICATION OF THE APPRAISER <PAGE> CERTIFICATION OF THE APPRAISER I, Jeff Lugosi, certify: That I have personally inspected the subject site. That I have reviewed the analyses, conclusion and opinions concerning real estate contained in this appraisal report and fully concur with the final value estimate herein expressed. That all market data pertaining to the final value estimate has been accumulated from various sources and where possible personally examined and verified as to details, motivation and validity. That I have no present or contemplated future interest in the property appraised and neither is there any personal interest or bias with respect to the subject matter or to the principals involved. That neither my employment nor compensation for making this report is in any way contingent upon the value reported herein. The appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. That this report has been made in conformity with, and is subject to, the requirements of the Code of Ethics and Standards of Professional Conduct of the Appraisal Institute. My analysis, opinions and conclusions were developed, and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice. That to the best of my knowledge and belief, the statements of fact contained in this report, upon which the analyses, opinions and conclusions are based, are true and correct, subject to the Statement of Basic Assumptions and Limiting Conditions herein set forth. That this appraisal report sets forth all limiting conditions (imposed by the terms of our assignment or by the undersigned) affecting the analysis, opinions and conclusions expressed herein. That Bruce Baltin and Rick Frohlich provided significant professional assistance in the completion of this report. I certify that the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representative. The Appraisal Institute conducts a voluntary program of continuing education for its members. MAIs and RMs who meet the minimum standards of this program are awarded periodic education certification. Jeffry M. Lugosi, MAI, hereby states that he is certified under this program. <PAGE> Based upon the work undertaken and my experience as a real estate analyst and appraiser, I am of the opinion that the "as is" market value of the fee simple interest in the Four Seasons Biltmore, Santa Barbara County, California, as of October 1, 1997, is: ============================================ Ninety Million Five Hundred Thousand Dollars -------------------------------------------- $90,500,000 -------------------------------------------- /s/ Jeff Lugosi - ----------------------------------------------- Jeff Lugosi, MAI Vice President California Certified General Appraiser #AG3755 <PAGE> ADDENDUM C APPRAISER QUALIFICATIONS <PAGE> QUALIFICATIONS OF JEFF LUGOSI VICE PRESIDENT PROFESSIONAL HISTORY 1988-Present Vice President PKF Consulting Los Angeles, California 1987-1988 Fee Appraiser Charles D. Baily & Associates San Francisco, California Appraised numerous office and industrial buildings, hotels, shopping centers, subdivisions, apartment complexes, mobile home parks and special use properties. Assisted in the development of a new department offering specialized consulting services to the congregate and skilled care housing industry. Duties included marketing and performing appraisal reports. 1986-1987 Associate Appraiser Joseph J. Blake & Associates San Francisco, California Produced narrative appraisals encompassing market research, analysis, value conclusions and report writing. EDUCATION MBA, Masters of Business Administration in Real Estate Golden Gate University San Francisco, California, Graduated 1985 Scholarship: Contra Costa Board of Realtors MBA Courses: - Real Estate Appraisal - Real Estate Law - Real Estate Tax - Real Estate Finance - Real Estate Concepts and Analysis - Real Estate Strategies and Issues - Finance for Managers - Financial Accounting for Managers - Economics for Managers - Marketing for Managers - Computer Technology for Managers - Managerial Accounting - Managerial Analysis and Communication - Organizational Behavior and Management Principles - Money and Banking - Federal Taxes - Properly Management and Leasing - Personal Financial Planning Co-Founder of the Golden Gate University Real Estate Alumni Association BA, Bachelors of Arts in Sociology University of California, San Diego, California Graduated 1983 Minors: Psychology, Biology and Scientific Perspectives Various real estate and appraisal courses and seminars for continuing education for state certification and Appraisal Institute membership. PROFESSIONAL ACHIEVEMENTS Member Appraisal Institute, Designation (No. 9425) <PAGE> QUALIFICATIONS OF JEFF LUGOSI Page 2 PROFESSIONAL ACHIEVEMENTS (continued) State Certification. State certified to appraise Federally related real estate transactions according to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) in the states of California (AG 3755), Arizona (No. 30656) and Nevada (No. 742), as well as obtaining temporary licenses in other states. Approved Appraiser by Lenders. As a result of being state certified, as well as an MAI, I am on the approved list of appraisers for these major lending institutions: - Bank of America - Bank of California - First Interstate Bank - Home Savings of America - Wells Fargo Bank - Tokai Bank - Bangkok Bank - Mitsui Trust & Banking Co. Ltd. - Long-Term Credit Bank - Bank Dagang Nasional Indonesia Expert Testimony. Retained by a law firm representing an international hotel corporation to provide expert witness testimony in Los Angeles County Board of Tax Appeal for ad valorem tax litigation involving several full-service hotels. Testimony centered around estimating market value at a historical point in time for real estate only based on allocating personal and business values separately from the going-concern value. Topics addressed included the appropriateness and amount of education for management fees, and franchise fees, as distinguished from a marketing expense; the concept of return on and return of investment for furniture, fixtures and equipment (FF&E), versus a reserve for replacement; and definition and relationship between a capitalization and discount rate used to value property. My expert opinion was supported by published literature by PKF Consulting as well as other industry professionals. Testimony was specifically geared to support the appraisals and work product of other consultants and hotel appraisers used by the attorney in the case. Lecturer. Guest speaker for the University of California, Los Angeles extension course on Real Estate Investment Analysis. Presentation included the theory and methodology of hotel valuation, trends in hotel investment from the debt and equity perspective, and historical and projected occupancy and average daily rate performance of hotels within Los Angeles. Media Resource. Source of information for the press and quoted on hotel topics. RTC REVIEW APPRAISER. Review appraiser for several Resolution Trust Company (RTC) contractors managing the assets of failed savings and loans. Contractors relied on my opinion of the quality and credibility of the value conclusion of questionable appraisals for the purpose of setting a sales price for disposition. Responsibilities included reviewing appraisals and consulting with original appraisers regarding amending or rejecting their reports. <PAGE> QUALIFICATIONS OF JEFF LUGOSI Page 3 AREAS OF EXPERTISE In-depth knowledge of appraisal theory using the cost, sales comparison and income capitalization approaches to value. Experience valuing all types of properties including: - Hotels, motels, and resorts - Restaurants - Golf courses and clubs - Gaming hotels - Office buildings - Shopping centers and malls - Warehousing, manufacturing, and distribution facilities - Research and development facilities - Health care and retirement facilities - Subdivisions - Apartment and condominiums - Special purpose properties - Mixed-use developments Perform valuations for the following purposes: - Development - Acquisition - Refinancing - Institutional Portfolios - Litigation Support - Tax Appeals - Bankruptcy/Reorganization - Partnership Transfers - Affordable Housing Disposition (RTC) Provide value estimates including as-is, prospective and retrospective market values, investment value, and going-concern value. Expertise in valuing different real estate interests including fee simple, leasehold, leased fee, undivided interests and equity memberships. <PAGE> QUALIFICATIONS OF BRUCE BALTIN SENIOR VICE PRESIDENT PROFESSIONAL HISTORY Present Senior Vice President - PKF Consulting Los Angeles Office Prior Partner, Pannell Kerr Forster Management Advisory Services Lecturer in Hotel Administration at the University of Nevada, Las Vegas Sheraton Corporation - Operations Analyst and Assistant to the Senior Vice President, Operations AREAS OF SPECIAL COMPETENCE Economic, financial, and operational analysis and organizational and general consulting for the hospitality and related service industries; economic analysis, market demand studies and development consulting for all phases of the real estate industry; litigation support, general business planning, and valuation MAJOR PROJECTS o Asset advisory services relative to operations, market position and management company issues for institutional and other hotel owners o Market demand analysis, appraisal, development consulting for major resort hotels in Hawaii, California and Arizona o Market demand analysis, appraisal and operational consulting for numerous major hotel-casinos in Las Vegas and Lake Tahoe, Nevada, including Caesar's Palace, Circus-Circus, Sahara, Alladin, and Hyatt at Incline Village o Concept development and market demand analysis relative to Citywalk retail-entertainment complex at Universal City, California o Market feasibility analysis relative to Indian gaming facilities in California, New Mexico and Washington state o Expert testimony relative to economic valuations, allocations of value and other matters pertaining to various resorts, hotels and motor hotels o Preparation of financial projections utilized by Southern California Olympic Organizing Committee in support of the successful bid for the 1984 Olympic Games <PAGE> QUALIFICATIONS OF BRUCE BALTIN MAJOR PROJECTS (CONTINUED) o Testimony in United States District Court as to diminution of value and loss of profits to a class of hotels and motor hotels o Testimony in United States Tax Court as to value allocations of hotels o Assistance to court appointed receivers in establishing plans of reorganization as a result of bankruptcy proceedings o Consultation services to private companies and public entities relative to the structuring of leases and management contracts for hotels and food and beverage facilities o Management information systems development and analysis for major hotel chains, as well as individual properties o Assisted several country clubs in converting from non-equity to equity clubs, including valuations, budgets and membership organizations o Assisted savings and loan institution in evaluating potential workout of a group of 15 apartment complexes and office buildings o Numerous market demand studies for existing and proposed hotels and resorts in the Western United States o Market position and operational study for a ten-restaurant complex o Preparations of cash flow and return on investment calculations for proposed, ongoing and distressed hotels, restaurants, and clubs o Food and beverage, system implementation, and payroll studies for hotels, private country clubs, city clubs, and restaurants in California, Arizona, and Nevada o Long-term consulting engagements with several municipalities and private sector clients to provide advice on design, financial and management structure for major hotels o Market demand analysis and development consulting relative to a variety of mixed-use complexes EDUCATION Cornell University, Bachelor of Science in Hotel Administration PROFESSIONAL MEMBERSHIPS International Society of Hospitality Consultants American Institute of Certified Public Accountants American Hotel-Motel Association The Travel and Tourism Research Association <PAGE> QUALIFICATIONS OF BRUCE BALTIN PROFESSIONAL QUALIFICATIONS Certified Public Accountant in California PROFESSIONAL ACTIVITIES Lecturer- University of Nevada, Las Vegas; California Polytechnic University at Pomona; Los Angeles Valley Junior College; and University of California of Los Angeles Extension Division Various other speaking engagements relating to all phases of the hospitality industry Member of the Chairman's Economic Advisory Council of the Los Angeles Chamber of Commerce Formerly, Member of the Forecasts and Projections Task Force and Management Advisory Services Executive Committee of the American Institute of Certified Public Accountants <PAGE> QUALIFICATIONS OF RICK FROHLICH CONSULTANT PROFESSIONAL HISTORY 1994-1996 Various Department Managers Shutters on the Beach Hotel Santa Monica, California 1996-Present 1988 Consultant PKF Consulting Los Angeles, California Experienced in appraising hotels, marinas, and office buildings. Worked with numerous hotel developers/owners on market demand, market positioning, feasibility, and operational analysis studies. Researched and produced tourism and revenue enhancement reports. Offered asset advisory services relative to operations, market position and facility programming for hotel owners and developers in California, Colorado, and Texas. Prepared proformas and return on investment analysis for proposed and existing hotels. Conducted long-term project with the Los Angeles Convention & Visitors Bureau analyzing the impact of citywide conventions on the city's revenue base. EDUCATION University of Denver, Graduate School of Business Masters of Science Domestic and International Tourism Denver, Colorado o Graduate Courses: - High Performance Management - Research Methods - Dimensions of Tourism - Services Management - Tour. Planning & Development - Marketing Tourist Destinations - Real Estate Finance - Designing Strategic Methods - Geography of Tourism - Global Perspectives - Value in Action - Operations Management Ohio University Bachelors of Science in Recreational Management Athens, Ohio PROFESSIONAL AFFILIATIONS Affiliate Member, Appraisal Institute (No. 273585432) Travel & Tourism Marketing Association <PAGE> ADDENDUM D PKF CONSULTING'S HOSPITALITY INVESTMENT SURVEY <PAGE> HOSPITALITY INVESTMENT SURVEY ---------- PKF CONSULTING ---------- A PERIODIC PROFESSIONAL PUBLICATION VOLUME TEN, ISSUE ONE SECOND QUARTER 1997 $75 Optimism Continues to Drive Hotel Investment - -------------------------------------------------------------------------------- The optimistic attitude driving hotel investment continued in 1996 and is expected to remain through 1997. Investors are purchasing hotels at continually rising prices, still confident of continuing upside potential in the marketplace. It is estimated that the average price paid for a hotel in 1997 will approximate 91.3 of replacement cost in 1997. This contrasts to the 47.4 percent mark recorded in 1991, at the depth of the nation's economic and lodging recession. Projected growth in operating profits continues to attract investors to spend their money on lodging. Despite the first signs of overdevelopment and projections of declining occupancy in several markets, a healthy economy and improvements in operating efficiency lead most analysts and investors to believe that hotel profitability should continue to improve through the year 2000. The 1997 edition of PKF Consulting's Hospitality Investment Survey found that hotel investors are projecting revenues to grow annually at 3.9 percent, while expense growth will be limited to 3.4 percent. The end result is a projected annual growth rate of 7.3 percent for hotel net operating incomes. So Many People Can't Be Wrong Further indication of the interest in hotel investment is the response to this year's Hospitality investment Survey (HIS). The 1997 edition of HIS reports the average investment criteria used by 141 companies involved in over 1,500 hotel related transactions in 1996. This is by far the largest interest we have seen in hotel investment since our first survey in 1984. It should also be noted that 82.3 percent of our survey respondents plan to purchase and/or sell one or more hotels in 1997, further indication that the amount of investment dollars flowing into the hospitality industry has yet to subside. Few Changes In Investment Criteria Hotel investors' outlook on values and return on investment have changed little since the optimistic attitudes adopted in 1994. Capitalization rates continue to hover around the 11 percent mark, while the desired return on investment dropped slightly to 14.1 percent. With hotel investors fairly sure that their future return on investment can be derived from improved profitability, they are willing to pay higher prices and accept less of a percentage return in exchange for less perceived risk. Among the different property types, investors appear to be most bullish regarding the future prospects for resort properties. Due to the scarcity of resort properties for sale, combined with the positive future projections of market performance for this segment, transactions involving resorts showed the lowest capitalization rate (10.4 percent) and internal rate of return (13.4 percent). At the other end of the spectrum, limited-service hotels are being purchased at the highest rate of capitalization (11.7 percent) and desired rate of return (14.7 percent). In several markets, the relative cost of construction and market support favors building a new limited-service hotel as opposed to purchasing an existing property. Traditional Lenders Return Responding to the increase in hotel investment activity, traditional sources of financing have re-entered the hotel lending arena to get Continued on page 2 - -------------------------------------------------------------------------------- Table 1 Investment Criteria 1996 1995 1994 1992 1990 1988 1986 - -------------------------------------------------------------------------------- Overall Cap Rate 11.10% 11.04% 11.20% 11.90% 10.20% 11.10% 10.90% Discount Rate 14.10% 14.57% 14.70% 16.00% 15.00% 14.60% 13.80% Holding Period (Years) 6.70 6.27 7.10 8.40 9.60 8.80 9.30 Debt Coverage Ratio 1.40 1.38 1.40 1.60 1.30 1.30 1.30 Income Growth Rate 4.00% 3.89% 3.90% 3.80% 4.80% 4.40% 4.00% Expense Growth Rate 3.30% 3.44% 3.70% 3.60% 4.70% 4.30% 4.30% Interest Rate 9.10% 9.59% 9.90% 8.90% 11.50% 11.60% 10.10% Loan To Value Ratio 69.70% 69.12% 68.00% 67.40% 69.00% 73.60% 72.50% Source: PKF Consulting - -------------------------------------------------------------------------------- <PAGE> HOSPITALITY INVESTMENT SURVEY -- PKF CONSULTING - -------------------------------------------------------------------------------- Continued from front page a piece of the action. Sixty-eight percent of HIS respondents reported that their bank contributed in some part to the financing of their hotel deals in 1996, up from 58 percent in 1995 and 31 percent in 1994. Other sources, such as investment banks, SBA loans, mortgage funds, conduits, and private equity were identified as the second most prominent source of financing. This increase in the availability of financing sources has lessened the need for seller financing, which declined from 24 percent in 1995 to 16 percent in 1996. The financing criteria required by lenders also changed little from 1995 to 1996. Debt coverage ratio stayed constant at 1.4, while the loan-to-value ratio continues to range from 68 to 70 percent for all product types. Indicative of the increased competition among lenders to become involved in hotel transactions, the average interest rate for a hotel loan dropped slightly from 9.6 percent in 1995 to 9.1 percent in 1996. - ---------------------------------------- Table 2 PROFILE OF TRANSACTIONS SURVEYED Location Number Percent Northeast 227 14.7% Southeast 298 19.2% Midwest 298 19.2% Northwest 83 5.3% Southwest 253 16.3% West 272 17.6% Caribbean 12 0.8% Mexico 2 0.2% Other 104 6.7% - ---------------------------------------- Total 1,549 100.0% Type of Transaction Non-R.E.O. 83 5.4% R.E.O. 1,466 94.6% - ---------------------------------------- 1,549 100.0% Respondent Involvement Purchased 351 22.7% Sold 341 22.0% Put Under Contract 349 22.5% Financed 508 32.8% - ---------------------------------------- 1,549 100.0% Source: PKF Consulting - ---------------------------------------- ---------------------------------------- TRENDS VALUE 1996 Constant Dollars Indexed [Line graph omitted] Source: PKF Consulting ---------------------------------------- Show Me The Current Money Somewhat contrary to the expectations of future profit growth are the valuation techniques investors use to help determine the purchase price. As in our 1996 study, a direct capitalization of the property's net income is thought to be the best method to determine the value of a hotel. However, the technique of determining value by discounting the projected future cash flows of the property dropped from the second most preferred practice to the fourth. In addition, our study indicates that a direct capitalization of the existing year's cash flow has been used more often than capitalizing the cash flow projected for the following year. Existing year data is often thought to be a base from which to determine a minimum value for a property in the rising market. By preferring to capitalize existing year data, despite predictions of rising profits, today's buyer might just be responding to the fact that 1995 and 1996 were years of record profit performance in the hotel industry. In other words, 1995 and 1996 performance levels are more predictive of future stabilized performance than existing year performance levels were during the depths of the recession. Time To Analyze Your Investment Options In an effort to see how this favorable financial outlook impacts the investment community, we have analyzed valuation information from our various databases. Using data from PKF Consulting's Trends In The Hotel Industry and Hospitality Investment Survey, we have calculated a "Trends Value" for the typical hotel participating in our surveys. The Trends Value, calculated on a per available room basis, takes into account such factors as the prevailing operating profits, capital reserve requirements, and capitalization rates for each of the years under study. This calculation was made for full-service, limited-service, and resort hotels. It is important to note that this Trends Value does not reflect the actual sales prices for properties bought or sold in any given year. Driven by the expected growth in profits, it is projected that by 1997, the Trends Value (in 1996 constant dollars) of the "typical" hotel will have improved nearly 75 percent from the depths of the early 1990s recession. The value improvement of limited-service hotels occurred earlier in the recovery process, but is expected to taper off somewhat in the future, as market condi- 2 <PAGE> HOSPITALITY INVESTMENT SURVEY -- PKF CONSULTING - -------------------------------------------------------------------------------- tions temper the profit performance of this segment. On the other hand, full-service hotels took a little longer to recover their value, yet show the greatest potential for value improvement in the future. Resort hotels, driven by the combination of lower capitalization rates and relative lagging improvement in profitability, have shown the least resiliency in value recovery. Why Sell Now? With hotel profits on the rise, why would hotel owners consider selling their property at this time? Market experience and projections say that selling now would cut an owner short of enjoying up to four years (depending upon where the property is located) of rising profits and the corresponding rise in the value of the hotel. Obviously, the proper time to sell any individual hotel is dependent upon issues unique to that particular asset. Local market conditions, the physical condition of the property, and the financial motivations of the owner are just some of the factors which need to be analyzed before one can properly judge whether or not it is time to sell. However, when you look at the overall state of the current U.S. hotel industry, more than a few compelling reasons can be made for the consideration of selling your hotel now. The following paragraphs summarize some of the reasons why selling your hotel in 1997 might be a prudent move. - -------------------------------------------------------------------------------- COMPARATIVE ANALYSIS Value Per Room vs Replacement Cost [Bar graph omitted] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Table 3 CLASSIFICATON OF CONTRIBUTORS Contributor Number Percent Owner/Operator 55 39.0% Other (Broker/RE Advisor) 24 17.0% Management Company 22 15.6% Hotel Chain 15 10.6% Private Investor 13 9.2% Developer 6 4.3% Life Insurance 3 2.1% Pension Funds 2 1.4% Commercial Bank 1 0.7% - ----------------------------------------------------- Total 141 100.0% Who Provides Financing? Bank 42.9% Other Source** 22.3% Insurance Company 15.2% Seller 9.8% Pension Fund 6.7% Saving & Loan 3.1% Notes: * = Many respondents noted multiple sources. ** = Other sources included investment banks, SBA Loans, mortgage funds, conduits, and private equity. Source: PKF Consulting - -------------------------------------------------------------------------------- Deal From A Position Of Strength There are several conditions in place now that give the seller leverage over the buyer in the negotiation process. First of all, hotels are a desired asset. Given all the news of improved market and financial performance, hotels are one of the most sought-after forms of real estate for investors. This is most evident on Wall Street, where hospitality related REITs, investment funds, and C-Corporations all need to put their funds to use and are fighting each other to find investment opportunities. Given the recent fluctuations Wall Street, hotel owners should closely monitor the Dow Jones Index. Any large drops in the Dow could forewarn a lessening of hotel acquisition activity, thus indicating a need to sell your property. Leaving Some Crumbs Professionals realize that successful transactions are the result of balanced negotiations and a "meeting of the minds." While a hotel owner desires to maximize the price paid for his hotel, the buyer comes to the table looking for a price that leaves room for asset appreciation. As mentioned earlier, the hotel industry is expected to experience continued growth in profitability for the next few years. This leaves credible prospects for future return on investment for a potential hotel investor. If hotel owners wait until hotel profitability has peaked out, nothing will be left on the table for potential buyers. Continued on page 4 3 <PAGE> HOSPITALITY INVESTMENT SURVEY -- PKF CONSULTING Continued from page 3 More Builders Than Buyers Another effect of improving profitability within the hotel industry is that, eventually, it will cost just as much to buy a hotel as it will to build one. Again, comparing the average Trends Value of the typical hotel in our survey and the cost to construct a similar property, we find that the gap is narrowing. On average, the typical hotel in our study was valued at 47.7 percent of its replacement cost in 1991. This ratio is projected to grow to 91.3 percent by year-end 1997. With the value of the average hotel nearing its replacement costs, the time is approaching when hotel investors will find themselves better off building a new property than investing in an existing one. This narrowing of the gap between purchase price and replacement cost negatively impacts the potential hotel seller in two ways. First, it further shrinks the field of hotel purchasers, many of whom will transform themselves into developers. Secondly, the new hotels that will be built could have a negative impact on the future market performance of the existing hotel, thus lowering its attractiveness. Altering Your Investment Strategy Prudent investors enter a transaction having already developed a proper exit strategy. We believe now is a good time to start reviewing your disposition strategy. What were your goals when you purchased your hotel, and have they been met? Measured in stated-year dollars, Trends Values are double what they were in 1990, and almost 50 percent greater than 1994. These rates of return should meet the return requirements of most investors. Exiting hotel ownership does not necessarily mean that you can't continue to ride the anticipated rise in hotel performance. For example, many sellers will take the proceeds from the sale of their hotel properties and purchase shares of a REIT, a publicly-traded hotel company, or an Investment Fund. Such action makes the "ex" owner's real estate investment more liquid, while allowing him to benefit from any future rise in hotel profitability and values. - -------------------------------------------------------------------------------- Table 4 INVESTMENT CRITERIA Capitalization Rates Average High Low Full-Service 10.9% 15.0% 8.3% Limited-Service 11.7% 16.0% 9.0% Resort 10.4% 13.5% 5.0% - ------------------------------------------------------------ All Properties 11.1% Internal Rate of Return/ Discount Rate Full-Service 13.9% 18.0% 11.3% Limited-Service 14.7% 19.0% 12.4% Resort 13.4% 16.5% 10.0% - ------------------------------------------------------------ All Properties 14.1% Equity Yield Full-Service 18.4% 25.0% 11.5% Limited-Service 18.7% 30.0% 10.5% Resort 17.8% 25.0% 9.0% - ------------------------------------------------------------ All Properties 18.4% Cash on Cash Full-Service 14.4% 25.0% 8.0% Limited-Service 16.2% 25.0% 8.0% Resort 14.5% 25.0% 8.0% - ------------------------------------------------------------ All Properties 15.2% Holding Period (Years) Full-Service 7.1 30.0 3.0 Limited-Service 6.0 10.0 2.5 Resort 7.0 10.0 3.0 - ------------------------------------------------------------ All Properties 6.7 Room Revenue Multiplier Full-Service 2.5 3.5 2.0 Limited-Service 2.8 4.0 2.0 Resort 2.6 3.0 2.2 - ------------------------------------------------------------ All Properties 2.7 Total Revenue Multiplier Full-Service 2.1 2.5 1.7 Limited-Service 3.1 4.0 2.5 Resort 2.5 2.5 2.5 - ------------------------------------------------------------ All Properties 2.5 Marketing Period (Months) Full-Service 7.7 24.0 3.5 Limited-Service 6.4 12.0 3.0 Resort 7.7 12.0 5.0 - ------------------------------------------------------------ All Properties 7.2 Source: PKF Consulting - -------------------------------------------------------------------------------- How To Exit Gracefully For hotel sellers, the use of a professional transaction advisor who can properly represent your hotel is a must in today's marketplace. It is important to make sure your transaction advisor is both credible and qualified to make the case to a prospective buyer that an upside still exists for the hotel asset. Selling a hotel in today's hotel market environment demands more than pretty pictures and multiple listings. It requires an experienced and knowledgeable transaction advisor who can relate to the investment strategies of potential purchasers, while at the same time representing the best interests of the seller. Why Buy Now? If the current hospitality cycle appears to be reaching its peak, why should someone consider investing in the hotel industry at this time? The following paragraphs summarize some of the reasons why investing in a hotel might be a prudent move in 1997. Upscale Plus Urban Equals Opportunity Despite high occupancies and double-digit growth in room rates, the financial feasibility of constructing a new full-service hotel in an urban market is slim. Lack of available land, high labor costs, and hefty municipal charges often push the development budget beyond breakeven. Given these economics, plus the fact that a new full-service 4 <PAGE> HOSPITALITY INVESTMENT -- PKF CONSULTING - -------------------------------------------------------------------------------- Table 5 MORTGAGE TERMS Loan to Value Ratio Average High Low Full-Service 69.1% 92.5% 45.0% Limited-Service 71.0% 92.5% 55.0% Resort 68.7% 85.0% 55.0% - ----------------------------------------------------------- All Properties 69.8% Interest Rates Full-Service 9.0% 11.0% 3.3% Limited-Service 9.0% 11.0% 3.3% Resort 9.3% 11.3% 8.3% - ----------------------------------------------------------- All Properties 9.1% Amortization Period (Years) Full-Service 22.2 30.0 12.0 Limited-Service 21.6 30.0 10.0 Resort 22.0 30.0 15.0 - ----------------------------------------------------------- All Properties 21.9 Loan Term (Years) Full-Service 8.3 22.5 0.0 Limited-Service 8.3 22.5 3.0 Resort 7.6 15.0 5.0 - ----------------------------------------------------------- All Properties 8.2 Debt Coverage Ratio Full-Service 1.4 2.3 1.2 Limited-Service 1.4 1.7 1.2 Resort 1.4 2.0 1.2 - ----------------------------------------------------------- All Properties 1.4 Source: PKF Consulting - -------------------------------------------------------------------------------- urban project would take at least three years to open, it is pretty safe to assume that there will be few new competitors entering the upscale urban markets through the year 2000. If an investor can find an urban hotel for sale (or potentially an alternative-use building adaptable for conversion) he can be relatively assured of an extremely favorable market and profitable operating conditions for the next few years. Disciplined Lenders Aggressive and undisciplined Saving and Loans contributed to the overdevelopment that occurred in the 1980s. ln today's lending circles, it is difficult to find traditional institutions or lending sources that have not implemented strict lending criteria for all real estate loans. While the lending community has had its share of cyclical lapses in discipline, the current conservative bent appears to be fairly well entrenched, thus putting a cap on the availability of funds for new development. As it has been the case since 1990, the lack of available financing will limit the amount of new hotel construction activity, thus preserving the current mature period in the cycle and lessening the depth of the next recession. Few False Incentives Another factor contributing to the funding of hotel projects in the 1980s were tax laws that provided developers with artificial incentives to build. In general, tax benefits helped the financial feasibility of projects that were not market-justified. The result was a glut of hotels that improved the immediate cash flows of the investors, while not serving any market need. Today's tax code provides little relief or loopholes for investors looking for deductible losses and tax shelters. In other words, the direct financial feasibility of the project must provide the return on investment. This is one more factor adding to the prospect for future stability in the market. Some Bargains Still Exist While the overall purchase price for all hotels is projected to exceed 90 percent of replacement cost, some properties in select markets are still selling below 75 percent of replacement cost. These properties tend to be full-service, or may have a large amount of deferred maintenance or market obsolescence attached to them. Nonetheless, for the hotel investor who has the resources to turn a property around, a well located property currently in distress may be a candidate for refurbishment and may well enjoy favorable market conditions for the foreseeable future. ------------------------------------- Table 6 VALUATION TECHNIQUE PREFERENCE Technique Rank* Direct Capitilization 2.1 Other 2.2 Cash on Cash 2.4 Discount Cash Flow 2.9 Equity Yield 3.0 Percentage of Replacement 4.1 Multiple of Room Revenue 5.0 Multiple of Gross Revenue 5.7 Note:* 1 = Most Important 8 = Least Important Source: PKF Consulting ------------------------------------- Representation For some hotel companies, the need to have representation in specific markets or to gain critical mass when building a Continued on back page - -------------------------------------------------------------------------------- Table 7 CASH FLOW PROJECTIONS Growth Rates Annual Growth Rate Revenues 4.0% Expenses 3.3% Net Operating Income 7.3% Reserve for Replacement Method Average Percent of Gross Revenue 3.97% Percent of F.F. &E. 7.58% Source: PKF Consulting - -------------------------------------------------------------------------------- 5 <PAGE> HOSPITALITY INVESTMENT SURVEY -- PKF CONSULTING - -------------------------------------------------------------------------------- Continued from page 5 chain, forces them to purchase or construct properties even though the economics may not be favorable. This is especially true for international chains needing properties in gateway cities and for all-suite chains looking to convert a limited amount of all-suite hotel inventory. Be Careful Out There, It's Diverse Overall, PKF Consulting shares the optimism shown by most hotel investors. However, we do recognize that each transaction needs to be evaluated on its own merits. Today's operating and investment markets vary greatly from product type to product type, and region to region. To give a blanket endorsement to all hotel investment opportunities is absurd. The decision to buy, sell, build, lend, or invest is complex. It is driven by objective criteria like market support, physical condition of the property, and land availability, as well as subjective criteria like relative risk, desired returns, and development/management objectives. A potential hotel investor shouldn't be drawn into the industry simply to ride an overall wave of enthusiasm. On the other hand, a prudent investor would be wise to continue to search the hotel landscape and take advantage of those great deals and opportunities that remain. - -------------------------------------------------------------------------------- Recent Publications Available from PKF Consulting 1996 Annual Trends in the Hotel Industry -- USA. 1997 Annual Trends in the Hotel Industry -- USA. (Available Autumn 1997.) Quarterly Trends in the Hotel Industry. Monthly Trends in the Hotel Industry. (Available for each of more than 50 U.S. cities and regions.) 1996 Annual Trends in the Hotel Industry -- Asia/Pacific Edition. Annual Hospitality Investment Survey. The Conference Center Industry: A Statistical and Financial Profile -- North America 1996. (1996 edition available now. 1997 edition available in July.) 1996 Biennial Bed-and-Breakfast/Country Inns Industry Study. (Available July 1997 through the Professional Association of Innkeepers International 805/569-1853.) Hotel Development Handbook. (Available through the Urban Land Institute 202/624-7000.) 1996 Human Resources Survey: Study of Diversity, Recruitment, and Reward Systems for Employees in the U.S. Hotel Industry. Annual Trends in the Hotel Industry -- Canadian Edition. (Contact 416/360-5000.) For Hotel Industry Trends information for Europe, the U.K., Africa, and the Middle East, contact Pannell Kerr Forster Associates in London at 0171-831-7393. For further information and prices, contact the PKF Consulting Research Department at (415) 421-5378. - -------------------------------------------------------------------------------- ================================================================================ WANT TO TAKE PART IN OUR NEXT INVESTMENT SURVEY? New participants in Hospitality Investment Survey are always welcome. If you are a hotel investor, lender, or otherwise involved in the transaction end of the industry, please contact us. We'll send you a survey form. All survey data is kept strictly confidential. Inquiries may be directed to any PKF Consulting office or to the editor. And all participants get their copy free of charge. ================================================================================ For PKF Consulting Real Estate Services in your region, please contact: New York Philadelphia Houston John A. Fox Lawrence E. Henry, MAI John A. Keeling (212) 867-8000 (215) 563-5300 Florida T. Booth, MAI (713) 621-5252 Los Angeles Atlanta Jeffry Lugosi, MAI Mark Woodwortli (213) 680-0900 (404) 842-1150 Boston San Francisco Thomas A. Ellsworth Thomas E. Callahan, CRE, MAI (508)768-7000 Kiyoshi Sekine Dan Lem Washington, DC Doris Tan Walter C. Williams (415) 421-5378 (703) 684-5589 - -------------------------------------------------------------------------------- Hospitality Investment Survey is compiled and produced by PKF Consulting. Readers are advised that PKF Consulting does not represent the data contained herein to be definitive. Neither should the contents of this publication be construed as a recommendation on policies or actions. Quotations or reproduction, in whole or in part, are permitted with credit to PKF Consulting. Please address inquiries to the Editor, Hospitality Investment Survey, 425 California Street, Suite 1650, San Francisco, CA 94104. Phone: (415) 421-5378. Price $75.00. ---------- PKF CONSULTING ---------- - -------------------------------------------------------------------------------- <PAGE> HOSPITALITY INVESTMENT SURVEY ---------- PKF CONSULTING ---------- A PERIODIC PROFESSIONAL PUBLICATION VOLUME TEN, ISSUE ONE SECOND QUARTER 1997 $75 Optimism Continues to Drive Hotel Investment - -------------------------------------------------------------------------------- The optimistic attitude driving hotel investment continued in 1996 and is expected to remain through 1997. Investors are purchasing hotels at continually rising prices, still confident of continuing upside potential in the marketplace. It is estimated that the average price paid for a hotel in 1997 will approximate 91.3 of replacement cost in 1997. This contrasts to the 47.4 percent mark recorded in 1991, at the depth of the nation's economic and lodging recession. Projected growth in operating profits continues to attract investors to spend their money on lodging. Despite the first signs of overdevelopment and projections of declining occupancy in several markets, a healthy economy and improvements in operating efficiency lead most analysts and investors to believe that hotel profitability should continue to improve through the year 2000. The 1997 edition of PKF Consulting's Hospitality Investment Survey found that hotel investors are projecting revenues to grow annually at 3.9 percent, while expense growth will be limited to 3.4 percent. The end result is a projected annual growth rate of 7.3 percent for hotel net operating incomes. So Many People Can't Be Wrong Further indication of the interest in hotel investment is the response to this year's Hospitality investment Survey (HIS). The 1997 edition of HIS reports the average investment criteria used by 141 companies involved in over 1,500 hotel related transactions in 1996. This is by far the largest interest we have seen in hotel investment since our first survey in 1984. It should also be noted that 82.3 percent of our survey respondents plan to purchase and/or sell one or more hotels in 1997, further indication that the amount of investment dollars flowing into the hospitality industry has yet to subside. Few Changes In Investment Criteria Hotel investors' outlook on values and return on investment have changed little since the optimistic attitudes adopted in 1994. Capitalization rates continue to hover around the 11 percent mark, while the desired return on investment dropped slightly to 14.1 percent. With hotel investors fairly sure that their future return on investment can be derived from improved profitability, they are willing to pay higher prices and accept less of a percentage return in exchange for less perceived risk. Among the different property types, investors appear to be most bullish regarding the future prospects for resort properties. Due to the scarcity of resort properties for sale, combined with the positive future projections of market performance for this segment, transactions involving resorts showed the lowest capitalization rate (10.4 percent) and internal rate of return (13.4 percent). At the other end of the spectrum, limited-service hotels are being purchased at the highest rate of capitalization (11.7 percent) and desired rate of return (14.7 percent). In several markets, the relative cost of construction and market support favors building a new limited-service hotel as opposed to purchasing an existing property. Traditional Lenders Return Responding to the increase in hotel investment activity, traditional sources of financing have re-entered the hotel lending arena to get Continued on page 2 - -------------------------------------------------------------------------------- Table 1 Investment Criteria 1996 1995 1994 1992 1990 1988 1986 - -------------------------------------------------------------------------------- Overall Cap Rate 11.10% 11.04% 11.20% 11.90% 10.20% 11.10% 10.90% Discount Rate 14.10% 14.57% 14.70% 16.00% 15.00% 14.60% 13.80% Holding Period (Years) 6.70 6.27 7.10 8.40 9.60 8.80 9.30 Debt Coverage Ratio 1.40 1.38 1.40 1.60 1.30 1.30 1.30 Income Growth Rate 4.00% 3.89% 3.90% 3.80% 4.80% 4.40% 4.00% Expense Growth Rate 3.30% 3.44% 3.70% 3.60% 4.70% 4.30% 4.30% Interest Rate 9.10% 9.59% 9.90% 8.90% 11.50% 11.60% 10.10% Loan To Value Ratio 69.70% 69.12% 68.00% 67.40% 69.00% 73.60% 72.50% Source: PKF Consulting - -------------------------------------------------------------------------------- <PAGE> HOSPITALITY INVESTMENT SURVEY -- PKF CONSULTING - -------------------------------------------------------------------------------- Continued from front page a piece of the action. Sixty-eight percent of HIS respondents reported that their bank contributed in some part to the financing of their hotel deals in 1996, up from 58 percent in 1995 and 31 percent in 1994. Other sources, such as investment banks, SBA loans, mortgage funds, conduits, and private equity were identified as the second most prominent source of financing. This increase in the availability of financing sources has lessened the need for seller financing, which declined from 24 percent in 1995 to 16 percent in 1996. The financing criteria required by lenders also changed little from 1995 to 1996. Debt coverage ratio stayed constant at 1.4, while the loan-to-value ratio continues to range from 68 to 70 percent for all product types. Indicative of the increased competition among lenders to become involved in hotel transactions, the average interest rate for a hotel loan dropped slightly from 9.6 percent in 1995 to 9.1 percent in 1996. - ---------------------------------------- Table 2 PROFILE OF TRANSACTIONS SURVEYED Location Number Percent Northeast 227 14.7% Southeast 298 19.2% Midwest 298 19.2% Northwest 83 5.3% Southwest 253 16.3% West 272 17.6% Caribbean 12 0.8% Mexico 2 0.2% Other 104 6.7% - ---------------------------------------- Total 1,549 100.0% Type of Transaction Non-R.E.O. 83 5.4% R.E.O. 1,466 94.6% - ---------------------------------------- 1,549 100.0% Respondent Involvement Purchased 351 22.7% Sold 341 22.0% Put Under Contract 349 22.5% Financed 508 32.8% - ---------------------------------------- 1,549 100.0% Source: PKF Consulting - ---------------------------------------- ---------------------------------------- TRENDS VALUE 1996 Constant Dollars Indexed [Line graph omitted] Source: PKF Consulting ---------------------------------------- Show Me The Current Money Somewhat contrary to the expectations of future profit growth are the valuation techniques investors use to help determine the purchase price. As in our 1996 study, a direct capitalization of the property's net income is thought to be the best method to determine the value of a hotel. However, the technique of determining value by discounting the projected future cash flows of the property dropped from the second most preferred practice to the fourth. In addition, our study indicates that a direct capitalization of the existing year's cash flow has been used more often than capitalizing the cash flow projected for the following year. Existing year data is often thought to be a base from which to determine a minimum value for a property in the rising market. By preferring to capitalize existing year data, despite predictions of rising profits, today's buyer might just be responding to the fact that 1995 and 1996 were years of record profit performance in the hotel industry. In other words, 1995 and 1996 performance levels are more predictive of future stabilized performance than existing year performance levels were during the depths of the recession. Time To Analyze Your Investment Options In an effort to see how this favorable financial outlook impacts the investment community, we have analyzed valuation information from our various databases. Using data from PKF Consulting's Trends In The Hotel Industry and Hospitality Investment Survey, we have calculated a "Trends Value" for the typical hotel participating in our surveys. The Trends Value, calculated on a per available room basis, takes into account such factors as the prevailing operating profits, capital reserve requirements, and capitalization rates for each of the years under study. This calculation was made for full-service, limited-service, and resort hotels. It is important to note that this Trends Value does not reflect the actual sales prices for properties bought or sold in any given year. Driven by the expected growth in profits, it is projected that by 1997, the Trends Value (in 1996 constant dollars) of the "typical" hotel will have improved nearly 75 percent from the depths of the early 1990s recession. The value improvement of limited-service hotels occurred earlier in the recovery process, but is expected to taper off somewhat in the future, as market condi- 2 <PAGE> HOSPITALITY INVESTMENT SURVEY -- PKF CONSULTING - -------------------------------------------------------------------------------- tions temper the profit performance of this segment. On the other hand, full-service hotels took a little longer to recover their value, yet show the greatest potential for value improvement in the future. Resort hotels, driven by the combination of lower capitalization rates and relative lagging improvement in profitability, have shown the least resiliency in value recovery. Why Sell Now? With hotel profits on the rise, why would hotel owners consider selling their property at this time? Market experience and projections say that selling now would cut an owner short of enjoying up to four years (depending upon where the property is located) of rising profits and the corresponding rise in the value of the hotel. Obviously, the proper time to sell any individual hotel is dependent upon issues unique to that particular asset. Local market conditions, the physical condition of the property, and the financial motivations of the owner are just some of the factors which need to be analyzed before one can properly judge whether or not it is time to sell. However, when you look at the overall state of the current U.S. hotel industry, more than a few compelling reasons can be made for the consideration of selling your hotel now. The following paragraphs summarize some of the reasons why selling your hotel in 1997 might be a prudent move. - -------------------------------------------------------------------------------- COMPARATIVE ANALYSIS Value Per Room vs Replacement Cost [Bar graph omitted] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Table 3 CLASSIFICATON OF CONTRIBUTORS Contributor Number Percent Owner/Operator 55 39.0% Other (Broker/RE Advisor) 24 17.0% Management Company 22 15.6% Hotel Chain 15 10.6% Private Investor 13 9.2% Developer 6 4.3% Life Insurance 3 2.1% Pension Funds 2 1.4% Commercial Bank 1 0.7% - ----------------------------------------------------- Total 141 100.0% Who Provides Financing? Bank 42.9% Other Source** 22.3% Insurance Company 15.2% Seller 9.8% Pension Fund 6.7% Saving & Loan 3.1% Notes: * = Many respondents noted multiple sources. ** = Other sources included investment banks, SBA Loans, mortgage funds, conduits, and private equity. Source: PKF Consulting - -------------------------------------------------------------------------------- Deal From A Position Of Strength There are several conditions in place now that give the seller leverage over the buyer in the negotiation process. First of all, hotels are a desired asset. Given all the news of improved market and financial performance, hotels are one of the most sought-after forms of real estate for investors. This is most evident on Wall Street, where hospitality related REITs, investment funds, and C-Corporations all need to put their funds to use and are fighting each other to find investment opportunities. Given the recent fluctuations Wall Street, hotel owners should closely monitor the Dow Jones Index. Any large drops in the Dow could forewarn a lessening of hotel acquisition activity, thus indicating a need to sell your property. Leaving Some Crumbs Professionals realize that successful transactions are the result of balanced negotiations and a "meeting of the minds." While a hotel owner desires to maximize the price paid for his hotel, the buyer comes to the table looking for a price that leaves room for asset appreciation. As mentioned earlier, the hotel industry is expected to experience continued growth in profitability for the next few years. This leaves credible prospects for future return on investment for a potential hotel investor. If hotel owners wait until hotel profitability has peaked out, nothing will be left on the table for potential buyers. Continued on page 4 3 <PAGE> HOSPITALITY INVESTMENT SURVEY -- PKF CONSULTING Continued from page 3 More Builders Than Buyers Another effect of improving profitability within the hotel industry is that, eventually, it will cost just as much to buy a hotel as it will to build one. Again, comparing the average Trends Value of the typical hotel in our survey and the cost to construct a similar property, we find that the gap is narrowing. On average, the typical hotel in our study was valued at 47.7 percent of its replacement cost in 1991. This ratio is projected to grow to 91.3 percent by year-end 1997. With the value of the average hotel nearing its replacement costs, the time is approaching when hotel investors will find themselves better off building a new property than investing in an existing one. This narrowing of the gap between purchase price and replacement cost negatively impacts the potential hotel seller in two ways. First, it further shrinks the field of hotel purchasers, many of whom will transform themselves into developers. Secondly, the new hotels that will be built could have a negative impact on the future market performance of the existing hotel, thus lowering its attractiveness. Altering Your Investment Strategy Prudent investors enter a transaction having already developed a proper exit strategy. We believe now is a good time to start reviewing your disposition strategy. What were your goals when you purchased your hotel, and have they been met? Measured in stated-year dollars, Trends Values are double what they were in 1990, and almost 50 percent greater than 1994. These rates of return should meet the return requirements of most investors. Exiting hotel ownership does not necessarily mean that you can't continue to ride the anticipated rise in hotel performance. For example, many sellers will take the proceeds from the sale of their hotel properties and purchase shares of a REIT, a publicly-traded hotel company, or an Investment Fund. Such action makes the "ex" owner's real estate investment more liquid, while allowing him to benefit from any future rise in hotel profitability and values. - -------------------------------------------------------------------------------- Table 4 INVESTMENT CRITERIA Capitalization Rates Average High Low Full-Service 10.9% 15.0% 8.3% Limited-Service 11.7% 16.0% 9.0% Resort 10.4% 13.5% 5.0% - ------------------------------------------------------------ All Properties 11.1% Internal Rate of Return/ Discount Rate Full-Service 13.9% 18.0% 11.3% Limited-Service 14.7% 19.0% 12.4% Resort 13.4% 16.5% 10.0% - ------------------------------------------------------------ All Properties 14.1% Equity Yield Full-Service 18.4% 25.0% 11.5% Limited-Service 18.7% 30.0% 10.5% Resort 17.8% 25.0% 9.0% - ------------------------------------------------------------ All Properties 18.4% Cash on Cash Full-Service 14.4% 25.0% 8.0% Limited-Service 16.2% 25.0% 8.0% Resort 14.5% 25.0% 8.0% - ------------------------------------------------------------ All Properties 15.2% Holding Period (Years) Full-Service 7.1 30.0 3.0 Limited-Service 6.0 10.0 2.5 Resort 7.0 10.0 3.0 - ------------------------------------------------------------ All Properties 6.7 Room Revenue Multiplier Full-Service 2.5 3.5 2.0 Limited-Service 2.8 4.0 2.0 Resort 2.6 3.0 2.2 - ------------------------------------------------------------ All Properties 2.7 Total Revenue Multiplier Full-Service 2.1 2.5 1.7 Limited-Service 3.1 4.0 2.5 Resort 2.5 2.5 2.5 - ------------------------------------------------------------ All Properties 2.5 Marketing Period (Months) Full-Service 7.7 24.0 3.5 Limited-Service 6.4 12.0 3.0 Resort 7.7 12.0 5.0 - ------------------------------------------------------------ All Properties 7.2 Source: PKF Consulting - -------------------------------------------------------------------------------- How To Exit Gracefully For hotel sellers, the use of a professional transaction advisor who can properly represent your hotel is a must in today's marketplace. It is important to make sure your transaction advisor is both credible and qualified to make the case to a prospective buyer that an upside still exists for the hotel asset. Selling a hotel in today's hotel market environment demands more than pretty pictures and multiple listings. It requires an experienced and knowledgeable transaction advisor who can relate to the investment strategies of potential purchasers, while at the same time representing the best interests of the seller. Why Buy Now? If the current hospitality cycle appears to be reaching its peak, why should someone consider investing in the hotel industry at this time? The following paragraphs summarize some of the reasons why investing in a hotel might be a prudent move in 1997. Upscale Plus Urban Equals Opportunity Despite high occupancies and double-digit growth in room rates, the financial feasibility of constructing a new full-service hotel in an urban market is slim. Lack of available land, high labor costs, and hefty municipal charges often push the development budget beyond breakeven. Given these economics, plus the fact that a new full-service 4 <PAGE> HOSPITALITY INVESTMENT -- PKF CONSULTING - -------------------------------------------------------------------------------- Table 5 MORTGAGE TERMS Loan to Value Ratio Average High Low Full-Service 69.1% 92.5% 45.0% Limited-Service 71.0% 92.5% 55.0% Resort 68.7% 85.0% 55.0% - ----------------------------------------------------------- All Properties 69.8% Interest Rates Full-Service 9.0% 11.0% 3.3% Limited-Service 9.0% 11.0% 3.3% Resort 9.3% 11.3% 8.3% - ----------------------------------------------------------- All Properties 9.1% Amortization Period (Years) Full-Service 22.2 30.0 12.0 Limited-Service 21.6 30.0 10.0 Resort 22.0 30.0 15.0 - ----------------------------------------------------------- All Properties 21.9 Loan Term (Years) Full-Service 8.3 22.5 0.0 Limited-Service 8.3 22.5 3.0 Resort 7.6 15.0 5.0 - ----------------------------------------------------------- All Properties 8.2 Debt Coverage Ratio Full-Service 1.4 2.3 1.2 Limited-Service 1.4 1.7 1.2 Resort 1.4 2.0 1.2 - ----------------------------------------------------------- All Properties 1.4 Source: PKF Consulting - -------------------------------------------------------------------------------- urban project would take at least three years to open, it is pretty safe to assume that there will be few new competitors entering the upscale urban markets through the year 2000. If an investor can find an urban hotel for sale (or potentially an alternative-use building adaptable for conversion) he can be relatively assured of an extremely favorable market and profitable operating conditions for the next few years. Disciplined Lenders Aggressive and undisciplined Saving and Loans contributed to the overdevelopment that occurred in the 1980s. ln today's lending circles, it is difficult to find traditional institutions or lending sources that have not implemented strict lending criteria for all real estate loans. While the lending community has had its share of cyclical lapses in discipline, the current conservative bent appears to be fairly well entrenched, thus putting a cap on the availability of funds for new development. As it has been the case since 1990, the lack of available financing will limit the amount of new hotel construction activity, thus preserving the current mature period in the cycle and lessening the depth of the next recession. Few False Incentives Another factor contributing to the funding of hotel projects in the 1980s were tax laws that provided developers with artificial incentives to build. In general, tax benefits helped the financial feasibility of projects that were not market-justified. The result was a glut of hotels that improved the immediate cash flows of the investors, while not serving any market need. Today's tax code provides little relief or loopholes for investors looking for deductible losses and tax shelters. In other words, the direct financial feasibility of the project must provide the return on investment. This is one more factor adding to the prospect for future stability in the market. Some Bargains Still Exist While the overall purchase price for all hotels is projected to exceed 90 percent of replacement cost, some properties in select markets are still selling below 75 percent of replacement cost. These properties tend to be full-service, or may have a large amount of deferred maintenance or market obsolescence attached to them. Nonetheless, for the hotel investor who has the resources to turn a property around, a well located property currently in distress may be a candidate for refurbishment and may well enjoy favorable market conditions for the foreseeable future. ------------------------------------- Table 6 VALUATION TECHNIQUE PREFERENCE Technique Rank* Direct Capitilization 2.1 Other 2.2 Cash on Cash 2.4 Discount Cash Flow 2.9 Equity Yield 3.0 Percentage of Replacement 4.1 Multiple of Room Revenue 5.0 Multiple of Gross Revenue 5.7 Note:* 1 = Most Important 8 = Least Important Source: PKF Consulting ------------------------------------- Representation For some hotel companies, the need to have representation in specific markets or to gain critical mass when building a Continued on back page - -------------------------------------------------------------------------------- Table 7 CASH FLOW PROJECTIONS Growth Rates Annual Growth Rate Revenues 4.0% Expenses 3.3% Net Operating Income 7.3% Reserve for Replacement Method Average Percent of Gross Revenue 3.97% Percent of F.F. &E. 7.58% Source: PKF Consulting - -------------------------------------------------------------------------------- 5 <PAGE> HOSPITALITY INVESTMENT SURVEY -- PKF CONSULTING - -------------------------------------------------------------------------------- Continued from page 5 chain, forces them to purchase or construct properties even though the economics may not be favorable. This is especially true for international chains needing properties in gateway cities and for all-suite chains looking to convert a limited amount of all-suite hotel inventory. Be Careful Out There, It's Diverse Overall, PKF Consulting shares the optimism shown by most hotel investors. However, we do recognize that each transaction needs to be evaluated on its own merits. Today's operating and investment markets vary greatly from product type to product type, and region to region. To give a blanket endorsement to all hotel investment opportunities is absurd. The decision to buy, sell, build, lend, or invest is complex. It is driven by objective criteria like market support, physical condition of the property, and land availability, as well as subjective criteria like relative risk, desired returns, and development/management objectives. A potential hotel investor shouldn't be drawn into the industry simply to ride an overall wave of enthusiasm. On the other hand, a prudent investor would be wise to continue to search the hotel landscape and take advantage of those great deals and opportunities that remain. - -------------------------------------------------------------------------------- Recent Publications Available from PKF Consulting 1996 Annual Trends in the Hotel Industry -- USA. 1997 Annual Trends in the Hotel Industry -- USA. (Available Autumn 1997.) Quarterly Trends in the Hotel Industry. Monthly Trends in the Hotel Industry. (Available for each of more than 50 U.S. cities and regions.) 1996 Annual Trends in the Hotel Industry -- Asia/Pacific Edition. Annual Hospitality Investment Survey. The Conference Center Industry: A Statistical and Financial Profile -- North America 1996. (1996 edition available now. 1997 edition available in July.) 1996 Biennial Bed-and-Breakfast/Country Inns Industry Study. (Available July 1997 through the Professional Association of Innkeepers International 805/569-1853.) Hotel Development Handbook. (Available through the Urban Land Institute 202/624-7000.) 1996 Human Resources Survey: Study of Diversity, Recruitment, and Reward Systems for Employees in the U.S. Hotel Industry. Annual Trends in the Hotel Industry -- Canadian Edition. (Contact 416/360-5000.) For Hotel Industry Trends information for Europe, the U.K., Africa, and the Middle East, contact Pannell Kerr Forster Associates in London at 0171-831-7393. For further information and prices, contact the PKF Consulting Research Department at (415) 421-5378. - -------------------------------------------------------------------------------- ================================================================================ WANT TO TAKE PART IN OUR NEXT INVESTMENT SURVEY? New participants in Hospitality Investment Survey are always welcome. If you are a hotel investor, lender, or otherwise involved in the transaction end of the industry, please contact us. We'll send you a survey form. All survey data is kept strictly confidential. Inquiries may be directed to any PKF Consulting office or to the editor. And all participants get their copy free of charge. ================================================================================ For PKF Consulting Real Estate Services in your region, please contact: New York Philadelphia Houston John A. Fox Lawrence E. Henry, MAI John A. Keeling (212) 867-8000 (215) 563-5300 Florida T. Booth, MAI (713) 621-5252 Los Angeles Atlanta Jeffry Lugosi, MAI Mark Woodwortli (213) 680-0900 (404) 842-1150 Boston San Francisco Thomas A. Ellsworth Thomas E. Callahan, CRE, MAI (508)768-7000 Kiyoshi Sekine Dan Lem Washington, DC Doris Tan Walter C. Williams (415) 421-5378 (703) 684-5589 - -------------------------------------------------------------------------------- Hospitality Investment Survey is compiled and produced by PKF Consulting. Readers are advised that PKF Consulting does not represent the data contained herein to be definitive. Neither should the contents of this publication be construed as a recommendation on policies or actions. Quotations or reproduction, in whole or in part, are permitted with credit to PKF Consulting. Please address inquiries to the Editor, Hospitality Investment Survey, 425 California Street, Suite 1650, San Francisco, CA 94104. Phone: (415) 421-5378. Price $75.00. ---------- PKF CONSULTING ---------- - -------------------------------------------------------------------------------- <PAGE> ADDENDUM E HOSPITALITY VALUATION SERVICES' DEVELOPMENT COST SURVEY <PAGE> Lodging Today - -------------------------------------------------------------------------------- ================================================================================ STEPHEN RUSHMORE ================================================================================ It's Time to Build [PHOTO] If you are not planning to build a hotel in the near future, you are missing a prime opportunity. Occupancies in many locales are approaching record levels. Escalating room rates are advancing faster than expense inflation. Profits and values are rising as well. So why build now? Aside from the obvious fact that the lodging industry has fully recovered and acquisition opportunities are becoming more limited, development costs have started to increase. If you want to be near the low point in the hotel development cost cycle, start building now. According to the Hospitality Valuation Services' (HVS) 1995 Hotel Development Cost Survey, the cost of building and opening a lodging facility in 1995 rose about 3.2 percent over 1994. This compares to a 2.5-percent increase for the previous year. While these increases don't approach the double-digit growth of the early 1980s, the upward trend should continue as new hotel development heats up. A year ago, I was recommending that acquiring existing hotels at prices below replacement cost was the best expansion strategy. However, since most hotels today are selling at or near the cost to build new property, now is the time to change from buying to building. Building versus buying has other advantages as well. New hotels generally achieve higher occupancies and room rates when compared with similar, older properties. New technologies such as environmentally efficient HVAC systems, state-of-the-art reservation and property management systems and high-tech guestroom amenities that save cost and increase productivity are not always found in existing hotels. When selecting markets for new development, look for areas with high barriers to entry. Ideally, you want to be the last hotel ever built in an area. Factors such as restrictive zoning, a complex approval process, building moratoria, and inadequate water and sewers often create barriers to entry. I would much rather be in a secondary market with high barriers to entry than a primary market with low barriers to entry. The table shows results of the HVS development cost survey for two years. These costs are estimated on a per-room basis for luxury, midscale and economy properties. Cost estimates reflect more than 4,000 appraisals conducted by HVS over the past decade. Stephen Rushmore, MAI, CHA, is president and founder of Hospitality Valuation Services of Mineola, NY; San Francisco; Miami; Boulder; Vancouver; and London. HVS specializes in hotel feasibility studies and valuations. <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ The Cost of Developing a Hotel - ------------------------------------------------------------------------------------------------------------------------------------ Operating 1994 Improvements FF&E Land Preopening Capital Total - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> Luxury $64,000 $14,300-31,000 $8,900-20,900 $3,900-6,200 $2,800-3,800 $93,300 Midscale 40,000-63,000 10,000-17,600 4,500-12,300 2,400-4,600 1,800-3,000 58,700-100,500 Economy 22,000-40,000 5,100-9,500 2,800-8,000 1,500-2,200 1,300-1,800 32,700-61,500 - ------------------------------------------------------------------------------------------------------------------------------------ 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Luxury $65,000 $14,800-32,300 $9,200-21,700 $4,100-6,400 $2,900-4,000 $96,000 Midscale 41,000-65,000 10,400-18,300 4,700-12,800 2,500-4,800 1,900-3,100 60,500-104,000 Economy 23,000-42,000 5,400-9,900 3,000-8,400 1,600-2,300 1,300-1,800 34,300-64,400 - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> <PAGE> ADDENDUM F LANDAUER HOSPITALITY SERVICES' HOTEL INVESTMENT OUTLOOK <PAGE> ================= LANDAUER HOTEL INVESTMENT - ----------------- Hospitality Group ================= =========================================================================OUTLOOK 1997 o Volume 6 o No. 1 1997 Survey Results [graphic omitted] CONSTRUCTION TRENDS Index: 1992=1.00, Constant Dollars, SAAR Property Prices Continue to Rise! Thai is what the results of our HIO survey for 1997 suggest. Hotel investment is heated, primarily driven by C-Corps and REITs. The necessity for REITs to continue strong returns to owners requires continuing growth. The two hotel pair-shared REITs, Starwood Lodging Trust and Patriot American, have an advantage in their structural efficiency. Wall Street has acknowledged this by pouring more money into their holdings. With the cost of capital in some cases at Libor plus 150 basis points, money is relatively cheap. The result has been to drive property values closer to replacement value. This has been particularly true for the full-service hotel sector. There are several regional hotel companies and C-Corps who are making a play at greater product distribution. Savings and loans as well as regional banks are once again lending for hotel development. Limited partnership interests in hotel assets are on the rise leading to more multiple ownership transactions. Insurance companies and pension funds are also re-entering the hotel investment arena. Only five years ago, many of these financial sources viewed the hotel industry as a grave error in their investment strategies. Now hotels provide returns on par with the technology and residential real estate sectors. The current trends appear to be sustainable for The foreseeable future. While prices of existing full-service hotels continue to rise, lenders are seriously considering requests for capital for new development. Once again, from a full-service perspective, our survey results are nearly unanimously positive. Almost everyone agrees that from an operational perspective this sector has at least one to two strong years ahead, with continued REVPAR gains in excess of inflation. Largely, investors agree that the opportunities are in rate, as many markets reach their natural capacity constraints from an occupancy standpoint. Augmenting the revenue enhancements are cost efficiencies which have been gradually engineered by hotel management companies during the leaner years experienced earlier in the decade. Cash rich hotel companies are again beginning to focus on Management Information Systems and product expansion distribution. Will these investments in capital continue to provide the requisite returns in economic efficiency? The hard decisions of where to invest capital is best left to those with experience doing it for other industries. Hoteliers have proved to be resilient during periods of operational distress. However, they have been less savvy in the business of directing capital. Labor unions are again gaining strength in the larger US cities and, given the record lows in unemployment, this trend is likely to continue. The result: higher operating costs in major markets. The chains are also outsourcing services traditionally absorbed in operations. Contractual obligations are therefore a liability more than an asset of some targeted acquisitions. To be a participant in the current marketplace, investors indicate an aggressive approach must be taken. Consistent with this, our survey results show buyers projecting income growth to be higher than operating expense growth when developing pro-formas. In addition to the improved operating performance resulting from positive market conditions, in most instances, buyers are pricing hotels by applying their company's operating efficiencies to future pro-formas. The expectation of future potential was well illustrated in several portfolio transactions in l996 and early 1997 where the suggested cap rate for the trailing 12 month income stream was in the five to seven percent range. These transactions are a reflection of a broader change that is presently developing within the marketplace. Apparently, when making purchase decisions investors are not only forecasting operating efficiencies and top line advancements, but are also incorporating within their pricing parameters the advantages certain forms of public ownership provide. For instance, the upside associated with certain transactions also integrates the benefit "paired-shared" REITs have of recouping certain operating expenses such as management fees. This is in addition to Continued on page 3 <PAGE> - ----------------- EQUITY PARAMETERS CAPITALIZAT1ON RATES YIELD RATES - ----------------- ---------------------- ------------------------ Holding Free and Period (yrs) Overall Terminal Clear Leveraged - -------------------------------------------------------------------------------- Survey Average 7.87 9.45% 10.85% 13.50% 18.67% - -------------------------------------------------------------------------------- Survey Range 4.00-10.00 7.50-13.00 9.00-12.00 12.00-16.00 15.00-25.00 - -------------------------------------------------------------------------------- 1 Year Ago-Average 6.52 10.46% 10.74% 14.20% 21.71% - -------------------------------------------------------------------------------- 1 Year Ago-Range 3.00-10.00 7.00-14.00 7.00-13.00 10.00-20.00 18.00-25.00 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DEBT PARAMETERS YIELD RATES - --------------- ------------------------ Interest Terms Amortization Debt Coverage Loan to Rate (years) Period Ratio Value - -------------------------------------------------------------------------------- Survey Average 8.79 14.20 23.17 1.43 70.00% - -------------------------------------------------------------------------------- Survey Range 8.10-9.25 5.00-25.00 20.00-30.00 1.40-1.50 65.00-75.00 - -------------------------------------------------------------------------------- 1 Year Ago-Average 9.57 8.46 21.39 1.44 64.00% - -------------------------------------------------------------------------------- 1 Year Ago-Range 8.50-11.50 3.00-20.00 15.00-25.00 1.30-1.50 40.00-90.00 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DISCOUNTED CASH FLOW PARAMETERS INFLATION ESTIMATES - ------------------------------- ----------------------- Revenue Expenses Selling Costs - -------------------------------------------------------------------------------- Survey Average 3.54% 3.39% 2.58% - -------------------------------------------------------------------------------- Survey Range 3.00-4.00 3.00-4.00 1.00-3.50 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LANDAUER HOTEL MARKET EQUILIBRIUM FORECAST - ------------------------------------------ [GRAPHIC OMITTED] Page 2 <PAGE> continued on Page 1 [graphic omitted] NATIONAL CAPITALIZATION RATES By Property Type their tax friendly structures. Reports suggest that some REITs are taking advantage of their ownership structure by deferring costs such as replacement reserves. The long-term consequences of these cash management tactics are obvious; however, analysts on Wall Street are "switched on" to such cash flow manipulation and will rate rogue structures accordingly. There continues to be concern that some portfolio acquisitions are being purchased at a premium and that the buying decision is based on broker or investment banker projections; which typically do not account for economic downturns. Further, investment decisions are more commonly strategic with product distribution overriding economics in many cases. Initial public offering of new hotel stocks are expected to continue at a slower pace, being replaced by merger and acquisition activity. This has been represented by DoubleTrees unsuccessful and Marriott's successful acquisition of the Renaissance hotel portfolio. Patriot's acquisition of Wyndham is another example of the activity likely to come. The financial arrangements of such deals will vary according to the tax implications with stock swaps and partnership trades proliferating. While the supply of attractive deals has diminished considerably, investors hungry for product are considering more complex deals. Properties with restrictive contractual obligations or properties in need of significant capital outlays for renovation are now being considered. Investors are looking to foreign markets for expansion as well. Others are considering resort locations in the US and Caribbean. On financing and new development In the full-service arena, the supply of debt capital continues to increase dramatically as a result of the high returns delivered by REITs Insurance and pension funds have also provided capital to the industry, further placing "pressure" on The Street. The trend continues toward good quality, primary location, full-service hotels. Also, the money center banks are developing conduit programs, as they attempt to break into the more profitable business of securitization. Construction spending has grown dramatically over the past 12 months (see chart). Most of the construction has been in the all-suite and limited-service sectors up until recently; however, current trends suggest that the full-service sector will be the primary target of developers. Public assistance and tax credits are no longer requirements for underwriting. Nonetheless, hurdle rates for developers remain relatively high in the low to mid-20s. Survey respondents overwhelmingly answered that the state of the hotel industry looks positive over the next six months. Virtually all lenders and investors responded that they will consider new development. leaning heavily toward first-class and luxury projects. Locations to be considered largely included Center City, Airport, and Suburban. No respondents suggested that they were considering highway development. All respondents felt that the availability of debt and equity has improved. Surprisingly, these same people indicated that the outlook for equity over the next six months would not be as strong as it been. Outlook Are we back in the 1980's again? Potentially. However, deals in the 1990's appear to be more carefully calculated and investors are approaching transactions with more financial savvy. The REITs are generally driving prices higher because some argue that the "pair-shared" structure is as much as 15 percent more efficient than the traditional C-Corp. If that's the case, count on a budding boom that surpasses the mid-1980's. This supply increase will, in all likelihood, be met by strong demand growth in both the corporate and leisure travel segments. Demand for high-quality accommodations will be strong. Suites will remain popular and, as indicated by our survey participants, full-service hotels will be back with a vengeance. Merger and acquisition activity is likely to continue at an accelerated pace over the next few years. This being the case, funds will largely be intermediated by Wall Street in the form of REITs. CMBS offerings, mortgage conduit programs, and various lines of credit for acquisitions. Expect some interesting marriages among operating companies and more hostile takeover attempts like Hilton's run at ITT/Sheraton. This will further drive prices up. Many property owners will correctly choose "now" as the time to sell. Although the outlook for the hotel industry is strong and the consensus among our survey participants echoes that sentiment, all bets are off when we enter the next economic recession. page 3 <PAGE> [graphic omitted] PROFILE OF ACTIVE INVESTORS Source: Landauer/CCIM Investment Trends Quarterly; 1/1/96-3/31/97 ================= LANDAUER ----------------- Hospitality Group ================= HOSPITALITY COUNSELING WITH AN INVESTOR'S PERSPECTIVE Every effort has been made to provide accurate information. This publication does not render accounting, appraisal, counseling, investment, legal or other professional service. If such services are required, a professional should be engaged. (C) Hotel Investment OUTLOOK is published by Landauer Associates, Inc. Permission to reprint these articles is given provided Landauer Associates, Inc. is referenced and notified prior to use. Robert C. Mullikin, Managing Director in Landauer's New York office is principal author of the OUTLOOK. ================================================================================ PARTICIPANTS IN THE HOTEL INVESTMENT SURVEY ================================================================================ Adam's Mark Hotels & Resorts American General Hospitality B.F. Saul Co. Bedford Capital Corporation Bristol Hotel Co. Chase Securities Choice Hotels International Column Financial, Inc. DoubleTree Hotel Corp. Eastdil Realty GMAC Commercial Mortgage Corp. Hodges Ward Elliott Host Marriott Corporation Hotel Partners InterBank Mortgage Corporation Loews Hotels MassMutual New Castle Hotels Prime Hospitality Corp. Remington Hotel Corporation Starwood Lodging Corporation Teachers Insurance Annuity (TIAA) The Camberley Hotel Company T.J. Fox Associates USF&G Realty Advisors White Lodging Services Corp. Active hotel investors and lenders are welcome to participate in the Hotel Investment OUTLOOK In addition to the participants listed we are grateful for the comments of those surveyed who expressed no interest in hotels at this time or who desired not to be acknowledged in the OUTLOOK. ================================================================================ Atlanta 233 Peachtree Street N.E., Suite 1900 Atlanta, Georgia 30303 (404) 659-4040 Boston One State Street, 6th Floor Boston, MA 02109 (617) 720-0515 Chicago 225 West Washington Street, Suite 1500 Chicago, Illinois 60606 (312) 899-0100 Dallas 13760 Noel Road, Suite 930 Dallas, Texas 75240 (972) 866-9090 Fort Lauderdale 100 NE 3rd Avenue, Suite 770 Ft. Lauderdale, Florida 33394 (954) 764-5403 Los Angeles 707 Wilshire Boulevard, Suite 4950 Los Angeles. California 90017 (213) 624-3400 Miami 269 Giralda Avenue, Suite 201 Coral Gables, Florida 33134 (305) 591-9122 New York 666 5th Avenue, 25th Floor New York, New York 10103 (212) 621-9500 Newport Beach 4100 MacArthur Avenue, Suite 310 Newport Beach, CA 92660 (714) 851-9594 Scottsdale 8282 North Hayden Road, Suite 291 Scottsdale, AZ 85258 (602) 607-0550 Sydney, Australia Level 30, 52 Martin Place Sydney, NSW 2000 Australia 011 612 324-4211 Washington, DC 8133 Leesburg Pike, Suite 720 Vienna, VA 22182 (2O2) 337-4680 <PAGE> ADDENDUM G 1996 -- 1997 CAPITAL EXPENDITURES <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Dec-96 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> R ROOMS 168,791 0 125,047 0 3,242 16,063 144,352 (24,439) FB FOOD & BEVERAGE 199,802 0 126,326 0 20,723 9,300 156,349 (43,453) RM R&M 214,846 0 236,373 0 3,107 0 239.480 24,634 A&G ADMIN & GENERAL 106,291 0 107,867 0 0 0 107,867 1,576 96 CONTINGENCY 96 50,000 0 48,042 0 6,000 0 54,042 4,042 BA APPROVED ADDITIONS TO BUDGET 182,633 0 179,310 0 0 0 179,310 (3,323) ------------------------------------------------------------------------------------------------------------------------- TOTAL 922,363 0 822,966 0 33,072 25363 881,401 40,962 ------------------------------------------------------------------------------------------------------------------------- 95 CARRYOVER 1995 APPROVED CAPITAL 30,100 0 27,130 0 0 0 27,130 (2,970) SALE ADJUSTMENTS 0 385,000 0 344,649 0 0 344,649 (40,351) - ----------------------------------------------------------------------------------------------------------------------------------- GRAND TOTAL 952,463 385,000 850,096 344,649 33,072 25,363 1,253,180 (84,283) - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - --------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - --------------------------------------------------------------- R ROOMS FB FOOD & BEVERAGE RM R&M A&G ADMIN & GENERAL 96 CONTINGENCY 96 BA APPROVED ADDITIONS TO BUDGET ------------------------------------- TOTAL ------------------------------------- 95 CARRYOVER 1995 APPROVED CAPITAL SALE ADJUSTMENTS - --------------------------------------------------------------- GRAND TOTAL - --------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Dec-96 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> R-1 CHAIR UPHOLSTERY (ACTIVITY/ DESK/LOUNGE) 17,338 21,081 21,081 3,743 R-2 BEDSPREADS (35) 12,198 6,257 6,257 (5,941) R-3 DRAPERY (91 panels) 23,485 20,391 20,391 (3,094) R-4 DUVETS (50) 4,261 4,249 3,242 7,491 3,230 R-5 CARPET (35 rooms) 29,950 19,860 19,860 (10,090) R-6 MATTRESSES (35 SetS) 16,049 10,994 10,994 (5,055) R-7 SOFAS rm 47O(1) 2,446 1,852 1,852 (594) R-8 FREEMONT/ORTEGA FIREPLACE/ LIGHTS/DRAP 20,850 4,787 16,063 20,850 0 R-9 ODELL HARDWOOD FLOORS/CARPETS 18,112 9,146 9,146 (8,966) R-10 BUFFING MACHINE 1,782 0 (1,782) R-11 COLD WATER PRESSURE WASHER 1,228 1,073 1,073 (155) R-12 CRIBS (10) 4,266 6,830 6,830 2,564 R-13 ROLLAWAY BEDS (10) 5,119 2,490 2,490 (2,629) R-14 VACUUMS (14) 5,765 8,785 8,785 3,020 R-15 LAUNDRY TRUCKS (6) 2,524 4,121 4,121 1,597 R-16 SEWING MACHINE -INDUSTRIAL 754 699 699 (55) R-17 SPOTTING BOARD VALET 2,664 2,432 2,432 (232) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL ROOMS 168,791 0 125,047 0 3,242 16,063 144,352 (24,439) - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - --------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - --------------------------------------------------------------- R-1 CHAIR UPHOLSTERY (ACTIVITY/ DESK/LOUNGE) See savings R-3 R-2 BEDSPREADS (35) see R-4 R-3 DRAPERY (91 panels) Complete R-4 DUVETS (50) see R-2 & Cfwd to 1997 R-5 CARPET (35 rooms) Complete R6 MATTRESSES (35 SetS) Complete R-7 SOFAS rm 47O(1) Complete R-8 FREEMONT/ORTEGA FIREPLACE/ LIGHTS/DRAP Carry fwd to 1997 R-9 ODELL HARDWOOD FLOORS/CARPETS Complete R-10 BUFFING MACHINE See R-14 R-11 COLD WATER PRESSURE WASHER Complete R-12 CRIBS (10) Complete R-13 ROLLAWAY BEDS (10) See R-12 R-14 VACUUMS (14) Complete see R-10 R-15 LAUNDRY TRUCKS (6) Complete R-16 SEWING MACHINE -INDUSTRIAL Complete R-17 SPOTTING BOARD VALET Complete - --------------------------------------------------------------- TOTAL ROOMS - --------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Dec-96 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> R&M-1 LOBBY WASHROOM TILE 19,934 6,485 6,485 (13,449) R&M-2 AUTO SOFTNER REGENERATION 5,388 13,038 13,038 7,650 R&M-3 A.D.A. MODIFICATIONS 26,938 8,724 8,724 (18,214) R&M-4 MODINE HEATERS 13,334 9,475 9,475 (3,859) R&M-5 CASINO ROOF 15,000 15,000 15,000 0 R&M-6 RAYPAK HEATERS CASINO 7,543 5,354 5,354 (2,189) R&M-7 SEWER EJECTOR PUMP 5,388 2,667 2,687 (2,721) R&M-8 FRONT DRIVEWAY BRASS SIGN 5,388 4,950 4,950 (438) R&M-9 CASINO POOL SURFACE 85,000 143,237 143,237 58,237 R&M-10 CASINO CHAISE LOUNGES (40) 24,456 22,266 22,266 (2,190) R&M-11 CASINO TV FOR EXCERCISE EQUIP (6) 3,413 4,945 4,945 1,532 R&M-12 CASINO UMBRELLAS (4) 3,064 233 3,107 3,340 276 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL REPAIRS & MAINTENANCE 214,846 0 236,373 0 3,107 0 239,480 24,634 - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - -------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - -------------------------------------------------------------- R&M-1 LOBBY WASHROOM TILE See R&M-2 R&M-2 AUTO SOFTNER REGENERATION See R&M-1 R&M-3 A D A. MODIFICATIONS Complete R&M-4 MODINE HEATERS Complete R&M-5 CASINO ROOF Complete R&M-6 RAYPAK HEATERS CASINO Complete R&M-7 SEWER EJECTOR PUMP Complete R&M-8 FRONT DRIVEWAY BRASS SIGN Complete R&M-9 CASINO POOL SURFACE Complete R&M-10 CASINO CHAISE LOUNGES (40) Complete R&M-11 CASINO TV FOR EXCERCISE EQUIP (6) Complete R&M-12 CASINO UMBRELLAS (4) Carryforward to 1997 - -------------------------------------------------------------- TOTAL REPAIRS & MAINTENANCE - -------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Dec-96 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> FB-1 LOGGIA AWNING REFURBISHMENT 14,962 6,078 6,078 (8,884) FB-2 CARPET LA CONCHA 10,900 808 10,776 1,500 13,084 2,184 FB-3 ELMAR, ALTO, LSV VALANCE 7,842 50 7,500 7,850 8 FB-4 PODIUMS (Casino. Loggia) 5,870 2,288 2,288 (3,582) FB-5 UMBRELLAS 8FT (20) 13,846 4,171 4,171 (9,675) FB-6 BANQUET CHAIRS (300) 27,330 24,805 24,805 (2,525) FB-7 STANDING HEATERS 3,440 3,410 3,410 (30) FB-8 CASINO BANQUET CHAIRS (200) 18,220 17,005 17,005 (1,215) FB-9 BANQUETTES REUPHOLSTERY 10,425 0 (10,425) FB-10 PATIO CHAIRS (60) 33,016 26,392 26,392 (6,624) FB-11 STAINLESS STEEL SIDE STATIONS (2) 10,775 9,032 9,032 (1,743) FB-12 TRAULSEN REFRIGERATORS (2) 2,730 0 (2,730) FB-13 LEATHER BAR STOOL/CHAIR UPHOLSTERY 7,046 3,634 4,140 7,774 728 FB-14 LASALA SERVICE STN. RENOVATION 10,000 13,544 1,424 14,967 4,967 FB-15 WINDOW SHADES LASALA 5,172 4,422 4,383 8,806 3,634 FB-16 CRESCORS(4) 3,791 1,880 1,880 (1,911) FB-17 KITCHEN SLICER/TOASTER/BBQ 3,233 4,179 4,179 946 FB-18 THREE TIERED CART (2) 1,706 0 (1,706) FB-19 CARPET SHAMPOOER 2,155 1,573 1,573 (582) FB-20 VACUUM-WINSOR MAXIMATIC 1,417 0 (1,417) FB-21 WOOD FLOOR 5,926 3,055 3,055 (2,871) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL FOOD & BEVERAGE 199,802 0 126,326 0 20,723 9,300 156,349 (43,453) - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - --------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - --------------------------------------------------------------- FB-1 LOGGIA AWNING REFURBISHMENT Complete FB-2 CARPET LA CONCHA Carryforward to 1997 FB-3 ELMAR, ALTO, LSV VALANCE Carryforward to 1997 FB-4 PODIUMS (Casino. Loggia) CXL HALF SEE A&G-8 FB-5 UMBRELLAS 8FT (20) Complete FB-6 BANQUET CHAIRS (300) Complete FB-7 STANDING HEATERS Complete FB-8 CASINO BANQUET CHAIRS (200) Complete FB-9 BANQUETTES REUPHOLSTERY Complete FB-10 PATIO CHAIRS (60) Complete FB-11 STAINLESS STEEL SIDE STATIONS (2) Complete FB-12 TRAULSEN REFRIGERATORS (2) Cancelled FB-13 LEATHER BAR STOOL/CHAIR UPHOLSTERY Carryforward to l997 FB-14 LASALA SERVICE STN. RENOVATION Carryforward to 1997 FB-15 WINDOW SHADES LASALA Carryforward to 1997 FB-16 CRESCORS(4) Complete FB-17 KITCHEN SLICER/TOASTER/BBQ Complete FB-18 THREE TIERED CART (2) Cancelled FB-19 CARPET SHAMPOOER Complete FB-20 VACUUM-WINSOR MAXIMATIC Cancelled FB-21 WOOD FLOOR Complete - --------------------------------------------------------------- TOTAL FOOD & BEVERAGE - --------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Dec-96 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> A&G-1 CAFETERIA FURNITURE 5,664 3,669 3,869 (1,995) A&G-2 LASER JET PRINTERS (2) 3,017 3,196 3,196 179 A&G-3 NETWORK FILE SERVER & SOFTWARE 12,176 15,104 15,104 2,928 A&G-4 PCS FOR ACCOUNTING (3) 7,758 7,558 7,558 (200) A&G-5 PLAIN PAPER FAX MACHINE 2,694 2,042 2,042 (652) A&G-6 RESERVATIONS FURNITURE 3,879 4,346 4,346 467 A&G-7 EECO PRINTER BACK OFFICE 3,771 1,155 1,155 (2,616) A&G-8 REMANCO BACK OFFICE POS SYSTEM 36,635 41,239 41,239 4,604 A&G-9 FLATBED CARTS (6) 2,730 1,527 1,527 (1,203) A&G-10 VOICE MAIL 27,967 28,032 28,032 65 0 0 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL ADMIN & GENERAL 106,291 0 107,867 0 0 0 107,867 1,576 - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - -------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - -------------------------------------------------------------- A&G-1 CAFETERIA FURNITURE Complete A&G-2 LASER JET PRINTERS (2) Complete A&G-3 NETWORK FILE SERVER & SOFTWARE See A&G-7 A&G-4 PCS FOR ACCOUNTING (3) Complete A&G-5 PLAIN PAPER FAX MACHINE Complete A&G-6 RESERVATIONS FURNITURE Complete A&G-7 EECO PRINTER BACK OFFICE See A&G-3 A&G-8 REMANCO BACK OFFICE POS SYSTEM See FB-4 A&G-9 FLATBED CARTS (6) Complete A&G-10 VOICE MAIL Complete - -------------------------------------------------------------- TOTAL ADMIN & GENERAL - -------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Dec-96 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> 50,000 0 (50,000) CO-1 TENNIS BALL MACHINE 0 2,768 2,768 2,768 C0-2 CORAL CASINO OFFICE FURNITURE 0 1,378 1,378 1,378 CD-3 LAMARINA ESPRESSO MACHINE 0 3,868 3,868 3,868 C0-4 BANQUET TABLES 0 4,624 4,624 4,624 CO-5 LASALA DOOR TO PATIO 0 9,215 9,215 9,215 CO-6 CARPETING CORAL CASINO 0 2,963 2,963 2,963 CO-7 ODELL COTTAGE AIR CONDITIONER 0 9,389 9,389 9,389 CO-8 PATIO OUTDOOR CUSHIONS 0 2,560 2,560 2,560 CO-9 TELEPHONE CONSULTANT 0 11,277 6,000 17,277 17,277 CD-10 0 0 0 - ----------------------------------------------------------------------------------------------------------------------------------- CONTINGENCY 1996 50,000 0 48,042 0 6,000 0 54,042 4,042 - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - -------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - -------------------------------------------------------------- CO-1 TENNIS BALL MACHINE Complete C0-2 CORAL CASINO OFFICE FURNITURE Complete CD-3 LAMARINA ESPRESSO MACHINE Complete C0-4 BANQUET TABLES Complete CO-5 LASALA DOOR TO PATIO Complete CO-6 CARPETING CORAL CASINO Complete CO-7 ODELL COTTAGE AIR CONDITIONER Complete CO-8 PATIO OUTDOOR CUSHIONS Complete CO-9 TELEPHONE CONSULTANT Carry forward to 1997 CD-10 - -------------------------------------------------------------- CONTINGENCY 1996 - -------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Dec-96 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL SPECIAL CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> BA 1 CORAL CASINO WADING POOL 66,500 66,500 66,500 0 BA-2 RENOVATE 700's WING 75,000 74,954 74,954 (46) BA 3 BRICK IN REMAINING PATIOS 29,000 26,563 26,563 (2,437) BA 4 POOL FURNITURE 12,133 11,293 11,293 (840) 0 0 0 0 0 0 0 0 0 0 0 0 - ----------------------------------------------------------------------------------------------------------------------------------- APPROVED ADDITIONS TO BUDGET 182,633 0 179,310 0 0 0 179,310 (3,323) - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - --------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - --------------------------------------------------------------- BA 1 CORAL CASINO WADING POOL Complete BA-2 RENOVATE 700's WING Complete BA 3 BRICK IN REMAINING PATIOS Complete BA 4 POOL FURNITURE Complete - --------------------------------------------------------------- APPROVED ADDITIONS TO BUDGET - --------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Dec-96 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> CFW-1 TURNDOWN CARTS 2,100 4,323 4,323 2,223 CFW 2 CASINO BANQUET CHAIRS 28,000 22,807 22,807 (5,193) 0 0 0 0 0 0 - ----------------------------------------------------------------------------------------------------------------------------------- CARRYFORWARD 1995 30,100 0 27,130 0 0 0 27,130 (2,970) - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - ------------------------------------------------------------ PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - ------------------------------------------------------------ CFW-1 TURNDOWN CARTS Complete CFW 2 CASINO BANQUET CHAIRS Complete - ------------------------------------------------------------ CARRYFORWARD 1995 - ------------------------------------------------------------ <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Dec-96 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL SPECIAL CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> SA-l CORAL CASINO POOL TUNNEL 270,000 167,601 167,601 (102,399) SA-2 SPRINKLER 700'S 47,180 26,111 26,111 (21,069) SA-3 HEAT PUMP CONDENSER CASINO 15,000 5,349 5,349 (9,651) SA-4 WINDOW SHUTTER REPAIRS 10,000 8,504 8,504 (1,496) SA-5 COTTAGE FUMIGATION 4,000 4,000 4,000 0 SA 6 TERMITE MITIGATION 38,820 26,063 26,063 (12,757) SA 7 ASBESTOS ABATEMENT 0 107,021 107,021 107,021 0 0 0 0 0 0 - ----------------------------------------------------------------------------------------------------------------------------------- SALE ADJUSTMENTS 0 385,000 0 344,649 0 0 344,649 (40,351) - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - -------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - -------------------------------------------------------------- SA-l CORAL CASINO POOL TUNNEL Complete SA-2 SPRINKLER 700'S Complete SA-3 HEAT PUMP CONDENSER CASINO Complete SA-4 WINDOW SHUTTER REPAIRS Complete SA-5 COTTAGE FUMIGATION Complete SA 6 TERMITE MITIGATION Complete SA 7 ASBESTOS ABATEMENT Complete see SA-1 - -------------------------------------------------------------- SALE ADJUSTMENTS - -------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Aug-97 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> R ROOMS 950,343 0 102,557 0 11,912 836,691 951,159 816 FB FOOD & BEVERAGE 112,716 0 62,376 0 3,300 44,586 110,262 (2,454) RM R&M 71,825 0 69,083 0 0 0 69,083 (2,742) A&G ADMIN & GENERAL 584,366 0 745,877 0 460 5,168 751,505 167,138 91 CONTINGENCY 97 50,000 0 24,744 0 14,837 10,419 50,000 (0) ---------------------------------------------------------------------------------------------------------------------------- TOTAL 1,769,251 0 1,004,636 0 30,509 896,864 1,932,009 162,758 ---------------------------------------------------------------------------------------------------------------------------- 96 CARRYOVER 1996 APPROVED CAPITAL 64,782 0 41,012 0 6,741 0 47,753 (17,029) SC OWNER APPROVED SUPPLEMENTAL CAPITAL 53,810 0 40.910 0 10,729 5,794 57,433 3,623 - ----------------------------------------------------------------------------------------------------------------------------------- GRAND TOTAL 1,887,842 0 1,086,559 0 47,978 902,658 2,037,195 149,353 - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - ------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - ------------------------------------------------------------- R ROOMS FB FOOD & BEVERAGE RM R&M A&G ADMIN. & GENERAL 91 CONTINGENCY 97 ------------------------------------ TOTAL ------------------------------------ 96 CARRYOVER 1996 APPROVED CAPITAL SC OWNER APPROVED SUPPLEMENTAL CAPITAL - ------------------------------------------------------------- GRAND TOTAL - ------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Aug-97 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> R-1 GUEST ROOMS 300/400 (69 rooms) 574,072 13,226 11,912 548,934 574,072 (0) R-2 GUEST ROOMS 700 (21 rooms) 103,271 103,271 103,271 0 R-3 GUEST ROOMS 800 (5 rooms) 42,658 42,658 42,658 0 R-4 ANACAPA SUITE 35,000 35,000 35,000 0 R-5 O'DELL COTTAGE 45,000 45,000 45,000 0 R-6 DESIGN FEES 53,750 42,593 11,157 53,750 0 R-7 MATTRESSES (139) 17,341 26,733 26,733 9,392 R-8 GUESTROOM CARPET 20,605 19,967 19,967 (638) R 9 TENNIS COURT RESURFACING 7,500 6,850 6,850 (650) R-10 OUTDOOR FURNITURE CUSHIONS HOTEL 17,954 17,954 17,954 0 R-11 OUTDOOR FURNITURE CUSHIONS CASINO 5,985 5,985 5,985 0 R-12 CHAISE LOUNGES CASINO 27,208 19,921 0 19,921 (7,288) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL ROOMS 950,343 0 102,557 0 11,912 836,691 951,159 816 - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - --------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - --------------------------------------------------------------- R-1 GUEST ROOMS 300/400 (69 rooms) R-2 GUEST ROOMS 700 (21 rooms) R-3 GUEST ROOMS 800 (5 rooms) R-4 ANACAPA SUITE R-5 O'DELL COTTAGE R-6 DESIGN FEES R-7 MATTRESSES (139) R-8 GUESTROOM CARPET Complete R 9 TENNIS COURT RESURFACING Complete R-10 OUTDOOR FURNITURE CUSHIONS HOTEL R-11 OUTDOOR FURNITURE CUSHIONS CASINO R-12 CHAISE LOUNGES CASINO Complete - --------------------------------------------------------------- TOTAL ROOMS - --------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Aug-97 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> FB-1 EL RINCON WOOD FLOOR REPLACEMENT 6,465 0 (6,465) FB-2 LA BELLA VISTA WALLPAPER 10,763 6,763 6,763 (4,000) FB-3 UMBRELLAS 8 fl BANQUETS (15) 1,374 1,374 0 1,374 (0) FB-4 MUSHROOM HEATERS (19) 10,667 7,710 7,710 (2,957) FB-5 BANQUET TABLES (45) 8,435 8,399 8,399 (36) FB-6 BRASS EASELS (12) 3,680 3,822 3,822 142 FB-7 PODIUM(1) 2,593 2,362 0 2,362 (231) FB-8 PORTABLE BARS (6) 4,736 2,742 1,993 4,735 (0) FB-9 MOTOROLA RADIOS (4) 3,487 7,306 7,306 3,819 FB-10 UMBRELLAS 8 ft PATIO (4) 3,233 3,233 3,233 0 FB-1l RENOVATE RAFT 10,000 19,088 19,088 9,088 FB-12 LASALA FURNITURE 30,986 30,986 30,986 0 FB-13 PLATE DOLLIES (8) 5,412 6,286 0 874 FB-14 S/S DISHWASHING STATION 2,430 819 1,612 2,431 1 FB-15 ROLLING HOT BOXES (2) 5,638 3,300 3,300 (2,338) FB-16 HEAT LAMPS BRASS (3) 2,819 2,467 0 2,467 (351) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL FOOD & BEVERAGE 112,716 0 62,376 0 3,300 44,586 110,262 (2,454) - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - --------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - --------------------------------------------------------------- FB-1 EL RINCON WOOD FLOOR REPLACEMENT Cxl re FB-11 FB-2 LA BELLA VISTA WALLPAPER see A&G-6 FB-3 UMBRELLAS 8 fl BANQUETS (15) Complete FB-4 MUSHROOM HEATERS (19) see CO-1 FB-5 BANQUET TABLES (45) Complete FB-6 BRASS EASELS (12) Complete FB-7 PODIUM(1) Complete FB-8 PORTABLE BARS (6) FB-9 MOTOROLA RADIOS (4) see FB-15 FB-10 UMBRELLAS 8 ft PATIO (4) FB-1l RENOVATE RAFT See FB-1 FB-12 LASALA FURNITURE On hold FB-13 PLATE DOLLIES (8) 874 Complete FB-14 S/S DISHWASHING STATION FB-15 ROLLING HOT BOXES (2) see FB-9 FB-16 HEAT LAMPS BRASS (3) Complete - --------------------------------------------------------------- TOTAL FOOD & BEVERAGE - --------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Aug-97 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> R&M-1 MODINE HEATERS (15) 16,913 18,188 18,188 1,276 R&M-2 ELECTRIC CARTS (2) 16,913 13,758 13,758 (3,155) R&M-3 BOILER REPLACEMENT 38,000 37,137 37,137 (863) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL REPAIRS & MAINTENANCE 71,825 0 69,083 0 0 0 69,083 (2,742) - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - --------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - --------------------------------------------------------------- R&M-1 MODINE HEATERS (IS) Complete R&M-2 ELECTRIC CARTS (2) Complete R&M-3 BOILER REPLACEMENT Complete - --------------------------------------------------------------- TOTAL REPAIRS & MAINTENANCE - --------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Aug-97 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> A&G-1 PBX RENOVATION 5,000 3,958 3,958 (1,042) A&G-2 PHONE SWITCH & CABLING 470,000 637,738 637,738 167,738 A&G-3 PC UPGRADES ACCOUNTING (2) 5,388 4,118 1,270 5,387 (0) A&G-4 LOTUS NOTES & FILE SERVER 14,546 10,188 460 3,898 14,546 0 A&G-5 SPECTRUM NE tWORK VERSION 5,388 2,009 2,009 (3,379) A&G 6 REMANCO FRONT OF HOUSE 84,045 87,867 87,867 3,822 0 0 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL ADMIN & GENERAL 584,366 0 745,877 0 460 5,168 751,505 167,138 - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - --------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - --------------------------------------------------------------- A&G-1 PBX RENOVATION Complete A&G-2 PHONE SWITCH & CABLING Complete A&G-3 PC UPGRADES ACCOUNTING (2) A&G-4 LOTUS NOTES & FILE SERVER A&G-5 SPECTRUM NETWORK VERSION Cancel Balance A&G 6 REMANCO FRONT OF HOUSE See FB-2 - --------------------------------------------------------------- TOTAL ADMIN & GENERAL - --------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Aug-97 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> 50,000 419 419 (49,581) CO-1 PATIO PAGING SYSTEM 0 2,872 2,872 2,872 CO-2 SEWER EJECTOR (BACKORDERED 9/96) 0 3,341 3,341 3,341 CO-3 LOBBY VITRINE FOR RENTAL 0 2,337 7,029 9,366 9,366 CO-4 PASTRY AIR CONDITIONING 0 5,748 7,808 13,558 13,556 CO-5 EXECUTIVE OFFICE FAX 0 1,826 1,826 1,826 CO-6 ESSPRESSO MACHINES 0 8,620 8,620 8,620 CO-7 CARPET 10 ROOMS 0 10,000 10,000 10,000 CO-8 0 0 0 CO-9 0 0 0 CO-10 0 0 0 - ----------------------------------------------------------------------------------------------------------------------------------- CONTINGENCY 1997 - 50,000 0 24,744 0 14,837 10,419 50,000 (0) - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - --------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - --------------------------------------------------------------- CO-1 PATIO PAGING SYSTEM See FB-4 CO-2 SEWER EJECTOR (BACKORDERED 9/96) Complete CO-3 LOBBY VITRINE FOR RENTAL CO-4 PASTRY AIR CONDITIONING CO-5 EXECUTIVE OFFICE FAX Complete CO-6 ESSPRESSO MACHINES CO-7 CARPET 10 ROOMS CO-8 CO-9 CO-10 - --------------------------------------------------------------- CONTINGENCY 1997 - - --------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Aug-97 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> CFW-1 DUVETS 3,242 4,822 4,822 1,580 CFW-2 ORTEGA FREEMONT COTTAGES 16,063 2,448 2,448 (13,615) CFW-3 LACONCHA CARPET 12,276 13,390 13,390 1,114 CFW-4 LASALA ARMCHAIR FABRIC/UPIIOL STRY 7,800 6,302 6,302 (1,498) CFW-5 LEATHER BAR STOOLS 4,140 544 3,634 4,178 38 CFW-6 LA SALA SERVICE STN SCREEN 1,424 1,629 1,629 205 CFW-7 WINDOW SHADES LASALA 4,383 4,363 4,363 (20) CFW-8 CORAL CASINO UMBRELLAS 3,107 3,107 3,107 0 CFW-9 TELEPHONE CONSULTANT 6,000 0 (6,000) CFW-10 RENOVATION 700'S 5,000 6,168 6,168 1,168 CFW-11 CORAL CASINO PANINI MACHINE 1,347 1,347 1,347 0 - ----------------------------------------------------------------------------------------------------------------------------------- CARRYFORWARD 1996 64,782 0 41,012 0 6,741 0 47,753 (17,029) - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - --------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - --------------------------------------------------------------- CFW-1 DUVETS Complete CFW-2 ORTEGA FREEMONT COTTAGES Cxl CFW-3 LACONCHA CARPET Complete CFW-4 LASALA ARMCHAIR FABRIC/UPIIOL STRY CFW-5 LEATHER BAR STOOLS CFW-6 LA SALA SERVICE STN SCREEN Complete CFW-7 WINDOW SHADES LASALA Complete CFW-8 CORAL CASINO UMBRELLAS CFW-9 TELEPHONE CONSULTANT Complete CFW-10 RENOVATION 700'S Complete CFW-11 CORAL CASINO PANINI MACHINE Complete - --------------------------------------------------------------- CARRYFORWARD 1996 - --------------------------------------------------------------- <PAGE> <TABLE> <CAPTION> FOUR SEASONS BILTMORE SANTA BARBARA REPORT ON CAPITAL EXPENDITURES & SPECIAL R&M AS AT 31-Aug-97 YEAR ENDED DECEMBER 31, 1996 - ----------------------------------------------------------------------------------------------------------------------------------- BUDGET BUDGET PAID PAID UNPAID PLANNED TOTAL ITEM # PROJECT CAPITAL S R&M CAPITAL S R&M COMMITTED UNCOMMITTED VARIANCE - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> 0 SC-1 POOL SEATING 26,410 20,853 5,235 26,088 (323) SC-2 PROJECT ARCHITECTURAL DESIGN 8,400 12,346 12,346 3,946 SC-3 PATIO TERRACE FURNITURE 19,000 7,712 10,729 559 19,000 (0) SC-4 0 0 0 SC-S 0 0 0 SC-6 0 0 0 SC-7 0 0 0 SC-8 0 0 0 SC-9 0 0 0 SC-10 0 0 0 - ----------------------------------------------------------------------------------------------------------------------------------- OWNER APPROVED SUPPLEMENTAL CAPITAL 53,810 0 40,910 0 10,729 5,794 57,433 3,623 - ----------------------------------------------------------------------------------------------------------------------------------- </TABLE> - --------------------------------------------------------------- PROJECT CANCEL ITEM # PROJECT COMPLETE RESUBMIT - --------------------------------------------------------------- SC-1 POOL SEATING SC-2 PROJECT ARCHITECTURAL DESIGN SC-3 PATIO TERRACE FURNITURE SC-4 SC-S SC-6 SC-7 SC-8 SC-9 SC-10 - --------------------------------------------------------------- OWNER APPROVED SUPPLEMENTAL CAPITAL - --------------------------------------------------------------- <PAGE> ADDENDUM H MERRILL LYNCH MORTGAGE CAPITAL ENGAGEMENT LETTER <PAGE> [LOGO OF PKF CONSULTING] Sent via Federal Express September 26, 1997 Mr. Timothy S. Koltermann Assistant Vice President Merrill Lynch Mortgage Capital, Inc. World Financial Center North Tower New York, NY 10281-1326 Re: Hotel Appraisals Dear Mr. Koltermann: Pursuant to your request, we are pleased to submit this proposal to perform an appraisal of the market value of the fee simple estate in the following hotels: o Four Seasons Biltmore - Santa Barbara, California o Four Seasons Hotel - Austin, Texas o Ritz-Carlton Hotel - St. Louis, Missouri SCOPE OF THE ASSIGNMENT As we understand it, you are evaluating the refinancing of the above referenced hotels. Accordingly, this appraisal will be used for loan underwriting and asset evaluation purposes. The scope of our work program will include an analysis of each property, the nature of the markets in which the properties operate, an analysis of the market position of the hotels, and an estimate of the market value of the fee simple estate in each facility. The property is to be appraised "as is"; however, we will alert you if we uncover areas in which we believe a change may be indicated in the operation of the facilities. Unless otherwise instructed, the date of our valuation will be the date on which we last inspect the property. ------------------------------------------ Member, Pannell Kerr Forster International <PAGE> Mr. Timothy S. Koltermann -2- September 26, 1997 ================================================================================ PKF CONSULTING As a point of background, we would like to provide you with a brief overview of our firm. PKF Consulting is a real estate consulting and appraisal firm with offices in nine major U.S. cities as well as Hong Kong. As a member of the Pannell Kerr Forster International Association, we have an additional 250 offices in 75 countries. The professional staff of PKF Consulting consists of approximately 100 consultants and appraisers, including designated Members of the Appraisal Institute (MAI), the American Society of Real Estate Counselors (CRE), and the International Society of Hospitality Consultants (ISHC). In addition, many of our professional staff are certified general real estate appraisers in the states in which we actively perform work. Since its inception, PKF Consulting has placed a special emphasis on serving the hospitality and real estate industries. This work includes market analyses and feasibility studies in virtually every major domestic market, providing the firm with an unsurpassed body of knowledge regarding past and present market performance. Since 1983, we have also provided market value appraisals for all types of commercial real estate, with a primary focus on hotels, motels, resorts, and golf courses. Additionally, we own a data base on U.S. hotel operating results that extends back to 1935. Presently, real estate appraisal services represent a significant portion of the professional services we perform. Our primary clients are financial institutions, the majority of which require that their appraisals comply with the requirements of FIRREA. PKF Consulting serves our United States and international clients from a base of offices in nine core cities: Boston, New York, Philadelphia, Washington, D.C., Atlanta, Los Angeles, Houston, Hong Kong, and San Francisco, our headquarters. In addition to our long standing expertise in the hotel industry, we would bring to you in this engagement substantial familiarity with the "North Coast" hotel market. Within the past twelve months, we have evaluated several hotels within Sonoma, Humbolt, and Mendocino Counties. In order to give you an understanding of the depth of our experience, attached for your review is a partial listing of hotels, resorts and other types of properties our offices has appraised during the past several years. We have also attached the qualifications of key individuals who will likely be involved in the appraisals. Given the historical role of PKF Consulting in the hospitality industry and our experience in the local market, we are of the opinion that there is no other firm that can provide the services available through us. <PAGE> Mr. Timothy S. Koltermann -3- September 26, 1997 ================================================================================ FORMAT OF THE APPRAISAL Our appraisal report for each property will be prepared in accordance with and subject to the Code of Ethics and Standards of Professional Practice of the Appraisal Institute, the Uniform Standards of Professional Appraisal Practice (USPAP) as established by the Appraisal Foundation, FIRREA regulations, and the current regulatory guidelines. Specifically, this reports will include discussions of the following: o Identification of the real property and property rights appraised o Purpose and use of the appraisal o Assumptions and limiting conditions of the appraisal o Area demographic and economic characteristics o Subject property's physical characteristics and operating history o Local real estate taxes and assessment procedures o Highest and best use of the property o Existing and future supply and demand estimates o Projected market performance of the hotel o Estimated annual operating results for the hotel o Cost Approach, if applicable o Sales Comparison Approach o Income Capitalization Approach o Reconciliation and final estimate of value o Certification of value To insure that the report meets our quality standards, the report will be reviewed by a Senior Vice President in the firm and our staff MAI. Either the Senior Vice President or the MAI, or both, will inspect the subject and all of the comparable facilities and the hotel sales used in the report. PROFESSIONAL FEES Based on our understanding of the scope of this engagement, our professional fee for all three appraisals will be $36,000, plus out-of-pocket expenses, not to exceed $4,500. Services beyond those described in the scope of the appraisal, such as changes in the requirements of the client, are provided at our hourly billing rates, as described below. <PAGE> Mr. Timothy S. Koltermann -4- September 26, 1997 ================================================================================ Hourly Staff Level Billing Rates ----------- ------------- Senior and Executive Vice Presidents $250 - $300 Vice President 175 - 225 Associate 125 - 175 Consultant 85 - 125 As is typical in assignments of this nature, we require a retainer of 50 percent of the fees, or $18,000, in order to start the engagement. The remainder of our professional fees plus expenses will be billed to you at the completion of the engagement. This invoice is due and payable upon receipt. ANTICIPATED DELIVERY DATE We understand you will require the values to be communicated by October 13th the appraisals completed by October 20th, and we are prepared to meet this time table. We will attempt to have the reports completed by October 17th. Five original copies of each of the final reports will be provided. LIMITATIONS OF THE APPRAISAL The report is subject to the attached Statement Assumptions and Limiting Conditions. REQUIRED DOCUMENTS AND INFORMATION In order to proceed with this assignment, the following documents and information are required for each hotel. 1. Architectural, engineering, grading and landscaping plans as pertain to the facility. 2. Site plan and/or plat showing building and amenity locations. 3. Floor area breakdown (square foot allocation) of various components of the improvements. 4. Name of appropriate on-site contacts (general manager, controller, chief engineer). 5. Complete budget for current year with budget notes and details. 6. Copy of real estate tax bill for previous two years and current year tax bill. <PAGE> Mr. Timothy S. Koltermann -5- September 26, 1997 ================================================================================ 7. Historical operating statements for the past three years, including year-to-date 1997 operating results. 8. Insurance premium costs. Provide coverage amount/limits and insurance premiums for current operating year. 9. Loan abstracts (details) of existing mortgages, and/or secondary financing. If new financing is to be secured, please provide details. 10. Copies of the ground lease, with all amendments, and any other leases (i.e., gift shop, parking garage, equipment, etc.) affecting property operations. 11. Copies of any licensing (franchise) and management agreements. 12. Copy of existing title policy. 13. Copies of any previous appraisal report(s) and market studies. 14. Information on any pending or past (within three years) transactions associated with the property, as well as details on the pending sale of the property. 15. Current marketing plans. <PAGE> Mr. Timothy S. Koltermann -6- September 26, 1997 ================================================================================ APPROVAL AND ACCEPTANCE If this letter correctly states the nature of the work to be undertaken and the arrangements are satisfactory, please sign the enclosed copy of this letter and return it to us, together with our requested retainer, as our authorization to commence the assignment. We appreciate the opportunity to submit this proposal and we look forward to working with you on this very interesting assignment. Sincerely, PKF Consulting /s/ A. Corey Limbach --------------------------- A. Corey Limbach Vice President APPROVED AND ACCEPTED: By: /s/ Edward J. [illegible] ---------------------------- Title: Director ---------------------------- Date: 9/29/97 - Second Original ---------------------------- -------------------------------------------------- COMPLETE APPRAISAL OF REAL PROPERTY SELF-CONTAINED FORMAT OF REPORT Liberty Plaza Southwest corner of Liberty Belle Boulevard and Franklin Mills Boulevard Philadelphia, Pennsylvania -------------------------------------------------- As of April 16, 1997 Prepared For: The Mills Corporation 1300 Wilson Boulevard - Suite 400 Arlington, Virginia and Merrill Lynch World Financial Center North Tower New York, New York 10281 Prepared By: Cushman & Wakefield of Pennsylvania, Inc. Valuation Advisory Services Two Logan Square, 20th Floor Philadelphia, Pennsylvania 19103 <PAGE> [LETTERHEAD FOR CUSHMAN & WAKEFIELD] CUSHMAN & WAKEFIELD A ROCKEFELLER GROUP COMPANY November 10, 1997 Ms. Barbara Donovan Director, Financial Services The Mills Corporation 1300 Wilson Boulevard, Suite 400 Arlington, Virginia 22209 and Mr. John Gluszak Vice President Investment Banking World Financial Center North Tower New York, New York 10281 Re: Complete Appraisal Of Real Property Self-Contained Format Liberty Plaza Southwest corner of Liberty Belle Boulevard and Franklin Mills Boulevard Philadelphia, Pennsylvania Dear Ms. Donovan and Mr. Gluszak: In fulfillment of our agreement as outlined in the Letter of Engagement, Cushman & Wakefield of Pennsylvania, Inc. is pleased to transmit our report estimating the current and prospective future market value of the leased fee estate in the above referenced real property. The value opinion reported below is qualified by certain assumptions, limiting conditions, certifications, and definitions, which are set forth in the report. We would particularly note that our estimates of value assumes that leases will be signed with Wal-Mart Stores, Inc. and Giant Food, Inc. under the terms and conditions as will be outlined later in this report. This report was prepared for the Mills Corporation and Merrill Lynch and it is intended only for the specified use of the client. This appraisal is being used for or as part of a securitized financing transaction being arranged by Merrill Lynch. We agree to the distribution of the report to those rating agencies which Merrill Lynch expects to work with on this transaction provided the entire report is provided. It may not be distributed to or relied upon by other persons or entities without written permission of Cushman & Wakefield of Pennsylvania, Inc. <PAGE> Ms. Barbara Donovan and Mr. John Gluszak November 10, 1997 - Page Two - This is a complete appraisal prepared in accordance with the Uniform Standards of Professional Practice of the Appraisal Foundation. The results of the appraisal are being conveyed in this self-contained report, as agreed. The appraisal and this report were prepared by Gerald B. McNamara, MAI under the supervision of Richard W. Latella, MAI. As a result of our analysis, we have formed the opinion that the market value of the leased fee estate in the subject property, As Is, as of April 16, 1997, was: TWENTY ONE MILLION DOLLARS ($21,000,000) Furthermore, as a result of our analysis, we have formed the opinion that the prospective future market value of the leased fee estate in the subject property, Upon Completion and At Stabilization as of June 1, 1998, would be: TWENTY FOUR MILLION FIVE HUNDRED THOUSAND DOLLARS ($24,500,000) This letter is invalid as an opinion of value if detached from the report, which contains the text, exhibits, and an Addenda. Respectfully submitted, CUSHMAN & WAKEFIELD OF PENNSYLVANIA, INC. /s/ Gerald B. McNamara /s/ Richard W. Latella Gerald B. McNamara, MAI Richard W. Latella, MAI Associate Director Senior Director Valuation Advisory Services Valuation Advisory Services Pennsylvania Certified Pennsylvania Certified General Appraiser #GA-000267-L General Appraiser #GA-00103-R Reviewed and Approved CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> SUMMARY OF SALIENT FACTS AND CONCLUSIONS ================================================================================ Property Name: Liberty Plaza Location: S/W/C Liberty Belle Boulevard and Franklin Mills Boulevard Philadelphia, Pennsylvania Interest Appraised: Leased fee estate Date of Value: As Is Current Value - April 16, 1997 As Stabilized Prospective Value - June 1, 1998 Date of Inspection: April 16, 1997 Ownership: Mills Limited Partnership Land Area: 35.084+/- acres Zoning: : ASC -Area Shopping Center District Highest and Best Use: If Vacant: Retail development As Improved: Retail development Proposed Improvements Type: Single story Power shopping center Year Built: 1989; Renovated in 1994 Type of Construction: Steel frame with brick and concrete block walls and concrete slab foundation. Net Rentable Area: 301,138+/- feet Condition: Average to Good ================================================================================ CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Summary of Salient Facts and Conclusions ================================================================================ Operating Data and Forecasts Occupancy upon stabilization: 100% Projected Rental Rate: Wal-Mart $6.00/S.F. Dick's Sporting Goods.: $10.50/S.F. Service Merchandise.: $11.00/S.F. 15,000 + S.F.: $12.00/S.F. Less Than 15,000 S.F.: $18.00/S.F. Value Indicators As Is of April 16, 1997 Sales Comparison Approach $21,700,000 - $22,700,000 Income Capitalization Approach: $21,000,000 Value Conclusion As Is of April 16, 1997: $21,000,000 Resulting Indicators: Price Per S.F. of Rentable Area: $69.74 Value Indicators Upon Completion and At Stabilization as of June 1, 1998 Sales Comparison Approach $24,000,000 - $25,000,000 Income Capitalization Approach: $24,500,000 Value Conclusion as of June 1, 1998: $24,500,000 Resulting Indicator: Price Per S.F. of Rentable Area: $81.36 Estimate of Exposure Time: We believe, based on the assumptions employed in our analysis and based on our selection of investment parameters for the property, the value conclusions represent prices achievable within nine month's exposure on the open market. Special Assumptions: Our estimates of value assumes that leases will be signed with Wal-Mart Stores, Inc. and Giant Food, Inc. under the terms and conditions as will be outlined later in this report. Please refer to the complete list of Assumptions and Limiting Conditions included at the end of this report. ================================================================================ CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> PHOTOGRAPHS OF SUBJECT PROPERTY ================================================================================ ================================================================================ [GRAPHIC OMITTED] Subject Property ================================================================================ ================================================================================ [GRAPHIC OMITTED] Subject Property ================================================================================ ================================================================================ -1- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> PHOTOGRAPHS OF SUBJECT PROPERTY ================================================================================ ================================================================================ [GRAPHIC OMITTED] Subject Property ================================================================================ ================================================================================ [GRAPHIC OMITTED] Former Bradlees Space ================================================================================ ================================================================================ -2- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> PHOTOGRAPHS OF SUBJECT PROPERTY ================================================================================ ================================================================================ [GRAPHIC OMITTED] Former Bradlees Space ================================================================================ ================================================================================ [GRAPHIC OMITTED] Mellon Out Parcel ================================================================================ ================================================================================ -3- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> ========================================================================================================================== Liberty Plaza Liberty Bell Boulevard at Franklin Mills Boulevard Philadelphia, Pennsylvania Rent Roll - --------------------------------------------------------------------------------------------------------------------------- Tenant Leased Area Term Rental Rate Overage Rent Improvement Allowance - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Dick's Sporting Goods 77,586 S.F. 4/96 - $10.50 (Yrs. 1-5) 3% over $17,606,250 $20.45/S.F. 15 Yrs. $11.00 (Yrs. 6-10) $11.75 (Yrs. 11-15) - --------------------------------------------------------------------------------------------------------------------------- Service Merchandise 53,349 S.F. 4/94 - $11.25/S.F. None $25.54/S.F. 10.5 Yrs. - --------------------------------------------------------------------------------------------------------------------------- Boot Village 5,553 S.F. 4/90 - $13.05/S.F. None None 10 Yrs. - --------------------------------------------------------------------------------------------------------------------------- Mellon Bank Pad 7/94- $18,000/Yr. None None 12/98 - --------------------------------------------------------------------------------------------------------------------------- Wal-Mart 149,238 S.F. 10/97 (Est) - $6.00/S.F. 1/2 of 1% of sales None (Proposed) 20 Yrs. over the 7th Yr. with a cap of $1.00/S.F. - --------------------------------------------------------------------------------------------------------------------------- Giant Food Pad 5/98 (Est.) - $400,000 (Yrs. 1-5) None None Proposed 25 Yrs. $430,000 (Yrs. 6-10) $460,000 (Yrs. 11-15) $490,000 (Yrs. 16-20) $520,000 (Yrs. 21-25) ========================================================================================================================== </TABLE> ================================================================================ <PAGE> INTRODUCTION ================================================================================ Identification of the Subject Property The subject of this appraisal is Liberty Plaza, a 301,138 square foot power shopping center located at the southwest corner of Liberty Belle Boulevard and Franklin Mills Boulevard In Philadelphia, Pennsylvania. The property was originally constructed as a Carrefour Hypermarket in 1989 and was subsequently converted to a power center in 1994. Principal tenants include Dick's Sporting Goods and Service Merchandise. Bradlees, which was another major tenant, is in bankruptcy. Bradlees renounced their lease and vacated the store, effective October, 1996. It is proposed that Wal-Mart will occupy this space under lease effective September 15, 1997. In addition it is proposed that Giant of Maryland will construct a supermarket on a ground lease with opening projected by May, 1998. The subject site contains a total land area of 35.084+/- acres. The property is identified by the City of Philadelphia's Tax Assessor's Office as Ward 88 Book 2 Number 691000 (4501 Woodhaven Road). Property Ownership and Recent History Title to the subject property is held by Mills Limited Partnership which acquired the property from Carrefour (USA) Properties, Inc. in April 1994 for a reported consideration of $17,750,000. At the time of sale, the property was a vacant store which was subsequently converted to a power center. The subject property is currently leased to three tenants occupying 134,488 square feet or 45 percent of the gross leaseable area. Additionally, Mellon Bank operates a 500+/- square foot drive-through bank on a pad site. A lease is outstanding to Wal-Mart to occupy the entire 149,328 square foot former Bradlees lease in an As Is condition for a rent of $6.00 per square foot. In addition, Wal-Mart would pay percentage rent of 1/2 of 1 percent of sales over the base in the seventh year with a cap of $1.00 per square foot. Further, there is a lease outstanding to Giant Food, Inc. for a pad lease for a 20 year term at $400,000 per year, increasing by $30,000 every five years. Giant Food intends to build a 55,797 square foot supermarket on this site. Remaining to be leased is a 15,412 square foot space between Service Merchandise and Dicks Sporting Goods. A summary rent roll is included on the opposing page. We would note that Bradlees had sub-leased a portion of their space to a karate store. However, we are informed by ownership that this lease will be expunged before Wal-Mart occupies their space. Therefore, no consideration was given to the sub-lease tenant. Purpose, Function, and Scope of the Appraisal The purpose of this appraisal is to estimate the market value of the leased fee estate for the subject property As Is of April 16, 1997 as well as the prospective future value estimate of the leased fee estate of the subject property As Completed and Stabilized as of June 1, 1998. This report is to function as a supporting document in the potential financing of the subject property. The scope of our appraisal process included: ================================================================================ -4- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Introduction ================================================================================ o A detailed physical inspection of the subject property. o A study of current regional economic trends, nearby neighborhood influences and local market characteristics. o Interviewed representatives of ownership and the property management company. o Reviewed leasing policy, concessions, tenant build-out allowances and history of recent rental rates and occupancy with Mills Corporation personnel. o Reviewed a detailed operating history and a budget forecast for 1997. o Conducted market research of occupancies, asking rents, concessions and operating expenses at competing retail properties, including interviews with on-site managers and a review of our own data base from previous appraisal files. o Reviewed trade area specific data for the property as prepared by Equifax National Decision Systems. o Conducted market inquiries into recent sales of similar power centers to ascertain sale prices per square foot and capitalization rates. o Reviewed all tenant lease abstracts. o Estimated market rental rates, absorption, and stabilized income and expenses for the subject based on available market data and the current market thinking relative to growth in market rents and market absorption. o A development of the Income Capitalization and Sales Comparison Approaches to the valuation of real property with a reconciliation of the results into a final estimate of market value for the subject. As purchase decisions on real property like the subject are not being based upon the cost of obtaining a site and constructing improvements with equal desirability and utility, the Cost Approach was not utilized in this analysis. For this assignment, a complete appraisal of the subject property was performed with the results conveyed in this self-contained report. A complete appraisal involves an estimate of market value without any departure from the Uniform Standards of Professional Appraisal Practice maintained by the Appraisal Foundation. A self-contained report makes a comprehensive presentation of the data and analyses which serve as the basis of our conclusion of value for the subject property. Interest Appraised and Date of Value This appraisal concerns itself with the market value of the leased fee estate in the subject property As Is of September 1, 1996 as well as the as well as the prospective future market value of the leased fee estate of the subject property upon completion and stabilized occupancy projected for June 1, 1998. On April 16, 1997, Gerald B. McNamara, MAI of Cushman & Wakefield of Pennsylvania, Inc., inspected the subject property. Richard W. Latella, MAI of Cushman & Wakefield of New York, Inc., has also inspected the property. This appraisal report is prepared as of November 10, 1997. ================================================================================ -5- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Introduction ================================================================================ Gerald B. McNamara is certified by the Commissioner of Professional and Occupational Affairs of the Commonwealth of Pennsylvania as a General Appraiser. Certificate #GA-000267-L was re-issued to him on June 15, 1995 and will expire on June 30, 1997. Richard W. Latella is also certified by the Commissioner of Professional and Occupational Affairs of the Commonwealth of Pennsylvania as a General Appraiser. Certificate #GA-00103-R was re-issued to him on June 15, 1995 and will expire on June 30, 1997. Copies of these certificates are included among the Addenda to this report. Definitions of Value, Interest Appraised, and Other Pertinent Terms The definition of market value utilized in this report is taken from the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation as follows: 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 U.S. 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. Under Paragraph 3 of the above Definition of Market Value, the value estimate presumes that "a reasonable time is allowed for exposure in the open market". According to Statement on Appraisal Standards #6 of the Appraisal Foundation, Exposure Time is defined as "the estimated 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. It is a retrospective estimate based upon an analysis of past events assuming a competitive and open market". Thus, Exposure Time is presumed to precede the effective date of the appraisal. Based upon the analysis which is detailed elsewhere in this report, we estimate a reasonable Exposure Time to have been nine months for a property like the subject at the concluded opinion of value reported. The definitions of the interests appraised which are utilized in this report are taken from The Dictionary of Real Estate Appraisal, Third Edition (1993), published by the Appraisal Institute (formerly the American Institute of Real Estate Appraisers), as follows: Leased Fee Estate An ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others; the rights of lessor or the leased fee owner and leased fee are specified by contract terms within the lease. ================================================================================ -6- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Introduction ================================================================================ Finally, the definitions of other pertinent terms taken from another source for this report is as follows: Market Value As Is on Appraisal Date Value of the property appraised in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications on the effective date of appraisal. Market Rent The rental income that a property would most probably command on the open market. Prospective Value Estimate A forecast of value expected to occur at a specified future date. A prospective value estimate is most frequently utilized in connection with real estate projects that are proposed, under construction, under conversion to a new use, or that have otherwise not achieved sellout or stabilized level of long term occupancy at the time the appraisal report is written. Legal Description A legal description of the subject property was not provided to the appraisers of this report. ================================================================================ -7- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> REGIONAL ANALYSIS ================================================================================ Philadelphia Metropolitan Area The subject property is located in on the northern border of the City of Philadelphia, the urban center of the Philadelphia Metropolitan Area. The Philadelphia Metropolitan Area, itself, encompasses over 3,500 square miles through the counties immediately surrounding the city in both Pennsylvania and New Jersey. The greater metropolitan area is actually part of a larger economic and geographic entity known as the Delaware Valley, which extends from Trenton, New Jersey at the north to Wilmington, Delaware at the south. The Delaware Valley is a closely integrated market which pervades the many political subdivisions incorporated in it. Population According to the most recent estimate of the Federal Census Bureau, the Philadelphia Metropolitan Area has the fourth largest population in the nation after Los Angeles, New York, and Chicago. The currently reported population of about five million represents a .4 percent increase over that counted in 1990. The statistics indicated population growth in the suburban counties surrounding Philadelphia, with a decline in the city itself. The current population of the City of Philadelphia is reported to be about 1.522 million, a decrease of approximately four percent since 1990. These statistics are significant in that demographers believe population growth is directly tied to employment growth. ================================================================================ Population Statistics Philadelphia Metropolitan Area (In Thousands) ================================================================================ % % County 1980 1990 Change 1995 Change ================================================================================ Bucks 483.8 541.2 + 11.9% 570.6 + 5.4% - -------------------------------------------------------------------------------- Chester 320.1 376.4 + 17.6% 399.7 + 6.2% - -------------------------------------------------------------------------------- Delaware 552.2 547.7 - 0.8% 548.2 + .1% - -------------------------------------------------------------------------------- Montgomery 644.6 678.1 + 5.2% 703.2 + 3.7% - -------------------------------------------------------------------------------- Philadelphia 1,668.2 1,585.6 - 5.0% 1,521.5 - 4.0% - -------------------------------------------------------------------------------- Burlington 366.0 395.1 + 8.0% 400.8 + 1.4% - -------------------------------------------------------------------------------- Camden 472.8 502.8 + 6.4% 506.6 + .8% - -------------------------------------------------------------------------------- Gloucester 202.1 230.1 + 13.9% 243.1 + 5.7% - -------------------------------------------------------------------------------- Salem 65.0 65.3 + 0.5% 64.6 - 1.1% ================================================================================ Total Metropolitan Area 4,774.8 4,922.3 + 3.1% 4,958.3 + .7% ================================================================================ Source: U.S. Census Bureau ================================================================================ Employment The traditional economic base of the region was once heavy manufacturing. Concurrent with national trends, the regional economy has now shifted toward a skilled/service oriented base. Approximately 33 percent of the region's 2.15+/- million employees in the wage and salary workforce are now employed in the service industries, as contrasted with the approximate 15 percent employed in manufacturing. Furthermore, another 22 percent of the region's workforce is employed in the wholesale and retail trades, while only 14 percent is employed by government. ================================================================================ -8- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Regional Analysis ================================================================================ ================================================================================ Philadelphia Metropolitan Area January Employment Statistics (In Thousands) ================================================================================ 1990 % 1995 % Variance % ================================================================================ Manufacturing 358.6 16.3 311.8 14.5 - 46.8 - 13.1 - -------------------------------------------------------------------------------- Construction & Mining 95.4 4.3 73.9 3.4 - 21.5 - 22.5 - -------------------------------------------------------------------------------- Transportation, Communication & Utilities 99.0 4.5 104.5 4.9 + 5.5 + 5.6 - -------------------------------------------------------------------------------- Wholesale & Retail Trades 508.0 23.1 482.8 23.5 - 25.2 - 5.0 - -------------------------------------------------------------------------------- Finance, Insurance & Real Estate 167.6 7.6 155.1 7.2 - 12.5 - 7.5 - -------------------------------------------------------------------------------- Services 659.1 30.1 717.5 33.4 + 58.4 + 8.9 - -------------------------------------------------------------------------------- Government 308.4 14.1 303.3 14.1 - 5.1 - 1.7 - -------------------------------------------------------------------------------- Total Wage & Salary Employment 2,196.1 100.0 2,148.9 100.0 - 47.2 - 2.2 - -------------------------------------------------------------------------------- Total Civilian Labor Force 2,409.0 2,397.6 - 11.4 - 0.5 - -------------------------------------------------------------------------------- Unemployment 114.1 143.5 + 29.4 + 25.8 - -------------------------------------------------------------------------------- Unemployment Rate 4.7% 6.0% ================================================================================ Source: Pennsylvania Department of Labor and Industry ================================================================================ According to a recent study by the Federal Reserve Bank of Philadelphia, the Philadelphia metropolitan area had the weakest economy of any labor market in the Tri State area (Pennsylvania, New Jersey and Delaware) in 1995. Job levels declined .5 percent even though the employment rate remained relatively steady. All of the net job loss was in the City of Philadelphia, while in the suburbs, job growth was an anemic .1 percent. However, the regional economy has improved in 1996 with most sectors enjoying healthy growth. Manufacturing output turned sharply upward, although manufacturing employment remained weak. Residential construction has turned up sharply. Retail sales in the region are growing a little faster than national figures, with sales of durable goods leading the way. Bank lending has been flat. Every sector in the Tri-State area registered gains in employment in the second quarter with the exception of manufacturing and transportation. Growth in the region is expected to be somewhat weaker in the third and fourth quarters and to remain slower than the nation's for the remainder of the year. Inflation remains in check in the region. While only the strongest of manufacturing companies remain in the region, economic leadership is now shared with companies in health care, information processing, pharmaceuticals, education, banking and insurance. A listing of the ten largest employers in Philadelphia County alone bears out this observation. Note that the total civilian labor force, which includes self-employed workers, has generally remained the same since 1990. Wage and salary positions, though, have declined somewhat. ================================================================================ -9- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Regional Analysis ================================================================================ ================================================================================ Philadelphia Metropolitan Area January Employment Statistics (In Thousands) ================================================================================ 1992 1994 Change 1996 Change - -------------------------------------------------------------------------------- Manufacturing 318.2 310.1 -2.6% 301.2 -2.9% - -------------------------------------------------------------------------------- Construction & Mining 67.1 71.1 +6.0% 68.3 -3.9% - -------------------------------------------------------------------------------- Transportation, Communication & Utilities 98.9 102.2 +3.3% 101.6 -0.6% - -------------------------------------------------------------------------------- Wholesale & Retail Trades 475.9 464.8 -2.3% 482.7 +4.0% - -------------------------------------------------------------------------------- Finance, Insurance & Real Estate 156.6 154.6 -1.3% 152.1 -1.6% - -------------------------------------------------------------------------------- Services 668.8 697.6 +4.3% 719.8 +3.2% - -------------------------------------------------------------------------------- Government 300.3 302.1 +0.6% 299.7 -0.8% - -------------------------------------------------------------------------------- Total Wage & Salary Employment 2,085.8 2,102.5 +0.8% 2,125.4 +1.1% - -------------------------------------------------------------------------------- Total Civilian Labor Force 2,426.0 2,403.2 -0.9% 2,378.1 -1.0% - -------------------------------------------------------------------------------- Unemployment 168.0 142.6 137.3 - -------------------------------------------------------------------------------- Unemployment Rate 6.9% 5.9% 5.8% ================================================================================ Source: Pennsylvania Department of Labor and Industry ================================================================================ According to the Pennsylvania Department of Labor and Industry, the July, 1996 unemployment rate in the nine county Philadelphia Metropolitan Area was 5.2 percent, as compared to 5.1 percent for the Commonwealth of Pennsylvania and 5.4 percent for the nation as a whole. For the city of Philadelphia, the unemployment rate for July was 4.6 percent. ================================================================================ Largest Non-Public Employers Philadelphia County ================================================================================ Employer Local Employees Product or Service ================================================================================ University of Pennsylvania 10,900 Education; Research; Health Care - -------------------------------------------------------------------------------- Thomas Jefferson University 7,400 Education; Research; Health Care - -------------------------------------------------------------------------------- CoreStates Financial Corporation 6,100 Banking; Financial Services - -------------------------------------------------------------------------------- Bell Atlantic 5,600 Telecommunications - -------------------------------------------------------------------------------- Allegheny Health 5,100 Education; Health Care - -------------------------------------------------------------------------------- Aramark, Inc. 4,600 Food Services - -------------------------------------------------------------------------------- Einstein Healthcare 4,200 Education; Health Care - -------------------------------------------------------------------------------- Cigna Corporation 4,100 Insurance, Financial Services - -------------------------------------------------------------------------------- ConRail, Inc. 3,800 Rail Freight Transportation - -------------------------------------------------------------------------------- PECO Energy Company 3,400 Public Utility ================================================================================ Source: Philadelphia Business Journal ================================================================================ Income The median effective household buying income or disposable income after federal taxes in the Philadelphia Metropolitan Area is currently estimated to be $39,470 or 28th of the 320 metro markets surveyed. This compares to $33,333 for the Commonwealth of Pennsylvania, $42,247 for the state of New Jersey and $32,238 for the United States as a whole. Philadelphia ranks last in current median household income level in the Metropolitan Area at $27,542 per household. ================================================================================ -10- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> ================================================================================ Income Statistics Philadelphia Metropolitan Area ================================================================================ Effective Buying Income (In Median County Households Thousands) Household EBI Bucks 203,700 $11,424,599 $48,814 - -------------------------------------------------------------------------------- Chester 143,400 9,732,884 55,798 - -------------------------------------------------------------------------------- Delaware 202,900 10,359,964 42,366 - -------------------------------------------------------------------------------- Montgomery 269,700 16,369,926 47,723 - -------------------------------------------------------------------------------- Philadelphia 571,500 20,080,366 27,542 - -------------------------------------------------------------------------------- Burlington 140,600 7,341,632 44,967 - -------------------------------------------------------------------------------- Camden 178,900 8,049,714 37,788 - -------------------------------------------------------------------------------- Gloucester 83,900 3,700,926 39,978 - -------------------------------------------------------------------------------- Salem 23,500 1,019,275 38,123 ================================================================================ Total 1,818,100 $88,079,286 $39,470 ================================================================================ Source: Sales & Marketing Management ================================================================================ Linkages The Philadelphia Metropolitan Area benefits from an admirable transportation system linking the region to the rest of the nation and points throughout the world. The Port of Philadelphia is one of the largest fresh water ports in the country. The Philadelphia International Airport provides service to most major North American cities and many European destinations. From its central location in the heart of the eastern megalopolis, excellent highway and rail accessibility is also available. Cultural, Educational and Recreational Resources Educational opportunities abound throughout the region, with twelve major colleges and universities located here. There are also four teaching medical college hospitals in the Philadelphia area. As the nation's fourth largest urban center and first capital, cultural and recreational activities available to the populace are widely diverse. Conclusions The central core of this metropolitan area, the City of Philadelphia, continues to experience a fiscal crisis precipitated by a diminishing tax base and the increased need for new and costly municipal services. However, the current administration and council are now cooperating to promote fiscal responsibility which is creating a positive response among many. On the other hand, the surrounding suburban counties have been the focus of the region's population and job growth over the last decade. This trend is expected to continue into the next century. ================================================================================ -11- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Overall, the Philadelphia Metropolitan Area is an older, densely developed region with a mature economy which can only be expected to grow less and at a slower pace in the months and years to come. Taxes and labor costs throughout the Northeastern United States are higher than elsewhere so that there are fewer opportunities for low cost start-up companies. Fortunately, the patchwork of existing small to mid-sized companies in the Philadelphia Metropolitan Area should protect this region from the severe economic shocks seen in many single industry towns. Thus, over the long term, the Philadelphia Metropolitan Area benefits from a diversified economic base which should protect the region from the effects of wide swings in the economy. The region's strategic location along the eastern seaboard and its reputation as a major business center should further enhance the area's long term outlook. The region's real estate market is beginning to give way to some optimism as availabilities are slowly absorbed through the current economic expansion. It is our conclusion that the long term trends of the region should eventually exert positive influences on the values of well located and well designed real property. Summary o Philadelphia is the fifth largest city in the country but, due to the population of its suburbs, it is the fourth largest metropolitan area. Just by sheer size, the region represents a broad marketplace for all commodities including real estate. o The region's economy is diversified with the service industries now the largest single sector; manufacturing has stabilized after three decades of decline. The region's economy is now growing though the number of people employed is about the same as it was three years ago due to new business technologies which increase productivity. This has served to lessen demand for most types of space in the Philadelphia Metropolitan Area. o Regional economic trends point toward an era of modest growth which, over time, should eventually alleviate the current imbalance between supply and demand for most types of real property. However, only those with a desirable location and functional design will outperform inflation in the general economy. ================================================================================ -12- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> [MAP OMITTED] ================================================================================ <PAGE> NEIGHBORHOOD ANALYSIS ================================================================================ Northeast Philadelphia and Bensalem Township The subject property lies Parkwood neighborhood of Northeast Philadelphia and immediately south of the border between Northeast Philadelphia and Bensalem Township in Bucks County, Pennsylvania, approximately fifteen miles northeast of Philadelphia's central business district. Parkwood is a densely populated residential area of the city which was developed in the Fifties and early Sixties Northeast Philadelphia extends from Bridge Street at the southern end to the Poquessing Creek and Bucks County at the northern end, and from Montgomery County in the west to the Delaware River in the east. Northeast Philadelphia has evolved from a predominately rural area into a densely populated community. Approximately one quarter of a million people now live in this area which is now nearly 100 percent developed. This growth in population was basically brought about by the migration of younger families seeking to escape the overcrowding and decay of other older sections of the city. If Northeast Philadelphia were severed from the rest of Philadelphia, it would become the third largest city in Pennsylvania in terms of population. Northeast Philadelphia is primarily a residential community. The principal residential dwelling unit is the attached, "row", or townhouse unit. The Northeast section of the city is characterized by densely populated residential developments. There are also semi-detached and detached, single family dwellings with higher average values than townhouse units. An adequate supply of rental housing is also available, including a large number of garden apartments. Homes are generally well kept, pride of ownership is obvious, and the entire area is considered to be largely stable. In conjunction with this population growth, commercial land uses evolved along the main traffic arteries which circulate through Parkwood and the other sections of Northeast Philadelphia. Major regional retail land uses include Roosevelt Mall, Northeast Tower Center and the Franklin Mills Mall. Within Northeast Philadelphia there are also numerous commercial districts catering essentially to pedestrian traffic. These are mainly found along the parts of Torresdale Avenue, Frankford Avenue, Cottman Avenue, Bustleton Avenue, Castor Avenue and Rising Sun Avenue. Along with this population explosion has come a corresponding influx industry into Northeast Philadelphia capitalizing on the newly relocated labor force of young, skilled and semi-skilled workers. Presently, Northeast Philadelphia represents one of the more concentrated industrial sections of the city. Within a several miles radius of the subject are located numerous industrial parks and designated industrial districts which form the economic base of this area. The largest of these is the Philadelphia Industrial Park located approximately three miles east of the subject property. ================================================================================ -13- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Neighborhood Description ================================================================================ Contributing greatly to the neighborhood's desirability is the area's excellent highway and transportation systems. Roosevelt Boulevard is one of the major traffic arteries which traverses Northeast Philadelphia and connects with the Schuylkill Expressway (Interstate 76) to the south and the Philadelphia Interchange of the Pennsylvania Turnpike to the north. The Delaware Expressway (Interstate 95), the other major traffic artery in the area, connects to Center City Philadelphia to the south, and Trenton and New York to the north. Woodhaven Road (Route 63) is a limited access highway for a part of its length connecting the Roosevelt Boulevard with Interstate 95. Public transportation is excellent with the Southeastern Pennsylvania Transportation Authority (SEPTA) providing bus and commuter rail service throughout the area. Rail freight is available through ConRail. Located at Grant Avenue, within the center of the Philadelphia Industrial Park, is North Philadelphia Airport. This is principally a private and executive-oriented facility, but one which does provide commuter service to Philadelphia and Newark International Airports. As noted, the subject property is located immediately south of the border between Philadelphia and Bensalem Township in Bucks County. Bucks County geographically encompasses 610 square miles. Located north of Philadelphia, the county is divided into 54 municipalities, each possessing the powers of police and taxation. Bensalem Township, which is located on the southeastern boundary of the county, is bordered by the City of Philadelphia to the south, the Delaware River, Bristol Township and Bristol Borough to the east, Lower Southampton Township to the west and Pendel Borough and Middletown Township to the north. The 1990 population figures for the township were 56,788, up 8.4 percent since the 1980 census. The growth of Bensalem Township is directly attributable to the excellent transportation system which serves it. Interstate 95, which traverses the township, links Bensalem Township to Philadelphia on the south and Trenton, New Jersey to the north. Access to the Pennsylvania Turnpike, leading to New Jersey to the east and Ohio tot the west, is two miles northwest of the subject at U.S. Route 1. U.S. Route 1 provides access to Philadelphia to the south and Trenton to the north. Routes 132, 413 and 513 also serve the township. Residential uses in Bensalem Township vary widely and include attached, semi-detached and detached single family dwellings as well as garden apartments and condominiums. The total housing stock of over 15,000 units represents an increase of approximately 56 percent since 1980. A wide variety of commercial and office uses are located in Bensalem Township primarily along Street Road and Route 1. Located here are a variety of community and strip shopping centers as well as the Neshaminy Mall, a 950,000 square foot regional mall anchored by Sears, Boscov's and Strawbridge's. In addition, Federal Realty Investor's Trust has recently announced plans to construct a 688,000 square foot retail center to be named Gateway Center on a 196 acre tract located on the north side of Street Road, west of its interchange of I-95. This mixed use development would contain 200 hotel rooms, a 115,000 square foot entertainment center and a 60,000 square foot assisted living facility. This proposal was presented to the Bucks County Planning Commission in July, 1996 and a lengthy approval process is anticipated. ================================================================================ -14- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Neighborhood Description ================================================================================ Light industrial development in Bensalem Township was fostered by the completion of Interstate 95 in this area in the early 1970's. This area was the first to be developed with industrial parks which attracted businesses from Philadelphia by offering a suburban location with good highway access to the city without the city's onerous tax climate found there. Major industrial park developments in Bensalem Township include the Expressway 95 Industrial Park, Riverview Industrial Park, Metropolitan Industrial Park, and Bridgewater Industrial Park, among others. The area immediately surrounding and directly influencing the subject consists of the retail commercial uses of Franklin Mills as well as peripheral outparcel development. Franklin Mills is a 1.736 million square foot regional mall, anchored by JC Penney, Boscov's, Burlington Coat Factory, Spiegel and Marshall's. The mall is surrounded by freestanding stores occupied by Sam's Wholesale Club, Toys R Us and General Cinema. Immediately west of the subject is the Philadelphia Design Center, a strip center anchored by Hechingers and with in-line tenants oriented towards home furnishings. Two outparcels adjoining the subject site are currently being developed with a Don Pablo Restaurant and a Burger King. Surrounding the mall are residential subdivisions of detached single family, twins and rowhomes as well as several multifamily apartment complexes. The subject neighborhood has easy access to major highways including Interstate 95, U.S. Route 1 and the Pennsylvania Turnpike. The subject property was originally constructed as a Carrefour Hypermarket in 1989 and subsequently converted to multi-tenant retail use in 1994. The current major tenants at the subject include Dick's Sporting Goods and Service Merchandise. However, it is projected that Wal-Mart will be occupying the former Bradlees store in this center by the Fall of 1997. Additionally, a portion of the site will be land leased to Giant Food for construction of a 55,797 square foot supermarket. Summary In summary, the subject property is situated in a largely built-up location in the Northeast section of Philadelphia and immediately adjacent to the suburban community of Bensalem Township. The area boosts a widely diverse mix of residential, commercial and light industrial uses. This populous area also benefits from being within the fourth largest urban area and the fifth largest city in the country. o The immediate neighborhood of the subject is characterized by a variety of land uses typical to an urban neighborhood. o For retail development such as the subject, the advantages of this neighborhood include the density of population and good highway access. o The disadvantages of this neighborhood relative to suburban locations include declining municipal services and an onerous employee wage tax. o The general trend or the neighborhood appears to be stable. ================================================================================ -15- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> MARKET ANALYSIS ================================================================================ Power Centers A Power Center may be generally defined as a grouping of retail stores where 75 to 85 percent of its gross leasable area (GLA) is occupied by anchor tenants. At the subject property, 95 percent of the gross leasable area will be occupied by tenants of 20,000 or more square feet. According to a recent survey by The National Research Bureau, there were 461 Power Centers in the United States by year end 1995, up from 287 in 1994 and 233 in 1993. An additional 42 new centers are to be constructed in 1996. Most closely resembling a community center in design and merchandising emphasis, power centers generally total a minimum of 250,000 square feet and have at least one discount department store or warehouse club anchor tenant measuring 100,000 square feet. Most often there are also four or five category-specific anchor tenants of 25,000 square feet or more which emphasize merchandise such as consumer electronics, sporting goods, office supplies, home furnishings and personal computer hardware and software. Small shop space is typically restricted to about ten percent of the gross leasable area. Power centers are constructed in an open air strip in either an L or U shape near a concentration of retail development and frequently in close proximity to a regional mall. Most power centers are constructed as new developments. However, many times other forms of retail centers, such as community and regional centers, are redeveloped or repositioned with a discount focus. Economic characteristics also distinguish power centers from other forms of retail development in that they have a high proportion of anchor space and anchor leases that often provide for only one or two rent increases over the lease term thereby limiting the store's income potential. Few have percentage rent clauses and those that do generally stipulate very high breakpoints thus limiting rental increases in concert with increases in sales. The impetus to develop power centers with such limited upside potential is based on anticipated long term stable income derived from the strength of the anchor tenants' credit which can provide a higher yield to investors than that provided by the same company's corporate debt. As a result of the financial structure of power centers, a high quality location is critical to their success. It is also critical for potential future redevelopment of the site as retail trends change over time. Retail Structure Power Centers are very frequently constructed near interstate highways and often in close proximity to a regional mall. Such is the case with the subject which is located near at an interchange of I-95 and opposite Franklin Mills. The 1,737,000 square foot Franklin Mills was constructed in 1989 and is anchored by JC Penney, Burlington Coat Factory and Boscov's. Additionally, there is a freestanding Sam's Wholesale Club located adjacent to the center. ================================================================================ -16- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> [GRAPHIC OMITTED] MAP OF PHILADELPHIA <PAGE> Market Analysis ================================================================================ Competitive Center #1 Location: The Court at Oxford Valley E/S Oxford Valley Road Falls Township Bucks County, PA ================================================================================ [GRAPHIC OMITTED] ================================================================================ The Court at Oxford Valley is a 430,000+/- square foot Power Center plus a freestanding 130,000+/- square foot Home Depot store which opened opposite the Oxford Valley Mall in 1996. Major tenants include Dicks Sports, Home Place and Best Buy. A summary of recent lease transactions for this center is included on the opposing page. ================================================================================ -17- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Competitive Center #2 Location: Northeast Tower Center Roosevelt Boulevard and Tower Boulevard Philadelphia, PA ================================================================================ [GRAPHIC OMITTED] ================================================================================ The Northeast Tower Center is a 505,000+/- square foot Power Center which is being developed on the 47.97 acre former Sears warehouse distribution site. The 3,100,00+/- square foot former Sears store and distribution center was sold to the Rubin Company which demolished the improvements in 1994. To date, the Northeast Tower Center has been developed with a Home Depot, Pep Boys, Staples, Old Navy. plus two restaurants. A 109,000 square foot Bradlees store was under construction when Bradlees declared bankruptcy in June, 1995. Service Merchandise had an agreement to purchase a 3.52+/- acre site to build a 54,000+/- square foot store at this center but canceled. Ownership reports that they are in discussions with a 60,000+/- supermarket, a 50,000+/- electronics store and a pet food store. ================================================================================ -18- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> ================================================================================ Recent Lease Transactions East Gate Square - Mt. Laurel and Moorestown Township Burlington County, NJ ================================================================================ Tenant Term Leased Area Rent/S.F. - -------------------------------------------------------------------------------- $15.00 (Yrs. 1-5) Best Buy 1997 45,000 S.F. $16.00 (Yrs. 6-10) 20 Years $17.00 (Yrs. 11-15) $18.00 (Yrs. 16-20) - -------------------------------------------------------------------------------- $18.00 (Yrs. 1-5) Barnes & Noble 1997 30,000 S.F. $20.16 (Yrs. 6-10) 15 Years $22.57 (Yrs. 11-15) - -------------------------------------------------------------------------------- $15.00 (Yrs. 1-5) PetsMart 1997 28,186 S.F. $16.00 (Yrs. 6-10) 20 Years $17.00 (Yrs. 11-15) $18.00 (Yrs. 16-20) - -------------------------------------------------------------------------------- Old Navy Clothing Store 1995 20,000 $14.50 (Yrs. 1-5) 10 Years $17.00 (Yrs 6-10) $20.00 (Yrs. 11-15) - -------------------------------------------------------------------------------- Mikasa Dinnerware Plus 1995 12,574 $17.50 (Yrs. 1-5) 10 Years $18.50 (Yrs. 6-7) $19.25 (Yrs. 8-10) $21.25 (Yrs. 11-16) - -------------------------------------------------------------------------------- $13.00 (Yrs. 1-5) AC Moore 1993 20,000 SF $13.00 (Yrs. 6-10) 10 Years $14.00 (Yrs. 11-15) - -------------------------------------------------------------------------------- $12.00 (6/11/93-6/30/98) Office Max 1993 30,625 SF $13.00 (7/1/98-6/30/03) 15 Years $14.00 (7/1/03-6/30/08) - -------------------------------------------------------------------------------- $12.00 (Yrs. 1-5) Linens N' Things 1993 30,096 $13.00 (Yrs. 6-10) 10 Years $15.60 (Yrs. 11-15) - -------------------------------------------------------------------------------- $13.37 (7/31/98-7/31/98) CompUSA 1993 25,485 $15.37 (8/01/98-7/31/03) 15 Years $17.56 (8/01/03-7/31/08) - -------------------------------------------------------------------------------- $18.00 (Yrs. 1-5) Boater's World 1994 6,000 $21.00 (Yrs. 6-10) 5 Years $23.00 (Yrs. 11-15) - -------------------------------------------------------------------------------- $20.00 (Yrs 1-5) Blockbuster Video 1994 5,100 $23.00 (Yrs 6-10) $26.45 (Yrs 11-15) $30.42 (Yrs 16-20) - -------------------------------------------------------------------------------- ================================================================================ <PAGE> Market Analysis ================================================================================ Competitive Center #3 Location: East Gate Square Lenola Drive and Route 38 Moorestown and Mt. Laurel Townships Burlington County, NJ ================================================================================ [GRAPHIC OMITTED] ================================================================================ East Gate Square lies opposite the Moorestown Mall which has frontage along Route 38 and Nixon Drive. Phase I and Phase II of East Gate Square were constructed in 1993 and 1995, respectively. Phase I is a 241,000 square foot center, plus a separately owned 130,000 square foot freestanding Home Depot. Major tenants include Shop Rite, Office Max, Ross Dress for Less, Linens N Things, Comp USA and Zany Brainy. Phase II is a 154,000 square foot center which includes Nobody Beats the Wiz, Old Navy and Mikasa. Phase III is under development and will contain 119,000 square foot of retail area when completed in July, 1997. Major tenants in Phase III will include Dick's Sporting Goods and Best Buy. Phase IV is also under development and will contain 100,386 square feet of retail area when completed in July, 1997 to include Barnes and Noble and PetsMart. Including the Home Depot store adjoining Phase I, East Gate will contain a total of approximately 744,000 square feet of retail area by July 1997. Finally, there is vacant land available for an additional 120,000 square feet of retail area in Phases V and VI. On the opposing page is a summary of recent lease transactions in East Gate Square. ================================================================================ -19- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> ================================================================================ Recent Lease Transactions Brandywine Square Route 30, East Caln Township Chester County, Pa. ================================================================================ Tenant Term Leased Rent/S.F. Area - -------------------------------------------------------------------------------- BJ's Wholesale Club 1996 108,242 S.F. $11.00, increased by 8% 20 Yrs. every 5 years - -------------------------------------------------------------------------------- Hechinger 1996 99,000 S.F. $12.55, increased by 5% 20 Yrs. after 10 years - -------------------------------------------------------------------------------- Dick's Sports 1996 60,000 S.F. $12.00, increased by $35,000 20 Yrs. every 5 years. - -------------------------------------------------------------------------------- Home Place 1996 54,400 S.F. $12.26, increased by 10% 20 Yrs. every 5 years. - -------------------------------------------------------------------------------- PetsMart 1996 26,376 S.F. $13.50, increased by 10% 15 Yrs. every 5 years. - -------------------------------------------------------------------------------- Sears Optical 1996 1,469 S.F. $16.00 5 Yrs. - -------------------------------------------------------------------------------- GNC 1996 1,200 S.F. $16.00 5 Yrs ================================================================================ <PAGE> Market Analysis ================================================================================ Competitive Center #4 Location: Brandywine Square S/S Route 30 at Quarry Road Caln Township Chester County, PA ================================================================================ [GRAPHIC OMITTED] ================================================================================ Brandywine Square is a 579,000+/- square foot Power Center which was recently constructed on the site of the former Downington Inn. Principal tenants include BJ's Wholesale Club, PetsMart, Dick's Sporting Goods and Hechinger. Brandywine Square opened in August, 1996. A summary of lease transactions in this center is included on the opposing page. ================================================================================ -20- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Philadelphia Metropolitan Area Vacancy Rate Summary <TABLE> <CAPTION> =================================================================================================== County Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Bucks 11.9% 10.4% 9.4% 10.6% 11.3% 10.6% 8.7% 9.3% 8.5% - --------------------------------------------------------------------------------------------------- Chester 6.5% 6.9% 6.1% 6.7% 6.4% 6.5% 4.4% 4.6% 3.6% - --------------------------------------------------------------------------------------------------- Delaware 6.2% 6.4% 6.4% 5.1% 5.5% 3.5% 2.9% 3.6% 3.3% - --------------------------------------------------------------------------------------------------- Montgomery 5.5% 5.4% 5.4% 4.4% 4.3% 4.9% 4.4% 4.4% 5.3% - --------------------------------------------------------------------------------------------------- Philadelphia 10.0% 8.3% 8.5% 8.2% 7.8% 7.0% 6.1% 6.2% 8.0% - --------------------------------------------------------------------------------------------------- Burlington 11.0% 9.4% 8.4% 8.0% 8.0% 7.8% 7.7% 8.6% 6.3% - --------------------------------------------------------------------------------------------------- Camden 12.1% 8.4% 8.0% 10.0% 7.9% 10.1% 10.1% 8.0% 8.2% - --------------------------------------------------------------------------------------------------- Gloucester 11.3% 10.7% 9.4% 12.4% 10.4% 11.2% 10.3% 15.8% 15.6% =================================================================================================== </TABLE> Source: Metro Commercial Real Estate <PAGE> Market Analysis ================================================================================ Trade Area Analysis Overview According to a recently published survey, Philadelphia had a 8.0 percent retail vacancy rate in January, 1996 as compared to 6.2% in July, 1995. A copy of this survey is included on the opposing page. A retail property's trade area contains people who are likely to patronize that particular retail center. These customers are drawn by a given class of goods and services from a particular tenant mix. A property's fundamental drawing power comes from the strength of the anchor tenant(s) combined with local and regional tenants which complement and support the anchors. A successful combination of these elements creates a destination for customers seeking a variety of goods and services while enjoying the comfort and convenience of an integrated shopping environment. To define and analyze the market potential for the subject, it is important to first establish the boundaries of the trade area from which the subject will draw its customers. In some cases, defining the trade area may be complicated by the existence of other retail facilities on main thoroughfares within trade areas that are not clearly defined or whose trade areas overlap with that of the subject. Because the subject lies in an intensely developed area, the subject's potential trade area can be reasonably expected to partially overlap with other retail facilities along major retail thoroughfares. Before the trade area can be defined, it is necessary that we thoroughly review the retail market and the competitive structure of the general marketplace, with consideration given to the subject's position therein. Trade Area Definition Liberty Plaza is located on Woodhaven Road (Route 63) approximately 1 mile east of Interstate 95 and approximately 3 miles west of US Highway #1 (Roosevelt Boulevard). This location makes it one of the more accessible retail locations within the greater Philadelphia area. The advantage of highway proximity has the effect of expanding the center's trade area by virtue of reducing travel time for residents in more distant locations. As discussed in the previous section, the location and accessibility of competing centers also has direct bearing on the formation and make-up of a particular area. The major retail center in this trade area is Franklin Mills. Other area retail facilities collectively act as traffic generators that increase the area's status as a destination retail hub. To summarize, the foundation of our analysis in the delineation of the trade area of the subject may be summarized as follows: 1. Highway accessibility including area traffic patterns, geographical constraints and nodes of residential development. 2. The position and nature of the area retail structure including the location of destination retail centers and the strength and composition of the retail infill. 3. The size, anchor tenancy and merchandising composition of the tenant(s), both existing and as proposed. ================================================================================ -21- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ On balance, we have established a total trade area for the subject on the basis of a 7 mile radius emanating from the store. So as to add some perspective to our analysis, we have segregated this survey as prepared by Equifax National Decision Systems (ENDS) into 3, 5 and 7 mile concentric circles. A map illustrating these radii is indicated on the opposing page. We believe that the 3-5 mile radii constitutes the primary market based upon the proximity of the Delaware River and the shopping alternatives more easily available to the residents in New Jersey. This report is provided in the Addenda. The chart below presents relevant statistics for the total trade area as segregated by primary and secondary components. ================================================================================ Subject Property Estimated Trade Area Market Support Factors ================================================================================ 3 Mile 5 Mile 7 Mile Primary Primary Secondary Trade Area Trade Area Trade Area Population 1990 Census 113,029 317,551 624,001 1996 Estimate 110,011 312,133 616,070 2001 Projection 108,911 310,290 612,428 % Compound Annual Change: 1990-1996 -.45% -.29% -.18% 1996-2001 -.20% -.12% -.26% - -------------------------------------------------------------------------------- Households 1990 Census 40,753 118,499 233,253 1996 Estimate 41,047 120,142 237,666 2001 Projection 40,852 120,090 238,168 % Compound Annual Change: 1990-1996 .08% .23% .31% 1996-2001 -.10% .01% .04% - -------------------------------------------------------------------------------- Average Household Income - 1996 $54,288 $52,500 $53,894 - -------------------------------------------------------------------------------- Median Household Income - 1996 $45,931 $43,925 $44,273 - -------------------------------------------------------------------------------- Median Age 35.37 36.99 37.43 - -------------------------------------------------------------------------------- 1990 Median Home Value $95,925 $101,096 $102,644 ================================================================================ Source: Equifax National Decision Systems ================================================================================ Population Once the market has been established, the focus of our analysis centers on the trade area's population. ENDS provides historical, current and forecasted population estimates for the total trade area. Patterns of development density and migration are reflected in the current levels of population estimates. The report provided in the Addenda presents the statistics on the basis of the radii discussed above. ================================================================================ -22- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ As is demonstrated, there has been an approximate two percent decline in population in the subject's five mile primary trade area between 1990 and 1996 and a one percent decline in the population over the same time period for the seven mile secondary trade area. Over the next five years, ENDS reports that the population will continue to decline gradually. This pattern is typical thought most neighborhoods of Philadelphia in that people who can move to the suburbs elect to do so. Despite these losses, the neighborhood remains densely populated. Approximately, 110,000 people are located within a three mile radius of the subject. Within five miles, there are approximately 312,000 people. Finally, extending out to 7 mile secondary trade area, there are approximately 616,000 people. Regardless of the recent declines in population, the overall population density of the trade area is highly favorable for retail development. Households A household consists of all the people occupying a single housing unit. While individual member of a household purchase goods and services, these purchases actually reflect household needs and decisions. Thus, the household is a critical unit to be considered when reviewing market data and forming conclusions about the trade area as it impacts the retail center. National trends indicate that the number of households are increasing at a faster rate than the growth of the population. Several noticeable changes in the way households are being formed have caused the acceleration in this growth, specifically: The population in general is living longer on average. This results in an increase of single and two person households. The divorce rate increased dramatically during the last two decades, again resulting in an increase in single person households. Many individuals have postponed marriage, thus also resulting in more single person households. According to ENDS, the total trade area gained 4,413 households between 1990 and 1996, an increase of 1.9 percent to 237,666 households. Thus, growth equates to an average annual growth rate of .31 percent. Between 1996 and 2001 the area is expected to grow, but at a slower pace of .04 percent per year. Consistent with the national trend, the trade area is experiencing household growth at rates in excess of population changes primarily due to factors mentioned above. Correspondingly, a greater number of smaller households with fewer children generally indicates more disposable income. In 1996, there were 2.59 persons per household and by 2001, it is forecasted to decrease to 2.57. ================================================================================ -23- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ Trade Area Income Income levels, either on a per capita, per family or household basis, indicate the economic level of the residents of the market area and form an important component of this total analysis. More directly, average household income, when combined with the number of households, is a major determinant of an area's retail sales potential. The trade area income figures support the profile of a broad-based middle income market. According to ENDS, average household income within the total trade area in 1996 was approximately $53,894. Trade area income statistics are exhibited below. ==================================== Average Household Income ------------------------------------ Area Income ------------------------------------ 3 Mile $54,288 ------------------------------------ 5 Mile $52,500 ------------------------------------ 7 Mile $53,894 ==================================== Retail Sales Retail sales in the Philadelphia Metropolitan Area are currently estimated to approach $44 billion annually. The Philadelphia area ranked fifth nationally behind Chicago, Los Angeles, New York and Washington, D.C. in total retail sales for 1995, the last year for which statistics are currently available. Retail sales in this metropolitan area have increased at a compound annual rate of 3.6 percent since 1989. Within Philadelphia, the annual retail sales for 1995 were estimated to be about $8.9 billion, unchanged from the previous year sales. Sales and Marketing Management Magazine projects that retail sales in the Philadelphia region will increase to $51.8 Billion by the year 2000, reflecting a compound annual change of 3.6 percent for the five year period. For Philadelphia County, retail sales are projected to increase to $9.9 billion by the year 2000, reflecting a compound annual change of 2.0 percent. ================================================================================ -24- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ ================================================================================ Retail Sales Philadelphia Metropolitan Area and Philadelphia County (In Thousands) ================================================================================ Metropolitan Philadelphia Year Philadelphia % Change County % Change ================================================================================ 1989 $35,816,878 -- $7,661,352 -- - -------------------------------------------------------------------------------- 1990 $36,033,312 + 0.6% $7,741,383 + 1.1% - -------------------------------------------------------------------------------- 1991 $35,120,446 - 2.5% $7,451,387 - 3.8% - -------------------------------------------------------------------------------- 1992 $39,811,716 + 13.4% $8,447,600 + 13.4% - -------------------------------------------------------------------------------- 1993 $43,480,561 + 2.6% $8,323,384 - 1.5% - -------------------------------------------------------------------------------- 1994 $43,480,561 +6.4% $8,985,763 +8.0% - -------------------------------------------------------------------------------- 1995 $44,309,612 1.9% $8,950,479 -.4% - -------------------------------------------------------------------------------- 2000 (Est). $51,804,581 $9,883,537 - -------------------------------------------------------------------------------- Compound Annual Change +3.2% +2.6% (1989 -1995) - -------------------------------------------------------------------------------- Projected Compound Annual +3.6% +2.0% Change (1995 - 2000) ========================================================================= Source: Sales & Marketing Management Magazine 1990-1996 ================================================================================ Market Terms, Concessions and Commissions Structure The economic characteristic that distinguishes power centers from other forms of retail development is that they have a high proportion of anchor space. Typical lease terms for national tenants are fifteen to twenty years with periodic increases in rent during the term. For smaller or local tenants, terms may range from five to ten years. Retail leases are generally structured on a net basis with the tenant responsible for a full pro-rata share of taxes and operating expenses. Additionally, tenants will typically pay an administrative surcharge on common area maintenance ranging up to 10 percent. In addition to the minimum base rent, some tenants will contract to pay a percentage of their gross annual sales over a pre-established base amount as overage rent. It is most common for leases to have a natural breakpoint although many do have stipulated breakpoints. The average overage percentage for small space retail tenants is in a range of 3 to 6 percent. Anchor tenants will either pay no overage rent, or in the range of 1 to 3 percent of a natural or stipulated breakpoint. Traditionally, it takes a number of years for a retail center to mature and gain acceptance before generating any sizable percentage income. As a center matures, the level of overage rents typically becomes a larger percentage of total revenue. It is a major ingredient protecting an investor against inflation. Concessions in the form of tenant improvement allowances are an important part of the lease negotiations for a new center such as the subject. Lease concessions can vary between no dollars for a local or small tenant to as much as $30.00 per square foot for a national tenant. However, those tenants which receive significant tenant improvement allowances will generally pay higher rent levels to amortize the costs over the term of their lease. ================================================================================ -25- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ Leases for new power centers are often direct deals between owners and the tenants with no broker participation. Where leasing commissions are paid to outside brokers, the typical leasing commissions is approximately $2.50 per square foot for leases of 25,000 square feet or larger and approximately $3.50 per square foot for leases of less than 25,000 square feet. For pad leases, the typical leasing commission is $5.00 per square foot of building area with a minimum of $25,000. Typically, no additional leasing commission is paid for tenants which exercise options. The Subject Property The subject property is Liberty Plaza, a 301,138 square foot power shopping center located opposite Franklin Mills. The property was originally constructed as a Carrefour Hypermarket in 1987 and was subsequently converted to a power center in 1994. The original anchors included Bradlees (149,238 square feet), Dick's Sporting Goods (77,586 square feet) and Service Merchandise (53,349 square feet ). However, Bradlees renounced their lease through bankruptcy proceedings and vacated the store in October, 1996. Also occupying the subject are Boot Village (5,553 square feet) and a Mellon Bank drive-through branch on a pad site. In addition to the former Bradlees space, the subject contains a 15,412 square foot in-line space which was never leased. It is proposed that Wal-Mart will occupy the former Bradlees space under lease effective September 15, 1997. In addition it is proposed that Giant of Maryland will construct a supermarket on a ground lease with opening projected by May, 1998.. Conclusion A metropolitan and locational overview was presented which highlighted important points about the study area and demographic and economic data specific to the trade area. The trade area profile discussed encompassed a radii based analysis that was established based upon a study of the competitive retail structure. Marketing information relating to these sectors was presented and analyzed in order to determine patterns of change and growth as it impacts the subject. Next we discussed the subject neighborhood's retail sales history along with its performance potential over the near term. The given data is useful in establishing quantitative dimensions of the total trade area, while our comments serve to provide qualitative insight into this market. A compilation of this data provides the basis for our projections and forecasts particular to the subject property. The following summarizes our key conclusions. o The area surrounding the subject is densely populated. There are current approximately 312,000 people living within a five mile radius of the subject and approximately 616,000 people living within a seven mile radius. The area is expected to show modest declines in population over the next five years. o Access to the site is excellent. The subject lies on Woodhaven Road near its intersection with Interstate 95. The subject also lies near US Highway 1, an important local commuting and commercial arteries. ================================================================================ -26- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ o The subject adjoins Franklin Mills, a well established and successful super regional outlet mall. Also located in the immediate neighborhood are a variety of community and neighborhood shopping centers as well as freestanding big box retail stores. When combined with the construction of the subject, this concentration of services makes this area a premier retail corridor for northeastern Philadelphia and southern Bucks County. o The subject is currently 45 percent leased with the principal tenants being Dick's Sports and Service Merchandise. However, occupancy will be increased to 95 percent with the projected opening of Wal-Mart. Moreover, Giant Food is projected to construct a 55,797 square foot supermarket on a long term pad lease, increasing cash flow to the center with no significant capital costs. o All things considered, Liberty Plaza presents a viable economic concept which should meet with continued market acceptance through aggressive promotion and competent management. Exposure Time Exposure Time is defined as the estimated 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 estimated market value on the effective date of the appraisal. It is a retrospective estimate based upon analysis of past events assuming a competitive and open market. Thus, exposure time is presumed to precede the effective date of the appraisal. According to a recent Cushman & Wakefield survey, investors project an exposure time ranging from three to nine months for all types of retail property, with an average of 6.5 months. Similarly, our conversations with active commercial brokers indicate than an exposure time of nine months would be appropriate for the subject. ================================================================================ -27- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> [MAP OMITTED] Liberty Plaza <PAGE> PROPERTY DESCRIPTION ================================================================================ Site Description Location: Southwest corner of Liberty Belle Boulevard and Franklin Mills Boulevard Philadelphia, Pennsylvania Shape: Irregular Area: 35.084+/- acres. Frontage: The site has frontages along the south side of Liberty Belle Boulevard and the west side of Franklin Mills Boulevard. Topography/Terrain: Generally level and at street grade. Street Improvements: Each of the roadways are macadam paved. 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 the existing structures. We did not observe any evidence to the contrary during our physical inspection of the property. The tract's drainage appears to be adequate. Utilities: Water: City of Philadelphia Sewer: City of Philadelphia Telephone: Bell Atlantic Electricity: PECO Energy Gas: Philadelphia Gas Works 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 Hazard: According to Community Panel No. 420757 0129 F, National Flood Insurance Rate Map, effective August 2, 1996, the subject is in Flood Hazard Zone X, an area of minimal flooding and, therefore, does not require flood hazard insurance. ================================================================================ -28- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Property Description ================================================================================ 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. Hazardous Substances: We observed no evidence of toxic or hazardous substances during our inspection. However, we are not trained to perform technical environmental inspections and recommend the services of a professional engineer for this purpose. Comments: Overall, the site is typical of large commercial sites in the area, functionally adequate and well suited for its existing and proposed use. Externally, no deleterious influences were noted. Improvements Description The shopping center site is improved with a 301,138+/- square foot single story plus mezzanine Power shopping center known as Liberty Plaza. The improvements were constructed in 1989 as a Carrefour Hypermarket and were subsequently converted to multi-tenant Power Center in 1994. Also present on the on site is a Mellon Bank drive through branch on an pad site. The following is a more complete description of the improvements. General Description Year Built: 1989, converted to multi tenant retail use in 1994. Building Area: 301,138 square feet Building Height: 30 feet. Construction Detail Foundations: Reinforced concrete footings, reinforced concrete slab on grade. Framing: Structural steel. Ceiling Height: 26' clear. Floors: Finished concrete slab on grade. Walls: Metal panel over concrete block. Roof: Built up composition cover over metal deck. Windows: Fixed pane glass in aluminum frame. Pedestrian Doors: Aluminum and plate glass double entrance doors. ================================================================================ -29- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Property Description ================================================================================ Mechanical Detail Heating and Cooling: Roof mounted combination HVAC units provide heat and air conditioning. Plumbing: Assumed to be to municipal code. Electrical Service: Standard commercial service. Tenants are separately metered for electric use. Loading: The former Bradlees and Dick's Sporting Goods have two tailgate height, and two drive in loading door, one of which is used for the trash compactor. Service Merchandise has three tailgate height and two drive in loading doors. Fire/Safety Systems: The improvements are fully wet sprinklered. Interior Detail Layout: The improvements were demised into five stores, as follows: Former Bradlees: 149,238 S.F. Dicks Sporting Goods 77,586 S.F. Service Merchandise 53,349 S.F. Boot Village 5,553 S.F. Vacant 15,412 S.F. ------- ----------- Total: 301,138 S.F. In addition to the 149,238 square foot of first floor space, the former Bradlees store contains 30,000 square feet of mezzanine office space. Bradlees subleased portions of their space to a tire/battery and auto store and a karate store. The TBA store has four service bays on the north side of the building. This space is currently vacant. Floor Covering: Predominantly vinyl tile. Walls: Painted sheetrock. Ceilings: Exposed metal roof deck and acoustical tile in metal track. Lighting: Recessed fluorescent and incandescent light. Rest Rooms: Multi-fixture men's and women's restrooms are provided. Hazardous Substances: The appraisers have no knowledge of any hazardous substances present in the improvements to the subject property. A professional study is recommended for final determination of any such substance. ================================================================================ -30- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Property Description ================================================================================ Site Improvements: Paved and lined parking and loading areas are provided. Additionally, there are pole mounted parking lot lighting and concrete walkways to all entrances. Landscaping: Low maintenance trees, shrubs and plantings are situated around the building. Comments: At the time of inspection, the improvements were in average to good condition. Wal-Mart is projected to lease the former Bradlees space in its as Is condition with no tenant fitout. They may also build a garden center adjoining the existing improvements. Personal Property Included in Value Estimate: None. ================================================================================ -31- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Liberty Plaza Philadelphia, Pa. Tax Comparables Liberty Plaza <TABLE> <CAPTION> ======================================================================================================================= Proximity to Subject Assessed Value NRA Current Annual Assessed Value Tax % of Assessed Year Built/Occupancy Real Estate Taxes Per SF Per SF Value - ----------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Subject: Liberty Plaza S/W/C Liberty Belle Boulevard and L 201,696 301,138 $404,685 $16.26 $1.34 8.26% Franklin Mills Boulevard B 4,695,000 Philadelphia T 4,896,960 1987 & 1994/95% - ----------------------------------------------------------------------------------------------------------------------- Comp. 1: Sams Wholesale Club L 52,800 133,010 $163,217 $14.85 $1.23 8.26% 4301 Byberry Road B 1,922,240 Philadelphia, Pa T 1,975,040 Less than 1 mile 1991/100% - ----------------------------------------------------------------------------------------------------------------------- Comp. 2: Toys R Us L 51,200 46,653 $ 69,748 $18.09 $1.50 8.26% 4401 Byberry Road B 792,800 Philadelphia, Pa. T 844,000 Less than 1 mile 1990/100% - ----------------------------------------------------------------------------------------------------------------------- Comp. 3: Philadelphia Home & Design Center L 1,028,157 218,086 $290,893 $16.14 $1.33 8.26% 12131 Knights Road B 2,491,843 Philadelphia, Pa T 3,520,000 Less than 1 mile 1988/75% - ----------------------------------------------------------------------------------------------------------------------- Comp. 4: Phar-Mor L 37,484 85,000 $ 99,408 $14.12 $1.17 8.28% 4301 Barberry Road B 1,162,516 Philadelphia, Pa T 1,200,000 Less than 1 mile 1988/100% ======================================================================================================================= </TABLE> <PAGE> REAL PROPERTY TAXES AND ASSESSMENT ================================================================================ The subject property is assessed by the City of Philadelphia for the payment of real estate taxes. The City identifies the subject as Ward 88 Book 2 Number 691000 (4501 Woodhaven Road). It is assessed in the following manner: ============================= Land $2,016,960 ----------------------------- Improvements $2,880,000 ----------------------------- Total $4,896,960 ============================= Assessments in the City of Philadelphia are based upon 32 percent of the assessor's estimate of market value or, in the case of the subject, $15,303,000. As a practicality, this ratio is rarely achieved. The current total assessment over the subject property implies a value for tax purposes that appears reasonable based our subsequent valuation The current tax rate applicable to the subject property is $82.64 per $1,000 of assessed value. This total tax rate is attributable to the following jurisdictions: ================================= Jurisdiction Rates ================================= City of Philadelphia $37.45 --------------------------------- School District $45.19 --------------------------------- Total $82.64 ================================= An application of the tax rate outlined above to the current assessment results in an annual real estate tax liability of $404,685. This tax liability is equivalent to $1.34 per square foot of rentable area. On the opposing page is a survey of tax comparables for retail properties surrounding Franklin Mills. Based upon that survey, the current tax liability on the subject appears reasonably market oriented. ================================================================================ -32- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> ZONING ================================================================================ The subject property is zoned ASC, Area Shopping Center District by the City of Philadelphia. This zoning districts allows for a variety of retail services in an enclosed building. Developmental requirements include the following. ================================================================================ Minimum Lot Size 15,000 s.f. - -------------------------------------------------------------------------------- Setback Requirements None - -------------------------------------------------------------------------------- Minimum Street Frontage 100' - -------------------------------------------------------------------------------- Maximum Building Height 35' - -------------------------------------------------------------------------------- Parking 4 spaces for every 1,000 s.f. of net leasable area on the first floor; 2 spaces for every 1,000 square feet above the street level ================================================================================ The shopping center site has paved parking for 1,803 cars. We calculate that 1,205 parking spaces would be required for the first floor retail area under the existing zoning code which was amended in 1993. If the mezzanine level were to be utilized for retail use, an additional 80 parking spaces would be required, which is well below that which is currently provided. We are not experts in the interpretation of complex zoning ordinances but the current development of the subject appears to be a legal use based on our review of public information. We know of no deed restrictions, private or public, that further limit the subject property's use. 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. ================================================================================ -33- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> HIGHEST AND BEST USE ================================================================================ According to The Dictionary of Real Estate Appraisal, Third Edition (1993), a publication of the Appraisal Institute (formerly the American Institute of Real Estate Appraisers), the highest and best use of real property is defined as: 1. The reasonable and probable use that supports the highest present value of vacant land or improved property, as defined, as of the date of the appraisal. 2. The reasonably probable and legal use of land or sites as though vacant, found to be physically possible, appropriately supported, financially feasible, and that results in the highest present land value. 3. The most profitable use. We evaluated the site's highest and best use both as currently improved and as if vacant since the highest and best use of the land can be different from that of the property (land plus improvements). The existing use will continue, however, until the value of the underlying land, at its highest and best use, exceeds the total value of the property as currently utilized. In each case, whether as vacant land or as improved, the highest and best use of the real estate must meet four criteria. The use must be (1) physically possible, (2) legally permissible, (3) financially feasible, and (4) maximally productive. The Subject Site - As Vacant As noted in our description of the subject site, the land's size and shape are conducive to a variety of developments. All utilities necessary for development are in place and the soil is assumed to have sufficient load-bearing capacity to support most types of structures. The site is generally level to sloping in topography and presents good visibility and accessibility. Compatibility with existing surrounding land uses is also an important physical consideration for a harmonious development. Our discussion of the immediate neighborhood of the subject site indicates an area predominated by the retail commercial land uses surrounding Franklin Mills but with residential land uses on surrounding streets. Thus, from a physical perspective, a variety of uses would be a possible homogeneous use of the land. Legal restrictions, as they apply to the subject site, are private restrictions of deed and the public restrictions of zoning. As noted, the subject is zoned for shopping center use. There are no private restrictions which are known to adversely affect the utilization of the land. Thus, a commercial utilization of this site is legally permissible. After analyzing the physically possible and legally permissible aspects of the site, 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. Among the financially feasible uses, the use that provides the highest rate of return is the highest and best use. ================================================================================ -34- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Highest and Best Use ================================================================================ The subject has been redeveloped as a retail power center. This location has attracted national and regional anchor tenants as well as considerable interest from other local and national tenants. The rent levels which are being negotiated are sufficient to support development. The site lies near an interchange of Interstate 95 and opposite a super regional outlet mall. This neighborhood is densely populated with income levels which are higher than regional averages. As compared to many other types of development, lenders are more willing to underwrite retail development. It is, therefore, our conclusion that, as a vacant site, the current highest and best use of this land is for retail development. The Subject Site - As Improved The subject site is improved with a 301,138 square foot single story masonry Power shopping center. The improvements were constructed in 1989 and redeveloped for multi-tenant use in 1994. The improvements are in average to good overall condition and offer to the market functional and attractively designed retail space. As previously stated, we are not experts in the interpretation of complex zoning ordinances. However, based upon our review of public information, it appears that the current use and development of the subject have been accepted by the local zoning officials. Thus, a retail utilization for the subject site, as improved, is legally permissible. On a financial basis, market evidence indicates that there is a continued demand for physically sound retail properties affording functional utility. The value of a property like the subject on an improved basis is greater than that of the site as vacant. It is, therefore, our conclusion that, on an improved basis, the highest and best use is the existing retail use. In our opinion, such a use would yield to ownership the largest return over the longest period of time. ================================================================================ -35- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> VALUATION PROCESS ================================================================================ There are three conventional approaches to real estate valuation, namely; Cost, Income Capitalization and Sales Comparison. The Cost Approach renders an estimate of value based upon the price of obtaining a site and constructing improvements, both with equal desirability and utility as that of the subject property. The Income Capitalization Approach renders an estimate of value based upon the present worth of the potential benefits derived from ownership of the subject property. The Sales Comparison Approach renders an estimate of value based upon the competitive prices at which an equally desirable substitute property can be acquired in the open market. Due to the age of the existing improvements and the resulting subjectivity in the estimation of the total accrued depreciation inherent in them, the Cost Approach was not considered applicable to the valuation of the subject property. Because real property such as the subject is regularly bought and sold in the open market, the Income Capitalization and Sales Comparison Approaches are felt to be most germane to this valuation. The strengths and weaknesses of each approach toward the valuation of the subject property are then reviewed. The valuation analysis concludes with a reconciliation of the outstanding differences between the two approaches and a final estimate of value of the subject property is rendered ================================================================================ -36- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> POWER CENTER/COMMUNITY CENTER SALE COMPARABLES Cushman & Wakefield, Inc. <TABLE> <CAPTION> Sale Sale Yr Built/ Site Area Site GLA Anchor GLA as No. Name/Location Date Condition Sale Price (Sq.Ft.) Coverage Sold GLA % of Total <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1 Centennial Plaza Nov-96 1992 $16,700,000 862,488 27.1% 234,000 199,000 85.0% N.W. 59 and May Avenue Good Oklahoma City, OK 2 Lawrenceville MarketCenter Nov-96 1995 $34,600,000 1,785,960 28.0% 499,829 459,209 91.9% Ga. 316 and Ga. 320 Excellent Gwinnett County, GA 3 The Village at University Place Aug-96 1995 $33,400,000 1,633,500 20.5% 334,500 140,200 41.9% SWQ I-85 and W.T. Harris Blvd. Good Mecklenburg County Charlotte, North Carolina 4 Perimeter Village Jul-96 1995 $50,000,000 1,393,920 26.3% 366,600 249,349 68.0% W/S Ashford Dunwoody Road Excellent Atlanta, GA 5 Towneast Centre and Place Jul-96 1992 $12,700,000 653,400 32.1% 210,000 149,760 71.3% Town East Blvd. and Good Town Center Drive Dallas County Mesquite, Texas 6 Villa Marina Marketplace Jan-96 1976/91 $80,000,000 1,000,573 45.9% 459,703 218,929 47.6% Mexella & Lincoln Blvd., Good Marina Freeway Marina Del Rey, California 7 Scottsdale Fiesta Dec-95 1995 $46,000,000 2,700,720 18.2% 491,000 440,000 89.6% S/E/C Shea Blvd and Pinia Road Excellent Scottsdale, Arizona 8 Centre at Baybrook Nov-95 1985/93 $25,675,000 1,742,400 24.5% 426,097 372,987 87.5% NEC/Medical Ctr. Blvd. & I-45 Good Houston Webster, Texas 9 Town Center Prado Center Nov-95 1995 $27,793,000 1,916,640 15.2% 290,462 237,646 81.8% Barrett Pkwy. @ Bells Ferry Road Excellent Cobb County Atlanta, Georgia 10 Port Plaza S. C. May-95 1980/89 $19,000,000 583,704 30.7% 179,000 70,566 39.4% Route 112 & Bicycles Path Average Suffolk County Port Jefferson, New York 11 Howell Mill Square May-95 1980/87 $ 9,200,000 435,600 22.7% 98,704 58,078 58.8% 1715 Howell Mill Road Very Good Fulton County Atlanta, Georgia 12 Cobb Place Apr-95 1987 $21,035,000 1,013,206 23.5% 237,791 133,161 56.0% 800 Ernest Barrett Pkwy. Good Cobb County Kennesaw, Georgia Survey High: $80,000,000 2,700,720 499,829 459,209 - Survey Low: $ 9,200,000 435,600 98,704 58,078 - Survey Average: $31,341,917 1,310,176 24.3% 318,974 227,407 71.3% <CAPTION> Sale Price/ NOV Occupancy No. Name/Location Sq. Ft. Sq.Ft. OAR Anchor Tenants At Sale Comments <S> <C> <C> <C> <C> <C> <C> <C> 1 Centennial Plaza $71.37 $ 7.49 10.50% Best Buy, Home 93.0% Acquisition by the Price REIT which N.W. 59 and May Avenue Depot, Home Place underwrites acquisitions using direct Oklahoma City, OK capitalization analysis on existing income with a cap rate above 10%. 2 Lawrenceville MarketCenter $69.22 $ 6.58 9.50% Home Depot, Target, 100.0% The Acutal GLA purchased was 280,034 Ga. 316 and Ga. 320 AMC Theatres S.F. plus three pad sites occupied by Gwinnett County, GA Target, Home Depot and Bertucci. The projected IRR was 11.00% 3 The Village at University Place $99.85 $ 9.84 9.85% Best Buy, Office 100.0% New Power Center constructed on the SWQ I-85 and W.T. Harris Blvd. depot, TJ Maxx northeast side of Charlotte. Center Mecklenburg County includes a non owned Sam's and Wal- Charlotte, North Carolina Mart. 4 Perimeter Village $136.39 $12.82 9.40% Wal-Mart, Borders 93.0% Went under contract in 7/95 on an W/S Ashford Dunwoody Road books, Rhodes earnout basis for $44 million Atlanta, GA Furniture increasing to $50 million when occupancy goals were met. 5 Towneast Centre and Place $60.48 $ 6.65 11.00% Best Buy, Sears 100.0% Center is located adjacent to Town East Blvd. and HomeLife, PetsMart Towneast Mall serving east side Town Center Drive of Dallas. Centeralso contains Dallas County a separately owned Home Depot. Mesquite, Texas 6 Villa Marina Marketplace $174.03 $18.43 10.59% Vons, Sav-On, 92.0% Project consists of 2 properties; Mexella & Lincoln Blvd., UA Theatres, Sport 2nd largest retail ctr. west of Marina Freeway Chalet, Cineplex San Diego Fwy b/w Ventura Fwy & Marina Del Rey, California Odeon, Gelson's Manhattan. Sales=$347/sf; rents=$12-45/sf. 7 Scottsdale Fiesta $93.69 $ 9.37 10.00% Kmart, Home Base, 100.0% Pre-sale of a new power center S/E/C Shea Blvd and Pinia Road Office Maxx, Barnes development with an overall rate Scottsdale, Arizona & Noble, Comp USA of 10% and an IRR of 11%. Low IRR reflects limited upside potential. 8 Centre at Baybrook $60.26 $ 5.79 9.61% Builder's Sq.,Bed 99.0% Former mall renovated/converted in NEC/Medical Ctr. Blvd. & I-45 Bath Beyond, Osh- 1993. Good location, exposure. Houston mans, SteinMart, Anchors general over 90% of minimum Webster, Texas Best Buy, Sears rent. Avg in-line rent=$12.03/sf. 9 Town Center Prado Center $95.69 $10.53 11.00% Home Place, Sports 99.0% Power/community center located in a Barrett Pkwy. @ Bells Ferry Road Life, Publix growth corridor of Atlanta. Sale by Cobb County Homart. Center is located .5 miles Atlanta, Georgia from I-575 and I-75 interchange. 10 Port Plaza S. C. $106.15 $10.72 10.10% FoodTown 99.0% Average quality community center. Route 112 & Bicycles Path CVS Drugstore Other tenants include Kay Bee Toy, Suffolk County Dress Barn, Sam Goody, NYNEX. Port Jefferson, New York 11 Howell Mill Square $93.21 $ 9.09 9.75% Kroger 100.0% Good quality brick & masonry ctr. 1715 Howell Mill Road located in densely populated trade Fulton County area. Korger provided strong daily Atlanta, Georgia draw; ctr. has poor visibility. 12 Cobb Place $88.46 $ 9.56 10.81% Service M'dise 96.0% Good quality center with limited expo- 800 Ernest Barrett Pkwy. Upton's sure & narrow configuration. Ctr. has Cobb County AMC Theatres high amount of in-line space & lacks Kennesaw, Georgia drawing power of 4th anchor store. Survey High: $174.03 $18.43 11.00% - 100.0% Survey Low: $60.26 $ 5.79 9.40% - 92.0% Survey Average: $95.73 $ 9.74 10.18% - 97.6% </TABLE> <PAGE> SALES COMPARISON APPROACH ================================================================================ Methodology The Sales Comparison Approach produces an estimate of value through an analysis of similar properties which have recently transferred in the competitive open market. Inherent in this approach is the economic principle of substitution which holds 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. The Sales Comparison Approach directly reflects the values expressed by buyers and sellers active in the market. In the Sales Comparison Approach, we employ the following steps to reach an estimate of market value for the improved portion of the subject: 1. research recent, relevant property sales and current offerings throughout the competitive area; 2. select and analyze properties that are similar to the subject in locational attributes, physical traits and economic characteristics; 3. identify sales that include motivated participants, non-realty components or favorable financing to calculate the cash equivalent price; 4. reduce the sale prices to a common unit of comparison; 5. make appropriate adjustments to the prices of the comparable properties; 6. interpret the adjusted sales data and draw a logical value conclusion. The most widely used and market-oriented unit of comparison for properties with characteristics similar to the subject is the sale price per square foot of rentable building area and the overall rate. All transactions utilized in this analysis are computed on this basis. On the opposing page is a summary of these market data. Analysis The typical purchaser for properties like the subject includes large retail developers, foreign and domestic pension funds, and public real estate investment trusts (REITs). Because of their size, these centers are generally owned by sophisticated investors who typically lease space to large credit tenants. The moderate price category and quality of the tenants causes power centers to have a national market. The REIT interest in retail property has been particularly supportive of this property type. The liquidity afforded by access to the public markets has substantially heightened investor interest. Due to the relatively small number of market participants and the moderate amount of quality product available in the current marketplace, sufficient demand exists for the nation's quality retail developments. ================================================================================ -37- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ As can be seen from our market summary, unit rates range from $60.26 to $174.03 per square foot of rentable building area including land before adjustment for differences with the subject property. Alternatively, the overall capitalization rates which can be derived from the market range from 9.40 percent to 11.00 percent. These transactions occurred between April, 1995 and November, 1996. All sales involved power shopping centers throughout the United States. 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, its economic characteristics, and any non-realty items which might have been included in the sale price. 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 conditions must be accounted, thereby creating a time adjusted normal unit of comparison. Lastly, adjustments are made for location, the physical and economic attributes of the comparable sales, and any items of personalty associated with it in order to generate the final adjusted unit rate which is appropriate for the subject property. In an application of the Sales Comparison Approach, all adjustments are made to the comparable sales and not the subject property. When a characteristic of a comparable sale is superior to that of the subject property, a negative adjustment is made to the comparable sale. Conversely, when some trait of the comparable sale is inferior to that of the subject property, a positive adjustment is made to the comparable sale. Obviously, when a comparable sale and the subject property exhibit similar attributes, then no adjustment occurs. The quantitative analysis which follows is intended to assist the reader in understanding our thought process with the ultimate result being a plausible market value conclusion. Since the trading of real estate occurs in a very imperfect market, the use of paired sales to derive quantifiable adjustments, though acceptable in theory, is not realistic in practice. Even under the most ideal circumstances, the quality and uniformity of data are insufficient to produce accurate results. No two properties are exactly alike and emotion does come to bear in some form in almost every transaction. Therefore, the reader is cautioned to note that the adjustments set forth herein are not to be construed as absolutes, but are provided as a visual aid in demonstrating the logic of our conclusion. Property Rights Conveyed - All of the sales utilized in this analysis involved the transfer of the leased fee estate in the real property. The comparables were all encumbered by a number of leases with varying sized tenants and expiration dates. We believe, then, that no adjustment to the market data is necessary for property rights conveyed. Financial Terms - The financing utilized in the acquisition of real property can affect the sale price when it is based on non-market terms. All of the comparable property sales utilized in this analysis were accomplished with cash or a combination of cash and market oriented financing. For this reason, no adjustment to the market data for financial terms is necessary. ================================================================================ -38- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ Conditions of Sale -Extraneous motivations to act on the part of either the buyer or seller can affect the sale price of a property. The property sales utilized in this analysis were arm's length transactions between willing and knowledgeable participants, each acting without duress. No adjustment to the market data is necessary for conditions of sale. Market Conditions - Relative changes in the supply and demand for real property between specified dates of sale will affect the prices which will be paid in a competitive and open market. Retail properties were not as severely impacted by the recent recession in the commercial markets and have, in fact, been a favored property choice for investors since early 1993. All of our comparable sales have occurred since 1993 and would therefore not require an adjustment for market conditions. Location - An adjustment for location may be required when the locational characteristics of a comparable property are different from those of the subject property. For retail properties similar to the subject, adjustments of this kind for differences in trade areas are very difficult. Power centers are typically constructed adjoining or near regional malls with good highway access which is the case with the subject. Therefore, no adjustments for location are considered necessary. Physical Traits - The physical condition and functional utility of a property will obviously affect its sale price. Considered most similar to the subject in age and condition are Sales #1 and #5. Properties that were constructed in 1994 and 1995 would be considered moderately superior to the subject for condition. Included in that category are Sales #2, #3, #4, #7 and #9. The remaining sales were constructed previous to the subject. A positive adjustment to these sales for age and condition would be considered. Economic Characteristics - Any a-typical or special attributes of the cash flow to be produced by a property can affect its sale price in the open market. The sale properties have occupancy levels ranging from 92% to 100% as compared to 100% projected for the subject at stabilization. The sale properties have a variety of anchor tenants, each with their own credit rating. In the Additional Comments section of this analysis, we will attempt to quantify these differences by comparing the net operating incomes of the comparable sales to that projected for the subject. Non-Realty Items - Non-realty components of value can sometimes be included in the sale price of a property. The purchase prices of the comparable property sales utilized in this analysis solely entailed real estate. Therefore, no adjustment is needed for this last element of comparison. ================================================================================ -39- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ Additional Comments Most shopping centers are purchased on expected net income, not gross leasable area, making unit prices a somewhat subjective reflection of investment behavior. In order to quantify the appropriate adjustments to the indicated per square foot unit values, we compared the subject's first year pro forma net operating income per square foot to the pro forma income of the individual properties. In our opinion, a buyer's criteria for the purchase of a retail property is predicated primarily on the property's income characteristics. Therefore, this adjustment incorporates factors such as location, tenant mix, rental levels, operating characteristics, and physical building quality. The table below adjusts each property's sale price per square foot based upon the net operating income of the comparable. The derivation of the subject's projected stabilized first year net operating income ($8.47 per square foot) is presented in the Income Approach section of this report. ==================================================================== Price Per Square Foot Adjustment Summary ==================================================================== Sale Unadjusted Adjusted Sales No. NOI/SF Ratio Sale Price Price (PSF) ==================================================================== 1 $8.47/$7.49 X $71.37 = $80.72 -------------------------------------------------------------------- 2 $8.47/$6.58 X $69.22 = $89.11 -------------------------------------------------------------------- 3 $8.47/$9.84 X $99.85 = $85.96 -------------------------------------------------------------------- 4 $8.47/$12.82 X $136.39 = $90.12 -------------------------------------------------------------------- 5 $8.47/$6.65 X $60.48 = $77.04 -------------------------------------------------------------------- 6 $8.47/$18.43 X $174.03 = $79.99 -------------------------------------------------------------------- 7 $8.47/$9.37 X $93.69 = $84.70 -------------------------------------------------------------------- 8 $8.47/$5.79 X $60.26 = $88.16 -------------------------------------------------------------------- 9 $8.47/$10.53 $95.69 = $76.98 -------------------------------------------------------------------- 10 $8.47/$10.72 X $106.15 = $83.88 -------------------------------------------------------------------- 11 $8.47/$9.09 X $93.21 = $86.86 -------------------------------------------------------------------- 12 $8.47/$9.56 X $88.46 = $78.38 -------------------------------------------------------------------- Mean $83.49 ==================================================================== After adjustment for these earnings differences, these transactions reflect sales prices ranging from $76.98 to $90.12 per square foot with a mean of $83.49. The sale price per square foot of gross leasable area including land implicitly contains the locational, physical and economic factors affecting the value of a shopping center. Nonetheless, the process we have undertaken above is an attempt to quantify the unit price based upon the subject's income producing potential. After considering the characteristics of the subject relative to the above, we believe a unit rate range from approximately $80 to $85 per square foot is appropriate. Applying this unit rate to the 301,138 square feet of leasable area results in a value of approximately $24,100,000 to $25,600,000 for the subject property as completed and stabilized. ================================================================================ -40- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ Alternatively, we have also extracted the overall rates at which the comparable properties transacted. An overall capitalization rate is the direct relationship between the net operating income generated by the real estate in the initial year of an investment and the asset's value in the marketplace. Overall rates can be affected by any debt which might be incorporated into the capital structure of the investment. Overall rates are also affected by the existing leasing schedule at a specific property, the strength or weakness in the local rental market for that type of real estate, and the risk/return characteristics of competitive investments. As noted, the data which can be extracted from the market indicate a range of overall capitalization rates between 9.40% and 11.00% with a mean of 10.18%. Currently, investors are seeking well tenanted power centers in suburban locations with good income and growth characteristics. The subject neighborhood would be considered middle market, in that its trade area is expected to show a slight decline in population but with an average household income that falls above regional averages. Considering all this, it is our opinion that that subject would appeal to investors at an overall rate of ranging from 10.25% to 10.50%. Applying this unit rate range to a projected stabilized initial net operating income of $2,550,866 for the subject property results in a value range from approximately $24,300,000 to $24,900,000. The indices of investment our value ranges generate are as follows: Unit Rate Per Square Foot Rentable Area: 301,138 square feet Price Per S.F. of Rentable Area: $80 to $85 Indicated Value Range: $24,100,000 to $25,600,000 Overall Rate Analysis As Stabilized Net Operating Income (FY 1998): $2,550,866 Overall Rate Range: 10.25% to 10.50% Indicated Value Range: $24,300,000 to $24,900,000 Conclusion - As Completed and Stabilized With consideration to all of the above, it becomes our opinion that the Sales Comparison Approach would indicate a prospective market value As Completed and Stabilized as of June 1, 1997 ranging from TWENTY FOUR MILLION DOLLARS ($24,000,000) TO TWENTY FIVE MILLION DOLLARS ($25,000,000). The indices of investment generated by these value conclusions are as follows: Indicated Value Range: $24,000,000 - $25,000,000 Indicated Value Per Square Foot: $79.70 - $83.02 Overall Rate: 10.20% - 10.60% ================================================================================ -41- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ ====================== Analysis - As Is ====================== To achieve stabilization, ownership will incur leasing commission costs for Wal - Mart ($1.50 per square foot ), Giant Food ($2.00 per square foot of building area), plus leasing commissions ($2.50 per square foot) and tenant alterations costs ($25.00 per square foot) for the 15,412 square foot vacant space. We estimate the total construction and leasing costs to reach stabilization at approximately $800,000. In addition to the basic construction and leasing costs, a further adjustment would be necessary to recognize the entrepreneurial effort necessary to bring the property to stabilization. In the subsequent Income Capitalization Approach, we project a stabilized yield on invested capital of approximately 11.00 percent for the subject property. Similarly, we project a 12.00 percent yield on an As Is basis, thereby giving the current purchaser a premium for accepting the risks of bringing the subject property to stabilization. At a 11.00 percent yield, the present worth of the property cash flows from the subject property is equal to $24,500,000 at 12.00 percent, these compute to $23,000,000. The difference between these, $1,500,000, is indicative of the economically necessary provision for the purchaser's entrepreneurial profit to acquire an incomplete project like the subject and to bring it to stabilization Deducting the $800,000 base cost plus the $1,500,000 million allowance for entrepreneurial profit renders a total adjustment of $2,300,000. Deducting this from our estimated range of values As Stabilized, renders an adjusted value range As Is as of April 16, 1997 of between $21,700,000 and $22,700,000. The investment parameters generated by this value conclusion are as follows: Indicated Value Range: $21,700,000 - $22,700,000 Indicated Value Per Square Foot: $72.06 - $75.38 ================================================================================ -42- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> LIBERTY PLAZA - AS IS ANNUAL CASH FLOW REPORT BEGINNING 5/1/97 FOR 12 YEARS <TABLE> <CAPTION> FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 INCOME - ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> MINIMUM RENT: ALL TENANTS 2,009,629 2,967,668 2,961,629 2,972,160 3,026,345 3,026,345 3,071,757 2,921,713 --------- --------- --------- --------- --------- --------- --------- --------- TOTAL MINIMUM RENT 2,009,629 2,967,668 2,961,629 2,972,160 3,026,345 3,026,345 3,071,757 2,921,713 RECOVERIES: TAX RECOVERIES 300,409 404,684 404,063 403,441 404,684 404,684 404,684 386,761 INSURANCE RECOVER 24,095 33,485 34,604 35,762 37,126 38,426 39,770 39,297 CAM RECOVERIES 162,395 224,752 232,228 239,982 249,185 257,908 266,934 264,156 --------- --------- --------- --------- --------- --------- --------- --------- TOTAL RECOVERIES 486,899 662,921 670,895 679,185 690,995 701,018 711,388 690,214 OVERAGE RENT 0 0 0 0 0 0 0 6 SALES VOLUME (000) 10,471 47,012 48,657 50,360 52,123 53,947 55,835 57,789 --------- --------- --------- --------- --------- --------- --------- --------- GROSS RENTAL INCOME 2,496,528 3,630,589 3,632,524 3,651,345 3,717,340 3,727,363 3,783,145 3,611,933 CREDIT LOSS (199,722) (290,447) (290,602) (292,107) (297,387) (298,189) (302,652) (288,955) MELLON PAD 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 --------- --------- --------- --------- --------- --------- --------- --------- TOTAL INCOME 2,314,806 3,358,142 3,359,922 3,377,238 3,437,953 3,447,174 3,498,493 3,340,978 EXPENSES - -------- PROPERTY TAXES 404,685 404,685 404,685 404,685 404,685 404,685 404,685 404,685 INSURANCE 32,353 33,485 34,657 35,870 37,126 38,425 39,770 41,162 COMMON AREA MAIN 210,270 217,629 225,246 233,130 241,290 249,735 258,475 267,522 MISCELLANEOUS 31,531 32,635 33,777 34,959 36,183 37,449 38,760 40,117 MANAGEMENT FEE 80,385 118,707 118,465 118,886 121,054 121,054 122,870 116,869 --------- --------- --------- --------- --------- --------- --------- --------- TOTAL EXPENSES 759,224 807,141 816,830 827,530 840,338 851,348 864,560 870,355 --------- --------- --------- --------- --------- --------- --------- --------- NET OPERATING INCOME 1,555,582 2,551,001 2,543,092 2,549,708 2,597,615 2,595,826 2,633,933 2,470,623 ALTERATIONS 0 385,300 0 9,235 0 0 0 0 COMMISSIONS 223,857 150,124 0 5,831 0 0 0 0 CAPITAL RESERVES 80,647 83,469 86,391 89,414 92,544 95,783 99,135 102,605 --------- --------- --------- --------- --------- --------- --------- --------- CASH FLOW 1,251,078 1,932,108 2,456,701 2,445,228 2,505,071 2,500,043 2,534,798 2,368,018 </TABLE> FY2006 FY2007 FY2008 FY2009 INCOME - ------ MINIMUM RENT: ALL TENANTS 3,231,359 3,319,859 3,319,859 3,365,271 --------- --------- --------- --------- TOTAL MINIMUM RENT 3,231,359 3,319,859 3,319,859 3,365,271 RECOVERIES: TAX RECOVERIES 402,B19 404,684 404,684 404,684 INSURANCE RECOVER 42,407 44,094 45,638 47,235 CAM RECOVERIES 289,464 301,031 311,567 322,473 --------- --------- --------- --------- TOTAL RECOVERIES 734,690 749,809 761,889 774,392 OVERAGE RENT 10,041 20,427 31,177 42,302 SALES VOLUME (000) 59,812 61,906 64,072 66,315 --------- --------- --------- --------- GROSS RENTAL INCOME 3,976,090 4,090,095 4,112,925 4,181,965 CREDIT LOSS (318,087) (327,207) (329,034) (334,557) MELLON PAD 18,000 18,000 18,000 18,000 --------- --------- --------- --------- TOTAL INCOME 3,676,003 3,780,888 3,801,891 3,865,408 EXPENSES - -------- PROPERTY TAXES 404,685 404,685 404,685 404,685 INSURANCE 42,603 44,094 45,637 47,235 COMMON AREA MAIN 276,885 286,576 296,606 306,988 MISCELLANEOUS 41,521 42,974 44,478 46,035 MANAGEMENT FEE 129,656 133,611 134,041 136,303 --------- --------- --------- --------- TOTAL EXPENSES 895,350 911,940 925,447 941,246 --------- --------- --------- --------- NET OPERATING INCOME 2,780,653 2,868,948 2,876,444 2,924,162 ALTERATIONS 116,344 0 0 0 COMMISSIONS 45,843 0 0 0 CAPITAL RESERVES 106,196 109,913 113,760 117,742 --------- --------- --------- --------- CASH FLOW 2,512,270 2,759,035 2,762,684 2,806,420 <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ Methodology The Income Capitalization Approach produces an indication of value through an economic analysis of the subject property in which the net income generated by the real estate is capitalized at an appropriate rate. The economic principle of anticipation, the underlying rationale of this approach, holds that the price which a prudent purchaser will pay for a property is dependent upon the expected future income derived from that property. Here, value is based on market participants' current perceptions of the future benefits of acquiring the asset. In the Income Capitalization Approach, we employ the following steps to reach an estimate of market value for the subject: 1. estimate the revenues which a fully informed investor can reasonably expect the subject to produce over a specified time period; 2. estimate the typical expenses incurred in generating that revenue; 3. deduct those expenses from the annual revenues with additional allowances for vacancy and credit loss, the cost of expected tenant improvements, leasing commissions and reserves for the replacement of short-lived capital components. 4. estimate the proceeds from the resale of the property at the end of the investment holding period. 5. discount all residual cash flows into a capital sum which is indicative of the subject property's current market value. On the opposing page is a presentation of the cash flows which an informed investor can annually expect from the subject property over the next eleven years. This period is considered to be a sufficient time for an investor to benefit from an investment in the subject property as well as sufficient time to allow the property to return to stabilized operations after the projected leases to Wal-Mart and Giant Food. A complete discussion of the figures utilized in this analysis follows as does an explanation of the process of discounting these cash flows and a current investor's expected reversionary interest in the subject property to a present capital sum. These cash flows incorporate the following general assumptions: (1) The commencement date of the investment holding period is May 1, 1997 and continues on a fiscal basis for a period of 11 years until April 30, 2008. (2) All existing leases at the subject property are in full force and effect at the commencement of the investment holding period. (3) Market rental rates are projected to increase a 3.5 percent per year through the holding period. ================================================================================ -43- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> =================================================================================================================== Liberty Plaza Liberty Bell Boulevard at Franklin Mills Boulevard Philadelphia, Pennsylvania Rent Roll - ------------------------------------------------------------------------------------------------------------------ Tenant Leased Area Term Rental Rate Overage Rent Improvement Allowance - ------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> Dick's Sporting Goods 77,586 S.F. 4/96 - $10.50/S.F. (Yrs. 1-5) 3% over $20.45/S.F. 15 Yrs. $11.00/S.F. (Yrs. 6-10) $17,606,250 $11.75/S.F. (Yrs. 11-15) - ------------------------------------------------------------------------------------------------------------------ Service Merchandise 53,349 S.F. 4/94 - $11.25/S.F. None $25.54/S.F. 10.5 Yrs. - ------------------------------------------------------------------------------------------------------------------ Boot Village 5,553 S.F. 4/90 - $13.05/S.F. None None 10 Yrs. - ------------------------------------------------------------------------------------------------------------------ Mellon Bank Pad 7/94- $18,000/Yr. None None 12/98 - ------------------------------------------------------------------------------------------------------------------ Wal-Mart 149,238 S.F. 10/97 (Est) - $6.00/S.F. 1/2 of 1% of sales None (Proposed) 20 Yrs. over the 7th Yr. with a cap of $1.00/S.F. - ------------------------------------------------------------------------------------------------------------------ Giant Food Pad 5/98 (Est.) - $400,000 (Yrs. 1-5) None None (Proposed) 25 Yrs. $430,000 (Yrs. 6-10) $460,000 (Yrs. 11-15) $490,000 (Yrs. 16-20) $520,000 (Yrs. 21-25) =================================================================================================================== </TABLE> <PAGE> Income Capitalization Approach ================================================================================ (4) With the exception of taxes and management fees, expenses are projected to increase at 3.50 percent per annum over the investment holding period. The management expense is based upon a percentage of income. Real estate taxes are projected to grow at a rate of two percent per year over the holding period. (5) The investment will be liquidated based upon what would be the eleventh year's net operating income capitalized at an overall rate of 10.50 percent less transaction costs equal to 3 percent of the projected reversionary sale price. Potential Gross Revenues The total potential gross revenues generated by a property like the subject are composed of two distinct elements; a minimum base rent determined by lease agreement and a reimbursement of certain expenses incurred in the ownership and operation of the real estate. The minimum base rent represents a legal contract establishing a return to the investors in the real estate. The reimbursement of certain expenses serves to maintain this return in an era of continually rising costs of operation. In the initial year of investment (FY 1998), it is projected that the subject property will generate $2,514,528 in potential gross revenue. This estimate of gross revenues is equal to $8.38 per square foot of rentable area (301,138 square feet). Of this total, $6.67 per square foot is attributable to base rental income. Base Rental Income The base rental income which an asset such as the subject property will generate for an investor is analyzed as to its quality, quantity and durability. The quality and probable duration of income will affect the amount of risk which an informed investor may expect over the property's useful life. The element if risk is reflected in the application of a final capitalization rate. The quantity of income which an informed investor is warranted in assuming the subject property will produce reflects a review of the existing rent roll in conjunction with the rent currently being paid for comparable space and services. The current rent roll is exhibited on the opposing page. The subject property contains several tenant categories based upon size and location. They may be summarized as follows: ============================================================ Tenant Category Size ------------------------------------------------------------ Former Bradlees 149,238 S.F. ------------------------------------------------------------ Large Anchor 70,000 + S.F. ------------------------------------------------------------ Small Anchor 50,000 + S.F. ------------------------------------------------------------ Large Tenant 15,000 - 50,000 S.F. ------------------------------------------------------------ Small Tenant Less than 15,000 S.F. ============================================================ ================================================================================ -44- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> =================================================================================================================================== Liberty Plaza RENT COMPARABLES 15,001 - 50,000 S.F. Tenants 29-Apr-97 Philadelphia, PA All Effective Rents discounted at 10.50% - ----------------------------------------------------------------------------------------------------------------------------------- Property Name - Tenant Name Commencement Lease NRA Address & Proximity to Subject ------------ ------------------ Contract Rent Building NRA/Age & Occupancy & Lease Term Condition of Space PSF/unit Lease ------------------ --------------- Concessions New/Expand/Renev CPI/Escalations $ Per S.F. ------------------ Add On Factor =================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> 1-5 Subject: ^n/a $12.00 F/R(mos 0 Market Terms 15.00 6-10 F/R: $ 0.00 Liberty Plaza Years 2nd Generation $13.00 M/A: $ 0.00 11-15 PKG: $ 0.00 301,138/1989 & 1994/45% $14.00 LBO: $ 0.00 16-20 Other: $ 0.00 $0.00 - ----------------------------------------------------------------------------------------------------------------------------------- 1-5 Comp.1: 1995 20,000 $14.50 F/R(mos 0 Old Navy 15.00 1st Generation 6-10 F/R: $ 0.00 East Gate Square Years New $17.00 M/A: $ 0.00 10 Miles from subject 11-15 PKG: $ 0.00 744,000 sf NRA/1993-1996/90% $20.00 LBO: $ 0.00 Other: $ 0.00 - ----------------------------------------------------------------------------------------------------------------------------------- 1-5 Comp.2: 1993 20,000 $13.00 AC Moore 15.00 1st Generation 6-10 F/R(mos 0 East Gate Square Years New $14.00 F/R: $ 0.00 10 Miles from subject 11-15 M/A: $ 0.00 744,000 sf NRA/1993-1996/90% $15.00 PKG: $ 0.00 LBO: $ 0.00 Other: $ 0.00 - ----------------------------------------------------------------------------------------------------------------------------------- 1-3 Comp.3: 1993 30,096 $12.00 Linens N Things 15.00 1st Generation 6-10 F/R(mos 0 East Gate Square Years $13.00 F/R: $ 0.00 10 Miles from subject 11-15 M/A: $ 0.00 744,000 sf NRA/1993-1996/90% $14.00 PKG: $ 0.00 LBO: $ 0.00 Other: $ 0.00 - ----------------------------------------------------------------------------------------------------------------------------------- 1-5 Comp.4: 1996 26,752 $16.00 PetsMart 15.00 6-10 F/R(mos 0 The Court at Oxford Valley Years $17.00 F/R: $ 0.00 5 Miles from Subject 11-15 M/A: $ 0.00 430,000 sf NRA/1996/100% $18.00 PKG: $ 0.00 16-20 LBO: $ 0.00 $0.00 Other: $ 0.00 - ----------------------------------------------------------------------------------------------------------------------------------- 1-5 Comp.5: 1996 26,752 $13.50 F/R(mos 0 PetsMart 15.50 1st Generation 6-10 F/R: $ 0.00 Brandywine Square Years New $14.85 M/A: $ 0.00 15 Miles from Subject 11-15 PKG: $ 0.00 579,000 sf NRA/1996/100% $16.34 LBO: $ 0.00 16-20 Other: $ 0.00 $ 0.00 =================================================================================================================================== <CAPTION> =================================================================================================================================== Liberty Plaza RENT COMPARABLES Less then 15,000 S.F. Tenants 29-Apr-97 Philadelphia, PA All Effective Rents discounted at 10.50% - ----------------------------------------------------------------------------------------------------------------------------------- Property Name - Tenant Name Effective Adj. Address & Proximity to Subject Workletter Effective Rent Effective Building NRA/Age & Occupancy $ Per S.F Rent Adjustments Rent Per S.F./Unit ============================================================================================================================ <S> <C> <C> <C> <C> <C> <C> <C> NPV 95.49 Subject: $25.00 $ 9.35 Quality/Age: 0% $ 9.35 Workletter (25.00) Market Terms Location: 0% Commission 0.00 Liberty Plaza Size/Credit: 0% Other 0.00 ------------------- 301,138/1989 & 1994/45% Amenities: 0% Adj NPV 70.49 ------------------- Lease Term: 0% G Eff Rent $ 9.35 Other: 0% Optg Exp n/a ----------------------- ------------------- Total Adj: 0% Net Eff Ren $ 9.35 - --------------------------------------------------------------------------------------------------------==================== NPV 122.56 Comp.1: $25.00 $12.94 Quality/Age: 5% $ 9.71 Workletter (25.00) Old Navy Location: 20% Commission 0.00 East Gate Square Size/Credit: 0% Other 0.00 ------------------- 10 Miles from subject Amenities: 0% Adj NPV 97.56 ------------------- 744,000 sf NRA/1993-1996/90% Lease Term: 0% G Eff Rent $12.94 Other: 0% Optg Exp n/a ----------------------- ------------------- Total Adj: 25% Net Eff Ren $12.94 - --------------------------------------------------------------------------------------------------------==================== Comp.2: NPV 103.03 AC Moore $5.00 $13.00 Quality/Age: 5% $ 9.75 Workletter (5.00) East Gate Square Location: 20% Commission 0.00 10 Miles from subject Size/Credit: 0% Other 0.00 ------------------- 744,000 sf NRA/1993-1996/90% Amenities: 0% Adj NPV 98.03 ------------------- Lease Term: 0% G Eff Rent $13.00 Other: 0% Optg Exp n/a ----------------------- ------------------- Total Adj: 25% Net Eff Ren $13.00 - --------------------------------------------------------------------------------------------------------==================== NPV 95.49 Comp.3: $5.00 $12.00 Quality/Age: 5% $ 9.00 Workletter (5.00) Linens N Things Location: 20% Commission 0.00 East Gate Square Size/Credit: 0% Other 0.00 ------------------- 10 Miles from subject Amenities: 0% Adj NPV 90.49 ------------------- 744,000 sf NRA/1993-1996/90% Lease Term: 0% G Eff Rent $12.00 Other: 0% Optg Exp n/a ----------------------- ------------------- Total Adj: 25% Net Eff Ren $12.00 - --------------------------------------------------------------------------------------------------------==================== Comp.4: NPV 125.64 PetsMart $25.00 $13.35 Quality/Age: 5% $10.01 Workletter (25.00) The Court at Oxford Valley Location: 20% Commission 0.00 5 Miles from Subject Size/Credit: 0% Other 0.00 430,000 sf NRA/1996/100% ------------------- Amenities: 0% Adj NPV 100.64 ------------------- Lease Term: 0% G Eff Rent $13.35 Other: 0% Optg Exp n/a ----------------------- ------------------- Total Adj: 25% Net Eff Ren $13.35 - --------------------------------------------------------------------------------------------------------==================== NPV 110.40 Comp.5: $25.00 $11.18 Quality/Age: 5% $ 8.94 Workletter (25.00) Petsmart Location: 0% Commission 0.00 Brandywine Square Size/Credit: 5% Other 0.00 ------------------- 15 Miles from Subject Amenities: 0% Adj NPV 85.40 ------------------- 579,000 sf NRA/1996/100% Lease Term: 0% G Eff Rent $11.18 Other: 10% Optg Exp n/a ------------------------ ------------------- Total Adj: 20% Net Eff Ren $11.18 ============================================================================================================================ </TABLE> <PAGE> Income Capitalization Approach ================================================================================ Listed below is a summary of the two existing anchor tenants as well as the proposed lease to Wal-Mart. ================================================================================ Liberty Plaza Recent Lease Transactions - -------------------------------------------------------------------------------- Tenant Term Leased Rent/S.F. Area - -------------------------------------------------------------------------------- Wal-Mart 10/97 (Est) - 149,238 S.F. $6.00 20 Yrs. - -------------------------------------------------------------------------------- Dick's Sporting Goods 4/96 - 77,586 S.F. $10.50 (Yrs. 1-5) 15 Yrs. $11.00 (Yrs. 6-10) $11.75 (Yrs. 11-15) - -------------------------------------------------------------------------------- Service Merchandise 4/94 - 53,349 S.F. $11.25 10.5 Yrs. ================================================================================ The $6.00 per square foot rent to Wal-Mart is justified by the size of the leased area, the creditworthiness of the tenant and the lack of tenant improvement costs. The effective rate for the Dick's Sporting Goods lease is $10.88 per square foot over its fifteen year term, while the Service Merchandise is fixed at $11.25 per square foot for its 10.5 year term. Due to its larger size, we estimate that a $.50 per square foot differential would be justified between these two tenants. Based upon the recent lease transactions as well as comparable leases from our market survey, we estimate the market rental rate for the anchor space to be as follows: ================================================================================ Market Rental Estimate Anchor Tenants ================================================================================ Tenant Term Rental Rate Increases - -------------------------------------------------------------------------------- Wal-Mart 20 Years $6.00/S.F. None - -------------------------------------------------------------------------------- Dick's Sporting Goods 15 Years $10.50/S.F. $.50/S.F Every 5 Yrs. - -------------------------------------------------------------------------------- Service Merchandise 15 Years $11.00/S.F. $.50/S.F Every 5 Yrs. ================================================================================ Currently vacant at the subject is a 15,412 square foot space which has never been leased. On the opposing page is a summary of recent lease transactions in Philadelphia area power centers of similar size. After adjustment for term, tenant improvement allowance, quality/ age and location, the adjusted effective rent ranges between $8.94 and $10.01 per square foot. Based upon this analysis, the estimate of market rental rate for the large tenant space of 15,412 square feet of $12.00 per square foot with a $25.00 per square foot workletter and a $1.00 per square foot increase every five years appears reasonable and market oriented. Finally, the subject contains a 5,553 square foot space which is leased to Boot Village until the year 2000 at a rental rate of $13.05 per square foot. This lease transaction commenced in 1990. On the following opposing page is a summary of lease transactions in Power Centers which we have used to compare to this tenant category. After adjustment for quality/age, location and size, the comparable lease transactions range between $14.40 and $15.40 per square foot. Based upon this analysis, it becomes our opinion that the market rent for the small tenant space is $15.00 per square foot for a five year term with no tenant improvement costs. ================================================================================ -45- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> =================================================================================================================================== Liberty Plaza RENT COMPARABLES Less then 15,000 S.F. Tenants 29-Apr-97 Philadelphia, PA All Effective Rents discounted at 10.50% - ----------------------------------------------------------------------------------------------------------------------------------- Property Name - Tenant Name Commencement Lease NRA Address & Proximity to Subject ------------ ------------------ Contract Rent Building NRA/Age & Occupancy & Lease Term Condition of Space PSF/unit Lease ------------------ --------------- Concessions 301,138/1989 & 1994/45% New/Expand/Renev CPI/Escalations $ Per S.F. ------------------ Add On Factor =================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> 1-5 Subject: ^n/a $15.00 F/R(mos 0 Market Terms 5.00 6-10 F/R: $ 0.00 Liberty Plaza Years 2nd Generation $0.00 M/A: $ 0.00 11-15 PKG: $ 0.00 $0.00 LBO: $ 0.00 16-20 Other: $ 0.00 $0.00 - ----------------------------------------------------------------------------------------------------------------------------------- 1-5 Comp.1: 1994 5,100 $20.00 F/R(mos 0 Blockbuster Video 5.00 1st Generation 6-10 F/R: $ 0.00 East Gate Square Years New $0.00 M/A: $ 0.00 10 Miles from subject 11-15 PKG: $ 0.00 744,000 sf NRA/1993-1996/90% $0.00 LBO: $ 0.00 Other: $ 0.00 - ----------------------------------------------------------------------------------------------------------------------------------- 1-5 Comp.2: 1994 2,628 $22.00 Household Finance 5.00 1st Generation 6-10 F/R(mos 0 East Gate Square Years New $0.00 F/R: $ 0.00 10 Miles from subject 11-15 M/A: $ 0.00 744,000 sf NRA/1993-1996/90% $0.00 PKG: $ 0.00 LBO: $ 0.00 Other: $ 0.00 - ----------------------------------------------------------------------------------------------------------------------------------- 1-3 Comp.3: 1994 1,700 $21.67 Funco 3.00 1st Generation 6-10 F/R(mos 0 East Gate Square Years $0.00 F/R: $ 0.00 10 Miles from subject 11-15 M/A: $ 0.00 744,000 sf NRA/1993-1996/90% $0.00 PKG: $ 0.00 LBO: $ 0.00 Other: $ 0.00 - ----------------------------------------------------------------------------------------------------------------------------------- 1-5 Comp.4: 1996 1,469 $16.00 Sears Optical 5.00 1st Generation 6-10 F/R(mos 0 Brandywine Square Years $0.00 F/R: $ 0.00 15 Miles from Subject 11-15 M/A: $ 0.00 579,000 sf NRA/1996/95% $0.00 PKG: $ 0.00 16-20 LBO: $ 0.00 $0.00 Other: $ 0.00 - ----------------------------------------------------------------------------------------------------------------------------------- 1-5 Comp.5: 1996 1,200 $16.00 F/R(mos 0 GNC 5.00 1st Generation 6-10 F/R: $ 0.00 Brandywine Square Years New $0.00 M/A: $ 0.00 15 Miles from Subject 11-15 PKG: $ 0.00 579,000 sf NRA/1996/100% $0.00 LBO: $ 0.00 16-20 Other: $ 0.00 =================================================================================================================================== $0.00 - ----------------------------------------------------------------------------------------------------------------------------------- <CAPTION> =================================================================================================================================== Liberty Plaza RENT COMPARABLES Less then 15,000 S.F. Tenants 29-Apr-97 Philadelphia, PA All Effective Rents discounted at 10.50% - ----------------------------------------------------------------------------------------------------------------------------------- Property Name - Tenant Name Effective Adj. Address & Proximity to Subject Workletter Effective Rent Effective Building NRA/Age & Occupancy $ Per S.F Rent Adjustments Rent Per S.F./Unit ============================================================================================================================ <S> <C> <C> <C> <C> <C> <C> <C> NPV 58.16 Subject: $0.00 $15.00 Quality/Age: 0% $15.00 Workletter 0.00 Market Terms Location: 0% Commission 0.00 Liberty Plaza Size/Credit: 0% Other 0.00 Amenities: 0% Adj NPV 58.16 301,138/1989 & 1994/45% Lease Term: 0% G Eff Rent $15.00 Other: 0% Optg Exp n/a ----------------------- ------------------- Total Adj: 0% Net Eff Ren $15.00 - --------------------------------------------------------------------------------------------------------==================== NPV 77.54 Comp.1: $0.00 $20.00 Quality/Age: 5% $15.00 Workletter 0.00 Blockbuster Video Location: 20% Commission 0.00 East Gate Square Size/Credit: 0% Other 0.00 10 Miles from subject Amenities: 0% Adj NPV 77.54 744,000 sf NRA/1993-1996/90% Lease Term: 0% G Eff Rent $20.00 Other: 0% Optg Exp n/a ----------------------- ------------------- Total Adj: 25% Net Eff Ren $20.00 - --------------------------------------------------------------------------------------------------------==================== Comp.2: NPV 85.30 Household Finance $0.00 $22.00 Quality/Age: 5% $15.40 Workletter 0.00 East Gate Square Location: 20% Commission 0.00 10 Miles from subject Size/Credit: 5% Other 0.00 744,000 sf NRA/1993-1996/90% Amenities: 0% Adj NPV 85.30 Lease Term: 0% G Eff Rent $22.00 Other: 0% Optg Exp n/a ----------------------- ------------------- Total Adj: 30% Net Eff Ren $22.00 - --------------------------------------------------------------------------------------------------------==================== NPV 55.56 Comp.3: $0.00 $21.67 Quality/Age: 5% $15.17 Workletter 0.00 Funco Location: 20% Commission 0.00 East Gate Square Size/Credit: 5% Other 0.00 10 Miles from subject Amenities: 0% Adj NPV 55.56 744,000 sf NRA/1993-1996/90% Lease Term: 0% G Eff Rent $21.67 Other: 0% Optg Exp n/a ----------------------- ------------------- Total Adj: 30% Net Eff Ren $21.67 - --------------------------------------------------------------------------------------------------------==================== Comp.4: NPV 62.03 Sears Optical $0.00 $16.00 Quality/Age: 5% $14.40 Workletter 0.00 Brandywine Square Location: 0% Commission 0.00 15 Miles from Subject Size/Credit: 5% Other 0.00 579,000 sf NRA/1996/95% Amenities: 0% Adj NPV 62.03 Lease Term: 0% G Eff Rent $16.00 Other: 0% Optg Exp n/a ----------------------- ------------------- Total Adj: 10% Net Eff Ren $16.00 - --------------------------------------------------------------------------------------------------------==================== NPV 62.03 Comp.5: $0.00 $16.00 Quality/Age: 5% $14.40 Workletter 0.00 GNC Location: 0% Commission 0.00 Brandywine Square Size/Credit: 5% Other 0.00 15 Miles from Subject Amenities: 0% Adj NPV 62.03 579,000 sf NRA/1996/100% Lease Term: 0% G Eff Rent $16.00 Other: 0% Optg Exp n/a ============================================================================================================================ Total Adj: 10% Net Eff Ren $16.00 - -------------------------------------------------------------------------------------------------------- </TABLE> <PAGE> Income Capitalization Approach ================================================================================ ================================================================================ Liberty Plaza Market Rent Assumptions ================================================================================ Tenant Market Rent/S.F. Term Increases ================================================================================ Wal-Mart $6.00 20 Years None - -------------------------------------------------------------------------------- Dick's Sporting Goods $10.50 15 Years $.50/s.f every 5 Yrs. - -------------------------------------------------------------------------------- Service Merchandise $11.00 15 Years $.50/s.f every 5 Yrs. - -------------------------------------------------------------------------------- Woodhaven Sports $6.00 15 Years $1.00/s.f. every five years - -------------------------------------------------------------------------------- 15,000 + S.F. $12.00 15 Years $1.00/s.f. every five years - -------------------------------------------------------------------------------- Less than 15,000 S.F. $15.00 5 Years None ================================================================================ Income Growth Rates Market rent will, over the life of a prescribed holding period, quite obviously follow an erratic pattern. A review of investor's expectations regarding income and expense growth shows that projections range between 2% and 4% for retail centers. Cushman and Wakefield's Autumn 1996 survey of pension funds, REITs, banks, insurance companies and institutional investors reveals that current income forecasts are utilizing average annual growth rates of between 3.3% and 3.5%. The Peter J. Korpacz Investor Survey shows similar results. For the Fourth Quarter 1996, they report average annual rent growth of 3.04 percent. After considering the above, we have utilized a rent growth rate of 3.50 percent which is in line with current investor surveys. Overage Rent In addition to the minimum base rent, it is expected that some of the tenants at the subject property will contract to pay a percentage of their gross annual sales as overage rent. Typical lease terms provide for overage rent ranging from 1% to 6% over a natural breakpoint. In certain instances, the lease provides for a specified breakpoint sales level. Traditionally, it takes a number of years for a retail center to mature and gain acceptance before generating any sizable percentage income. As a center matures, the level of overage rents increases and can become a major ingredient protecting the equity investor against inflation. With the exception of the Wal-Mart lease, we have not forecasted any overage rent from tenants in the center due to the speculative nature of such a projection. It is virtually impossible to project sales in a new center with any objectivity. Nonetheless, it is likely that this location could generate overage rent over its economic life. The Wal-Mart lease calls for percentage rent of 1/2 of 1 percent of sales over those in the seventh year with a cap of $1.00 per square foot. Wal-Mart discount stores range in size from 30,000-150,000 square feet, with an average store size of about 91,100 square feet. Stores are organized with 36 departments and offer a wide variety of merchandise, about 27.0% of which are soft goods, and 26.0% of which are hardware, housewares, auto supplies, and small appliances. The following chart presents a summary of Wal-Mart operations: ================================================================================ -46- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ ================================================================================ Wal-Mart Division (Domestic) ================================================================================ Division FY 1992 FY 1993 FY 1994 FY 1995 FY 1996 ================================================================================ Net Sales (Mil) $31,342 $38,200 $44,900 $53,350 $54,911 - -------------------------------------------------------------------------------- No. Stores 1,714 1,848 1,950 1,985 1,995 - -------------------------------------------------------------------------------- Sales/Store (000) $18,286 $20,671 $23,026 $26,877 $27,524 - -------------------------------------------------------------------------------- Total Sq./Ft (000) 128,115 147,366 163,552 173,662 181,851 - -------------------------------------------------------------------------------- Avg. Store Size 74,750 79,740 83,870 87,490 91,150 - -------------------------------------------------------------------------------- Sales Per Sq./Ft $245 $259 $275 $307 $302 ================================================================================ In our analysis, we have projected retail sales for the projected Wal-Mart store at the subject at $302 per square foot in the initial year growing at 3.5 percent per year. In the eighth year, we project overage rent of $10,041 equivalent to $.07 per square feet of Wal-Mart's leasable area. Absorption In our analysis, we have projected that Wal-Mart will be occupying the former Bradlees space by October, 1997 and that Giant Food will have constructed and occupied their store by May, 1998. Remaining to be leased is a 15,412 square foot space between Dick's Sporting Goods and Service Merchandise. With the projected new occupancy by Wal-Mart, this should be an attractive space for a medium size retail tenant. In our analysis, we have allowed twelve months to locate, lease and build out this space for a new tenant. The following chart is a presentation of the absorption schedule which we have incorporated in our analysis. We believe this schedule reflects the thinking of a knowledgeable and realistic investor in the current environment. ================================================================================ Liberty Plaza Absorption Schedule ================================================================================ Area Leased Term Rental Rate Rent Increases Expenses - -------------------------------------------------------------------------------- 149,238 S.F. 10/97 $6.00/S.F. Flat Net (Wal-Mart) 20 Yrs. - -------------------------------------------------------------------------------- 15,412 S.F. 5/98 $12.00/S.F. $1.00 per square foot Net +10% Admin. 15 Yrs. every 5 yrs.. - -------------------------------------------------------------------------------- Land Lease 5/98 $400,000/YR. $30,000 every 5 yrs. Net (Giant) 25 Yrs. ================================================================================ Reimbursements Consistent with market leasing practice for this type of real estate, the tenant in a property such as the subject will be responsible for their pro-rata share of certain expenses incurred annually in the operation and ownership of the investment over the holding period. These expenses include real estate taxes, insurance, and common area maintenance. Additionally, most tenants will be paying a 10% administrative surcharge on these expenses. A full discussion of both reimbursable and non-reimbursable expenses is found in subsequent paragraphs. It is our intent here only to describe the operation of this additional source of revenue. ================================================================================ -47- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ Miscellaneous Income Mellon Bank leases a pad site for $18,000 per year through 1998 with an option at the same rent through January, 2003. Mellon Bank operates a drive through bank at this location. In our analysis, we have assumed that this miscellaneous income source will remain fixed through the period of our analysis. Allowance for Vacancy and Credit Loss A deduction must be made from the total gross revenues due an investor in the subject property to account for the possibility of vacancy and/or non-collection of rent. In the Market Analysis section of this report, we noted that the overall vacancy for retail space in Philadelphia is currently approximately 8 percent. We have, therefore, deducted 8 percent from gross potential revenues as an allowance for the occasional non-payment of rent or expenses by a lessee. Additionally, our analysis has incorporated a lag vacancy allowance which provides for down time between the expiration of an existing lease and the commencement of a new lease. Upon the expiration of a lease, it is our best estimate that there is a 70 percent probability that the tenant will renew and a 30 percent probability that the tenant will vacate. Upon renewal, no down time is recognized. Should a tenant vacate, then it is our expectation that an average down time of nine months time would be reasonable. Therefore, the weighted average lag vacancy utilized between lease expirations in this report is three months. ================================================================================ Effective Gross Revenues Initial Year of Investment Fiscal 1998 ================================================================================ Source of Revenue Aggregate Sum Unit Rate Income Ratio - -------------------------------------------------------------------------------- Potential Gross Revenues $2,514,528 $8.35 100% - -------------------------------------------------------------------------------- Vacancy & Credit Loss $ 199,722 $ .66 8% - -------------------------------------------------------------------------------- Effective Gross Revenues $2,314,806 $7.69 92% ================================================================================ Expenses Total expenses incurred in the production of revenues from the subject property are segregated into two categories; operating and other, non-operating items. The operating items of expense include real estate taxes, insurance, common area maintenance, management fees and miscellaneous items. Other, non-operating expenses include leasing commissions, tenant improvement costs, and a reserve for the replacement of short-lived capital components. With the exception of management fees and miscellaneous items, all of the operating expenses of the subject are reimbursable from the various tenants. Conversely, all non-operating expenses of the real estate are not reimbursable by the tenants. ================================================================================ -48- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Liberty Plaza Operating Expenses <TABLE> <CAPTION> ================================================================================================================= Unit Rate Unit Rate Unit Rate Unit Rate Expense 1994 S.F. 1995 S.F. 1996 S.F. 1997 S.F. ================================================================================================================= <S> <C> <C> <C> <C> <C> <C> <C> <C> Salaries $4,988 $0.02 $10,349 $0.03 $16,260 $0.05 $20,721 $0.07 - ----------------------------------------------------------------------------------------------------------------- Taxes $67,832 $0.23 $402,998 $1.34 $402,968 $1.34 $403,144 $1.34 - ----------------------------------------------------------------------------------------------------------------- Maintenance $8,064 $0.03 $107,409 $0.36 $153,240 $0.51 $146,300 $0.49 - ----------------------------------------------------------------------------------------------------------------- Utilities $42,685 $0.14 $31,539 $0.10 $28,444 $0.09 $8,844 $0.03 - ----------------------------------------------------------------------------------------------------------------- Management Fees $35,494 $0.12 $84,626 $0.28 $111,756 $0.37 $71,633 $0.24 - ----------------------------------------------------------------------------------------------------------------- Insurance $19,250 $0.06 $117,245 $0.39 $115,287 $0.38 $31,980 $0.11 - ----------------------------------------------------------------------------------------------------------------- Miscellaneous $2,181 $0.01 $1,182 $0.00 $254,407 $0.84 $119,650 $0.40 - ----------------------------------------------------------------------------------------------------------------- Other $195,856 $0.65 - ----------------------------------------------------------------------------------------------------------------- Total Operating Expenses $180,494 $0.60 $951,204 $3.16 $1,082,362 $3.59 $802,272 $2.66 ================================================================================================================= </TABLE> <PAGE> Income Capitalization Approach ================================================================================ Expense Growth Rates Expense growth rates are generally forecasted to be more consistent with inflationary trends than necessarily with competitive market forces. Cushman and Wakefield's Autumn 1996 survey indicates that investors are utilizing expense growth rates between 3.4% and 3.7%. The Peter J. Korpacz Investor Survey indicates and average annual expense growth rate of 3.99%. With the exception of management and real estate taxes, we have projected that expenses will grow at 3.5% throughout the holding period. The management expense is based upon a percentage of income. The real estate tax rate in the City of Philadelphia has not changed since 1991. The City is under considerable pressure to avoid tax increases to deter companies from leaving Philadelphia for the suburbs. While there must be some growth in income for the City over time, it is expected to be less than the projected inflation growth rate. In this analysis, we project that real estate taxes will grow at a rate of two percent per year over the holding period. Operating Expenses The total annual operating expenses of the subject are projected from a review of the projected budget for the subject as well as those of similar properties with which we are familiar. On the opposing page is a summary of historical and budgeted expenses for the subject. We have analyzed each item of expense individually and attempted to project what the typical investor in a property like the subject would consider reasonable, based upon informed opinion, judgment, and experience. Listed below is a summary of expenses from Power Centers from our files. Following that is a summary and discussion of the typical operating expenses which an informed investor can expect to incur in the production of income from the subject property during the initial year of an investment holding period. ================================================================================ Power Centers Expense Comparables ================================================================================ Location/ Mt. Laurel, NJ Deptford, NJ Philadelphia, PA Pittsburgh, PA Size 241,316 S.F. 199,505 S.F. 298,242 S.F. 339,698 S.F. ================================================================================ Real Estate Taxes $2.30 $2.43/S.F $.81/S.F. $2.87/S.F. - -------------------------------------------------------------------------------- Insurance $.20 $.17/S.F. $.20/S.F. $.23/S.F. - -------------------------------------------------------------------------------- Common Area $.80 $.92/S.F. $1.57/S.F. $.70/S.F. - -------------------------------------------------------------------------------- Management $.75 $.30/S.F. $.42/S.F. $.22/S.F. - -------------------------------------------------------------------------------- Miscellaneous $.23/S.F. $.04/S.F. ================================================================================ Total $4.05 $3.82/S.F $3.23/S.F. $4.04/S.F. ================================================================================ ================================================================================ -49- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ ================================================================================ Subject Property Operating Expenses Initial Year of Investment Fiscal 1998 ================================================================================ Expense Item Aggregate Sum Unit Rate Expense Ratio - -------------------------------------------------------------------------------- Real Estate Taxes $404,685 $1.34 18% - -------------------------------------------------------------------------------- Insurance $ 32,353 $ .11 2% - -------------------------------------------------------------------------------- Common Area Maintenance $210,270 $ .70 9% - -------------------------------------------------------------------------------- Miscellaneous $ 31,531 $ .11 1% - -------------------------------------------------------------------------------- Management $ 80,385 $ .27 4% - -------------------------------------------------------------------------------- Total $759,224 $2.52 33% ================================================================================ Real Estate Taxes - A complete discussion of taxes is included elsewhere in this report. In the initial year of investment, (FY 1998), the real estate tax expense is estimated at $404,685 or $1.34 per square foot of rentable area. In this analysis, we project that real estate taxes will grow at a rate of two percent per year over the holding period. Insurance - The cost of liability and hazard insurance in the initial fiscal year of the holding period is projected to be $32,353 or $.11 per square foot of total rentable area. This expense is based upon management estimates and appears reasonable based upon the subject's age, size, design and condition. Insurance is projected to grow at 3.50 percent per year through the holding period. Common Area Maintenance- This expense category includes the annual cost of miscellaneous building and service equipment repairs and common area maintenance, as well as common area janitorial, utilities, lawn care and snow removal. Our analysis has projected this expense at $210,270 or $.70 per square foot. This expense is based upon management estimates and expense comparables and is projected to escalate at an average annual rate of 3.50 percent over the holding period. Management - The current management contract is based upon 4.0 percent of minimum rent, percentage rent and miscellaneous income. This amount includes collections, supervision and the preparation of all budgets. In the initial fiscal year, this amount is forecasted to be $80,385 or approximately $.27 per square foot of total rentable area. Miscellaneous - We have projected a total of $31,531 or $.11 per square foot of rentable area as an allowance for sundry expenses which invariably occur in the operation of a property such as the subject. This expense item is projected to grow at 3.5% per year. Other Non-Operating Expenses The total annual non-operating expenses of the subject property are projected from prevailing commissions schedules, construction costs and accepted practices. Again, we have analyzed each item of capital expenditure in an attempt to project what the typical investor in a property like the subject would consider reasonable, based upon informed opinion and experience. The following is a summary of expected non-operating expenses incurred in the production of income from the subject property during the initial year of investment. ================================================================================ -50- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ Tenant Alterations - One tenant area encompassing 15,412 square feet has never been leased. Based upon our analysis of typical market terms for this size tenant, we have allocated a tenet improvement allowance of $25 per square foot for initial fitout of this space. Historically, retail tenants were provided with a basic shell and were responsible for their own interior finish. However, in response to increased competition in the marketplace, owners have been making a contribution towards refurbishing a tenant space at the expiration of a lease. In this analysis, we have estimated a current cost of $5.00 per square foot, growing at 3.50 percent per year, as ownership's cost for refurbishing space for new tenants. Per market practice, there would be no ownership contribution towards renovations for a tenant which renews their lease. Upon the expiration of an existing lease, it is our best estimate that there is a 70 percent probability that a tenant will renew and a 30 percent probability that a tenant will vacate. Leasing Commissions - The standard leasing commission for new tenants is $2.50 per square foot for tenants in excess of 10,000 square feet and $3.50 per square foot for tenants of less than 10,000 square feet. Per market practice, no leasing commission is payable for rollover tenants. Upon the expiration of a lease, it is our best estimate that there is a 70% probability that the tenant will renew and a 30% probability that they will vacate. The weighted average of speculative renewal tenants is $1.20 per square foot. Reserves for Replacement - It is customary and prudent to set aside an amount annually to establish a reserve for replacing short-lived items throughout the property including the roof, parking lot and mechanical items. In the initial year of the investment, we have projected a reserve fund of $80,647 or $.27 per square foot of rentable area. This expense is projected to increase at an average annual rate of 3.50 percent over the life of the investment. Net Income Total expenses are deducted from effective gross revenues for an indication of the stabilized net operating income which an informed investor can reasonably assume the subject property to generate on a net basis. Our analysis indicates a net operating income of $1,555,582 or $5.17 per square foot of rentable area Property cash flow, or net income less non-operating expenses, is estimated at $1,251,078 or $4.16 per square foot of rentable area. ================================================================================ Investment Summary Initial Year of Investment Fiscal 1998 ================================================================================ Source of Revenue Aggregate Sum Unit Rate Operating Ratios - -------------------------------------------------------------------------------- Effective Gross Revenues $2,314,806 $ 7.69 100% - -------------------------------------------------------------------------------- Operating Expenses $ 759,224 $ 2.52 33% - -------------------------------------------------------------------------------- Net Income $1,555,582 $ 5.17 67% - -------------------------------------------------------------------------------- Non-operating Expenses $ 304,504 $ 1.01 13% - -------------------------------------------------------------------------------- Property Cash Flow $1,251,078 $ 4.16 54% ================================================================================ ================================================================================ -51- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ Reversionary Sale The residual cash flows annually generated by the subject property comprise only the first part of the return which an investor will receive. The second component of this investment return is the pre-tax cash proceeds from the resale of the property at the end of a projected investment holding period. The Cushman and Wakefield Autumn, 1996 Investor Survey indicates that in their analysis of Power Centers, investors are currently utilizing terminal capitalization rates which range from approximately 9.50 percent to 11.00 percent in calculating the future disposition of a Power Centers with an average of 9.90 percent. The Fourth Quarter, 1996 Korpacz Real Estate Investor Survey indicates an average terminal capitalization rate for power centers of 9.88 percent. In this analysis, it is our projection that the subject property would most likely be sold at the end of the 10th year of the holding period for an amount equal to what would be the next year's net operating income capitalized at an overall rate of 10.5 percent. An overall capitalization rate is the direct relationship between the net income produced by the real estate and its price or value in the marketplace. A 10.5 percent terminal capitalization rate is utilized in this analysis as it reflects the range of currently prevailing terminal overall rates for this type of quality real estate. The 12th year's (FY 2009) computed net operating income is employed at this point as it would be the first received by a new purchaser of the subject property. In this analysis, then, a current investor would dispose of the subject property at the end of the projected holding period for an amount equal to $27,849,162 or $92.48 per square foot of rentable building area. Transaction Costs In real estate transactions in the City of Philadelphia, a 4 percent transfer fee is charged, which typically is split between the buyer and the seller. From the projected $27,849,162 reversion to an investor in the subject property, we have deducted a total of $835,548 to account for the various transaction costs associated with the sale of an asset of this type. These costs consist of 3 percent of the total disposition price of the subject property as an allowance for transfer taxes, professional fees, and other miscellaneous expenses that the seller pays at final closing. Deducting these transaction costs from the computed reversion renders pre-tax net proceeds of sale equal to $27,013,614 received by an investor in the subject property at the end of the holding period. ================================================================================ Property Reversion Final Year of Investment Fiscal Year 2007 ================================================================================ Source of Revenue Aggregate Sum Unit Rate Ratio - -------------------------------------------------------------------------------- Gross Property Reversion $27,849,162 $92.48 100% - -------------------------------------------------------------------------------- Transaction Costs $ 835,548 $ 2.78 3% - -------------------------------------------------------------------------------- Property Cash Flow $27,013,614 $89.71 97% ================================================================================ Discount Rate In our valuation, we endeavor to reflect the most likely actions of the typical buyers and sellers in the market. We forecast cash flows plus a future net property reversion and discount them to a present value at various rates of return (yield rates) currently required by investors for similar quality real property. The yield rate (internal rate of return or IRR) is the single interest rate that equates all future benefits (cash flow and reversion) to a present sum. ================================================================================ -52- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ Yield rates on long term real estate investments range widely between property types. As cited in Cushman & Wakefield's Autumn 1996 survey, investors in Power Centers are currently looking at broad rates of return between 10.50 and 15.00 percent. The indicated low and high means are 11.50 and 11.70 percent, respectively. Peter F. Korpacz reports a range of discount rates between 9.00 and 12.50 percent, with an average of 11.25 percent. The investment parameters cited are for newly constructed Class A centers which are at stabilized operations. Cushman and Wakefield has also surveyed investors for properties that would be classified as Value Added. A Value Added property is one which is not at stabilization and would require entrepreneurial effort and capital expenditures to market, lease and retrofit a significant amount of vacant space. For Value Added properties, investors are seeking internal rates of return between 11 and 15 percent with an average of 12.33 percent. The subject property will require leasing efforts and capital expense to lease the 15,412 square foot of remaining vacant space. Considering the financial characteristics, locational attributes and physical traits of the subject property, we believe a discount rate ranging from 11.5 to 12.5 percent would be appropriate for the subject property in light of the investment criteria presented here. Thus, we have discounted the projected future pre-tax cash flows to be received by an investor in the subject property to a present value so as to yield between 11.5 percent to 12.5 percent on capital at 25 basis point intervals over the holding period. This discounting process is summarized as follows: ================================================================================ Investment Summary ================================================================================ Discount Rate Present Worth Unit Rate ================================================================================ 11.50% $21,762,000 $72.27 - -------------------------------------------------------------------------------- 11.75% $21,383,000 $71.01 - -------------------------------------------------------------------------------- 12.00% $21,013,000 $69.80 - -------------------------------------------------------------------------------- 12.25% $20,651,000 $68.58 - -------------------------------------------------------------------------------- 12.50% $20,298,000 $67.40 ================================================================================ Through such a sensitivity analysis, it can be seen that the present value of the subject property varies from approximately $20,300,000 to $21,750,000. It is projected that Wal-Mart will be occupying the former Bradlees space within six months with no tenant alterations costs to management. Further, it is projected that Giant Food will be constructing a supermarket on a pad lease within the next year. All things considered, we believe a discount rate which falls near the middle of the range to be appropriate for the subject property Conclusion As Is In view of the analysis presented here, it becomes our opinion that the Income Capitalization Approach indicates a market value of TWENTY ONE MILLION DOLLARS ($21,000,000) for the subject property As Is as of April 16, 1997. The indices of investment generated through this indication of value are as follows: ================================================================================ -53- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> LIBERTY PLAZA - AS STABILIZED ANNUAL CASH FLOW REPORT BEGINNING 6/1/98 FOR 11 YEARS <TABLE> <CAPTION> FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 INCOME - ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> MINIMUM RENT: ALL TENANTS 2,967,668 2,955,590 2,983,089 3,026,345 3,030,129 3,071,757 2,936,095 3,237,652 --------- --------- --------- --------- --------- --------- --------- --------- TOTAL MINIMUM RENT 2,967,668 2,955,590 2,983,089 3,026,345 3,030,129 3,071,757 2,936,095 3,237,652 RECOVERIES: TAX RECOVERIES 404,684 403,441 404,063 404,684 404,684 404,684 386,761 402,819 INSURANCE RECOVER 33,582 34,649 35,919 37,234 38,537 39,884 39,416 42,532 CAM RECOVERIES 225,399 232,508 241,064 249,904 258,651 267,704 265,356 290,302 --------- --------- --------- --------- --------- --------- --------- --------- TOTAL RECOVERIES 663,665 670,598 681,046 691,822 701,872 712,272 691,533 735,653 OVERAGE RENT 0 0 0 0 0 0 6 10,041 SALES VOLUME (000) 47,143 48,793 50,501 52,268 54,098 55,991 57,951 59,979 --------- --------- --------- --------- --------- --------- --------- --------- GROSS RENTAL INCOME 3,631,333 3,626,188 3,664,135 3,718,167 3,732,001 3,784,029 3,627,634 3,983,346 CREDIT LOSS (290,507) (290,095) (293,131) (297,453) (298,560) (302,722) (290,211) (318,667) MELLON PAD 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 --------- --------- --------- --------- --------- --------- --------- --------- TOTAL INCOME 3,358,826 3,354,093 3,389,004 3,438,714 3,451,441 3,499,307 3,355,423 3,682,679 EXPENSES - -------- PROPERTY TAXES 404,685 404,685 404,685 404,685 404,685 404,685 404,685 404,685 INSURANCE 33,582 34,757 35,974 37,233 38,536 39,885 41,281 42,726 COMMON AREA MAIN 218,257 225,896 233,802 241,985 250,455 259,221 268,293 277,684 MISCELLANEOUS 32,729 33,875 35,060 36,287 37,557 38,872 40,232 41,641 MANAGEMENT FEE 118,707 118,224 119,324 121,054 121,205 122,870 117,444 129,908 ------------------------------------------------------------------------------------------------------- TOTAL EXPENSES 807,960 817,437 828,845 841,244 852,438 865,533 871,935 896,644 --------- --------- --------- --------- --------- --------- --------- --------- NET OPERATING INCOME 2,550,866 2,536,656 2,560,159 2,597,470 2,599,003 2,633,774 2,483,488 2,786,035 ALTERATIONS 0 0 9,235 0 0 0 105,376 10,968 COMMISSIONS 0 0 5,831 0 0 0 40,012 5,831 CAPITAL RESERVES 83,469 86,391 89,414 92,544 95,783 99,135 102,605 106,196 --------- --------- --------- --------- --------- --------- --------- --------- CASH FLOW 2,467,397 2,450,265 2,455,679 2,504,926 2,503,220 2,534,639 2,235,495 2,663,040 </TABLE> FY2007 FY2008 FY2009 INCOME - ------ MINIMUM RENT: ALL TENANTS 3,319,859 3,323,643 3,365,271 --------- --------- --------- TOTAL MINIMUM RENT 3,319,859 3,323,643 3,365,271 RECOVERIES: TAX RECOVERIES 404,684 404,684 404,684 INSURANCE RECOVER 44,220 45,768 47,371 CAM RECOVERIES 301,900 312,466 323,402 --------- --------- --------- TOTAL RECOVERIES 750,904 762,918 775,457 OVERAGE RENT 20,427 31,177 42,302 SALES VOLUME (000) 62,078 64,251 66,500 --------- --------- --------- GROSS RENTAL INCOME 4,091,090 4,117,738 4,183,030 CREDIT LOSS (327,287) (329,419) (334,642) MELLON PAD 18,000 18,000 18,000 --------- --------- --------- TOTAL INCOME 3,781,803 3,806,319 3,866,388 EXPENSES - -------- PROPERTY TAXES 404,685 404,685 404,685 INSURANCE 44,221 45,769 47,371 COMMON AREA MAIN 287,402 297,462 307,873 MISCELLANEOUS 43,098 44,606 46,168 MANAGEMENT FEE 133,611 134,193 136,303 ------------------------------------- TOTAL EXPENSES 913,017 926,715 942,400 --------- --------- --------- NET OPERATING INCOME 2,868,786 2,879,604 2,923,988 ALTERATIONS 0 0 0 COMMISSIONS 0 0 0 CAPITAL RESERVES 109,913 113,760 117,742 --------- --------- --------- CASH FLOW 2,758,873 2,765,844 2,806,246 <PAGE> Income Capitalization Approach ================================================================================ Property Yield or Internal Rate of Return: 12.01% Value Per Square Foot of Rentable Building Area: $69.74 As the subject property is not at stabilized operations, the overall rate does not provide a meaningful economic indicator and was not considered in this analysis. Methodology - Upon Completion and at Stabilization We have also been requested by our client to give our opinion of the upon completion and at stabilization. In our previous analysis, we have projected that Giant Food and the 15,412 square foot of vacant inline space will be leased by May, 1998. Therefore by June, 1998, it is projected that the subject will be substantially at stabilized operations following final tenant fitout and leasing commission costs for the vacant inline space. In this second analysis, we have again utilized the discounted cash flow methodology, incorporating basically the same assumptions as in our previous analysis As Is. However, in this second analysis, all of the costs associated with bringing the property to stabilization will have been incurred prior to the beginning of our analysis. On the opposing page is a presentation of the cash flows which an informed investor can annually expect from the subject property over the next ten years following stabilization. These cash flows incorporate the following general assumptions: (1) The commencement date of the investment holding period is June 1, 1998 and continues on a fiscal basis for a period of 10 years until May 30, 2008. (2) All existing and projected leases at the subject property are in full force and effect at the commencement of the investment holding period. (3) With the exception of management and real estate taxes, expenses are projected to increase at 3.5 percent per annum over the investment holding period. Management is based upon a percentage of minimum rent, percentage rent and miscellaneous income. Real estate taxes are projected to increase at 2.0 percent per annum over the investment holding period. (4) The investment will be liquidated based upon what would be the eleventh year's net operating income capitalized at an overall rate of 10.5 percent less transaction costs equal to 3 percent of the projected reversionary sale price. In the previous section we discussed the investment parameters for Power Centers which are at stabilized operations. As noted in recent investment surveys, the average internal rate of return for stabilized properties is between 11.00 and 12.00 percent. Considering the financial characteristics, locational attributes and physical traits of the subject property, we believe a discount rate ranging from 11.0 to 12.0 percent would be appropriate for the subject property As Stabilized in light of the investment criteria presented here. Thus, we have discounted the projected future pre-tax cash flows to be received by an investor in the subject property to a present value so as to yield between 11.00 percent to 12.0 percent on capital at 25 basis point intervals over the holding period. This discounting process is summarized as follows: ================================================================================ -54- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ ================================================================================ Investment Summary ================================================================================ Discount Rate Present Worth Overall Rate Unit Rate ================================================================================ 11.00% $24,475,000 10.36% $81.28 - -------------------------------------------------------------------------------- 11.25% $24,104,000 10.52% $80.04 - -------------------------------------------------------------------------------- 11.50% $23,741,000 10.68% $78.84 - -------------------------------------------------------------------------------- 11.75% $23,385,000 10.85% $77.66 - -------------------------------------------------------------------------------- 12.00% $23,037,000 11.01% $76.50 ================================================================================ Through such a sensitivity analysis, it can be seen that the future value of the subject property varies from approximately $23,050,000. to $24,475,000 million. All things considered, we believe a discount rate which falls at the low end of the range to be appropriate for the subject property at stabilization. Conclusion - Upon Completion and At Stabilization In view of the analysis presented here, it becomes our opinion that the Income Capitalization Approach indicates a prospective future market value of TWENTY FOUR MILLION FIVE HUNDRED THOUSAND DOLLARS ($24,500,000) for the subject property, Upon Completion and At Stabilization projected for June 1, 1998. The indices of investment generated through this indicated value conclusion are shown below. Property Yield or Internal Rate of Return: 10.98% Value Per Square Foot of Rentable Building Area: $81.36 Overall rate: 10.41% ================================================================================ -55- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> RECONCILIATION AND FINAL VALUE ESTIMATE ================================================================================ Reconciliation is the process of deriving a single point value estimate for the subject property from the indications provided by the approaches at hand. This process requires the weighing of each approach as they relate to the appraisal assignment and resolving the differences among the valuation procedures. In the end, a single estimate of market value is concluded based upon the appropriateness of each value indication. Only two of the three approaches to value have been utilized for this analysis. In general terms, the approaches included provide complimentary results, each approach or technique supporting the other. A summary of the value indications for the subject is set forth below. ================================================================================ Liberty Plaza -As Is ================================================================================ Sales Comparison Approach $21,700,000 - $22,700,000 - -------------------------------------------------------------------------------- Income Capitalization Approach $21,000,000 ================================================================================ ================================================================================ Liberty Plaza Upon Completion and at Stabilization ================================================================================ Sales Comparison Approach $24,000,000 - $25,000,000 - -------------------------------------------------------------------------------- Income Capitalization Approach $24,500,000 ================================================================================ Sales Comparison Approach The Sales Comparison Approach has arrived at a value indication for the improved portion of the subject property by analyzing historical arm's-length transactions, reducing the gathered information to common units of comparison, adjusting the sale data for differences with the subject, and interpreting the results to yield a meaningful value conclusion. The basis of these conclusions have been analyzed on the cash-on-cash return based upon net income multiplier. The process of comparing historical sales data to assess what purchasers have been paying for similar type properties is weak in estimating future expectations. Although the unit sale price yields comparable conclusions, it is not the primary tool by which the investor market for a property like the subject operates. In addition, no two properties are alike with respect to quality of construction, location, market segmentation and income profile. As such, subjective judgment necessarily becomes a part of the comparative process. The usefulness of this approach is that it interprets specific investor parameters established in their analysis and ultimate purchase of a property. In light of the above, this methodology is best suited as support for the conclusions of the Income Approach. Income Capitalization Approach - Discounted Cash Flow Analysis The subject property is highly suited to analysis by the discounted cash flow method as it will be bought and sold in investment circles. The focus on property value in relation to anticipated income is well founded since the basis for investment is profit in the form of return or yield on invested capital ================================================================================ -56- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Reconciliation and Final Value Estimate ================================================================================ The subject property, as an investment vehicle, is sensitive to all changes in the economic climate and the economic expectations of investors. The discounted cash flow analysis may easily reflect changes in the economic climate of investor expectations by adjusting the variables used to qualify the model. In the case of the subject property, the Income Approach can analyze existing leases, the probabilities of future rollovers and turnovers, and reflect the expectations of overage rents. Essentially, the Income Capitalization Approach can model many of the dynamics of a complex shopping center. We have relied heavily upon the results of the discounted cash flow analysis in the valuation of the subject because of the applicability of this method in accounting for the particular characteristics of the property, as well as being the tool used by many purchasers. Conclusions We have briefly discussed the applicability of each of the methods presented. Because of certain vulnerable characteristics in the Sales Comparison Approach, it has been used as supporting evidence and as a final check on the value conclusion indicated by the Income Capitalization Approach. As a result of our analysis, we have formed the opinion that the market value of the leased fee estate in the subject property, As Is, as of April 16, 1997 was: TWENTY ONE MILLION DOLLARS ($21,000,000) Further, based upon the total analysis contained in this report, it is our conclusion that, as of June 1, 1998, the prospective future market value of the leased fee estate in the subject property, Upon Completion and As Stabilized, would be: TWENTY FOUR MILLION FIVE HUNDRED THOUSAND DOLLARS ($24,500,000) We would particularly note that our estimates of value assumes that leases will be signed with Wal-Mart Stores, Inc. and Giant Food, Inc. under the terms and conditions as are outlined elsewhere in this report. ================================================================================ -57- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> ASSUMPTIONS AND LIMITING CONDITIONS ================================================================================ "Appraisal" means the appraisal report and opinion of value stated therein; or the letter opinion of value 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(s)" means the employee(s) of C&W who prepared and signed the Appraisal. 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 estimates, opinions, dimensions, sketched, 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 property 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. 5. Except as may be otherwise stated in our 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. ================================================================================ -58- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Assumptions and Limiting Conditions ================================================================================ 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 considered in the Appraisal; and (d) all required licenses, certificates of occupancy and the governmental consents have been or can be obtained and renewed for any use on which the value estimate contained in the Appraisal is based. 7. The physical condition of the improvements considered by 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 forecasted 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 forecasts of income and expenses are not predictions of the future. Rather, they are the Appraiser's best estimated of current market thinking on future income and expenses. The Appraiser and C&W make no warranty or representation that these forecasts will materialize. The real estate market is constantly fluctuating and changing. It is not the Appraiser's task to predict or in any way warrant the conditions of a future real estate market; the Appraiser can only reflect what the investment community, as of the date of the Appraisal, envisages for the future in terms of rental rates, expenses, supply and demand. 10. Unless otherwise stated in the Appraisal, the existence of potentially hazardous or toxic materials which may have been used in construction or maintenance of the improvements or may be located at or about the Property was not considered 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 considered in arriving at the opinion of value. Failure to comply with the requirement of the ADA may adversely affect the value of property. C&W recommends that an expert in this field be employed. ================================================================================ -59- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> CERTIFICATION OF APPRAISAL ================================================================================ We certify that, to the best our knowledge and belief: 1. Gerald B. McNamara, MAI and Richard W. Latella, MAI inspected the property. 2. The statements of fact contained in this report are true and correct. 3. The reported analyses, opinion, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. 4. We have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. 5. Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. The appraisal assignment was not based on a requested minimum valuation, a specific valuation or the approval of a loan. 6. No one provided significant professional assistance to the person signing this report. 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. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representative, 9. As of the date of this report, Gerald B. McNamara, MAI and Richard W. Latella, MAI have completed the requirements of the continuing education program of the Appraisal Institute. /s/ Gerald B. McNamara /s/ Richard W. Latella Gerald B. McNamara, MAI Richard W. Latella, MAI Associate Director Senior Director Valuation Advisory Services Valuation Advisory Services Pennsylvania Certified Pennsylvania Certified General Appraiser #GA-000267-L General Appraiser #GA-00103-R ================================================================================ -60- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> ADDENDA ================================================================================ ================================================================================ -61- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY - AUTUMN 1996 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) ---------------------------------------------------------------------------------------------------------- LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - LEASED ASSET OFFICE MARKET - URBAN/CBD - ------------------------------------------------------------------------------------------------------------------------------------ 9.5% 10.0% 10.0% 10.0% 11.5% 11.5% 3.0% 3.0% 3.0% 4.0% 10.0 10.0 9.5% 10.0% 10.0% 10.5% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0 8.0% 9.0% 8.5% 8.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 13.0% 13.0% -- -- 14.0% 14.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0 8.0% 8.0% 8.5% 8.5% 10.5% 10.5% 0.0% 8.0% 3.0% 5.0% 10.0 10.0 9.3% 9.3% 10.3% 10.3% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.0% 9.0% 8.5% 9.0% 10.5% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0 10.0% 10.0% 10.0% 10.0% 12.5% 12.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 9.0% 9.0% 9.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 8.0% 9.0% 8.0% 9.0% 10.0% 12.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0 Responses 11 11 10 10 11 11 11 11 11 11 11 11 Average (%) 9.2% 9.6% 9.2% 9.7% 11.7% 12.0% 3.3% 4.2% 3.4% 3.9% 8.5 9.5 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - LEASED ASSET - ------------------------------------------------------------------------------------------------------------------------------------ 10.0% 10.0% 9.0% 9.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 9.5% 9.5% 10.0% 10.0% 12.0% 12.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0 9.5% 9.5% 10.5% 10.5% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 10.0% 10.0% 11.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 15.0% 15.0% -- -- 20.0% 20.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0 9.0% 10.0% -- -- -- -- -- -- -- -- -- -- 9.0% 10.0% 9.0% 10.0% 12.0% 13.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0 Responses 8 8 6 6 7 7 7 7 7 7 7 7 Average (%) 10.0% 10.4% 9.7% 10.3% 12.8% 13.1% 3.3% 4.7% 3.5% 4.0% 8.3 9.7 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 8.0% 9.0% 9.5% 10.0% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0 8.0% 10.0% 8.5% 9.0% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0 10.0 10.0 10.0% 10.0% 10.0% 10.0% 13.0% 13.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0 9.5% 9.5% 10.5% 10.5% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 12.0% 12.0% -- -- 13.0% 13.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0 9.0% 9.0% 9.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 -- -- -- -- 12.0% 13.0% 4.0% 4.0% 4.0% 4.0 5.0 10.0 Responses 8 8 7 7 9 9 9 9 9 9 9 9 Average (%) 9.4% 10.0% 9.6% 10.2% 12.8% 13.5% 3.5% 4.6% 3.5% 3.9% 7.6 8.9 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 12.0% 12.0% 12.0% 12.0% 15.0% 15.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0 9.8% 9.8% 10.8% 10.8% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 14.0% 14.0% -- -- 20.0% 20.0% 5.0% 5.0% 3.0% 3.0% 5.0 7.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% 10.0% 11.0% 14.0% 14.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 6 6 5 5 6 6 6 6 6 6 6 6 Average (%) 10.7% 11.0% 10.5% 11.2% 14.6% 15.3% 3.2% 4.6% 3.3% 3.9% 8.0 8.8 -------------------------------------------------------------------------------------------------------- Total Responses 33 33 28 28 33 33 33 33 33 33 33 33 Weighted Average (%) 9.8% 10.3% 9.7% 10.3% 13.0% 13.5% 3.3% 4.6% 3.4% 3.9% 8.1 9.2 -------------------------------------------------------------------------------------------------------- </TABLE> "Leased Asset" refers to predominantly "passive" investments involving substantially leased Properties "Value Added" denotes properties which require more active management due to leasing issues and/or additional capital investment for physical issues 8 REAL ESTATE OUTLOOK <PAGE> - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY - AUTUMN 1996 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) ---------------------------------------------------------------------------------------------------------- LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - LEASED ASSET OFFICE MARKET - SUBURBAN/NON - CBD - ------------------------------------------------------------------------------------------------------------------------------------ 9.5% 9.5% 10.5% 10.5% 10.5% 10.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 8.5% 8.5% 9.3% 9.3% 11.3% 11.3% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 11.0% 11.0% -- -- 12.0% 12.0% 5.0% 3.0% 3.0% 3.0% 5.0 7.0 8.5% 10.0% 9.0% 10.5% 11.0% 12.5% 3.5% 3.5% 3.5% 3.5% 10.0 10.0 8.0% 10.0% 9.5% 10.0% 11.5% 12.0% 4.0% 6.0% 4.0% 4.0% 10.0 10.0 l0.0% 11.0% 10.5% 11.0% 12.0% 12.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 8.0% 9.0% 8.5% 8.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 8.0% 8.0% 8.5% 8.5% 10.5% 10.5% 0.0% 8.0% 3.0% 5.0% 10.0 10.0 9.1% 9.1% 10.1% l0.1% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.5% 10.0% 9.0% 10.5% 11.0% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0 9.0% 9.0% 10.0% 10.0% 11.5% 11.5% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 9.0% 9.0% 9.0% 9.0% 12.0% 13.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0 9.0% 9.0% 9.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 8.0% 10.0% -- -- -- -- -- -- -- -- -- 8.0% 9.0% 8.0% 9.0% 10.0% 12.0% 5.0% 5.0% 4.0% 4.0% 5.0 10.0 Responses 16 16 14 14 15 15 15 15 15 15 15 15 Average (%) 8.8% 9.5% 9.3% 9.9% 11.2% 11.6% 3.5% 4.4% 3.6% 3.8% 8.9 9.7 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - LEASED ASSET - ------------------------------------------------------------------------------------------------------------------------------------ 9.5% 9.5% 10.5% 10.5% 10.5% 10.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 8.8% 8.8% 9.5% 9.5% 11.8% 11.8% 3.5% 3.5% 3.5% 3.5% 10.0 10.0 12.0% 12.0% -- -- 18.0% 18.0% 5.0% 3.0% 3.0% 3.0% 5.0 7.0 10.5% 10.5% 10.0% 10.0% 11.0% 13.0% 2.0% 2.0% 2.0% 2.0% 10.0 10.0 8.0% 10.0% 9.5% 10.0% 11.0% 12.0% 4.0% 6.0% 4.0% 4.0% 10.0 10.0 9.0% 10.0% 9.0% 9.5% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 9.5% 9.5% 10.0% 10.0% 11.0% 11.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0 9.4% 9.4% 10.4% 10.4% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% 10.0% 10.0% 14.0% 15.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0 9.0% 9.0% 9.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 10.0% 11.0% -- -- -- -- -- -- -- -- -- -- 10.0% 11.0% 10.0% 11.0% 12.0% 13.0% 5.0% 5.0% 4.0% 4.0% 5.0 10.0 Responses 13 13 11 11 12 12 12 12 12 12 12 12 Average (%) 9.5% 10.0% 9.8% 10.2% 12.0% 12.5% 3.4% 4.5% 3.4% 3.7% 8.6 9.6 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 10.0% 10.0% -- -- 13.0% 13.0% 3.0% 3.0% 3.0% 3.0% 5.0 7.0 8.0% 10.0% 8.5% 9.0% 11.0% 12.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 10.0% 10.0% 10.0% 10.0% 12.5% 12.5% 0.0% 8.0% 3.0% 5.0% 10.0 10.0 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0 9.4% 9.4% 10.4% 10.4% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 6.0% 6.0% 9.0% 9.0% 17.0% 20.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0 9.0% 9.0% 9.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 8.0% 10.0% -- -- -- -- -- -- -- -- -- -- 12.0% 12.0% 10.0% 10.0% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 2.0 2.0 Responses 10 10 8 8 9 9 9 9 9 9 9 9 Average (%) 9.1% 9.7% 9.5% 10.0% 13.4% 14.3% 3.1% 4.6% 3.4% 3.8% 7.2 8.0 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 11.0% 11.0% -- -- 18.0% 18.0% 3.0% 3.0% 3.0% 3.0% 5.0 7.0 10.5% 10.5% 10.0% 10.0% 11.0% 13.0% 2.0% 2.0% 2.0% 2.0% 10.0 10.0 11.0% 11.0% 11.0% 11.0% 14.0% 14.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0 9.6% 9.6% 10.6% 10.6% 11.5% 11.5% 3.8% 4.0% 4.3% 4.3% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 6.0% 6.0% 10.0% 10.0% 20.0% 20.0% 4.0% 7.0% 4.0% 4.0% 5.0 7.0 9.0% 9.0% 9.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 9.0% 10.0% -- -- -- -- -- -- -- -- -- -- 12.0% 12.0% 10.0% 10.0% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 2.0 2.0 Responses 10 10 8 8 9 9 9 9 9 9 9 9 Average (%) 9.7% 10.0% 10.0% 10.5% 14.5% 15.2% 2.9% 4.3% 3.2% 3.6% 7.2 8.0 -------------------------------------------------------------------------------------------------------- Total Responses 49 49 41 41 45 45 45 45 45 45 45 45 Weighted Average (%) 9.3% 9.8% 9.7% 10.1% 12.8% 13.4% 3.2% 4.4% 3.4% 3.7% 8.0 8.8 -------------------------------------------------------------------------------------------------------- </TABLE> AUTUMN 1996 9 <PAGE> - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY - AUTUMN 1996 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) ---------------------------------------------------------------------------------------------------------- LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - LEASED ASSET INDUSTRIAL MARKET - WAREHOUSE/DISTRIBUTION - ------------------------------------------------------------------------------------------------------------------------------------ 9.2% 9.2% 9.5% 9.5% 10.0% 10.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 8.5% 8.5% 9.3% 9.3% 11.0% 11.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 8.5% 10.0% 9.5% 10.0% 11.0% 12.0% 3.5% 3.5% 3.5% 3.5% 10.0 10.0 9.0% 9.0% 9.5% 9.5% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 10.0 10.0 8.0% 8.0% 8.5% 8.5% 10.5% 10.5% 0.0% 8.0% 3.0% 5.0% 10.0 10.0 9.5% 9.5% 10.0% 10.0% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.5% 10.0% 9.0% 10.5% 11.0% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0 9.0% 9.0% 10.0% 10.0% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 9.0% 9.0% 9.5% 9.5% 10.5% 10.5% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 10 10 10 10 10 10 10 10 10 10 10 10 Average (%) 8.8% 9.2% 9.4% 9.8% 10.9% 11.0% 2.9% 4.0% 3.3% 3.8% 9.8 10.1 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - LEASED ASSET - ------------------------------------------------------------------------------------------------------------------------------------ 9.2% 9.2% 9.5% 9.5% 10.0% 10.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 8.8% 8.8% 9.5% 9.5% 11.3% 11.3% 3.5% 3.5% 3.5% 3.5% 10.0 10.0 9.5% 9.5% 10.0% 10.0% 11.5% 11.5% 3.0% 4.0% 3.0% 4.0% 10.0 10.0 10.0% 10.0% 11.0% 11.0% 12.0% 12.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0 9.8% 9.8% 10.3% 10.3% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 9.5% 10.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 7 7 7 7 7 7 7 7 7 7 7 7 Average (%) 9.3% 9.5% 10.0% 10.2% 11.2% 11.2% 2.8% 4.3% 3.2% 3.9% 9.7 10.1 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 11.0% 11.0% 12.0% 12.0% 13.0% 13.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0 9.8% 9.8% 10.3% 10.3% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 9.5% 10.0% 10.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 4 4 4 4 4 4 4 4 4 4 4 4 Average (%) 9.7% 9.9% 10.4% 10.8% 11.9% 11.9% 2.4% 4.8% 3.3% 4.1% 9.5 10.3 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 12.0% 12.0% 13.0% 13.0% 14.0% 14.0% 0.0% 8.0% 3.0% 5.0% 10.0 10.0 10.0% 10.0% 10.5% 10.5% 11.5% 11.5% 3.3% 3.3% 3.5% 3.5% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% 10.5% 10.5% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 4 4 4 4 4 4 4 4 4 4 4 4 Average (%) 10.1% 10.4% 10.9% 11.3% 12.4% 12.4% 2.4% 4.8% 3.3% 4.1% 9.5 10.3 -------------------------------------------------------------------------------------------------------- Total Responses 25 25 25 25 25 25 25 25 25 25 25 25 Weighted Average (%) 9.5% 9.7% 10.2% 10.5% 11.6% 11.6% 2.6% 4.5% 3.2% 4.0% 9.6 10.2 -------------------------------------------------------------------------------------------------------- </TABLE> "Leased Asset" refers to predominantly "passive" investments involving substantially leased Properties "Value Added" denotes properties which require more active management due to leasing issues and/or additional capital investment for physical issues 10 REAL ESTATE OUTLOOK <PAGE> - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY - AUTUMN 1996 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) ---------------------------------------------------------------------------------------------------------- LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - LEASED ASSET INDUSTRIAL MARKET - BUSINESS PARKS, OTHER INDUSTRIAL & MANUFACTURING - ------------------------------------------------------------------------------------------------------------------------------------ 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 9.5% 10.0% 10.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 10.0 10.0 9.0% 9.0% -- -- 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 4 4 3 3 4 4 4 4 4 4 4 4 Average (%) 8.9% 9.4% 9.7% 10.7% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.8 10.3 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - LEASED ASSET - ------------------------------------------------------------------------------------------------------------------------------------ 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% 10.5% 10.5% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 10.0 10.0 10.0% 10.0% -- -- 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 4 4 3 3 4 4 4 4 4 4 4 4 Average (%) 9.3% 9.8% 9.8% 10.8% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.8 10.3 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% 10.5% 10.5% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% -- -- 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 5 5 4 4 5 5 5 5 5 5 5 5 Average (%) 9.4% 10.0% 9.9% 10.9% 12.4% 13.2% 3.4% 4.0% 3.2% 3.8% 8.2 9.4 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 5.0 5.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.5% 10.5% 11.0% 11.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 8.5 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.5% 10.5% -- -- 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 5 5 4 4 5 5 5 5 5 5 5 5 Average (%) 9.6% 10.2% 10.0% 11.0% 12.4% 13.2% 3.4% 4.0% 3.2% 3.8% 8.2 9.4 -------------------------------------------------------------------------------------------------------- Total Responses 18 18 14 14 18 18 18 18 18 18 18 18 Weighted Average(%) 9.3% 9.8% 9.8% 10.8% 12.0% 12.4% 3.3% 4.0% 3.2% 3.9% 8.5 9.8 -------------------------------------------------------------------------------------------------------- </TABLE> "Leased Asset" refers to predominantly "passive" investments involving substantially leased Properties "Value Added" denotes properties which require more active management due to leasing issues and/or additional capital investment for physical issues AUTUMN 1996 11 <PAGE> - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY - AUTUMN 1996 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) ---------------------------------------------------------------------------------------------------------- LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - LEASED ASSET RETAIL MARKET - NEIGHBORHOOD & COMMUNITY CENTERS - ------------------------------------------------------------------------------------------------------------------------------------ 9.0% 10.5% 9.5% 10.5% 11.0% 12.5% 3.5% 3.5% 3.5% 3.5% 10.0 10.0 9.5% 10.0% 10.0% 10.0% 12.5% 12.5% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 10.0% 10.0% 10.5% 10.5% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0 10.3% 10.3% 10.8% 10.8% 13.0% 13.0% 2.0% 2.0% 4.0% 4.0% 7.0 7.0 9.0% 9.0% 10.0% 10.0% 10.0% 10.0% 0.0% 6.0% 2.0% 5.0% 10.0 10.0 9.8% 9.8% 10.3% 10.3% 11.5% 11.5% 3.8% 4.0% 4.0% 4.0% 10.0 10.0 9.0% 10.0% -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0 9.0% 9.0% 9.5% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 Responses 9 9 8 8 8 8 9 9 9 9 9 9 Average (%) 9.3% 9.8% 10.0% 10.4% 11.9% 12.1% 2.9% 3.7% 3.4% 3.9% 8.9 9.4 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - LEASED ASSET - ------------------------------------------------------------------------------------------------------------------------------------ 10.8% 10.8% 11.3% 11.3% 14.0% 14.0% 2.0% 2.0% 4.0% 4.0% 7.0 7.0 10.0% 10.0% 11.0% 11.0% 12.0% 12.0% 0.0% 6.0% 2.0% 5.0% 10.0 10.0 9.0% 10.0% -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 9.5% 10.0% 11.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 9.5% 10.5% -- -- -- -- -- -- -- -- -- -- Responses 6 6 4 4 4 4 5 5 5 5 5 5 Average (%) 9.5% 10.0% 10.4% 11.1% 12.3% 12.3% 2.3% 3.8% 3.3% 4.2% 9.0 9.6 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 11.0% 11.0% 12.0% 12.0% 13.0% 13.0% 0.0% 6.0% 2.0% 5.0% 10.0 10.0 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 10.0 10.0 9.0% 10.0% -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 9.5% 9.5% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 9.0% 10.0% -- -- -- -- -- -- -- -- 11.0% 11.0% 9.5% 9.5% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 3.0 3.0 Responses 7 7 5 5 5 5 6 6 6 6 6 6 Average (%) 9.7% 10.3% 10.1% 10.7% 13.8% 14.6% 2.8% 4.0% 3.1% 3.8% 8.5 9.0 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 13.0% 13.0% 14.0% 14.0% 14.0% 14.0% 0.0% 6.0% 2.0% 5.0% 10.0 10.0 10.0% 11.0% 10.0% 11.0% 16.0% 20.0% 4.0% 4.0% 3.0% 3.0% 10.0 10.0 9.0% 10.0% -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% 10.0% 11.0% 14.0% 14.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 11.0% 11.0% 10.5% 10.5% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 3.0 3.0 Responses 6 6 5 5 5 5 6 6 6 6 6 6 Average (%) 10.3% 10.8% 10.8% 11.5% 14.2% 15.0% 2.8% 4.0% 3.1% 3.8% 8.5 9.0 -------------------------------------------------------------------------------------------------------- Total Responses 28 28 22 22 22 22 26 26 26 26 26 26 Weighted Average (%) 9.7% 10.2% 10.3% 10.9% 13.0% 13.5% 2.7% 3.9% 3.2% 4.0% 8.7 9.3 -------------------------------------------------------------------------------------------------------- </TABLE> "Leased Asset" refers to predominantly "passive" investments involving substantially leased Properties "Value Added" denotes properties which require more active management due to leasing issues and/or additional capital investment for physical issues 12 REAL ESTATE OUTLOOK <PAGE> - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY - AUTUMN 1996 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) ---------------------------------------------------------------------------------------------------------- LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - LEASED ASSET RETAIL MARKET - POWER CENTERS & "BIG BOX" - ------------------------------------------------------------------------------------------------------------------------------------ 9.0% 9.0% 9.5% 9.5% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 10.0% 10.0% 9.5% 9.5% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0 10.5% 10.5% 10.5% 10.5% 11.0% 12.0% 2.0% 2.0% 3.0% 3.0% 10.0 10.0 9.5% 9.5% 10.0% 10.0% 11.4% 11.4% 3.8% 3.8% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 9.5% 9.5% 10.0% 11.0% 11.5% 3.0% 3.5% 3.0% 3.5% 10.0 10.0 9.3% 9.3% 9.5% 10.0% 10.5% 10.5% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 9.0% 9.0% -- -- -- -- -- -- -- -- -- -- 9.0% 9.5% 9.5% 10.0% 11.0% 11.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 Responses 9 9 8 8 8 8 8 8 8 8 8 8 Average (%) 9.4% 9.5% 9.7% 10.1% 11.5% 11.7% 3.3% 3.5% 3.4% 3.7% 9.1 10.1 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - LEASED ASSET - ------------------------------------------------------------------------------------------------------------------------------------ 10.8% 10.8% 10.8% 10.8% 11.0% 12.0% 2.0% 3.0% 3.0% 3.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 10.0% 10.0% 10.0% 10.0% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 3 3 3 3 3 3 3 3 3 3 3 3 Average (%) 9.8% 10.1% 10.1% 10.6% 11.0% 11.3% 2.8% 3.7% 3.2% 3.7% 9.3 10.3 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 10.8% 10.8% 10.8% 10.8% 12.0% 12.0% 2.0% 2.0% 3.0% 3.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.5% 9.5% 10.0% 10.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 3 3 3 3 3 3 3 3 3 3 3 3 Average (%) 9.6% 9.9% 10.1% 10.6% 12.0% 12.0% 2.8% 3.3% 3.2% 3.7% 9.3 10.3 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 11.0% 11.0% 10.8% 10.8% 12.0% 12.0% 2.0% 2.0% 3.0% 3.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 -- -- -- -- 15.0% 15.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 2 2 2 2 3 3 3 3 3 3 3 3 Average (%) 9.8% 10.3% 10.1% 10.9% 12.7% 12.7% 2.8% 3.3% 3.2% 3.7% 9.3 10.3 -------------------------------------------------------------------------------------------------------- Total Responses 17 17 16 16 17 17 17 17 17 17 17 17 Weighted Average (%) 9.6% 9.9% 10.0% 10.5% 11.8% 11.9% 2.9% 3.5% 3.2% 3.7% 9.3 10.3 -------------------------------------------------------------------------------------------------------- </TABLE> "Leased Asset" refers to predominantly "passive" investments involving substantially leased Properties "Value Added" denotes properties which require more active management due to leasing issues and/or additional capital investment for physical issues AUTUMN 1996 13 <PAGE> - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY - AUTUMN 1996 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) ---------------------------------------------------------------------------------------------------------- LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - LEASED ASSET RETAIL MARKET - REGIONAL MALLS - ------------------------------------------------------------------------------------------------------------------------------------ 7.5% 7.5% 8.0% 8.0% 11.3% 11.3% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 9.0% 9.0% 9.0% 9.0% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0 7.5% 7.5% 7.8% 7.8% 12.0% 12.0% 1.5% 2.0% 3.0% 3.0% 10.0 10.0 7.0% 8.0% 8.0% 8.0% 10.5% 11.5% 0.0% 4.0% 3.0% 4.0% 10.0 10.0 9.0% -- -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.0% 8.0% 8.0% 9.0% 10.5% 11.0% 3.0% 3.5% 3.0% 3.5% 10.0 10.0 8.0% 8.0% 8.5% 8.5% 11.0% 11.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 7.8% 8.0% 8.3% 8.5% 11.0% 12.0% 2.5% 3.0% 2.5% 3.0% 10.0 10.0 7.0% 8.0% 7.0% 8.0% 10.0% 11.0% 4.0% 4.0% 4.0% 4.0% 5.0 10.0 Responses 10 9 9 9 9 9 10 10 10 10 10 10 Average (%) 7.9% 8.2% 8.2% 8.6% 11.4% 11.8% 3.0% 3.6% 3.5% 3.8% 9.1 9.6 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - LEASED ASSET - ------------------------------------------------------------------------------------------------------------------------------------ 10.0% 10.0% 10.0% 10.0% 17.0% 17.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0 9.0% 9.0% 9.0% 9.0% 13.5% 13.5% 2.0% 2.0% 4.0% 4.0% 7.0 7.0 9.0% 10.0% 10.0% 10.0% 12.0% 14.0% 0.0% 4.0% 3.0% 4.0% 10.0 10.0 10.0% -- -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 Responses 5 4 4 4 4 4 5 5 5 5 5 5 Average (%) 9.3% 9.6% 9.6% 10.0% 13.4% 13.9% 2.5% 3.4% 3.7% 4.0% 8.6 8.6 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 10.0% 10.0% 10.0% 10.0% 18.0% 18.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0 11.0% 11.0% 11.0% 11.0% 13.0% 14.0% 0.0% 4.0% 3.0% 4.0% 10.0 10.0 9.0% -- -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.0% 8.5% 8.5% 9.0% 11.5% 12.5% 2.5% 3.0% 2.5% 3.0% 10.0 10.0 Responses 5 4 4 4 4 4 5 5 5 5 5 5 Average (%) 9.3% 9.8% 9.8% 10.3% 13.4% 13.9% 2.6% 3.6% 3.4% 3.8% 9.2 9.2 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 11.0% 11.0% 11.0% 11.0% 20.0% 20.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0 12.5% 12.5% 12.0% 12.0% 14.0% 15.0% 0.0% 4.0% 3.0% 4.0% 10.0 10.0 10.0% -- -- -- -- -- 3.0% 3.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.5% 9.0% 9.3% 9.8% 12.0% 13.0% 2.5% 3.0% 2.5% 3.0% 10.0 10.0 13.0% 13.0% 11.0% 11.0% 16.0% 16.0% 3.0% 3.0% 3.0% 3.0% 3.0 3.0 Responses 6 5 5 5 5 5 6 6 6 6 6 6 Average (%) 10.6% 11.0% 10.6% 11.0% 14.6% 15.0% 2.7% 3.5% 3.3% 3.7% 8.2 8.2 -------------------------------------------------------------------------------------------------------- Total Responses 26 22 22 22 22 22 26 26 26 26 26 26 Weighted Average (%) 9.3% 9.6% 9.5% 10.0% 13.2% 13.6% 2.7% 3.5% 3.5% 3.8% 8.8 8.9 -------------------------------------------------------------------------------------------------------- </TABLE> "Leased Asset" refers to predominantly "passive" investments involving substantially leased Properties "Value Added" denotes properties which require more active management due to leasing issues and/or additional capital investment for physical issues 14 REAL ESTATE OUTLOOK <PAGE> - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY - AUTUMN 1996 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) ---------------------------------------------------------------------------------------------------------- LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - LEASED ASSET RESIDENTIAL - APARTMENTS - ------------------------------------------------------------------------------------------------------------------------------------ 8.5% 10.0% 9.0% 10.5% -- -- -- -- 3.5% 3.5% 1.0 1.0 8.5% 9.0% 9.0% 9.0% 11.0% 11.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 9.8% 9.8% 10.0% 10.0% 15.0% 15.0% 4.0% 4.0% 4.0% 4.0% 5.0 7.0 8.3% 9.0% 9.0% 9.5% 10.5% 11.5% 3.0% 4.0% 3.0% 4.0% 10.0 10.0 7.5% 8.5% 8.0% 9.0% 10.0% 11.0% 0.0% 5.0% 3.0% 5.0% 10.0 10.0 8.8% 8.8% 9.0% 9.0% 11.3% 11.3% 3.8% 4.0% 4.0% 4.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.5% 9.0% 9.0% 9.5% 10.0% 11.5% 3.0% 4.0% 3.0% 3.0% 10.0 10.0 8.5% 9.0% 8.5% 9.0% -- -- 3.0% 3.5% 3.0% 3.5% 10.0 10.0 8.8% 9.0% 9.0% 9.5% 11.0% 11.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 10 10 10 10 8 8 9 9 10 l0 l0 10 Average (%) 8.6% 9.2% 9.0% 9.6% 11.2% 11.7% 2.9% 3.9% 3.3% 3.8% 8.4 8.9 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - LEASED ASSET - ------------------------------------------------------------------------------------------------------------------------------------ 9.0% 9.5% 9.5% 10.0% 11.0% 12.0% 3.0% 4.0% 3.0% 4.0% 10.0 10.0 9.0% 10.0% 10.0% 10.0% 11.0% 12.5% 0.0% 5.0% 3.0% 5.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 9.0% 10.0% 10.0% 10.5% 10.5% 12.0% 3.0% 4.0% 3.0% 3.0% 10.0 10.0 9.0% 9.5% 9.5% 10.0% 11.5% 11.5% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 5 5 5 5 5 5 5 5 5 5 5 5 Average (%) 8.9% 9.7% 9.7% 10.3% 11.0% 11.8% 2.5% 4.2% 3.1% 4.0% 9.6 10.2 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 10.0% 11.0% 11.0% 11.0% 12.5% 13.5% 0.0% 5.0% 3.0% 5.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.0% 8.0% 9.0% 9.0% 11.0% 12.0% 4.0% 6.0% 3.0% 3.0% 3.0 5.0 9.0% 9.0% 9.5% 10.0% 12.0% 12.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 4 4 4 4 4 4 4 4 4 4 4 4 Average (%) 8.9% 9.4% 9.8% 10.3% 11.6% 12.1% 2.6% 4.8% 3.1% 4.0% 7.8 9.0 - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B - VALUE ADDED - ------------------------------------------------------------------------------------------------------------------------------------ 12.0% 13.0% 13.0% 13.0% 13.0% 15.0% 0.0% 5.0% 3.0% 5.0% 10.0 10.0 8.5% 9.5% 9.5% 11.0% 11.0% 11.0% 3.5% 4.0% 3.5% 4.0% 11.0 11.0 8.0% 8.0% 10.0% 10.0% 11.0% 13.0% 4.0% 6.0% 3.0% 3.0% 3.0 5.0 9.5% 10.0% 10.0% 11.0% 13.0% 13.0% 3.0% 4.0% 3.0% 4.0% 7.0 10.0 Responses 4 4 4 4 4 4 4 4 4 4 4 4 Average (%) 9.5% 10.1% 10.6% 11.3% 12.0% 13.0% 2.6% 4.8% 3.1% 4.0% 7.8 9.0 Total Responses 23 23 23 23 21 21 22 22 23 23 23 23 Weighted Average (%) 9.0% 9.6% 9.8% 10.4% 11.5% 12.1% 2.7% 4.4% 3.2% 4.0% 8.4 9.3 </TABLE> "Leased Asset" refers to predominantly "passive" investments involving substantially leased Properties "Value Added" denotes properties which require more active management due to leasing issues and/or additional capital investment for physical issues AUTUMN 1996 15 <PAGE> - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY - AUTUMN 1996 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> CAPITALIZATION RATES INTERNAL GROWTH RATES TYPICAL PROJECTION GOING-IN TERMINAL RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) ---------------------------------------------------------------------------------------------------------- LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------------ OFFICE SUMMARY OF WEIGHTED AVERAGE - ------------------------------------------------------------------------------------------------------------------------------------ Urban/CBD 9.8% 10.3% 9.7% 10.3% 13.0% 13.5% 3.3% 4.6% 3.4% 3.9% 8.1 9.2 Class A - Leased Asset 9.2% 9.6% 9.2% 9.7% 11.7% 12.0% 3.3% 4.2% 3.4% 3.9% 8.5 9.5 Class B - Leased Asset 10.0% 10.4% 9.7% 10.3% 12.8% 13.1% 3.3% 4.7% 3.5% 4.0% 8.3 9.7 Class A - Value Added 9.4% 10.0% 9.6% 10.2% 12.8% 13.5% 3.5% 4.6% 3.5% 3.9 7.6 8.9 Class B - Value Added 10.7% 11.0% 10.5% 11.2% 14.6% 15.3% 3.2% 4.8% 3.3% 3.9% 8.0 8.8 Suburban 9.3% 9.8% 9.7% 10.1% 12.8% 13.4% 3.2% 4.4% 3.4% 3.7% 8.0 8.8 Class A - Leased Asset 8.8% 9.5% 9.3% 9.9% 11.2% 11.6% 3.5% 4.4% 3.6% 3.8% 8.9 9.7 Class B - Leased Asset 9.5% 10.0% 9.8% 10.2% 12.0% 12.5% 3.4% 4.5% 3.4% 3.7% 8.6 9.6 Class A - Value Added 9.1% 9.7% 9.5% 10.0% 13.4% 14.3% 3.1% 4.6% 3.4% 3.8% 7.2 8.0 Class B - Value Added 9.7% 10.0% 10.0% 10.5% 14.5% 15.2% 2.9% 4.3% 3.2% 3.6% 7.2 8.0 - ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIAL - ------------------------------------------------------------------------------------------------------------------------------------ Warehouse/Distribution 9.5% 9.7% 10.2% 10.5% 11.6% 11.6% 2.6% 4.5% 3.2% 4.0% 9.6 10.2 Class A - Leased Asset 8.8% 9.2% 9.4% 9.8% 10.9% 11.0% 2.9% 4.0% 3.3% 3.8% 9.8 10.1 Class B - Leased Asset 9.3% 9.5% 10.0% 10.2% 11.2% 11.2% 2.8% 4.3% 3.2% 3.9% 9.7 10.1 Class A - Value Added 9.7% 9.9% 10.4% 10.8% 11.9% 11.9% 2.4% 4.8% 3.3% 4.1% 9.5 10.3 Class 8 - Value Added 10.1% 10.4% 10.9% 11.3% 12.4% 12.4% 2.4% 4.8% 3.3% 4.1% 9.5 10.3 Business Parks 9.4% 9.9% 10.0% 10.8% 12.3% 12.9% 3.4% 4.0% 3.2% 3.8% 8.3 9.6 Class A - Leased Asset 9.0% 9.5% 9.8% 10.5% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5 Class B - Leased Asset 9.3% 9.8% 10.0% 10.8% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5 Class A - Value Added 9.5% 10.2% 10.0% 10.8% 13.0% 14.3% 3.5% 4.0% 3.2% 3.7% 7.7 8.7 Class B - Value Added 9.7% 10.3% 10.2% 11.0% 13.0% 14.3% 3.5% 4.0% 3.2% 3.7% 7.7 8.7 0ther Industrial/ Manufacturing 9.2% 9.7% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.8 10.3 Class A - Leased Asset 8.8% 9.3% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.5 10.0 Class B - Leased Asset 9.3% 9.8% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 8.5 10.0 Class A - Value Added 9.3% 9.8% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5 Class B - Value Added 9.5% 10.0% 9.5% 11.0% 11.5% 11.5% 3.3% 4.0% 3.3% 4.0% 9.0 10.5 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL - ------------------------------------------------------------------------------------------------------------------------------------ Neighborhood & Community Centers 9.7% 10.2% 10.3% 10.9% 13.0% 13.5% 2.7% 3.9% 3.2% 4.0% 8.7 9.3 Class A - Leased Asset 9.3% 9.8% 10.0% 10.4% 11.9% 12.1% 2.9% 3.7% 3.4% 3.9% 8.9 9.4 Class B - Leased Asset 9.5% 10.0% 10.4% 11.1% 12.3% 12.3% 2.3% 3.8% 3.3% 4.2% 9.0 9.6 Class A - Value Added 9.7% 10.3% 10.1% 10.7% 13.8% 14.6% 2.8% 4.0% 3.1% 3.8% 8.5 9.0 Class B - Value Added 10.3% 10.8% 10.8% 11.5% 14.2% 15.0% 2.8% 4.0% 3.1% 3.8% 8.5 9.0 Power Center & "Big Box" 9.6% 9.9% 10.0% 10.5% 11.8% 11.9% 2.9% 3.5% 3.2% 3.7% 9.3 10.3 Class A - Leased Asset 9.4% 9.5% 9.7% 10.1% 11.5% 11.7% 3.3% 3.5% 3.4% 3.7% 9.1 10.1 Class B - Leased Asset 9.8% 10.1% 10.1% 10.6% 11.0% 11.3% 2.8% 3.7% 3.2% 3.7% 9.3 10.3 Class A - Value Added 9.6% 9.9% 10.1% 10.6% 12.0% 12.0% 2.8% 3.3% 3.2% 3.7% 9.3 10.3 Class B - Value Added 9.8% 10.3% 10.1% 10.9% 12.7% 12.7% 2.8% 3.3 3.2% 3.7% 9.3 10.3 Regional Malls 9.3% 9.6% 9.5% 10.0% 13.2% 13.6% 2.7% 3.5% 3.5% 3.8% 8.8 8.9 Class A - Leased Asset 7.9% 8.2% 8.2% 8.6% 11.4% 11.8% 3.0% 3.6% 3.5% 3.8% 9.1 9.6 Class B - Leased Asset 9.3% 9.6% 9.6% 10.0% 13.4% 13.9% 2.5% 3.4% 3.7% 4.0% 8.6 8.6 Class A - Value Added 9.3% 9.8% 9.8% 10.3% 13.4% 13.9% 2.6% 3.6% 3.4% 3.8% 9.2 9.2 Class B - Value Added 10.6% 11.0% 10.6% 11.0% 14.6% 15.0% 2.7% 3.5% 3.3% 3.7% 8.2 8.2 Specialty Retail 9.5% 10.5% 10.8% 11.5% 12.0% 12.6 1.9% 4.0% 3.3% 4.0% 10.0 10.5 Class A - Leased Asset 8.2% 9.0% 8.8% 9.7% 10.7% 11.3% 2.5% 4.0% 3.5% 4.0% 8.7 10.3 Class B - Leased Asset 9.3% 10.3% 10.8% 11.5% 11.5% 12.5% 1.8% 4.0% 3.3% 4.0% 10.5 10.5 Class A - Value Added 10.0% 11.0% 11.3% 12.0% 12.5% 13.0% 1.8% 4.0% 3.3% 4.0% 10.5 10.5 Class B - Value Added 10.8% 11.8% 12.3% 13.0% 13.5% 13.5% 1.8% 4.0% 3.3% 4.0% 10.5 10.5 - ------------------------------------------------------------------------------------------------------------------------------------ RESIDENTIAL - ------------------------------------------------------------------------------------------------------------------------------------ Apartments 9.0% 9.6% 9.8% 10.4% 11.5% 12.1% 2.7% 4.4% 3.2% 4.0% 8.4 9.3 Class A - Leased Asset 8.6% 9.2% 9.0% 9.6% 11.2% 11.7% 2.9% 3.9% 3.3% 3.8% 8.4 8.9 Class B - Leased Asset 8.9% 9.7% 9.7% 10.3% 11.0% 11.8% 2.5% 4.2% 3.1% 4.0% 9.6 10.2 Class A - Value Added 8.9% 9.4% 9.8% 10.3% 11.6% 12.1% 2.6% 4.8% 3.1% 4.0% 7.8 9.0 Class B - Value Added 9.5% 10.1% 10.6% 11.3% 12.0% 13.0% 2.6% 4.8% 3.1% 4.0% 7.8 9.0 </TABLE> 16 REAL ESTATE OUTLOOK <PAGE> - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY - AUTUMN 1996 - -------------------------------------------------------------------------------- Single-Tenant NNN Leased Properties (Excludes "Bondable" Leases) Minimum No. Going-In Cap Rate Internal Rate of Return of Years Low High Low High Investment Grade Tenant - -------------------------------------------------------------------------------- 4.0 9.0% 9.0% 10.0% 12.0% ---------------------------------------------------------- 10.0 8.0 9.0 10.5 11.5 ---------------------------------------------------------- 5.0 10.5 10.5 13.0 13.0 ---------------------------------------------------------- 10.0 9.0 10.5 13.0 15.0 ---------------------------------------------------------- 10.0 8.5 9.0 10.5 12.0 ---------------------------------------------------------- 10.0 9.5 10.0 10.5 11.5 ---------------------------------------------------------- 10.0 8.5 11.0 10.8 12.0 ---------------------------------------------------------- 10.0 9.5 9.5 11.0 11.0 ---------------------------------------------------------- 20.0 9.0 9.0 N/A N/A ---------------------------------------------------------- 10.0 8.0 10.0 N/A N/A - -------------------------------------------------------------------------------- Responses 10.0 10.0 10.0 8.0 8.0 Average 9.9 9.0% 9.8% 11.2% 12.3% Non-Investment Grade Tenant - -------------------------------------------------------------------------------- 4.0 9.5% 9.5% 10.5% 13.0% ---------------------------------------------------------- 10.0 9.0 10.0 11.5 12.5 ---------------------------------------------------------- 5.0 13.0 13.0 15.0 15.0 ---------------------------------------------------------- 10.0 10.0 12.0 17.0 20.0 ---------------------------------------------------------- 10.0 9.0 10.0 11.0 13.0 ---------------------------------------------------------- 10.0 11.0 12.0 13.0 15.0 ---------------------------------------------------------- 10.0 10.5 10.5 13.0 13.0 ---------------------------------------------------------- 20.0 11.0 11.0 N/A N/A ---------------------------------------------------------- 10.0 10.0 12.5 N/A N/A ---------------------------------------------------------- Responses 9.0 9.0 9.0 7.0 7.0 Average 9.9 10.3% 11.2% 13.0% 14.5% AUTUMN 1996 17 <PAGE> - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY - AUTUMN 1996 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> CAPITALIZATION RATES BLENDED INTERNAL EQUITY INTERNAL GROWTH RATES TYPICAL PROJECTION MANAGEMENT RESERVES FOR GOING-IN TERMINAL RATE OF RETURN RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) FEES* REPLACEMENT* ---------------------------------------------------------------------------------------------------------------------- LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------------ LUXURY - ------------------------------------------------------------------------------------------------------------------------------------ 8.0% 8.0% 10.0% 10.0% 18.0% 18.0% 25.0% 25.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 5.0% 5.0% 7.0% 7.0% 10.0% 10.0% 15.0% 15.0% 20.0% 20.0% 7.0% 7.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0% 6.0% 9.5% 10.0% 10.0% 12.0% 15.0% 15.0% 18.0% 3.0% 3.0% 3.0% 3.0% 5.0 5.0 2.0% 4.0% 4.0% 4.0% 8.0% 11.0% 8.5% 12.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0% 9.5% 9.5% 10.5% 10.5% 15.0% 15.0% 18.0% 18.0% 4.5% 4.5% 4.0% 4.0% 10.0 10.0 3.5% 3.5% 4.0% 4.0% -- -- 11.0% 13.0% 15.0% 15.0% 18.0% 18.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 3.0% 3.0% 4.0% 4.0% 6.0% 8.0% 10.0% 12.0% 13.0% 14.0% 20.0% 22.0% 3.0% 4.0% 3.0% 4.0% 5.0 5.0 2.0% 3.0% 4.0% 5.0% 8.0% 12.0% 8.0% 10.0% 15.0% 15.0% 20.0% 20.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0 3.0% 4.0% 4.0% 5.0% Responses 7 7 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 Average (%) 7.5% 9.3% 9.8% 10.9% 14.5% 15.3% 19.5% 20.1% 4.1% 4.3% 3.8% 3.9% 6.5 6.9 2.8% 3.3% 4.1% 4.4% - ------------------------------------------------------------------------------------------------------------------------------------ FIRST CLASS - ------------------------------------------------------------------------------------------------------------------------------------ 9.0% 9.0% 11.0% 11.0% 12.0% 12.0% 20.0% 20.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0% 10.0% 10.0% 10.0% 10.0% -- -- 13.0% 13.0% 3.0% 3.0% 3.0% 3.0% 10.0 10.0 3.0% 3.0% 4.0% 5.0% 9.0% 9.0% 11.0% 11.0% 14.0% 14.0% 18.0% 18.0% 6.0% 6.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0% 9.5% 11.0% 11.0% 11.0% 15.0% 20.0% 18.0% 22.0% 3.0% 3.0% 2.0% 2.0% 5.0 5.0 2.0% 3.0% 4.0% 4.0% 10.0% 12.0% 10.5% 13.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0% 7.0% 9.0% 10.0% 11.0% 11.5% 12.0% 14.0% 16.0% 4.0% 5.0% 3.0% 4.0% 5.0 5.0 2.5% 2.5% 5.0% 5.0% 9.5% 9.5% 10.5% 10.5% 15.0% 15.0% 18.0% 18.0% 4.5% 4.5% 4.0% 4.0% 10.0 10.0 3.5% 3.5% 4.0% 4.0% 9.0% 9.0% 10.5% 10.5% 21.0% 21.0% 14.0% 14.0% 4.0% 4.0% 3.0% 3.0% 7.0 7.0 3.0% 3.0% 4.0% 4.0% 10.0% 12.0% 11.0% 11.0% -- -- -- -- 3.5% 3.5% 3.5% 3.5% 5.0 10.0 2.0% 3.0% 4.0% 4.0% 10.0% 10.0% 9.0% 9.5% 19.0% 19.0% 15.0% 15.0% 8.0% 8.0% 6.0% 6.0% -- -- 2.5% 2.5% 4.0% 4.0% 10.0% 13.0% 12.0% 13.0% 25.0% 25.0% 20.0% 20.0% 3.5% 4.0% 3.5% 4.0% 5.0 5.0 3.5% 3.5% 4.0% 4.0% 10.5% 10.5% 10.5% 10.5% 13.5% 13.5% -- -- 3.5% 3.5% 3.5% 3.5% 10.0 10.0 3.0% 3.0% 5.0% 5.0% 8.0% 12.0% 8.0% 10.0% 15.0% 15.0% 20.0% 20.0% 4.0% 4.0% 4.0% 4.0% 5.0 5.0 3.0% 4.0% 4.0% 5.0% Responses 13 13 13 13 11 11 11 11 13 13 13 13 12 12 13 13 13 13 Average (%) 9.3% 10.5% 10.4% 10.9% 15.8% 16.5% 17.3% 17.8% 4.2% 4.3% 3.7% 3.8% 6.6 7.3 2.8% 3.1% 4.2% 4.3% - ------------------------------------------------------------------------------------------------------------------------------------ MID-RATE - ------------------------------------------------------------------------------------------------------------------------------------ 10.0% 10.0% 12.0% 12.0% 15.0% 15.0% 18.0% 18.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0% 11.0% 11.0% 11.0% 11.0% 13.0% 13.0% 17.0% 17.0% 6.0% 6.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0% 9.5% 11.0% 11.0% 11.0% 15.0% 18.0% 17.0% 20.0% 3.0% 3.0% 2.0% 2.0% 5.0 5.0 2.0% 3.0% 4.0% 4.0% 10.0% 12.0% 10.5% 13.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0% 9.5% 9.5% 10.5% 10.5% 15.0% 15.0% 18.0% 18.0% 4.5% 4.5% 4.0% 4.0% 10.0 10.0 3.5% 3.5% 4.0% 4.0% Responses 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 Average (%) 10.0% 10.7% 11.0% 11.5% 14.2% 15.2% 18.0% 18.6% 4.2% 4.2% 3.7% 3.7% 6.4 7.0 2.9% 3.1% 4.0% 4.0% ---------------------------------------------------------------------------------------------------------------------- Total Responses 25 25 26 26 24 24 24 24 26 26 26 26 25 25 26 26 26 26 Weighted Average (%) 8.9% 10.1% 10.4% 11.1% 14.8% 15.7% 18.3% 18.8% 4.2% 4.3% 3.7% 3.8% 6.5 7.0 2.9% 3.2% 4.1% 4.2% ---------------------------------------------------------------------------------------------------------------------- </TABLE> *as percent of total revenues 18 REAL ESTATE OUTLOOK <PAGE> - -------------------------------------------------------------------------------- CUSHMAN & WAKEFIELD VALUATION ADVISORY SERVICES NATIONAL INVESTOR SURVEY - AUTUMN 1996 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> CAPITALIZATION RATES BLENDED INTERNAL EQUITY INTERNAL GROWTH RATES TYPICAL PROJECTION MANAGEMENT RESERVES FOR GOING-IN TERMINAL RATE OF RETURN RATE OF RETURN INCOME EXPENSES PERIOD (YEARS) FEES* REPLACEMENT* ---------------------------------------------------------------------------------------------------------------------- LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------------ MID-RATE HOTEL - LIMITED SERVICE - ------------------------------------------------------------------------------------------------------------------------------------ 10.0% 10.0% 12.0% 12.0% 15.0% 15.0% 15.0% 15.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0% 12.0% 12.0% 12.0% 12.0% 13.0% 13.0% 17.0% 17.0% 3.0% 3.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0% 8.0% 10.0% 10.0% 10.0% 12.0% 15.0% 14.0% 16.0% 3.0% 3.0% 2.0% 2.0% 5.0 5.0 3.0% 4.0% 4.0% 5.0% 11.0% 13.0% 11.5% 14.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0% 11.0% 11.0% 11.8% 11.8% 16.0% 16.0% 19.0% 19.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 4.0% 4.0% 4.5% 4.5% 10.0% 13.0% 12.0% 13.0% 25.0% 25.0% 20.0% 20.0% 3.5% 4.0% 3.5% 4.0% 5.0 5.0 4.0% 4.0% 5.0% 5.0% Responses 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 Average (%) 10.3% 11.5% 11.5% 12.1% 15.7% 16.5% 17.5% 17.8% 3.5% 3.6% 3.7% 3.8% 6.2 6.7 3.3% 3.5% 4.3% 4.4% - ------------------------------------------------------------------------------------------------------------------------------------ ECONOMY - ------------------------------------------------------------------------------------------------------------------------------------ 10.0% 10.0% 12.0% 12.0% 15.0% 15.0% 15.0% 15.0% 4.0% 4.0% 5.0% 5.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 17.0% 17.0% 3.0% 3.0% 4.0% 4.0% 5.0 5.0 3.0% 3.0% 4.0% 4.0% 9.0% 11.0% 10.0% 10.0% 12.0% 15.0% 14.0% 16.0% 3.0% 3.0% 3.0% 3.0% 5.0 5.0 4.0% 5.0% 5.0% 5.0% 11.0% 13.0% 11.5% 14.0% 13.0% 15.0% 20.0% 20.0% 3.5% 3.5% 3.5% 3.5% 7.0 10.0 3.0% 3.0% 4.0% 4.0% 11.0% 11.0% 11.8% 11.8% 16.0% 16.0% 19.0% 19.0% 4.0% 4.0% 4.0% 4.0% 10.0 10.0 4.0% 4.0% 4.5% 4.5% Responses 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 Average (%) 10.8% 11.6% 11.7% 12.2% 13.8% 14.8% 17.0% 17.4% 3.5% 3.5% 3.9% 3.9% 6.4 7.0 3.4% 3.6% 4.3% 4.3% Total Responses 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 11 Weighted Average(%) 10.6% 11.6% 11.6% 12.1% 14.7% 15.7% 17.3% 17.6% 3.5% 3.5% 3.8% 3.8% 6.3 6.8 3.4% 3.6% 4.3% 4.4% </TABLE> *as percent of total revenues AUTUMN 1996 19 <PAGE> QUALIFICATIONS OF GERALD B. MCNAMARA ================================================================================ Professional Affiliations Member, Appraisal Institute (MAI Designation #9380) Delaware Certified General Appraiser (Certificate #XI-0000050) Maryland Certified General Appraiser (Certificate #10034) New Jersey Certified General Appraiser (Certificate #RG 00811) Ohio Certified General Appraiser (Certificate #391901) Pennsylvania Certified General Appraiser (Certificate #GA-000267-L) Pennsylvania Real Estate Broker (License #AB-047948-L) Real Estate Experience Associate Director of Cushman & Wakefield of Pennsylvania, Inc. and member of the firms Retail Property Group which specialize in the valuation and investment counseling on shopping centers. Cushman & Wakefield is an international; full service real estate organization and a Rockefeller Group Company. Senior Appraiser, Cushman & Wakefield Valuation Advisory Services Department, specializing in a wide variety of commercial and industrial real estate appraisals and counseling assignments from January, 1989 to March, 1995. Staff Appraiser, Cushman & Wakefield Appraisal Division, specializing in commercial and industrial real estate appraisal and investment counseling throughout the nation from February, 1984 to December, 1988. Assistant Vice President, Branch Operations, Beneficial Savings Bank, Philadelphia, Pennsylvania, from February, 1973 to February, 1984. Formal Education Saint Vincent College, Latrobe, Pennsylvania Bachelor of Arts - 1972 Temple University, Philadelphia, Pennsylvania Graduate Program in Finance - 1975-1978 Required Courses of Study for State Licensure Appraisal Institute, Chicago, Illinois Required Courses of Study Leading to MAI Designation. Various Lectures and Seminars for Continuing Education Credits. Qualified Expert Witness United States Bankruptcy Court, Northeastern District of Pennsylvania Berks County, Pennsylvania Board of Assessment Appeals City of Philadelphia Board of Revision of Taxes <PAGE> ================================================================================ DISPLAY THIS CERTIFICATE PROMINENTLY NOTIFY AGENCY WITHIN 10 DAYS OF ANY CHANGE Commonwealth of Pensylvania Department of State Bureau of Professional and Occupational Affairs P.O. BOX 2649, Harrisburg, PA 17105-2649 Classification GENERAL APPRAISER [SEAL] Certificate Number Certification Date Issued Expires GA-000267 - L AUG 19 1991 JUN 15 1995 JUN 30 1997 /s/ Gerald B McNamara - ----------------------------------------------------- Signature /s/ Dorothy Childress - ----------------------------------------------------- Commissioner of Professional and Occupational Affairs Issued To: GERALD BRIAN MCNAMARA 213 CLIVEDEN AVENUE GLENSIDE PA 19038 ALTERATION OF THIS DOCUMENT IS A CRIMINAL OFFENSE UNDER 18 PA.C.S.ss.4911 ================================================================================ <PAGE> QUALIFICATIONS OF RICHARD W. LATELLA - -------------------------------------------------------------------------------- PROFESSIONAL AFFILIATIONS Member, American Institute of Real Estate Appraisers (MAI Designation #8346) New York State Certified General Real Estate Appraiser #46000003892 Pennsylvania State Certified General Real Estate Appraiser #GA-001053-R State of Maryland Certified General Real Estate Appraiser #01462 Minnesota Certified General Real Estate Appraiser #20026517 New Jersey Real Estate Salesperson (License #NS-130101-A} Certified Tax Assessor - State of New Jersey Affiliate Member - International Council of Shopping Centers, ICSC REAL ESTATE EXPERIENCE Senior Director, National Retail Valuation Services, Cushman & Wakefield Appraisal Division. Cushman & Wakefield is a national full service real estate organization and a Rockefeller Group Company. While Mr. Latella's experience has been in appraising a full array of property types, his principal focus is in the appraisal and counseling for major retail properties and specialty centers on a national basis. As Senior Director of Cushman & Wakefield's Retail Group his responsibilities include the coordination of the firm's national group of appraisers who specialize in the appraisal of regional malls, department stores and other major retail property types. He has personally appraised and consulted on in excess of 150 regional malls and specialty retail properties across the country. Senior Appraiser, Valuation Counselors, Princeton, New Jersey, specializing in the appraisal of commercial and industrial real estate, condemnation analyses and feasibility studies for both corporate and institutional clients from July 1980 to April 1983. Supervisor, State of New Jersey, Division of Taxation, Local Property and Public Utility Branch in Trenton, New Jersey, assisting and advising local municipal and property tax assessors throughout the state from June 1977 to July 1980. Associate, Warren W. Orpen & Associates, Trenton, New Jersey, assisting in the preparation of appraisals of residential property and condemnation analyses from July 1975 to April 1977. <PAGE> ================================================================================ DISPLAY THIS CERTIFICATE PROMINENTLY NOTIFY AGENCY WITHIN 10 DAYS OF ANY CHANGE Commonwealth of Pensylvania Department of State Bureau of Professional and Occupational Affairs P.O. BOX 2649, Harrisburg, PA 17105-2649 Classification GENERAL APPRAISER [SEAL] Certificate Number Certification Date Issued Expires GA-001053 - R JUN 21 1993 JUN 20 1995 JUN 30 1997 - ----------------------------------------------------- Signature /s/ Dorothy Childress - ----------------------------------------------------- Commissioner of Professional and Occupational Affairs Issued To: RICHARD WARREN LATELLA C&W INC 51 WEST 52ND STREET NEW YORK NY 10019 ALTERATION OF THIS DOCUMENT IS A CRIMINAL OFFENSE UNDER 18 PA.C.S.ss.4911 ================================================================================ COMPLETE APPRAISAL TRANSMITTED IN A SELF-CONTAINED APPRAISAL REPORT C97-605 OF THE WEST POINT APARTMENTS LOCATED AT 8700 WOODWAY HOUSTON, HARRIS COUNTY, TEXAS FOR MR. ERNIE IRIARTE VICE PRESIDENT L. J. MELODY & CO. 4675 MACARTHUR COURT, SUITE 1425 NEWPORT BEACH, CALIFORNIA 92660 BY PATRICK O'CONNOR AND ASSOCIATES, INCORPORATED D.B.A. O'CONNOR AND ASSOCIATES 2000 NORTH LOOP WEST, SUITE 110 HOUSTON, TEXAS 77018 (713) 686-9955 EFFECTIVE DATE OF THE APPRAISAL JULY 29, 1997 <PAGE> [MAP OMITTED] <PAGE> Letter of Transmittal Executive Summary Table of Contents <PAGE> [Letterhead of Patrick O'connor & Associates, INC., dba] August 5, 1997 Mr. Ernie Iriarte Vice President L. J. Melody & Company 4675 MacArthur Court, Suite 1425 Newport Beach, California 92660 Reference: The West Point Apartments, encompassing a total of +/-38.4484 acres (+/-1,674,812 square feet) of land and 1,280 apartment units located at the intersection of Woodway Drive and Lazy Hollow Drive. The subject property has a physical address of 8700 Woodway, Houston, Harris County, Texas. (Key Map: 490-U) Dear Mr. Iriarte: At your request, we have prepared a complete appraisal for the purpose of estimating the "As Is" Market Value of the Fee Simple Estate (subject to short term leases) in the above referenced property. The value estimate concluded to herein is subject to the assumptions and contingent and limiting conditions contained within both the body of this self-contained appraisal report and the addenda. The effective date of this appraisal is July 29, 1997, which is the date of our final physical inspection of the property. Inspection of the property, and the analyses that form the basis for our value conclusions were made by the undersigned. This report has been prepared in compliance with the Code of Professional Ethics of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP). <PAGE> Mr. Ernie Iriarte August 5, 1997 Page 2 O'Connor and Associates is a professional real estate appraisal and consulting firm, providing service to a variety of corporate, institutional, governmental and private clientele. In the past twelve (12) months our firm has completed numerous valuation assignments involving similarly improved properties. We are not qualified to detect or identify hazardous substances which may, or may not be present on, in, or near this property. The presence of hazardous materials may negatively affect value. We have valued the subject property as though free of hazardous materials. We urge the user of this report to obtain the services of a specialist for the purpose of conducting an environmental audit to ensure that the subject property is free of hazardous materials. Based on our investigation of the available market data, including sales of similar properties (see Sales Comparison Approach-Improved) and conversations with brokers and individuals active in the local area, the time that would be required to effectively expose the subject property to the market is estimated to be twelve (12) months. Attached is our self-contained appraisal report which describes the investigation and analyses undertaken in arriving at our value estimate. As such, the "As Is" Market Value of the subject property, as of July 29, 1997, is as follows: THIRTY-FIVE MILLION EIGHT HUNDRED THOUSAND DOLLARS $35,800,000 Respectfully submitted, O'CONNOR & ASSOCIATES /s/ John R. Fisher /s/ Patrick C. O'Connor - ------------------------------- ------------------------------- John R. Fisher Patrick C. O'Connor, MAI State Certified Real Estate Appraiser State Certified Real Estate Appraiser TX-1323960-G TX-1321378-G /s/ W. F. Trotter, Jr. - ------------------------------- W. F. Trotter, Jr. State Certified Real Estate Appraiser TX-1322606-G Associate Member of the Appraisal Institute <PAGE> TABLE OF CONTENTS I. PREFACE Title Page I Letter of Transmittal II Table of Contents IV Certification of Appraisal VI Assumptions and Limiting Conditions VIII Summarization of Important Data and Conclusions XII II. METHODOLOGY AND PROCEDURES IN THE APPRAISAL PROCESS The Appraisal Process 1 III. DESCRIPTIONS, ANALYSES, & CONCLUSIONS 11 Definitions of Value 11 Purpose of Appraisal 14 Use of Appraisal 14 Effective Date of Appraisal 15 Appraisal Development and Reporting Process 15 Legal Description 16 Ownership History 16 Houston Area Data 17 Neighborhood Data 36 Site Data 46 Improvement Data 52 Property Taxes 62 Zoning and Restrictions 64 Apartment Market Analysis 65 Highest and Best Use Analysis 80 C97-605 O'Connor & Associates IV <PAGE> TABLE OF CONTENTS B. SALES COMPARISON APPROACH-LAND VALUATION 87 Comparable Land Sales 88 Analysis of Comparable Land Sales 93 Land Grid Analysis 97 Final Estimate of Land Value 98 COST APPROACH TO VALUE 99 Estimate of Replacement Cost New 102 Depreciation 103 Final Estimate of Value via the Cost Approach to Value 107 SALES COMPARISON APPROACH 108 Comparable Improved Sales 109 Analysis of Improved Sales 124 Final Estimate of Value via the Sales Comparison Approach 132 INCOME APPROACH TO VALUE 133 Rent Comparables 137 Estimate of Market Rent 161 Expense Analysis 182 Net Operating Income 187 Direct Capitalization 189 Effective Gross Income Multiplier Analysis 194 Discounted Cash Flow Analysis 196 Final Estimate of Value via the Income Approach 201 RECONCILIATION AND FINAL VALUE ESTIMATE 206 EXHIBITS C97-605 O'Connor & Associates V <PAGE> CERTIFICATION OF APPRAISAL We certify that, to the best of our knowledge and belief, ... (1) The statements of fact contained in this report, upon which the analysis, opinions and conclusions expressed herein are based, 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, unbiased professional analyses, opinions and conclusions. (3) We have no present or prospective interest in the property that is the subject of this appraisal report, and we have no personal interest or bias with respect to the parties involved. (4) Our compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or use of, this report; our compensation is not contingent upon a predetermined value, or direction in value, or finding that favors the cause of the client, the amount of value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. (5) Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice as promulgated by the Appraisal Institute, and the Code of Professional Ethics of the Appraisal Institute. (6) The use of this report is subject to the requirements of the Appraisal Institute relating to review by their duly authorized representatives. (7) John R. Fisher has performed an interior and exterior inspection of the subject property. W. F. Trotter, Jr. and Patrick C. O'Connor, MAI have performed exterior inspections of the subject property. (8) No one provided significant professional assistance to the persons signing this report. (9) This assignment was not based upon a requested minimum value, a specific valuation, or the approval of a loan. (10) Patrick O'Connor is an MAI Member of the Appraisal Institute. W. F. Trotter, Jr. is an Associate Member of the Appraisal Institute. The bylaws and regulations of the Institute require each member to control the use and distribution of each report signed by such member. C97-605 O'Connor & Associates VI <PAGE> (11) The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. (12) As of the date of appraisal, Patrick C. O'Connor, MAI has completed the requirements under the continuing education program of the Appraisal Institute. Based on the preceding investigations and the analyses of the subject property, and subject to the attached definitions, assumptions, and limiting conditions, it is our opinion that as of the effective date of this appraisal, the "As Is" Market Value of the subject property, as of July 29, 1997 is as follows: THIRTY-FIVE MILLION EIGHT HUNDRED THOUSAND DOLLARS $35,800,000 Respectfully submitted, O'CONNOR & ASSOCIATES /s/ John R. Fisher /s/ Patrick C. O'Connor - ------------------------------- ------------------------------- John R. Fisher Patrick C. O'Connor, MAI State Certified Real Estate Appraiser State Certified Real Estate Appraiser TX-1323960-G TX-1321378-G /s/ W. F. Trotter, Jr. - ------------------------------- W. F. Trotter, Jr. State Certified Real Estate Appraiser TX-1322606-G Associate Member of the Appraisal Institute C97-605 O'Connor & Associates VII <PAGE> ASSUMPTIONS AND LIMITING CONDITIONS This appraisal is subject to the following assumptions and limiting conditions: 1) No survey of the subject property was undertaken and the appraiser(s) assume no responsibility associated with such matters. 2) The value estimate assumes responsible ownership and competent management. The subject property is assumed to be free and clear of all liens, except as may be otherwise herein described. No responsibility is assumed by the appraiser(s) for matters legal in character, nor is any opinion on the title rendered, which is assumed to be good and marketable. 3) The information contained herein has been gathered from sources deemed to be reliable, but the appraiser(s) assume no responsibility for its accuracy. Correctness of estimates, opinions, dimensions, sketches and other exhibits which have been furnished and have been used in this report are not guaranteed. 4) The value estimate rendered herein is considered reliable and valid only as of the date of the appraisal, due to rapid changes in the external factors that can significantly affect the property value. The final estimate of market value is expressed in terms of the current purchasing power of the dollar. 5) Any leases, agreements or other written or verbal representations and/or communications and information received by the appraiser(s) have been reasonably relied upon in good faith but have not been analyzed for their legal implications. We urge and caution the user of this report to obtain legal counsel of his/her own choice to review the legal and factual matters, and to verify and analyze the underlying facts and merits of any investment decision in a reasonably prudent manner. 6) Appraiser(s) assume no responsibility for any hidden agreements known as "side letters", which may or may not exist relative to this property, which have not been made known to us, unless specifically acknowledged within this report. 7) This report is to be used in whole, and not in part. Any separate valuation for land and improvements shall not be used in conjunction with any other appraisal and is invalid if so used. Possession of this report or any copy thereof does not carry with it the right of publication nor may the same be used for any purpose by anyone but the client without the previous written consent of the appraiser(s), and in any event, only in it entirety. 8) The appraiser(s), by reason of this report, are not required to give testimony in court with reference to the property appraised unless notice and proper arrangements have been previously made therefore. C97-605 O'Connor & Associates VIII <PAGE> Assumptions and Limiting Conditions - Continued 9) Neither all nor any part of the contents of this report shall be conveyed to the public through advertising, public relations, news, sales or other media without prior written consent and approval of the author. 10) No subsoil data or analysis based on engineering core borings or other tests were furnished to us. We have assumed that there are no subsoil defects present that would impair development of the land to its maximum permitted use, or would render it more or less valuable. No responsibility is assumed for engineering which might be required to discover such factors. 11) The construction and physical condition of the improvements described herein are based on visual inspection. No liability is assumed by the appraiser(s) for the soundness of structural members since no engineering tests were conducted. No liability is assumed for the condition or adequacy of mechanical equipment, plumbing or electrical components. No responsibility is assumed for engineering which might be required to discover such factors. We urge the user of this report to retain an expert in this field. 12) Unless otherwise stated in this report, the existence of hazardous substances, including without limitation asbestos, polychlorinated byphenyls, petroleum leakage, or agricultural chemicals, which may or may not be present in or on the property, or other environmental conditions were not called to the attention of the appraiser(s) nor did the appraiser(s) become aware of such during the appraiser(s) inspection. The appraiser(s) have no knowledge of the existence of such materials on or in the property unless otherwise stated. The appraiser(s), however, are not qualified to test such substances or conditions. If the presence of such substances as asbestos, urea formaldehyde, foam insulation or other hazardous substance or environmental conditions may affect the value of the property, the value estimate is predicated on the assumption that there is no such condition on or in the property or in such proximity thereto as to cause a loss in value. No responsibility is assumed for any such conditions, nor for any expertise or engineering knowledge required to detect or discover them. We urge the user of this report to retain an expert in the field of environmental impacts on real estate if so desired. 13) The projections of income, expenses, terminal values or future sales prices are not predictions of the future, rather, they are the best estimate of current market thinking of what future trends will be. No warranty or representation is made that these projections will materialize. The real estate market is constantly changing. It is not the task of the appraiser(s) to estimate the conditions of a future real estate market, but rather to reflect what the investment community envisions for the future, and upon what assumptions of the future investment decisions are based. C97-605 O'Connor & Associates IX <PAGE> Assumptions and Limiting Conditions - Continued 14) The client or user of this report agrees to notify the appraiser(s) of any error, omission or inaccurate date contained in the report within 15 days of receipt, and return the report and all copies thereof to the appraiser(s) for correction prior to any use. 15) The acceptance of this report, and its subsequent use by the client or any other party in any manner whatsoever for any purpose, is acknowledgement by the user that the report has been read and understood, and specifically agrees that the data and analyses, to their knowledge, are correct and acceptable. 16) The appraisal assignment was not based upon a requested minimum valuation, a specific valuation, or the approval of a loan. 17) We have not made a specific compliance survey to determine if the subject property is in compliance with the American Disabilities Act (ADA). It is possible that compliance survey of the subject property, together with a detailed analysis of the requirements of the ADA could reveal that the subject property is not in compliance with the Act. If so, this could have a negative effect upon the value of the subject property. Since we do not have any direct evidence relating to this issue, we did not consider possible noncompliance with the requirements of the ADA in estimating the value of the subject property. C97-605 O'Connor & Associates X <PAGE> ENVIRONMENTAL ASSUMPTIONS This appraisal is subject to the following environmental assumptions: 1) There is a safe, lead-free, adequate supply of drinking water. 2) The subject property is free of soil contamination. 3) There is no uncontaminated friable asbestos or other hazardous asbestos material on the property. 4) There are no uncontaminated PCB's on or near the property. 5) The radon level is at or below EPA recommended levels. 6) Any functioning underground storage tanks (UST's) are not leaking and are properly registered; any abandoned UST's are free from contamination and were properly drained, filled and sealed. 7) There are no hazardous waste sites on or near the subject property that negatively affect the value and/or safety of the property. 8) There is no significant UREA formaldehyde (UFFI) insulation or other UREA formaldehyde material on the property. 9) There is no flaking or peeling of lead-based paint on the property. 10) The property is free of air pollution. 11) There are no wetlands/flood plains on the property. 12) There are no other miscellaneous hazardous substances and/or detrimental environmental conditions on or in the area of the site (excess noise, radiation, light pollution, magnetic radiation, acid mine drainage, agricultural pollution, waste heat, miscellaneous chemical, infectious medical wastes, pesticides, herbicides, and the like). C97-605 O'Connor & Associates XI <PAGE> SUMMARY OF SALIENT FACTS AND CONCLUSIONS Property Name: West Point Apartments Tax I.D. #'s: 041-028-003-0026; 041-028-003-0037; 118-342-000-0001 Key Map: 490 U Location: The subject property is located at the intersection of Woodway Drive and Lazy Hollow Drive. The subject property has a physical address of 8700 Woodway, Houston, Harris County, Texas. Additionally, the property fronts Westheimer Road. Purpose of Appraisal: To estimate the "As Is" Market Value of the Fee Simple Estate, subject to assumptions and limiting conditions listed herein. Property Rights Appraised: Fee Simple Estate, subject to short term leases. Land Size: Three irregularly shaped tracts containing a total of +/-38.4484 acres (+/-1,674,812 square feet) of land. The tracts are effectively contiguous, separated only by roadway (see plat). Improvement Description: The subject property's improvements consist of a Class "B" apartment complex and supporting site improvements. The facility consists of two-story buildings, with a total net rentable area of 981,507 square feet (according to the rent roll provided). The project contains 950 master-metered units and 330 separately-metered units for a total of 1,280 units. Average Unit Size: 767 Square Feet Stabilized Occupancy: 91% (6% vacancy & collection loss + 3% employee/model units) C97-605 O'Connor & Associates XII <PAGE> SUMMARY OF SALIENT FACTS AND CONCLUSIONS - Continued Year of Construction: 1969-1972 Zoning: The City of Houston does not utilize zoning to regulate development. Utilities: All available Effective Date of the Appraisal: July 29, 1997 Flood Plain: According to FIRM map panel no. 48201C0275-H, published for Harris County and dated September 30, 1992, the large majority of the subject property is located in Zone X, an area outside of the 100-Year Floodplain. The north boundary appears to be in shaded Zone X, an area between the 100- and 500-Year Floodplains. A copy of this map is included in the Site Data section of this report. Highest and Best Use: As Vacant: Future multifamily development. As Improved: Its present multifamily use. Value Estimates: Land Value (As Vacant) $15,825,000 Cost Approach: $38,130,000 Sales Comparison Approach: $35,520,000 Income Approach: $36,100,000 Concluded Market Value: $35,800,000 Insurable Value: $36,635,000 Exposure Time/Marketing Time: Assuming adequate exposure and normal marketing efforts, the estimated exposure time (i.e. the length of time the subject property would have been exposed for sale in the market had it sold at the market value concluded to in this analysis as of the date of this valuation) would have been within about twelve (12) months; the estimated marketing time (i.e. the amount of time it would probably take to sell the subject property if exposed in the market beginning on the date of this valuation) is estimated to be within about twelve (12) months. C97-605 O'Connor & Associates XIII <PAGE> METHODOLOGY AND PROCEDURES USED IN THE APPRAISAL PROCESS An appraisal is defined as "the act or process of estimating value." (Appraisal of Real Estate, Eleventh Edition, Appraisal Institute). Real estate appraisal involves selective research into appropriate market areas; the assemblage of pertinent data; the use of appropriate analytical techniques; and the application of knowledge, experience, and professional judgement to develop an appropriate solution to an appraisal problem. The underlying principles in the appraisal process are supply/demand, anticipation, change, competition, substitution, opportunity cost, balance, contribution, surplus productivity, conformity, and externalities. As found in the Appraisal of Real Estate, Eleventh Edition, these principles are defined as follows: Supply and Demand "In economic theory, the principle of supply and demand states that the price of a commodity, good, or service varies inversely, but not necessarily proportionately, with demand, and directly, but not necessarily proportionately, with supply. In a real estate context, the appraisal principle of supply and demand states that the price of real property varies inversely, but not necessarily proportionately, with demand, and directly, but not necessarily proportionately, with supply. Thus, an increase in the supply of an item or a decrease in the demand for an item tends to reduce the equilibrium price; the opposite conditions produce an opposite effect. The relationship between supply and demand may not be directly proportional, but the interaction of these forces is fundamental to economic theory. The interaction of suppliers and demanders, or sellers and buyers, constitutes a market. "Usually, property values vary directly with changes in supply. If properties for a particular use become more abundant than they were in the past, their equilibrium value declines; by contrast, if properties become more scarce and supply declines relative to demand, the equilibrium price of the properties increases. The supply of and demand for commodities always tend toward equilibrium. At this theoretical point (which virtually never occurs), market value, price, and cost are equal." C97-605 O'Connor & Associates Page 1 <PAGE> Anticipation "Value is created by the anticipation of benefits to be derived in the future. In the real estate market, the current value of a property is usually not based on its historical prices or the cost of its creation; rather, value is based on market participants' perceptions of the future benefits of acquisition. "The value of owner-occupied residential property is based primarily on the expected future advantages, amenities, and pleasures of ownership and occupancy. The value of income-producing real estate is based on the income it will produce in the future. Therefore, real property appraisers must be aware of local, regional and national real estate trends that affect the perceptions of buyers and sellers and their anticipations of the future. Historical data on a property or the market are relevant only insofar as they help interpret current market anticipations." Change "The dynamic nature of the social, economic, governmental, and environmental forces that influence real property value accounts for change. Although change is inevitable and continuous, the process may be gradual and not easily discernible. In active markets, change may occur rapidly, with new properties put up for sale and others sold on a daily basis. Abrupt changes may be precipitated by plant or military base closures, tax law revisions, or the start of new construction. The pervasiveness of change is evident in the real estate market, where the social, economic, governmental, and environmental forces that affect real estate are in constant transition. Changes in these forces influence the demand for and supply of realty and, therefore, individual property values. Appraisers attempt to identify current and anticipated changes in the market that could affect current property values, but because change is not always predictable, value estimates may be valid only for a relatively brief period after the date specified in the appraisal report." Competition "Competition between buyers or tenants represents the interactive efforts of two or more potential purchasers or tenants to make a purchase or secure a lease. Between sellers or landlords, competition represents the interactive efforts of two or more potential sellers or landlords to effect a sale or lease. Competition is fundamental to the dynamics of supply and demand in a free enterprise, profit-maximizing, economic system. "Buyers and sellers of real property operate in a competitive market setting; in essence, each property competes with all other properties suitable for the same use in the particular market segment and often with properties from other market segments." Substitution "The principle of substitution states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price attracts the greatest demand and widest distribution. This principle assumes rational, prudent market behavior with no undue cost to delay. According to the principle of substitution, a buyer would not pay more for one property than for another that was equally desirable. C97-605 O'Connor & Associates Page 2 <PAGE> "Property values tend to be set by the cost of acquiring an equally desirable substitute property. The principle of substitution recognizes that buyers and sellers of real property have options, i.e., other properties are available for similar uses. The substitution of one property for another may be considered in terms of use, structural design, or earnings. The cost of acquisition may be the cost to purchase a similar site and construct a building of equivalent utility, assuming no undue cost due to delay; this is the basis of the cost approach. On the other hand, the cost of acquisition may be the price of acquiring an existing property of equal utility, again assuming no undue cost due to delay; this is the basis of the sales comparison approach. "The principle of substitution is equally applicable to properties such as houses, which are purchased for their amenity-producing attributes, and properties purchased for their income-producing capabilities. The amenity-producing attributes of residential properties include excellence of design, quality of workmanship, or superior construction materials. In regard to income-producing property, an equally desirable substitute might be an alternative investment property that produces equivalent investment returns with equivalent risk. The limits of property prices, rents, and rates tend to be set by the prevailing prices, rents and rates of equally desirable substitutes. The principle of substitution is fundamental to all three traditional approaches to value - sales comparison, cost, and income capitalization." Opportunity Cost "Opportunity cost is the net cost of opportunities not chosen or options foregone, denied, or lost. An investor who selects one investment forgoes the opportunity to invest in other available investments. An investor will select the investment that best meets his or her investment objectives. Some investors look for the highest rate of return at the lowest risk, while others seek the assurance of long-term growth at a more conservative rate of return. In addition to the illiquidity the investor endures over the term of the investment, there is a potential for opportunity cost if alternative investments at comparable levels of risk outperform the investment chosen." Balance "The principle of balance holds that real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium. This principle applies to relationships among various property components as well as the relationship between the costs of production and the property's productivity. Land, labor, capital, and entrepreneurship are the agents of production, but for most real property the critical combination is the land and the improvements. Economic balance is achieved when the combination of land and improvements is optimal -- i.e., when no marginal benefit or utility is achieved by adding another unit of capital. The law of increasing returns holds that increments in the agents of production added to a parcel of property produce greater net income up to a certain point. At this point, the point of decreasing or diminishing returns, the maximum value is achieved. Any additional expenditures will not produce a return commensurate with the additional investment, according to the law of decreasing returns. At the point of decreasing returns, further C97-605 O'Connor & Associates Page 3 <PAGE> increments in the agents of production will cause productivity to decline proportionately. This principle is also known as the principle of diminishing marginal productivity or law of diminishing returns." Contribution "The concept of contribution states that the value of a particular component is measured in terms of its contribution to the value of the whole property, or as the amount that its absence would detract from the value of the whole. The cost of an item does not necessarily equal its value. "In some cases, a property's market value may not increase even though the real estate has undergone alteration, modification, or rehabilitation. "The contribution of existing improvements may not be in proper balance with the total property. Especially in areas of rapid transition, a property's present use may underutilize the land. Nevertheless, an existing, less-than optimal use, called an interim use, will continue until it is economically feasible for a developer to absorb the costs of converting the property by either razing and replacing or rehabilitating the existing improvements." Surplus Productivity "Surplus productivity is the net income that remains after the costs of various agents of production have been paid. The classical economists identified the surplus with land rent, which they understood to account for land value. Traditionally, the principle of surplus productivity has provided the basis for the residual concept of land returns and residual valuation techniques. The principles of surplus productivity and residual returns to the land are useful in establishing the highest and best use of land and in analyzing which option among alternative land use options will yield the highest value. Some twentieth-century economists argue that surplus productivity should be ascribed to a different agent of production, i.e., the entrepreneurship required to combine the land, labor, and capital into a complete real estate product." Conformity "Conformity holds that real property value is created and sustained when the characteristics of a property conform to the demands of the market. The styles and uses of the properties in a given area may conform for several reasons, including economic pressures and the shared preferences of owners for certain types of structures, amenities, and services. The imposition and enforcement of zoning ordinances and plans by local governments to regulate land use may also contribute to conformity. Standards of conformity set by the market are subject to change. Zoning codes which tend to establish conformity in basic property characteristics such as size, style and design, are often difficult to change and may hasten the pace of obsolescence." C97-605 O'Connor & Associates Page 4 <PAGE> Externalities "The principle of externalities states that factors external to a property can have a positive effect on its value or a negative effect on its value. When an essential product or service affects a great number of people, it is often provided by government. "Real estate is affected by externalities perhaps more strongly than any other economic good, service or commodity. Because it is physically immobile, real estate is subject to many types of external influences. Externalities may refer to the use or physical attributes of properties located near the subject property or to the economic conditions that affect the market in which the subject property competes." C97-605 O'Connor & Associates Page 5 <PAGE> In arriving at a final value estimate for real property, an arduous and systematic process is undertaken. This process, as detailed in The Appraisal of Real Estate, Eleventh Edition, is set forth below. "The valuation process begins when an appraiser identifies the appraisal problem and ends when he or she reports a conclusion to the client. "Each real property is unique, and many different types of value can be estimated for a single property. The most common appraisal assignment is performed to estimate market value; the valuation process contains all the steps appropriate to this type of assignment. The model also provides the framework for estimating any other defined value. Consulting assignments often call for value estimates which are derived through application of the valuation process. "The valuation process is accomplished through specific steps; the number of steps followed depends on the nature of the appraisal assignment and the data available. The model indicates a pattern that can be used in any appraisal assignment to perform market research and data analysis, to apply appraisal techniques, and to integrate the results of these activities into an estimate of defined value. "Research begins after the appraisal problem has been defined. The analysis of data relevant to the problem starts with an investigation of trends observed at all market levels - international, national, regional, community, and neighborhood. This examination helps the appraiser understand the interrelationships among the principles, forces, and factors that affect real property value in the specific area. It also provides raw data from which to extract quantitative information and other evidence of market trends such as positive or negative percentage changes in property value over a number of years, the population movement into an area, and the number of employment opportunities available and their effect on the purchasing power of potential property users. These data can be analyzed and employed to estimate a defined value. "Traditionally, appraisal techniques are the specific procedures within the three approaches that are applied to derive indications of real property value. Other procedures, such as the use of inferential statistics and economic models also contribute to appraisals. One or more approaches to value may be used depending on their applicability to the particular appraisal assignment." C97-605 O'Connor & Associates Page 6 <PAGE> 1. The Cost Approach is based on the understanding that market participants relate value to cost. In the cost approach the value of a property is derived by adding the estimated value of the land to the current cost of constructing a reproduction or replacement for the improvements and then subtracting the amount of depreciation (i.e., deterioration and obsolescence) in the structures from all causes. Entrepreneurial profit may be included in the value indication. This approach is particularly useful in valuing new or nearly new improvements and properties that are not frequently exchanged in the market. Cost approach techniques can also be employed to derive information needed in the sales comparison and income capitalization approaches to value, such as the costs to cure items of deferred maintenance. 2. The Sales Comparison Approach is the process in which a market value estimate is derived by analyzing the market for similar properties and comparing these properties to the subject property. Estimates of market rent, cost, depreciation, and other value parameters may be derived in the other approaches to value using comparative techniques. Often these elements are also analyzed in the sales comparison approach to determine the adjustments to be made to the sales prices of comparable properties. The comparative techniques of analysis applied in the sales comparison approach are fundamental to the valuation process. In the sales comparison approach, market value is estimated by comparing the subject property to similar properties that have recently sold, are listed for sale, or are under contract (i.e., recently drawn up purchase offers accompanied by a cash or equivalent deposit). A major premise of the sales comparison approach is that the market value of a property is directly related to the prices of comparable, competitive properties. 3. In the Income Capitalization Approach, the present value of future benefits of property ownership is measured. A property's income streams and its resale value upon reversion may be capitalized into a present, lump-sum value. "In assignments to estimate market value, the ultimate goal of the valuation process is a well-supported conclusion that reflects all the factors that influence the market value of the property being appraised. To achieve this goal, the appraiser studies the property from three different viewpoints, which correspond to the three traditional approaches to value. "The three approaches are interrelated; each requires the gathering and analysis of sales, cost, and income data that pertain to the property being appraised...From the approaches applied, the appraiser derives separate indications of value for the property being appraised. One or more approaches may not be applicable to a specific assignment or may be less reliable due to the nature of the property, the needs of the client, or the data available." C97-605 O'Connor & Associates Page 7 <PAGE> The final step in the appraisal process involves the reconciliation of the values indicated by each of the applicable approaches into a final value conclusion. In this process the reliability of the value indications and the applicability of the approaches are explained. Reconciliation also provides an opportunity to resolve variations and inconsistencies among the value indications and the methods with which they were derived. The appraiser weighs the relative significant applicability and defensibility of the indication of value derived from each approach and places most weight and reliance on the one which in his professional judgment best approximates the value of the property. The facts are reconciled and their probable validity and reliability are reconciled to a final value estimate. "To complete the valuation process, the appraiser integrates the information drawn from market research and data analysis and from the application of approaches to form a value conclusion. This conclusion may be presented as a single point estimate of value or as a range within which the value may fall. An effective integration of all the elements in the process depends on an appraiser's skill, experience, and judgment." C97-605 O'Connor & Associates Page 8 <PAGE> An outline of the valuation process is presented below. I. Definition of the Problem A. Identification of real estate B. Identification of property rights to be valued C. Use of appraisal D. Definition of Value E. Date of Value Estimate F. Description of Scope of Appraisal G. Other limiting conditions II. Preliminary Analysis and Data Selection and Collection A. General 1. Social 2. Economic 3. Government 4. Environmental B. Specific (Subject and Comparables) 1. Site and improvements 2. Cost and Depreciation 3. Income/expense and capitalization rate 4. History of ownership and use of property C Competitive Supply and Demand (The subject market) 1. Inventory of competitive properties 2. Sales and listings 3. Vacancies and offerings 4. Absorption rates 5. Demand studies III. Highest and Best Use Analysis A. Land as though vacant B. Property as improved IV. Land Value Estimate V. Application of the Three Approaches A. Cost B. Sales Comparison C. Income Capitalization VI. Reconciliation of Value Indications and Final Value Estimate VII. Report of Defined Value C97-605 O'Connor & Associates Page 9 <PAGE> Approaches applicable to this appraisal In the following pages, the report will be segregated into six major categories. The first section covers general considerations, such as Region, City and Neighborhood Data, description of site and improvements, and the Highest and Best Use. The Second Section will deal with the land analysis and arrives at an estimate of land value. This section is then followed by the three (3) approaches to value, the Cost Approach, Sales Comparison Approach, and the Income Approach. In the last section, the estimates of value are then correlated and reconciled in the Final Reconciliation Section at the end of the report, just preceding the Final Value Estimate Competency of the Appraisers John R. Fisher, W. F. Trotter, Jr., and Patrick C. O'Connor, MAI are Certified Real Estate Appraisers with the State of Texas, and have appraised numerous properties similar to the subject. Your attention is invited to the following descriptions and analyses that form, in part, our opinion of value for the subject property. C97-605 O'Connor & Associates Page 10 <PAGE> DESCRIPTIONS, ANALYSES, AND CONCLUSIONS GENERAL CONSIDERATIONS Definitions of Value and Ownership The following are definitions of Value and Ownership rights that will be referred to in the following analyses. Complete Appraisal As defined by the Appraisal Standards Board of the Appraisal Foundation, a Complete Appraisal is defined as follows; "The act or process of estimating value or an estimate of value performed without invoking the Departure Provision." Self-Contained Appraisal Report As defined by the Appraisal Standards Board of the Appraisal Foundation, a Self Contained Appraisal Report is defined as follows: "A written report prepared under standards Rule 2-2(a) of a Complete or Limited Appraisal performed under Standard 1." C97-605 O'Connor & Associates Page 11 <PAGE> Market Value Market Value is defined by the OCC, Regulation 12 CFR, part 34 as being "the most probable price which a property will bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, 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 each acting in what he considered his own best interest; 3. A reasonable time is allowed for exposure in the open market; 4. Payment is made in terms of cash in U. S. 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." The value conclusions in this report are expressed in terms of cash. Exposure Time/Marketing Time Assuming adequate exposure and normal marketing efforts, the estimated exposure time (i.e. the length of time the subject property would have been exposed for sale in the market had it sold at the market value concluded to in this analysis as of the date of this valuation) would have been within about twelve (12) months; the estimated marketing time (i.e. the amount of time it would probably take to sell the subject property if exposed in the market beginning on the date of this valuation) is estimated to be within about twelve (12) months. C97-605 O'Connor & Associates Page 12 <PAGE> Market Rent Market Rent is defined by The Dictionary of Real Estate Appraisal as "the rental income that a property would most probably command in the open market." Ownership Rights The holding of rights or interest in real estate is referred to as ownership rights. As defined by The Appraisal of Real Estate, Eleventh Edition, the following are definitions of ownership interest applicable to our investigation. Fee Simple Estate This bundle of ownership rights refer to the "absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by governmental powers of taxation, eminent domain, police power, and escheat." Leased Fee Estate The leased fee interest refers to "an ownership interest held by a landlord with specified rights that include the right of use and occupancy conveyed by lease to others; the rights of lessor (the leased fee owner) and lessee (leaseholder) are specified by contract terms contained within the lease." Property Rights Appraised The property rights appraised in this assignment are the Fee Simple Estate (subject to short-term leases) in the subject property. C97-605 O'Connor & Associates Page 13 <PAGE> Assets Appraised The assets appraised in this appraisal assignment include land, buildings, and ancillary site improvements. No moveable equipment or personal property, other than appliances typically provided by the landlord in a multifamily setting, was included in the valuation process. No title policy was submitted to the appraiser and reservations, if any, are unknown. If property rights differ from the above definitions, the value may be affected. We reserve the right to modify our value conclusions should a current title policy or survey indicate adverse easements or encroachments not visible during our inspection. Purpose of Appraisal The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate, subject to short term leases. Use of the Appraisal The use of this appraisal is understood to be for loan decisions in association with the re-financing of the property. The development of this appraisal entailed the use of the complete appraisal process as defined by the Uniform Standards of Professional Appraisal Practice. This means that no departures from Standard 1 were invoked. Date of the Appraisal Report The writing of this appraisal report was completed on August 5, 1997. C97-605 O'Connor & Associates Page 14 <PAGE> Effective Date of the Appraisal The descriptions, analyses, and conclusions of this report for the subject property are applicable as of July 29, 1997. The appraisers inspected the site on July 29, 1997. Appraisal Development and Reporting Process This report has been prepared in compliance with the following: Uniform Standards of Professional Appraisal Practice, promulgated by the Appraisal Standards Board of the Appraisal Foundation, as set forth in 12 C.F.R. Part 1608; The Code of Professional Ethics of the Appraisal Institute. The value set forth herein was estimated after application and analysis by all three approaches to value, i.e.; Cost Approach, Income Approach, Sales Comparison Approach - Land Only, for an estimate of land as though vacant (to be used in conjunction with the Cost Approach) and Sales Comparison Approach - Improved Property. This appraisal included an inspection of the subject of this report and comparable sales, and an analysis of the surrounding neighborhood with recognition of existing and future trends. Market data, including sales and lease information on comparable properties, were obtained from sources considered to be reliable. Personal property, other than appliances typically provided by the landlord in a multifamily setting, was not included in the value estimate. This appraisal report details all pertinent data, descriptions, and discussions germane to the appraisal of the subject of this report. The development of this appraisal entailed the use of the complete appraisal process, as defined by the Uniform Standards of Professional Appraisal Practice (USPAP). This C97-605 O'Connor & Associates Page 15 <PAGE> means that no departures from Standard 1 were invoked. A copy of this report and the data included herein have been retained in our files. Legal Description The legal description for the subject property was provided the Harris County Appraisal District, as follows: PARCEL 1: Tracts 12, 12A - 12F, 12N, & 12S, Abstract 72, J. D. Taylor Survey; PARCEL 2: Tract 12G - 12K, 12M, 12P, & 12U, Abstract 72, J. D. Taylor Survey; PARCEL 3: Creekside Reserve, 2nd R/P, Houston, Harris County, Texas. Neither a metes and bounds legal description nor a site survey was provided to the appraisers. Ownership History of Subject Property According to information provided by the client, title to the subject property is currently vested in Harold Farb Investments (or its assigns), which built the property in 1969-72. Therefore, no sales activity involving the subject property has taken place over the past three years. The subject property is not currently listed for sale and no offers are pending. C97-605 O'Connor & Associates Page 16 <PAGE> Subject Area/ Property Analyses <PAGE> HOUSTON AREA ANALYSIS The subject is located within the Houston Consolidated Metropolitan Statistical Area (CMSA), which is composed of a seven-county area consisting of Harris, Montgomery, Galveston, Fort Bend, Brazoria, Waller, and Liberty Counties. Houston is the nation's fourth largest city with a metropolitan area population of over three million people. Houston emerged as a major corporate center during the 1960's and 1970's when more than 200 corporations moved their headquarters here. Thirty-four of the thirty-five major energy and petroleum corporations are headquartered in the city of Houston. As a result, the city has emerged as the "energy capital" of the world. Population According to the 1990 census, the Houston CMSA had a population of roughly 3.6 million, and Houston was the fourth largest city in the nation. From 1970 to 1980, the population growth of Houston averaged 3.6 percent per year, which was more than triple the national average. From 1980 to 1990, growth slowed due to poor economic conditions of the mid-1980's. Despite the economic downturn of the mid-1980's, Houston's seven-county Consolidated Statistical Metropolitan Area is projected to increase by an additional 1.48 million people through the year 2010, according to a task force working for the Houston-Galveston Area Council (HGAC). Employment in the area encompassing Harris, Fort Bend, Brazoria, C97-605 O'Connor & Associates Page 17 <PAGE> Galveston, Liberty, Montgomery, and Waller Counties, is projected to increase from 1.5 million employed in 1980 to 2.4 million in 2010, an increase of more than 60%. This latest projection recognized that the pace of growth for the seven-county area has lessened recently, and as a result, overall growth from 1980-1990 was moderate. The study projects greater increases in population and employment in the years after the 1980's. Population growth in the 1990 to 2010 time period is expected to be moderate, approximately 2% per year for population. Employment growth is expected to be slightly higher. The HGAC population projections are shown in the following table. ================================================================================ POPULATION PROJECTIONS ================================================================================ ================================================================================ Forecast % Increase County Actual 1990 2000 2010 1990 - 2010 Brazoria 198,178 235,821 282,384 42.5% Fort Bend 206,120 281,270 346,214 68.0% Galveston 224,169 264,120 313,533 40.0% Harris 2,712,765 3,160,005 3,716,947 37.0% Liberty 61,186 72,890 86,809 41.9% Montgomery 166,051 218,671 290,043 74.7% Waller 25,269 30,442 40,851 61.7% CMSA Total 3,593,738 4,263,219 5,076,781 41.3% ================================================================================ Transportation Networks The principal thoroughfares servicing the Houston metropolitan area include the Sam Houston Tollway/Beltway 8, the 610 Loop, U.S. Highway 59, Interstate Highway 45, Interstate Highway 10, and the Hardy Toll Road. C97-605 O'Connor & Associates Page 18 <PAGE> The Sam Houston Tollway consists of 6 main lanes separated by a concrete barrier, with an additional 3 lane frontage road (Beltway 8) system. The first phase of construction began in early 1985 at U.S. 59 and the Tollway was completed to Interstate Highway 10. Phase 2, completed in July 1989, extended the Tollway to the Northwest Freeway. In May, 1997, the final phase of the Tollway, extending from Highway 288 to Interstate 45, was completed. The Sam Houston Tollway/Beltway 8 now encircles the city limits of Houston and provides an outer loop for the suburban areas of Houston. This tollway/freeway system and its intersections has been the site of some of the most important development corridors in the Harris County area, and experienced a significant amount of development in the form of office, retail, light industrial, and apartment development during the early 1980's. The 610 Loop completely encircles Houston's Central Business District at a radius of 5 to 6 miles. The 610 South Loop West which extends in a north/south direction on the western portion of the city is one of Houston's most established areas for office, retail, and hotel development, second only to the Houston Central Business District. U.S. Highway 59, southwest of Loop 610, is known as the Southwest Freeway. This section was recently widened and improved. The Southwest Freeway is 8 to 10 lanes wide with a High Occupancy Vehicle center lane. Widening of the section of the Southwest Freeway from Loop 610 to Beltway 8 was completed in 1992. The section from Beltway 8 to West Airport is currently underway. Northeast of the Loop 610, C97-605 O'Connor & Associates Page 19 <PAGE> Highway 59 is known as the Eastex Freeway. This section of freeway, from Loop 610 out to Beltway 8 is currently under construction for similar widening and improving. Interstate Highway 45 is a 6- to 8-lane controlled access freeway that principally serves to connect the Houston Central Business District with areas to the north (i.e. Conroe, Huntsville, Dallas, etc) and south (i.e. Clear Lake, Galveston). Due to its proximity to Houston's Intercontinental Airport and its terminus in the City of Galveston, as well as its intersection with most major east/west thoroughfares, Interstate Highway 45 is considered one of Houston's principal highways. Interstate Highway 10 is a 6- to 8-lane controlled access freeway which extends east and west from just north of the Houston Central Business District. East of its intersection with Interstate Highway 45, the development trend is toward manufacturing and petroleum production. This freeway extends east in proximity to the Houston Ship Channel, which connects to Galveston Bay and allows shipping access to inland areas. Interstate Highway 10 continues east to Beaumont and further east to Florida. West of the Loop 610 intersection, development has tended toward primarily retail, until west of the Sam Houston Tollway, where office development becomes the primary land use. Interstate Highway 10, between the Sam Houston Tollway and Highway 6, has become known as the "energy corridor", as most major oil companies have located their main offices in this location. This freeway continues to the west, connecting with San Antonio before continuing out of the state. C97-605 O'Connor & Associates Page 20 <PAGE> The Hardy Toll Road is a controlled access thoroughfare which provides access to the northern portion of the city of Houston. It is a 6-lane concrete paved, lighted, thoroughfare that begins at the Loop 610 and continues north to the Harris County line where it merges with Interstate Highway 45. The Hardy Toll Road was planned as a reliever highway for Interstate Highway 45 between the growing communities north of the Houston Central Business District. The Hardy Toll Road improves accessibility to Houston Intercontinental Airport, which is located on the east side of this roadway. Manufacturing Manufacturing accounts for one of every ten employees in the Houston-Galveston area, with the majority involved in the energy industry. The majority of the factories located in the Houston area are related to off-load equipment, refined petroleum products, or petrochemicals. Houston ranks first in the nation in petroleum refining, and is typically known as the world's petroleum refining capital. Houston is also the center of a continually expanding network of product pipelines which connects some 200 chemical plants and refineries. It is anticipated that Houston will continue to be the nation's energy capital into the foreseeable future. The mid 1980's collapse of the petroleum and drilling industries was due primarily to a sharp decline in the price of oil. C97-605 O'Connor & Associates Page 21 <PAGE> Oil Drilling rig activity is an important leading economic indicator for the energy dependent Houston area. The rise or fall in the number of active exploratory drilling rigs tends to indicate trends in near term future employment in the energy industry. According to a recent survey of active drilling rigs by Baker Hughes, U.S. drilling rig activity for the month of May 1997 included 913 active rotary rigs, up 7% from the 853 active rigs reported in October 1996. West Texas Intermediate (the benchmark of U.S. Crude), has recently been selling in the $18 to $24 per barrel range, below the 1985 levels of $32 per barrel, but up significantly from the 1986 low of $12 per barrel. C97-605 O'Connor & Associates Page 22 <PAGE> Employment Houston's job growth has been strong, producing approximately 40,100 new jobs in 1996 (as compared 50,000 jobs in 1995, 18,800 jobs in 1993 and 37,400 jobs in 1994). According to the June 1997 report by the Texas Employment Commission, the Houston PMSA non-agricultural employed for June 1997 numbered 1,852,600, up from 1,820,500 in February 1997, and up from 1,809,700 in August 1996. Because of the high concentration of energy related industries in the Houston PMSA, the distribution of employment varies from national percentages primarily in the areas of manufacturing, services and mining (oil industry). Government employment and manufacturing are well below national averages. ================================================================================ June 1997 Non-Agricultural Employed in (000's) - -------------------------------------------------------------------------------- Industry Houston PMSA Percent - -------------------------------------------------------------------------------- Manufacturing 202.5 10.93% Mining 66.4 3.58% Construction 132.0 7.13% Trans., Comm., Utilities 126.6 6.83% Trade 432.1 23.32% Fin., Ins., Real Estate 97.6 5.27% Services & Miscellaneous 548.8 29.62% Government 246.6 13.31% ----- ------ Total 1,852.6 100.00% ================================================================================ C97-605 O'Connor & Associates Page 23 <PAGE> Unemployment According to Texas Employment Commission statistics, the Texas unemployment rate was 6.1% in June 1997, down from 6.4% in June 1996. The Houston metropolitan area unemployment rate for June 1997 was 5.9%, down from 6.1% in June 1996. The national unemployment rate was 5.2% for June 1997. The national unemployment rate was 4.7% for May 1997, the lowest rate in 24 years. Other Categories Houston also has numerous businesses involved in international trade and business, retail sales, marine sciences, and research and development. The city has several major universities including the University of Houston and Rice University. Houston is the location of the world famous Texas Medical Center (TMC) which was conceived as a means to coordinate health education, health research, and patient care. The Johnson Space Center is located southeast of downtown Houston and is responsible for the flight operations of the space shuttle. Texas Medical Center As the largest employer in Houston (approximately 52,000 employees), and the largest medical center in the world, the Texas Medical Center has an annual operating budget of $4.25 billion. The medical center has a daily population of 110,000, including employees, patients and students. The complex consists of 85 buildings and 41 nonprofit institutions, including more than a dozen hospitals. C97-605 O'Connor & Associates Page 24 <PAGE> Biotechnology The commercialization of the research discoveries made at the center's medical schools and hospitals has led to the emergence of biotechnology utilizing the life sciences for business results, which could result in producing food as well as medicine. It ranges from the manufacture of artificial hearts, drugs, and diagnostic medical tests to the splitting and recombining of genetic material. The combined resources of Baylor, the University of Texas Health Science Center, and the M. D. Anderson Hospital and Tumor Institute have made the city a scientific and economic leader in the field of biotechnology. According to a local Houston newspaper, a survey conducted by Sommers & Associates projected that Houston's biomedical technology industry will double in size during the next three years, growing to more than $1.1 billion in total revenues. Lyndon B. Johnson Space Center and Related Developments The Johnson Space Center is located southeast of downtown Houston and employs approximately 16,000 people. There are only eleven NASA space centers in the United States, and the Johnson Space Center has been selected to develop the majority of the $8 billion Space Station project. JSC is the flight control center and the training center for NASA Space Shuttle astronauts which gives the Houston area an advantage for space commercialization development. In an effort to reduce the national deficit, the federal government in 1995 decreased NASA's annual budget. Additionally, future downsizing appears possible for the complex. Space Center Houston, located adjacent to JSC, is a tourist attraction developed in conjunction with theme park designers from Walt Disney. C97-605 O'Connor & Associates Page 25 <PAGE> This attraction, which opened to the public in October, 1992, has experienced attendance figures substantially below initial projections. Although below expectations, the park has added jobs and revenue to the area. 1995 attendance was reported to be +450,000 persons. The owners of the attraction recently made an effort to reorganize the project's debt - structure. Port of Houston The Port of Houston is a 25-mile-long complex of facilities just a few hours' sailing time from the Gulf of Mexico. Houston's location makes it an ideal gateway between interior U.S. markets and foreign countries throughout the world. Four major railroads and more than 120 trucking lines connect the port to the continental United States, Canada and Mexico. Air service is also easily accessible through two major public airports and dozens of private terminals. More than 2,000 import/export companies operate in the city. Over 50 governments maintain consulates in Houston. According to the Port of Houston Magazine, tankers reported loading and discharging a total of +/-53.57 million tons of petroleum, petroleum products, industrial chemicals, and other cargo at the Port of Houston in 1996. 1997 figures were unavailable as of the date of appraisal. C97-605 O'Connor & Associates Page 26 <PAGE> Foreclosures According to the Houston Economic News, a publication of the Greater Houston Partnership's Research Department, foreclosures during 1996 totalled 3,985, down from 5,023 in 1995, and down 22% compared to 1994. The number of foreclosures has declined significantly since reaching over 30,000 in 1987. In the following chart, we have presented a summary of the total number of actual foreclosures since 1985: ============================================== Foreclosures ============================================== ============================================== 1985...............................16,571 1986...............................25,602 1987...............................31,015 1988...............................19,996 1989...............................13,054 1990................................9,083 1991................................6,685 1992................................5,747 1993................................5,454 1994................................5,113 1995................................5,023 1996................................3,985 ============================================== C97-605 O'Connor & Associates Page 27 <PAGE> General Real Estate Market Houston is currently experiencing an imbalance of supply and demand factors, as a result of the 1982 oil glut and downturn in the petrochemical industry. The economic base of Houston had a considerable amount of dependence on oil exploration, refining, and related activities, which slowed in the 1980's. According to researchers at the University of Texas, as much as 35% of Houston's Gross Regional Product is in the oil industry, or related services such as pipe manufacturing, refining, engineering, geology, and other support services such as legal, accounting, and marketing. According to research compiled by the Center for Public Policy, 59.1% of Houston's base employment is energy related. Construction during the late 1970's and early 1980's, within all segments of the real estate market, continued on the assumption that the local economy was immune to recession, based on the favorable experience of the preceding ten years, including the 1974 oil embargo. At that time, the Houston market boomed with new construction to meet the demands of the expanding petrochemical industry. The 1982 downturn stymied the absorption of office space, retail, apartments, and industrial and manufacturing facilities, as well as decreasing average annual occupancy in the Houston hotel industry. However, construction continued unabated until 1984. As a result, the supply of virtually all types of real estate in the Houston area exceeded the demand until recently. However, as absorption of this overbuilding has been occurring for ten plus years, the level of the excess supply of area real estate has decreased substantially. Since 1994, significant levels of new construction and absorption have occurred in many area market segments. C97-605 O'Connor & Associates Page 28 <PAGE> Office Market Houston's office market is continuing to improve. For the third consecutive survey period of O'Connor & Associates' Houston Area Office Ownership Guide, April, 1997, more than 1.5 million square feet of space was absorbed, which is a solid sign of a recovering, stabilizing office market. The April, 1997 survey period shows absorption at 2,532,705 square feet. Citywide occupancy for all building types and classes combined has been climbing steadily and has been over the 80 percent mark since the January, 1995 survey. Occupancy at that time was 80.2 percent. Current statistics reflect an occupancy rate of 84.7 percent, a 3.7 point increase over the same period a year ago. Currently, average rental rates for all building classes and types is $13.53 per square foot. By class, rates have jumped an average of $0.68 per square foot in Class A and $0.21 per square foot in Class B from the same period a year ago. However, some of the submarkets experienced slight dips in the Class C/D rates and occupancy. New construction completed in 1996 was limited to one 36,000 square foot building near Loop 610 at El Rio, built by Sueba. The future, however, indicates numerous under-construction projects, as well as proposed. Based on dwindling amounts of large blocks of contiguous space, increasing rental rates and the number of projects proposed and under construction, 1997 should be an active year for the Houston office market. C97-605 O'Connor & Associates Page 29 <PAGE> Apartment Market According to the March 1997 Houston Area Apartment Ownership Guide, published by O'Connor and Associates, there are 2,342 apartment projects with 384,990 units in the Harris County market (for which rental data is available). The rental apartment market is currently experiencing an overall occupancy rate of approximately 91.63%. Separately metered projects reflect 91.93% occupancy and have remained relatively stable in the last two years. Master-metered projects average 89.75% occupancy. Rental rates have been increasing gradually for the past three years, for both resident-paid and owner-paid utility projects. Rental concessions have virtually disappeared. Rental rates for resident-paid units, which comprise the majority of the market are at the highest level since Spring 1983. These units average $0.594 per square foot per month and have experienced steady increases in the last two years from $0.55 per square foot in March 1994. Owner-paid units average $0.617 per square foot per month, up from $0.54 in March 1994. C97-605 O'Connor & Associates Page 30 <PAGE> Retail Market The Houston Area Retail Market Survey, prepared by O'Connor & Associates, May, 1997, reports substantial increases in the construction of retail centers over the last two years. The following chart lists recent construction: ============================ Year Square Feet 1990 1,205,447 1991 2,175,271 1992 1,406,319 1993 3,296,975 1994 4,307,731 1995 4,803,459 1996 4,611,031 1997 384,350 ============================ Presently, 35 centers (6,920,420) are proposed. The current overall occupancy for existing shopping centers was 86.41%. The lowest occupancy rates for retail centers are being reported in the Inner Loop, South, and Far Southeast areas of Harris County. By contrast, the highest occupancy rates were reported in the Near West, Near North, and Near Southwest market areas. Based on existing vacancy, the Houston market is slightly overbuilt with shopping centers to the extent that, depending upon the submarket, there is a 2 to 4 year supply. Grocery-anchored retail centers average 84% occupancy. Much of the excess vacant space is in ill-conceived strip and neighborhood centers which are unlikely to be fully utilized for their intended purpose (retail). However, some of this space is being used for alternative uses including churches, service, schools and offices. C97-605 O'Connor & Associates Page 31 <PAGE> The average annual rental rate for retail centers as of May 1997 indicated $14.64 per square foot. Regional malls reflected an average asking rental rate of $31.20 per square foot, community shopping centers $13.20, neighborhood centers $10.56, and strip centers $9.24 per square foot. Average rental rates have been increasing at a relatively slow and steady rate (2.5% per year) since 1991. Industrial Market According to The Houston Area Industrial Ownership Guide, prepared by O'Connor & Associates, dated April 1997, there is a total of 260,414,977 square feet of existing service center, warehouse, and heavy manufacturing facility space in 5,283 buildings in the Houston market. The current overall occupancy of 88.35% is higher than the occupancy in April 1996 of 87.79%. Rental rates for industrial space average $0.328 per square foot per month. C97-605 O'Connor & Associates Page 32 <PAGE> Hotel / Motel Market According to the December 1996, Year End Trends in the Hotel Industry, published by Pannell-Kerr-Foster PKF Consulting, the overall Houston market reflected a relatively stable occupancy level from 1995 to 1996, reflecting occupancy levels of 64.6% in 1995 and 64.5% in 1996. The average daily rate (ADR) for the Houston area increased 6.0%, and overall revenues per available room (REVPAR) have increased 5.8% during the same time period. The following table depicts how this market fared in 1995 and 1996. <TABLE> <CAPTION> ================================================================================================ Occupancy ADR REVPAR Market Area 1995 1996 Pt. 1995 1996 % 1995 1996 % Change Change Change - ------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Galleria/Post Oak 70.3% 71.4% 1.1 $92.48 $97.38 5.3% $65.06 $69.52 6.9% Astrodome/South 52.5% 51.5% -1.0 $61.70 $65.58 6.3% $32.39 $33.78 4.3% Main Texas Medical 71.1% 73.7% 2.6 $66.70 $68.52 2.7% $47.41 $50.51 6.5% Center Intercontinental 65.2% 64.9% -0.3 $58.92 $61.69 4.7% $38.43 $40.02 4.1% Airport Hobby Airport 68.4% 64.3% -4.1 $59.09 $57.45 -2.8% $40.39 $36.96 -8.5% Clear Lake 63.6% 58.9% -4.7 $67.45 $70.93 5.2% $42.91 $41.81 -2.6% Southwest 58.0% 60.3% 2.3 $59.02 $60.55 2.6% $34.22 $36.53 6.8% Westchase/Katy 64.4% 65.6% 1.2 $67.84 $71.52 5.4% $43.70 $46.93 7.4% Freeway Northwest 64.8% 62.1% -2.7 $55.61 $58.12 4.5% $36.02 $36.12 0.3% Houston CBD 63.0% 63.9% 0.9 $94.46 $102.7 1 8.7% $59.46 $65.60 10.3% East/Baytown 71.1% 67.0% -4.1 $46.16 $47.15 2.1% $32.84 $31.59 -3.8% - ------------------------------------------------------------------------------------------------ Total Houston Area 64.6% 64.5% -0.1 $70.12 $74.33 6.0% $45.32 $47.97 5.8% ================================================================================================ </TABLE> C97-605 O'Connor & Associates Page 33 <PAGE> AREA ANALYSIS - Conclusion According to a daily Houston newspaper, DRI/McGraw Hill ranked Houston as the third highest city in the country for projected job growth through 1996. The city continues to diversify away from the oil business. It is our opinion that the current economic trend is toward recovery. As the Houston economy continues to become more diversified, and less dependent on the oil and gas industry, it will remain a viable and dominant factor in the national economy, and particularly in the south central United States. It is our opinion that Houston now has a fundamentally healthy, viable economic base, with only normal, typically expected unemployment, following the downturn of the energy industry. Employment growth was 90,700 jobs in 1990, 26,500 in 1991, -400 in 1992, 18,800 in 1993, 37,100 in 1994, 50,000 in 1995, and 40,100 in 1996 according to the Texas Employment Commission. Over the past several years, Houston real estate has suffered from the severe over-building in the early 1980's, rather than from a weak economic base. However, after a decade of absorption, the level of oversupply of all types of Houston real estate has decreased substantially. In 1994 and 1995, significant levels of new construction occurred in several market segments. It is our opinion that the market is recovering from population declines and employment losses of the past, but there still remains an imbalance of supply and demand factors for real estate. It is our opinion that the local real estate economy bottomed out in 1987 and has experienced a gradual recovery during the 1990's. Additionally, area economists are predicting a continued gradual recovery for the economy as well as the real estate market in the foreseeable future. However, it may C97-605 O'Connor & Associates Page 34 <PAGE> take another decade for all submarkets to recover. Retail, multifamily and industrial have improved drastically over the last decade. The office market is still the weakest, as this sector experienced the greatest overbuilding during the 1980's. Even during the boom, it took as many as seven to eight years for employment to reach their record highs following the oil embargo of 1974. While the overall market is still suffering from overbuilding, not all submarkets are suffering equally. There are prosperous submarkets and certain areas will recover faster than others. Certain sectors of the market in some submarkets indicate strength sufficient to warrant additional construction immediately, while others could remain depressed for as long as five or more years. Our review and analysis of the above information indicates that the city of Houston and surrounding counties are, for the first time in recent history, becoming a diversified economy and exhibit favorable trends for long-term economic stability. Houston's population and economy are expected to recover and continue to grow over the next decade, but at a much slower rate than during the boom years of the late 1970's and early 1980's. C97-605 O'Connor & Associates Page 35 <PAGE> HOUSTON [MAP OMITTED] <PAGE> NEIGHBORHOOD DATA Definition: A neighborhood is defined in The Dictionary of Real Estate Appraisal, Third Edition, copyright 1993, page 242, by the Appraisal Institute as: "a group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises" A neighborhood can be a portion of a larger community, or an entire community in which there is a homogeneous group of inhabitants, buildings, and business enterprises in which inhabitants have a more than casual community interest and a similarity of economic levels or cultural backgrounds. Neighborhood boundaries may consist of well defined natural or man made barriers or they may be more or less well defined such as by distinct change in land uses. Neighborhoods may be devoted to such uses as residential, commercial, industrial, agricultural, cultural and civic activities, or a mixture of uses. Analysis of the neighborhood in which a particular property is located is important due to the fact that the various economic, social, political, and physical forces which affect that neighborhood also directly includes the individual properties within it. An analysis of the various factors as they affect the value of the subject property is presented in the following discussion. C97-605 O'Connor & Associates Page 36 <PAGE> Subject Neighborhood Defined The subject property is located at the intersection of Woodway Drive and Lazy Hollow Drive. The subject property has a physical address of 7800 Woodway, Houston, Harris County, Texas. For the purposes of this analysis, the subject neighborhood is generally defined as being bound by San Felipe and Woodway to the north, West Loop North to the east, Westpark Drive and Southwest Freeway to the south, and Gessner Road to the west. These boundaries have been defined because the properties within them tend to exhibit similar characteristics, physical features, price desirability, and they are affected by similar physical, economic, governmental and social forces. Accessibility The subject neighborhood is most easily accessible from downtown Houston by traveling west on Westheimer Road to the neighborhood. Streets Major east/west thoroughfares in the neighborhood include Woodway, San Felipe, Westheimer, Richmond, Westpark and the Southwest Freeway. Major north/south streets include Gessner, Fondren, Hillcroft/ Voss, Fountainview, Chimney Rock, Post Oak Boulevard, and West Loop South. C97-605 O'Connor & Associates Page 37 <PAGE> Land Use Patterns The neighborhood is a viable, heterogeneous area in the westerly portion of Harris county. Land uses in the neighborhood consist of a variety of commercial, and residential land uses, including, but not limited to, single-family residential subdivisions, multifamily, retail, and service. Residential development is located in various upper-income subdivisions throughout the neighborhood, with commercial development located along the aforementioned thoroughfares. Single-family use within the immediate area includes established residential subdivisions with home prices typically ranging from the $125,000's to $250,000's, and higher. Homes in the area are typically fifteen to twenty-five years old and are well-maintained. Other development in the immediate subject area includes dense retail development along the major thoroughfares (Westheimer, Richmond, Fondren, etc.) and multifamily properties along the secondary roadways. Prevalent forms of commercial uses include neighborhood shopping centers, free-standing retail facilities, restaurants, and office buildings. In the subject neighborhood, Westheimer and Richmond have become somewhat of a restaurant/entertainment row, as a number of restaurants and night clubs are located along these two streets. The most predominant influence in the area is the Galleria Mall. The Galleria Mall is located on the south line of Westheimer, between Sage and Post Oak. This up-scale regional mall contains 1,610,000 square feet of space and was built in stages from 1970 to 1986. This mall is reportedly +98% occupied and is - anchored by Neiman-Marcus, Lord & Taylor, Marshall Field's, and Macy's. This mall is one of the area's largest employment centers. C97-605 O'Connor & Associates Page 38 <PAGE> Additionally, the Carillion Center and Westchase Mall are located along Westheimer at Gessner Road. Public Services Police and fire protection and other services are provided by the City of Houston as well as Harris County. Public water and sanitary sewer services for the area are provided by the city systems. The neighborhood is also served by the Houston Independent School District with schools of all levels located throughout the area. Hospital facilities are located nearby, with the Rosewood General Hospital situated on Westheimer, east of Gessner. Real Estate Market The following are summaries of surveys of the various real estate submarkets for areas which include the subject neighborhood. C97-605 O'Connor & Associates Page 39 <PAGE> Multifamily Development Sector: 5 - Near West, as defined by the Houston Area Apartment Ownership Guide, published by O'Connor & Associates. Boundaries: North: Katy Freeway South: Bellaire and West Park West: South Gessner Road East: West Loop South and Buffalo Bayou Survey Period: March 1997 Separately Metered Master Metered ------------------ -------------- Projects: 117 43 Units: 27,846 10,985 Occupancy: 93.67% 92.58% Rent PSF: $0.669 $0.642 Rent/Unit: $561 $522 C97-605 O'Connor & Associates Page 40 <PAGE> Office Development Sector: Far West, as defined by the Houston Area Office Building Survey, published by O'Connor & Associates. Boundaries: North: Katy Freeway South: West Park East: Voss/Hillcroft West: Harris County Line Survey Period: April 1997 All Classes ----------- Buildings: 299 Net Rentable SF: 30,405,733 Occupancy: 91.2% Rent PSF/Yr: $12.63 C97-605 O'Connor & Associates Page 41 <PAGE> Retail Development Sector: Near West as defined by Houston Area Retail Building Survey, published by O'Connor & Associates. Boundaries: North: Old Katy Road South: West Park East: Loop 610 West: Beltway 8 Survey Period: May 1997 Buildings: 132 Net Rentable SF: 10,875,058 Occupancy: 92.44% ================================================================================ Regional Community Neighborhood Strip Center - -------------------------------------------------------------------------------- Buildings 2 11 76 43 - -------------------------------------------------------------------------------- Net Rentable SF 3,306,694 2,339,012 4,528,893 700,459 - -------------------------------------------------------------------------------- Occupied SF 3,220,993 2,112,254 4,093,444 624,529 - -------------------------------------------------------------------------------- Occupancy 97.41% 90.31% 90.40% 89.20% - -------------------------------------------------------------------------------- Rent PSF/Mo $4.80 $1.73 $1.31 $1.19 ================================================================================ Note: This defined area includes the "Galleria" area, including the most upscale mall in the Houston area. C97-605 O'Connor & Associates Page 42 <PAGE> Industrial Development Sector: Far Southwest, as defined by the Houston Area Industrial Ownership Guide, published by O'Connor & Associates. Boundaries: North: Buffalo Bayou and FM 1093 South: Harris County Line East: Hillcroft, Hiram Clarke, South Main, and Brays Bayou West: FM 1093, State Highway 6, and Briar Forest Survey Period: April 1997 Buildings: 435 Net Rentable SF: 20,031,821 Occupancy: 88.67% Rental Rate: $0.403 C97-605 O'Connor & Associates Page 43 <PAGE> Trends The neighborhood is considered to be heterogeneous in nature and experienced an increase in commercial/retail construction activity in recent years. Recent development in and around the subject neighborhood includes Class A apartments in 1994 and early 1995, 25 retail developments between 1990 and year-to-date (most concentrated near the Galleria Mall), five new office buildings constructed in 1992 through 1994, and ten industrial buildings between 1993 and 1996. Included in these developments are a Wal-Mart on Westheimer at Dunvale, a Venture store on Westheimer at Voss, and a K-Mart on Westheimer across from the new Wal-Mart. Several pad sites adjacent to the Venture site have also been developed with fast-food restaurants in the last two years. Most recently, a 30-screen movie complex was constructed behind the Wal-Mart on Dunvale. Several motels have been constructed along the West Loop within the past year. Also, a Kroger-anchored shopping center was recently completed at the intersection of San Felipe and Voss. A few new multifamily apartment projects have also been developed in the area and others have been renovated in the last few years. A number of new restaurants and night clubs have opened along Richmond in recent years, and appear to have flourished from the competition. C97-605 O'Connor & Associates Page 44 <PAGE> Summary In conclusion, the neighborhood is well located with good accessibility to area developments, major thoroughfares, and surrounding communities. The overall land area is approximately 95% built up allowing limited opportunity for future growth. Therefore, as vacant land sites become more scarce, older properties will be purchased and razed for new construction. Commercial properties should have continued improvement as the recovery proceeds. Additionally, well maintained and well managed properties are expected to have stable, if not increasing occupancy rates. The subject neighborhood is considered to have a stable and positive influence on the subject property being appraised. C97-605 O'Connor & Associates Page 45 <PAGE> NEIGHBORHOOD MAP [MAP OMITTED] <PAGE> SITE DATA The following description of the subject's characteristics are based on review of a plat map obtained from Harris County, and our physical inspection of the site. No survey of the subject was provided for review. Please refer to copies of the plat map and photographs for a visual perspective of the subject's physical characteristics. Location The subject property is located at the intersection of Woodway Drive and Lazy Hollow Drive. The subject property has a physical address of 8700 Woodway, Houston, Harris County, Texas. Additionally the subject fronts Westheimer Road (at Lazy Hollow). Physical Attributes The subject property consists of a total of +/-38.4484 acres (+/-1,674,812 square feet) of land area, and is irregular in shape. As indicated by the plat map, the subject is separated into three parcels by Woodway Drive and Lazy Hollow Drive. Based on the plat map, the subject property has +/-822 feet of frontage along the north line of Westheimer Road, +/-1,300 feet of frontage along the west line of Lazy Hollow Drive, +/-1,300 feet of frontage along the east line of Lazy Hollow Drive, +/-830 feet of frontage along the south line of Woodway, and +/-947 feet of frontage along the north line of Woodway. The property has a frontage to acreage ratio of 135.22:1. C97-605 O'Connor & Associates Page 46 <PAGE> Accessibility The subject property is accessible from downtown Houston by traveling west on Westheimer Road (Elgin) to the subject property. The subject property is located at the intersection of Woodway Drive and Lazy Hollow Drive, with frontage on Westheimer Road. The subject property has a physical address of 7800 Woodway, Houston, Harris County, Texas. Accessibility and visibility are considered to be good. Streets In the subject neighborhood, Westheimer Road is an 8-lane, 2-way, primary area thoroughfare which handles heavy daily traffic flows. Lazy Hollow Drive is a two-lane, two-way concrete-paved roadway with curb and gutter drainage which dead-ends at Westheimer Road to the south and Woodway Drive to the north. Woodway Drive is a two-lane, two-way concrete-paved roadway with curb and gutter drainage which handles minimal daily traffic flows. Topography The topography of the site is generally level. Based on our inspection, the site has adequate slope and drainage to remove ground water. Zoning and Restrictions Neither the City of Houston nor Harris County utilizes zoning to regulate development. Individual subdivisions often use deed restrictions to regulate development. The appraisers were not provided a copy of any applicable deed restrictions, and reserve the C97-605 O'Connor & Associates Page 47 <PAGE> right to modify our value conclusions should any deed restrictions be present that are detrimental to the subject site. Utilities Water and sewer service are provided by the City of Houston. Local telephone service is provided by Southwestern Bell, and natural gas is available via Entex. Electricity is provided by Houston Lighting & Power. Easements/Encroachments A survey was not provided to the appraisers for review. No easements or encroachments that would have a negative effect on property value were visibly apparent during our inspection. We reserve the right to modify our value conclusions should a title policy reveal that any adverse easements or encroachments are present. Soil and Sub-soil Conditions No soil engineer's report was available to us and no recent soil tests were performed. Based on our inspection of surrounding development in the immediate area and lack of further evidence to the contrary we have assumed a stable soil condition that would ensure the structural integrity of any improvement which may be constructed. We reserve our right to modify our value conclusions should these assumptions prove incorrect. We caution and advise the user of this report to obtain engineering studies which may be required to ascertain any structural integrity. C97-605 O'Connor & Associates Page 48 <PAGE> Environmental Conditions No environmental report was available to us, nor did we observe any signs of possible conditions during our physical inspection. Because we have no evidence to the contrary, we have assumed that the properties are free of any material which would adversely affect the value, including, but not limited to, asbestos and toxic waste. We reserve our right to modify our value conclusions should these assumptions prove incorrect. We caution and advise the user of this report to obtain environmental studies which may be required to ascertain status of the property with regard to asbestos and other hazardous materials. Surrounding Development Land use adjacent to the subject site includes Buffalo Bayou to the north, an apartment development to the west, and commercial/retail development to the east and south. Flood Zone According to FIRM map panel no. 48201C0275-H, published for Harris County and dated September 30, 1992, the large majority of the subject property is located in Zone X, an area outside of the 100-Year Floodplain. The north boundary appears to be in shaded Zone X, an area between the 100- and 500-Year Floodplains. A portion of the flood map is included at the end of this section of the report. C97-605 O'Connor & Associates Page 49 <PAGE> ================================================================================ [MAP OMITTED] - -------------------------------------------------------------------------------- PLAT MAP ================================================================================ C97-605 O'Connor & Associates Page 50 <PAGE> ================================================================================ [MAP OMITTED] - -------------------------------------------------------------------------------- FLOOD PLAIN MAP ================================================================================ C97-605 O'Connor & Associates Page 51 <PAGE> DESCRIPTION OF THE IMPROVEMENTS The subject property is improved with a 1,280-unit multifamily project, of which 950 units are master-metered and 330 units are separately-metered for electricity. The units are contained in two-story, garden-style apartment buildings, constructed in 1969-72. Our final inspection of the subject site was performed on July 29, 1997. The property manager (Sylvia) was present during our interior inspection. The following chart exhibits the unit mix for the project. ============================================== SUBJECT UNIT MIX ============================================== Unit Type Number Unit Rentable of Size Area Units 1 BR / 1 BA 160 615 98,400 1 BR / 1 BA 166 720 119,520 1 BR / 1 BA 232 736 170,752 1 BR / 1 BA 80 798 63,840 2 BR / 1 BA 52 928 48,256 2 BR / 1 BA 64 936 59,904 2 BR / 1 BA 32 960 30,720 2 BR / 1 BA 32 966 30,912 2 BR / 2 BA 68 1,008 68,544 2 BR / 2 BA 16 1,050 16,800 2 BR / 2 BA 32 1,120 35,840 2 BR / 2 BA 16 1,240 19,840 1 BR / 1 BA 288 615 177,120 1 BR / 1 BA 1 722 722 1 BR / 1 BA 2 728 1,456 1 BR / 1 BA 1 752 752 C97-605 O'Connor & Associates Page 52 <PAGE> 1 BR / 1 BA 1 822 822 1 BR / 1 BA 1 885 885 1 BR / 1 BA 1 890 890 2 BR / 2 BA 1 1,000 1,000 2 BR / 2 BA 1 1,108 1,108 2 BR / 2 BA 32 1,008 32,256 2 BR / 2 BA 1 1,168 1,168 - ----- ----- Total # Units 1,280 Avg Unit Size 767 Net Rentable Area 981,507 ================================================ The above net rentable area and unit mix was provided by the client; however, we were not provided building plans. Our value conclusion is subject to revision if a subsequent survey indicates building area significantly varying from the above NRA. The total net rentable area of the subject project is indicated to be 981,507 SF. The office/clubhouse, storage, and laundry rooms bring the gross building area to an estimated +/-993,307 square feet. Based on our inspection, the following is a description of the various improvement construction components: Foundation: Reinforced concrete slab at grade level Building Type: Two-story garden style apartments Net Rentable Area: +/-981,507 square feet of net rentable building area Exterior Walls: Brick, wood trim Roofing: Flat built-up, tar and gravel and pitched composition shingle Unit Finish: Partitions between units are wood studs with painted sheetrock panels. Floor coverings are carpet and vinyl tile. Ceilings are textured sheetrock. Kitchen packages include refrigerators, oven/ranges with exhaust fans, dishwasher and disposal in a metal sink. C97-605 O'Connor & Associates Page 53 <PAGE> DESCRIPTION OF THE IMPROVEMENTS - Continued Unit Amenities: Units include ceiling fans, full kitchen packages, private patios/balconies, walk-in closets, built-in shelving (in some floorplans) and cable television hook-ups. Fixtures: Plumbing and light fixtures are average for an apartment complex in the area. Hot water is provided by central boiler systems. Insulation: Adequacy not known; assumed adequate Heating/Cooling: Individual HVAC, ground-mounted units with individually controlled thermostats Parking: Covered parking (metal canopies) is provided for 950 units while 330 units have open parking spaces. Including sidewalks, the paving is estimated to total 512,000 SF of asphalt and concrete paving. Landscaping: Above average with courtyards, mature trees and shrubs Pool: Nine fenced pools (in central locations), including one large pool with an unusual shape and attractive market appeal. Fence: Brick and iron rail fencing surround perimeter. Limited access gates regulate pedestrian and auto traffic through the property. Stairs/landings: Access to the upstairs units is by metal stairways with light-weight concrete risers. Second level landings are similar construction. Laundry: Nineteen laundry rooms with coin-operated washers and dryers Leasing Office: One small leasing office located on Lazy Hollow and one large (primary) leasing office/clubhouse on Woodway. The large leasing office was constructed in 1995 and features a modern computer room, mini-theater, exercise room, and aerobics room. The relatively new building is of a traditional architectural design and is an attractive amenity for the property. Fireplaces: None C97-605 O'Connor & Associates Page 54 <PAGE> DESCRIPTION OF THE IMPROVEMENTS - Continued Occupancy: +/-99%, as of the effective date of this appraisal Year Built: 1969-72 Condition: The property has been well-maintained by the owners, with many updates over the years. The complex is considered to be in good condition and is estimated to have an effective age of 20 years, with a remaining estimated economic life of 25 years (45 years total). No deferred maintenance was noted during our physical inspection nor during conversations with the on-site manager. Functional Utility: The subject improvements are considered to be adequately functional when compared with competing properties in the neighborhood. Conclusions: The property is considered to have good curb appeal and should maintain a competitive position in the market. The effective age of the subject property is estimated at 20 years based on its observed condition. The apartment units (all floorplans) have adequate functional utility with no items of functional obsolescence noted, based on our personal inspection and discussions with the manager. To the best of our knowledge, there are no actual or suspect code violations and/or health and safety issues, based upon our physical inspection. The subject property suffers from external obsolescence (see Cost Approach). It is our conclusion that the subject property should remain competitive in its sub-market area into the foreseeable future. C97-605 O'Connor & Associates Page 55 <PAGE> SUBJECT PHOTOGRAPHS TAKEN ON July 29, 1997 [PHOTO OMITTED] Subject property as seen from Lazy Hollow [PHOTO OMITTED] Exterior view of subject property and parking area C97-605 O'Connor & Associates Page 56 <PAGE> SUBJECT PHOTOGRAPHS TAKEN ON July 29, 1997 [PHOTO OMITTED] View of common areas and typical units [PHOTO OMITTED] View of covered parking area C97-605 O'Connor & Associates Page 57 <PAGE> SUBJECT PHOTOGRAPHS TAKEN ON July 29, 1997 [PHOTO OMITTED] Exterior view of leasing office/clubhouse [PHOTO OMITTED] Interior view of aerobics room (clubhouse) C97-605 O'Connor & Associates Page 58 <PAGE> SUBJECT PHOTOGRAPHS TAKEN ON July 29, 1997 [PHOTO OMITTED] Typical interior view of subject units [PHOTO OMITTED] Typical interior view of subject units C97-605 O'Connor & Associates Page 59 <PAGE> SUBJECT PHOTOGRAPHS TAKEN ON July 29, 1997 [PHOTO OMITTED] View looking east on Westheimer Road [PHOTO OMITTED] View looking west on Woodway C97-605 O'Connor & Associates Page 60 <PAGE> SUBJECT PHOTOGRAPHS TAKEN ON July 29, 1997 [PHOTO OMITTED] View looking south on Lazy Hollow [PHOTO OMITTED] View looking north on Lazy Hollow C97-605 O'Connor & Associates Page 61 <PAGE> PROPERTY TAXES The Harris County Appraisal District maintains the following account numbers for the subject property: 041-028-003-0026; 041-028-003-0037; 118-342-000-0001. Following are the 1996 overall tax rates for the taxing jurisdictions involved. ================================================================================ Jurisdiction 1996 Tax Rate - ------------ ------------- Harris County $0.647350 City of Houston $0.665000 Houston I.S.D $1.384000 Houston Community College $0.063170 Total Tax Rates $2.759520 ================================================================================ The 1997 preliminary assessed value of the land and improvements for the subject property for the above mentioned jurisdictions, is as follows. ================================================================================ Assessed Land Value Assessed Improvement Value Total Assessed Value ------------------- -------------------------- -------------------- $12,040,190 $9,490,770 $21,530,960 ================================================================================ Based on the 1996 tax rates and preliminary 1997 assessment, the subject property's tax liability is estimated to be +/-$594,151. The 1997 assessment represents a $2,743,970 increase from the total 1996 assessment. The subject property's assessed value and overall tax liability was compared to those of other properties with similar improvements. The following are the preliminary 1997 assessed values for the rent comparables and the subject property on a per unit basis. C97-605 O'Connor & Associates Page 62 <PAGE> ============================================================= Comparable Tax Properties - 1997 Preliminary ============================================================= Rental No. No. Age A.V./ Units (Years) Unit ============================================================= 1 220 31 $18,208 ------------------------------------------------------------- 2 804 27 $26,039 ------------------------------------------------------------- 3 381 27 $16,001 ------------------------------------------------------------- 5 160 28 $30,172 ------------------------------------------------------------- 6 292 21 $27,402 ------------------------------------------------------------- 7 459 24 $29,625 ------------------------------------------------------------- 8 372 20 $24,547 ------------------------------------------------------------- Subject Property 1,280 26 $16,821 ============================================================= With the exception of Rental 3, the subject's preliminary 1997 assessed value per unit is lower than all the tax comparables. However, given the unusually large size of the subject, an assessment on the lower end of the range per unit is considered applicable. Based on the above comparable assessments, it is our opinion that the subject's assessment will likely be increased in the coming years. A stabilized tax assessment of +/-$20,353/unit is considered reasonable. According to the office of Carl S. Smith, Tax Assessor, as well as the Houston Independent School District, there are no delinquent taxes owed on the subject property. C97-605 O'Connor & Associates Page 63 <PAGE> ZONING AND RESTRICTIONS Neither the City of Houston nor Harris County utilizes zoning to regulate development. Individual subdivisions often use deed restrictions to regulate development. The appraisers were not provided a copy of any applicable deed restrictions, and reserve the right to modify our value conclusions should any deed restrictions be present that are detrimental to the subject site. C97-605 O'Connor & Associates Page 64 <PAGE> APARTMENT MARKET ANALYSIS The sources of information used in this analysis are O'Connor and Associates' Houston Area Apartment Ownership Guide, March 1997, and Apartment Data Services' Apartment Market TRAC, April, 1997. According to the March 1997 Houston Area Apartment Ownership Guide, the average rental rate for the overall Houston market for separately metered (electricity) was $487 per unit or $0.594 per square foot per month, with the overall average occupancy rate being 91.93%. This is based on a sample of 1,961 projects and 332,800 rental units in the greater Houston area. According to the April, 1997 Apartment Market TRAC, published by Apartment Data Services, the average occupancy rate for the overall Houston market for all apartment units was 90.3%, with an average rental rate of approximately $0.571 per square foot of net rentable area. This survey encompassed a total of 2,264 projects, or 400,111 units, with an average monthly rental of $474 and average unit size of 831 square feet of net rentable area. Separately metered units involved a total sample of 1,962 projects, or 354,146 units, with an average monthly rental payment of $482 ($0.579 PSF/NRA) and average size of 832 square feet. Historically, apartment construction in Harris County has been periodic, ensuing whenever occupancies achieve 90%+ levels. During the early 1980's, the oil embargo generated unprecedented gains in employment, and together with the Economic Recovery Tax Act of 1981 (ERTA), which allowed taxpayers C97-605 O'Connor & Associates Page 65 <PAGE> favorable treatment for investment in residential properties, the construction of new apartments boomed. The apartment market in Harris County experienced a much longer construction cycle than was typical or justified during this period. The table on the following page depicts new apartment construction activity in Greater Houston through the Spring of 1997. C97-605 O'Connor & Associates Page 66 <PAGE> =================================================== HISTORICAL METROPOLITAN AREA APARTMENT CONSTRUCTION Year Number of Units Built ---- --------------------- Prior to 1970 74,074 1970 14,649 1971 18,561 1972 19,377 1973 14,640 1974 10,069 1975 10,797 1976 13,267 1977 18,860 1978 34,708 1979 28,163 1980 15,134 1981 14,027 1982 28,147 1983 36,671 1984 15,673 1985 3,731 1986 1,371 1987 609 1988 0 1989 978 1990 1,845 1991 3,554 1992 3,977 1993 1,495 1994 5,789 1995 5,180 1996 4,765 1997 0 ================================================== C97-605 O'Connor & Associates Page 67 <PAGE> During the early 1980's, a tremendous number of people moved into the area, as employment in the energy industry expanded as a result of the 1973 oil embargo. This fact probably had as much to do with the apartment glut as the 1981 tax law. The oil embargo was a boon to the Houston area economy because of the economic dependence on oil and gas, whereas the nation at large suffered from the effects of the oil embargo. The Houston area experienced rapid new growth due to increased oil production. Because manufacturing was declining in the northeasterly portions of the nation, many people moved to this area for employment. Occupancy, Vacancy, and Absorption According to the March 1997 Houston Area Apartment Ownership Guide, published by O'Connor & Associates, the occupancy level for separately metered projects was 91.93% in March 1997 and 91.18% in March 1996. This represents a decrease of 0.75% in the vacancy rate of operating units for the Harris County Metropolitan Area. According to the April, 1997 Apartment Market TRAC, published by Apartment Data Services, occupancy levels in Harris County have remained in the 89%+ range over the past several years. The table on the following page depicts a history of physical vacancy during the past several years for both separately metered and master metered apartment projects in the Harris County area. C97-605 O'Connor & Associates Page 68 <PAGE> ================================================= HISTORICAL METROPOLITAN AREA OCCUPANCY LEVELS Period Occupancy Level March 1989 81.90% June 1989 83.50% September 1989 84.30% December 1989 84.50% March 1990 84.90% June 1990 85.90% September 1990 86.80% December 1990 87.20% March 1991 87.40% June 1991 87.30% September 1991 87.60% December 1991 87.40% March 1992 86.90% June 1992 87.90% September 1992 88.10% December 1992 87.50% March 1993 87.40% June 1993 88.00% September 1993 88.20% December 1993 88.10% March 1994 87.90% June 1994 88.50% September 1994 89.10% December 1994 88.50% March 1995 88.30% June 1995 89.00% September 1995 89.60% December 1995 89.50% March 1996 89.50% June 1996 90.00% September 1996 90.40% December 1996 90.00% March 1997 90.30% ================================================= C97-605 O'Connor & Associates Page 69 <PAGE> Net unit absorption can be described as being the sum of the net new units absorbed plus the older units absorbed. If the net units absorbed is a plus, it indicates positive growth and demand for new units. However, a number contained within parenthesis indicates a decrease in demand or negative growth. The following chart illustrates a recent history of Harris County net unit absorption. ================================================= METROPOLITAN AREA NET UNIT ABSORPTION Period Units Absorbed ------ -------------- First Quarter 1991 (1,086) Second Quarter 1991 662 Third Quarter 1991 2,818 Fourth Quarter 1991 (209) First Quarter 1992 (1,230) Second Quarter 1992 4,853 Third Quarter 1992 798 Fourth Quarter 1992 (504) First Quarter 1992 85 Second Quarter 1993 2,285 Third Quarter 1993 1,219 Fourth Quarter 1993 (624) First Quarter 1994 462 Second Quarter 1994 3,036 Third Quarter 1994 2,769 Fourth Quarter 1994 224 First Quarter 1995 452 Second Quarter 1995 3,605 Third Quarter 1995 3,344 Fourth Quarter 1995 122 First Quarter 1996 1,654 Second Quarter 1996 3,503 Third Quarter 1996 2,035 Fourth Quarter 1996 (463) First Quarter 1997 1,170 ================================================= C97-605 O'Connor & Associates Page 70 <PAGE> Concessions Rental concessions have become less of a consideration during the past several years. During 1984 and 1985, as an incentive to entice renters into a project, apartment owners offered trips to exotic places, cash, microwave ovens, free rent during some portion of the lease, as well as other promotions. However, those concessions were offered at a time when the quoted rental rates remained high. This practice has abated to a great extent. According to the April, 1997 Apartment Market TRAC, of the 2,264 projects operating in Greater Houston, only 641 projects are offering some sort of rent concession. It has become apparent that project owners are now quoting "effective" rental rates, while offering fewer rental concessions. The following chart itemizes the types of rental concessions offered in the Greater Houston market: ====================================================================== Rental Concessions ====================================================================== Type of Rental Concession # of Projects ====================================================================== Move-in special 147 ---------------------------------------------------------------------- Months free special 112 ---------------------------------------------------------------------- Floorplan special 382 ====================================================================== Total 641 ====================================================================== C97-605 O'Connor & Associates Page 71 <PAGE> Rental Rates As mentioned previously, apartment owners are now quoting on an effective rental rate basis. The following table (as taken from the Apartment Market TRAC) illustrates the improving Greater Houston apartment market. The average rental rate increased steadily during the past five years. ================================================= HISTORICAL METROPOLITAN AREA AVERAGE MONTHLY RENTAL RATES Period Rental Rate ($/PSF) ------ ------------------- September 1991 $0.488 December 1991 $0.491 March 1992 $0.498 June 1992 $0.503 September 1992 $0.507 December 1992 $0.508 March 1993 $0.513 June 1993 $0.516 September 1993 $0.520 December 1993 $0.522 March 1994 $0.526 June 1994 $0.530 September 1994 $0.534 December 1994 $0.535 March 1995 $0.538 June 1995 $0.544 September 1995 $0.548 December 1995 $0.549 March 1996 $0.552 June 1996 $0.556 September 1996 $0.563 December 1996 $0.565 March 1997 $0.571 ================================================= C97-605 O'Connor & Associates Page 72 <PAGE> General Market Conclusions The Harris County apartment market experienced drastic declines in occupancies and rental rates in the mid- and late 1980's. However, these factors were the result of extreme overbuilding, which was intensified by OPEC's supply and pricing of oil, which in effect, caused severe layoffs in the energy industry. The apartment market is recovering, as evidenced by the continuing trend of positive net unit absorption, improved occupancy rates, and increases in rental rates. Subject Market Area Apartment Data Services segments the Harris County market into 39 individual submarkets within Harris County, and delineates between apartment complexes where the "resident pays the utilities" (separately metered) and the "owner pays the utilities" (master metered). The subject property is located in the Woodlake/Westheimer Market Area (Southwest 2), and adjacent to the Galleria Market Area (Southwest 1) by Apartment Data Services. As the subject is influenced by both of these submarkets, an analysis of the combined area in included here. This area's general boundaries are Interstate Highway 10 to the north, Gessner Road to the west, Westpark to the south, and Loop 610 to the east. 950 out of the 1,280 units at the subject property are master-metered; therefore this analysis will concentrate on this type of project. According to the April, 1997 Apartment Market TRAC, there were 33 master-metered projects in this market area, which contained a total of 7,332 units. Master-metered C97-605 O'Connor & Associates Page 73 <PAGE> projects comprise only 35% of the total number of apartment projects in this market area. The overall occupancy rate for master-metered projects in this market area was 96.06%. The average rental rate for projects in this market area was $0.738 per square foot, with the average monthly rent being $608 per month. The following chart depicts recent trends in this market. =============================================================== MARKET AREA TREND ANALYSIS =============================================================== Time Period Occupancy Rental Rate --------------------------------------------------------------- Last 3 Months 0.62% 10.58% Last 6 Months (2.10)% 7.33% Last 12 Months 0.12% 6.39% Last 18 Months 1.10% 4.06% =============================================================== The trend analysis indicates that occupancy rate increases are less than those of the Greater Houston area, while rent increases are greater. The chart below depicts trends of the Greater Houston area for comparison purposes. =============================================================== GREATER HOUSTON AREA TREND ANALYSIS =============================================================== Time Period Occupancy Rental Rate --------------------------------------------------------------- Last 3 Months 1.50% 4.00% Last 6 Months (0.60)% 2.40% Last 12 Months 0.50% 3.20% Last 18 Months 0.70% 2.90% =============================================================== Construction & Building Permits From 1992 to March, 1997, 2,616 new units were built in the subject submarket (Apartment Market TRAC). Approximately 3,129 units have been renovated since 1992 in the subject submarket. Presently, there are two (2) projects under construction, C97-605 O'Connor & Associates Page 74 <PAGE> totaling 419 units. The following chart illustrates new construction activity within the subject submarket. ====================================================== MARKET AREA APARTMENT CONSTRUCTION Year Number of Units Number of Units ---- Built Renovated --------------- ---------------- Prior to 1970 11,180 0 1970 1,787 0 1971 3,565 0 1972 1,068 0 1973 1,009 0 1974 923 0 1975 840 0 1976 1,823 195 1977 1,446 0 1978 743 0 1979 856 0 1980 298 0 1981 0 0 1982 0 330 1983 0 140 1984 0 98 1985 0 1,603 1986 0 1,599 1987 0 148 1988 0 2,147 1989 0 2,559 1990 0 801 1991 200 1,426 1992 829 805 1993 264 1,287 1994 726 432 1995 185 381 1996 612 0 1997 0 224 ====================================================== C97-605 O'Connor & Associates Page 75 <PAGE> Absorption, Occupancy, and Vacancy According to Apartment Data Services, during the four (4) quarters ending March, 1997, a positive 602 apartment units were absorbed in the subject submarket. The following depicts the net unit absorption for this market area from March, 1992 to March, 1997. ================================================= MARKET AREA NET UNIT ABSORPTION Period Units Absorbed ------ -------------- First Quarter 1992 (344) Second Quarter 1992 316 Third Quarter 1992 (8) Fourth Quarter 1992 (136) First Quarter 1993 11 Second Quarter 1993 114 Third Quarter 1993 (105) Fourth Quarter 1993 285 First Quarter 1994 (40) Second Quarter 1994 350 Third Quarter 1994 77 Fourth Quarter 1994 121 First Quarter 1995 373 Second Quarter 1995 169 Third Quarter 1995 388 Fourth Quarter 1995 54 First Quarter 1996 247 Second Quarter 1996 232 Third Quarter 1996 240 Fourth Quarter 1996 39 First Quarter 1997 91 ================================================= C97-605 O'Connor & Associates Page 76 <PAGE> According to Apartment Data Services, the overall occupancy rate for the subject market has increased from 89.14% to the current occupancy of 92.80% within the past five years (March, 1992 through March, 1997). The following chart depicts historical occupancy levels within the subject's market area. ================================================= HISTORICAL OCCUPANCY LEVELS Period Occupancy Level ------ --------------- March 1992 89.14% June 1992 90.35% September 1992 90.57% December 1992 87.29% March 1993 87.26% June 1993 87.44% September 1993 86.63% December 1993 87.73% March 1994 86.92% June 1994 87.32% September 1994 89.46% December 1994 87.49% March 1995 89.11% June 1995 90.03% September 1995 91.73% December 1995 91.09% March 1996 92.13% June 1996 93.19% September 1996 93.28% December 1996 92.60% March 1997 92.80% ================================================= C97-605 O'Connor & Associates Page 77 <PAGE> Rental Rates As in the Greater Houston area, the subject's market area has enjoyed steadily increasing overall rental rates. The chart below details rental rates in this area over the past few years. ================================================= MARKET AREA AVERAGE MONTHLY RENTAL RATES Period Rental Rate ($/PSF) March 1992 $0.585 June 1992 $0.590 September 1992 $0.592 December 1992 $0.607 March 1993 $0.611 June 1993 $0.619 September 1993 $0.627 December 1993 $0.632 March 1994 $0.638 June 1994 $0.642 September 1994 $0.644 December 1994 $0.649 March 1995 $0.650 June 1995 $0.659 September 1995 $0.668 December 1995 $0.671 March 1996 $0.663 June 1996 $0.675 September 1996 $0.688 December 1996 $0.692 March 1997 $0.712 ================================================= C97-605 O'Connor & Associates Page 78 <PAGE> Apartment Market Area Conclusions Many apartment facilities in the area are similar in age and are experiencing similar rental rates and occupancy levels. It is our opinion that rental rates will experience steady moderate increases over the next few years, as vacancy levels continue to decline. Demand is reducing the oversupply and rental rates have increased significantly such that additional construction is feasible for some apartment types. However, there are indications of limited external economic obsolescence in the market. Subject's Micro-Market Area The subject property and the identified comparable rentals are thoroughly discussed in the Income Approach section of this report. C97-605 O'Connor & Associates Page 79 <PAGE> HIGHEST AND BEST USE <PAGE> HIGHEST AND BEST USE ANALYSIS The highest and best use may be 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," according to The Appraisal of Real Estate, Eleventh Edition. The opinion of such use may be based on the highest and most profitable continuous use to which the property is adapted and needed, or likely to be in demand in the reasonably near future. However, elements affecting value which depend upon events, or a combination of occurrences which, while within the realm of possibility, are not fairly shown to be reasonably probable, should be excluded from consideration. Also, if the intended use is dependent on an uncertain act of another person, the intention cannot be considered. It may be further defined as that use of land which may reasonably be expected to produce the greatest net return to land over a given period of time - that use which will yield to the land the highest present value. This is sometimes referred to as the optimum use. C97-605 O'Connor & Associates Page 80 <PAGE> Alternatively, that use, from among reasonably probable and legal alternative uses, is found to be: a. Physically Possible b. Legally Permissible c. Financially Feasible d. Maximally Productive The definition, immediately preceding, applies specifically to the highest and best use of land. It is to be recognized that in cases where a site has existing improvements on it, the highest and best use may very well be determined to be different from the existing use. The existing use will continue however, unless and until land value in its highest and best use exceeds the total value of the property in its existing use, plus the cost of demolition. Implied within these definitions is recognition of the contribution of that specific use to community environment or to community development goals in addition to wealth maximization of individual property owners. In appraisal practice, the concept of highest and best use represents the premise upon which value is based. In the context of the most probable selling price (market value) C97-605 O'Connor & Associates Page 81 <PAGE> another appropriate term to reflect highest and best use would be most probable use. In the context of investment value, an alternative term would be most profitable use. "Also Implied in these definitions is that the determination of highest and best use takes into account the contribution of a specific use to the community and community development goals as well as the benefits of that use to individual property owners. Hence, in certain situations the highest and best use of the land may be for parks, greenbelt, preservation, conservation, wildlife habitats and the like." There are two distinct types of highest and best use, that being the highest and best use as if the site were vacant, and the highest and best use as if the site were improved. Both use determinations require consideration of the physical, legal, financial feasibility and maximal productivity for the site and improvements. A neighborhood and site analysis is essential in estimating the highest and best use of the site as if vacant. The improvement analysis contributes to the highest and best use as improved. The subject site will first be analyzed as if vacant, and then an analysis of the property as improved will follow. C97-605 O'Connor & Associates Page 82 <PAGE> Highest and Best Use Analysis - "As Vacant" Physically Possible The site is irregular in shape, and contains a total of +/-38.4484 acres (+/-1,674,812 square feet) of land. Further, the subject property is located at the intersection of Woodway Drive and Lazy Hollow Drive. The subject property has a physical address of 8700 Woodway, Houston, Harris County, Texas. All public utilities are available to the tract. The topography of the site is generally level. As stated previously, no soil engineer's report was available to us and no recent soil tests were performed. As a result, we have assumed a stable soil condition with sufficient load bearing capacity. Once again, we caution and advise the user of this report to obtain engineering studies which may be required to ascertain structural integrity and reserve the right to modify our value conclusions should these assumptions prove incorrect. The physical characteristics of the tract would allow potential development of the site to a wide range of large-scale uses. As such, virtually all large-scale uses are physically possible. Legally Permissible The City of Houston does not utilize zoning to regulate development. Individual subdivisions often use deed restrictions to regulate development. The appraisers were C97-605 O'Connor & Associates Page 83 <PAGE> not provided a copy of any applicable deed restrictions, and reserve the right to modify our value conclusions should any deed restrictions be present that are detrimental to the subject site. As such, Legally Permissible uses would include virtually all physically possible uses. Financial Feasibility and Maximal Productivity In order to be financially feasible, the improvements should conform with the surrounding land uses. To meet the test of being financially feasible, the project must provide a net return over a reasonable period of time. Current market rents do not justify development of a new, Class-B, 1,200+ unit multifamily complex, office building, retail building, or industrial development. Considering the trends and conditions that prevail in this market area, development of the site for a use other than owner-occupancy is not financially feasible. However, rent levels and occupancies are increasing in some areas, and are approaching feasible levels for some types of properties. Single-family lot development is financially feasible but is not the maximally productive use of the site, since subdivision developers typically pay approximately $5,000 to $10,000 per acre for land. C97-605 O'Connor & Associates Page 84 <PAGE> Conclusion - "As Vacant" Commercial utilization of the subject site is physically possible and legally permissible; however, most types of commercial properties are experiencing an oversupply, as well as low demand for new speculative multi-tenant construction. However, in the current subject market and given the subject's location and immediate surrounding development, it is considered that neither new apartment development nor new speculative retail development will be undertaken. As such, the Highest and Best Use for the subject site is for future multifamily development at a time when market rents approach feasible rent levels and occupancies of Class A properties warrant additional supply. C97-605 O'Connor & Associates Page 85 <PAGE> Highest and Best Use Analysis - "As Improved" The subject site is improved with a 1,280-unit apartment project with a net rentable area of +/-981,507 square feet. The improvements are of good quality construction and are in good condition. Such improvements are Physically Possible and Legally Permissible. Financially Feasible and Maximally Productive: Our analysis of market rent (Income Approach) and feasible rent (Cost Approach) indicate that presently, the subject property, as improved, would not be feasible to build new. Further, based on the current trends and conditions, this would be true for a significant number of property types in this market. The improvements, which are considered to be in good condition, are functionally adequate for their intended use and contribute value to the site. As such, and in the absence of any higher use, the existing improvements are considered the highest productive use at the present time. Highest and Best Use Conclusion: In consideration of all of the above, and no other apparent higher use for the site in the foreseeable future, it is our opinion that the Highest and Best Use for the subject property is its present multifamily use. C97-605 O'Connor & Associates Page 86 <PAGE> Cost Approach <PAGE> SALES COMPARISON APPROACH - LAND In reaching the land value estimate of the subject property by the sales comparison approach, Harris County Deed Records were searched for recent sales of comparable properties within this area. Additionally, real estate brokers and appraisers active in the area were consulted as to their knowledge of properties currently offered on the market for sale which would be in competition with the subject property, if it were offered for sale on the open market. The available market data was investigated, analyzed and compared to the subject property, taking into prime consideration the various similar and dissimilar characteristics, including terms of sale, and adjustments were applied accordingly in reaching the value estimate of the subject property by the market approach. No sales which were known to have occurred were arbitrarily disregarded. Only sales which were deemed not comparable, or could not be confirmed, or involved conditions not considered to represent fair market conditions, were deliberately omitted. The following is a listing of sales considered in our analysis of the subject property. C97-605 O'Connor and Associates Page 87 <PAGE> ================================================================================ LAND SALE NUMBER ONE - -------------------------------------------------------------------------------- Location: +/-350 ft N of Westheimer & +/-1000 ft W of Stoney Brook Date of Sale: 05/08/96 Key Map Reference: 490-V Recording Data: Film Code 508-29-0767 Grantor: Ronald E. Lee Grantee: TCR South Central 1995 Legal Description: Part of 3rd Tract, Camille G. Pillot Survey, Abstract 72, Harris County, Texas Land Area: 15.500 Acres 675,180 Square Feet Consideration: $7,427,000 Price Per Square Foot: $11.00 Terms: Cash to seller Property Characteristics: Property Use: Vacant at time of sale Utilities: All available Topography: Basically level Flood Plain: None Frontage: N/A Remarks: This site was purchased for expansion of an existing apartment complex. It appears as though the buyer was willing to pay a premium to acquire this particular tract located adjacent to his existing project. Based on the market data, a downward adjustment is necessary for conditions of sale. ================================================================================ C97-605 O'Connor and Associates Page 88 <PAGE> ================================================================================ LAND SALE NUMBER TWO - -------------------------------------------------------------------------------- Location: Wraps Northwest corner of Westheimer and Voss Road Date of Sale: 09/14/94 Key Map Reference: 490-V Recording Data: ###-##-#### Grantor: Helen Inc. Grantee: Albertson's Supermarket Legal Description: Part of Reserve A, Block 1, Westheimer Crossing, J. D. Taylor Survey, Harris County, Texas Land Area: 5.248 Acres 228,581 Square Feet Consideration: $2,644,963 Price Per Square Foot: $11.57 Terms: Cash to seller Property Characteristics: Property Use: Vacant at time of sale Utilities: All available Topography: Basically level Flood Plain: None Frontage: 183 FF - Westheimer 177 FF - Voss Remarks: This site was purchased for construction of an Albertson's grocery store. ================================================================================ C97-605 O'Connor and Associates Page 89 <PAGE> ================================================================================ LAND SALE NUMBER THREE - -------------------------------------------------------------------------------- Location: North line of Westheimer at Dunvale, +/-211 FF on Woodway Date of Sale: 08/05/94 Key Map Reference: 490-U Recording Data: ###-##-#### Grantor: Estate of Pillot Lee Grantee: Continental 32 Fund Legal Description: Reserve A & B, Continental 32, John D. Taylor League, Harris County, Texas Land Area: 21.120 Acres 919,987 Square Feet Consideration: $8,279,883 Price Per Square Foot: $9.00 Terms: Cash to Seller Property Characteristics: Property Use: Vacant at time of sale Utilities: All available Topography: Basically level Flood Plain: None Frontage: 705 FF - Westheimer 211 FF - Woodway Remarks: This tract was purchased for construction of a KMART Superstore. ================================================================================ C97-605 O'Connor and Associates Page 90 <PAGE> ================================================================================ LAND SALE NUMBER FOUR - -------------------------------------------------------------------------------- Location: North line of Westheimer, +/-287 ft East of Stoney Brook Date of Sale: 04/28/94 Key Map Reference: 490-V Recording Data: ###-##-#### Grantor: Gibson, Dunn, & Crutcher Grantee: Venture Stores Legal Description: Part of Block 1, Part of Reserve A, Westheimer Crossing, J. D. Taylor Survey, A-72, Harris County, Texas Land Area: 8.3400 Acres 363,290 Square Feet Consideration: $3,452,000 Price Per Square Foot: $9.50 Terms: Cash to seller Property Characteristics: Property Use: Vacant at time of sale Utilities: All available Topography: Basically level Flood Plain: None Frontage: 404 FF - Westheimer Remarks: This tract was purchased for construction of a Venture store. ================================================================================ C97-605 O'Connor and Associates Page 91 <PAGE> ================================================================================ LAND SALE NUMBER FIVE - -------------------------------------------------------------------------------- Location: Southeast corner of Westheimer Road and Dunvale Road Date of Sale: 03/05/93 Key Map Reference: 490-U Recording Data: ###-##-#### Grantor: Bangkok Bank Ltd. Grantee: Walmart Stores Inc. Legal Description: 40.04 acres out of the B. Canfield Survey, A-192 and J. D. Taylor Survey, A-72, Harris County, Texas Land Area: 40.0400 Acres 1,744,142 Square Feet Consideration: $17,337,000 Price Per Square Foot: $9.94 Terms: Cash to seller Property Characteristics: Property Use: Vacant at time of sale Utilities: All available Topography: Basically level Flood Plain: None Frontage: 1,100 FF - Westheimer 1,584 FF - Dunvale Remarks: This tract was purchased for construction of a Wal-Mart store and Sam's Wholesale Club store. ================================================================================ C97-605 O'Connor and Associates Page 92 <PAGE> LAND SALES MAP [MAP OMITTED] <PAGE> Analysis of the Sales The value for the subject tract was based on consideration of the previously mentioned comparable land sales. This estimate was based on an analysis of these sales in relation to the subject site after adjustments were applied for conditions of sale, availability of utilities, location, size, corner influence, and shape. The following is a summary of the sales used in our analysis. We will compare the sales on the basis of sales price per square foot, which is the most common unit of comparison for commercial tracts. <TABLE> <CAPTION> ======================================================================================= Sale Location Sale Sale Size Price No. Date Price (Acres) Per SF ======================================================================================= ======================================================================================= <S> <C> <C> <C> <C> <C> 1 +/-350 ft N of Westheimer & +/-1000 05/08/96 $7,427,000 15.500 $11.00 ft W of Stoney Brook - --------------------------------------------------------------------------------------- 2 Wraps Northwest corner of 09/14/94 $2,644,963 5.248 $11.57 Westheimer and Voss Road - --------------------------------------------------------------------------------------- 3 North line of Westheimer at 08/05/94 $8,279,883 21.120 $9.00 Dunvale, +/-211 FF on Woodway - --------------------------------------------------------------------------------------- 4 North line of Westheimer, +/-287 ft 04/28/94 $3,452,000 8.340 $9.50 East of Stoney Brook - --------------------------------------------------------------------------------------- 5 Southeast corner of Westheimer 03/05/93 $17,337,000 40.040 $9.94 Road and Dunvale Road ======================================================================================= </TABLE> The land sales incorporated in this analysis occurred from 1993 through 1996. Despite intense research efforts, no comparable 1997 land sales were found. Due to the large size of the subject site, and the built-up nature of the area, few large acreage tracts were available for analysis. Data on each of the sales, including sales price, was confirmed with sources considered to be reliable. Based on analysis of this data and other pertinent information obtained in our research, the following is a discussion of the factors which were found to exhibit significant influence on property values in this market. C97-605 O'Connor and Associates Page 93 <PAGE> FACTORS TO BE CONSIDERED AND SUMMARY OF ADJUSTMENTS Property Rights Conveyed This adjustment considers the difference in sales price of properties sold in fee simple estate or in leased fee estate and the affect of any existing leases on the sales price of the property. All the sales were fee simple with no adjustments applicable. Cash Equivalency Typical land investment property terms are considered to be 20-30% cash down with a 10-15 year note, with varying interest on payments. All sales were cash or equivalent, thus an adjustment for this item was not necessary. Conditions of Sale This adjustment reflects the motivations of the buyer and seller, i.e., assemblage, distress sale, reduced prices from family purchase, or purchase by adjacent land owners. With the exception of Sale 1, all of the sales were considered arms-length transactions with no conditions perceived which warranted a condition of sale adjustment. Sale 1, however, was purchased by an adjoining land owner who was willing to pay a premium to acquire this particular tract to expand his project. Thus, based on the market data, a 25% downward adjustment was considered applicable to Sale 1 for conditions of sale. Changing Market Conditions Since about 1992, land prices in the Houston area and the subject neighborhood have generally stabilized. This stabilized trend is consistent with today's market; therefore, no adjustments were indicated for Sales 1 through 5 (which occurred from 1993 to 1996). Location The type and density of surrounding development was examined for each sale. In addition, locations with proximity to business and retail centers were also considered. Properties which are located in densely developed areas, leading to higher visibility and traffic passage, tend to sell for higher prices than properties which are in less developed locations. Additionally, properties located on major C97-605 O'Connor and Associates Page 94 <PAGE> thoroughfares are generally considered superior to those located on secondary streets and typically command premium sales prices. The subject is located on the east and west sides of Lazy Hollow Drive, with frontage on Westheimer and Woodway (see plat - Site Description section). Primarily due to its frontage on Westheimer, the subject property enjoys good exposure, access, and commercial appeal. Westheimer Road is the most heavily travelled non-freeway thoroughfare in Houston and is lined with dense commercial and retail development. Sales 1 and 3 are located on Westheimer Road in the immediate vicinity of the subject. These two sales are considered comparable to the subject in location and were not adjusted. Sales 2 and 4 are located on Westheimer Road at, or just west of, Voss Road. In addition to a primary north/south traffic carrier for the area, Voss Road is characterized by upscale single-family residential and commercial development. Consequently, Sales 2 and 4 are considered superior to the subject in location and were adjusted downward 10% and 5%, respectively for this factor. Although located on Westheimer Road in the immediate subject vicinity, Sale 5 is slightly superior to the subject in location due to its frontage on Dunvale Street. Dunvale Street connects with Richmond Avenue to the south and provides superior exposure and commercial appeal in comparison to Lazy Hollow. Therefore, a downward adjustment of 5% was required to Sale 5 for superior location. Size Typically, the larger the tract the lower the unit price. The converse also tends to be true. Land sales analyzed on a regional basis indicates a 5% to 10% price premium for each halving (or doubling) of size. A 5% adjustment appears reasonable for the subject area and has been utilized in our analysis. Sales 1, 2, 3, and 4 are smaller than the subject and were adjusted downward 5% to 15%. Sale 5 is comparable to the subject in size and warranted no adjustment. C97-605 O'Connor and Associates Page 95 <PAGE> Shape Properties which are irregular in shape, therefore making development more difficult, usually sell for less than a tract which is of a more normal configuration. Similar to the subject, all of the sales are reasonably shaped for development purposes and required no adjustment for shape. Utilities The availability of utilities is a major factor in the development of any property. If a site has no utility service or cannot acquire access, it is virtually impossible to develop. The subject has access to all public utilities. All of the sales have similar access and warranted no adjustments for utilities. Corner Properties that have corner influences, or those that have access from two or more thoroughfares are typically superior than interior tracts, due to access and exposure characteristics. Although valued as one tract, Lazy Hollow and Woodway separate the subject into three parcels with multiple corners. Sales 1 through 5 are all inferior to the subject in corner influence and required upward adjustments of 5% to 20%. Topography The subject site appears basically level and well drained, and is located outside of the 100-Year Flood Plain. Sales 1 through 5 are also located outside of the 100-Year Flood Plain and were not adjusted. Each of the sales was analyzed and compared to the subject, with adjustments applied for differences in the factors discussed above. Insufficient data was available to utilize the matched pair analysis. Adjustments were applied based on general comparisons of empirical data and the personal observation and judgement of the appraiser. The grid on the following page illustrates the procedure used in arriving at an estimate of value for the subject site. C97-605 O'Connor and Associates Page 96 <PAGE> ================================================================================ LAND SALES ADJUSTMENT GRID ================================================================================ SALE 1 SALE 2 SALE 3 SALE 4 SALE 5 - -------------------------------------------------------------------------------- Sale Price Per Square Foot $11.00 $11.57 $9.00 $9.50 $9.94 - -------------------------------------------------------------------------------- Property Rights Conveyed 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Adjusted Sales Price $11.00 $11.57 $9.00 $9.50 $9.94 - -------------------------------------------------------------------------------- Cash Equivalency 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Adjusted Sales Price $11.00 $11.57 $9.00 $9.50 $9.94 - -------------------------------------------------------------------------------- Conditions of Sale -25% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Adjusted Sales Price $8.25 $11.57 $9.00 $9.50 $9.94 - -------------------------------------------------------------------------------- Changing Market Conditions 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Adjusted Sales Price $8.25 $11.57 $9.00 $9.50 $9.94 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Location 0% -10% 0% -5% -5% - -------------------------------------------------------------------------------- Size -5% -15% -5% -10% 0% - -------------------------------------------------------------------------------- Shape 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Utilities 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Corner 20% 5% 10% 10% 5% - -------------------------------------------------------------------------------- Topography 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Overall Adjustment (%) 15% -20% 5% -5% 0% - -------------------------------------------------------------------------------- Indicated Value Per Sq. Ft. $9.49 $9.26 $9.45 $9.03 $9.94 ================================================================================ Summary of Indicated Land Values Indicated Value Range: $9.03 to $9.94 Indicated Mid-Point Value: $9.48 Indicated Mean Value: $9.43 Estimated Value Per SF: $9.45 C97-605 O'Connor and Associates Page 97 <PAGE> Reconciliation and Land Value Estimate After adjustment, the land sales indicate values for the subject ranging from $9.03 to $9.94 per square foot. The mean indicated value is $9.43 per square foot, and the midpoint of the indicated values is $9.48 per square foot. It is our opinion that the value of subject site, land only, is estimated at $9.45 per square foot, which is reflective of the mean and mid-point of the sales. The total value of the site is estimated as follows: =============================================================================== INDICATED LAND VALUE - ------------------------------------------------------------------------------- Land Area / SF Indicated Value PSF Indicated Land Value - ------------------------------------------------------------------------------- 1,674,812 $9.45 $15,826,973 - ------------------------------------------------------------------------------- VALUE OF SUBJECT SITE: $15,825,000 =============================================================================== C97-605 O'Connor and Associates Page 98 <PAGE> THE COST APPROACH The cost approach is the process of estimating the current cost (new) of reproducing a property's improvements, subtracting estimated depreciation from all sources and adding the estimated value of the land to arrive at an estimate of value for the property as a whole. Reproduction cost is the present cost of duplicating the improvements with one which is an exact replica. It is often difficult to estimate reproduction cost because details and methods of original construction are not available, identical materials are unavailable and/or methods of construction have changed. Replacement cost is the current cost of replacing the improvement with one having equal utility or able to perform the same economic function: 1. It could be the cost of acquiring an equally desirable substitute, or 2. The cost to replace, with a property having an equivalent utility, which may or may not be a replica, or 3. The replacing or remodeling of parts of a structure to maintain it in its highest and best use and operating condition. In practice, the terms have tended to be used interchangeably and have more commonly come to mean: The present cost of replacing the improvements with improvements of equivalent utility, considering modern materials and construction methods. C97-605 O'Connor and Associates Page 99 <PAGE> Depreciation: defined as loss in capital value from any cause. It is employed in this report in estimating the difference in the present day value of the improvements and the cost of new replacement. The three major types of accrued depreciation are: Physical Deterioration This is loss in value from actual physical causes and measured either as curable or incurable. The curable items are measured by the actual cost to replace or repair the component parts. The incurable portion is estimated by virtue of an observed condition or ascertaining the used portion by the best estimate of the appraiser. Curable physical deterioration, also referred to as deferred maintenance, is caused by normal wear and tear that should be corrected immediately, or is necessary to keep rents at market levels. The cost of curing the condition, and bringing the property to a satisfactory and functioning condition, is generally the measure of deferred maintenance. Functional Obsolescence This is loss in value from conditions existing within the property which make the property inadequate of less desirable to the typical prudent purchases. It, too, may be curable or incurable. Incurable obsolescence is normally measured by the loss in income which may accrue to the property by reason thereof. External Obsolescence This is defined as "the impairment of desirability or useful life arising from factors external to the property, such as economic forces or environmental changes which affect supply-demand relationships in the market." Loss in the use and value of a property arising from the factors of external obsolescence is to be distinguished from loss in value from physical deterioration and functional obsolescence, both of which are inherent in a property. C97-605 O'Connor and Associates Page 100 <PAGE> As indicated earlier, it is our opinion that the existing improvements do represent the current Highest and Best Use of the site "as improved". As such, the following is a discussion of land value, cost and depreciation components used in arriving at a value estimate for the subject via the Cost Approach. Replacement Cost Estimate Cost factors are estimated from data in our files and from Marshall Valuation Service, Section 12, Page 14, Category D, dated December 1995, adjusted for local and current factors. Results of these calculations are indicated in the following schedules: C97-605 O'Connor and Associates Page 101 <PAGE> <TABLE> <CAPTION> ============================================================================================ ESTIMATE OF REPLACEMENT COST ============================================================================================ <S> <C> <C> <C> <C> I. DIRECT COSTS Apartment Area (SF): 993,307 Base Cost PSF: $48.00 Multipliers (Sec. 99): Area: 79.00% Current Cost: 103.00% Times Local: 93.00% Total Factor: 75.67% Adj. Base Cost PSF: $36.32 TOTAL BASE BUILDING COST: $36,076,910 Plus Segregated Cost: Built Ins Number Unit Cost Total Cost ------ --------- ---------- Oven/Range 1,280 $300 $384,000 Refrigerator 1,280 $325 $416,000 Disposal 1,280 $75 $96,000 Dishwashers 1,280 $200 $256,000 Total Built Ins $1,152,000 Swimming Pools $250,000 Fences, Gates $350,000 Parking/Drives/Walkways (512,000 SF - asphalt and concrete) $947,200 Landscaping $550,000 Carports $600,000 -------- Total Direct Cost $39,926,110 II. INDIRECT COST Entrepreneurial Profit: 5.00% $1,996,306 ----- Real Estate Taxes during $655,041 construction: Financing Fees: Average Balance: 70.00% $27,948,277 Origination Fees: Construction: 1.00% Permanent: 1.00% ---- Total: 2.00% $558,966 Appraisal and Other $50,000 Fees/Permits: Title and Misc. Cost: $99,815 ------- Total Indirect Cost: $3,360,128 TOTAL COST NEW, INCLUDING PROFIT: $43,286,238 ============================================================================================ </TABLE> C97-605 O'Connor and Associates Page 102 <PAGE> Entrepreneurial profit is the amount which the developer expects to receive for his time and effort in the construction process. This has been estimated at 5% of the base direct costs, based upon discussions with local developers. Short-Life Physical Deterioration The depreciation estimate for short-life items can be divided into two categories; "Curable" and "Incurable". The following is a discussion of each. Short-life curable physical deterioration, also referred to as deferred maintenance, is caused by normal wear and tear that should be corrected immediately, or is necessary to keep rents at market levels. The cost of curing the condition, and bringing the property to a satisfactory and functioning condition, is generally the measure of deferred maintenance. Based on observations of the appraiser, the subject improvements do not suffer from any significant items of deferred maintenance. Incurable Short-Life deterioration is also attributable to normal wear and tear, but is generally unfeasible or uneconomical to repair. Age of short-life items is based on observed condition. Typically this charge is estimated on an age/life method. The following chart exhibits the calculations used. C97-605 O'Connor and Associates Page 103 <PAGE> <TABLE> <CAPTION> ========================================================================================= Physical Deterioration; Incurable Short Life ========================================================================================= Item Area (SF) Unit Cost Cost New Eff. Age / Eco. Life Depreciation - ----------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> HVAC 993,307 $1.75 $1,738,287 5 / 15 $579,429 Flooring 993,307 $1.00 $993,307 4 / 10 $397,323 Built Ins $1,152,000 5 / 12 $480,000 Roof Cover 522,793 $1.50 $784,190 8 / 20 $313,676 -------- -------- Totals $4,667,784 $1,770,428 % of Replacement Cost New, including profit $43,286,238 4.09% ========================================================================================= </TABLE> Physical Deterioration: Incurable Long-Life The improvements are constructed with good quality materials and are considered to be in good condition. The effective age of the project is considered to be 20 years, with a remaining life of +/-25 years. Prior to calculating incurable long-life depreciation, the replacement cost new of short-life items is subtracted. ================================================================================ Physical Deterioration; Incurable Long Life ================================================================================ Item Description Cost New Eff. Age / Eco. Depreciation Life RCN (Incl. Profit) $43,286,238 20 / 45 44.44% Less: Deferred Maintenance $0 RCN Short Life Items $4,667,784 RCN Bone Structure Items $38,618,454 44.44% $17,163,757 39.65% ================================================================================ C97-605 O'Connor and Associates Page 104 <PAGE> External Obsolescence- Due to Rent Loss is typically the result of contracted rental rates below market rental rates and is influenced by the property's ownership and management. Given the subject's present physical and financial occupancies, a deduction for rent loss due to below market rents is not considered necessary. External Obsolescence- Due to Below Feasible Market Rents is typically calculated by first estimating the feasible net operating income and then calculating the difference between market net operating income and the feasible net operating income. The net operating income loss, if any, is capitalized using the rate developed in the Income Approach. The building to property ratio is then applied to arrive at the amount of obsolescence attributable to the improvements. These calculations are illustrated in the table on the following page: C97-605 O'Connor and Associates Page 105 <PAGE> ================================================================================ Calculation of External Obsolescence ================================================================================ RCN, Including Profit $43,286,238 Less Physical Deterioration Short Life 4.09% Long Life 39.65% Deferred Maintenance 0.00% ---- Total 43.74% ($18,933,401) ------------- RCN Less Physical Deterioration $24,352,837 Plus Land $15,825,000 ----------- RCN Less Physical Deterioration Plus Land $40,177,837 Times Feasible Overall Rate (Ro) 9.25% ---- Feasible Net Operating Income (NOI) $3,716,450 RCN Less Physical Deterioration $24,352,837 Divided by RCN Less Physical Deterioration Plus Land $40,177,837 Equals Building to Property Ratio 60.61% (%) Feasible Net Operating Income $3,716,450 Market Net Operating Income - $3,404,510 ---------- Loss in Net Operating Income $311,940 Divided by Ro 9.25% Capitalized Net Operating Income Loss $3,372,324 Multiplied by Building to Property Ratio 60.61% ------ Estimate of External Obsolescence $2,043,966 Rounded: $2,044,000 External Obsolescence Expressed as a Percentage of Replacement Cost New 4.72% ================================================================================ Based on the foregoing analysis, the following chart recaps and illustrates the calculations used in arriving at the final value estimate via the Cost Approach. C97-605 O'Connor and Associates Page 106 <PAGE> ================================================================================ COST SCHEDULE ================================================================================ Replacement Cost New I. Direct Cost Building Cost $36,076,910 Built Ins $1,152,000 Carports $250,000 Fences $350,000 Parking/Drives/Walkways $947,200 Landscaping $550,000 Carports $600,000 -------- Total Direct Cost $39,926,110 II. Indirect Cost Entrepreneurial Profit $1,996,306 Real Estate Taxes During Construction $655,041 Financing Fees $558,966 Appraisal and Legal Cost $50,000 Title and Misc. Cost $99,815 ------- Total Indirect Cost $3,360,128 ---------- TOTAL COST NEW, INCLUDING PROFIT $43,286,238 Less Depreciation From All Causes: Type Depreciation Deferred Maintenance $0 Physical Incurable Short Life $1,770,428 Physical Incurable Long Life $17,163,757 External Obsolescence $2,044,000 Functional Obsolescence $0 -- Total Depreciation $20,978,185 DEPRECIATED VALUE OF IMPROVEMENTS $22,308,053 Plus Land Value Estimate $15,825,000 ----------- Final Value Estimate $38,133,053 FINAL VALUE ESTIMATE (ROUNDED) $38,130,000 ================================================================================ C97-605 O'Connor & Associates Page 107 <PAGE> Sales Comparison Approach <PAGE> SALES COMPARISON APPROACH - IMPROVED General In this independent approach to value, the value estimate is predicated upon prices paid in actual market transactions. The methodology involved is a process of analyzing similarly improved properties and comparing them to the subject. In some instances a comparison analysis is utilized, with adjustments being made for differences in financing, location and physical characteristics. Based on our research, investors in the market area apartment market typically rely heavily on the following methodology: 1. Sales Price Per Unit - This denominator is obtained by dividing the sale price by the total number of units in the project. The Harris County Deed Records were searched for recent sales of similarly improved apartment projects. Owners, property managers and other professionals active in the area were consulted as to their knowledge of current trends and conditions that prevail within the apartment market. The sale transactions considered most comparable to the subject are detailed on the following pages. (The reported and proforma operating expenses include reserves for replacements.) C97-605 O'Connor and Associates Page 108 <PAGE> ================================================================================ COMPARABLE IMPROVED SALE NUMBER ONE - -------------------------------------------------------------------------------- Key Map: 491-P Project Name: III Fountains II Apartments Location: 2001 Fountainview Legal Description: R/P of Block F, III Fountains Square, Houston, Harris County Texas Grantor: III Fountains Venture Grantee: Fountainview Houston Apts. Ltd. Sale Price: $15,809,000 (See Comments) Sale Date: December 2, 1996 Recording Data: Film Code 510-99-0361 Financing: Cash to seller Size/Acres: 17.3500 Year Built: 1965 Net Rentable Area (Square Feet): 525,260 Number of Units: 637 Land to Building Ratio: 1.44 Units Per Acre: 36.71 Average Unit Size (Square Feet): 825 Actual Occupancy: 85% Stabilized Occupancy: 91% PSF --- Gross Potential Income: $4,475,215 $8.52 Less Vacancy: $402,769 $0.77 -------- Effective Gross Income: $4,072,446 $7.75 Less Expenses: $2,600,037 $4.95 ---------- Net Operating Income: $1,472,409 $2.80 Sales Price/SF of Building Area: $30.10 Sales Price/Unit $24,818 EGIM: 3.88 Overall Rate (Ro): 9.31% Expense Ratio: 63.84% ================================================================================ C97-605 O'Connor and Associates Page 109 <PAGE> ================================================================================ APARTMENT SALE NUMBER ONE ================================================================================ Comments: The actual sale price was $15,500,000; however $175,000 and $134,000 were estimated to cure deferred maintenance and account for rent loss due to lease up, respectively. Lease-up is estimated to be 6 months. Unit Mix # of Units Unit Type Unit Size Total Area 120 1 Bedroom / 1 Bath 758 90,960 40 2 Bedroom / 1 Bath 894 35,760 68 2 Bedroom / 2 Bath 988 67,184 16 3 Bedroom / 2 Bath 1,272 20,352 8 0 1,428 11,424 - - ------ 252 2 225,680 Project Amenities: This project's amenities include access gates, two swimming pools, a jacuzzi, an exercise room, a clubhouse, and on-site laundry. Unit amenities include cable television access, washer/dryer connections in some units, fireplaces in some units, ceiling fans, mini-blinds, and private patios/ balconies. Utilities: This is a master-metered project. ================================================================================ C97-605 O'Connor and Associates Page 110 <PAGE> PHOTOGRAPH OF IMPROVED SALE NUMBER ONE [PHOTO OMITTED] C97-605 O'Connor and Associates Page 111 <PAGE> ================================================================================ COMPARABLE IMPROVED SALE NUMBER TWO - -------------------------------------------------------------------------------- Key Map: 489-K Project Name: Concorde Apartments Location: 1307 Wilcrest Legal Description: 8.95 acres out of the C. Williams Survey, A-834, Houston, Harris County, Texas Grantor: Sasco Lakeside LP Grantee: Wentwood Lakeside LP Sale Price: $5,465,370 Sale Date: December 1, 1996 Recording Data: Film Code 510-62-0854 Financing: Cash sale Size/Acres: 8.9500 Year Built: 1972 Net Rentable Area (Square Feet): 201,641 Number of Units: 197 Land to Building Ratio: 1.93 Units Per Acre: 22.01 Average Unit Size (Square Feet): 1,024 Actual Occupancy: 91% Stabilized Occupancy: 91% PSF --- Gross Potential Income: $1,403,421 $6.96 Less Vacancy: $126,308 -------- Effective Gross Income: $1,277,113 $6.33 Less Expenses: $756,154 $3.75 -------- Net Operating Income: $520,960 $2.58 Sales Price/SF of Building Area: $27.10 Sales Price/Unit $27,743 EGIM: 4.28 Overall Rate (Ro): 9.53% Expense Ratio: 59.21% ================================================================================ C97-605 O'Connor and Associates Page 112 <PAGE> ================================================================================ APARTMENT SALE NUMBER TWO ================================================================================ Unit Mix -------- # of Units Unit Type Unit Size Total Area 2 0 Bedroom / 1 Bath 297 594 33 1 Bedroom / 1 Bath 619 20,427 6 1 Bedroom / 1 Bath 690 4,140 18 1 Bedroom / 1 Bath 723 13,014 2 2 Bedroom / 1 Bath 938 1,876 8 2 Bedroom / 1 Bath 924 7,392 40 2 Bedroom / 2 Bath 924 36,960 10 2 Bedroom / 2 Bath 1,150 11,500 20 2 Bedroom / 2 Bath 1,186 23,720 2 3 Bedroom / 2 Bath 1,361 2,722 40 3 Bedroom / 2 Bath 1,272 50,880 16 4 Bedroom / 2 Bath 1,776 28,416 -- ------------------ ----- ------ 197 1,024 201,641 Project Amenities: This project offers a swimming pool, jacuzzi, limited access gates, clubhouse, and a laundry room. Unit amenities include cable television access, microwaves, alarms systems, some fireplaces, ceiling fans and miniblinds. Utilities: This is a separately-metered project. ================================================================================ C97-605 O'Connor and Associates Page 113 <PAGE> PHOTOGRAPH OF IMPROVED SALE NUMBER TWO [PHOTO OMITTED] C97-605 O'Connor and Associates Page 114 <PAGE> ================================================================================ COMPARABLE IMPROVED SALE NUMBER THREE - -------------------------------------------------------------------------------- Key Map: 490-V Project Name: Pin Oak Apartments Location: 7510 Burgoyne Legal Description: Reserve A, Westheimer-Voss Apartments, John D. Taylor Survey, Abstract 72, Houston, Harris County, Texas Grantor: East Group Properties Grantee: Wentwood Limited Partners Sale Price: $4,360,000 Sale Date: November 27, 1996 Recording Data: Film Code 510961193 Financing: Cash to seller Size/Acres: 3.2300 Year Built: 1974 Net Rentable Area (Square Feet): 144,780 Number of Units: 142 Land to Building Ratio: 0.97 Units Per Acre: 43.96 Average Unit Size (Square Feet): 1,020 Actual Occupancy: 97% Stabilized Occupancy: 91% PSF --- Gross Potential Income: $1,042,416 $7.20 Less Vacancy: $93,817 ------- Effective Gross Income: $948,599 $6.55 Less Expenses: $542,925 $3.75 -------- Net Operating Income: $405,674 $2.80 Sales Price/SF of Building Area: $30.11 Sales Price/Unit $30,704 EGIM: 4.60 Overall Rate (Ro): 9.30% Expense Ratio: 57.23% ================================================================================ C97-605 O'Connor and Associates Page 115 <PAGE> ================================================================================ APARTMENT SALE NUMBER THREE ================================================================================ Unit Mix -------- # of Units Unit Type Unit Size Total Area 12 1 Bedroom / 1 Bath 704 8,448 38 1 Bedroom / 1 Bath 804 30,552 10 1 Bedroom / 1 Bath 1,000 10,000 36 2 Bedroom / 2 Bath 1,038 37,368 20 2 Bedroom / 2 Bath 1,142 22,840 10 2 Bedroom / 2.5 Bath 1,730 17,300 16 3 Bedroom / 2 Bath 1,142 18,272 -- ------------------ ----- ------ 142 1,020 144,780 Project Amenities: This project offers a swimming pool, covered parking, limited access gates, an exercise room, a jacuzzi, a clubhouse, and on-site laundry room. Unit amenities include free basic cable television, some washer/ dryer connections, alarm systems, ceiling fans, mini-blinds and private patios and balconies. Utilities: This is a separately-metered project. ================================================================================ ================================================================================ C97-605 O'Connor and Associates Page 116 <PAGE> PHOTOGRAPH OF IMPROVED SALE NUMBER THREE [PHOTO OMITTED] C97-605 O'Connor and Associates Page 117 <PAGE> ================================================================================ COMPARABLE IMPROVED SALE NUMBER FOUR - -------------------------------------------------------------------------------- Key Map: 490-V Project Name: 7979 Westheimer Apartments Location: 7979 Westheimer Legal Description: Part of Tract 2, Westover Square Apartments, A-72, J. D. Taylor Survey, Houston, Harris County, Texas Grantor: Copley/Finger Venture 2 Grantee: EOR-Lincoln Village I Vista Sale Price: $13,800,000 Sale Date: February 7, 1996 Recording Data: Film Code 507-09-1549 Financing: Cash sale Size/Acres: 15.4000 Year Built: 1970 Net Rentable Area (Square Feet): 401,571 Number of Units: 459 Land to Building Ratio: 1.67 Units Per Acre: 29.81 Average Unit Size (Square Feet): 875 Actual Occupancy: 95% Stabilized Occupancy: 91% PSF --- Gross Potential Income: $3,180,442 $7.92 Less Vacancy: $286,240 -------- Effective Gross Income: $2,894,203 $7.21 Less Expenses: $1,485,813 $3.70 ---------- Net Operating Income: $1,408,390 $3.51 Sales Price/SF of Building Area: $34.37 Sales Price/Unit $30,065 EGIM: 4.77 Overall Rate (Ro): 10.21% Expense Ratio: 51.34% ================================================================================ C97-605 O'Connor and Associates Page 118 <PAGE> ================================================================================ APARTMENT SALE NUMBER FOUR ================================================================================ Unit Mix -------- # of Units Unit Type Unit Size Total Area 206 1 Bedroom / 1 Bath 614 126,484 48 1 Bedroom / 1 Bath 748 35,904 12 2 Bedroom / 1.5 Bath 914 10,968 24 2 Bedroom / 1 Bath 923 22,152 12 2 Bedroom / 2 Bath 928 11,136 21 2 Bedroom / 2 Bath 1,075 22,575 120 2 Bedroom / 2 Bath 1,212 145,440 16 3 Bedroom / 3 Bath 1,682 26,912 -- ------------------ ----- ------ 459 875 401,571 Project Amenities: This project offers swimming pools, limited access gates, an exercise room, and on-site laundry rooms. Unit amenities include cable television access, alarms systems, some fireplaces, ceiling fans, mini-blinds and private patios/ balconies. Utilities: This is a separately-metered project. ================================================================================ C97-605 O'Connor and Associates Page 119 <PAGE> PHOTOGRAPH OF IMPROVED SALE NUMBER FOUR [PHOTO OMITTED] C97-605 O'Connor and Associates Page 120 <PAGE> ================================================================================ COMPARABLE IMPROVED SALE NUMBER FIVE ================================================================================ Key Map: 491-R Project Name: Tree Top Apartments Location: 4510 Briar Hollow Place Legal Description: Tracts 1 and 2, Briar Hollow Place, R/P, Houston, Harris County, Texas Grantor: Fon Associates, LP Grantee: KC Venture Group, LLC Sale Price: $5,650,000 Sale Date: February 1, 1996 Recording Data: Film Code Not Available Financing: Cash sale Size/Acres: 3.7600 Year Built: 1968 Net Rentable Area (Square Feet): 131,325 Number of Units: 179 Land to Building Ratio: 1.25 Units Per Acre: 47.61 Average Unit Size (Square Feet): 734 Actual Occupancy: 91% Stabilized Occupancy: 91% PSF --- Gross Potential Income: $1,260,720 $9.60 Less Vacancy: $113,465 -------- Effective Gross Income: $1,147,255 $8.74 Less Expenses: $630,360 $4.80 -------- Net Operating Income: $516,895 $3.94 Sales Price/SF of Building Area: $43.02 Sales Price/Unit $31,564 EGIM: 4.92 Overall Rate (Ro): 9.15% Expense Ratio: 54.95% ================================================================================ C97-605 O'Connor and Associates Page 121 <PAGE> ================================================================================ APARTMENT SALE NUMBER FIVE ================================================================================ Unit Type Unit Size 1 Bedroom / 1 Bath 586 1 Bedroom / 1 Bath 636 1 Bedroom / 1 Bath 663 1 Bedroom / 1 Bath 679 1 Bedroom / 1 Bath 695 1 Bedroom / 1 Bath 723 1 Bedroom / 1 Bath 756 2 Bedroom / 2 Bath 976 2 Bedroom / 2 Bath 1,027 ------------------ ----- 734 Project Amenities: This project offers two swimming pools, an exercise room, limited access gates, covered parking, and on-site laundry room. Unit amenities include cable television, microwaves, miniblinds, and ceiling fans. Utilities: This is a master-metered project. ================================================================================ C97-605 O'Connor and Associates Page 122 <PAGE> PHOTOGRAPH OF IMPROVED SALE NUMBER FIVE [PHOTO OMITTED] C97-605 O'Connor and Associates Page 123 <PAGE> IMPROVED SALES MAP [MAP OMITTED] <PAGE> ANALYSIS OF IMPROVED SALES ================================================================================ SUMMARY OF IMPROVED SALES - -------------------------------------------------------------------------------- Sale No. Size Sales Price No. Project Name Units SF NRA Price Per Unit Ro - -------------------------------------------------------------------------------- 1 III Fountains II 637 525,260 $15,809,000 $24,818 9.31% 2 Concorde 197 201,641 $5,465,370 $27,743 9.53% 3 Pin Oak 142 144,780 $4,360,000 $30,704 9.30% 4 7979 Westheimer 459 401,571 $13,800,000 $30,065 10.21% 5 Tree Top 179 131,325 $5,650,000 $31,564 9.15% ================================================================================ The improved sales incorporated in this analysis occurred between February and December 1996. We were unable to confirm any sales of properties of similar age and size in the subject's market area which occurred in 1997. All of the sales are of older properties (constructed between 1965 and 1974) similar to the subject property. Data on each of the sales, including sales price and income and expense data, was confirmed with sources considered to be reliable. The subject property contains both master-metered and separately-metered units. Sales 1 and 5 are master-metered projects while Sales 2 through 4 are separately-metered. As discussed later in the income approach section of this report, in the subject's market area there is little difference between the market rental rates for separately versus master metered properties. Although these sales are not as close in proximity to the subject as the ensuing comparable rental properties, it is evident through analyzing the overall rates and EGIMs that investors, in this area, are not showing preference for one metering over another. The reasoning for this, based on the sales analysis, lies in the average net C97-605 O'Connor and Associates Page 124 <PAGE> operating income per square foot and overall expense ratios. In short, cash flows are indicated to be more of a concern to investors than the metering type. Based on our analysis of this data and other pertinent information obtained in my research, the following is a discussion of the factors which were found to exhibit significant influence on property values in this market. C97-605 O'Connor and Associates Page 125 <PAGE> FACTORS TO BE CONSIDERED AND SUMMARY OF ADJUSTMENTS Property Rights Conveyed The comparable sales were subject to short term leases, typically six months. The fee simple estate for the subject property is the interest appraised. Area apartment investors do not differentiate between the leased fee estate and the fee simple estate for apartments subject to short term leases. Further, buyers and sellers contacted when confirming sales indicated they recognized no difference between the leased fee estate and the fee simple estate. Therefore, no adjustment was necessary for this item. Terms of Financing The transaction price of one property may differ from that of an identical property due to different financing arrangements. For example, the purchaser of a comparable property may have assumed an existing mortgage at a favorable interest rate. In another case, a seller may have arranged a buydown, paying cash to the lender so that a mortgage with a below-market interest rate could be offered. Interest rates at above-market levels often result in lower sales prices. All sales were cash or considered cash equivalent; thus an adjustment for this item was not necessary. Conditions of Sale This adjustment reflects the motivations of the buyer and seller, i.e., assemblage, distress sale, reduced prices from family purchase and purchase by adjacent land owners. All of the sales are considered to represent arms-length market sales, and no price differences are noted which are attributable to conditions of sale. Therefore, no adjustments are applied to the sales for this factor. C97-605 O'Connor and Associates Page 126 <PAGE> Market Conditions Adjustments are often necessary to correct for changes in value over time due to market factors such as supply and demand, and economic factors such as inflation. Discussions with apartment brokers have indicated that values declined during 1982-1988, but have since increased. However, prices have been relatively stable for this market since about early 1996 and, despite rental increases, have not demonstrated quantifiable value increases. Therefore, no market adjustments were justified for the transactions used in this analysis. Location Adjustments occur when the comparable sale is located in an area that is either more or less desirable than the subject, in relationship to absorption and new construction starts. Also, surrounding development and property use trends are given consideration. Sale 1 is located at the intersection of Fountainview and San Felipe, two primary area roadways in the Galleria area. This sale is superior to the subject in access and overall commercial appeal when compared to the subject property. Therefore, a 5% downward location adjustment was applied for this factor. Conversely, Sale 2 is located on Wilcrest, northwest of the subject. This property is not as directly influenced by the Galleria development and is considered inferior to the subject in appeal of surrounding development. Thus, Sale 2 warranted an upward adjustment of 5% due to inferior location in comparison to the subject. Sales 3 and 4 are located on Westheimer Road and South Voss Road (at Burgoyne Road), in the immediate subject vicinity. These two sales are considered similar to the subject in location and were not adjusted. Sale 5 is located C97-605 O'Connor and Associates Page 127 <PAGE> Location - Continued inside Loop 610, directly across from the Galleria. The immediate area surrounding Sale 5 is characterized by dense, upscale commercial and retail development including numerous mid-rise and high-rise office buildings. The degree and quality of surrounding development is considered superior to the subject's location, requiring a 10% downward adjustment. Quality/Appeal Quality adjustments are warranted when the construction quality of the comparable sales (including the level of amenities offered) are either inferior or superior to the subject property and the "curb appeal" of the comparable sales differ from the subject property. Overall, the subject property is superior in quality and appeal to Sales 1, 2, and 4 and reasonably similar to Sales 3 and 5. Sales 1, 2, and 4 were adjusted upward 10%, 5%, and 5%, respectively for inferior quality/appeal in comparison to the subject. Age/Condition This factor adjusts for differences due to incurable physical deterioration. Newer properties, when compared to the subject property, have accrued less physical incurable deterioration, while older properties have accrued more incurable physical deterioration. Discussions with brokers indicated that a property's physical condition is of utmost importance with investors. A property may recapture some of its incurable physical C97-605 O'Connor and Associates Page 128 <PAGE> Age/Condition - Continued deterioration if it has been renovated, thus altering its effective age. Properties that are inferior in this respect receive upward adjustments, while properties that are superior receive downward adjustments. The subject property was constructed in 1969-72, appears to be well-maintained, and is considered to be in good condition. All of the sales are reasonably similar to the subject in age, being built between 1965 and 1974. With the exception of Sale 1, all of the sales reasonably similar to the subject in condition and warranted no adjustments. Sale 1, however, was in only average condition (after curing deferred maintenance) and was adjusted upward 5%. Average Unit Size Generally, projects with a larger average unit size are found to bring a higher per unit price than projects with smaller average unit size. The assumption is that larger units cost more, and generally lease for more on a per unit basis. The subject property has an average unit size of +/-767 SF. Sales 1 through 4 have larger average unit sizes in comparison to the subject property. Thus, downward adjustments between 5% and 10% each were applied to Sales 1 through 4 for this factor. Sale 5 is similar to the subject in average unit size and was not adjusted. Project Size This would reflect market differences for projects with a varying number of units. According to area apartment investors, they are relatively indifferent with respect to C97-605 O'Connor and Associates Page 129 <PAGE> Project Size - Continued project size for properties over 100 units. The subject property contains 1,280 units, more than any of the sales. However, insufficient data was available to substantiate any difference in price per unit due to a larger number of units. Sale 1 contains the most units and has the lowest price per unit. However, although Sale 4 also contains a large number of units (in excess of twice the units of Sales 2, 3, and 5), Sale 4 reflects a price per unit which is similar to Sales 2, 3, and 5. Consequently, as no definitive evidence was present which would indicate an adjustment to price for a large number of units, no adjustment was applied to the sales. The grid on the following page details our adjustment process for the comparable sales. C97-605 O'Connor and Associates Page 130 <PAGE> ================================================================================ Improved Sales Adjustment Grid ================================================================================ 1 2 3 4 5 - -------------------------------------------------------------------------------- Sales Price Per Unit $24,818 $27,743 $30,704 $30,065 $31,564 - -------------------------------------------------------------------------------- Property Rights Conveyed 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Terms of Financing 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Condition of Sale 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Market Condition 0% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Adjusted Price Per Unit $24,818 $27,743 $30,704 $30,065 $31,564 - -------------------------------------------------------------------------------- Location -5% 5% 0% 0% -10% - -------------------------------------------------------------------------------- Quality/Appeal 10% 5% 0% 5% 0% - -------------------------------------------------------------------------------- Age/Condition 5% 0% 0% 0% 0% - -------------------------------------------------------------------------------- Average Unit Size -5% -10% -10% -5% 0% - -------------------------------------------------------------------------------- Project Size 0% 0% 0% 0% 0% ================================================================================ Overall Adjustment (%) 5% 0% -10% 0% -10% ================================================================================ Indicated Value Per Unit $26,059 $27,743 $27,634 $30,065 $28,408 ================================================================================ - -------------------------------------------------------------------------------- SUMMARY OF INDICATED VALUES AFTER ADJUSTMENTS - -------------------------------------------------------------------------------- Indicated Value Range: $26,059 to $30,065 Median Indicated Value: $27,743 Mean Indicated Value: $27,982 Estimated Value: $27,750 ================================================================================ C97-605 O'Connor and Associates Page 131 <PAGE> VALUE ESTIMATE - SALES COMPARISON APPROACH - IMPROVED After adjustment, the sales indicate values ranging from $26,059 to $30,065 per unit. The mean indicated value is $27,982 per unit and the median value is $27,743 per unit. The overall value of the subject property is considered to be near the mean and median indicated values. Thus, we have concluded that the subject property has an indicated value of $27,750 per unit. The total value indication for the subject property is estimated as follows: ================================================================== "AS IS" VALUE ESTIMATE - PER UNIT METHOD ================================================================== ================================================================== Number of Units 1,280 Multiply by indicated Value Per Unit $27,750 ------- Indicated "As Is" Value $35,520,000 ================================================================== C97-605 O'Connor and Associates Page 132 <PAGE> Income Approach <PAGE> INCOME CAPITALIZATION APPROACH The Income Approach to value is predicated on the assumption that there is a definite relationship between the amount of income a property will earn and its value. The theory of the Income Approach is that the value of a property is the present worth of the net income it will produce during its remaining economic or productive life. An investor generally would not be justified in paying more for an investment property (versus speculation) than the value that the net earning power will support based on an appropriate capitalization of the net income. In conformity with the principle of substitution, a prudent investor will not pay more for the right to receive income from a specified property than he would have to pay for another available investment which would produce income stream of similar quantity and quality. The first step in the Income Approach is to estimate the gross income of the property which is the total income produced by the property if 100 percent occupied in its current highest and best use. To arrive at this figure an estimate is made of the "market" rent for the particular property being appraised. Market rent is that rent which is established from the market. Estimated gross annual income is not necessarily past or current annual income or existing rental rates or contract rental. The appraiser must determine current market rent and compare it with a property's existing rental, leases, tenant's ability to pay and competitive or comparative space. C97-605 O'Connor and Associates Page 133 <PAGE> Current economic, social, and political trends likely to affect the property or rentals must be considered, all in order to arrive at probable future earnings. In other words, past and present income are useful and significant only as an indication in determining expected future income. The income must be considered and weighted as to the expected quantity, quality and durability. The factors affecting the quantity of income have been mentioned above. A charge for potential loss from vacancy and/or collection problems typically must be considered in arriving at estimated effective annual income. The quality and durability of income are also weighted in the selection of the proper interest and capitalization rates and method of converting net income to value. The next step in the Income Approach is the estimate of expenses to be deducted from the effective annual income to arrive at estimated net income (before depreciation). As in analyzing the income, the historical and present expenses are used only as a tool to arrive at the probable future expenses. Operating and maintenance expenses of similar properties as well as trends in expenses must be considered. The final step in the approach is to establish the technique for conversion of income to value which is done by establishing a holding period, identifying all future cash flows, their patterns and relationships to present, selecting an appropriate interest (discount) rate and capitalization rate for conversion of future benefits to value by discounting each future annual benefit to present value. C97-605 O'Connor and Associates Page 134 <PAGE> The most important consideration is the risk and comparable rates on other real estate properties and alternative investments which investors are willing to accept. Therefore, in the valuation of the subject property by the Income Approach, the following procedures were followed in order to estimate the value of the property being appraised: Estimate Market Rent: Based on an analysis of similar projects with similar location, amenity and environmental characteristics. Estimate Total Gross Income Potential: Based on estimated market rents supported in the market, plus any ancillary income. Estimate Vacancy and Rent Loss: Based on present occupancy trends for competing properties with similar location, amenity and environmental influences. Estimate Annual Operating Expenses: These costs were based on an analysis of expenses typical of the industry for similar projects. Capitalization of Net Income: Based on capitalization rates typical of the current market (i.e., based on the overall capitalization rates of recent sales of comparable properties). The Income Approach to value provides a good estimate when income and expenses can be reasonably determined in addition to interest and recapture rates. It applies most reliably when the property is an investment type, when the investor is purchasing for the income rather than speculation, where the highest and best use is stable rather than speculative, and where the highest and best use does not involve an area or property that is in a state of transition. C97-605 O'Connor and Associates Page 135 <PAGE> Since the subject property improvements are considered an acceptable use as improved, and since they are operating at (or above) stabilized rent and occupancy levels, a direct capitalization approach will be utilized in estimating the value of the stabilized income stream. Additionally, we have included a discounted cash flow analysis utilizing a 10-year projection. Following are detailed sheets of rent comparables within the vicinity of the subject, utilized in estimating market rent. Their size, lease rates, and amenities support the viability of the cash flow we have projected for the holding period. As the subject property contains both separately-metered and master-metered units, rentals of both types of apartments in the area are included in the following pages. C97-605 O'Connor and Associates Page 136 <PAGE> ================================================================================ APARTMENT RENTAL COMPARABLE NUMBER ONE ================================================================================ Key Map: 490-V Name: Place Vendome Apartments Location: 7600 High Meadow Year Built: 1966 (Substantially renovated 1996) Construction: Two-story, wood frame, brick veneer, pitched shingle roofs Date Surveyed: July 1997 Contact: Management Office 713-622-1212 Total No. of Units: 220 Avg. Unit Size (SF): 756 Avg. Mo. Rent (PSF): $0.71 Occupancy: 97% Units Type Size (SF) Monthly Rent Rent PSF Pot. Rent Tot. SF ----- ---- --------- ------------ -------- --------- ------- 24 1 BR, 1 BA 561 $465 $0.83 $11,160 13,464 68 1 BR, 1 BA 623 $485 $0.78 $32,980 42,364 48 1 BR, 1 BA 670 $505 $0.75 $24,240 32,160 4 1 BR, 1 BA 738 $515 $0.70 $2,060 2,952 6 1 BR, 1 BA 882 $595 $0.67 $3,570 5,292 20 2 BR, 1.5 BA 894 $595 $0.67 $11,900 17,880 18 2 BR, 1 BA 1,001 $600 $0.60 $10,800 18,018 26 2 BR, 2 BA 1,036 $665 $0.64 $17,290 26,936 4 2 BR, 2.5 BA 1,080 $690 $0.64 $2,760 4,320 2 3 BR, 2.5 BA 1,421 $820 $0.58 $1,640 2,842 - ----- ---- ----- ------ ----- 220 756 $538 $0.71 $118,400 166,228 ================================================================================ C97-605 O'Connor and Associates Page 137 <PAGE> ================================================================================ RENT COMPARABLE NUMBER ONE: AMENITIES, FEATURES, COMMENTS ================================================================================ Recreation Unit Features ---------- ------------- 2 Pools W/D Connections Hot Tub W/D in Unit Sauna Fireplaces Gazebo Wet Bars Club House X Ceiling Fans Weight/Recreation Room Self Cleaning Ovens Playground X Frost Free Refrigerators Picnic Areas X Mini Blinds X Smoke Alarms Security X Private Patios/Balconies -------- X Access Gates X Unit Alarms Project ------- Courtesy Patrols X Covered Parking Utilities Storage --------- X Master Metered X On-Site Laundry Individual Metered X Cable TV ================================================================================ C97-605 O'Connor and Associates Page 138 <PAGE> PHOTOGRAPH OF RENT COMPARABLE ONE [PHOTO OMITTED] C97-605 O'Connor and Associates Page 139 <PAGE> ================================================================================ APARTMENT RENTAL COMPARABLE NUMBER TWO ================================================================================ Key Map: 490-V Name: Oakwood Gardens Apartments Location: 2424 South Voss Year Built: 1970 (Substantially renovated in 1989) Construction: 2-story, wood frame, brick exterior, flat built-up roofs Date Surveyed: July 1997 Contact: Management Office - 512-339-4668 Total No. of Units: 810 Avg. Unit Size (SF): 762 Avg. Mo. Rent (PSF): $0.93 Occupancy: 95% Units Type Size (SF) Monthly Rent Rent PSF Pot. Rent Tot. SF ----- ---- --------- ------------ -------- --------- ------- 246 Efficiency 500 $530 $1.06 $130,380 123,000 327 1 BR, 1 BA 750 $690 $0.92 $225,630 245,250 237 2 BR, 2 BA 1,050 $910 $0.87 $215,670 248,850 --- ----- ---- ----- -------- ------- 810 762 $706 $0.93 $571,680 617,100 ================================================================================ C97-605 O'Connor and Associates Page 140 <PAGE> ================================================================================ RENT COMPARABLE NUMBER TWO: AMENITIES, FEATURES, COMMENTS ================================================================================ Recreation Unit Features ---------- ------------- 3 Pools W/D Connections X Hot Tub W/D in Unit Sauna X Fireplaces Gazebo Wet Bars X Club House Ceiling Fans X Weight/Recreation Room Self Cleaning Ovens Playground X Frost Free Refrigerators Picnic Areas X Mini Blinds X Tennis Courts X Smoke Alarms Security X Private Patios/Balconies -------- X Access Gates Unit Alarms Project ------- Courtesy Patrols X Covered Parking Utilities Storage --------- X Master Metered X On-Site Laundry Individual Metered X Cable TV ================================================================================ C97-605 O'Connor and Associates Page 141 <PAGE> PHOTOGRAPH OF RENT COMPARABLE TWO [PHOTO OMITTED] C97-605 O'Connor and Associates Page 142 <PAGE> ================================================================================ APARTMENT RENTAL COMPARABLE NUMBER THREE ================================================================================ Key Map: 490-Z Name: Hillcroft Apartments Location: 3737 Hillcroft Year Built: 1970 (Substantially renovated in 1995) Construction: Two-story, wood frame, brick and wood veneer, built-up flat roofs Date Surveyed: July 1997 Contact: Management Office - 713-977-8477 Total No. of Units: 381 Avg. Unit Size (SF): 734 Avg. Mo. Rent (PSF): $0.64 Occupancy: 93% Units Type Size (SF) Monthly Rent Rent PSF Pot. Rent Tot. SF ----- ---- --------- ------------ -------- --------- ------- 98 1 BR, 1 BA 540 $399 $0.74 $39,102 52,920 98 1 BR, 1 BA 638 $409 $0.64 $40,082 62,524 16 1 BR, 1 BA 712 $419 $0.59 $6,704 11,392 24 1 BR, 1 BA 683 $449 $0.66 $10,776 16,392 20 1 BR, 1 BA 787 $505 $0.64 $10,100 15,740 24 2 BR, 1 BA 845 $499 $0.59 $11,976 20,280 24 2 BR, 1 BA 860 $519 $0.60 $12,456 20,640 20 2 BR, 1.5 BA 938 $575 $0.61 $11,500 18,760 40 2 BR, 2 BA 1,000 $619 $0.62 $24,760 40,000 1 2 BR, 1.5 BA 1,080 $645 $0.60 $645 1,080 8 2 BR, 2 BA 1,200 $715 $0.60 $5,720 9,600 8 2 BR, 2 BA 1,303 $730 $0.56 $5,840 10,424 - ----- ---- ----- ------ ------ 381 734 $472 $0.64 $179,661 279,752 ================================================================================ C97-605 O'Connor and Associates Page 143 <PAGE> ================================================================================ RENT COMPARABLE NUMBER THREE: AMENITIES, FEATURES, COMMENTS ================================================================================ Recreation Unit Features ---------- ------------- 1 Pools W/D Connections X Hot Tub W/D in Unit Sauna X Fireplaces Gazebo Wet Bars Club House X Ceiling Fans Weight/Recreation Room Self Cleaning Ovens Playground X Frost Free Refrigerators Picnic Areas X Mini Blinds X Smoke Alarms Security X Private Patios/Balconies -------- X Access Gates Unit Alarms Project ------- X Courtesy Patrols X Covered Parking Utilities Storage --------- X Master Metered X On-Site Laundry Individual Metered X Cable TV ================================================================================ C97-605 O'Connor and Associates Page 144 <PAGE> PHOTOGRAPH OF RENT COMPARABLE THREE [PHOTO OMITTED] C97-605 O'Connor and Associates Page 145 <PAGE> ================================================================================ APARTMENT RENTAL COMPARABLE NUMBER FOUR ================================================================================ Key Map: 491-S Name: Briarwood Apartments Location: 2423 Winrock Year Built: 1970 Construction: Two-story, wood frame, brick veneer, flat built-up roofs Date Surveyed: July 1997 Contact: Management Office - 713-781-7313 Total No. of Units: 351 Avg. Unit Size (SF): 867 Avg. Mo. Rent (PSF): $0.80 Occupancy: 99% Units Type Size (SF) Monthly Rent Rent PSF Pot. Rent Tot. SF ----- ---- --------- ------------ -------- --------- ------- 36 1 BR, 1 BA 565 $490 $0.87 $17,640 20,340 66 1 BR, 1 BA 605 $505 $0.83 $33,330 39,930 12 1 BR, 1 BA 625 $525 $0.84 $6,300 7,500 39 1 BR, 1 BA 680 $555 $0.82 $21,645 26,520 18 1 BR, 1 BA 725 $650 $0.90 $11,700 13,050 13 2 BR, 1 BA 815 $720 $0.88 $9,360 10,595 8 2 BR, 1 BA 995 $800 $0.80 $6,400 7,960 77 2 BR, 2.5 BA 1,110 $795 $0.72 $61,215 85,470 79 2 BR, 2 BA 1,110 $900 $0.81 $71,100 87,690 3 3 BR, 2 BA 1,800 $1,295 $0.72 $3,885 5,400 - ----- ------ ----- ------ ----- 351 867 $691 $0.80 $242,575 304,455 ================================================================================ C97-605 O'Connor and Associates Page 146 <PAGE> ================================================================================ RENT COMPARABLE NUMBER FOUR: AMENITIES, FEATURES, COMMENTS ================================================================================ Recreation Unit Features ---------- ------------- 4 Pools X W/D Connections Hot Tub W/D in Unit Sauna X Fireplaces Gazebo Wet Bars Club House X Ceiling Fans Exercise Room Self Cleaning Ovens Playground X Frost Free Refrigerators Picnic Areas X Mini Blinds Tennis Courts X Smoke Alarms Security X Private Patios/Balconies -------- Access Gates Unit Alarms Project ------- Courtesy Patrols X Covered Parking Utilities Storage --------- X Master Metered X On-Site Laundry Individual Metered X Cable TV ================================================================================ C97-605 O'Connor and Associates Page 147 <PAGE> PHOTOGRAPH OF RENT COMPARABLE FOUR [PHOTO OMITTED] C97-605 O'Connor and Associates Page 148 <PAGE> ================================================================================ APARTMENT RENTAL COMPARABLE NUMBER FIVE ================================================================================ Key Map: 490-Z Name: Westhill Plaza Apartments Location: 3001 Hillcroft Year Built: 1969 (Substantially renovated in 1993) Construction: 2-story, brick veneer, flat built-up roofs Date Surveyed: July 1997 Contact: Management Office - 713-787-0077 Total No. of Units: 160 Avg. Unit Size (SF): 880 Avg. Mo. Rent (PSF): $0.77 Occupancy: 94% Units Type Size (SF) Monthly Rent Rent PSF Tot. SF ----- ---- --------- ------------ -------- ------- N/A 1 BR, 1 BA 680 $535 $0.79 N/A N/A 1 BR, 1 BA 702 $565 $0.80 N/A N/A 1 BR, 1 BA 730 $585 $0.80 N/A N/A 2 BR, 1 BA 920 $670 $0.73 N/A N/A 2 BR, 2 BA 1,101 $715 $0.65 N/A N/A 3 BR, 2 BA 1,478 $890 $0.60 N/A --- ----- ---- ----- --- 160 880 $673 $0.77 140,864 ================================================================================ C97-605 O'Connor and Associates Page 149 <PAGE> ================================================================================ RENT COMPARABLE NUMBER FIVE: AMENITIES, FEATURES, COMMENTS ================================================================================ Recreation Unit Features ---------- ------------- 2 Pools W/D Connections Hot Tub X W/D in Unit Sauna Fireplaces Gazebo Wet Bars X Club House X Ceiling Fans X Weight/Recreation Room Self Cleaning Ovens Playground X Frost Free Refrigerators, with icemaker Picnic Areas X Mini Blinds X Smoke Alarms Security X Private Patios/Balconies -------- X Access Gates Unit Alarms Project ------- Courtesy Patrols X Covered Parking Utilities Storage --------- Master Metered On-Site Laundry X Individual Metered X Cable TV ================================================================================ C97-605 O'Connor and Associates Page 150 <PAGE> PHOTOGRAPH OF RENT COMPARABLE FIVE [PHOTO OMITTED] C97-605 O'Connor and Associates Page 151 <PAGE> ================================================================================ APARTMENT RENTAL COMPARABLE NUMBER SIX ================================================================================ Key Map: 490-Y Name: Richmond Chase Apartments Location: 8155 Richmond Avenue Year Built: 1976 (Substantially renovated in 1990) Construction: Two-story, wood frame, brick and wood veneer, built-up flat roofs Date Surveyed: July 1997 Contact: Management Office - 713-974-2099 Total No. of Units: 292 Avg. Unit Size (SF): 790 Avg. Mo. Rent (PSF): $0.69 Occupancy: 96% Units Type Size (SF) Monthly Rent Rent PSF Pot. Rent Tot. SF ----- ---- --------- ------------ -------- --------- ------- 32 0 BR, 1 BA 576 $425 $0.74 $13,600 18,432 56 1 BR, 1 BA 623 $475 $0.76 $26,600 34,888 16 1 BR, 1 BA 676 $495 $0.73 $7,920 10,816 10 1 BR, 1 BA 730 $535 $0.73 $5,350 7,300 11 1 BR, 1 BA 738 $535 $0.72 $5,885 8,118 15 1 BR, 1 BA 812 $535 $0.66 $8,025 12,180 16 1 BR, 1.5 BA 891 $575 $0.65 $9,200 14,256 136 2 BR, 2 BA 917 $615 $0.67 $83,640 124,712 --- --- ---- ----- ------- ------- 292 790 $549 $0.69 $160,220 230,702 ================================================================================ C97-605 O'Connor and Associates Page 152 <PAGE> ================================================================================ RENT COMPARABLE NUMBER SIX: AMENITIES, FEATURES, COMMENTS ================================================================================ Recreation Unit Features ---------- ------------- 2 Pools X W/D Connections X Hot Tub W/D in Unit Sauna X Fireplaces Gazebo Wet Bars Club House X Ceiling Fans X Weight/Recreation Room Self Cleaning Ovens Playground X Frost Free Refrigerators Picnic Areas X Mini Blinds X Smoke Alarms Security X Private Patios/Balconies -------- X Access Gates Unit Alarms Project ------- X Courtesy Patrols Covered Parking Utilities Storage --------- Master Metered X On-Site Laundry X Individual Metered X Cable TV ================================================================================ C97-605 O'Connor and Associates Page 153 <PAGE> PHOTOGRAPH OF RENT COMPARABLE SIX [PHOTO OMITTED] C97-605 O'Connor and Associates Page 154 <PAGE> ================================================================================ APARTMENT RENTAL COMPARABLE NUMBER SEVEN ================================================================================ Key Map: 490-V Name: 7979 Westheimer Apartments Location: 7979 Westheimer Year Built: 1973 Construction: Two-story, wood frame, brick veneer, composition shingle roofs Date Surveyed: July 1997 Contact: Management Office - 713-789-7979 Total No. of Units: 459 Avg. Unit Size (SF): 875 Avg. Mo. Rent (PSF): $0.73 Occupancy: 97% Units Type Size (SF) Monthly Rent Rent PSF Pot. Rent Tot. SF ----- ---- --------- ------------ -------- --------- ------- 206 1 BR, 1 BA 614 $507 $0.83 $104,442 126,484 48 1 BR, 1 BA 748 $540 $0.72 $25,920 35,904 12 2 BR, 1.5 BA 914 $685 $0.75 $8,220 10,968 24 2 BR, 1 BA 923 $699 $0.76 $16,776 22,152 12 2 BR, 2 BA 928 $725 $0.78 $8,700 11,136 21 2 BR, 2 BA 1,075 $750 $0.70 $15,750 22,575 120 2 BR, 2 BA 1,212 $790 $0.65 $94,800 145,440 16 3 BR, 3 BA 1,682 $1,195 $0.71 $19,120 26,912 -- ----- ------ ----- ------- ------ 459 875 $640 $0.73 $293,728 401,571 ================================================================================ C97-605 O'Connor and Associates Page 155 <PAGE> ================================================================================ RENT COMPARABLE NUMBER SEVEN: AMENITIES, FEATURES, COMMENTS ================================================================================ Recreation Unit Features ---------- ------------- 6 Pools X W/D Connections Hot Tub W/D in Unit Sauna X Fireplaces Gazebo Wet Bars X Club House X Ceiling Fans X Exercise Room Self Cleaning Ovens Playground X Frost Free Refrigerators Picnic Areas X Mini Blinds Tennis Courts X Smoke Alarms Security X Private Patios/Balconies -------- X Access Gates Unit Alarms Project ------- Courtesy Patrols Covered Parking Utilities Storage --------- Master Metered X On-Site Laundry X Individual Metered X Cable TV ================================================================================ C97-605 O'Connor and Associates Page 156 <PAGE> PHOTOGRAPH OF RENT COMPARABLE SEVEN [PHOTO OMITTED] C97-605 O'Connor and Associates Page 157 <PAGE> ================================================================================ APARTMENT RENTAL COMPARABLE NUMBER EIGHT ================================================================================ Key Map: 490-U Name: Rolido Parque Apartments Location: 2801 Rolido Year Built: 1977 Construction: Three-story, wood frame, brick veneer, flat built-up roofs Date Surveyed: July 1997 Contact: Management Office - 713-784-3480 Total No. of Units: 372 Avg. Unit Size (SF): 720 Avg. Mo. Rent (PSF): $0.72 Occupancy: 97% Units Type Size (SF) Monthly Rent Rent PSF Pot. Rent Tot. SF ----- ---- --------- ------------ -------- --------- ------- 80 1 BR, 1 BA 585 $450 $0.77 $36,000 46,800 114 1 BR, 1 BA 620 $460 $0.74 $52,440 70,680 96 1 BR, 1 BA 660 $470 $0.71 $45,120 63,360 8 2 BR, 2 BA 930 $660 $0.71 $5,280 7,440 32 2 BR, 2 BA 996 $710 $0.71 $22,720 31,872 21 2 BR, 2 BA 1,012 $705 $0.70 $14,805 21,252 21 2 BR, 2 BA 1,260 $785 $0.62 $16,485 26,460 -- ----- ---- ----- ------- ------ 372 720 $518 $0.72 $192,850 267,864 ================================================================================ C97-605 O'Connor and Associates Page 158 <PAGE> ================================================================================ RENT COMPARABLE NUMBER EIGHT: AMENITIES, FEATURES, COMMENTS ================================================================================ Recreation Unit Features ---------- ------------- 2 Pools X W/D Connections X Hot Tub W/D in Unit Sauna Fireplaces Gazebo Wet Bars X Club House X Ceiling Fans X Exercise Room Self Cleaning Ovens Playground X Frost Free Refrigerators Picnic Areas X Mini Blinds X Tennis Courts X Smoke Alarms Security X Private Patios/Balconies -------- X Access Gates Unit Alarms Project ------- Courtesy Patrols X Covered Parking Utilities Storage --------- Master Metered X On-Site Laundry X Individual Metered X Cable TV ================================================================================ C97-605 O'Connor and Associates Page 159 <PAGE> PHOTOGRAPH OF RENT COMPARABLE EIGHT [PHOTO OMITTED] C97-605 O'Connor and Associates Page 160 <PAGE> COMPARABLE RENTAL MAP [MAP OMITTED] <PAGE> ESTIMATE OF MARKET RENT Summary and Analysis of Rent Comparables In order to estimate market rent for the subject, it was necessary to examine and analyze current rents from projects with which the subject will be in competition. All of the projects surveyed are in the immediate area of the subject, and are considered representative of the subject's competition within this market area. The following chart summarizes the rent comparables: ================================================================================ SUMMARY OF RENT COMPARABLES ================================================================================ No. Total Avg. Unit Avg. Mo No. Project Name Units SF NRA Size SF Occ. Rent PSF - -------------------------------------------------------------------------------- Master-Metered Projects - -------------------------------------------------------------------------------- 1 Place Vendome Apartments 220 166,228 756 97% $0.71 - -------------------------------------------------------------------------------- 2 Oakwood Gardens Apartments 810 617,100 762 95% $0.93 - -------------------------------------------------------------------------------- 3 Hillcroft Apartments 381 279,752 734 93% $0.64 - -------------------------------------------------------------------------------- 4 Briarwood Apartments 351 304,455 867 99% $0.80 - -------------------------------------------------------------------------------- Separately-Metered Projects - -------------------------------------------------------------------------------- 5 Westhill Plaza Apartments 160 140,864 880 94% $0.77 - -------------------------------------------------------------------------------- 6 Richmond Chase Apartments 292 230,702 790 96% $0.69 - -------------------------------------------------------------------------------- 7 7979 Westheimer 459 401,571 875 97% $0.73 - -------------------------------------------------------------------------------- 8 Rolido Parque Apartments 372 267,864 720 97% $0.72 ================================================================================ The comparable apartment projects surveyed range in size from 160 units to 810 units, with average rents ranging from $0.64 PSF/month to $0.93 PSF/month for master-metered projects and $0.69 PSF/month to $0.77 PSF/month for separately-metered projects. The average unit sizes range from 720 square feet to 880 square feet. The subject property has an average unit size of +/-767 square feet. C97-605 O'Connor and Associates Page 161 <PAGE> Typically master-metered properties receive a higher rental rate per square foot than do their counterparts. However, in the subject's market area, based on a survey of 124 complexes by Apartment Data Services, Inc., the variance is less than 1 cent per square foot. This, in part, is due to the wide variety of complexes available. The traits of the complexes range from Class "A" projects, being newly constructed properties with amenities such as garages, TV monitored grounds, guards at the entrances gate, etc., to Class "D" properties, in poor condition and offering few or no amenities. The above comparable rentals indicate a +/-3 cent higher overall average rental rate for master-metered projects in comparison to separately-metered projects. All of the rentals are considered direct competitors for the subject property. The subject and the comparable rentals are considered to be Class "B" properties, all of reasonably comparable age, curb appeal, and tenant mixes. All of these properties have similar tenant mixes, being of no particular employer concentration with the many of the tenants working in the Galleria area or along the Richmond "Strip," an area of concentration of nightclubs and restaurants. The subject property is considered superior to all of the comparable rentals in level of amenities. In addition to the amenities found at the majority of the competition such as pools, access gates, cable TV availability, ceiling fans, covered parking (master-metered units), private balcony\patio, and laundry facilities, the subject property offers tennis courts (with free lessons), dry cleaning services, and a large clubhouse with a computer room, mini-theatre, exercise room, and aerobics classes. C97-605 O'Connor and Associates Page 162 <PAGE> Each of the projects surveyed was inspected and the reported rents analyzed in an effort to determine prevalent trends and tenant preferences. Factors considered to exhibit significant influence on rent levels in this market are discussed as follows: Location: Generally the multifamily projects located along or in close proximity to major roadways were found to receive higher unit rents than those situated along lesser secondary roads. Ease of access appears to be a major tenant concern. Project Style/Design: Conversations with owners and on-site managers indicate that "curb appeal" is a major marketing feature. Although all of the projects included in our survey are garden style developments, differences in building design, site layout and landscaped areas are judged to influence potential tenants. Age/Condition: Tenant motivation in regard to these factors are often directed at the attractiveness of a project. As a result newer projects, which have experienced less deterioration due to time, tend to bring a higher rent level than older projects. It should be noted, however, that the influence of age can be mitigated somewhat by long term maintenance and/or renovation. Therefore, while age is an important factor, it is our opinion that tenants place greater emphasis on condition. C97-605 O'Connor and Associates Page 163 <PAGE> Project Amenities: The amenities offered by the various projects surveyed varied. Swimming pools, laundry rooms and adequate parking are considered to be typical for this market. Projects offering more amenities generally utilize them as incentives in their marketing program and generally have higher rent levels. Examples of these type amenities include additional recreational features, fitness/weight rooms, covered carport parking and clubhouses. Unit Size/Type: The square footage of the individual units was found to generate some influence on per unit rent levels in this market, due primarily to the economy of size (higher per unit rent; lower per square foot rent). However, it was generally found that tenants appear to place greater emphasis on the type of unit (number of bedrooms and baths). One, two, and three bedrooms are typical throughout the market. Typically the greater the number of bedrooms, the higher the per unit rent. Unit Amenities: Unit finish was found to have significant influence on rent levels. Generally projects offering modern kitchen packages, energy efficient items (ceiling fans, etc.), fireplaces, and washer dryer connections can realize higher rent levels than those with lesser finish. Cable television service is often used as a promotional marketing tool, although we could not quantify a direct positive influence of this factor in regard to rent levels. C97-605 O'Connor and Associates Page 164 <PAGE> Utilities: The subject property contains both separately-metered and master-metered (for electricity) units. In consideration of these factors, a comparison of each of the subject unit types was made to comparable units in the apartment projects surveyed. This analysis was useful in arriving at an estimate of monthly market rent for each unit type. Just last month (June, 1997), street rents at the subject property were increased. Given the subject's 99% occupancy, level of amenities offered, and strong occupancies at comparable properties, an increase in rents for new tenants is considered justified and sustainable. The procedure used in this analysis is illustrated on the following pages. C97-605 O'Connor and Associates Page 165 <PAGE> SUBJECT - Small Master-Metered 1BR/1BA Units (615 square feet) The subject has 160 one bedroom/ one bath units, containing 615 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF SMALL ONE BEDROOM RENT COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 1 623 $485 $0.78 - -------------------------------------------------------------------------------- 3 638 $409 $0.64 - -------------------------------------------------------------------------------- 3 683 $449 $0.66 - -------------------------------------------------------------------------------- 4 605 $505 $0.83 - -------------------------------------------------------------------------------- 4 625 $525 $0.84 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject 615 $550 $0.89 ================================================================================ The current asking rental rate for the subject property exceeds its competitors. However, as previously indicated, the subject property offers an amenity package which is superior to the comparable rentals. Therefore, a rental rate on the upper end of the range appears reasonable. Based on a review of the most recent actual leases at the subject property (see rent roll in addenda), rents of $525 per month are being achieved. Based upon a comparison to the above comparable rentals, with consideration given for age, location, appeal, condition and amenities, $525 per month ($0.85 per square foot) for the market rent of the 615 square foot unit appears appropriate and has been uitlized in our analysis. C97-605 O'Connor and Associates Page 166 <PAGE> SUBJECT - Large Master-Metered 1BR/1BA Units (720 - 798 square feet) The subject contains 166 units containing 720 square feet, 232 units containing 736 square feet, and 80 units containing 798 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF LARGE 1BR/1BA COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 1 738 $515 $0.70 - -------------------------------------------------------------------------------- 2 750 $690 $0.92 - -------------------------------------------------------------------------------- 3 712 $419 $0.59 - -------------------------------------------------------------------------------- 3 787 $505 $0.64 - -------------------------------------------------------------------------------- 4 680 $555 $0.82 - -------------------------------------------------------------------------------- 4 725 $650 $0.90 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject 720 $575 $0.80 - -------------------------------------------------------------------------------- Subject 736 $590 $0.80 - -------------------------------------------------------------------------------- Subject 798 $620 $0.78 ================================================================================ The current asking rental rates for the subject units are on the upper end of the rental range. However, as previously indicated, the subject property offers an amenity package which is superior to the comparable rentals. Therefore, a rental rate on the upper end of the range appears reasonable. Based on a review of the most recent actual leases at the subject property (see rent roll in addenda), rents of $525 - $550 per month are being achieved on the 720 SF units, $565 - $580 on the 736 SF units, and $595 - $620 on the 798 units. Based upon a comparison to the above comparable rental units, with consideration given for unit size, age, location, appeal, condition and amenities, $540 per month ($0.75 PSF) market rent for the 720 SF units, $565 per month ($0.77 PSF) market rent for the 736 SF units, and $600 per month ($0.75 PSF) market rent for the 798 SF units appears appropriate and has been utilized in our analysis. C97-605 O'Connor and Associates Page 167 <PAGE> SUBJECT - Small Master-Metered 2BR/1BA Units (928 - 936 square feet) The subject has 52 units containing 928 square feet and 64 units containing 936 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF SMALL 2BR/1BA COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 1 1,001 $600 $0.60 - -------------------------------------------------------------------------------- 3 860 $519 $0.60 - -------------------------------------------------------------------------------- 3 938 $575 $0.61 - -------------------------------------------------------------------------------- 4 995 $800 $0.80 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject 928 $690 $0.74 - -------------------------------------------------------------------------------- Subject 936 $716 $0.76 ================================================================================ The above 938 SF unit is a 2BR/1.5 BA floorplan The current asking rental rates for the subject units are on the upper end of the rental range. However, as previously indicated, the subject property offers an amenity package which is superior to the comparable rentals. Therefore, a rental rate on the upper end of the range appears reasonable. Based on a review of the most recent actual leases at the subject property (see rent roll in addenda), rents of $660 - $680 per month for the 928 SF units and $685 - $720 per month for the 936 SF units are being achieved. Based upon a comparison to the above comparable rentals, with consideration given for age, location, appeal, condition and amenities, $665 per month ($0.72 per square foot) for the market rent of the 928 SF units, and $690 per month ($0.74 per square foot) market rent for the 936 SF units appears appropriate and has been uitlized in our analysis. C97-605 O'Connor and Associates Page 168 <PAGE> SUBJECT - Large Master-Metered 2BR/1BA Units (960 - 966 square feet) The subject has 32 units containing 960 square feet and 32 units containing 966 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF 2BR/1BA COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 1 1,001 $600 $0.60 - -------------------------------------------------------------------------------- 3 938 $575 $0.61 - -------------------------------------------------------------------------------- 3 1,080 $645 $0.60 - -------------------------------------------------------------------------------- 4 995 $800 $0.80 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject 960 $735 $0.77 - -------------------------------------------------------------------------------- Subject 966 $745 $0.77 ================================================================================ The above 938 SF & 1,080 SF units are 2BR/1.5 BA floorplans The current asking rental rates for the subject units are on the upper end of the rental range. However, as previously indicated, the subject property offers an amenity package which is superior to the comparable rentals. Therefore, a rental rate on the upper end of the range appears reasonable. Based on a review of the most recent actual leases at the subject property (see rent roll in addenda), rents of $705 - $735 per month for the 960 SF units and $705 - $725 per month for the 966 SF units are being achieved. Based upon a comparison to the above comparable rentals, with consideration given for age, location, appeal, condition and amenities, $710 per month ($0.74 per square foot) for the market rent of the 960 SF units, and $715 per month ($0.74 per square foot) market rent for the 966 SF units appears appropriate and has been uitlized in our analysis. C97-605 O'Connor and Associates Page 169 <PAGE> SUBJECT - Small Master-Metered 2BR/2BA Units (1,008 - 1,050 square feet) The subject has 68 units containing 1,008 square feet and 16 units containing 1,050 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF SMALL 2BR/2BA COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 1 1,036 $665 $0.64 - -------------------------------------------------------------------------------- 2 1,050 $910 $0.87 - -------------------------------------------------------------------------------- 3 1,000 $619 $0.62 - -------------------------------------------------------------------------------- 4 1,110 $900 $0.81 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject 1,008 $780 $0.77 - -------------------------------------------------------------------------------- Subject 1,050 $820 $0.78 ================================================================================ The current asking rental rates for the subject units are on the upper end of the rental range. However, as previously indicated, the subject property offers an amenity package which is superior to the comparable rentals. Therefore, a rental rate on the upper end of the range appears reasonable. Based on a review of the most recent actual leases at the subject property (see rent roll in addenda), rents of $760 per month for the 1,008 SF units and $780 - $800 per month for the 1,050 SF units are being achieved. Based upon a comparison to the above comparable rentals, with consideration given for age, location, appeal, condition and amenities, $760 per month ($0.75 per square foot) for the market rent of the 1,008 SF units, and $780 per month ($0.74 per square foot) market rent for the 1,050 SF units appears appropriate and has been uitlized in our analysis. C97-605 O'Connor and Associates Page 170 <PAGE> SUBJECT - Large Master-Metered 2BR/2BA Units (1,120 - 1,240 square feet) The subject has 32 units containing 1,120 square feet and 16 units containing 1,240 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF 2BR/2BA COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 1 1,036 $665 $0.64 - -------------------------------------------------------------------------------- 2 1,050 $910 $0.87 - -------------------------------------------------------------------------------- 3 1,200 $715 $0.60 - -------------------------------------------------------------------------------- 3 1,303 $730 $0.56 - -------------------------------------------------------------------------------- 4 1,110 $900 $0.81 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject 1,120 $850 $0.76 - -------------------------------------------------------------------------------- Subject 1,240 $930 $0.75 ================================================================================ The current asking rental rates for the subject units are on the upper end of the rental range. However, as previously indicated, the subject property offers an amenity package which is superior to the comparable rentals. Therefore, a rental rate on the upper end of the range appears reasonable. Based on a review of the most recent actual leases at the subject property (see rent roll in addenda), rents of $830 per month for the 1,120 SF units and $890 per month for the 1,240SF units are being achieved. Based upon a comparison to the above comparable rentals, with consideration given for age, location, appeal, condition and amenities, $830 per month ($0.74 per square foot) for the market rent of the 1,120 SF units, and $890 per month ($0.72 per square foot) market rent for the 1,240 SF units appears appropriate and has been uitlized in our analysis. C97-605 O'Connor and Associates Page 171 <PAGE> SUBJECT - Small Separately-Metered 1BR/1BA Unit (615 square feet) The subject has 288 units containing 615 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF SMALL 1BR/1BA COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 6 623 $475 $0.76 - -------------------------------------------------------------------------------- 6 676 $495 $0.73 - -------------------------------------------------------------------------------- 7 614 $507 $0.83 - -------------------------------------------------------------------------------- 8 585 $450 $0.77 - -------------------------------------------------------------------------------- 8 620 $460 $0.74 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject 615 $475-$485 $0.78 ================================================================================ The current asking rental rate for the subject property is on the upper end of the rental range. However, as previously indicated, the subject property offers an amenity package which is superior to the comparable rentals. Therefore, a rental rate on the upper end of the range appears reasonable. Based on a review of the most recent actual leases at the subject property (see rent roll in addenda), rents of $450 - $485 per month for the 615 SF units are being achieved. Based upon a comparison to the above comparable rentals, with consideration given for age, location, appeal, condition and amenities, $470 per month ($0.76 per square foot) for the market rent of the 615 SF units appears appropriate and has been uitlized in our analysis. C97-605 O'Connor and Associates Page 172 <PAGE> SUBJECT - Large Separately-Metered 1BR/1BA Units (722 - 752 square feet) The subject has 1 unit containing 722 square feet, 2 units containing 728 square feet, and 1 unit containing 752 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF 1BR/1BA COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 5 730 $585 $0.80 - -------------------------------------------------------------------------------- 6 730 $535 $0.73 - -------------------------------------------------------------------------------- 6 738 $535 $0.72 - -------------------------------------------------------------------------------- 7 748 $540 $0.72 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject 722 $505 $0.70 - -------------------------------------------------------------------------------- Subject 728 $510 $0.70 - -------------------------------------------------------------------------------- Subject 752 $525 $0.70 ================================================================================ The current asking rental rates for the subject units are slightly below the rental range. Given the level of amenities and overall appeal of the subject, a rental rate on the upper end of the range is considered appropriate. Based upon a comparison to the above comparable rentals, with consideration given for age, location, appeal, condition and amenities, $535 per month ($0.74 per square foot) for the market rent of the 722 SF and 728 SF units, and $555 per month ($0.72 per square foot) market rent for the 752 SF units appears appropriate and has been uitlized in our analysis. C97-605 O'Connor and Associates Page 173 <PAGE> SUBJECT - Very Large Separately-Metered 1BR/1BA Units (822 - 890 square feet) The subject has 1 unit containing 822 square feet, 1 unit containing 885 square feet, and 1 unit containing 890 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF 1BR/1BA COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 6 812 $535 $0.66 - -------------------------------------------------------------------------------- 6 891 $575 $0.65 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject 822 $575 $0.70 - -------------------------------------------------------------------------------- Subject 885 $575 $0.65 - -------------------------------------------------------------------------------- Subject 890 $625 $0.70 ================================================================================ The above 891 SF unit is a 1BR/1.5 BA floorplan Rental Six is the only comparable which offers a floorplan similar to the subject's 822 SF, 885 SF, and 890 SF units. Based on the level of amenities and overall appeal of the subject, a market rental rate on the upper end of the range is considered appropriate. Based upon a comparison to the above comparable rentals, with consideration given for age, location, appeal, condition and amenities, $560 per month ($0.68 per square foot) for the market rent of the 822 SF unit, $575 per month ($0.65 per square foot) for the market rent of the 885 SF unit, and $625 per month ($0.70 per square foot) market rent for the 890 SF units appears appropriate and has been uitlized in our analysis. C97-605 O'Connor and Associates Page 174 <PAGE> SUBJECT - Separately-Metered 2BR/2BA Units (1,000 - 1,168 square feet) The subject has 1 unit containing 1,000 square feet, 1 unit containing 1,108 square feet, 1 unit containing 1,168 square feet, and 32 units containing 1,008 square feet. The following is a recap of the units from the comparables considered most similar to the subject units: ================================================================================ SUMMARY OF 2BR/2BA COMPARABLES ================================================================================ Comparable Unit Size (SF) Monthly Rent Monthly Rent Per Square Foot - -------------------------------------------------------------------------------- 5 1,101 $715 $0.65 - -------------------------------------------------------------------------------- 7 1,075 $750 $0.70 - -------------------------------------------------------------------------------- 7 1,212 $790 $0.65 - -------------------------------------------------------------------------------- 8 1,012 $705 $0.70 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject 1,000 $700 $0.70 - -------------------------------------------------------------------------------- Subject 1,008 $702 $0.70 - -------------------------------------------------------------------------------- Subject 1,108 $775 $0.70 - -------------------------------------------------------------------------------- Subject 1,168 $775 $0.66 ================================================================================ The current asking rental rates for the subject units are on the upper end of the rental range. However, as previously indicated, the subject property offers an amenity package which is superior to the comparable rentals. Therefore, a rental rate on the upper end of the range appears reasonable. Based on a review of the most recent actual leases at the subject property (see rent roll in addenda), rents of $700 per month for the 1,000 SF unit, $665 - $690 per month for the 1,008 units, $775 per month for the 1,108 unit, and C97-605 O'Connor and Associates Page 175 <PAGE> SUBJECT - Separately-Metered 2BR/2BA Units (1,000 - 1,168 square feet) $700 per month for the 1,168 SF unit are being achieved. Based upon a comparison to the above comparable rentals, with consideration given for age, location, appeal, condition and amenities, $700 per month ($0.70 per square foot) for the market rent of the 1,000 SF unit, $680 per month ($0.67 per square foot) for the market rent of the 1,008 SF units, $775 per month ($0.70 per square foot) for the market rent of the 1,108 SF unit, and $775 per month ($0.66 per square foot) market rent for the 1,168 SF units appears appropriate and has been utilized in our analysis. C97-605 O'Connor and Associates Page 176 <PAGE> Ancillary Income Miscellaneous income generated $189,944 for the subject property in 1996 and $198,710 in 1995, according to the income statements provided. Additionally, miscellaneous income through June 1997, plus 1997 budget numbers total $180,578. These receipts indicate totals of $12.34, $12.94, and $11.76 per unit per month, respectively, on an "as occupied" basis (effective gross income). The 1996 Institute of Real Estate Management publication, Income/Expense Analysis: Conventional Apartments, reported the average ancillary income per unit per month for garden style apartments in the Houston area to be $13.66. Based on the subject's historical levels, a stabilized gross miscellaneous income of $13.20 per month per unit, or $16,896 per month, say $202,752 per year, is considered reasonable. This estimate is the gross ancillary income before deduction for vacancy and collection loss. Typically, a third party provides the laundry equipment and splits the revenue with the subject project, and this is considered the primary source of this income along with security deposit forfeitures and application fees. C97-605 O'Connor and Associates Page 177 <PAGE> POTENTIAL GROSS INCOME Based on the comparable rentals, stabilized potential gross income for the subject project is estimated as follows: ================================================================================ CALCULATION OF ANNUAL POTENTIAL GROSS INCOME - -------------------------------------------------------------------------------- Unit Type Number Unit Rentable Monthly Rent/SF Pot Rent of Units Size Area Rent 1 BR / 1 BA 160 615 98,400 $525 $0.85 $84,000 1 BR / 1 BA 166 720 119,520 $540 $0.75 $89,640 1 BR / 1 BA 232 736 170,752 $565 $0.77 $131,080 1 BR / 1 BA 80 798 63,840 $600 $0.75 $48,000 2 BR / 1 BA 52 928 48,256 $665 $0.72 $34,580 2 BR / 1 BA 64 936 59,904 $690 $0.74 $44,160 2 BR / 1 BA 32 960 30,720 $710 $0.74 $22,720 2 BR / 1 BA 32 966 30,912 $715 $0.74 $22,880 2 BR / 2 BA 68 1,008 68,544 $760 $0.75 $51,680 2 BR / 2 BA 16 1,050 16,800 $780 $0.74 $12,480 2 BR / 2 BA 32 1,120 35,840 $830 $0.74 $26,560 2 BR / 2 BA 16 1,240 19,840 $890 $0.72 $14,240 1 BR / 1 BA 288 615 177,120 $470 $0.76 $135,360 1 BR / 1 BA 1 722 722 $535 $0.74 $535 1 BR / 1 BA 2 728 1,456 $535 $0.73 $1,070 1 BR / 1 BA 1 752 752 $555 $0.74 $555 1 BR / 1 BA 1 822 822 $560 $0.68 $560 1 BR / 1 BA 1 885 885 $575 $0.65 $575 1 BR / 1 BA 1 890 890 $625 $0.70 $625 2 BR / 2 BA 1 1,000 1,000 $700 $0.70 $700 2 BR / 2 BA 1 1,108 1,108 $775 $0.70 $775 C97-605 O'Connor and Associates Page 178 <PAGE> 2 BR / 2 BA 32 1,008 32,256 $680 $0.67 $21,760 2 BR / 2 BA 1 1,168 1,168 $775 $0.66 $775 - ----- ----- ---- ----- ---- 1,280 767 981,507 $582 $0.76 $745,310 MONTHLY POTENTIAL RENTAL INCOME $745,310 Ancillary Income 1,280 units @ $13.20 per unit $16,896 ------- MONTHLY POTENTIAL GROSS INCOME: $762,206 Multiplied By: 12 -- Months ------ ANNUAL POTENTIAL GROSS INCOME: $9,146,472 ================================================================================ Therefore, the annual potential rental income is estimated to be $8,943,720, plus $202,752 in ancillary income for a total potential gross income of $9,146,472. C97-605 O'Connor and Associates Page 179 <PAGE> Vacancy/Collection Loss: In the previous discussion of the subject's market area, the occupancy levels for master-metered complexes averaged 95.85%, above the average rate of 91.43% for individually metered complexes. The overall occupancy of the market area was 92.80%. This occupancy level is near the upper end of the range of the previous recent years, ranging from 86.63% to 93.28%, over a four year period. The occupancy levels exhibited by the rent comparables range from 93% to 97%. As of the date of inspection, the subject property was +/-99% occupied. Historical occupancy for the subject property has steadily increased from 83.40% in 1994 to 87.18% in 1995 to 90.75% in 1996 (according the income statements provided). Occupancy and rental rates have increased consistently at the subject property (as well as the sub-market) over the past few years. Considering the subject's current occupancy, the occupancies reported by nearby competing properties, and the overall appeal of the subject, a stabilized vacancy and collection loss rate of 6% for the subject property. Employee/Model Units This category provids for a deduction for rent loss on employee, administrative, and model units. The financial statements provided indicate a rent loss due to employee/model units ranging from 2.65% to 3.5% of potential gross rental income from 1994 to 1996. The June 1997 statement indicates a rent loss estimate for this category of 2.76%. Therefore, based on the historical levels, a stabilized annual rent loss due to employee/model units of 3% of potential gross rental income. C97-605 O'Connor and Associates Page 180 <PAGE> No move-in specials are being offered at the subject apartments. While multifamily housing trends in this area are not expected to change significantly in the near future, it is reasonable to assume that over a typical investor holding period of eight to ten years, there will be losses of income during tenant turnover and/or collection problems. In the subject property type, stability of tenant base is of primary concern, and is a function of management through proper maintenance and attention to tenants' concerns. As such, a total stabilized occupancy level of 91% (including employee/model vacancy), or an annual loss of 9% of gross income is considered reasonable for this charge. Effective Gross Income Based on the foregoing analysis of potential gross income and vacancy /collection loss, the effective annual gross income for the project can be calculated as follows: ================================================================================ EFFECTIVE GROSS INCOME - -------------------------------------------------------------------------------- Potential Gross Less: Vacancy/Collection Effective Gross Income Income Allowance (9%) - -------------------------------------------------------------------------------- $9,146,472 $823,182 $8,323,290 ================================================================================ C97-605 O'Connor and Associates Page 181 <PAGE> ANALYSIS OF OPERATING EXPENSES: Estimates of expenses associated with the operation of the subject property are based on surveys of similar properties in the area compared to reported data on the subject project. 1994, 1995, and 1996 operating statements for the subject were provided by the client. In addition to reviewing the subject's historical data, we have utilized income/expense data published by the Institute of Real Estate Management (IREM) as independent support for the forthcoming expense projections for the subject property. While it is recognized that expenses such as maintenance and utilities will vary over time, our estimates are based on stabilized annual charges over a typical investor holding period. The following is a discussion of each major expense item for the subject project. Property Taxes: The subject is within the taxing jurisdiction of the Houston Independent School District, Harris County, and the City of Houston. The preliminary 1997 assessed value is $21,530,960, which represents a $2,743,970 increase from the total 1996 assessment. Considering on the tax comparable assesments, an increase in the subject assessment of 10% per year is anticipated in Year 2 and 3 of the holding period. In Year 1 of the discounted cash flow, taxes are calculated based on the preliminary 1997 assessment. This results in a 1997 tax expense for the subject property of $594,151. C97-605 O'Connor and Associates Page 182 <PAGE> Insurance: The subject reflected an insurance expense per square foot of $0.31 in 1994, $0.35 per square foot in 1995, and $0.28 per square foot in 1996. IREM reported this expense to range from $0.12 to $0.21 per square foot, with a median cost of $0.15 per square foot. We have utilized an expense of $0.30 per square foot of NRA ($294,452) as the proforma insurance expense, based upon the subject's historical information. Utilities (natural gas, electric, water, sewer, and basic cable) The subject project's owner pays all utility costs for 950 out of the 1,280 units in the complex. The subject's historical operating expenses indicated a per square foot expense of $1.39 in 1994, $1.35 in 1995, and $1.41 in 1996. IREM data estimate this expense to be between $0.52 and $1.38 per square foot. The subject is slightly above the IREM range due to the superior level of amenities offered at this project. We have estimated the proforma expense to be $1.42 per square foot or $1,393,740 annually. Management: Typical cost for general management and accounting for multifamily properties typically range from 3% to 6% of the effective gross income. IREM data reflected management fees of between 3.4% and 4.6%. The subject's historical expense was indicated to be 4.00% in 1996, 1995, and 1994. The actual historical subject expense appears consistent with the supporting market data. Thus, an annual stabilized management fee for the subject of 4.00% of the projected effective gross income has been utilized in Year 1. C97-605 O'Connor and Associates Page 183 <PAGE> Maintenance: This expense item covers structural maintenance, maintenance of mechanical equipment, appliances, parking areas, grounds maintenance, and cleaning and redecorating of vacant units, including supplies. These items are necessary to insure the quality of both the appearance and functional utility of the apartment complex in order to retain the highest possible occupancy level. Maintenance charges for apartment complexes of this quality typically range from $0.38 to $0.77 per square foot/year, according to IREM data. This charge should include cleaning and supplies, painting, landscaping, floor and wall coverings, mechanical repair, exterior repairs, roof repairs, pool chemicals, trash removal, pest control, etc. The subject reported historical expenses of $0.62 per square foot in 1994; $0.81 per square foot in 1995; and $0.60 per square foot in 1996. Based upon analysis of this and competing projects, the stabilized charge for maintenance was estimated at $0.68 per square foot, or $667,425. Payroll/Salaries: The subject reflected a total salaries expense of $0.97 PSF in 1994, $1.00 PSF in 1995, and $0.97 PSF in 1996. Typical payroll expense ranges between $0.78 and $0.98 per square foot, according to IREM. Overall payroll expense can include other costs in addition to base salary expenses: manager salaries, other employee's salaries, payroll taxes, group insurance, workman's compensation, and/or additional employee benefits. C97-605 O'Connor and Associates Page 184 <PAGE> Based on the above expense levels, we have utilized $1.00 PSF or $981,507, as the salary expense. Administrative & Advertising This expense item includes the cost for apartment guide and newspaper advertisements, promotional specials (i.e. referral fees), as well as those office and administrative costs involved in the day to day operations (excluding maintenance and management). These include office supplies, uniform service, rental furniture, legal fees, bookkeeping and other miscellaneous leasing expenses. Typical cost for this item ranges from $0.25-$0.75 per square foot. Actual historical expenditures for the subject property approximate $0.26 PSF in 1994, $0.30 PSF in 1995, and $0.40 PSF in 1996. For a stabilized expense, we have utilized $0.38 per square foot, or $372,973, in this category. Reserves for Replacement: This expense charge allows for the replacement of building component items whose physical useful life expectancy is less than the building, but longer than the typical investor holding period (replacement of shorter life items would be considered maintenance). The theory is that prudent management would allocate an annual charge sufficient for the periodic replacement of these items. The short life building component items with life expectancies greater than the typical holding period were identified in the cost approach. Additionally, unit remodeling expenses are included in this category. Typically, these costs are estimated at $200 to $250 per unit, based on the age/condition, C97-605 O'Connor and Associates Page 185 <PAGE> location, and the average unit size of the property, and external factors such as interest rates. Brokers, investors, structural engineers, estimators, and other professionals considered knowledgeable in this area confirm these estimates. We have estimated this expense for the subject property at $220 per unit, or $281,600 on a stabilized basis. Total Expenses Expenses for the total project are $4,918,780, or +/-$5.02 per square foot of net rentable area. This expense is considered reasonable, based on data from similar complexes and given the subject property's master-metered status and maintenance requirements. The expense ratio (expenses/ effective gross income) for the subject is estimated to be 59.10%. The identified comparable sales indicated expense ratios between 51.34% and 63.84%. Thus, the expense ratio is considered reasonable and supported. C97-605 O'Connor and Associates Page 186 <PAGE> NET OPERATING INCOME (NOI) Based on the foregoing analysis, the following schedule illustrates the calculations used in arriving at the Net Operating Income Estimate for the subject project. ================================================================================ INCOME SCHEDULE - STABILIZED - -------------------------------------------------------------------------------- Rental Income $745,310 Mo x 12 = $8,943,720 SF NRA and Ave. Rent PSF 981,507 SF @ $9.11 Plus Other Income $202,752 -------- Potential Gross Income $9.32 $9,146,472 Less Vacancy/Collection Loss 9% ($823,182) ---------- Effective Gross Income Estimate $8,323,290 Less Expenses Amount % EGI PSF ------ ----- --- Property Taxes $594,151 7.14% $0.61 Insurance $294,452 3.54% $0.30 Utilities $1,393,740 16.75% $1.42 Management $332,932 4.00% $0.34 -------- ----- ----- Total Fixed Expenses $2,615,275 31.43% $2.67 Maintenance and Repairs $667,425 8.02% $0.68 Payroll/Salaries $981,507 11.79% $1.00 Administrative/Adver. $372,973 4.48% $0.38 Reserves $281,600 3.38% $0.29 -------- ----- ----- Total Variable Expenses $2,303,505 27.67% $5.02 ---------- ------ ----- Total Expenses $4,918,780 59.10% $5.02 ($4,918,780) ------------ Net Operating Income $3,404,510 ================================================================================ C97-605 O'Connor and Associates Page 187 <PAGE> NOI DEFICIENCY Net Operating Income Deficiency is the total of the loss of market rent and expense recovery (rent loss) due to vacancy during the forecasted absorption period, together with costs and expenses associated with achieving that occupancy, such as tenant improvements and leasing commissions, offset by expense savings during the period that the building, or portions of the building, is not occupied. As the subject property is projected to maintain stabilized levels throughout a typical investor holding period, this procedure is not applicable to this analysis. C97-605 O'Connor and Associates Page 188 <PAGE> DIRECT CAPITALIZATION: Direct Capitalization is a process whereby net operating income is converted into value utilizing an overall capitalization rate (Ro). There are several methods of deriving capitalization rates in order to adequately account for risk associated with the quantity, quality and durability of the income stream. Based upon the defined appraisal problem and in consideration of the available data, it is the appraisers' position to determine which of these techniques is the most indicative of current investor's attitudes. As such, two methods for developing a capitalization rate were considered applicable in this appraisal. The following is a discussion of each. C97-605 O'Connor and Associates Page 189 <PAGE> Market Extraction Method In this case, we have developed an overall rate from an analysis of the market sales considered in the Sales Comparison Approach-Improved Properties Section of this report. An overall rate was derived for each sale by dividing the net operating income of the sale property by its sale price. This technique involves constant dollars and stabilized operating ratios. The overall rates extracted from the sales are based on net operating incomes resulting from estimated expenses typical of comparable projects in the marketplace, including reserves. Expenses for comparable projects are retained in our files. Therefore, the Ro's reflect estimated economic indicators, but are considered to be reflective of market conditions. The following is a summary of the rates developed from the market data. =================================== Sale # Indicated Ro ----------------------------------- 1 9.31% ----------------------------------- 2 9.53% ----------------------------------- 3 9.30% ----------------------------------- 4 10.21% ----------------------------------- 5 9.15% ----------------------------------- Avg. 9.50% =================================== C97-605 O'Connor and Associates Page 190 <PAGE> Market Extraction Method - Continued The overall capitalization rates calculated for the comparable sales range from 9.15% to 10.21%. The mean capitalization rate of the sales is 9.50% and the median is 9.31%. Sales of Class "B" apartments in Greater Houston area are currently reporting capitalization rates between 9% and 10%. In addition to the above sales, the Telegragh Hill Apartments sold in June 1997 with a capitalization rate (based on current NOI/Sale Price) of 9.17%. Although this sale was not included in the Sales Comparison Approach, it does provide an indication of current capitalization rates for apartments in Houston. Due to the unusually large size of the subject property, and the high overall value for the project (in relation to other Houston area apartments), the subject is considered to be attractive to an institutional investor. There are very few other investment opportunities in a single apartment project in the Houston area which would provide a similar size contribution to a portfolio. Additionally, the subject facility has been operated by Harold Farb for several years. Harold Farb is well-known in the Houston market and has a reputation for offering good quality projects complemented by attentive management staff. Therefore, given the capitalization rates reported by the sales, and considering the size, name recognition, occupancy, tenant mix, and overall appeal of the subject property, a "going-in" rate of 9.25% was considered applicable. C97-605 O'Connor and Associates Page 191 <PAGE> Band of Investment Method: This technique of developing a capitalization rate basically involves a synthesis between a mortgage constant and an equity dividend rate, each weighted by its percentage of contribution. The mortgage portion of this rate includes an allowance for both interest on and amortization of the mortgage component. Our research, including reviews of various publications and conversations with local lenders, revealed that mortgage terms for this type property are being quoted to a credit worthy customer in the range of 8.00% to 10.00%. The typical amortization period is 20 years. Additionally, the typical loan to value ratio is 70%. Assuming a 9% interest rate, the annual mortgage constant is calculated to be 0.107967. The remainder of the total value (i.e., 30%) is attributable to the equity contribution. The equity portion is below the mortgage portion due to negative leverage in some property types in the current market. The calculations used to develop a capitalization rate via the Band of Investment technique is illustrated as follows: Calculation of Ro Mortgage Portion 0.70 x 0.107967 = 0.075577 Equity Portion 0.30 x 0.070000 = 0.021000 ---- Indicated Overall Rate 1.00 0.096577 SAY 9.65% C97-605 O'Connor and Associates Page 192 <PAGE> Reconciliation of Overall "Going-In" Capitalization Rates 1. Market Extraction: 9.25% 2. Band of Investment: 9.65% Emphasis is placed on the Market Extraction Method as this method is more often relied upon by investors in the current market. Based on the foregoing, it is our opinion that the appropriate capitalization rate for the subject is 9.25%, which is the rate generated by the Market Extraction Method and generally supported by the Band of Investment Method. VALUE VIA DIRECT CAPITALIZATION This calculation is illustrated as follows: ================================================================================ DIRECT CAPITALIZATION ================================================================================ Net Operating Income Divided By Capitalization Rate Equals Indicated Value - -------------------------------------------------------------------------------- $3,404,510 9.25% $36,805,514 - -------------------------------------------------------------------------------- Less PV of property tax savings due to under-assessment in Yr 1 ($152,457) - -------------------------------------------------------------------------------- VALUE VIA DIRECT CAPITALIZATION $36,653,057 - -------------------------------------------------------------------------------- ROUNDED: $36,650,000 ================================================================================ C97-605 O'Connor and Associates Page 193 <PAGE> Effective Gross Income Multiplier Analysis The second unit of comparison abstracted is the effective gross income multiplier (EGIM). The EGIM expresses the relationship between the effective gross income attributable to a property and the overall sale price. The Effective Gross Income Multipliers extracted from the sales are listed as follows. =================================== Sale # Indicated Expense EGIM Ratio ----------------------------------- 1 3.88 63.84% ----------------------------------- 2 4.28 59.21% ----------------------------------- 3 4.60 57.23% ----------------------------------- 4 4.77 51.34% ----------------------------------- 5 4.92 54.95% ----------------------------------- Avg. 4.56 57.31% =================================== Typically, there is an inverse relationship between the effective expense ratio and the effective gross income multiplier. Generally, the lower the expense ratio, the higher the EGIM. Based on the subject's characteristics, including its 59.100% expense ratio in comparison to the sales, an EGIM below the average of the range of EGIMs indicated by the sales is considered applicable. Based on this data and in consideration of the subject's location, age and physical characteristics, a multiplier of 4.25 is judged to be an applicable indicator of value for the subject property via this method. Utilizing the C97-605 O'Connor and Associates Page 194 <PAGE> Effective Gross Income Multiplier Analysis - Continued annual stabilized effective gross income for the subject estimated in this report, the following calculation indicates the total value for the property via this method. ================================================================================ Effective Gross Income Effective Gross Income Multiplier Indicated Value - -------------------------------------------------------------------------------- $8,323,290 4.25 $35,373,981 - -------------------------------------------------------------------------------- VALUE VIA EGIM METHOD, ROUNDED: $35,370,000 ================================================================================ C97-605 O'Connor and Associates Page 195 <PAGE> DISCOUNTED CASH FLOW ANALYSIS The appraiser performed a discounted cash flow analysis on the subject property to analyze the income stream over a typical holding period. The cash flow was performed on the Argus discounted cash flow computer program. The following is a list of the assumptions applicable to this analysis, A method of capitalization often used for income producing properties is the discounted cash flow method. In this method, the value estimate for the subject is considered to be the sum of the annual income, discounted to present worth, that the property will generate over a projected period of ownership plus the present worth of the value of the property at the end of the ownership period (reversion value). The following projections and assumptions, based on market research, were used in setting up the DCF model. Projections and Assumptions for DCF Model: Ownership Period: For the purpose of this analysis, we have assumed a 10 year investor holding period. The length of the cash flow and holding period is a function of the liquidity of a capital investment and the average holding period present in the Greater Houston Market. Leases/Rental: As earlier estimated, we have utilized the market rental rates for the subject property. Additionally, we utilized the actual physical occupancy (99%), adjusted for vacancy and collection losses. C97-605 O'Connor and Associates Page 196 <PAGE> Based on current trends with rental rates increasing every year for the past two years in the market area and with the subject property exhibiting rental increases of between 1% and 5% over the past two years, we are projecting annual rate increases of 3.50% Occupancy: Vacancy/credit and collection allowance of 6.0% and employee/model units of 3.0% (totalling 9%) was applied in the cash flow. Expenses: For the purpose of this analysis operating expenses for the first year are generally similar to those used in the direct capitalization, and grown at a rate of 3.5% per year. Renewals: We have estimated that approximately 75% of the tenants will renew their leases, rather than vacating the subject property. The basis for this assumption lies in the relative stability of the Galleria area apartment market and the low turnover reported by property management. C97-605 O'Connor and Associates Page 197 <PAGE> Discount Rates To develop an appropriate discount rate, the appraiser must start with utilization of what is considered to be a safe rate in the market, and build a gross discount rate by adding for additional risks attendant with ownership of the property. The safe rate for a typical investor is considered to be similar to 3-Month treasury securities, which according to the Federal Reserve Bank of St. Louis were averaging a yield of approximately 5.00% as of the most recent date bids were available, which was June 26, 1997. The current safe rate used for development of the discount rate is estimated to be 5.50% as of the appraisal date. As of March 20, 1997, yields on alternative security investments are as follows: ==================================================== Type of Investment Current Yield Corporate AAA Bonds 7.33% Corporate BAA Bonds 7.94% 3-Month Treasury Bills 5.08% 1-Year Treasury Bills 5.42% Long-Term Treasury Bonds 6.03% ==================================================== Yields on these securities have been fluctuating over the past 3 months. Anticipated risk was estimated to be approximately 2.00%. The burden of management is estimated to require approximately 2.00%, and the illiquidity of invested capital required an additional 2.00% increment. The total discount rate is therefore summarized as follows: C97-605 O'Connor and Associates Page 198 <PAGE> ==================================================== Safe Rate 5.50% Risk 2.00% Management 2.00% Illiquidity of Funds 2.00% Total Discount Rate 11.50% ==================================================== Real Estate Research Corporation conducts a survey that provides information from national investors as to their accepted growth and discount rate assumptions. Peter F. Korpacz & Associates also conducts a similar survey. These surveys indicate acceptable Internal Rates of Return for all property types ranging from 9.0% to 15.0%. The lowest range of yield rates for alternative investments was indicated by Korpacz Survey for the Manhattan, New York office market of 9.0% to 11.5% and the highest yield rate to be 11.0% to 15.0% for oversupplied office markets such as the Houston market. According to the Korpacz Survey, the average anticipatory yield rate for oversupplied office markets was 13.11%. According to the Real Estate Research Corporation Report, hotels and industrial properties have the highest average Internal Rates of Return requirements of 11.0% to 13.5%. Yield rates for regional malls had the lowest yield requirements which range from 10.0% to 11.5%. Office yield rates ranged from 10.5% to 13.5%, with central business district offices at the low end of the range. Yields for apartment projects and C97-605 O'Connor and Associates Page 199 <PAGE> industrial buildings in Houston have ranged from 8.0% to 15.0%, depending on condition, occupancy, rental rate and location. In selecting an appropriate rate, consideration must be given not only to available yields on alternative investments, but also to the property's location, age and condition. Income growth rate assumptions for the Houston Metropolitan Area market are typical of the national market. Commensurately, internal rates of return are increased to account for increased risks associated with buying property primarily for future potential value, rather than annual cash flow. Based on the above analysis of yield rates and other characteristics of the subject property, it is our opinion that the 10.50% discount rate (annually pre-tax and before debt) developed by the Build-Up Method earlier in this discussion, is an appropriate yield rate to attract equity capital to the subject property. Reversion Value: Based on recent improved sales a "going-in rate" of 9.25% was utilized in the direct capitalization. Therefore, a terminal rate of 10.25% will be used to convert the net income projected for the conversion year into an indication of value. A sale expense of 5.0% is applied in year 11. Based on these assumptions, the final cash flow summary and value estimate are presented on the following pages. The discounted cash flow worksheets, tenant summaries, and supporting schedules are presented in the Addenda of this report. C97-605 O'Connor and Associates Page 200 <PAGE> Value Estimate - Discounted Cash Flow Method Base on the discounted cash flow prepared on the Argus program, the value is indicated to be between $34,054,826 and $36,215,885, with discount rates ranging from 11.25% to 12.25%. Given the characteristics of the subject, a value of $35,500,000 was considered appropriate via the Discounted Cash Flow Method. C97-605 O'Connor and Associates Page 201 <PAGE> Software : ARGUS Ver 7.0.03 Date :8/1/97 File : DCF WEST POINT Time :9:44 am Property Type : Apartment 8700 WOODWAY Ref# :AFE Portfolio : ML HOU, TX Page :1 SCHEDULE OF PROSPECTIVE CASH FLOW In Inflated Dollars for the Fiscal Year beginning 8/1/1997 <TABLE> <CAPTION> Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 For the Years Ending Jul-1998 Jul-1999 Jul-2000 Jul-2001 Jul-2002 Jul-2003 ------------ ------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> <C> POTENTIAL GROSS REVENUE Potential Rental Revenue $ 8,895,960 $ 9,170,386 $ 9,491,347 $ 9,823,548 $ 10,167,370 $ 10,523,225 ------------ ------------ ------------ ------------ ------------ ------------ Scheduled Base Rental Revenue 8,895,960 9,170,386 9,491,347 9,823,548 10,167,370 10,523,225 OTHER INCOME 202,752 206,807 210,943 215,162 219,465 223,855 ------------ ------------ ------------ ------------ ------------ ------------ TOTAL POTENTIAL GROSS REVENUE 9,098,712 9,377,193 9,702,290 10,038,710 10,386,835 10,747,080 General Vacancy (800,636) (825,335) (854,221) (884,119) (915,063) (947,090) ------------ ------------ ------------ ------------ ------------ ------------ EFFECTIVE GROSS REVENUE 8,298,076 8,551,858 8,848,069 9,154,591 9,471,772 9,799,990 ------------ ------------ ------------ ------------ ------------ ------------ OPERATING EXPENSES TAXES 594,151 653,566 718,923 747,680 777,587 808,691 INSURANCE 294,452 304,758 315,424 326,464 337,890 349,717 UTILITIES 1,393,740 1,442,521 1,493,009 1,545,264 1,599,349 1,655,326 MANAGEMENT 331,923 342,074 353,923 366,184 378,871 392,000 MAINTENANCE 667,425 690,785 714,962 739,986 765,886 792,692 PAYROLL 981,507 1,015,860 1,051,415 1,088,214 1,126,302 1,165,722 ADMINISTRATIVE 372,973 386,027 399,538 413,522 427,995 442,975 RESERVES 281,600 291,456 301,657 312,215 323,142 334,452 ------------ ------------ ------------ ------------ ------------ ------------ TOTAL OPERATING EXPENSES 4,917,771 5,127,047 5,348,851 5,539,529 5,737,022 5,941,575 ------------ ------------ ------------ ------------ ------------ ------------ NET OPERATING INCOME 3,380,305 3,424,811 3,499,218 3,615,062 3,734,750 3,858,415 ------------ ------------ ------------ ------------ ------------ ------------ CASH FLOW BEFORE DEBT SERVICE $ 3,380,305 $ 3,424,811 $ 3,499,218 $ 3,615,062 $ 3,734,750 $ 3,858,415 & INCOME TAX ============ ============ ============ ============ ============ ============ <CAPTION> Year 7 Year 8 Year 9 Year 10 Year 11 For the Years Ending Jul-2004 Jul-2005 Jul-2006 Jul-2007 Jul-2008 ------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> <C> POTENTIAL GROSS REVENUE Potential Rental Revenue $ 10,891,538 $ 11,272,741 $ 11,667,287 $ 12,075,643 $ 12,498,295 ------------ ------------ ------------ ------------ ------------ Scheduled Base Rental Revenue 10,891,538 11,272,741 11,667,287 12,075,643 12,498,295 OTHER INCOME 228,332 232,898 237,556 242,307 247,154 ------------ ------------ ------------ ------------ ------------ TOTAL POTENTIAL GROSS REVENUE 11,119,870 11,505,639 11,904,843 12,317,950 12,745,449 General Vacancy (980,238) (1,014,547) (1,050,056) (1,086,808) (1,124,847) ------------ ------------ ------------ ------------ ------------ EFFECTIVE GROSS REVENUE 10,139,632 10,491,092 10,854,787 11,231,142 11,620,602 ------------ ------------ ------------ ------------ ------------ OPERATING EXPENSES TAXES 841,038 874,680 909,667 946,054 983,896 INSURANCE 361,957 374,625 387,737 401,308 415,354 UTILITIES 1,713,262 1,773,226 1,835,289 1,899,525 1,966,008 MANAGEMENT 405,585 419,644 434,191 449,246 464,824 MAINTENANCE 820,436 849,151 878,871 909,632 941,469 PAYROLL 1,206,523 1,248,751 1,292,457 1,337,693 1,384,513 ADMINISTRATIVE 458,479 474,526 491,134 508,324 526,115 RESERVES 346,158 358,274 370,813 383,792 397,225 ------------ ------------ ------------ ------------ ------------ TOTAL OPERATING EXPENSES 6,153,438 6,372,877 6,600,159 6,835,574 7,079,404 ------------ ------------ ------------ ------------ ------------ NET OPERATING INCOME 3,986,194 4,118,215 4,254,628 4,395,568 4,541,198 ------------ ------------ ------------ ------------ ------------ CASH FLOW BEFORE DEBT SERVICE $ 3,986,194 $ 4,118,215 $ 4,254,628 $ 4,395,568 $ 4,541,198 & INCOME TAX ============ ============ ============ ============ ============ </TABLE> <PAGE> Software : ARGUS Ver 7.0.03 Date :8/1/97 File : DCF WEST POINT Time :9:44 am Property Type : Apartment 8700 WOODWAY Ref# :AFE Portfolio : ML HOU, TX Page :2 PROSPECTIVE PRESENT VALUE Cash Flow Before Debt Service plus Property Resale Discounted Annually (Endpoint on Cash Flow & Resale) over a 10-Year Period <TABLE> <CAPTION> For the P.V. of P.V. of P.V. of Analysis Year Annual Cash Flow Cash Flow Cash Flow Period Ending Cash Flow @ 11.25% @ 1l.75% @ 12.25% - -------- ------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> Year 1 Jul-1998 $3,380,305 $3,038,476 $3,024,881 $3,011,408 Year 2 Jul-1999 3,424,811 2,767,175 2,742,468 2,718,090 Year 3 Jul-2000 3,499,218 2,541,388 2,507,428 2,474,070 Year 4 Jul-2001 3,615,062 2,360,020 2,318,065 2,277,038 Year 5 Jul-2002 3,734,750 2,191,601 2,143,008 2,095,704 Year 6 Jul-2003 3,858,415 2,035,208 1,981,180 1,928,816 Year 7 Jul-2004 3,986,194 1,889,984 1,831,579 1,775,227 Year 8 Jul-2005 4,118,215 1,755,129 1,693,280 1,633,873 Year 9 Jul-2006 4,254,628 1,629,901 1,565,430 1,503,780 Year 10 Jul-2007 4,395,568 1,513,613 1,447,237 1,384,049 ----------- ----------- ----------- ----------- Total Cash Flow 38,267,166 21,722,495 21,254,556 20,802,055 Property Resale @ 10.25% Cap 42,089,152 14,493,390 13,857,818 13,252,771 ----------- ----------- ----------- Total Property Present Value $36,215,885 $35,112,374 $34,054,826 =========== =========== =========== Rounded to Thousands $36,216,000 $35,112,000 $34,055,000 =========== =========== =========== Per Unit 37 36 35 PERCENTAGE VALUE DISTRIBUTION Prospective Income 59.98% 60.53% 61.08% Prospective Property Resale 40.02% 39.47% 38.92% =========== =========== =========== 100.00% 100.00% 100.00% </TABLE> <PAGE> Software : ARGUS Ver 7.0.03 Date :8/1/97 File : DCF WEST POINT Time :9:44 am Property Type : Apartment 8700 WOODWAY Ref# :AFE Portfolio : ML HOU, TX Page :3 PROPERTY SUMMARY REPORT TIMING & INFLATION Analysis Period: August 1, 1997 to July 31, 2007; 10 years Inflation Method: Fiscal General Inflation Rate: 3.50% PROPERTY SIZE & OCCUPANCY Property Size: 981,507 units Alternate Size: 1 Square Foot Number of unit types: 23 Total Occupied Area: 1,280 individual units, 0.13%, during first month of analysis GENERAL VACANCY Method: Percent of All Rental Revenue Amount: 9.00% PROPERTY PURCHASE & RESALE Purchase Price: Resale Method: Capitalize Net Operating Income Cap Rate: 10.25% Cap Year: Year 11 Commission/Closing Cost: 5.00% Net Cash Flow from Sale: $42,089,152 PRESENT VALUE DISCOUNTING Discount Method: Annually (Endpoint on Cash Flow & Resale) Unleveraged Discount Rate: 11.25% to 12.25%, 0.50% increments Unleveraged Present Value: $34,054,826 at 12.25% <PAGE> Software :ARGUS Ver. 7.0.03 Date :8/1/97 File :DCF Time :9:38 am Property Type :Apartment Ref# :AFC Portfolio :ML Page :1 WEST POINT 8700 WOODWAY HOU, TX Annual Cash Flow before Debt [GRAPHIC OMITTED] <PAGE> Software :ARGUS Ver. 7.0.03 Date :8/1/97 File :DCF Time :9:39 am Property Type :Apartment Ref# :AFC Portfolio :ML Page :1 WEST POINT 8700 WOODWAY HOU, TX Distribution of PV [GRAPHIC OMITTED] <PAGE> Income Approach - Conclusion A value of $36,650,000 is indicated for the subject property by the direct capitalization method, $35,370,000 is indicated by the EGIM method, and $35,500,000 is indicated via the discounted cash flow analysis. The strengths and weaknesses of each technique were considered. The direct capitalization method is considered to be the valuation methodology most often utilized by investors in this market, and a value nearer to the value conclusion of the direct capitalization method is appropriate. The Effective Gross Income Multiplier technique and the Discounted Cash Flow both generally support the value indicated by the Direct Capitalization. As such, the final estimate of value for the subject property via the Income Approach was estimated to be $36,100,000. C97-605 O'Connor and Associates Page 205 <PAGE> Reconciliation and Final Value Conclusion <PAGE> RECONCILIATION AND FINAL VALUE ESTIMATE The Appraisal of Real Estate, 11th Edition, copyright 1996, pages 601-603, published by the Appraisal Institute, states, "Reconciliation is the analysis of alternative conclusions to arrive at a final estimate." ..."Reconciliation requires appraisal judgement and a careful, logical analysis of the procedures that lead to each value indication. Appropriateness, accuracy, and quantity of evidence are the criteria with which an appraiser forms a meaningful, defensible final value estimate. These criteria are used to analyze multiple value indications within each approach and to reconcile the indications produced by the different approaches into a final estimate of defined value." Each of the three approaches to value generally recognized in the appraisal profession (Cost, Sales Comparison, and Income Approaches) were given consideration in the appraisal. Following is a brief discussion of each approach and the value estimate yielded. The Cost Approach The Cost Approach was utilized to estimate the sum total value of the subject property by providing an estimate of depreciated replacement costs of the improvements, which is then added to the land value to yield a total value estimate. Cost figures have been substantiated by local construction cost data and by comparison of similar properties being constructed by local builders. This approach has been applied by estimating the value of the entire land site and the construction cost of the improvements less depreciation to yield a composite value estimate. As previously indicated, an informed seller would be very reluctant to sell at a price lower than his cost, including a reasonable profit. The corollary to this is also true by the theory of substitution whereby a buyer will not pay more for a building than it would cost to duplicate in today's market. This approach is particularly useful in the valuation of relatively new construction. The value estimate via the Cost Approach is: $38,130,000 C97-605 O'Connor and Associates Page 206 <PAGE> Sales Comparison Approach In the sales comparison approach, market value is estimated by comparing the subject property to similar properties that have been sold recently. This approach reflects the desires and aspirations of buyers and sellers through the market activity of comparable properties. A major premise of the sales comparison approach is that the market value of a property is directly related to the prices of comparable, competitive properties. The comparative analysis in the sales comparison approach focuses on differences in the characteristics of the sales, in relation to the subject, which can account for variation in prices. Extreme care must be exercised in the selection of the comparable sales as there tends to be an inverse relationship between the degree of adjustment and degree of reliability that exists in the adjusted sale price. In other words, the greater the adjustment the less the reliability. The importance of this requirement is underscored because the Sales Comparison Approach is predicated on the process of correlation and analysis between the cited examples and the property being appraised. The indication of value from the Sales Comparison Approach-Improved Property for the subject is: $35,520,000 C97-605 O'Connor and Associates Page 207 <PAGE> The Income Approach Income-producing real estate is typically purchased as an investment, and from the investor's point of view, earning power is the critical element affecting property value. An investor who purchases income-producing real estate is essentially trading present dollars for the right to receive future dollars. The income approach to value consists of methods, techniques, and mathematical procedures that an appraiser uses to analyze a property's capacity to generate benefits (i.e. usually the monetary benefits of income and reversion) and convert these benefits into an indication of present value. As indicated previously, a fully informed investor is, to a great degree, guided by the present worth of his position in the future potential benefits of the income stream generated by an income-producing property. As such, our estimate of market rent, used in calculating the potential gross income for the subject, was based on a comparison of rents currently received on similarly improved properties. Further, data concerning expenses normally incurred by owners was obtained from conversations with owner/operators active in this market. Utilizing this information we were able to arrive at an estimate of net operating income for the property. Finally, the net income is capitalized to arrive at a value estimate via the Direct Capitalization Method, Discounted Cash Flow Method, and EGIM Method. The Direct Capitalization Method is considered to be the valuation methodology most often utilized by investors in this market, and a value nearer to the value conclusion of the Direct Capitalization Method is appropriate. The Effective Gross Income Multiplier technique and the Discounted Cash Flow both generally support the value indicated by the Direct Capitalization. As such, the final estimate of value for the subject property via the Income Approach was estimated to be $36,100,000. C97-605 O'Connor and Associates Page 208 <PAGE> Final Conclusion Summary As a result of our investigations, studies and analysis of the sale, cost, income, and expense data, interpreted within the context of all the factors in the market place which affect value, the three approaches indicated a range of values for the subject from $35,520,000 to $36,100,000. The Income Approach reflects the income potential of the subject. The Sales Comparison Approach reflects the attitudes of buyers and sellers that are currently active in the market. According to brokers/professionals active in the area, the Income and Sales Comparison Approaches are typically relied on more heavily by investors in this market. For multitenant apartment complexes (income-producing properties) such as the subject, preference is generally given to the Income Approach. The quality of the data gathered for analysis in the Income Approach was considered good due to the availability of expense information from the subject and similar properties, as well as an adequate number of comparable rentals. Income streams are often capitalized by rates abstracted from comparable sales to arrive at an estimate of value. Hence, the Sales Comparison Approach is closely tied to the Income Approach. The quality of the data available for analysis in the Sales Comparison Approach was also considered to be good as an adequate number of recent arm's length sales of properties similar to the subject was available for analysis. Due to the inherent difficulty in precisely calculating all forms of depreciation, the Cost Approach is accorded the least weight of the three approaches. Therefore, giving greater weight to the Income and Sales Comparison Approaches, the "As Is" Market Value of the Fee Simple Estate of the subject property, as of July 29, 1997, is concluded as follows: $35,800,000 C97-605 O'Connor and Associates Page 209 <PAGE> Exposure to the Market/Marketing Time Assuming adequate exposure and normal marketing efforts, the estimated exposure time (i.e. the length of time the subject property would have been exposed for sale in the market had it sold at the market value concluded to in this analysis as of the date of this valuation) would have been within about twelve months; the estimated marketing time (i.e. the amount of time it would probably take to sell the subject property if exposed in the market beginning on the date of this valuation) is estimated to be within about twelve months. Based upon the general market for good quality office properties in the Greater Houston area, a marketing period equal to or less than one year for the subject property is considered appropriate. C97-605 O'Connor and Associates Page 210 <PAGE> ================================================================================ ESTIMATE OF INSURABLE VALUE ================================================================================ I. DIRECT COSTS Apartment Area (SF): 993,307 Base Cost PSF: $48.00 Multipliers (Sec. 99): Area: 79.00% Current Cost: 103.00% Times Local: 93.00% ----- Total Factor: 75.67% Adj. Base Cost PSF: $36.32 TOTAL BASE BUILDING COST: $36,076,910 Plus Segregated Cost: Built Ins Number Unit Cost Total Cos ------ --------- --------- Oven/Range 1,280 $300 $384,000 Refrigerator 1,280 $325 $416,000 Disposal 1,280 $75 $96,000 Dishwashers 1,280 $200 $256,000 Total Built Ins $1,152,000 Swimming Pools $250,000 Fences, Gates $350,000 Parking/Drives/Walkways (512,000 SF - asphalt and concrete) $947,200 Landscaping $550,000 Carports $600,000 -------- Total Direct Cost $39,926,110 II. Exclusions Foundation: 496,654 $1.50 ($744,980) Site Work: ($798,522) Below Ground Piping & Mechanicals ($199,631) Swimming Pools: ($250,000) Fences, Gates: ($350,000) Parking/Drives/etc.: ($947,200) Total Exclusions: ($3,290,333) ----------- INSURABLE VALUE: $36,635,777 ROUNDED: $36,635,000 ================================================================================ C97-605 O'Connor & Associates Page 211 <PAGE> Addenda <PAGE> ENGAGEMENT LETTER <PAGE> July 9, 1997 VIA FAX & U.S. MAIL Mr. Pat O'Connor, MAI O'Connor & Associates 2000 N. Loop West, Suite 110 Houston, TX 77018 RE: Westpoint Apartments Dear Mr. O'Connor: This letter and the attached Rider (the "Rider") which is incorporated herein confirm our agreement that your firm will provide L.J. Melody & Company ("L. J. Melody") with an Appraisal Report that meets the requirements of the Uniform Standards of Professional Appraisal Practice as adopted by the Appraisal Institute (the "Report") on the commercial real estate (the "Property") identified below: Westpoint Apartments 8700 Woodway Houston, TX 77063 The Report will cover the matters set forth in the attached instructions, in accordance with the terms of those instructions. You expect to deliver the full narrative Report to us on or before August 11, 1997 (the "Delivery Date"), but in any event you will deliver the Report before August 12, 1997. For your services, we agree to pay a fee of $4,000 within 14 days of the receipt of the final Report. Should the Report not be received in our office by the Delivery Date, said fee shall be reduced by $100 for each business day beyond the Delivery Date until the Report is received. You will act as an independent contractor, and not as an employee or agent of the undersigned. It is further agreed that the completion of this Report and the inspection of the subject property and the comparables may not be subcontracted. It is understood that all persons providing significant professional assistance in the preparation of this Report will be identified and their qualifications presented in the Report. The person or persons who have physically inspected the subject Property and the comparables must sign the final Report. An appraiser with an MAI designation must sign the Report and indicate if he or she has personally inspected the subject Property. Within the standards required by USPAP, L.J. Melody is particularly interested in seeing a high level of attention focused on the following: o Actual contractual rents per the lease at comparable properties vs asking rents o The cost approach to value where the circumstances of the property suggest it o The inclusion of an insurable value replacement cost grid in every case <PAGE> Mr. Pat O'Connor, MAI Page Two July 9, 1997 o The inclusion of a land value in every case o Lease provisions that effect value o Anchor tenants and leases o Market trends that may impact the subject's net cash flows in the future o Historical sales and economic trends which may affect the property's tenants o Market vacancy rates and projected down time for in-line and anchor tenants The Report should be addressed to L.J. Melody & Company, such other persons as may be designated by L.J. Melody & Company, and their respective successors and assigns. The Report should include a statement that (i) the Report may be relied upon by L.J. Melody & Company in determining whether to make a loan evidenced by a note (the "Property Note") secured by the Property, (ii) the Report may be relied upon by any purchaser in determining whether to purchase the Property Note from the undersigned and by any rating agency rating securities issued by or representing an interest in the Mortgage Note, (iii) the Report may be referred to in and included with materials offering for sale the Property Note or an interest in the Property Note, (iv) persons who acquire the Property Note or an interest in the Property Note may rely on the Report, and (v) the Report speaks only as of its date in the absence of a specific written update of the Report signed and delivered by you. The Report shall remain the sole property of L.J. Melody & Company and shall not be assigned, without written permission, to any other entity. Please forward 3 original "hard" copies of the Report and a copy on a 3 1/2" computer disk together with an unbound set of the photographs of the properties which are contained in the report by the date stated above to my attention at the following address: L.J. Melody & Company 4675 MacArthur Court, Suite 1425 Newport Beach, CA 92660 Also, please forward one original copy of the report to Merrill Lynch. <PAGE> Mr. Pat O'Connor, MAI Page Three July 9, 1997 Your signature below and on the attached Rider reflect your agreement with the ternas and conditions of this engagement. Please sign and return this Engagement Letter and Rider to the address below and keep a copy for your files: L.J. Melody & Company 4675 MacArthur Court, Suite 1425 Newport Beach, CA 92660 Sincerely, Sincerely, /s/ Ernie Iriarte Ernie Iriarte Vice President Accepted and Agreed: By: [ILLEGIBLE] ---------------------- Tide: President -------------------- Date: 7/10/97 -------------------- Attachment: Rider to Engagement Letter <PAGE> RIDER TO ENGAGEMENT LETTER Rider to Engagement Letter, dated as of July 9, 1997, by and between L.J. Melody & Company and O'Connor & Associates, (the "Consultant") (collectively, the "Engagement Letter"). NOW, THEREFORE, in consideration of the covenants and agreements set forth in the Engagement Letter and set forth herein, the parties hereto agree as follows: 1. Termination for Cause. This Engagement Letter may be terminated by L.J. Melody for cause at any time upon 10 days advance notice from L.J. Melody to the Consultant. Upon any such termination, the Consultant shall be entitled to all arrearages of amounts to be paid pursuant to this Engagement Letter, but shall not be entitled to any further compensation. 2. Covenant Not to Disclose. The Consultant covenants and agrees that it will not, to the detriment of L.J. Melody, at any time during or after the termination of its association with L.J. Melody, whether under this Engagement Letter or otherwise, reveal, divulge or make known to any person (other than L.J. Melody or its affiliates) or use for its own account any confidential or proprietary records, data, trade secrets or any other confidential or proprietary information whatever (the "Confidential Information") previously used by L.J. Melody to date or during the engagement and made known (whether or not with the knowledge and permission of L.J. Melody, and whether or not developed, devised or otherwise created in whole or in part by the efforts of the Consultant) to the Consultant by reason of its association with L.J. Melody. The Consultant further covenants and agrees that it shall retain all such knowledge and information which it shall acquire or develop respecting such Confidential Information in trust for the sole benefit of L.J. Melody and its successors and assigns. 3. Business Materials, Covenant to Report. All written materials, records and documents made by the Consultant or coming into its possession concerning the business or affairs of L.J. Melody shall be the sole property of L.J. Melody and, upon the termination of its association with L.J. Melody or upon the request of L.J. Melody at any time, the Consultant shall promptly deliver the same to L.J. Melody and shall retain no copies thereof. The Consultant agrees to render to L.J. Melody such reports of the activities undertaken by the Consultant or conducted under the Consultant's direction pursuant hereto during the Consulting Period as L.J. Melody may request. 4. Specific Performance. Without intending to limit the remedies available to L.J. Melody, the Consultant further agrees that damages at law will be an insufficient remedy to L.J. Melody in the event that the Consultant violates the terms of Sections 2. or 3. of this Rider, and that L.J. Melody may apply for and obtain injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of, or otherwise to specifically enforce, any of the covenants of such Sections. The parties hereto understand that each of the covenants of the Consultant contained in Section 2. And 3. of this Rider is an essential element of the Engagement Letter. 5. Entire Agreement. This Engagement Letter contains the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof. 6. Amendments and Waivers. This Engagement Letter may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment is sought. Either party hereto may, by an instrument in writing, waive <PAGE> compliance by the other party with any term or provision of this Engagement Letter on the part of such other party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision of this Engagement Letter shall not be construed as waiver of any subsequent breach. 7. Section Headings. The section headings contained in this Engagement Letter are for reference purposes only and shall not be deemed to be part of this Engagement Letter or to control or affect the meaning or construction of any provision of this Engagement Letter. 8. Severability. If any term or provision of this Engagement Letter is held or deemed to be invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, this Engagement Letter shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Engagement Letter. 9. Governing Law. This Engagement Letter shall be governed by and construed in accordance with the laws of California. IN WITNESS WHEREOF, the parties hereto have duly executed this Rider to Engagement Letter as of the date first above written. L.J. Melody & Company By: /s/ Ernie Iriarte --------------------- Title: Vice President --------------------- CONSULTANT: By: [ILLEGIBLE] --------------------- Title: President --------------------- <PAGE> DCF ASSUMPTIONS <PAGE> Software :ARGUS Ver. 7.0.03 Date :8/1/97 File :DCF Time :9:46 am Property Type :Apartment Ref# :AFE Portfolio :ML Page :1 WEST POINT 8700 WOODWAY HOU, TX Input Assumptions PROPERTY DESCRIPTION PROPERTY TIMING Name: WEST POINT Analysis Start Date: 8/97 Address: 8700 WOODWAY First Year Ends: 7/98 City: HOU Years of Analysis: 10 State: TX Zip: Portfolio: ML Property Type: Apartment AREA MEASURES Label Area --------------------------------------------- Property Size 981,507 Units Alt. Prop. Size 1 SqFt GENERAL INFLATION Inflation Method: Fiscal Inflation Rate: 3.5 <TABLE> <CAPTION> MISCELLANEOUS REVENUES Name Acct Code Amount Units Area Frequency % Fixed -------------------------- ---------- -------- -------- --------- ----------- -------- <S> <C> <C> <C> <C> <C> <C> OTHER INCOME 202,752 $Amount /Year 100 <CAPTION> APARTMENT OPERATING EXPENSES Name Acct Code Amount Units Area Frequency % Fixed -------------------------- ---------- -------- -------- --------- ----------- -------- <S> <C> <C> <C> <C> <C> <C> TAXES Detail $Amount 100 INSURANCE 294,452 $Amount /Year 100 UTILITIES 1,393,740 $Amount /Year 100 MANAGEMENT 4 % of EGR MAINTENANCE 667,425 $Amount /Year 100 PAYROLL 981,507 $Amount /Year 100 ADMINISTRATIVE 372,973 $Amount /Year 100 RESERVES 281,600 $Amount /Year 100 <CAPTION> DETAIL OF TAXES Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> August 49512.58 54463.83 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 September 49512.58 54463.83 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 October 49512.59 54463.84 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 November 49512.58 54463.83 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 December 49512.58 54463.83 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 January 49512.59 54463.84 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 February 49512.58 54463.83 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 March 49512.58 54463.83 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 April 49512.59 54463.84 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 May 49512.58 54463.83 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 June 49512.58 54463.83 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 July 49512.59 54463.84 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 59910.25 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Annual Total 594151.00 653566.00 718923.00 718923.00 718923.00 718923.00 718923.00 718923.00 718923.00 Inflation 0.0000 0.0000 4.00 4.00 4.00 4.00 4.00 4.00 Inflated Total 594151 653566 718923 747680 777587 808691 841038 874680 909667 </TABLE> (continued on next page) <PAGE> Software :ARGUS Ver. 7.0.03 Date :8/1/97 File :DCF Time :9:46 am Property Type :Apartment Ref# :AFE Portfolio :ML Page :2 WEST POINT 8700 WOODWAY HOU, TX Input Assumptions (continued from previous page) DETAIL OF TAXES Year l0 Year ll Year l2 Year l3 ---------- ---------- ---------- ---------- August 59910.25 59910.25 59910.25 59910.25 September 59910.25 59910.25 59910.25 59910.25 October 59910.25 59910.25 59910.25 59910.25 November 59910.25 59910.25 59910.25 59910.25 December 59910.25 59910.25 59910.25 59910.25 January 59910.25 59910.25 59910.25 59910.25 February 59910.25 59910.25 59910.25 59910.25 March 59910.25 59910.25 59910.25 59910.25 April 59910.25 59910.25 59910.25 59910.25 May 59910.25 59910.25 59910.25 59910.25 June 59910.25 59910.25 59910.25 59910.25 July 59910.25 59910.25 59910.25 59910.25 ---------- ---------- ---------- ---------- Annual Total 718923.00 718923.00 718923.00 718923.00 Inflation 4.00 4.00 4.00 4.00 Inflated Total 946054 983896 1023252 1064182 GENERAL VACANCY Option: Percent of All Rental Revenue Percent Based on Revenue Minus Absorption and Turnover Vacancy: No Reduce General Vacancy Result by Absorption & Turnover Vacancy: Yes Rate: 9 Apartment Rent Schedule <TABLE> <CAPTION> Unit Type Unit Total Current Current Current Market Maximum Mos to No. Description Size Units Rent Term Occup. Leasing Occup. Absorb --- ---------------- ------ ----- -------- -------- -------- ------------ --------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1 1/1 615 160 525 6 M615 2 1/1 720 166 540 6 M720 3 1/1 736 232 565 6 M736 4 1/1 798 80 595 6 M798 5 2/1 928 52 660 6 M928 6 2/1 936 64 685 6 M936 7 2/1 960 32 705 6 M960 8 2/1 966 32 705 6 M966 9 2/2 1,008 68 760 6 M1008 10 2/2 1,050 16 780 6 M1050 11 2/2 1,120 32 830 6 M1120 12 2/2 1,240 16 890 6 M1240 13 1/1 615 288 450 6 S615 14 1/1 722 1 505 6 S722&728 15 1/1 728 2 500 6 S722&728 16 1/1 752 1 525 6 S752 17 1/1 822 1 505 6 S822 18 1/1 885 1 575 6 S885 19 1/1 890 1 625 6 S890 20 2/2 1,000 1 700 6 Sl000 21 2/2 1,008 32 665 6 S1008 22 2/2 1,108 1 775 6 S1108 23 2/2 1,168 1 700 6 S1168 </TABLE> MARKET LEASING ASSUMPTIONS Leasing Assumptions Category: M615 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 525.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 6 (continued on next page) <PAGE> Software :ARGUS Ver. 7.0.03 Date :8/1/97 File :DCF Time :9:47 am Property Type :Apartment Ref# :AFE Portfolio :ML Page :3 WEST POINT 8700 WOODWAY HOU, TX Input Assumptions (continued from previous page) Leasing Assumptions Category: M720 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 540.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 6 Leasing Assumptions Category: M736 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 565.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: M798 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 600.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: M928 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 665.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: M936 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 690.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: M960 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 710.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 (continued on next page) <PAGE> Software :ARGUS Ver. 7.0.03 Date :8/1/97 File :DCF Time :9:47 am Property Type :Apartment Ref# :AFE Portfolio :ML Page :4 WEST POINT 8700 WOODWAY HOU, TX Input Assumptions (continued from previous page) Leasing Assumptions Category: M966 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 715.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 6 Leasing Assumptions Category: M1008 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 760.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: M1050 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 780.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: M1120 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 830.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: M1240 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 890.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: S615 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 470.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 6 (continued on next page) <PAGE> Software :ARGUS Ver. 7.0.03 Date :8/1/97 File :DCF Time :9:47 am Property Type :Apartment Ref# :AFE Portfolio :ML Page :5 WEST POINT 8700 WOODWAY HOU, TX Input Assumptions (continued from previous page) Leasing Assumptions Category: S722&728 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 535.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 6 Leasing Assumptions Category: S752 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 555.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 6 Leasing Assumptions Category: S822 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 560.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: S885 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 575.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: S890 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 625.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: S1000 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 700.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 (continued on next page) <PAGE> Software :ARGUS Ver. 7.0.03 Date :8/1/97 File :DCF Time :9:47 am Property Type :Apartment Ref# :AFE Portfolio :ML Page :6 WEST POINT 8700 WOODWAY HOU, TX Input Assumptions (continued from previous page) Leasing Assumptions Category: S1008 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 680.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: S1108 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 775.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 Leasing Assumptions Category: S1168 New Market Renewal Mkt Term 2 Term 3 Term 4 Renewal Probability 75 Market Rent 775.00 Months Vacant 0 0 Preparation Costs 0.00 Leasing Costs 0 Rent Abatements 0 NON-WEIGHTED ITEMS Term Lengths 12 PROPERTY RESALE Initial Purchase Price: 0 Option: Capitalize Net Operating Income Cap Rate: 10.25 Resale Commission (%): 5 Apply Rate to following year income: Yes Calculate Resale for All Years: Yes PRESENT VALUE DISCOUNTING Unleveraged Discount Range Low Discount Rate: 11.25 High Discount Rate: 12.25 Increment: 0.5 Discount Method: Annually (Endpoint on Cash Flow & Resale) <PAGE> RENT ROLL <PAGE> QCRM410 RENT ROLL REPORT PAGE 3 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:51:25 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 02 132 03 MBU PHILLIPS/VARGAS C 1008 715.00 665.00 01 03/08/97 6MO 09/30/97 200.00 0.00 2-2 0.00 0.00 03 333 03 BPD VU, THAI HIEN T. C 615 485.00 435.00 01 03/12/96 1YR 03/31/98 270.00 0.00 04/97 1-1 0.00 15.00 03 334 06 BPU GRIMMER, RALPH C 615 485.00 420.00 01 08/17/96 6MO 08/31/97 150.00 0.00 1-1 0.00 0.00 03 335 04 BPD FRANK, LAURA E. C 615 485.00 420.00 01 01/04/97 1YR 01/31/98 180.00 0.00 1-1 0.00 0.00 03 336 02 BPU POWERS, JEFFREY C 615 485.00 435.00 01 11/04/95 M-M 05/31/97 150.00 0.00 06/97 1-1 0.00 25.00 03 337 01 BPD HEINZ, MELISSA C 615 485.00 435.00 01 03/21/97 6MO 09/30/97 150.00 0.00 1-1 0.00 0.00 03 338 01 BPU PEREZ, LETICIA G. C 615 485.00 420.00 01 08/10/96 M-M 02/28/97 150.00 0.00 1-1 0.00 0.00 03 339 03 BPD COLLUMS, CURTIS C 615 485.00 420.00 01 11/09/96 1YR 11/30/97 150.00 0.00 1-1 0.00 0.00 03 340 03 BPU JOHNSON, CHANTELLE C 615 485.00 435.00 01 02/01/97 6MO 07/31/97 450.00 0.00 1-1 0.00 0.00 03 341 01 BPD CARTER, JOHN C 615 485.00 420.00 01 04/27/96 7MO 06/30/97 150.00 0.00 1-1 0.00 0.00 03 342 01 BPU PENCE, GENE C 615 485.00 395.00 01 06/07/90 1YR 02/28/98 50.00 0.00 03/97 1-1 0.00 0.00 03 343 03 BPD STEPHENS, JENNIFER C 615 485.00 435.00 01 04/01/97 6MO 09/30/97 150.00 0.00 1-1 0.00 0.00 03 344 01 BPU HANSON, DOUGLAS C 615 485.00 460.00 01 05/24/97 6MO 11/30/97 150.00 460.00- 1-1 0.00 0.00 03 345 02 BPD DIMITROV, DIMITRE C 615 485.00 410.00 01 01/21/95 lYR 02/28/98 180.00 0.00 03/97 1-1 0.00 25.00 03 346 01 BPU CHAPMAN, KRISTI L. C 615 485.00 385.00 01 07/29/95 12M 07/31/97 150.00 0.00 1-1 0.00 0.00 03 347 01 BPD 0'NEIL, CYNTHIA K. C 615 485.00 425.00 01 06/01/94 1YR 05/31/98 350.00 0.00 06/97 1-1 0.00 25.00 03 348 01 BPU JONES, DIANE/WILLIAM C 615 485.00 420.00 01 09/07/96 6MO 09/30/97 150.00 0.00 1-1 0.00 0.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 4 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:52:05 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 03 348 02 BPU LE, 06/23/97 N 615 485.00 485.00 01 06/27/99 0.00 0.00 1-1 0.00 0.00 03 349 05 BPD JOHNSON, ALAN C 615 485.00 415.00 01 08/22/92 1YR 03/31/98 0.00 0.00 04/97 1-1 0.00 25.00 03 350 01 BPU MARTINO, JOSEPH C 615 485.00 365.00 01 09/06/79 lYR 04/30/98 0.00 0.00 05/96 1-1 0.00 0.00 03 351 03 BPD SANCHEZ, ROBERT C 615 485.00 485.00 01 05/03/97 6MO 11/30/97 150.00 32.33- 1-1 0.00 0.00 03 352 01 BPU LOPEZ, JAIRO C 615 485.00 435.00 01 03/01/97 6M0 08/31/97 150.00 0.00 1-1 0.00 0.00 03 353 03 BPD SILVER, ROBERT C 615 485.00 420.00 01 08/01/96 6M0 09/30/97 180.00 0.00 1-1 0.00 0.00 03 354 05 BPU ASMAR, GHASSAN C 615 485.00 435.00 01 03/11/96 1YR 03/31/98 150.00 0.00 04/97 1-1 0.00 25.00 03 355 09 BPD MATHEWS, TONY C 615 485.00 435.00 01 09/09/95 6M0 11/30/97 150.00 0.00 06/97 1-1 0.00 15.00 03 356 03 BPU GOLDENBERG, RONEN C 615 485.00 410.00 01 12/01/94 M-M 07/31/96 130.00 0,00 03/97 1-1 0.00 25.00 03 357 01 BPD WEATHERBY, ANALICIA C 615 485.00 410.00 01 09/12/87 1YR 03/31/98 50.00 0.00 04/97 1-1 0.00 25.00 03 358 01 BPU ISTRE, EVELYNA C 615 485.00 440.00 01 11/29/96 lYR 11/30/97 150.00 0.00 1-1 0.00 0.00 03 359 03 BPD STULTZ, LARRY C 615 485.00 410.00 01 05/29/91 M-M 07/31/92 75.00 0.00 10/96 1-1 0.00 0.00 03 360 05 BPU ROARK, GAVIN C 615 485.00 400.00 01 01/07/94 1YR 09/30/97 150.00 0.00 10/96 1-1 0.00 25.00 03 361 01 BPD ROSS, JOHNNY C 615 485.00 405.00 01 07/04/76 M-M 02/28/97 100.00 0.00 03/97 1-1 0.00 25.00 03 362 04 BPU CHIHANI, FOUAD C 615 485.00 385.00 01 06/21/93 1YR 08/31/97 100.00 0.00 08/96 1-1 0.00 20.00 03 363 04 BPD HAMDAN/ORTEGA C 615 485.00 420.00 01 04/08/93 6MO 11/30/97 100.00 0.00 03/97 1-1 0.00 20.00 03 364 01 BPU WATSON, DANA C 615 485.00 485.00 01 05/21/97 6MO 12/31/97 150.00 0.00 1-1 0.00 0.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 5 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:52:44 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 04 365 03 BPD SMITH, RACHAEL C 615 485.00 400.00 01 07/30/93 1YR 02/28/98 130.00 0.00 08/96 1-1 0.00 0.00 04 366 02 BPU BOYD, DARBY/CYNTHIA C 615 485.00 435.00 01 05/19/96 M-M 05/31/97 05/21/97 350.00 0.00 06/97 1-1 06/30/99 0.00 25.00 04 366 03 BPU PERRY, 06/12/97 N 615 485.00 460.00 01 07/15/99 0.00 0.00 1-1 0.00 0.00 04 367 02 BPD ROLF, REUBEN C 615 485.00 410.00 01 09/07/96 6MO 09/30/97 150.00 0.00 1-1 0.00 0.00 04 368 BPU VACANT 615 485.00 1-1 04 369 02 BPD ADAIR, JUBAL C 615 485.00 390.00 01 05/10/94 12M 06/30/97 150.00 0.00 01/96 1-1 0.00 25.00 04 370 02 BPU GARCIA, GONZALO C 615 485.00 420.00 01 09/07/96 M-M 03/31/97 175.00 0.00 1-1 0.00 0.00 04 371 01 BPD FRAHTZ, GERALD C 615 485.00 435.00 01 05/04/96 M-M 11/30/96 180.00 0.00 06/97 1-1 0.00 15.00 04 372 02 BPU ALFONZO, ANNETTE C 615 485.00 410.00 01 01/14/95 6MO 09/30/97 150.00 0.00 03/97 1-1 0.00 25.00 04 373 04 BPD RENEBERG, RICHARD C 615 485.00 420.00 01 11/21/91 6MO 08/31/97 0.00 0.00 03/97 1-1 0.00 25.00 04 374 01 BPU TODD, LAURA C 615 485.00 420.00 01 12/10/96 1YR 12/31/97 0.00 420.00- 1-1 0.00 0.00 04 375 03 BPD MCREYNOLDS, JAMES C 615 485.00 420.00 01 09/28/90 M-M 03/31/91 75.00 0.00 03/97 1-1 0.00 25.00 04 376 05 BPU HALLERMANN, HENNING C 615 485.00 425.00 01 09/09/95 6MT 11/30/97 150.00 0.00 06/97 1-1 0.00 25.00 04 377 03 BPD MARSHALL, ROGER C 615 485.00 410.00 01 10/05/90 M-M 01/31/97 75.00 0.00 03/97 1-1 0.00 25.00 04 378 01 BPU ZHU, YUE C 615 485.00 420.00 01 03/01/97 6MO 08/31/97 150.00 0.00 1-1 0.00 0.00 04 379 01 BPD BROWN, RONALD C 615 485.00 400.00 01 08/01/85 6MO 12/31/97 80.00 0.00 04/96 1-1 0.00 15.00 04 380 03 BPU TODA, TATSUMI C 615 485.00 410.00 01 12/01/93 1YR 03/31/98 100.00 0.00 03/97 1-1 0.00 25.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 6 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:53:22 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 04 381 02 BPD GRINNELL, GARY C 615 485.00 400.00 01 10/05/91 M-M 05/31/97 75.00 0.00 06/97 1-1 0.00 25.00 04 382 02 BPU WILSON, ADOLPHUS C 615 485.00 435.00 01 04/17/97 1YR 04/30/98 150.00 0.00 1-1 0.00 0.00 04 383 03 BPD GROOVER, LINDA C 615 485.00 410.00 01 06/17/95 lYR 07/31/97 150.00 0.00 07/96 1-1 0.00 25.00 04 384 02 BPU MCGOVERN, MARINA C 615 485.00 420.00 01 11/16/96 M-M 05/31/97 150.00 0.00 1-1 0.00 0.00 04 385 02 BPD STRATTON, NEIL C 615 485.00 460.00 01 06/07/97 1YR 06/30/98 150.00 0.00 1-1 0.00 0.00 04 386 05 BPU WILLIAMS, CRISSY C 615 485.00 405.00 01 04/01/94 M-M 05/31/97 100.00 0.00 06/97 1-1 0.00 25.00 04 387 01 BPD STARRY, SCOTT C 615 485.00 420,00 01 10/16/96 1YR 10/31/97 150.00 0.00 1-1 0.00 0.00 04 388 06 BPU BHATT, DEVI C 615 485.00 375.00 01 11/01/92 6MO 07/31/97 150.00 0.00 07/96 1-1 0.00 10.00 04 389 01 BPD RAMIREZ, JULIAN C 615 485.00 420.00 01 11/21/96 M-M 05/31/97 150.00 0.00 1-1 0.00 0.00 04 390 03 BPU BROWN, CHRISTOPHER C 615 485,00 405.00 01 10/01/94 M-M 09/30/96 100.00 0.00 10/96 1-1 0.00 25.00 04 391 02 BPD DERALICK, 06/13/97 N 615 485.00 460.00 01 07/01/99 0.00 0.00 1-1 0.00 0.00 04 391 BPD VACANT 615 485.00 1-1 04 392 05 BPU DUCOTE, DAWN C 615 485.00 420.00 01 01/25/97 1YR 01/31/98 180.00 0.00 1-1 0.00 0.00 04 393 01 BPD FERNANDEZ, CHRISTIAN C 615 485.00 420.00 01 12/30/96 6MO 11/30/97 150.00 0.00 1-1 0.00 0.00 04 394 04 BPU MCCORMICK, GARY C 615 485.00 400.00 01 03/01/90 6MO 08/31/97 50.00 0.00 03/97 1-1 0.00 25.00 04 395 01 BPO HOWARD, PAUL C 615 485.00 425.00 01 05/05/84 M-M 05/31/96 180.00 0.00 06/97 1-1 0.00 25.00 04 396 02 BPU REILLEY, MICHELLE C 615 485.00 405.00 01 10/01/91 1YR 02/28/98 30.00 0.00 03/97 1-1 0.00 25.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 7 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:54:00 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 05 397 01 BPD VU/BAUTISTA C 615 485.00 420.00 01 01/11/97 2YR 01/31/99 150.00 0.00 1-1 0.00 0.00 05 398 HU BPU HUNTER/STALLONE C 615 485.00 460.00 01 06/15/97 1YR 06/30/98 150.00 15.37- 1-1 0.00 0.00 05 399 05 BPD COLE, VERNALEE C 615 485.00 420.00 01 11/28/96 1YR 11/30/97 350.00 0.00 1-1 0.00 0.00 05 400 01 BPU BLANK, YOSI C 615 485.00 420.00 01 01/15/97 6MO 07/31/97 06/01/97 150.00 0.00 1-1 06/30/99 0.00 0.00 05 400 02 BPU DELEEF, 06/07/97 N 615 485.00 475.00 01 07/11/99 0.00 0.00 1-1 0.00 0.00 05 401 03 BPD OTTEN, KENNETH C 615 485.00 450.00 01 05/08/97 6MO 11/30/97 150.00 0.00 1-1 0.00 0.00 05 402 01 BPU BUCK, LINDA C 615 485.00 420.00 01 12/01/96 1YR 11/30/97 250.00 0.00 1-1 0.00 0.00 05 403 BPD VACANT 615 485.00 1-1 05 404 05 BPU NONRA, MICHEL SARKIS C 615 485.00 395.00 01 09/15/94 6MO 08/31/97 150.00 0.00 03/97 1-1 0.00 15.00 05 405 03 BPD CHURCH, TODD C 615 485.00 420.00 01 02/01/97 1YR 01/31/98 150.00 0.00 1-1 0.00 0.00 05 406 02 BPU SYLVA, CRAIG C 615 485.00 400.00 01 06/03/95 1YR 07/31/97 150.00 0.00 07/96 1-1 0.00 25.00 05 407 04 BPD DANFORTH, DOUGLAS C 615 485.00 410.00 01 10/28/94 1YR 10/31/97 150.00 0.00 11/96 1-1 0.00 25.00 05 408 02 BPU BROCKMANN,VIVIAN C 615 485.00 420.00 01 09/01/96 M-M 02/28/97 150.00 0.00 1-1 0.00 0.00 05 409 02 BPD MARSHALL, JOHN C 615 485.00 400.00 01 08/06/91 1YR 09/30/97 75.00 0.00 09/96 1-1 0.00 25.00 05 410 01 BPU KURTIN, RACHEL C 615 485.00 420.00 01 10/19/96 6MO 10/31/97 150.00 0.00 1-1 0.00 0.00 05 411 02 BPD SEYLAR, ROBERT C 615 485,00 420.00 01 06/20/95 6MO 19/31/97 150.00 0.00 03/97 1-1 0.00 25.00 05 412 01 BPU BENFIELD, RAMEY C 615 485.00 415.00 01 03/10/95 M-M 08/31/96 180.00 0.00 03/97 1-1 0.00 25.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 8 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:54:39 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 05 413 03 BPD MEYER, JAMES C 615 485.00 410.00 01 05/07/94 1YR 03/31/98 150.00 0.00 03/97 1-1 0.00 25.00 05 414 04 BPU DIAL, DENNY C 615 485.00 435.00 01 04/05/96 1YR 04/30/98 200.00 0.00 05/97 1-1 0.00 25.00 05 415 04 BPD ZETTEL, ADAM C 615 485.00 420.00 01 01/01/97 6MO 06/30/97 150.00 445.00 1-1 0.00 0.00 05 416 03 BPU SARRETTI, ANDREA C. C 615 485.00 410.00 01 10/01/95 1YR 09/30/97 180.00 0.00 10/96 1-1 0.00 25.00 05 417 01 BPD HUNGATE, MIKE C 615 485.00 395.00 01 05/20/95 6MO 07/31/97 150.00 0.00 01/96 1-1 0.00 10.00 05 418 01 BPU MUNOZ, STEPHANIE R. C 615 485.00 435.00 01 04/06/96 M-M 10/31/96 150.00 0.00 05/97 1-1 0.00 15.00 05 419 02 BPD GIBSON, DON MATTHEW C 615 485.00 460.00 01 05/24/97 6MO 11/30/97 150.00 0.00 1-1 0.00 0.00 05 420 04 BPU ARCEO, ARISTOTLE C 615 485.00 370.00 01 12/15/95 1YR 06/30/98 180.00 0.00 1-1 0.00 0.00 07 165 01 BCD TREMOR, LIVINGSTON C 615 475.00 400.00 01 01/01/90 M-M 10/31/96 50.00 0.00 05/97 1-1 0.00 25.00 07 166 01 BCU TABB, KELLY C 615 475.00 410.00 01 03/04/96 1YR 03/31/98 150.00 0.00 03/97 1-1 0.00 10.00 07 167 01 BCD MCWILLIAMS, GEORGE C 615 475.00 365.00 01 05/25/85 1YR 01/31/98 50.00 0.00 08/96 1-1 0.00 25.00 07 168 BCU VACANT 615 475.00 1-1 07 169 03 BCD MARTINEZ, JESUS C 615 475.00 410.00 01 07/01/93 6MO 11/30/97 100.00 0.00 06/97 1-1 0.00 25.00 07 170 03 BCU MAY/WILLIAMS C 615 475.00 425.00 01 03/29/97 6MO 09/30/97 150.00 0.00 1-1 0.00 0.00 07 171 02 BCD PRICE, SEAN C 615 475.00 410.00 01 11/02/96 M-M 05/31/97 05/29/97 150.00 0.00 1-1 07/02/99 0.00 0.00 07 172 06 BCU SANTOS, MANUEL C 615 475.00 400.00 01 09/02/92 M-M 09/30/96 0.00 0.00 03/97 1-1 0.00 25.00 07 173 01 BCD SHAREF, ABDUL C 615 475.00 425.00 01 03/12/97 6MO 09/30/97 150.00 0.00 1-1 0.00 0.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 9 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:55:18 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 07 174 02 BCU LOPEZ, ARACELI C 615 475.00 410.00 01 10/12/96 M-M 04/30/97 05/05/97 150.00 0.00 1-1 07/05/99 0.00 0.00 07 175 02 BCD WAWRZYSZKO, PIOTR C 615 475.00 410.00 01 08/09/96 12M 08/31/97 150.00 0.00 1-1 0.00 0.00 07 176 01 BCU AUSTIN, AMANDA SUE C 615 475.00 425.00 01 03/15/97 6MO 09/30/97 150.00 0.00 1-1 0.00 0.00 07 177 01 BCD KAMEL, JAMAL C 615 475.00 410.00 01 05/08/96 6MO 11/30/97 150.00 0.00 1-1 0.00 0.00 07 178 04 BCU HEADLEY, JANIE C 615 475.00 385.00 01 07/24/93 12M 08/31/97 300.00 0.00 09/96 1-1 0.00 25.00 07 179 01 BCD KING, RICHARD C 615 475.00 410.00 01 01/26/88 6MO 09/30/97 0.00 0.00 03/97 1-1 0.00 25.00 07 180 03 BCU WYNN, FRANCES C 615 475.00 380.00 01 07/06/91 1YR 11/30/97 75.00 5.00- 06/96 1-1 0.00 25.00 08 181 01 BCD CARTER, ROBERT/ARACE C 615 475.00 410.00 01 11/09/96 1YR 11/30/97 150.00 0.00 1-1 0.00 0.00 08 182 02 BCU FLOWERS, BEVERLY C 615 475.00 365.00 01 06/15/93 1YR 11/30/97 100.00 0.00 03/96 1-1 0.00 10.00 08 183 04 BCD LOPEZ, SYLVIA C 615 475.00 425.00 01 03/07/97 6MO 09/30/97 150.00 10.00- 1-1 0.00 0.00 08 184 01 BCU SKIPWORTN, MYRALOU C 615 475.00 410.00 01 07/30/96 6MO 09/30/97 350.00 0.00 1-1 0.00 0.00 08 185 01 BCD WATTERS, ANNIE C 615 475.00 370.00 01 06/01/88 1YR 08/31/97 50.00 0.00 09/96 1-1 0.00 10.00 08 186 02 BCU MARSOLLIER, RONALDO C 615 475.00 410.00 01 01/07/96 6MO 07/31/97 150.00 0.00 03/97 1-1 0.00 10.00 08 187 01 BCD LANDRY,LARRY/CHARLEN C 615 475.00 400.00 01 04/29/96 1YR 11/30/97 150.00 0.00 1-1 0.00 0.00 08 188 03 BCU KRALIK, MARTIN C 615 475.00 395.00 01 08/19/91 1YR 04/30/98 75.00 0.00 04/97 1-1 0.00 35.00 08 189 02 BCD NISBIT, DOROTHY C 615 475,00 390.00 01 12/16/95 1YR 02/28/98 150.00 0.00 03/97 1-1 0.00 15.00 08 190 02 BCU LEETE, SCOTT C 615 475.00 410.00 01 08/03/96 1YR 08/31/97 150.00 0.00 1-1 0.00 0.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 10 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:55:56 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 08 191 02 BCD RABBO-ABED, HIND C 615 475.00 410.00 01 09/14/96 M-M 03/31/97 06/01/97 150.00 0.00 1-1 06/30/99 0.00 0.00 08 192 01 BCU MONTGOMERY, 05/28/97 N 615 475.00 460.00 01 07/01/99 0.00 0.00 1-1 0.00 0.00 08 192 BCU VACANT 615 475.00 1-1 08 193 04 BCD PINEDO, SUSAN C 615 475.00 410.00 01 11/01/92 M-M 01/31/97 300.00 0.00 03/97 1-1 0.00 25.00 08 194 02 BCU ANEARN, KARl C 615 475.00 410.00 01 01/08/97 6MO 07/31/97 150.00 0.00 1-1 0.00 0.00 08 195 01 BCD HURST, JOANNA C 615 475.00 410.00 01 05/01/96 1YR 10/31/97 150.00 0.00 1-1 0.00 0.00 08 196 05 BCU MUSTAFA, FAYEZ H. C 615 475.00 370.00 01 03/05/93 6MO 07/31/97 0.00 0.00 05/96 1-1 0.00 0.00 09 197 02 BPD NOCELLA, KIMBERLY C 615 485.00 420.00 01 10/01/96 M-M 03/31/97 150.00 0.00 1-1 0.00 0.00 09 198 02 BPU BREAUX, MICHEL C 615 485.00 405.00 01 04/04/90 1YR 04/30/98 50.00 0.00 05/97 1-1 0.00 25.00 09 199 01 BPD SIERRA, MARGARET C 615 485.00 420.00 01 05/06/96 1YR 01/31/98 150.00 0.00 1-1 0.00 0.00 09 200 01 BPU DUBOISE, JOHN H. C 615 485.00 400.00 01 11/04/94 M-M 04/30/96 350.00 0.00 11/96 1-1 0.00 25.00 09 201 02 BPD COY, GERALD STEPHEN C 615 485.00 390.00 01 01/09/95 M-M 07/31/96 150.00 0.00 08/96 1-1 0.00 25.00 09 202 01 BPU HESMONDHALGH, RAMON C 615 485.00 410.00 01 01/12/95 6MO 08/31/97 150.00 0.00 03/97 1-1 0.00 25.00 09 203 01 BPD GUEVARA, ANDREA B. C 615 485.00 435.00 01 05/01/95 M-M 05/31/97 06/01/97 150.00 0.00 06/97 1-1 06/30/99 0.00 25.00 09 204 BPU VACANT 615 485.00 1-1 09 205 02 BPD MAHER, STEFANI C 615 485.00 420.00 01 06/15/96 12M 06/30/97 150.00 0.00 1-1 0.00 0.00 09 206 01 BPU ORGIS, SUE C 615 485.00 420.00 01 12/23/96 6MO 12/31/97 150.00 0.00 1-1 0.00 0.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 11 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:56:34 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 09 207 BPD VACANT 615 485.00 1-1 09 208 02 BPU BAMIDELE, ODESEYE C 615 485.00 350.00 01 04/01/97 1YR 03/31/98 0.00 0.00 1-1 0.00 0.00 09 209 02 BPD FARMER, CHARLES J. C 615 485.00 435.00 01 01/28/97 6MT 07/31/97 150.00 0.00 1-1 0.00 0.00 09 210 02 BPU FLANNERY/SCOTT C 615 485.00 410.00 01 11/29/93 M-M 07/31/95 100.00 0.00 03/97 1-1 0.00 25.00 09 211 03 BPD BAGGEIT, HAROLD C 615 485.00 415.00 01 07/26/93 1YR 05/31/98 100.00 830.00- 04/97 1-1 0.00 25.00 09 212 02 BPU HARGROVE, RONALD C 615 485.00 435.00 01 03/28/97 6MO 09/30/97 150,00 0.00 1-1 0.00 0.00 09 213 04 BPO ABDUL, ALAKEEL C 615 485.00 395.00 01 06/05/95 1YR 08/31/97 150.00 0.00 01/96 1-1 0.00 10.00 09 214 02 BPU CASTANO, JAIME A. C 615 485.00 435.00 01 04/06/96 M-M 04/30/97 350.00 0.00 06/97 1-1 0.00 0.00 09 215 02 BPD HUSATTO, HARK/HAYDEE C 615 485.00 420.00 01 06/10/96 6MO 07/31/97 200.00 0.00 1-1 0.00 0.00 09 216 01 BPU CORCORAN, RONALD C 615 485.00 400.00 01 09/01/87 M-M 09/30/95 150.00 0.00 10/96 1-1 0.00 25.00 09 217 02 BPD McNEAL, TAMMIE C 615 485.00 420.00 01 08/03/96 1YR 02/28/98 180.00 0.00 1-1 0.00 0.00 09 218 05 BPU SEGUERO / MONTAGNE C 615 485.00 435.00 01 06/01/96 M-M 05/31/97 06/09/97 150.00 0.00 06/97 1-1 07/09/99 0.00 15.00 09 219 01 BPD TREVINO/CERVANTES C 615 485.00 325.00 01 09/22/87 M-M 07/30/92 50.00 0.00 1-1 0.00 0.00 09 220 01 BPU VILAS, GARY C 615 485.00 460.00 01 06/01/97 6MO 11/30/97 150.00 0.00 1-1 0.00 0.00 10 221 02 BPD BOATMAN, JOSEPH C 615 485.00 420.00 01 07/01/96 12M 06/30/97 150.00 0.00 1-1 0.00 0.00 10 222 01 BPU RITZ, STEVEN C 615 485.00 400.00 01 04/07/87 1YR 09/30/97 0.00 400.00- 10/96 1-1 0.00 25.00 10 223 02 BPD ITZ, ALLAN C 615 485.00 420.00 01 06/08/96 6MO 07/31/97 150.00 465.00 1-1 0.00 0.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 12 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:57:13 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 10 224 01 BPU LEE, TERESA A. C 615 485.00 460.00 01 05/29/97 6MO 11/30/97 150.00 474.33- 1-1 0.00 0.00 10 225 03 BPD DEVIR, BRIAN J. C 615 485.00 410.00 01 07/11/96 M-M 01/31/97 0.00 0.00 1-1 0.00 0.00 10 226 01 BPU STARK, DANNY C 615 485.00 385.00 01 12/01/88 6MT 08/31/97 0.00 0.00 01/96 1-1 0.00 20.00 10 227 BPD VACANT 615 485.00 1-1 10 228 04 BPU MURRAY, RICHARD C 615 485.00 410.00 01 12/01/93 6MO 11/30/97 100.00 0.00 06/97 1-1 0.00 25.00 10 229 01 BPO HAMMER, ROBIN RENEE C 615 485.00 415.00 01 05/15/94 1YR 02/28/98 300.00 0.00 03/97 1-1 0.00 25.00 10 230 01 BPU DUROCHER, BERNARD C 615 485.00 420.00 01 09/25/96 M-M 03/31/97 150.00 0.00 1-1 0.00 0.00 10 231 BPD VACANT 615 485,00 1-1 10 232 02 BPU BOUTTE, DEBORAH C 615 485.00 425.00 01 06/01/95 1YR 05/30/98 150.00 0.00 06/97 1-1 0.00 25.00 10 233 02 BPD SMITH, BRIAN C 615 485.00 420.00 01 02/15/97 6MO 08/31/97 150.00 0.00 1-1 0.00 0.00 10 234 01 BPU RHODES, AMY M. C 615 485.00 410.00 01 07/28/95 6MO 08/31/97 150.00 0.00 08/96 1-1 0.00 25.00 10 235 01 BPD GONZALEZ, TERESA C 615 485.00 425.00 01 06/01/95 M-M 05/31/97 150.00 0.00 06/97 1-1 0.00 25.00 10 236 05 BPU MUSTAFA, MOHAMMAD C 615 485.00 400.00 01 08/03/91 1YR 09/30/97 75.00 0.00 10/96 1-1 0.00 25.00 10 237 03 BPD KLOPFENSTEIN, RYAN C 615 485.00 420.00 01 01/07/97 6MO 07/31/97 150.00 0.00 1-1 0.00 0.00 10 238 01 BPU WENG, JOHN C 615 485.00 450.00 01 05/17/97 1YR 05/31/98 150.00 10.00- 1-1 0.00 0.00 10 239 01 BPD SALEM, VENKATADEVAN C 615 485.00 435.00 01 05/18/96 6MO 11/30/97 150.00 0.00 06/97 1-1 0.00 14.00 10 240 03 BPU HAMAD, MUSTAFA C 615 485.00 410.00 01 11/04/93 M-M 07/31/96 100.00 0.00 03/97 1-1 0.00 25.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 13 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:57:51 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 10 241 01 BPD CALLAN, MIKE C 615 485.00 420.00 01 01/08/97 6MO 07/31/97 150.00 0,0.0 1-1 0.00 0.00 10 242 01 BPU JENSCHKE, WANDA C 615 485.00 380.00 01 07/03/92 M-M 12/31/96 06/01/97 0.00 0.00 03/97 1-1 06/30/97 0.00 25.00 10 243 02 BPD HOWLAND, DEBORAH C 615 485.00 410.00 01 04/08/95 6MO 12/31/97 350.00 0.00 05/96 1-1 0.00 25.00 10 244 02 BPU HUAP, XIA C 615 485.00 420.00 01 10/10/96 6MO 10/31/97 150.00 0.00 1-1 0.00 0.00 11 133 02 BPD MARTIN, 06/02/97 N 615 485.00 460.00 01 06/28/99 0.00 0.00 1-1 0.00 0.00 11 133 BPD VACANT 615 485.00 1-1 11 134 02 BPU DELIBERTO, VINCE C 615 485.00 385.00 01 06/28/95 6MO 07/31/97 150.00 0.00 07/96 1-1 0.00 25.00 11 135 BPD VACANT 615 485.00 1-1 11 136 03 BPU TAHAN, TAREK C 615 485.00 380.00 01 09/01/94 1YR 06/30/97 50.00 0.00 07/96 1-1 0.00 25.00 11 137 06 BPD STRASBURGER, JOHN C 615 485.00 385.00 01 09/01/92 1YR 11/30/97 0.00 0.00 07/96 1-1 0.00 25.00 11 138 03 BPU GORREBEECK, CHRIS C 615 485.00 420.00 01 08/24/96 6MO 09/30/97 150.00 0.00 1-1 0.00 0.00 11 139 01 BPD YORK, JASON C 615 485.00 435,00 01 08/12/95 M-M 02/29/96 150.00 0.00 05/97 1-1 0.00 15.00 11 140 02 BPU ROUX, ARTHUR C 615 485.00 385.00 01 07/22/95 12M 07/31/97 150.00 0.00 08/96 1-1 0.00 0.00 11 141 01 BPD SALAM, UMAIR ABOUS C 615 485.00 420.00 01 11/15/96 M-M 05/31/97 150.00 0.00 1-1 0.00 0.00 11 142 01 BPU BELASRI, ABDERRAHIM C 615 485.00 380.00 01 07/01/93 1YR 06/30/97 100.00 0.00 07/96 1-1 0.00 25.00 11 143 02 BPD GIRON, MARIA C 615 485.00 450.00 01 05/03/97 1YR 05/31/98 150,00 0.00 1-1 0.00 0.00 11 144 01 BPU YI/YI C 615 485.00 420.00 01 10/01/96 6MO 08/31/97 150.00 420.00- 1-1 0.00 0.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 14 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:57:29 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 11 145 01 BPD MASTERS, ANNE LOUISE C 615 485.00 400.00 01 07/07/94 6MT 07/31/97 350.00 0.00 02/97 1-1 0.00 10.00 11 146 01 BPU ONTIVEROS, LAURA C 615 485.00 400.00 01 04/01/83 M-M 01/31/87 350.00 0.00 10/96 1-1 0.00 25.00 11 147 02 BPD REED, WILLIAM III C 615 485.00 410.00 01 09/10/96 M-M 03/31/97 0.00 0.00 1-1 0.00 0.00 11 148 01 BPU CZARNECKI, DENISE C 615 485.00 435.00 01 06/01/96 6MO 11/30/97 150.00 30.00- 06/97 1-1 0.00 15.00 11 149 02 BPD DJEBRI, BRAHIM C 615 485.00 420.00 01 01/23/96 06M 07/31/97 150.00 0.00 1-1 0.00 0.00 11 150 01 BPU **RUIZI LORENZO C 615 485.00 485.00 01 10/12/95 M-M 11/30/95 0.00 0.00 1-1 0.00 0.00 11 151 01 BPD SO, HWAN C 615 485.00 435.00 01 01/27/96 6MO 11/30/97 150.00 0.00 06/97 1-1 0.00 15.00 11 152 01 BPU SCRIVENER, DAVID C 615 485.00 435.00 01 03/04/97 5MO 08/31/97 0.00 0.00 1-1 0.00 0.00 11 153 01 BPD WARE, JOEL C 615 485.00 420.00 01 12/30/96 1YR 12/31/97 150.00 0.00 1-1 0.00 0.00 11 154 01 BPU GREEN, GEORGE C 615 485.00 420.00 01 07/25/96 M-M 01/31/97 150.00 0.00 1-1 0.00 0.00 11 155 01 BPD MONTGOMERY, VIRGINIA C 615 485.00 420.00 01 10/04/96 1YR 10/31/97 550.00 420.00- 1-1 0.00 0.00 11 156 03 BPU RIDER, MARY BETH C 615 485.00 390.00 01 07/24/91 1YR 03/31/98 0.00 0.00 04/97 1-1 0.00 10.00 11 157 02 BPD CHRISTIAN, JOHN C 615 485.00 400.00 01 05/20/91 M-M 08/31/96 75.00 0.00 09/96 1-1 0.00 25.00 11 158 03 BPU RAAD, HASSAN C 615 485.00 410.00 01 07/01/95 M-M 05/31/97 180.00 0.00 06/97 1-1 0.00 25.00 11 159 03 BPD FLORES, EDDLUJ C 615 485.00 435.00 01 06/01/96 M-M 11/30/96 05/21/97 150.00 0.00 06/97 1-1 06/30/99 0.00 15.00 11 160 02 BPU MUNOZ, IRIS C 615 485.00 420.00 01 12/23/95 6MO 10/31/97 250.00 0.00 03/97 1-1 0.00 10.00 11 161 03 BPD POWER, JEFF C 615 485.00 435.00 01 11/21/95 M-M 05/31/97 04/30/97 150.00 0.00 06/97 1-1 06/30/99 0.00 15.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 15 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:59:08 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 11 162 04 BPU MAGEE, RYAN C 615 485.00 435.00 01 02/08/97 6MO 08/31/97 150.00 0.00 1-1 0.00 0.00 11 163 04 BPD KNOP, KURT C 615 485.00 420.00 01 06/16/95 M-M 02/28/97 0.00 0.00 03/97 1-1 0.00 20.00 11 164 02 BPU MARTINEZ, LEONARDO C 615 485.00 385.00 07 07/07/95 1YR 07/31/97 150.00 0.00 08/96 1-1 0.00 25.00 12 309 03 BPD WIGNALL, TIFFANY C 615 485.00 420.00 01 08/16/96 1YR 08/31/97 150.00 0.00 1-1 0.00 0.00 12 310 02 BPU NEMAPARE, VUYELWA C 615 485.00 385.00 01 12/01/94 6MO 06/30/97 150.00 430.00 01/96 1-1 0.00 20.00 12 311 02 BPD GHIRMAI, ADIAM C 615 485.00 420.00 01 12/16/96 1YR 12/31/97 150.00 0.00 1-1 0.00 0.00 12 312 03 BPU PANSARE, ANUPAHA C 615 485.00 420.00 01 01/08/97 6MO 07/31/97 150.00 0.00 1-1 0.00 0.00 12 313 02 BPD DURRELL, MERRY C 615 485.00 435.00 01 04/12/97 6MO 10/31/97 150.00 0.00 1-1 0.00 0.00 12 314 01 BPU FLEECE, RICHARD C 615 485.00 410.00 01 02/01/84 M-M 11/30/89 0.00 0.00 03/97 1-1 0.00 25.00 12 315 04 BPD NARAYANAN, ARUN C 615 485.00 420.00 01 01/08/97 6MO 07/31/97 150.00 0.00 1-1 0.00 0.00 12 316 02 BPU JAMES, JOHN C 615 485.00 460.00 01 05/17/97 1YR 05/31/98 150.00 0.00 1-1 0.00 0.00 12 317 04 BPD OKUHURA, MASANDRI C 615 485.00 410.00 01 12/19/96 6MO 12/31/97 150.00 0.00 1-1 0.00 0.00 12 318 01 BPU STOUT, MICHAEL C 615 485.00 420.00 01 09/21/96 6MO 09/30/97 150.00 0.00 1-1 0.00 0.00 12 319 04 BPD CHAMPHAN, 05/17/97 N 615 485.00 460.00 01 06/27/99 0.00 0.00 1-1 0.00 0.00 12 319 BPD VACANT 615 485.00 1-1 12 320 02 BPU ACORD, AMY C 615 485.00 435.00 01 04/05/97 6MO 10/31/97 150.00 0.00 1-1 0.00 0.00 12 321 02 BPD FRIDAY, VIRGINIA C 615 485.00 375.00 01 06/08/90 12M 07/31/97 50.00 0.00 08/96 1-1 0.00 0.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 16 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:59:45 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 12 322 01 BPU MAGEE, MARGARET C 615 485.00 425.00 01 10/01/83 M-M 03/31/96 380.00 0.00 04/97 1-1 0.00 25.00 12 323 03 BPD TOLBERT, RONALD JR. C 615 485.00 460.00 01 06/01/97 6MO 11/30/97 150.00 0.00 1-1 0.00 0.00 12 324 01 BPU FAYADH, TARIK C 615 485.00 420.00 01 02/28/96 6MO 11/30/97 150.00 0.00 03/97 1-1 0.00 10.00 12 325 02 BPD VOSS, ORIN C 615 485.00 420.00 01 11/23/96 M-M 05/31/97 150.00 0.00 1-1 0.00 0.00 12 326 04 BPU MUSGROVE, MERIDITH C 615 485.00 400.00 01 08/21/93 1YR 08/31/97 100.00 0.00 09/96 1-1 0.00 25.00 12 327 04 BPD WASHINGTON, JANELLE C 615 485.00 425.00 01 08/17/91 M-M 03/31/97 75.00 0.00 04/97 1-1 0.00 25.00 12 328 01 BPU SPARKS, PAUL C 615 485.00 415.00 01 07/01/87 M-M 05/31/97 0.00 0.00 06/97 1-1 0.00 25.00 12 329 05 BPD YOUNG, KEVIN/THERESA C 615 485.00 420.00 01 03/01/96 1YR 02/28/98 150.00 0.00 1-1 0.00 0.00 12 330 01 BPU AL-AYOUBI, MOHAMAD C 615 485.00 420.00 01 12/06/96 6MO 06/30/97 150.00 0.00 0.00 0.00 12 331 01 BPD MCNEELY, LESLIE C 615 485.00 420.00 01 12/21/96 7MO 07/31/97 150.00 0.00 1-1 0.00 0.00 12 332 01 BPU STRONG, SARA C 615 485.00 410.00 01 08/11/84 M-M 02/28/85 150.00 0.00 03/97 1-1 0.00 25.00 13 245 03 BCD WILSON, RYAN C 615 475.00 410.00 01 01/18/97 lYR 01/31/98 450.00 0.00 1-1 0.00 0.00 13 246 03 BCU BROWN, KEN C 615 475.00 415.00 01 06/01/95 1YR 05/31/98 150.00 0.00 06/97 1-1 0.00 25.00 13 247 01 BCD LE,TRANG & KRAUSE, E C 615 475.00 370.00 01 12/15/94 1YR 07/31/97 150.00 0.00 03/97 1-1 0.00 25.00 13 248 01 BCU RERINA, 06/14/97 N 615 475.00 450.00 01 07/01/99 0.00 0.00 1-1 0.00 0.00 13 248 BCU VACANT 615 475.00 1-1 13 249 01 BCD HEPPARD, SCOTT C 615 475.00 425.00 01 05/15/96 M-M 11/30/96 350.00 0.00 06/97 1-1 0.00 15.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 17 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 11:00:24 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 13 250 01 BCU HELWICK, PAULA C 615 475.00 405.00 01 06/19/92 YR 02/28/99 0.00 0.00 03/97 1-1 0.00 25.00 13 251 01 BCD BALDRIDGE, JAMES C 615 475.00 405.00 01 11/03/74 YR 03/31/98 0.00 0.00 04/97 1-1 0.00 25.00 13 252 01 BCU FROWE, JAMES C 615 475.00 405.00 01 10/22/88 YR 05/31/98 0.00 0.00 06/97 1-1 0.00 25.00 13 253 02 BCD WILLIAMSON, GRETCHEN C 615 475.00 410.00 01 01/01/97 MO 06/30/97 150.00 0.00 1-1 0.00 0.00 13 254 02 BCU LAROUR, FRANCIS C 615 475.00 410.00 01 12/10/96 YR 12/31/97 150.00 0.00 1-1 0.00 0.00 13 255 04 BCD HAY, SANDRA C 615 475.00 425.00 01 02/11/97 MO 08/31/97 06/17/97 150.00 0.00 1-1 07/17/99 0.00 0.00 13 256 03 BCU GOLOVERSIC, SNERRELE C 615 475.00 410.00 01 01/01/97 YR 12/31/97 150.00 0.00 1-1 0.00 0.00 13 257 03 BCD RABEL, BECKY C 615 475.00 390,00 01 06/18/94 -M 01/31/98 180.00 0.00 07/96 1-1 0.00 25.00 13 258 03 BCU BINGHAH, MARK WAYNE C 615 475.00 380.00 01 05/07/94 YR 11/30/97 150.00 0.00 06/96 1-1 0.00 25.00 13 259 01 BCD NORDSTROM, SCOTT C 615 475.00 405.00 01 01/06/95 -M 04/30/97 150.00 0.00 05/97 1-1 0.00 25.00 13 260 02 BCU BUTTON, JOE/SHIRLEY C 615 475.00 450.00 01 05/03/97 YR 05/31/98 150.00 0.00 1-1 0.00 0.00 14 261 01 BCD CHURCH, ARLENE C 615 475.00 405.00 01 03/01/87 YR 04/30/99 50.00 405.00- 05/97 1-1 0.00 25.00 14 262 01 BCU GONZALES, BEATRIZ C 615 475.00 395.00 01 10/16/94 YR 09/30/97 150.00 0.00 10/96 1-1 0.00 25.00 14 263 01 BCD PEREZ, ENRIQUE B. C 615 475.00 410.00 01 08/14/96 MO 08/31/97 150.00 0,00 1-1 0.00 0.00 14 264 01 BCU FREAS, DAVID C 615 475.00 435.00 01 04/26/96 -M 10/31/96 350.00 0.00 05/97 1-1 0.00 25.00 14 265 01 BCD GUZHAN, MARIA C 615 475.00 390.00 01 06/16/94 YR 01/31/98 150.00 0.00 07/96 1-1 0.00 25.00 14 266 03 BCU HIGHTOWER, CRAIG C 615 475.00 380.00 01 07/30/93 YR 07/31/97 180.00 0.00 08/96 1-1 0.00 25.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 18 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 11:01:03 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 14 267 02 BCD OWEN, ROSEMARY C 615 475.00 410.00 01 12/08/96 1YR 12/31/97 250.00 0.00 1-1 0.00 0.00 14 268 02 BCU DUBAZ, WANDA C 615 475.00 410.00 01 12/07/96 1YR 12/31/97 150.00 0.00 1-1 0.00 0.00 14 269 04 BCD RHINEHART, ROBERT C 615 475.00 390.00 01 08/01/96 1YR 07/31/97 0.00 0.00 1-1 0.00 0.00 14 270 01 BCU SPEARS, JAMES M. C 615 475.00 410.00 01 07/27/96 6MO 09/30/97 150.00 0.00 1-1 0.00 0.00 14 271 01 BCD NETCHAEV, OLEG C 615 475.00 410.00 01 05/15/92 M-M 09/30/96 0.00 0.00 03/97 1-1 0.00 20.00 14 272 03 BCU JAMES, NINA C 615 475.00 425.00 01 01/28/97 6MO 07/31/97 150.00 0.00 1-1 0.00 0.00 14 273 03 BCD CHANG, SING WAH C 615 475.00 425.00 01 03/06/96 M-M 09/30/96 150.00 0.00 04/97 1-1 0.00 15.00 14 274 03 BCU CASTANEDA, BEATRICE C 615 475.00 415.00 01 05/01/95 1YR 04/30/98 150,00 0.00 05/97 1-1 0.00 25.00 14 275 01 BCD DUFFY, BRIAN C 615 475.00 425.00 01 01/01/96 M-M 06/30/96 150.00 0.00 04/97 1-1 0.00 15.00 14 276 01 BCU KALO, MOHANNAD C 615 475.00 425.00 01 03/09/96 6MO 09/30/97 150.00 0.00 04/97 1-1 0.00 25.00 15 277 01 BCD BARRIOS, BARRY C 615 475.00 390.00 01 07/07/94 1YR 05/31/98 150.00 0.00 08/96 1-1 0.00 25.00 15 278 03 BCU MAXWELL, RICHARD C 615 475.00 390.00 01 05/23/92 M-M 11/30/93 0.00 0.00 10/96 1-1 0.00 25.00 15 279 04 BCD WHITE, MICHAEL/LISA C 615 475.00 400.00 01 08/01/95 1YR 01/31/98 150.00 0.00 08/96 1-1 0.00 25.00 15 280 01 BCU RANGEL, PEDRO C 615 475.00 380.00 01 04/14/89 12M 08/31/97 100.00 0.00 07/96 1-1 0.00 25.00 15 281 02 BCD VALDES, LAURA C 615 475.00 390.00 01 06/05/93 1YR 01/31/98 130.00 0.00 07/96 1-1 0.00 25.00 15 282 01 BCU SAMMAMA, ANOUAR/TERE C 615 475.00 400.00 01 12/08/95 1YR 11/30/97 180.00 0.00 1-1 0.00 0.00 15 283 01 BCD NGUYEN, LINH C 615 475.00 410.00 01 01/01/97 6MO 12/31/97 150.00 0.00 1-1 0.00 0.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 19 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 11:01:43 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 15 284 01 BCU STERLING, CHARLES C 615 475.00 405.00 01 11/16/91 1YR 05/31/98 0.00 0.00 06/97 1-1 0.00 25.00 15 285 02 BCD AMIRZADEN, PARVIZ C 615 475.00 385.00 01 12/13/93 M-M 12/31/94 100.00 0.00 10/96 1-1 0.00 25.00 15 286 02 BCU KIM, KURTIS DAESON C 615 475.00 465.00 01 06/05/97 6MO 12/31/97 180.00 0.00 1-1 0.00 0.00 15 287 02 BCD CHUGHTAI, FAISAL C 615 475.00 425.00 01 03/01/96 6MO 09/30/97 180.00 0.00 04/97 1-1 0.00 15.00 15 288 01 BCU LOK, WEI H. (LEO) C 615 475.00 460.00 01 05/29/97 6MO 11/30/97 150.00 0.00 1-1 0.00 0.00 15 289 02 BCD ROZYCKI, DAVID C 615 475.00 410.00 01 01/24/97 6MT 07/31/97 150.00 0.00 1-1 0.00 0.00 15 290 03 BCU DELEON, ANGELIQUE C 615 475.00 410.00 01 12/14/96 1YR 12/31/97 150.00 0.00 1-1 0.00 0.00 15 291 01 BCD FROELICH, KATHY C 615 475.00 410.00 01 08/25/95 6MO 11/30/97 180.00 10.00- 09/96 1-1 0.00 25.00 15 292 01 BCU WALTERS, JODI C 615 475.00 400.00 01 08/08/95 1YR 02/28/98 150.00 0.00 03/96 1-1 0.00 25.00 15 293 02 BCD BROWN, DAVID C 615 475.00 380.00 01 04/28/90 1YR 07/31/97 50.00 10.00- 08/96 1--1 0.00 25.00 15 294 01 BCU DE MELLO, EV C 615 475.00 400.00 01 12/15/94 6MO 11/30/97 150.00 0.00 03/97 1-1 0.00 25.00 15 295 01 BCD THERIOT, 06/22/97 N 615 475.00 475.00 01 06/24/99 0.00 0.00 1-1 0.00 0.00 15 295 BCD VACANT 615 475.00 1-1 15 296 02 BCU GONZALES, JESSIE C 615 475.00 410.00 01 08/24/96 1YR 08/31/97 150.00 0.00 1-1 0.00 0.00 15 297 01 BCD VERDERAME, MARK C 615 475.00 410.00 01 09/01/96 6MO 08/31/97 150.00 0.00 1-1 0.00 0.00 15 298 01 BCU MCCASKILL, FLORENE C 615 475.00 335.00 01 09/02/88 1YR 09/30/97 0.00 0.00 10/96 1-1 0.00 10.00 15 299 01 BCD SCHLENKER, BETTY C 615 475.00 395.00 01 02/04/94 1YR 03/31/98 0.00 0.00 04/97 1-1 0.00 15.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 20 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 11:02:20 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 15 300 03 BCU WHITE, TIFNI PAIGE C 615 475.00 410.00 01 06/09/96 6MT 07/31/97 150.00 0.00 1-1 0.00 0.00 15 301 02 BCD RESTIVO, SHAWNA C 615 475.00 410.00 01 11/01/96 1YR 10/31/97 150.00 0.00 1-1 0.00 0.00 15 302 02 BCU COMPARATO, JAMES C 615 475.00 400.00 01 10/07/95 6MO 10/31/97 150.00 0.00 11/96 1-1 0.00 25.00 15 303 02 BCD MARTIN, EMILY C 615 475.00 410.00 01 01/03/97 6MT 07/31/97 150.00 0.00 1-1 0.00 0.00 15 304 BCU VACANT 615 475.00 1-1 15 305 01 BCD SMITH, WILLIAM C 615 475.00 425.00 01 03/01/97 6MO 08/31/97 150.00 0.00 1-1 0.00 0.00 15 306 01 BCU BONILLA/VILLANEDA C 615 475.00 380.00 01 11/04/94 6MO 09/30/97 150.00 0.00 05/96 1-1 0.00 25.00 15 307 05 BCD SKINNER, WILLIAM C 615 475.00 390.00 01 04/01/92 1YR 01/31/98 75.00 0.00 06/96 1-1 0.00 25.00 15 308 03 BCU SALLAM, MOHAMED C 615 475.00 375.00 01 07/15/95 12M 07/31/97 150.00 0.00 1-1 0.00 0.00 16 BC#1 01 A-BC CAYWOOD, ELI & MANDI C 1108 775.00 775.00 01 06/07/97 6MO 12/31/97 500.00 0.00 2-2 0.00 0.00 16 BC#10 02 K-BC BRANNON, BRUCE C 890 625.00 625.00 01 08/16/96 1YR 08/31/97 150.00 0.00 1-1 0.00 0.00 16 BC#2 03 B-BC HARTMAN, TIMOTHY C 722 505.00 505.00 01 09/15/94 M-M 08/31/95 150.00 0.00 1-1 0.00 0.00 16 BC#3 02 C-BC COSTA, PATRICIA C 1168 775.00 700.00 01 08/11/90 1YR 03/31/98 180.00 0,00 04/97 1--1 0.00 25.00 16 BC#4 04 D-BC KIMMEY, DAVID C 822 575.00 505.00 01 12/10/92 M-M 04/30/96 300.00 0.00 10/96 1-1 0.00 25.00 16 BC#5 03 E-BC DEVINE, DAVE C 885 575.00 575.00 01 06/01/96 1YR 01/31/98 0.00 0.00 1-1 0.00 0.00 16 BC#6 01 F-BC GORSKY, VLADIMIR C 1000 700.00 700.00 01 12/06/94 M-M 06/30/95 150.00 0.00 2-2 0.00 0.00 16 BC#7 03 G-BC BETTIS, DOUGLAS C 728 510.00 500.00 01 02/01/93 1YR 11/30/97 180.00 0.00 08/96 1-1 0.00 25.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 21 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 11:02:59 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 16 BC#8 02 H-BC KAHL/ROBINSON C 728 510.00 510.00 01 08/15/94 M-M 05/31/97 06/06/97 50.00 0.00 1-1 07/06/99 0.00 0.00 16 BC#9 01 J-BC GONZALES, ISAAC C 752 525.00 525.00 01 12/01/95 1YR 11/30/97 0.00 0.00 1-1 0.00 0.00 TOTAL CURRENT RESIDENTS 45,875.00 3,327.03- 0.00 TOTAL PREVIOUS RESIDENTS 0.00 0.00 0.00 TOTAL PROJECT 218,179 138,965.00 45,875.00 3,327.03- 167,275.00 0.00 TOTAL IUNIT 330 GROSS POSSIBLE INCOME 146,190.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 1 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:50:07 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 101 01 MD JOHNSON/CRATE C 1008 690.00 640.00 01 03/01/97 6MO 08/31/97 200.00 0.00 2-2 0.00 0.00 01 102 01 MU KAY/LASKOWSKI C 1008 690.00 640.00 01 02/01/97 1YR 01/31/98 200.00 0.00 2-2 0.00 000 01 103 01 MD PARK/LATHAM C 1008 690.00 620.00 01 12/14/96 6MO 06/30/97 05/25/97 200.00 0.00 2-2 06/30/99 0.00 0.00 01 104 03 MU CANOW/JACKSON C 1008 690.00 640.00 02 02/24/97 6MO 08/31/97 200.00 0.00 2-2 0.00 0.00 01 105 01 MD CANOVA, DEBRA C 1008 690.00 600.00 01 11/04/94 M-M 03/31/96 06/02/97 200.00 0.00 04/96 2-2 07/01/99 0.00 0.00 01 105 02 MD JUAREZ, 06/10/97 N 1008 690.00 665.00 01 07/08/99 0.00 0.00 2-2 0.00 0.00 01 106 01 MU RODRIGUEZ, RAFAEL C 1008 690.00 585.00 01 06/06/94 M-M 12/31/94 125.00 0.00 10/96 2-2 0.00 25.00 01 107 04 MD "MODEL, C 1008 690.00 690.00 01 10/01/94 M-M 10/31/94 0.00 0.00 2-2 0.00 0.00 01 108 01 MU "JONES, RUSSELL C 1008 690.00 690.00 01 01/01/95 M-M 01/31/95 0.00 0.00 2-2 0.00 0.00 01 109 05 MBD ALEXANDER/WALKER C 1008 7l5.00 635.00 01 03/01/96 6MO 06/30/97 200.00 0.00 2-2 0.00 0.00 01 110 01 MBU PACHECO/GORDILLO C 1008 715.00 640.00 01 11/08/96 1YR 11/30/97 200.00 0.00 2-2 0.00 0.00 01 111 03 MBD RODJUDIN/ HARIADI C 1008 715.00 650.00 01 02/08/97 6MO 08/31/97 200.00 1,300.00- 2-2 0.00 0.00 01 112 03 MBU DAVIS/BYRAN C 1008 715.00 665.00 01 04/03/97 6MO 10/31/97 200.00 0.00 2-2 0.00 0.00 01 113 01 MBD EDWARDS, 06/10/97 N 1008 715.00 690.00 01 07/08/99 0.00 0.00 2-2 0.00 0.00 01 113 03 MBD DUKE, SHAWNNA C 1008 715.00 650.00 01 01/01/97 6MO 06/30/97 06/01/97 200.00 0,00 2-2 06/30/99 0,00 0.00 01 114 03 MBU HOLOBOWIEZ/MITSCH C 1008 715.00 640.00 01 10/05/96 M-M 04/30/97 200.00 60.00- 2-2 0.00 0.00 01 115 04 MBD RAY, ADRIAN C 1008 715.00 655.00 01 08/01/96 6MO 07/31/97 200.00 0.00 2-2 0.00 0.00 </TABLE> <PAGE> QCRM410 RENT ROLL REPORT PAGE 2 01 FARB REALTY COMPANY SYSTEM DATE: 06/24/97 20 CREEKSIDE APARTMENTS SELECT DATE: 06/24/97 Period: 06/97 June 24, 1997 10:50:46 <TABLE> <CAPTION> ==================================================================================================================================== TYPE S ** LEASE ** NOTICE DEPOSIT LAST DATE BLD UNIT ID DESC NAME T SQFT MARKET ACTUAL DUE MOVE-IN TRM EXPIRES MOVE-OUT L-M-R BALANCE AMOUNT ==================================================================================================================================== <S> <C> <C> <C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 01 116 03 MBU HACKING, JOSEPH/CARA C 1008 715.00 690.00 01 05/03/97 6MO 11/30/97 200.00 0.00 2-2 0.00 0.00 02 117 04 MD CRAWFORD/O'BOYLE C 1008 690.00 630.00 01 11/15/95 M-M 05/31/97 200.00 0.00 06/97 2-2 0.00 25.00 02 118 01 MU THOMAS/PERRY C 1008 690.00 640.00 01 03/20/97 6MO 09/30/97 200.00 0.00 2-2 0.00 0.00 02 119 02 MD ARRIAGADA, LUIS C 1008 690.00 665.00 01 06/12/97 6MO 12/31/97 200.00 0.00 2-2 0.00 0.00 02 120 01 MU ROBSON, JAMES C 1008 690.00 550.00 01 03/04/89 M-M 06/30/96 100.00 0.00 07/96 2-2 0.00 25.00 02 121 01 MD LARA/DIAZ C 1008 690.00 620.00 01 06/01/95 M-M 05/31/96 230.00 0.00 06/97 2-2 0.00 25.00 02 122 01 MU RADZWILL, JOSEPH C 1008 690.00 575.00 01 09/01/93 1YR 11/30/97 350.00 0.00 10/96 2-2 0.00 25.00 02 123 01 MD ABOUELCHABAB, KAMAL C 1008 690.00 615.00 01 06/01/90 1YR 03/31/98 100.00 0.00 04/97 2-2 0.00 0.00 02 124 01 MU COX, 06/10/97 N 1008 690.00 665.00 01 07/15/99 0.00 0.00 2-2 0.00 0.00 02 124 05 MU MONTGOMERY, CHAD C 1008 690.00 640.00 01 01/23/97 1YR 01/31/98 05/28/97 200.00 0.00 2-2 06/30/99 0.00 0.00 02 125 03 MBD BEDNER, MICHAEL C 1008 715.00 565.00 01 01/11/97 1YR 01/31/98 200.00 0.00 2-2 0.00 0.00 02 126 01 MBU VILLAFUERTE, JUAN C 1008 715.00 690.00 01 06/07/97 6MO 12/31/97 0.00 0.00 2-2 0.00 0.00 02 127 01 MBD ADAMS, ROCHELLE C 1008 715.00 590.00 01 10/23/85 1YR 01/31/98 0.00 0.00 11/96 2-2 0.00 25.00 02 128 04 MBU STATON/CHESSER C 1008 715.00 610.00 01 06/26/93 M-M 06/30/96 150.00 0.00 07/96 2-2 0.00 25.00 02 129 03 MBD OTTEN, KENNETH C 1008 715.00 655.00 01 12/07/96 6MO 06/30/97 200.00 0.00 2-2 0.00 0.00 02 130 01 MBU DAVIS/HEFFRON C 1008 715.00 620.00 01 11/01/96 1YR 10/31/97 200.00 0.00 2-2 0.00 0.00 22 131 02 MBD MELCHER, EMILY C 1008 715.00 650.00 01 01/10/97 6MO 07/31/97 500.00 675.00 2-2 0.00 0.00 </TABLE> <PAGE> HISTORICAL OPERATING STATEMENTS <PAGE> DETAIL OPERATING STATEMENT FARB REALTY COMPANY 08:25 AM 07/07/97 - -------------------------------------------------------------------------------- WEST POINT SUMMARY (953) #UNITS 1,280 JUNE 30, 1997 SQ.FT. 977,795 <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jun Jul Actual Actual Actual Actual Actual Actual Budget Budget ------- ------- ------- ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> - -INCOME- Gross Rental Income 677,868 678,663 684,820 689,013 691,993 697,202 679,435 680,600 Model/Free Units (16,630) (18,008) (17,980) (15,909) (16,056) (15,923) (21,155) (21,155) Vacancy (21,253) (20,356) (36,546) (40,779) (42,141) (32,485) (25,757) (25,802) Misc. Income 20,882 14,720 17,573 17,124 19,134 17,759 12,310 13,200 ------------------------------------------------------------------------------------------------ TOTAL INCOME 660,868 655,019 647,868 649,450 652,930 666,552 644,833 646,843 - -EXPENSES- Payroll 77,585 79,118 81,902 83,606 115,630 87,060 75,652 71,164 Taxes-Ad Valorem 45,276 44,165 44,165 44,165 44,165 44,165 45,095 45,095 Insurance (142,910) 20,277 20,277 20,277 19,491 19,491 20,277 20,277 Utilities 128,538 121,880 119,330 116,266 111,366 132,114 128,983 137,580 Sales & General 23,493 30,057 33,574 26,944 27,666 29,673 34,735 33,565 Maintenance 62,390 58,616 59,540 65,529 78,577 75,642 55,470 54,970 ------- ----------- ----------- ---------- --------- --------- --------- ---------- Sub-Total 194,372 354,014 358,788 356,787 396,895 388,144 360,212 362,651 Management Fee 26,435 26,201 25,915 25,978 26,117 26,662 25,793 25,874 ------- ----------- ----------- ---------- --------- --------- --------- ---------- TOTAL EXPENSES 220,807 380,215 384,703 382,765 423,012 414,806 386,005 388,525 ------------------------------------------------------------------------------------------------ NET OPERATING INCOME 440,061 274,805 263,165 266,685 229,917 251,746 258,828 258,318 Replacement Costs 28,971 27,663 31,181 37,287 63,510 73,364 30,840 27,840 CASH FLOW (before Debt Service) 411,090 247,142 231,984 229,398 166,407 178,382 227,988 230,478 Mortgage Interest Payments 209,825 189,519 209,825 203,056 209,825 203,056 203,047 209,817 ------------------------------------------------------------------------------------------------ NET CASH FLOW 201,265 57,623 22,159 26,342 (43,417) (24,674) 24,941 20,661 ------------------------------------------------------------------------------------------------ VACANCY LOSS % 3.14% 3.00% 5.34% 5.92% 6.09% 4.66% 3.79% 3.79% MANAGEMENT APARTMENTS % 2.23% 2.22% 2.41% 2.24% 2.21% 2.21% 2.59% 2.59% ECONOMIC OCCUPANCY % 94.41% 94.35% 92.04% 91.77% 91.59% 93.06% 93.10% 93.10% DIRECT EXPENSES % 28.67% 52.16% 52.39% 51.78% 57.36% 55.67% 53.02% 53.28% MANAGEMENT FEE EXPENSE % 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% CAPITAL EXPENDITURES % 4.27% 4.08% 4.55% 5.41% 9.18% 10.52% 4.54% 4.09% RENT INFLATION % 0.12% 0.91% 0.61% 0.43% 0.75% -2.55% 0.17% GROSS RENTS PER SQ. FT. 0.693 0.694 0.700 0.705 0.708 0.713 0.695 0.696 EFF. GROSS INC. PER SQ. FT. 0.676 0.670 0.663 0.664 0.668 0.682 0.659 0.662 DIRECT EXP'S PER SQ. FT. 2.39 4.34 4.40 4.38 4.87 4.76 4.42 4.45 AVERAGE RENT PER UNIT 530 530 535 538 541 545 531 532 <CAPTION> - --------------------------------------------------------------------------------------------------------------------- Aug Sep Oct Nov Dec Budget Total Budget Budget Budget Budget Budget +Actual Budget ------- ------- ------- ------- ------- ------- --------- <S> <C> <C> <C> <C> <C> <C> <C> - -INCOME- Gross Rental Income 681,845 682,930 683,805 684,655 685,180 8,218,576 8,157,620 Model/Free Units (21,155) (21,155) (21,155) (21,155) (21,155) (227,437) (250,380) Vacancy (20,456) (36,690) (38,168) (38,214) (38,243) (391,132) (404,090) Misc. Income 12,860 11,860 11,690 11,840 11,935 180,578 149,650 ---------------------------------------------------------------------------------- TOTAL INCOME 653,094 636,945 636,172 637,126 637,717 7,780,584 7,652,800 - -EXPENSES- Payroll 71,283 75,872 103,489 71,480 103,048 1,021,238 963,148 Taxes-Ad Valorem 45,095 45,095 45,095 45,095 45,095 536,671 541,140 Insurance 20,277 20,277 20,277 20,277 20,277 78,565 243,324 Utilities 134,004 122,650 112,093 106,083 102,511 1,444,415 1,428,885 Sales & General 33,560 30,285 30,380 30,230 30,380 359,807 382,265 Maintenance 55,370 51,095 48,775 43,380 43,245 697,029 588,510 ------- ---------- ---------- --------- --------- ------------ ------------- Sub-Total 359,589 345,274 360,109 316,545 344,556 4,137,725 4,147,272 Management Fee 26,124 25,478 25,447 25,485 25,509 311,225 306,113 ------- ---------- ---------- --------- --------- ------------ ------------- TOTAL EXPENSES 385,713 370,752 385,556 342,030 370,065 4,448,950 4,453,385 ---------------------------------------------------------------------------------- NET OPERATING INCOME 267,381 266,193 250,616 295,096 267,652 3,331,634 3,199,415 Replacement Costs 27,840 25,840 12,565 11,965 11,965 379,992 305,680 CASH FLOW (before Debt Service) 239,541 240,353 238,051 283,131 255,687 2,951,643 2,893,735 Mortgage Interest Payments 209,817 203,047 209,817 203,047 209,817 2,470,467 2,470,424 ---------------------------------------------------------------------------------- NET CASH FLOW 29,724 37,306 28,234 80,084 45,870 481,176 423,311 ---------------------------------------------------------------------------------- VACANCY LOSS % 3.00% 5.37% 5.58% 5.58% 5.58% 4.76% 4.95% MANAGEMENT APARTMENTS % 2.58% 2.58% 2.57% 2.57% 2.57% 2.41% 2.55% ECONOMIC OCCUPANCY % 93.90% 91.53% 91.32% 91.33% 91.33% 92.47% 91.98% DIRECT EXPENSES % 52.74% 50.56% 52.66% 46.23% 50.29% 50.35% 50.84% MANAGEMENT FEE EXPENSE % 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% CAPITAL EXPENDITURES % 4.08% 3.78% 1.84% 1.75% 1.75% 4.62% 3.75% RENT INFLATION % 0.18% 0.16% 0.13% 0.12% 0.08% GROSS RENTS PER SQ. FT 0.697 0.698 0.699 0.700 0.701 0.700 0.695 EFF. GROSS INC. PER SQ. FT 0.668 0.651 0.651 0.652 0.652 0.663 0.652 DIRECT EXP'S PER SQ. FT 4.41 4.24 4.42 3.88 4.23 4.23 4.24 AVERAGE RENT PER UNIT 533 534 534 535 535 535 531 </TABLE> <PAGE> DETAIL OPERATING STATEMENT FARB REALTY COMPANY 08:25 AM 07/07/97 - -------------------------------------------------------------------------------- WEST POINT SUMMARY (953) #UNITS 1,280 JUNE 30,1997 SQ.FT. 977,795 <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jun Jul Aug Actual Actual Actual Actual Actual Actual Budget Budget Budget ------- ------- ------- ------- ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> - -INCOME- GROSS RENTAL INCOME 677,868 678,663 684,820 689,013 691,993 697,202 679,435 680,600 681,845 Model Apartment Coat (2,445) (2,445) (2,525) (2,525) (2,545) (2,590) (2,320) (2,320) (2,320) Employee Apt Cost (12,657) (12,653) (13,963) (12,923) (12,778) (12,785) (15,280) (15,280) (15,280) Discounted Rent (1,528) (2,910) (1,492) (461) (733) (548) (3,555) (3,555) (3,555) Gratuitous Rent 0 0 0 0 0 0 0 0 0 -------------------------------------------------------------------------------------------------------- TOTAL MODEL/FREE UNITS (16,660) (18,008) (17,980) (15,909) (16,056) (15,923) (21,155) (21,155) (21,155) Vacancy (21,253) (20,356) (36,546) (40,779) (42,141) (32,485) (25,757) (25,802) (20,456) Late Charge/Nsf 3,348 1,610 2,137 1,360 1,890 2,185 1,545 1,385 1,345 Other Income 2,705 895 3,000 1,871 2,295 2,863 1,005 1,005 1,005 Deposits Forfeited 6,229 4,217 4,260 5,995 3,385 3,830 2,400 3,450 3,150 Laundry Commissions 8,399 7,410 7,696 7,226 11,181 8,256 7,080 7,080 7,080 Vending Commissions 201 588 480 672 383 624 280 280 280 -------------------------------------------------------------------------------------------------------- TOTAL MISC. INCOME 20,882 14,720 17,573 17,124 19,134 17,759 12,310 13,200 12,860 TOTAL INCOME 660,868 655,019 647,868 649,450 652,930 666,552 644,833 646,843 653,094 - -EXPENSES- Manager Salary 20,090 21,980 22,880 20,527 29,662 20,240 19,185 19,185 19,265 Leasing Salary 8,479 8,368 8,923 8,903 11,083 8,438 7,105 7,105 7,125 Maintenance Salary 21,705 19,992 22,846 25,483 38,935 25,291 18,430 18,430 18,430 Maid/Porter Salary 11,725 11,482 11,543 12,236 17,643 12,502 10,200 10,200 10,200 Insurance - Benefits 10,986 10,489 10,697 9,479 9,212 14,741 14,416 9,928 9,936 Taxes - Payroll 6,600 6,806 7,014 6,979 9,095 5,848 6,316 8,316 6,327 -------------------------------------------------------------------------------------------------------- TOTAL PAYROLL 77,585 79,118 81,902 83,606 115,630 87,060 75,652 71,164 71,283 TAXES - OTHER 1,111 0 0 0 0 0 0 0 0 TAXES - AD VALOREM 44,165 44,165 44,165 44,165 44,165 44,165 45,095 45,095 45,095 HOMEOWNERS FEE 0 0 0 0 0 0 0 0 0 INSURANCE - GL, FIRE & EC (142,910) 20,277 20,277 20,277 19,491 19,491 20,277 20,277 20,277 Electrical - Apts 692 496 351 533 483 551 653 726 726 Electrical - Buildings 52,213 49,256 47,928 51,542 51,980 61,262 57,700 64,110 64,110 Natural Gas Service 23,819 29,014 28,087 19,785 17,973 16,006 13,157 12,669 11,695 Telephone Service 2,004 2,194 1,507 2,790 1,522 1,900 1,890 1,890 1,890 Water Service 45,899 37,097 37,593 37,877 36,000 49,270 52,033 54,635 52,033 Trash Removal 3,911 3,824 3,864 3,739 3,428 3,126 3,550 3,550 3,550 -------------------------------------------------------------------------------------------------------- TOTAL UTILITIES 128,538 121,880 119,330 116,266 111,366 132,114 128,983 137,580 134,004 Security Expense 8,574 9,370 7,972 7,883 8,417 7,735 9,100 9,100 9,100 Professional Fees 2,126 1,271 1,484 2,168 2,324 1,471 2,540 2,595 2,540 Advertising 1,020 1,932 3,543 1,768 1,498 1,728 1,705 1,705 1,705 Resident Retention 2,414 2,587 4,499 2,294 3,217 5,265 1,650 1,650 1,850 Locator Fees 8,915 10,860 10,095 8,985 6,030 9,165 11,890 11,890 11,890 Furniture Rental 0 0 0 0 0 0 0 0 0 Other Expense 1,268 1,496 3,075 1,949 3,533 2,432 4,655 3,280 3,280 Office Repair & Supplies 1,175 2,540 2,905 1,896 2,647 1,876 3,195 3,345 3,195 -------------------------------------------------------------------------------------------------------- TOTAL SALES & GENERAL 23,493 30,057 33,574 26,944 27,666 29,673 34,735 33,565 33,560 <CAPTION> - --------------------------------------------------------------------------------------------------------- Sep Oct Nov Dec Budget Total Budget Budget Budget Budget +Actual Budget ------- ------- ------- ------- --------- --------- <S> <C> <C> <C> <C> <C> <C> - -INCOME- GROSS RENTAL INCOME 682,930 683,805 684,855 685,180 8,218,576 8,157,620 Model Apartment Coat (2,320) (2,320) (2,320) (2,320) (28,995) (27,630) Employee Apt Cost (15,280) (15,280) (15,280) (15,280) (169,439) (180,090) Discounted Rent (3,555) (3,555) (3,555) (3,555) (29,003) (42,660) Gratuitous Rent 0 0 0 0 0 0 ---------------------------------------------------------------------------- TOTAL MODEL/FREE UNITS (21,155) (21,155) (21,155) (21,155) (227,437) (250,380) Vacancy (30,690) (38,168) (38,214) (38,243) (391,132) (404,090) Late Charge/Nsf 1,545 1,525 1,525 1,770 21,625 17,770 Other Income 1,005 1,005 1,005 1,005 19,659 12,060 Deposits Forfeited 1,950 1,800 1,950 1,800 42,017 31,500 Laundry Commissions 7,080 7,080 7,080 7,080 92,649 84,960 Vending Commissions 280 280 280 280 4,628 3,300 ---------------------------------------------------------------------------- TOTAL MISC. INCOME 11,860 11,690 11,840 11,935 180,578 149,650 TOTAL INCOME 636,945 636,172 637,126 637,717 7,780,584 7,652,800 - -EXPENSES- Manager Salary 19,350 29,025 19,350 24,188 265,742 254,788 Leasing Salary 7,125 10,053 7,125 17,817 106,545 101,613 Maintenance Salary 18,430 27,650 18,510 23,138 278,840 244,228 Maid/Porter Salary 10,200 15,300 10,200 12,750 145,981 135,150 Insurance - Benefits 14,430 12,029 9,949 16,197 138,073 142,780 Taxes - Payroll 6,337 9,432 6,346 8,958 86,058 84,609 ---------------------------------------------------------------------------- TOTAL PAYROLL 75,872 103,489 71,480 103,048 1,021,238 963,148 TAXES - OTHER 0 0 0 0 1,111 0 TAXES - AD VALOREM 45,095 45,095 45,065 45,095 535,580 541,140 HOMEOWNERS FEE 0 0 0 0 0 0 INSURANCE - GL, FIRE & EC 20,277 20,277 20,277 20,277 78,565 243,324 Electrical - Apts 617 581 545 508 6,789 7,260 Electrical - Buildings 54,493 61,288 48,082 44,878 641,142 841,102 Natural Gas Service 12,669 13,157 15,593 20,465 220,932 194,912 Telephone Service 1,890 1,890 1,890 1,890 23,256 22,680 Water Service 49,431 41,627 36,423 31,220 509,105 620,331 Trash Removal 3,550 3,550 3,550 3,550 43,191 42,600 ---------------------------------------------------------------------------- TOTAL UTILITIES 122,650 112,093 106,083 102,511 1,444,415 1,428,885 Security Expense 9,100 9,100 9,100 9,100 104,551 109,200 Professional Fees 2,595 2,540 2,540 2,540 26,194 31,935 Advertising 1,705 1,705 1,705 1,705 21,721 20,460 Resident Retention 1,650 1,650 1,650 1,650 30,378 20,000 Locator Fees 8,910 8,910 8,910 8,910 111,470 121,820 Furniture Rental 0 0 0 0 0 0 Other Expense 3,130 3,280 3,130 3,280 33,134 40,135 Office Repair & Supplies 3,195 3,195 3,195 3,195 32,360 38,715 ---------------------------------------------------------------------------- TOTAL SALES & GENERAL 30,285 30,380 30,230 30,380 359,807 382,265 </TABLE> <PAGE> DETAIL OPERATING STATEMENT FARB REALTY COMPANY 08:25 AM 07/07/97 - -------------------------------------------------------------------------------- WEST POINT SUMMARY (953) #UNITS 1,280 JUNE 30, 1997 SQ.FT. 977,795 <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jun Jul Actual Actual Actual Actual Actual Actual Budget Budget ------- ------- ------- ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Exterminating 1,009 1,048 1,470 1,096 1,244 1,233 1,220 1,220 Cleaning Supplies 1,107 1,070 1,001 883 1,423 1,024 1,200 1,200 Repairs And Supplies 895 3,231 2,278 2,468 1,611 2,145 1,800 1,800 Air Conditioner Maintenance 4,904 3,958 3,917 5,655 4,040 4,109 4,700 4,700 Appliance Maintenance 1,005 918 941 269 1,296 376 725 725 Building Maintenance 10,073 7,419 5,826 5,588 9,210 10,167 5,200 5,200 Carpet Maintenance 2,239 1,957 2,257 1,707 1,793 1,538 2,800 2,800 Wlndow Treatments-Repairs 0 0 0 0 0 0 0 0 Electrical Maintenance 1,253 1,589 1,486 1,803 1,187 671 1,825 1,825 Painting Contract 11,621 6,903 14,104 18,275 13,071 10,171 9,550 9,550 Site Maintenance 602 381 48 218 207 223 1,200 1,200 Painting Material 18 427 378 1,101 3,651 1,148 850 850 Pool Maintenance 572 718 1,280 734 2,003 1,496 1,500 1,500 Plumbing Maintenance 13,094 15,381 10,180 10,559 11,720 12,078 5,100 4,600 Roof And Gutter Maintenance 275 1,360 1,450 1,720 2,155 4,445 1,500 1,500 Fire/Freeze/Flood - Minor 0 0 0 0 0 0 0 0 Landscaping 13,724 12,158 12,922 13,453 23,965 24,819 16,300 16,300 ------------------------------------------------------------------------------------------------ TOTAL MAINTENANCE 62,390 58,516 59,540 65,529 78,577 75,642 55,470 54,970 MANAGEMENT FEE 26,435 26,201 25,915 25,978 26,117 26,662 25,793 25,874 TOTAL EXPENSES 220,807 380,215 384,703 382,765 423,012 414,806 386,005 388,525 NET OPERATING INCOME 440,061 274,805 263,165 266,685 229,917 251,746 258,828 258,318 Repl. Cost-Air Conditioner 4,550 2,778 5,600 1,118 22,040 39,599 5,000 5,000 Repl. Cost-Appliances 4,226 5,081 4,541 4,743 7,854 6,590 6,100 6,100 Repl. Cost-Bldgs-Other 0 0 0 0 0 0 0 0 Repl. Cost-Buildings 0 0 0 0 0 0 0 0 Repl. Cost-Carpet/Tile 12,884 9,830 18,616 22,331 20,814 20,310 14,600 14,600 Repl. Cost-Mini-Blinds 1,373 851 1,031 991 1,637 1,487 1,300 1,300 Repl. Cost-Electrical 2,816 3,948 104 797 691 521 840 840 Repl. Cost-Painting 0 0 0 0 0 0 0 0 Repl. Cost-Site 0 0 0 0 0 0 0 0 Repl. Cost-Pools 0 0 0 1,196 0 0 2,000 0 Repl. Cost-Plumbing 0 0 216 6,111 2,460 1,072 0 0 Repl. Cost-Roof/Gutter 0 0 0 0 0 1,090 0 0 Fire/Freeze/Flood-Major 0 0 0 0 0 0 0 0 Acquired Assets 3,122 5,174 1,073 0 8,015 2,696 1,000 0 ------------------------------------------------------------------------------------------------ TOTAL REPLACEMENT COSTS 28,971 27,663 31,181 37,287 63,510 73,364 30,840 27,840 CASH FLOW (before Debt Service) 411,090 247,142 231,984 229,398 166,407 178,382 227,988 230,478 Mortgage Interest Payments 209,825 189,519 209,825 203,056 209,825 203,056 203,047 209,817 ------------------------------------------------------------------------------------------------ NET CASH FLOW 201,265 57,623 22,159 26,342 (43,417) (24,674) 24,941 20,661 ------------------------------------------------------------------------------------------------ <CAPTION> - ---------------------------------------------------------------------------------------------------------------------- Aug Sep Oct Nov Dec Budget Total Budget Budget Budget Budget Budget +Actual Budget ------- ------- ------- ------- ------- ------- --------- <S> <C> <C> <C> <C> <C> <C> <C> Exterminating 1,220 1,220 1,220 1,220 1,220 14,420 14,640 Cleaning Supplies 1,200 1,050 850 775 775 12,358 11,750 Repairs And Supplies 1,800 1,700 1,300 1,300 1,300 21,828 18,500 Air Conditioner Maintenance 4,700 4,600 3,450 2,250 2,250 48,533 40,000 Appliance Maintenance 725 525 525 525 525 8,355 7,200 Building Maintenance 5,200 4,100 3,600 3,600 3,600 73,583 49,700 Carpet Maintenance 2,800 2,700 2,100 2,100 2,100 26,091 28,700 Wlndow Treatments-Repairs 0 0 0 0 0 0 0 Electrical Maintenance 1,825 1,750 1,550 1,550 1,550 18,038 20,075 Painting Contract 9,550 8,050 5,880 5,760 5,625 118,560 86,695 Site Maintenance 1,200 1,150 1,150 1,150 1,150 8,679 14,050 Painting Material 850 650 550 550 550 10,723 8,100 Pool Maintenance 1,900 1,200 1,200 1,200 1,200 15,003 16,300 Plumbing Maintenance 4,600 4,600 4,600 4,600 4,600 100,612 56,200 Roof And Gutter Maintenance 1,500 1,500 1,500 1,500 1,500 20,405 18,000 Fire/Freeze/Flood - Minor 0 0 0 0 0 0 0 Landscaping 16,300 16,300 19,300 15,300 15,300 199,841 198,600 ---------------------------------------------------------------------------------- TOTAL MAINTENANCE 55,370 51,095 48,775 43,380 43,245 697,029 588,510 MANAGEMENT FEE 26,124 25,478 25,447 25,485 25,509 311,225 306,113 TOTAL EXPENSES 385,713 370,752 385,556 342,030 370,065 4,448,950 4,453,385 NET OPERATING INCOME 267,381 266,193 250,616 295,096 267,652 3,331,634 3,199,415 Repl. Cost-Air Conditioner 5,000 5,000 1,400 1,400 1,400 94,875 37,900 Repl. Cost-Appliances 6,100 4,700 3,450 3,450 3,450 60,295 52,250 Repl. Cost-Bldgs-Other 0 0 0 0 0 0 0 Repl. Cost-Buildings 0 0 0 0 0 0 0 Repl. Cost-Carpet/Tile 14,600 14,000 6,200 5,600 5,600 165,385 113,400 Repl. Cost-Mini-Blinds 1,300 1,300 1,075 1,075 1,075 14,496 13,950 Repl. Cost-Electrical 840 840 440 440 440 12,717 7,680 Repl. Cost-Painting 0 0 0 0 0 0 0 Repl. Cost-Site 0 0 0 0 0 0 55,000 Repl. Cost-Pools 0 0 0 0 0 1,196 17,000 Repl. Cost-Plumbing 0 0 0 0 0 9,859 0 Repl. Cost-Roof/Gutter 0 0 0 0 0 1,090 0 Fire/Freeze/Flood-Major 0 0 0 0 0 0 0 Acquired Assets 0 0 0 0 0 20,080 8,500 ---------------------------------------------------------------------------------- TOTAL REPLACEMENT COSTS 27,840 25,840 12,565 11,965 11,965 379,992 305,680 CASH FLOW (before Debt Service) 239,541 240,353 238,051 283,131 255,687 2,951,643 2,893,735 Mortgage Interest Payments 209,817 203,047 209,817 203,047 209,817 2,470,467 2,470,424 ---------------------------------------------------------------------------------- NET CASH FLOW 29,724 37,306 28,234 80,084 45,870 481,176 423,311 ---------------------------------------------------------------------------------- </TABLE> <PAGE> REVIEW OF OPERATIONS FARB REALTY COMPANY 03:00 PM 07/09/97 - -------------------------------------------------------------------------------- WEST POINT SUMMARY (953) #UNITS 1,280 DECEMBER31, 1996 SQ.FT. 977,795 <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jul Aug Sep Actual Actual Actual Actual Actual Actual Budget Budget Budget ------- ------- ------- ------- ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> - -INCOME- Gross Rental Income 643,079 650,896 655,776 658,889 661,626 663,188 666,243 669,771 672,033 Model/Free Units (16,593) (17,570) (17,665) (16,135) (17,667) (17,082) (17,401) (18,060) (18,693) Vacancy (59,499) (75,301) (82,310) (80,908) (81,316) (65,111) (49,784) (42,704) (26,689) Misc. Income 12,946 16,115 17,445 13,014 17,476 10,190 16,729 16,086 16,651 -------------------------------------------------------------------------------------------------------- TOTAL INCOME 577,933 574,140 573,246 574,860 580,120 501,185 615,787 625,093 643,301 - -EXPENSES- Payroll 69,080 76,913 73,424 69,620 96,717 75,621 75,665 78,262 76,283 Taxes-Ad Valorem 46,857 44,832 44,165 44,165 44,165 44,165 44,165 44,165 44,165 Insurance 29,117 29,117 29,117 20,117 20,277 20,277 20,277 20,882 20,277 Utilities 127,001 119,305 119,455 114,993 115,281 119,295 118,400 124,428 112,185 Sales & General 22,756 30,601 26,641 26,354 31,889 28,938 32,258 41,091 30,140 Maintenance 47,430 51,107 41,477 45,005 42,949 43,492 46,872 54,811 46,648 ------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Sub-Total 342,241 351,876 334,279 329,254 351,278 331,789 337,843 363,638 338,699 Management Fee 23,116 22,966 22,930 22,995 23,205 23,847 24,832 25,004 25,732 ------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL EXPENSES 365,357 374,842 357,209 352,249 374,483 355,436 382,275 388,842 364,431 -------------------------------------------------------------------------------------------------------- NET OPERATING INCOME 212,576 199,299 216,038 222,611 206,637 235,748 253,512 230,451 278,871 Replacement Costs 18,167 9,187 16,178 19,327 10,471 15,678 27,240 40,822 38,969 CASH FLOW (before Debt Service) 194,409 190,112 199,859 203,283 195,166 220,071 226,272 195,629 239,902 Mortgage Interest Payments 200,043 196,202 209,733 202,968 209,733 202,988 209,825 209,825 203,056 -------------------------------------------------------------------------------------------------------- NET CASH FLOW (14,634) (6,091) (9,874) 315 (14,567) 17,103 16,447 (14,195) 36,846 -------------------------------------------------------------------------------------------------------- VACANCY LOSS % 9.25% 11.57% 12.55% 12.18% 12.29% 9.82% 7.47% 6.38% 3.97% MANAGEMENT APARTMENTS % 2.62% 2.45% 2.56% 2.04% 2.20% 2.20% 2.23% 2.09% 2.26% ECONOMIC OCCUPANCY % 87.86% 85.73% 84.75% 85.27% 85.04% 87.61% 89.92% 90.93% 93.25% DIRECT EXPENSES % 53.22% 54.06% 50.97% 49.97% 53.09% 50.03% 50.68% 54.29% 50.40% MANAGEMENT FEE EXPENSE % 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% CAPITAL EXPENDITURES % 2.82% 1.41% 2.47% 2.93% 1.58% 2.36% 4.09% 6.09% 5.80% RENT INFLATION % 1.22% 0.75% 0.47% 0.42% 0.24% 0.46% 0.53% 0.34% GROSS RENTS PER SO. FT 0.658 0.666 0.671 0.674 0.677 0.678 0.681 0.685 0.687 EFF. GROSS INC. PER 50. FT. 0.591 0.587 0.586 0.588 0.593 0.605 0.630 0.639 0.658 DIRECT EXP'S PER SO. FT 4.20 4.32 4.10 4.04 4.31 4.07 4.14 4.40 4.16 AVERAGE RENT PER UNIT 502 509 512 515 517 518 521 523 525 <CAPTION> - --------------------------------------------------------------------------------------------------------- Oct Nov Dec Dec Budget Total Budget Budget Budget Budget +Actual Budget ------- ------- ------- ------- --------- --------- <S> <C> <C> <C> <C> <C> <C> - -INCOME- Gross Rental Income 672,713 675,808 677,283 647,914 7,967,308 7,676,094 Model/Free Units (17,904) (18,516) (16,406) (18,906) (211,693) (227,672) Vacancy (27,222) (20,901) (30,057) (45,027) (641,801) (504,636) Misc. Income 16,877 16,293 20,123 15,915 189,944 185,748 ---------------------------------------------------------------------------- TOTAL INCOME 644,464 662,684 650,944 599,896 7,303,758 7,129,534 - -EXPENSES- Payroll 69,851 97,081 91,582 74,001 950,100 947,993 Taxes-Ad Valorem 44,165 44,165 31,406 46,499 520,580 557,988 Insurance 20,277 20,277 20,277 30,573 279,289 361,052 Utilities 106,924 111,883 96,111 120,597 1,385,266 1,425,577 Sales & General 47,503 31,955 29,164 20,129 388,290 256,979 Maintenance 54,963 60,376 50,174 41,420 585,305 546,128 ----------- ---------- ---------- ---------- ------------ ------------ Sub-Total 343,682 365,737 318,714 333,219 4,108,830 4,095,717 Management Fee 25,779 26,108 26,038 23,996 292,152 285,180 ----------- ---------- ---------- ---------- ------------ ------------ TOTAL EXPENSES 369,461 391,845 344,752 357,215 4,400,982 4,380,897 ---------------------------------------------------------------------------- NET OPERATING INCOME 275,003 260,839 306,192 242,681 2,902,776 2,748,637 Replacement Costs 79,339 37,340 92,659 17,520 405,377 256,050 CASH FLOW (before Debt Service) 195,664 223,489 213,533 225,161 2,497,399 2,492,587 Mortgage Interest Payments 209,825 203,056 209,825 211,909 2,476,059 2,498,505 ---------------------------------------------------------------------------- NET CASH FLOW (14,161) 20,443 3,708 13,252 21,341 (5,918) ---------------------------------------------------------------------------- VACANCY LOSS % 4.05% 3.09% 4.44% 6.95% 8.06% 6.57% MANAGEMENT APARTMENTS % 2.25% 2.32% 2.23% 2.75% 2.29% 2.78% ECONOMIC OCCUPANCY % 93.29% 94.17% 93.14% 90.13% 89.29% 90.46% DIRECT EXPENSES % 51.09% 54.12% 47.06% 51.43% 51.57% 53.36% MANAGEMENT FEE EXPENSE % 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% CAPITAL EXPENDITURES % 11.79% 5.53% 13.68% 2.70% 5.09% 3.34% RENT INFLATION % 0.10% 0.46% 0.22% -4.34% GROSS RENTS PER SO. FT 0.688 0.691 0.693 0.663 0.679 0.654 EFF. GROSS INC. PER 50. FT. 0.659 0.668 0.666 0.614 0.622 0.608 DIRECT EXP'S PER SO. FT 4.22 4.49 3.91 4.09 4.20 4.19 AVERAGE RENT PER UNIT 526 528 529 506 519 500 </TABLE> <PAGE> DETAIL OPERATING STATEMENT FARB REALTY COMPANY 03:09 PM 07/09/97 - -------------------------------------------------------------------------------- WEST POINT SUMMARY (953) #UNITS 1,280 DECEMBER31, 1996 SQ.FT. 977,795 <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jul Aug Sep Actual Actual Actual Actual Actual Actual Budget Budget Budget ------- ------- ------- ------- ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> - -INCOME- GROSS RENTAL INCOME 643,079 650,696 655,776 658,889 661,626 663,188 666,243 669,771 672,033 Model Apartment Cost (3,365) (2,868) (3,415) (2,885) (3,430) (3,430) (2,980) (1,890) (2,435) Employee Apt Cost (13,483) (13,062) (13,350) (10,550) (11,097) (11,137) (11,890) (12,118) (12,727) Discounted Rent (1,745) (1,640) (900) (2,700) (3,140) (2,515) (2,531) (4,053) (3,531) Gratuitous Rent 0 0 0 0 0 0 0 0 0 -------------------------------------------------------------------------------------------------------- TOTAL MODEL/FREE UNITS (18,593) (17,570) (17,665) (16,135) (17,667) (17,082) (17,401) (18,060) (18,693) Vacancy (59,499) (75,301) (82,310) (80,908) (81,316) (65,111) (49,784) (42,704) (26,689) Late Charge/Nsf 1,424 1,470 1,715 1,915 1,980 1,585 2,415 2,275 1,855 Other Income 5,354 1,815 408 1,773 1,863 1,820 2,290 2,837 3,337 Deposits Forfeited 2,530 4,648 5,676 2,492 3,577 1,464 3,633 3,615 4,151 Laundry Commissions 3,638 7,657 9,262 6,834 10,057 5,321 8,391 7,360 7,308 Vending Commission 0 525 385 0 0 0 0 0 0 -------------------------------------------------------------------------------------------------------- TOTAL MISC. INCOME 12,946 16,115 17,445 13,014 17,476 10,190 16,729 16,086 16,651 TOTAL INCOME 577,933 574,140 573,246 574,860 580,120 591,185 615,787 625,093 643,301 - -EXPENSES- Manager Salary 18,549 19,289 18,049 16,705 20,761 16,501 19,434 18,208 18,032 Leasing Salary 6,994 7,637 8,667 7,773 11,885 8,448 8,573 10,814 8,312 Maintenance Salary 17,084 20,929 17,749 18,135 27,936 20,997 20,401 20,563 19,715 Maid/Porter Salary 10,100 11,672 11,510 11,316 16,976 12,388 12,630 13,876 13,676 Insurance - Benefits 10,474 10,813 11,238 9,848 11,531 12,111 9,363 9,363 11,525 Taxes - Payroll 5,879 6,573 6,209 5,842 7,628 5,176 5,265 5,438 5,024 -------------------------------------------------------------------------------------------------------- TOTAL PAYROLL 69,080 76,913 73,424 69,620 96,717 75,621 75,665 78,262 76,283 TAXES - OTHER 1,482 667 0 0 0 0 0 0 0 TAXES - AD VALOREM 45,375 44,165 44,165 44,165 44,165 44,165 44,165 44,165 44,165 HOMEOWNERS FEE 0 0 0 0 0 0 0 0 0 INSURANCE - GL, FIRE & EC 29,117 29,117 29,117 29,117 20,277 20,277 20,277 20,882 20,277 Electrical - Apts 880 756 741 (312) 290 1,070 505 974 557 Electrical - Buildings 48,548 48,825 47,450 47,080 51,460 58,574 60,134 61,733 57,022 Natural Gas Service 20,628 24,960 22,811 21,852 14,951 11,312 9,615 10,062 9,993 Telephone Service 2,484 1,515 1,444 1,929 2,488 2,093 2,149 1,939 1,906 Water Service 51,198 39,965 43,725 41,045 42,807 43,077 42,719 40,362 39,350 Trash Removal 3,283 3,283 3,283 3,398 3,283 3,168 3,283 3,358 3,358 -------------------------------------------------------------------------------------------------------- TOTAL UTILITIES 127,001 119,305 119,455 114,993 115,281 119,295 118,406 124,428 112,185 Security Expense 7,328 12,358 7,116 7,214 9,234 10,665 8,720 9,599 8,688 Professional Fees 2,280 4,984 5,000 3,837 3,300 3,745 2,147 8,495 2,400 Advertising 170 2,218 2,613 1,968 4,374 1,427 4,664 949 1,445 Resident Retention 1,975 2,143 1,480 2,349 4,498 2,072 1,529 2,626 2,061 Locator Fees 7,061 6,185 7,419 5,105 5,130 6,310 10,330 13,975 19,410 Furniture Rental 893 0 298 0 0 1,052 1,191 0 0 Other Expense 1,496 212 2,299 3,406 4,144 2,140 2,342 2,486 1,471 Office Repair & Supplies 1,553 2,501 416 2,476 1,209 1,529 1,335 2,900 3,666 -------------------------------------------------------------------------------------------------------- TOTAL SALES & GENERAL 22,756 30,601 26,641 26,354 31,889 28,939 32,258 41,091 39,140 <CAPTION> - --------------------------------------------------------------------------------------------------------- Oct Nov Dec Dec Budget Total Budget Budget Budget Budget +Actual Budget ------- ------- ------- ------- --------- --------- <S> <C> <C> <C> <C> <C> <C> - -INCOME- GROSS RENTAL INCOME 672,713 675,808 677,283 647,914 7,967,308 7,676,094 Model Apartment Cost (2,435) (2,445) (2,445) (4,615) (34,023) (55,380) Employee Apt Cost (12,728) (13,240) (12,682) (13,191) (148,064) (158,292) Discounted Rent (2,741) (2,831) (1,279) (1,100) (29,606) (14,000) Gratuitous Rent 0 0 0 0 0 0 ---------------------------------------------------------------------------- TOTAL MODEL/FREE UNITS (17,904) (16,516) (16,406) (18,906) (211,693) (227,672) Vacancy (27,222) (20,901) (30,057) (45,027) (641,801) (504,636) Late Charge/Nsf 1,963 2,294 2,458 1,980 23,349 24,105 Other Income 2,184 1,368 3,560 2,950 28,607 29,823 Deposits Forfeited 5,400 3,501 4,411 3,750 45,096 45,000 Laundry Commissions 7,331 9,130 8,734 6,850 91,021 82,200 Vending Commission 0 0 980 385 1,870 4,620 ---------------------------------------------------------------------------- TOTAL MISC. INCOME 16,877 16,293 20,123 15,915 189,944 185,748 TOTAL INCOME 644,464 652,684 650,944 599,896 7,303,758 7,129,534 - -EXPENSES- Manager Salary 19,067 25,787 28,038 18,985 238,422 244,457 Leasing Salary 6,688 10,012 7,900 8,662 103,702 111,710 Maintenance Salary 18,175 27,682 25,713 18,678 255,080 242,414 Maid/Porter Salary 10,205 15,702 13,458 10,632 153,511 134,616 Insurance - Benefits 11,304 11,456 10,572 10,693 129,598 133,042 Taxes - Payroll 4,412 6,442 5,900 6,351 69,788 81,754 ---------------------------------------------------------------------------- TOTAL PAYROLL 69,851 97,081 91,582 74,001 950,100 947,993 TAXES - OTHER 0 0 0 0 2,149 0 TAXES - AD VALOREM 44,165 44,165 31,406 46,499 518,431 557,988 HOMEOWNERS FEE 0 0 0 0 0 0 INSURANCE - GL, FIRE & EC 20,277 20,277 20,277 30,573 279,289 361,052 Electrical - Apt 773 610 475 1,200 7,299 12,603 Electrical - Buildings 53,651 51,841 48,367 53,650 634,487 650,560 Natural Gas Service 11,121 13,876 19,194 21,380 190,375 200,771 Telephone Service 1,965 1,743 1,499 1,760 23,155 21,400 Water Service 35,885 40,447 22,747 39,589 489,327 503,649 Trash Removal 3,529 3,565 3,830 3,018 40,623 36,594 ---------------------------------------------------------------------------- TOTAL UTILITIES 106,924 111,883 96,111 120,597 1,385,266 1,425,677 Security Expense 10,486 9,427 9,066 4,725 109,900 56,700 Professional Fees 1,675 3,152 1,254 1,695 42,270 21,215 Advertising 4,740 1,794 2,920 1,305 29,281 16,473 Resident Retention 3,030 1,675 2,283 900 27,721 10,800 Locator Fees 22,000 10,160 6,290 7,480 119,375 102,370 Furniture Rental 0 0 0 794 3,433 9,528 Other Expense 2,884 2,824 4,319 1,815 30,023 22,313 Office Repair & Supplies 2,687 2,923 3,032 1,415 26,288 17,580 ---------------------------------------------------------------------------- TOTAL SALES & GENERAL 47,503 31,955 29,164 20,129 388,290 256,979 </TABLE> <PAGE> DETAIL OPERATING STATEMENT FARB REALTY COMPANY 03:09 PM 07/09/97 - -------------------------------------------------------------------------------- WEST POINT SUMMARY (953) #UNITS 1,280 DECEMBER 31, 1996 SQ.FT. 977,795 <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jul Aug Actual Actual Actual Actual Actual Actual Actual Actual ------- ------- ------- ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Exterminating 2,037 1,059 910 936 1,022 981 1,002 1,013 Cleaning Supplies 888 920 896 726 968 717 653 880 Repairs And Supplies 1,754 2,082 749 485 1,625 1,233 1,303 1,884 Air Conditioner Maintenance 1,828 1,777 2,765 2,235 2,689 3,387 2,923 4,563 Appliance Maintenance 355 534 487 360 397 876 318 252 Building Maintenance 2,889 3,170 2,707 2,634 4,046 2,515 4,094 4,799 Carpet Maintenance 2,105 617 1,225 2,220 1,575 1,863 2,165 2,722 Window Treatments-Repairs 0 0 0 0 0 0 0 0 Electrical Maintenance 3,326 1,367 1,630 1,357 940 1,215 514 1,766 Painting Contract 4,961 8,337 8,412 12,160 9,225 14,640 9,392 16,097 Site Maintenance 872 966 109 704 558 67 0 426 Painting Material 1,018 2,171 894 109 903 593 494 269 Pool Maintenance 584 670 1,174 861 954 954 1,248 1,427 Plumbing Maintenance 3,735 4,974 5,698 4,140 6,321 3,063 3,965 6,073 Roof And Gutter Maintenance 1,865 2,871 208 406 1,288 963 440 0 Fire/Freeze/Flood - Minor 0 37 (37) 0 0 0 0 (657) Landscaping 19,214 19,555 13,641 15,669 10,438 10,427 18,361 13,297 ------------------------------------------------------------------------------------------------ TOTAL MAINTENANCE 47,430 51,107 41,477 45,005 42,949 43,492 46,872 54,811 MANAGEMENT FEE 23,116 22,966 22,930 22,995 23,205 23,647 24,632 25,004 TOTAL EXPENSES 365,367 374,842 357,209 352,249 374,483 355,436 362,275 388,642 NET OPERATING INCOME 212,576 190,299 216,038 222,611 205,637 235,749 253,612 236,451 Repl. Cost-Air Conditioner 839 333 0 2,920 0 911 2,582 1,824 Repl. Cost-Appliances 4,352 2,867 2,536 3,889 1,514 3,927 5,527 6,496 Repl. Cost-Bldgs--Other 0 (2,465) 0 0 0 0 1,720 (1,720) Repl. Cost-Buildings 3,285 0 2,052 684 0 0 0 1,720 Repl. Cost-Carpet/Tile 4,161 6,036 6,988 6,059 8,397 8,655 14,236 20,945 Repl. Cost-Mini-Blinds 1,065 1,016 664 604 336 446 580 1,228 Repl. Cost-Electrical 567 0 375 696 131 120 2,595 1,888 Repl. Cost-Painting 0 0 0 0 0 0 0 0 Repl. Cost-Site 0 (42) 1,150 1,250 0 0 0 2,248 Repl. Cost-Pools 0 0 0 0 0 0 0 2,800 Repl. Cost-Plumbing 3,897 0 2,413 2,340 0 0 0 985 Repl. Cost-Roof/Gutter 0 0 0 0 0 0 0 0 Fire/Freeze/Flood-Major 0 0 0 0 0 0 0 0 Acquired Assets 0 1,442 0 885 93 1,618 0 2,408 ------------------------------------------------------------------------------------------------ TOTAL REPLACEMENT COSTS 18,167 9,187 16,178 19,327 10,471 15,678 27,240 40,822 CASH FLOW (before Debt Service) 194,409 190,112 199,859 203,283 195,166 220,071 226,272 195,629 Mortgage Interest Payments 209,043 196,202 209,733 202,968 209,733 202,968 209,825 209,825 ------------------------------------------------------------------------------------------------ NET CASH FLOW (14,634) (6,091) (9,874) 315 (14,567) 17,103 16,447 (14,195) ------------------------------------------------------------------------------------------------ <CAPTION> - ---------------------------------------------------------------------------------------------------------------------- Sep Oct Nov Dec Dec Budget Total Actual Actual Actual Actual Budget +Actual Budget ------- ------- ------- ------- ------- ------- --------- <S> <C> <C> <C> <C> <C> <C> <C> Exterminating 1,234 1,139 1,226 1,057 1,307 13,623 17,428 Cleaning Supplies 1,038 1,349 998 969 975 11,002 12,150 Repairs And Supplies 802 2,154 1,922 1,118 1,975 17,812 24,100 Air Conditioner Maintenance 2,690 6,094 7,447 4,550 4,520 42,947 51,240 Appliance Maintenance 783 370 404 770 750 5,906 10,350 Building Maintenance 4,568 2,868 7,581 6,061 4,100 47,932 55,400 Carpet Maintenance 1,565 1,945 2,827 920 1,940 21,748 23,860 Window Treatments-Repairs 0 0 0 0 0 0 0 Electrical Maintenance 1,668 1,243 1,270 1,351 1,625 17,647 20,175 Painting Contract 8,161 13,917 13,481 11,507 8,300 130,291 121,900 Site Maintenance 567 355 1,080 969 1,100 6,673 14,100 Painting Material 103 404 753 626 400 8,338 4,800 Pool Maintenance 1,652 1,572 1,277 572 825 12,947 12,325 Plumbing Maintenance 6,272 3,733 6,893 6,678 2,650 61,545 36,800 Roof And Gutter Maintenance 12 2,121 2,045 10 1,225 12,228 17,300 Fire/Freeze/Flood - Minor 0 0 0 0 0 (657) 0 Landscaping 15,534 15,697 11,173 12,317 9,728 175,324 124,200 ---------------------------------------------------------------------------------- TOTAL MAINTENANCE 46,648 54,963 60,376 50,174 41,420 585,305 546,128 MANAGEMENT FEE 25,732 25,779 26,108 26,038 23,996 292,152 285,180 TOTAL EXPENSES 364,431 369,461 391,845 344,752 357,215 4,400,982 4,380,897 NET OPERATING INCOME 278,871 275,003 260,839 306,192 242,681 2,902,776 2,748,637 Repl. Cost-Air Conditioner 1,048 2,960 363 384 500 14,164 31,150 Repl. Cost-Appliances 5,682 6,849 3,950 4,684 4,500 52,273 60,500 Repl. Cost-Bldgs--Other 0 0 0 0 0 (2,465) 0 Repl. Cost-Buildings 0 850 0 0 0 8,591 2,500 Repl. Cost-Carpet/Tile 19,008 11,851 23,887 23,479 11,100 153,703 144,380 Repl. Cost-Mini-Blinds 629 960 1,238 723 700 9,487 8,400 Repl. Cost-Electrical 11,345 64,544 7,223 641 720 80,125 9,120 Repl. Cost-Painting 0 0 0 0 0 0 0 Repl. Cost-Site 0 1,150 0 53,800 0 59,557 0 Repl. Cost-Pools 0 175 0 0 0 2,975 0 Repl. Cost-Plumbing 0 0 679 7,331 0 17,645 0 Repl. Cost-Roof/Gutter 0 0 0 0 0 0 0 Fire/Freeze/Flood-Major 0 0 0 0 0 0 0 Acquired Assets 1,256 0 0 1,618 0 9,321 0 ---------------------------------------------------------------------------------- TOTAL REPLACEMENT COSTS 38,969 79,339 37,340 92,659 17,520 405,377 256,050 CASH FLOW (before Debt Service) 239,902 195,664 223,499 213,533 225,161 2,497,399 2,492,587 Mortgage Interest Payments 203,056 209,825 203,056 209,825 211,909 2,476,059 2,498,505 ---------------------------------------------------------------------------------- NET CASH FLOW 36,846 (14,161) 20,443 3,708 13,252 21,341 (5,918) ---------------------------------------------------------------------------------- </TABLE> <PAGE> REVIEW OF OPERATIONS FARB REALTY COMPANY 03:08 PM 07/09/97 - -------------------------------------------------------------------------------- WEST POINT SUMMARY (953) #UNITS 1,280 DECEMBER 31, 1995 SQ.FT. 977,795 <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jul Aug Sep Actual Actual Actual Actual Actual Actual Budget Budget Budget ------- ------- ------- ------- ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> - -INCOME- Gross Rental Income 620,468 617,661 617,401 618,285 619,327 619,854 621,118 622,670 628,455 Model/Free Units (34,690) (25,149) (17,833) (19,022) (16,402) (14,082) (19,256) (18,564) (20,999) Vacancy (79,570) (60,992) (50,834) (53,344) (51,061) (54,863) (47,420) (40,978) (48,427) Misc. Income 13,530 15,949 17,056 18,579 15,860 17,464 18,260 16,591 19,115 -------------------------------------------------------------------------------------------------------- TOTAL INCOME 519,737 547,469 565,790 564,497 567,724 568,573 572,701 579,718 578,144 - -EXPENSES- Payroll 76,748 84,423 79,173 74,696 74,394 86,857 77,765 79,573 80,898 Taxes-Ad Valorem 46,011 45,241 45,241 45,241 45,241 45,241 45,241 45,241 45,241 Insurance 26,843 26,843 26,843 26,843 29,117 29,117 29,117 29,117 29,740 Utilities 115,022 114,190 111,882 97,027 108,533 118,441 124,612 120,670 95,044 Sales & General 26,017 21,944 36,419 22,253 16,595 25,514 24,155 29,395 22,395 Maintenance 59,406 68,287 71,222 73,885 60,251 61,573 76,190 85,341 84,199 -------------------------------------------------------------------------------------------------------- Sub-Total 350,046 360,928 370,779 339,945 334,132 386,743 377,080 389,337 357,516 Management Fee 20,790 21,898 22,532 22,679 22,709 22,743 22,909 23,188 23,126 ------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL EXPENSES 370,836 382,826 393,311 362,624 356,841 389,486 399,989 412,525 380,642 ------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME 148,901 164,643 172,479 201,873 210,883 179,087 172,712 167,193 197,502 Replacement Costs 27,540 39,901 117,130 22,020 52,806 32,350 30,207 59,515 69,304 CASH FLOW (before Debt Service) 121,361 124,742 55,348 179,854 158,077 146,737 142,505 107,678 128,198 Mortgage Interest Payments 199,778 180,696 200,635 194,429 205,325 197,657 204,853 206,782 200,722 Loan Draws From GECO (144,289) (100,429) (161,381) 0 (276,891) (14,078) 0 (261,763) 0 Renovation 31,300 35,780 47,569 63,306 106,166 88,638 153,047 76,102 57,070 -------------------------------------------------------------------------------------------------------- NET CASH FLOW 34,573 8,694 (31,474) (77,881) 123,277 (125,479) (215,396) 86,558 (129,594) -------------------------------------------------------------------------------------------------------- HAROLD FARB-CONTRIBUTION (100,000) VACANCY LOSS % 12.82% 9.87% 8.23% 8.63% 8.24% 8.82% 7.63% 6.58% 7.71% MANAGEMENT APARTMENTS % 2.33% 2.34% 2.43% 2.55% 2.25% 2.09% 2.75% 2.65% 2.90% ECONOMIC OCCUPANCY % 81.58% 86.05% 88.88% 88.30% 89.11% 88.91% 89.27% 90.44% 88.95% DIRECT EXPENSES % 56.42% 58.43% 60.05% 54.98% 53.95% 59.17% 60.71% 62.53% 56.89% MANAGEMENT FEE EXPENSE % 4.00% 4.00% 3.98% 4.02% 4.00% 4.00% 4.00% 4.00% 4.00% CAPITAL EXPENDITURES % 4.44% 6.46% 18.97% 3.56% 8.53% 5.22% 4.86% 9.56% 11.03% RENT INFLATION % -0.45% -0.04% 0.14% 0.17% 0.09% 0.20% 0.25% 0.93% GROSS RENTS PER 50. FT 0.635 0.632 0.631 0.632 0.633 0.634 0.635 0.637 0.643 EFF. GROSS INC. PER 50. FT. 0.532 0.560 0.579 0.577 0.581 0.581 0.586 0.593 0.591 DIRECT EXP'S PER 50. FT 4.30 4.43 4.55 4.17 4.10 4.50 4.63 4.78 4.39 AVERAGE RENT PER UNIT 485 483 482 483 484 484 485 486 491 <CAPTION> - --------------------------------------------------------------------------------------------------------- Oct Nov Dec Dec Budget Total Budget Budget Budget Budget +Actual Budget ------- ------- ------- ------- --------- --------- <S> <C> <C> <C> <C> <C> <C> - -INCOME- Gross Rental Income 631,653 633,861 636,045 663,839 7,486,795 7,750,975 Model/Free Units (20,587) (20,541) (18,768) (14,668) (245,893) (199,795) Vacancy (41,384) (45,530) (51,189) (47,184) (625,394) (651,013) Misc. Income 15,536 18,806 11,964 11,423 198,710 152,544 ---------------------------------------------------------------------------- TOTAL INCOME 585,219 586,596 578,051 613,410 6,814,219 7,052,711 - -EXPENSES- Payroll 80,276 71,703 110,558 107,782 977,063 970,052 Taxes-Ad Valorem 45,241 45,241 17,720 43,113 516,140 517,356 Insurance 29,117 29,117 29,117 27,360 340,931 323,108 Utilities 103,626 105,712 107,371 141,002 1,322,128 1,573,370 Sales & General 27,152 18,610 22,188 18,541 292,636 259,736 Maintenance 63,254 59,650 34,592 41,857 797,850 570,174 ---------- ---------- ---------- ---------- ------------ ------------ Sub-Total 348,665 330,033 321,545 379,655 4,246,749 4,214,696 Management Fee 23,409 23,464 23,131 24,537 272,578 282, 110 ---------- ---------- ---------- ---------- ------------ ------------ TOTAL EXPENSES 372,074 353,497 344,676 404,192 4,519,327 4,496,806 ---------------------------------------------------------------------------- NET OPERATING INCOME 213,145 233,099 233,376 209,218 2,294,892 2,555,905 Replacement Costs 41,013 37,943 20,684 25,500 550,412 448,585 CASH FLOW (before Debt Service) 172,132 195,156 212,691 183,718 1,744,480 2,107,320 Mortgage Interest Payments 209,007 201,975 209,043 202,524 2,410,902 2,385,348 Loan Draws From GECO (66,431) (151,028) 0 0 (1,176,091) 0 Renovation 138,661 0 25,219 0 822,858 0 ---------------------------------------------------------------------------- NET CASH FLOW (109,104) 144,209 (21,571) (18,806) (313,188) (278,028) ---------------------------------------------------------------------------- HAROLD FARB-CONTRIBUTION (100,000) VACANCY LOSS % 6.55% 7.18% 8.05% 7.11% 8.35% 8.40% MANAGEMENT APARTMENTS % 2.71% 2.93% 2.60% 2.04% 2.54% 2.07% ECONOMIC OCCUPANCY % 90.19% 89.58% 89.00% 90.68% 88.36% 89.02% DIRECT EXPENSES % 55.20% 52.07% 50.55% 57.19% 56.72% 54.38% MANAGEMENT FEE EXPENSE % 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% CAPITAL EXPENDITURES % 6.49% 5.99% 3.25% 3.84% 7.35% 5.79% RENT INFLATION % 0.51% 0.35% 0.34% 4.37% GROSS RENTS PER 50. FT 0.646 0.648 0.650 0.679 0.638 0.661 EFF. GROSS INC. PER 50. FT. 0.599 0.600 0.591 0.627 0.581 0.601 DIRECT EXP'S PER 50. FT 4.28 4.05 3.95 4.66 4.34 4.31 AVERAGE RENT PER UNIT 493 495 497 519 487 505 </TABLE> <PAGE> DETAIL OPERATING STATEMENT FARB REALTY COMPANY 03:08 PM 07/09/97 WEST POINT SUMMARY (953) #UNITS 1,280 DECEMBER 31, 1995 SQ.FT. 977,795 <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jul Aug Sep Actual Actual Actual Actual Actual Actual Budget Budget Budget ------- ------- ------- ------- ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> - -INCOME- GROSS RENTAL INCOME 620,468 617,661 617,401 618,285 619,327 619,854 621,118 622,670 628,455 Model Apartment Cost (4,505) (3,910) (4,505) (4,545) (4,065) (1,275) (4,150) (4,150) (4,810) Employee Apt Cost (9,926) (10,521) (10,513) (11,238) (9,872) (11,685) (12,913) (12,335) (13,405) Discounted Rent (20,280) (10,718) (2,815) (3,239) (2,465) (1,122) (2,194) (2,079) (2,784) Gratuitous Rent 0 0 0 0 0 0 0 0 0 -------------------------------------------------------------------------------------------------------- TOTAL MODEL/FREE UNITS (34,690) (25,149) (17,833) (19,022) (16,402) (14,082) (19,256) (18,564) (20,999) Vacancy (79,570) (60,992) (50,834) (53,344) (51,061) (54,663) (47,420) (40,978) (48,427) Late Charge/Nsf 2,848 2,017 2,375 1,190 1,371 2,790 2,428 1,380 2,716 Other Income 2,220 3,215 3,754 4,857 2,905 1,959 2,650 2,810 3,418 Deposits Forfeited 2,979 3,479 3,818 5,650 4,178 2,965 5,008 5,120 5,570 Laundry Commissions 5,484 7,239 6,620 6,882 6,916 9,750 7,789 6,897 7,026 Vending Commissions 0 0 490 0 490 0 385 385 385 -------------------------------------------------------------------------------------------------------- TOTAL MISC. INCOME 13,530 15,949 17,056 18,579 15,860 17,464 18,260 16,591 19,115 TOTAL INCOME 519,737 547,469 565,790 564,497 567,724 568,573 572,701 579,718 578,144 - -EXPENSES- Manager Salary 20,565 21,711 21,677 23,300 22,531 32,912 21,459 21,624 19,831 Leasing Salary 6,292 10,222 8,502 7,412 7,762 10,518 7,862 7,942 8,985 Maintenance Salary 19,671 20,860 18,838 16,923 17,914 27,476 22,001 21,930 21,694 Maid/Porter Salary 10,014 11,201 9,785 9,724 9,128 15,460 11,661 12,573 10,851 Insurance - Benefits 14,392 13,789 13,969 11,538 11,645 (7,080) 9,533 10,183 12,695 Taxes - Payroll 5,813 6,640 6,402 5,799 5,414 7,571 5,249 5,321 6,842 -------------------------------------------------------------------------------------------------------- TOTAL PAYROLL 76,748 84,423 79,173 74,696 74,394 86,857 77,765 79,573 80,898 TAXES - OTHER 770 0 0 0 0 0 0 0 0 TAXES-AD VALOREM 45,241 45,241 45,241 45,241 45,241 45,241 45,241 45,241 45,241 HOMEOWNERS FEE 0 0 0 0 0 0 0 0 0 INSURANCE - GL, FIRE & EC 26,843 26,843 26,843 26,843 29,117 29,117 29,117 29,117 29,740 Electrical - Apt 860 707 571 260 958 1,452 1,453 1,614 1,081 Electrical - Buildings 48,203 46,084 48,468 29,536 50,991 56,682 59,608 61,380 41,332 Natural Gas Service 14,683 25,345 21,650 19,205 18,232 11,246 9,895 9,003 9,314 Telephone Service 1,266 1,931 2,541 1,675 829 2,299 1,758 1,821 1,516 Water Service 47,335 37,765 36,081 43,995 35,164 43,473 48,758 43,279 38,325 Trash Removal 2,676 2,357 2,570 2,357 2,357 3,288 3,142 3,573 3,476 -------------------------------------------------------------------------------------------------------- TOTAL UTILITIES 115,022 114,190 111,882 97,027 108,533 118,441 124,612 120,670 95,044 Security Expense 5,255 6,724 6,110 5,808 4,768 4,294 4,008 3,798 3,936 Professional Fees 425 4,361 2,115 4,324 1,595 5,951 2,528 3,055 2,661 Advertising 1,322 1,390 1,008 1,278 879 1,604 1,587 4,998 702 Resident Retention 259 0 171 0 49 324 458 200 0 Locator Fees 12,635 5,880 23,165 6,055 5,765 9,710 11,154 12,340 7,942 Furniture Rental 0 65 40 40 119 0 0 0 996 Other Expense 4,455 1,989 2,101 2,319 1,123 1,584 1,832 3,084 3,832 Office Repair & Supplies 1,666 1,535 1,710 2,429 2,308 2,047 2,588 1,921 2,327 -------------------------------------------------------------------------------------------------------- TOTAL SALES & GENERAL 26,017 21,944 30,419 22,253 16,595 25,514 24,155 29,395 22,395 <CAPTION> - --------------------------------------------------------------------------------------------------------- Oct Nov Dec Dec Budget Total Budget Budget Budget Budget +Actual Budget ------- ------- ------- ------- --------- --------- <S> <C> <C> <C> <C> <C> <C> - -INCOME- GROSS RENTAL INCOME 631,653 633,861 636,045 663,839 7,486,795 7,750,975 Model Apartment Cost (4,050) (4,820) (3,429) (2,825) (48,214) (37,081) Employee Apt Cost (13,039) (13,775) (13,085) (10,743) (142,305) (123,126) Discounted Rent (3,498) (1,946) (2,254) (1,100) (55,374) (39,588) Gratuitous Rent 0 0 0 0 0 0 ---------------------------------------------------------------------------- TOTAL MODEL/FREE UNITS (20,587) (20,541) (18,768) (14,668) (245,893) (199,795) Vacancy (41,384) (45,530) (51,189) (47,184) (625,394) (651,013) Late Charge/Nsf 2,217 2,405 969 2,520 24,704 29,415 Other Income 1,818 1,946 1,210 1,195 32,761 14,640 Deposits Forfeited 4,080 3,665 2,421 2,950 48,932 36,600 Laundry Commissions 7,037 10,406 6,978 4,338 89,023 66,849 Vending Commissions 385 385 385 420 3,290 5,040 ---------------------------------------------------------------------------- TOTAL MISC. INCOME 15,536 18,806 11,984 11,423 198,710 152,544 TOTAL INCOME 585,219 586,596 578,051 613,410 6,814,219 7,052,711 - -EXPENSES- Manager Salary 21,241 19,617 28,913 32,374 275,381 280,748 Leasing Salary 9,494 8,835 14,563 11,406 108,391 103,644 Maintenance Salary 21,257 17,691 29,921 24,921 256,176 229,597 Maid/Porter Salary 9,569 8,257 14,012 15,149 132,233 129,298 Insurance - Benefits 11,861 11,331 14,078 15,043 127,934 148,878 Taxes - Payroll 6,854 5,972 9,072 8,889 76,949 78,787 ---------------------------------------------------------------------------- TOTAL PAYROLL 80,276 71,703 110,558 107,782 977,063 970,952 TAXES - OTHER 0 0 0 0 770 0 TAXES-AD VALOREM 45,241 45,241 17,720 43,113 515,371 517,356 HOMEOWNERS FEE 0 0 0 0 0 0 INSURANCE - GL, FIRE & EC 29,117 29,117 29,117 27,300 340,931 323,108 Electrical - Apt 1,437 802 795 1,200 11,990 14,400 Electrical - Buildings 51,923 48,463 48,837 68,154 591,507 768,404 Natural Gas Service 8,472 11,593 17,576 24,678 176,213 224,821 Telephone Service 1,076 2,965 3,351 1,500 23,029 18,000 Water Service 37,488 38,531 33,529 42,980 483,721 518,454 Trash Removal 3,229 3,358 3,283 2,490 35,666 29,291 ---------------------------------------------------------------------------- TOTAL UTILITIES 103,626 105,712 107,371 141,002 1,322,128 1,573,370 Security Expense 3,904 4,190 4,314 4,123 57,109 48,660 Professional Fees 2,878 1,607 3,363 1,798 34,862 21,906 Advertising 2,800 1,047 2,330 923 20,944 22,851 Resident Retention 0 1,254 1,744 900 4,459 5,515 Locator Fees 8,375 6,165 6,890 8,170 116,066 127,640 Furniture Rental 689 595 0 0 2,543 0 Other Expense 5,428 1,876 2,003 1,560 31,624 17,370 Office Repair & Supplies 3,078 1,877 1,543 1,067 25,029 15,794 ---------------------------------------------------------------------------- TOTAL SALES & GENERAL 27,152 18,610 22,188 18,541 292,636 259,736 </TABLE> <PAGE> DETAIL OPERATING STATEMENT FARB REALTY COMPANY 03:08 PM 07/09/97 - -------------------------------------------------------------------------------- WEST POINT SUMMARY (953) #UNITS 1,280 DECEMBER 31, 1995 SQ.FT. 977,795 <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ Jan Feb Mar Apr May Jun Jul Aug Actual Actual Actual Actual Actual Actual Actual Actual ------- ------- ------- ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Exterminating 1,252 1,350 1,371 1,602 1,393 1,704 1,739 1,079 Cleaning Supplies 1,276 1,220 1,621 1,141 1,059 897 1,306 1,106 Repairs And Supplies 4,316 4,104 2,763 2,482 2,729 851 2,043 1,921 Air Conditioner Maintenance 3,555 2,092 4,128 3,679 3,209 6,161 5,283 7,447 Appliance Maintenance 903 408 1,199 673 283 827 1,012 906 Building Maintenance 7,746 5,015 9,486 6,477 5,065 5,754 5,626 6,776 Carpet Maintenance 1,134 1,793 3,050 2,048 2,031 1,897 3,007 2,466 Window Treatments-Repairs 0 0 0 0 0 0 0 0 Electrical Maintenance 2,895 1,466 2,353 2,890 2,521 1,349 2,306 2,139 Painting Contract 12,788 28,959 17,837 21,426 17,356 10,157 22,795 26,599 Site Maintenance 2,393 (450) 975 5,907 78 2,160 4,893 4,169 Painting Material 245 179 211 188 339 73 514 677 Pool Maintenance 830 858 863 1,336 1,639 415 1,996 1,642 Plumbing Maintenance 6,344 2,849 9,886 4,456 4,415 6,701 10,537 4,938 Roof And Gutter Maintenance 2,022 826 1,802 1,094 680 1,345 1,575 1,948 Fire/Freeze/Flood-Minor 0 0 0 0 0 0 0 0 Landscaping 11,708 17,619 13,679 18,488 17,454 21,283 11,559 21,528 ------------------------------------------------------------------------------------------------ TOTAL MAINTENANCE 59,406 68,287 71,222 73,885 60,251 61,573 76,190 85,341 MANAGEMENT FEE 20,790 21,898 22,532 22,679 22,709 22,743 22,909 23,188 TOTAL EXPENSES 370,836 382,826 393,311 362,624 356,841 389,486 399,989 412,525 NET OPERATING INCOME 148,901 164,643 172,478 201,873 210,883 179,087 172,712 167,193 Repl. Cost-Air Conditioner 593 776 50,628 2,463 5,933 892 3,321 3,170 Repl. Cost-Appliances 6,396 11,853 17,434 3,681 5,733 8,659 7,429 6,113 Repl. Cost-Bldgs-Other 0 0 0 (858) 0 0 0 0 Repl. Cost-Buildings 0 0 0 0 0 0 0 9,710 Repl. Cost-Carpet/Tile 13,078 22,622 31,324 14,056 22,154 16,027 8,444 15,687 Repl. Cost-Mini-Blinds 1,036 727 1,611 559 1,090 527 873 956 Repl. Cost-Electrical 1,968 1,169 7,905 657 8,914 2,826 4,458 1,805 Repl. Cost-Painting 0 0 0 0 0 0 0 0 Repl. Cost-Site 0 0 0 (840) 900 0 5,163 19,724 Repl. Cost-Pools 0 1,355 1,366 593 0 350 0 1,326 Repl. Cost-Plumbing 3,544 980 4,203 1,709 5,068 0 0 807 Repl. Cost-Roof/Gutter 925 0 1,900 0 1,370 0 0 0 Fire/Freeze/Flood-Major 0 0 0 0 0 0 0 0 Acquired Assets 0 418 759 0 1,644 3,069 519 216 ------------------------------------------------------------------------------------------------ TOTAL REPLACEMENT COSTS 27,540 39,901 117,130 22,020 52,806 32,350 30,207 59,515 CASH FLOW (before Debt Service) 121,361 124,742 55,348 179,854 158,077 146,737 142,505 107,678 Mortgage Interest Payments 199,778 180,696 200,635 194,429 205,325 197,657 204,853 206,782 Loan Draws From Gecc (144,289) (100,429) (161,381) 0 (276,691) (14,078) 0 (261,763) Renovation 31,300 35,780 47,569 63,306 106,166 88,638 153,047 76,102 ------------------------------------------------------------------------------------------------ NET CASH FLOW 34,573 8,694 (31,474) (77,881) 123,277 (125,479) (215,395) 86,558 ------------------------------------------------------------------------------------------------ <CAPTION> - ---------------------------------------------------------------------------------------------------------------------- Sep Oct Nov Dec Dec Budget Total Actual Actual Actual Actual Budget +Actual Budget ------- ------- ------- ------- ------- ------- --------- <S> <C> <C> <C> <C> <C> <C> <C> Exterminating 1,464 1,566 1,531 1,555 1,307 17,606 16,734 Cleaning Supplies 1,113 1,145 880 809 800 13,574 10,700 Repairs And Supplies 1,422 2,197 2,024 570 1,550 27,422 20,125 Air Conditioner Maintenance 7,610 3,549 4,998 1,252 1,750 52,962 33,630 Appliance Maintenance 712 801 594 506 1,060 8,823 13,120 Building Maintenance 7,152 5,365 6,900 3,835 3,500 75,197 42,700 Carpet Maintenance 2,210 2,369 3,382 1,613 1,240 26,998 15,530 Window Treatments-Repairs 0 0 0 0 100 0 1,200 Electrical Maintenance 3,164 4,017 1,969 887 1,550 27,956 19,300 Painting Contract 21,604 16,864 13,706 3,640 10,950 213,731 162,950 Site Maintenance 2,233 1,218 1,107 330 2,025 25,012 24,300 Painting Material 733 790 3,101 18 300 7,066 4,600 Pool Maintenance 867 2,013 1,261 544 775 14,285 13,375 Plumbing Maintenance 12,244 8,162 7,318 7,384 2,325 85,232 36,210 Roof And Gutter Maintenance 2,259 1,355 1,130 1,120 1,175 17,155 15,000 Fire/Freeze/Flood-Minor 0 0 0 0 0 0 0 Landscaping 19,411 11,844 9,750 10,528 11,450 184,851 140,700 ---------------------------------------------------------------------------------- TOTAL MAINTENANCE 84,199 63,254 59,680 34,592 41,857 797,850 570,174 MANAGEMENT FEE 23,126 23,409 23,464 23,131 24,537 272,578 282,110 TOTAL EXPENSES 380,642 372,074 353,497 344,676 404,192 4,519,327 4,496,806 NET OPERATING INCOME 197,502 213,145 233,099 233,376 209,218 2,294,892 2,555,905 Repl. Cost-Air Conditioner 959 822 818 0 0 70,373 79,550 Repl. Cost-Appliances 9,584 6,883 8,167 960 7,905 92,893 108,010 Repl. Cost-Bldgs-Other 0 0 0 0 0 (858) 2,400 Repl. Cost-Buildings 900 0 0 0 900 10,610 10,800 Repl. Cost-Carpet/Tile 20,980 12,645 11,714 8,798 12,500 197,530 170,400 Repl. Cost-Mini-Blinds 969 927 478 557 670 10,308 10,425 Repl. Cost-Electrical 2,812 865 4,026 632 2,025 38,036 27,000 Repl. Cost-Painting 0 0 0 0 0 0 0 Repl. Cost-Site 7,780 8,911 0 0 0 41,639 0 Repl. Cost-Pools 0 0 0 0 0 4,990 0 Repl. Cost-Plumbing 3,038 1,420 3,003 0 0 23,772 1,000 Repl. Cost-Roof/Gutter 20,708 8,540 9,737 9,737 1,500 52,916 38,000 Fire/Freeze/Flood-Major 0 0 0 0 0 0 0 Acquired Assets 1,575 0 0 0 0 8,201 1,000 ---------------------------------------------------------------------------------- TOTAL REPLACEMENT COSTS 69,304 41,013 37,943 20,684 25,500 550,412 448,585 CASH FLOW (before Debt Service) 128,196 172,132 195,156 212,691 183,718 1,744,480 2,107,320 Mortgage Interest Payments 200,722 209,007 201,975 209,043 202,524 2,410,902 2,385,348 Loan Draws From Gecc 0 (66,431) (151,028) 0 0 (1,176,091) 0 Renovation 57,070 138,661 0 25,219 0 822,858 0 ----------------------------------------------------------------------------------- NET CASH FLOW (129,594) (109,104) 144,209 (21,571) (18,806) (313,188) (278,028) ----------------------------------------------------------------------------------- </TABLE> <PAGE> WEST POINT SUMMARY (953) UNITS 1280 DECEMBER 31, 1994 SQ.FT. 977795 <TABLE> <CAPTION> JAN FEB MAR APR MAY JUN JUL AUG DESCRIPTION ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL - ------------------------------- -------- -------- -------- -------- -------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Gross Rental income 617,805 619,557 619,270 619,235 619,891 617,278 618,043 621,523 Model/Free Units (19,526) (18,051) (20,057) (19,906) (20,801) (19,526) (17,541) (17,246) Vacancy (102,555) (107,140) (113,684) (110,421) (103,786) (82,614) (81,654) (90,086) Misc. Income 10,746 9,618 10,319 9,271 8,025 10,371 8,054 10,449 ----------------------------------------------------------------------------------------------- TOTAL INCOME 506,470 503,983 495,848 498,178 503,329 525,509 526,903 524,640 Payroll 69,344 69,652 72,196 90,606 75,095 94,686 60,058 76,207 Taxes-Ad Valorem 20,189 71,101 46,790 46,790 46,790 46,790 46,790 46,790 Insurance 24,880 24,880 24,880 24,880 24,331 24,331 24,331 24,331 Utilities 116,552 113,840 116,702 114,895 103,790 113,351 123,942 116,196 Sales & General 12,038 18,623 22,737 16,995 25,439 15,100 35,020 18,762 Maintenance 32,764 35,069 49,224 47,254 37,841 40,557 64,177 60,115 Replacement Costs 17,151 26,913 41,466 43,847 60,382 47,693 39,179 43,155 Management Fee 20,258 20,159 19,835 19,927 20,133 21,020 21,076 20,986 ----------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 313,176 380,238 393,830 405,194 393,801 403,527 414,573 406,542 NET OPERATING INCOME (LOSS) 193,294 123,745 102,018 92,985 109,528 121,982 112,330 118,098 Mortgage Interest Payments 198,374 177,681 198,080 190,972 197,261 191,254 197,624 196,990 Loan Draws From Gecc (27,568) 0 0 (81,622) 0 (98,093) (39,234) 0 Renovation 0 0 0 0 0 0 0 0 Cash Flow Payment 0 0 0 0 0 0 0 0 ----------------------------------------------------------------------------------------------- NET CASH INCOME (LOSS) 22,487 (53,935) (96,061) (16,366) (87,733) 28,821 (46,060) (78,892) <CAPTION> SEP OCT NOV DEC BUDGET 1994 YTD DESCRIPTION ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL BUDGET ACTUAL - ------------------------------- -------- -------- -------- ------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> Gross Rental income 623,113 623,853 624,093 620,758 7,444,422 7,363,255 7,444,422 Model/Free Units (15,229) (18,789) (32,568) (42,602) (261,841) (222,039) (261,841) Vacancy (118,468) (117,621) (106,546) (88,017) (1,222,592) (1,008,096) (1,222,592) Misc. income 10,703 7,502 12,626 13,337 121,018 96,275 121,019 --------------------------------------------------------------------------------------- TOTAL INCOME 500,119 494,945 497,605 503,476 6,081,007 6,229,395 6,081,007 Payroll 77,882 70,722 80,224 114,183 950,857 837,896 950,856 Taxes-Ad Valorem 46,790 47,436 46,790 3,607 516,653 559,044 516,653 Insurance 26,843 26,843 27,725 26,843 305,098 305,195 305,098 Utilities 115,204 109,337 111,547 113,553 1,368,908 1,369,677 1,368,909 Sales & General 22,186 13,297 16,165 25,830 242,193 254,716 242,193 Maintenance 63,420 49,962 57,580 72,665 610,627 513,511 610,627 Replacement Costs 56,180 11,833 36,359 69,050 493,208 285,875 493,207 Management Fee 20,004 19,798 19,904 20,140 243,240 249,176 243,240 --------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 428,509 349,228 396,293 445,871 4,730,784 4,375,090 4,730,783 NET OPERATING INCOME (LOSS) 71,610 145,717 101,311 57,606 1,350,223 1,854,305 1,350,224 Mortgage interest Payments 192,475 197,739 192,256 198,676 2,329,382 2,374,134 2,329,382 Loan Draws From Gecc (37,994) (51,115) (108,080) (38,399) (482,105) 0 (482,105) Renovation 66,028 53,960 81,193 51,596 252,776 0 252,776 Cash Flow Payment 0 0 0 0 0 0 0 --------------------------------------------------------------------------------------- NET CASH INCOME (LOSS) (148,899) (54,867) (64,058) (154,267) (749,830) (519,829) (749,830) </TABLE> <PAGE> WEST POINT SUMMARY (953) UNITS 1280 DECEMBER 31, 1994 SQ.FT. 977795 <TABLE> <CAPTION> JAN FEB MAR APR MAY JUN JUL AUG DESCRIPTION ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL - --------------------------- -------- -------- -------- -------- -------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> <C> <C> GROSS RENTAL INCOME 617,805 619,557 619,270 619,235 619,891 617,278 618,043 621,523 Model Apartment Cost (4,505) (4,505) (4,505) (4,530) (4,025) (4,025) (3,450) (3,480) Manager Apt Cost (5,024) (5,246) (6,594) (6,155) (5,905) (5,905) (5,535) (5,320) Leasing Apt Cost (2,709) (2,365) (2,365) (1,896) (2,415) (2,415) (2,420) (2,415) Security Apt Cost (3,965) (3,888) (4,160) (4,160) (4,110) (4,110) (3,215) (3,170) Discounted Rent (150) 650 (825) (250) (1,425) (150) 0 (540) Gratuitous Rent 0 0 0 0 0 0 0 0 Maintenance Apt Cost (3,173) (2,698) (1,608) (2,916) (2,921) (2,921) (2,921) (2,321) TOTAL MODEL/FREE UNITS (19,526) (18,051) (20,057) (19,906) (20,801) (19,526) (17,541) (17,246) Vacancy (102,555) (107,140) (113,684) (110,421) (103,786) (82,614) (81,654) (90,086) TOTAL RENTAL INCOME 495,724 494,366 485,529 488,908 495,305 515,138 518,849 514,192 Late/Nsf Charge 2,341 1,520 1,562 1,885 1,555 1,987 2,210 1,877 Other Income 700 2,849 1,462 1,796 1,583 2,216 985 442 Deposits Forfeited 3,700 2,719 3,610 2,560 1,940 3,153 1,995 4,205 Laundry Commissions 4,005 2,530 3,685 3,030 2,947 3,015 2,865 3,925 Vending Commissions 0 0 0 0 0 0 0 0 TOTAL MISC INCOME 10,746 9,618 10,319 9,271 8,025 10,371 8,054 10,449 TOTAL INCOME 506,470 503,983 495,848 498,178 503,329 525,509 526,903 524,640 Manager Salary 8,692 8,194 8,250 8,250 7,250 11,010 9,923 11,052 Leasing Salary 6,469 6,000 6,210 6,300 6,300 7,492 6,639 6,223 Resident Manager Salary 10,417 11,250 11,250 9,220 12,297 9,814 7,328 7,523 Commissions And Bonuses 1,488 2,075 1,813 1,788 2,814 2,813 3,075 2,160 Maintenance Salary 17,217 17,033 17,168 27,666 18,334 24,792 17,136 18,524 Maid/Porter Salary 8,743 8,789 8,969 13,801 9,889 13,760 10,453 10,083 Insurance - Benefits 9,558 10,390 10,417 13,127 11,055 17,401 (242) 14,901 Taxes - Sales 0 0 0 0 0 0 0 0 Taxes - Payroll 6,760 5,921 8,120 10,456 7,156 7,604 5,746 5,741 TOTAL PAYROLL 69,344 69,652 72,196 90,606 75,095 94,686 60,058 76,207 TAXES - OTHER 0 0 0 0 0 0 0 0 TAXES - AD VALOREM 20,189 71,101 46,790 46,790 46,790 46,790 46,790 46,790 HOMEOWNERS FEE 0 0 0 0 0 0 0 0 INSURANCE - GL, FIRE & EC 24,880 24,880 24,880 24,880 24,331 24,331 24,331 24,331 Electrical - Apts 381 493 904 1,020 772 1,192 1,168 1,205 Electrical - Buildings 49,038 46,958 49,485 49,814 51,264 60,662 64,121 61,576 Natural Gas Service 22,206 28,491 24,555 19,977 17,456 10,969 10,020 10,492 Telephone Service 1,855 1,124 1,576 1,766 1,068 978 2,584 551 Water Service 40,489 34,193 38,274 39,959 30,873 37,193 43,617 39,941 Trash Removal 2,582 2,582 1,908 2,357 2,357 2,357 2,432 2,432 TOTAL UTILITIES 116,552 113,840 116,702 114,895 103,790 113,351 123,942 116,196 Security 612 3,617 1,018 494 925 255 506 397 Professional Fees 3,302 3,862 3,761 2,292 1,175 660 1,389 872 Advertising 808 57 949 1,520 2,141 351 164 138 Resident Retention 616 538 958 739 1,290 291 74 1,153 Locator Fees 2,556 3,691 7,463 5,524 11,405 11,133 28,838 10,620 Furniture Rental 0 0 0 0 0 0 0 0 Other Expenses 3,471 4,647 6,815 5,542 6,216 1,992 1,076 2,522 Office Repair & Supplies 673 2,211 1,773 885 2,286 418 2,974 3,060 TOTAL SALES & GENERAL 12,038 18,623 22,737 16,995 25,439 15,100 35,020 18,762 Exterminating 1,428 1,530 1,505 1,577 1,263 1,554 1,492 1,447 Cleaning Supplies 1,039 1,106 802 580 1,066 832 774 880 Repairs And Supplies 1,159 2,611 1,159 1,659 1,327 1,441 2,440 1,655 Air Conditioner Maintenance 1,746 2,342 2,587 2,534 1,839 2,317 6,078 7,952 Appliance Maintenance 304 952 763 249 319 859 182 376 Building Maintenance 972 379 1,487 1,298 1,919 619 4,017 5,981 Carpet Maintenance 1,821 2,354 2,369 2,263 1,603 1,564 2,469 1,619 Drapery Maintenance 0 0 0 0 0 0 0 0 <CAPTION> SEP OCT NOV DEC BUDGET 1994 YTD DESCRIPTION ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL BUDGET ACTUAL - --------------------------- -------- -------- -------- ------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> GROSS RENTAL INCOME 623,113 623,853 624,093 620,758 7,444,422 7,363,255 7,444,422 Model Apartment Cost (3,955) (3,955) (4,505) (4,505) (49,945) (54,670) (49,945) Manager Apt Cost (3,795) (4,790) (4,625) (4,625) (63,519) (62,507) (63,519) Leasing Apt Cost (2,530) (3,590) (2,800) (2,800) (30,719) (31,542) (30,719) Security Apt Cost (2,929) (3,020) (2,645) (2,145) (41,516) (46,860) (41,516) Discounted Rent 50 (1,158) (15,717) (26,251) (45,767) (2,400) (45,767) Gratuitous Rent 0 0 0 0 0 0 0 Maintenance Apt Cost (2,071) (2,276) (2,276) (2,276) (30,375) (24,060) (30,375) TOTAL MODEL/FREE UNITS (15,229) (18,789) (32,568) (42,602) (261,841) (222,039) (261,841) Vacancy (118,468) (117,621) (106,546) (88,017) (1,222,592) (1,008,096) (1,222,592) TOTAL RENTAL INCOME 489,416 487,443 484,979 490,139 5,959,989 6,133,120 5,959,088 Late/Nsf Charge 2,983 2,245 1,160 2,015 23,340 22,150 23,340 Other Income 1,065 1,655 3,220 1,810 19,781 14,350 19,781 Deposits Forfeited 3,765 5,593 2,860 3,243 39,342 25,600 39,342 Laundry Commissions 2,890 (1,991) 5,386 6,270 38,555 34,175 38,555 Vending Commissions 0 0 0 0 0 0 0 TOTAL MISC INCOME 10,703 7,502 12,626 13,337 121,018 96,275 121,019 TOTAL INCOME 500,119 494,945 497,605 503,476 6,081,007 6,229,395 6,081,007 Manager Salary 10,103 10,209 10,800 18,173 121,907 115,800 121,907 Leasing Salary 6,074 6,129 7,259 12,788 83,884 78,600 83,884 Resident Manager Salary 8,031 9,369 10,062 19,821 126,382 119,800 126,382 Commissions And Bonuses 1,963 3,375 3,310 0 26,671 43,400 26,671 Maintenance Salary 16,865 14,984 19,901 24,438 234,058 153,305 234,058 Maid/Porter Salary 10,325 8,900 11,613 15,604 130,930 138,774 130,930 Insurance - Benefits 19,108 12,595 11,948 15,611 145,870 123,436 145,870 Taxes - Sales 0 0 0 0 0 0 0 Taxes - Payroll 5,413 5,160 5,331 7,746 81,155 64,781 81,155 TOTAL PAYROLL 77,882 70,722 80,224 114,183 950,857 837,896 950,856 TAXES - OTHER 0 646 0 0 646 0 646 TAXES - AD VALOREM 46,790 46,790 46,790 3,607 516,007 559,044 516,007 HOMEOWNERS FEE 0 0 0 0 0 0 0 INSURANCE - GL, FIRE & EC 26,843 26,843 27,725 26,843 305,098 305,195 305,098 Electrical - Apts 1,214 1,497 1,206 1,098 12,149 12,062 12,149 Electrical - Buildings 61,103 50,792 49,134 49,725 843,673 667,717 643,673 Natural Gas Service 10,811 10,681 14,803 23,934 204,395 201,489 204,395 Telephone Service 2,952 1,677 2,913 2,193 21,237 18,360 21,237 Water Service 36,767 42,332 41,133 34,245 459,016 437,455 459,016 Trash Removal 2,357 2,357 2,357 2,357 28,438 32,594 28,438 TOTAL UTILITIES 115,204 109,337 111,547 113,553 1,368,908 1,369,677 1,368,909 Security 340 249 (36) 1,318 9,695 29,411 9,695 Professional Fees 1,455 525 425 0 19,718 27,600 19,718 Advertising 978 1,043 1,702 3,940 13,792 13,935 13,792 Resident Retention 3,160 279 209 557 9,866 9,900 9,866 Locator Fees 12,090 6,570 9,485 15,460 124,834 101,430 124,834 Furniture Rental 0 0 0 0 0 980 0 Other Expenses 1,450 3,097 2,476 3,323 42,627 59,686 42,627 Office Repair & Supplies 2,712 1,535 1,903 1,232 21,661 11,794 21,661 TOTAL SALES & GENERAL 22,186 13,297 16,165 25,830 242,193 254,716 242,193 Exterminating 1,762 795 491 1,453 16,297 19,456 16,297 Cleaning Supplies 1,336 621 1,144 702 10,882 14,550 10,882 Repairs And Supplies 3,383 1,704 3,543 3,091 25,172 23,540 25,172 Air Conditioner Maintenance 6,848 3,869 3,726 4,779 46,617 47,000 46,617 Appliance Maintenance 2,145 631 832 418 8,030 12,950 8,030 Building Maintenance 6,478 2,063 3,552 5,238 34,004 13,550 34,004 Carpet Maintenance 1,639 1,126 2,575 1,796 23,198 16,475 23,198 Drapery Maintenance 0 0 47 92 139 0 139 </TABLE> <PAGE> WEST POINT SUMMARY (953) UNITS 1280 DECEMBER 31, 1994 SQ.FT. 977795 <TABLE> <CAPTION> JAN FEB MAR APR MAY JUN JUL AUG DESCRIPTION ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL - ----------------------------- -------- -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Electrical Maintenance 682 1,800 2,538 2,124 1,113 1,850 3,128 2,579 Painting Contract 8,564 6,138 15,627 14,597 13,222 11,642 13,894 13,674 Site Maintenance 1,607 582 1,395 1,628 346 602 2,440 1,529 Painting Material 162 321 160 415 98 122 98 59 Pool Maintenance 748 633 777 622 691 827 2,728 2,138 Plumbing Maintenance 1,777 3,533 6,934 6,384 3,534 5,665 3,677 7,821 Roof And Gutter Maintenance 1,089 1,183 1,502 1,824 0 241 520 1,104 Fire/Freeze/Flood - Minor 0 0 0 0 0 0 0 0 Landscaping 9,666 9,604 9,619 9,500 9,500 10,422 20,240 11,301 TOTAL MAINTENANCE 32,764 35,069 49,224 47,254 37,841 40,557 64,177 60,115 TOTAL DIRECT EXPENSES 275,768 333,166 332,529 341,420 313,286 334,814 354,319 342,401 Replacement Cost - Air Cond 7,977 1,183 1,410 1,881 14,377 1,387 1,291 5,632 Replacement Cost - Appliances 3,164 7,873 9,772 12,264 9,435 12,725 4,886 10,394 Replacement Cost - Other 874 1,932 7,005 5,470 5,270 2,715 1,570 0 Replacement Cost - Buildings 0 0 0 0 0 0 0 0 Replacement Cost - Carpet/Tile 4,086 12,135 15,000 18,945 22,905 24,237 22,973 24,047 Replacement Cost - Draperies 275 837 295 905 746 1,161 1,983 1,217 Replacement Cost - Electrical 0 0 1,401 3,679 2,062 2,820 2,688 370 Replacement Cost - Painting 0 0 0 0 0 0 0 0 Replacement Cost - Site 0 0 2,184 0 5,588 0 0 444 Replacement Cost - Pools 0 2,165 0 0 0 1,059 843 0 Replacement Cost - Plumbing 0 788 3,257 0 0 0 2,290 0 Replacement Cost - Roof/Gutter 775 0 0 0 0 0 0 0 Fire/Freeze/Flood - Major 0 0 0 0 0 0 0 0 Acquired Assets 0 0 1,141 704 0 1,588 655 1,050 TOTAL REPLACEMENT COSTS 17,151 28,913 41,466 43,847 60,382 47,693 39,179 43,155 Management Fee 20,258 20,159 19,835 19,927 20,133 21,020 21,076 20,986 TOTAL OPERATING EXPENSES 313,176 380,238 393,830 405,194 393,801 403,527 414,573 406,542 NET OPERATING INCOME(LOSS) 193,294 123,745 102,018 92,985 109,528 121,982 112,330 118,098 Mortgage Interest Payments 198,374 177,681 198,080 190,972 197,261 191,254 197,624 196,990 Loan Draws From Gecc (27,568) 0 0 (81,622) 0 (98,093) (39,234) 0 Renovation 0 0 0 0 0 0 0 0 Cash Flow Payment 0 0 0 0 0 0 0 0 NET CASH INCOME (LOSS) 22,487 (53,935) (96,061) (16,366) (87,733) 28,821 (46,060) (78,892) Vacancy Loss % 16.60% 17.29% 18.38% 17.83% 16.74% 13.38% 13.21% 14.49% Management Apts % 3.16% 2.91% 3.24% 3.21% 3.36% 3.16% 2.84% 2.77% Economic Occupancy % 80.24% 79.79% 78.40% 78.95% 79.90% 83.45% 83.95% 82.73% Direct Expenses % 44.64% 53.77% 53.70% 55.14% 50.54% 54.24% 57.33% 55.09% Management Fee % 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% Replacement Cost % 2.78% 4.34% 6.70% 7.08% 9.74% 7.73% 6.34% 6.94% Authorized Rates/Sq Ft 0.645 0.645 0.644 0.644 0.626 0.631 0.652 0.656 Gross Rents/Sq Ft 0.632 0.634 0.633 0.633 0.634 0.631 0.632 0.636 Eff Gross Income/Sq Ft 0.518 0.515 0.507 0.509 0.515 0.537 0.539 0.537 Direct Expenses/Sq Ft 3.38 4.09 4.08 4.19 3.84 4.11 4.35 4.20 Average Rent/Unit 483 484 484 484 484 482 483 486 <CAPTION> SEP OCT NOV DEC BUDGET 1994 YTD DESCRIPTION ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL BUDGET ACTUAL - ----------------------------- -------- -------- -------- -------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> Electrical Maintenance 3,611 1,388 2,149 3,208 26,169 21,400 26,169 Painting Contract 16,791 12,542 15,078 15,009 156,778 114,800 156,778 Site Maintenance 1,598 1,449 3,457 395 17,028 16,150 17,028 Painting Material 176 206 (47) 367 2,137 6,650 2,137 Pool Maintenance 872 2,149 480 1,221 13,887 10,500 13,887 Plumbing Maintenance 3,679 5,601 5,333 4,882 58,820 52,400 58,820 Roof And Gutter Maintenance 1,248 2,458 756 4,865 16,790 18,000 16,790 Fire/Freeze/Flood - Minor 0 0 0 0 0 0 0 Landscaping 11,855 13,361 14,464 25,149 154,879 126,090 154,679 TOTAL MAINTENANCE 63,420 49,962 57,580 72,665 610,627 513,511 610,627 TOTAL DIRECT EXPENSES 352,325 317,597 340,030 356,681 3,994,336 3,840,039 3,994,335 Replacement Cost - Air Cond 2,496 830 1,273 4,186 43,925 7,350 43,925 Replacement Cost - Appliances 20,839 (3,210) 18,097 22,314 128,554 99,564 128,554 Replacement Cost - Other 0 0 0 4,225 29,081 24,565 29,061 Replacement Cost - Buildings 0 0 0 3,400 3,400 0 3,400 Replacement Cost - Carpet/Tile 26,987 11,695 8,678 29,026 220,713 142,685 220,713 Replacement Cost - Draperies 1,482 422 1,042 (131) 10,233 6,311 10,233 Replacement Cost - Electrical 3,375 596 1,254 245 18,491 5,400 18,491 Replacement Cost - Painting 0 0 0 0 0 0 0 Replacement Cost - Site 1,000 1,500 1,375 1,790 13,881 0 13,881 Replacement Cost - Pools 0 0 0 0 4,067 0 4,067 Replacement Cost - Plumbing 0 0 3,466 3,790 13,591 0 13,591 Replacement Cost - Roof/Gutter 0 0 736 0 1,511 0 1,511 Fire/Freeze/Flood - Major 0 0 0 0 0 0 0 Acquired Assets 0 0 438 206 5,781 0 5,781 TOTAL REPLACEMENT COSTS 56,180 11,833 36,359 69,050 493,208 285,875 493,207 Management Fee 20,004 19,798 19,904 20,140 243,240 249,176 243,240 TOTAL OPERATING EXPENSES 428,509 349,228 398,293 445,871 4,730,784 4,375,090 4,730,783 NET OPERATING INCOME(LOSS) 71,610 145,717 101,311 57,606 1,350,223 1,854,305 1,350,224 Mortgage Interest Payments 192,475 197,739 192,256 198,676 2,329,382 2,374,134 2,329,382 Loan Draws From Gecc (37,994) (51,115) (108,080) (38,399) (482,105) 0 (482,105) Renovation 66,028 53,960 81,193 51,596 252,776 0 252,776 Cash Flow Payment 0 0 0 0 0 0 0 NET CASH INCOME (LOSS) (148,899) (54,867) (64,058) (154,267) (749,830) (519,829) (749,830) Vacancy Loss % 19.01% 18.85% 17.07% 14.18% 16.42% 13.69% 16.42% Management Apts % 2.44% 3.01% 5.22% 6.86% 3.52% 3.02% 3.52% Economic Occupancy % 78.54% 78.13% 77.71% 78.96% 80.06% 83.29% 80.06% Direct Expenses % 56.54% 50.91% 54.48% 57.46% 53.66% 52.15% 53.66% Management Fee % 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% Replacement Cost % 9.02% 1.90% 5.83% 11.12% 6.63% 3.88% 6.63% Authorized Rates/Sq Ft 0.656 0.654 0.641 0.640 Gross Rents/Sq Ft 0.637 0.638 0.638 0.635 0.634 0.628 0.634 Eff Gross Income/Sq Ft 0.511 0.506 0.509 0.515 0.518 0.531 0.518 Direct Expenses/Sq Ft 4.32 3.90 4.17 4.38 4.09 3.93 4.09 Average Rent/Unit 487 487 488 485 485 479 485 </TABLE> <PAGE> QUALIFICATIONS OF JOHN R. FISHER EXPERIENCE: Oct. 1995 - Present Patrick-O'Connor & Associates, Inc. - Houston, Texas Staff Appraiser - Inspections, research, and report preparation for all types of commercial properties, including apartments, shopping centers, office buildings, free-standing retail properties, and industrial facilities. 1994 - Oct. 1995 Thomas Bearden Company, Houston, Texas Fee Appraiser - Conduct financial feasibility studies, tax protest appraisals, analysis of leased fee/leasehold interests, and analysis of loan proposals. Initiate and maintain good working relationships with clients, research various data bases/publications, analyze information, and draw conclusions. Review report for changes and approve final copy. Perform onsite inspections of property and area. Conduct phone interviews with market participants. Make judgments, decisions, and appraisal conclusions which "make or break" multi-million dollar loans, on a regular basis. 1988 - 1994 Hill Thompson, Inc. Houston, Texas Senior Appraiser - Implemented all phases of appraisal process required to value commercial real estate. Performed property inspections, market data compilation and analysis, and report writing. Supervised office staff. Reviewed appraisal reports and formulated policies for company operations. Quoted fees for new business and interacted with clients concerning all aspects of the business. EDUCATION: Bachelor of Business Administration - Finance University of Houston, Houston, Texas Real Estate Courses: Money and Capital Markets Finance Statistics Business Management Principles of Real Estate II Real Estate Law Investment Strategy Texas Real Estate Lic. Act Deceptive Trade Practices Act, and Agency Standards of Professional Practice and Code of Ethics PROFESSIONAL AFFILIATIONS: State Certified General Real Estate Appraiser #TX-1323960-G Licensed Real Estate Agent #TX-401688-27 <PAGE> ================================================================================ [GRAPHIC OMITTED] TEXAS APPRAISER LICENSING AND CERTIFICATION BOARD BE IT KNOWN THAT JOHN ROBERT FISHER HAVING PROVIDED SATISFACTORY EVIDENCE OF THE QUALIFICATIONS REQUIRED BY THE TEXAS APPRAISER LICENSING AND CERTIFICATION ACT, ARTICLE 6573a.2, VERNON'S TEXAS CIVIL STATUTES, IS AUTHORIZED TO USE THE TITLE STATE CERTIFIED GENERAL REAL ESTATE APPRAISER Number: TX-1323960-G Date of Issue: October 29, 1996 Date of Expiration: November 30, 1998 In Witness Thereof [GRAPHIC OMITTED] /s/ A. E. Nelson Jr. -------------------------------- A. E. Nelson Jr., Chair /s/ Renil C. Liner -------------------------------- Renil C. Liner, Commissioner A. E. Nelson, Jr., Benjamin B. Barnett, Debra S. Runyan, Chair Vice-Chair Secretary Leonel Garza, Jr. David Gloier Vidal Gonzalez Jacqueline G. Humphrey Maria F. Teran Cecil Wimberly ================================================================================ <PAGE> QUALIFICATIONS OF W.F. ("BUDDY") TROTTER, JR. EXPERIENCE: 9/93 - Present Patrick O'Connor & Associates, Inc. 7/90 - 9/93 Fox & Bubela, Inc., Houston, Texas Commercial Real Estate Appraiser Inspections, research and report preparation for all types of commercial properties, including condemnation appraisal for the Texas Highway Department. Major clients included RTC, F.D.I.C., Texas Commerce Bank, Nations Bank, Wells Fargo Bank, private individuals and lawyers. 4/86 - 7/90 Hill-Thompson, Inc., Houston, Texas Commercial Real Estate Appraiser Inspections, research and report preparation for all types of commercial properties, including farms and ranches, and airports. Major clients included F.D.I.C., First Interstate Bank and First City Bank. 10/83 - 4/86 Austin County Appraisal District, Bellville, Texas Manager of Appraisal 5/71 - 10/83 Private business (retail) EDUCATION Rice University - Bachelor of Arts in History, 1971. Major coursework in pre law. Attended and successfully completed the following courses: Appraisal Institute Course 1-A-1, University of Houston; American Society of Farm Managers and Rural Appraisers: A-12, Standards and Ethics, Houston, Texas; Blinn College: Appraisal and Advanced Appraisal, Real Estate Law, Real Estate Marketing; Texas Association of Assessing Officers: Various Property Tax Courses. Have attended various seminars, including RTC seminar on Affordable Housing (1991). PROFESSIONAL AFFILIATIONS State Certified General Real Estate Appraiser, Texas TX-1322606-G Real Estate Broker's License, State of Texas #0361814 Chairman, Austin County Appraisal Review Board 1990 <PAGE> ================================================================================ [GRAPHIC OMITTED] TEXAS APPRAISER LICENSING AND CERTIFICATION BOARD BE IT KNOWN THAT WILBURN FLACK TROTTER JR HAVING PROVIDED SATISFACTORY EVIDENCE OF THE QUALIFICATIONS REQUIRED BY THE TEXAS APPRAISER LICENSING AND CERTIFICATION ACT, ARTICLE 6573a.2, VERNON'S TEXAS CIVIL STATUTES, IS AUTHORIZED TO USE THE TITLE STATE CERTIFIED GENERAL REAL ESTATE APPRAISER Number: TX- 1322606-G Date of Issue: February 22, 1996 Date of Expiration: February 28, 1998 In Witness Thereof [GRAPHIC OMITTED] /s/ A. E. Nelson Jr. -------------------------------- A. E. Nelson Jr., Chair /s/ Renil C. Liner -------------------------------- Renil C. Liner, Commissioner A.E. Nelson. Jr., Hayden Woodard, Maria F. Teran, Chair Vice-Chair Secretary Benjamin E. Barnett Leonel Garza, Jr. David Gloier Vidal Gonzalez Debra S. Runyan Cecil Wimberly ================================================================================ <PAGE> Patrick C. O'Connor, MAI Patrick C. O'Connor is president of Patrick O'Connor & Associates, Inc., a real estate appraisal, property tax reduction, real estate publishing and consulting firm located in Houston, Texas. Since 1983, Mr. O'Connor has been actively involved in client consultation, appraisal of commercial real estate properties, property tax reduction, and real estate brokerage primarily in the Houston metropolitan area. Types of properties appraised include apartments, retail centers, convenience stores, gas stations, office, office warehouse, bulk warehouse, service centers, land, car washes, bowling alley, mortuary, subdivisions, single-family, duplexes, churches, club houses, hotels, motels, mobile homes, restaurants, flea market, automobile service facilities, schools and veterinarian clinics. Since 1985, Mr. O'Connor has been active in publishing analyses and data regarding the Houston real estate market. Over 800 customers and the media rely on O'Connor & Associates' 14 reports as a source of timely, accurate information. Mr. O'Connor has been interviewed on CNN and quoted in the Wall Street Journal, New York Times, USA Today, National Real Estate Investor, Houston Chronicle, Houston Post and Houston Business Journal. Academic Background Bachelor of Science in Industrial Engineering, University of Houston, May 1981. Master of Business Administration, Harvard Business School, May 1983. Real Estate courses include: Principles of Real Estate I Principles of Real Estate II Principles of Real Estate III Real Property Asset Management Real Estate Law Appraisal Standards of Practice and Ethics Keeping Current with Texas Real Estate Principles of Property Tax Consulting Intangibles: Defining & Measuring the Impact on Property Taxes Comprehensive Exam Review Class Appraisal Institute courses/credits include: 110 Appraisal Principles 120 Appraisal Procedures 310 Basic Income Capitalization 320 General Applications 410 Standards of Prof. Appraisal Practice Part A 420 Standards of Prof. Appraisal Practice, Part B 510 Advanced Income Capitalization 520 Highest and Best Use and Market Analysis 530 Advanced Sales Comp. and Cost Approaches 540 Report writing and Valuation Analysis 550 Advanced Applications Professional Affiliations MAI Member (No. 11,008) of the Appraisal Institute Texas Real Estate Broker's License, 1985 State Certified Appraiser: (State of Texas) TX-1321378-G (State of Louisiana) No. 1796 (State of Tennessee) I.D. No. 00051369 Registered Senior Property Tax Consultant (State of Texas) <PAGE> ================================================================================ MEMBERSHIP CERTIFICATE This Certifies That Patrick Cornell O'Connor has been admitted to memberships as an MAI Member in the Appraisal Institute and is entitled to all the rights and privileges of membership subject only to the limiting conditions set forth from time to time in the Bylaws and Regulations of the Appraisal Institute. In Witness Whereof, the Board of Directors of the Appraisal Institute has authorized this certificate to be signed in its behalf by the President, and the Corporate Seal to be hereunto affixed on this 4th day of June, 1996 /s/ [ILLEGIBLE] --------------------------- President THIS CERTIFICATE IS THE PROPERTY OF THE APPRAISAL INSTITUE AND MUST BE RETURNED TO THE SECRETARY UPON TERMINATION OF MEMBERSHIP. [GRAPHIC OMITTED] [LOGO] APPRAISAL INSTITUE(R) ================================================================================ <PAGE> TEXAS APPRAISER LICENSING AND CERTIFICATION BOARD BE IT KNOWN THAT PATRICK C OCONNOR HAVING PROVIDED SATISFACTORY EVIDENCE OF THE QUALIFICATIONS REQUIRED BY THE TEXAS APPRAISER LICENSING AND CERTIFICATION ACT, ARTICLE 6573a.2, VERNON'S TEXAS CIVIL STATUTES, IS AUTHORIZED TO USE THE TITLE STATE CERTIFIED GENERAL REAL ESTATE APPRAISER Number: TX-1321378-G Date of Issue: June 12, 1997 Date of Expiration: June 30, 1999 In Witness Thereof [GRAPHIC OMITTED] /s/ Benjamin B. Barnett -------------------------------- Benjamin B. Barnett, Chair /s/ Renil C. Liner -------------------------------- Renil C. Liner, Commissioner Benjamin B. Barnett, Debra S. Runyan, Jacqueline G. Humphrey Chair Vice-Chair Secretary Leonel Garza, Jr. David Gloier Vidal Gonzalez A. E. (Butch) Nelson, Jr. Maria F. Teran ================================================================================ ================================================================================ COMPLETE APPRAISAL OF REAL PROPERTY SELF-CONTAINED FORMAT OF REPORT Franklin Mills Southeast Quadrant of Woodhaven Road at Knights Road Philadelphia, Pennsylvania ================================================================================ As of April 16, 1997 Prepared For: The Mills Corporation 1300 Wilson Boulevard - Suite 400 Arlington, Virginia and Merrill Lynch World Financial Center North Tower New York, New York 10281 Prepared By: Cushman & Wakefield of Pennsylvania, Inc. Valuation Advisory Services Two Logan Square, 20th Floor Philadelphia, Pennsylvania 19103 <PAGE> Cushman & Wakefield, Inc. CUSHMAN & Two Logan Square WAKEFIELD(R) Philadelphia, PA 19103 A ROCKEFELLER GROUP COMPANY (215) 693-4000 April 28, 1997 Ms. Barbara Donovan Director, Financial Services The Mills Corporation 1300 Wilson Boulevard, Suite 400 Arlington, Virginia 22209 and Mr. John Gluszak Vice President Investment Banking World Financial Center North Tower New York, New York 10281 Re: Complete Appraisal Of Real Property Self-Contained Format Franklin Mills Southeast Quadrant of Woodhaven Road at Knights Road Philadelphia, Pennsylvania Dear Ms. Donovan: In fulfillment of our agreement as outlined in the Letter of Engagement, Cushman & Wakefield of Pennsylvania, Inc. is pleased to transmit our report estimating the current and prospective future market value of the leased fee estate in the above referenced real property. The value opinion reported below is qualified by certain assumptions, limiting conditions, certifications, and definitions, which are set forth in the report. We would particularly note that our estimates of value incorporate a proposed major remerchandising plan. Ownership has demolished a vacant former Sears store and is constructing a 61,000 square foot movie theater on the site. In addition, they will construct a 20,000 square foot restaurant adjoining the theater site. Further, they intend to remerchandise the mall by emphasizing higher end fashion tenants at the north end of the mall, moving towards more discount oriented retailers at the middle of mall with an entertainment focus at the south end anchored by the new movie theater and restaurant. The renovations and remerchandising are projected for 1997 and 1998. <PAGE> Ms. Barbara Donovan and Mr. John Gluszak November 10, 1997 - Page Two - This report was prepared for the Mills Corporation and Merrill Lynch and it is intended only for the specified use of the client. This appraisal is being used for or as part of a securitized financing transaction being arranged by Merrill Lynch. We agree to the distribution of the report to those rating agencies which Merrill Lynch expects to work with on this transaction provided the entire report is provided. It may not be distributed to or relied upon by other persons or entities without written permission of Cushman & Wakefield of Pennsylvania, Inc. This is a complete appraisal prepared in accordance with the Uniform Standards of Professional Practice of the Appraisal Foundation. The results of the appraisal are being conveyed in this self-contained report, as agreed. The appraisal and this report were prepared by Gerald B. McNamara, MAI under the supervision of Richard W. Latella, MAI. As a result of our analysis, we have formed the opinion that the market value of the leased fee estate in the subject property, As Is, as of April 16, 1997, was: ONE HUNDRED NINETY THREE MILLION DOLLARS ($193,000,000) Furthermore, as a result of our analysis, we have formed the opinion that the prospective future market value of the leased fee estate in the subject property, Upon Completion and At Stabilization as of June 1, 1998, would be: TWO HUNDRED THIRTY MILLION DOLLARS ($230,000,000) This letter is invalid as an opinion of value if detached from the report, which contains the text, exhibits, and an Addenda. Respectfully submitted, CUSHMAN & WAKEFIELD OF PENNSYLVANIA, INC. /s/Gerald B. McNamara /s/Richard W. Latella Gerald B. McNamara, MAI Richard W. Latella, MAI Associate Director Senior Director Valuation Advisory Services Valuation Advisory Services Pennsylvania Certified Pennsylvania Certified General Appraiser #GA-000267-L General Appraiser #GA-00103-R CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> SUMMARY OF SALIENT FACTS AND CONCLUSIONS ================================================================================ Property Name: Franklin Mills Location: Woodhaven Road at Knights Road Philadelphia, Pennsylvania Interest Appraised: Leased fee estate Date of Value: Current Value - April 16, 1997 Prospective Value - June 1, 1998 Date of Inspection: April 16, 1997 Ownership: Franklin Mills Associates Land Area: 136.86 acres Zoning: ASC - Area Shopping Center District Highest and Best Use: If Vacant: Retail development As Improved: Retail development Improvements Type: Enclosed single level retail mall Year Built: 1989 Type of Construction: Metal and masonry Rentable Building Area (After Renovation) Anchors 420,966 S.F. (31%) Majors 352,560 S.F. (26%) Specialty Stores 602,379 S.F. (43%) --------------------- Total 1,375,905 S.F. (100%) Condition: Good Parking: The mall site contains parking for 7,100 cars or 5.2 spaces per thousand square feet of leasable area. CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Summary Of Salient Facts And Conclusions ================================================================================ Operating Data and Forecasts Current Occupancy: 96% Projected Rental Rate Kiosk $90.00/S.F Food Court $40.00/S.F. >1,000 S.F: $46.00/S.F. 1,001 S.F - 2,000 S.F.: $25.00/S.F. 2,001 - 5,000 S.F.: $21.00/S.F. 5,000 - 9,999 S.F.: $19.00/S.F. 10,000 + S.F. $13.50/S.F. Jewelry $37.00/S.F. Major Tenants (20,000 + S.F.) $12.00/S.F. Value Indicators As Is of April 16, 1997 Sales Comparison Approach $197,000,000 - $200,000,000 Income Capitalization Approach: $193,000,000 Value Conclusion As Is of April 16, 1997: $193,000,000 Resulting Indicators: Price Per S.F. of Rentable Area: $140.27 Price Per S.F. of Mall Area: $320.40 Value Indicators Upon Completion and At Stabilization as of June 1, 1998 Sales Comparison Approach $228,000,000 - $231,000,000 Income Capitalization Approach: $230,000,000 Value Conclusion as of June 1, 1998: $230,000,000 Resulting Indicators: Price Per S.F. of Rentable Area: $167.16 Price Per S.F. of Mall Area: $381.82 Estimate of Exposure Time: We believe, based on the assumptions employed in our analysis and based on our selection of investment parameters for the property, the value conclusions represent prices achievable within nine month's exposure on the open market. CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Summary Of Salient Facts And Conclusions ================================================================================ Special Assumptions: We would particularly note that our estimates of value incorporate a proposed major remerchandising plan. Ownership has demolished a vacant former Sears store and is constructing a 61,000 square foot movie theater on the site. In addition, they will construct a 20,000 square foot restaurant in mall space which adjoins the theater site. Further, they intend to remerchandise the mall by emphasizing higher end fashion tenants at the north end of the mall, moving towards more discount oriented retailers at the middle of mall with an entertainment focus at the south end anchored by the new movie theater and restaurant. The renovations and remerchandising are projected for 1997 and 1998. Please refer to the complete list of Assumptions and Limiting Conditions included at the end of this report. CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> [GRAPHIC OMITTED] <PAGE> PHOTOGRAPHS OF THE SUBJECT PROPERTY ================================================================================ [GRAPHIC OMITTED] Interior View [GRAPHIC OMITTED] General Cinema Site ================================================================================ -1- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Photographs of the Subject Property ================================================================================ [GRAPHIC OMITTED] Exterior View [GRAPHIC OMITTED] Interior View ================================================================================ -2- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> INTRODUCTION ================================================================================ Identification of the Subject Property The subject of this appraisal is Franklin Mills, a super regional outlet mall located at the southeast quadrant of the intersection of Woodhaven Road (Route 63) and Knights Road in Philadelphia, Pennsylvania. The property was constructed in 1989 and currently contains four owned anchors (Spiegel, JC Penney, Burlington Coat Factory and Marshalls), one anchor on a land lease (Ports of the World/Boscovs), two non owned anchors (Sam's Wholesale Club and Phar-Mor), ten major stores (in excess of 20,000 square feet) plus 602,379+/- square feet of specialty store space. Ownership has demolished a vacant former Sears anchor store and is currently constructing a 61,000 square foot movie theater on the site. Completion of the movie theatre is projected for December, 1997. In addition, they will construct a 20,000 square foot restaurant in mall space which adjoins the theater site. Further, they intend to remerchandise the mall by emphasizing higher end fashion tenants at the north end of the mall, moving towards more discount oriented retailers at the middle of mall with an entertainment focus at the south end anchored by the new movie theater and restaurant. The renovations and remerchandising are projected to be substantially completed by June, 1998. At completion, the mall would contain a rentable area of 1,375,905+/- square feet configured as follows: ================================================================================ Franklin Mills ================================================================================ As Renovated - -------------------------------------------------------------------------------- Anchors 420,966 S.F. - -------------------------------------------------------------------------------- Majors 360,972 S.F. - -------------------------------------------------------------------------------- Specialty/Food Court/Kiosks 602,379 S.F. - -------------------------------------------------------------------------------- Total Owned 1,375,905 S.F. - -------------------------------------------------------------------------------- Non - Owned 360,972 S.F. - -------------------------------------------------------------------------------- Total GLA 1,736,877 S.F. ================================================================================ The site contains a land area of 136.86+/- acres. The property is identified by the City of Philadelphia's Tax Assessor's Office as Ward 88 Book 2 Number 693014 (4301 Woodhaven Road). Property Ownership and Recent History Title to the subject property is held by Franklin Mills Associates. There have been no conveyances, contracts of sale, listings, offers to purchase, or options to purchase involving the subject property during the last three years of which we have knowledge. As of the date of appraisal approximately 34,000 square feet of the specialty store space was vacant, indicating an overall vacancy of 5.6% of mall store space. In addition, one 23,254 square foot major tenant space (the former I. Goldberg space) is vacant. Overall occupancy is 95.8 percent. ================================================================================ -3- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Introduction ================================================================================ Purpose, Function, and Scope of the Appraisal The purpose of this appraisal is to estimate the market value of the leased fee estate for the subject property As Is of April 16, 1997 as well as the prospective future value estimate of the leased fee estate of the subject property As Completed and Stabilized as of June 1, 1998. This report is to function as a supporting document in the potential financing of the subject property. The scope of our appraisal process included: o A detailed physical inspection of the subject property. o A study of current regional economic trends, nearby neighborhood influences and local market characteristics. o Interviewed representatives of ownership and the property management company. Reviewed leasing policy, concessions, tenant build-out allowances and history of recent rental rates and occupancy with Mills Corporation personnel. o Reviewed a detailed operating history and a budget forecast for 1997. o Conducted market research of occupancies, asking rents, concessions and operating expenses at competing retail properties, including interviews with on-site managers and a review of our own data base from previous appraisal files. o Reviewed trade area data for the property as prepared by Equifax National Decision Systems. o Conducted market inquiries into recent sales of similar regional malls to ascertain sale prices per square foot and capitalization rates. o Reviewed lease abstracts for all tenants. We have been provided with a current rent roll and other reports for the tenants. o Estimated market rental rates, absorption, income and expenses for the subject based on available market data and the current market thinking relative to growth in market rents and market absorption. o A development of the Income Capitalization and Sales Comparison Approaches to the valuation of real property with a reconciliation of the results into a final estimate of market value for the subject. As purchase decisions on real property like the subject are not being based upon the cost of obtaining a site and constructing improvements with equal desirability and utility, the Cost Approach was not utilized in this analysis. For this assignment, a complete appraisal of the subject property was performed with the results conveyed in this self-contained report. A complete appraisal involves an estimate of market value without any departure from the Uniform Standards of Professional Appraisal Practice maintained by the Appraisal Foundation. A self-contained report makes a comprehensive presentation of the data and analyses which serve as the basis of our conclusion of value for the subject property. ================================================================================ -4- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Introduction ================================================================================ Interest Appraised and Date of Value This appraisal concerns itself with the market value of the leased fee estate in the subject property As Is of September 1, 1996 as well as the as well as the prospective future market value of the leased fee estate of the subject property upon completion and stabilized occupancy projected for June 1, 1998. On April 16, 1997, Gerald B. McNamara, MAI of Cushman & Wakefield of Pennsylvania, Inc., inspected the subject property. Richard W. Latella, MAI of Cushman & Wakefield of New York, Inc., has also inspected the property. This appraisal report is prepared as of November 10, 1997. Gerald B. McNamara is certified by the Commissioner of Professional and Occupational Affairs of the Commonwealth of Pennsylvania as a General Appraiser. Certificate #GA-000267-L was re-issued to him on June 15, 1995 and will expire on June 30, 1997. Richard W. Latella is also certified by the Commissioner of Professional and Occupational Affairs of the Commonwealth of Pennsylvania as a General Appraiser. Certificate #GA-00103-R was re-issued to him on June 15, 1995 and will expire on June 30, 1997. Copies of these certificates are included among the Addenda to this report. Definitions of Value, Interest Appraised, and Other Pertinent Terms The definition of market value utilized in this report is taken from the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation as follows: 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 U.S. 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. Under Paragraph 3 of the above Definition of Market Value, the value estimate presumes that "a reasonable time is allowed for exposure in the open market". According to Statement on Appraisal Standards #6 of the Appraisal Foundation, Exposure Time is defined as `the estimated 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. It is a retrospective estimate based upon an analysis of past events assuming a competitive and open market". Thus, Exposure Time is presumed to precede the effective date of the appraisal. Based upon the analysis which is detailed elsewhere in this report, we estimate a reasonable Exposure Time to have been nine months for a property like the subject at the concluded opinion of value reported. ================================================================================ -5- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Introduction ================================================================================ The definitions of the interests appraised which are utilized in this report are taken from The Dictionary of Real Estate Appraisal, Third Edition (1993), published by the Appraisal Institute (formerly the American Institute of Real Estate Appraisers), as follows: Fee Simple Estate Absolute ownership unencumbered by any other interest or estate subject only to the four powers of government. Leased Fee Estate An ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others; the rights of lessor or the leased fee owner and leased fee are specified by contract terms within the lease. Finally, the definitions of other pertinent terms taken from another source for this report is as follows: Market Value As Is on Appraisal Date Value of the property appraised in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications on the effective date of appraisal. Market Rent The Dictionary of Real Estate Appraisal, Third Edition (1993) The rental income that a property would most probably command on the open market. Prospective Value Estimate The Dictionary of Real Estate Appraisal, Third Edition (1993) A forecast of value expected to occur at a specified future date. A prospective value estimate is most frequently utilized in connection with real estate projects that are proposed, under construction, under conversion to a new use, or that have otherwise not achieved sellout or stabilized level of long term occupancy at the time the appraisal report is written. Legal Description A legal description of the subject property was not provided to the appraisers of this report. ================================================================================ -6- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> REGIONAL ANALYSIS ================================================================================ Philadelphia Metropolitan Area The subject property is located in on the northern border of the City of Philadelphia, the urban center of the Philadelphia Metropolitan Area. The Philadelphia Metropolitan Area, itself, encompasses over 3,500 square miles through the counties immediately surrounding the city in both Pennsylvania and New Jersey. The greater metropolitan area is actually part of a larger economic and geographic entity known as the Delaware Valley, which extends from Trenton, New Jersey at the north to Wilmington, Delaware at the south. The Delaware Valley is a closely integrated market which pervades the many political subdivisions incorporated in it. Population According to the most recent estimate of the Federal Census Bureau, the Philadelphia Metropolitan Area has the fourth largest population in the nation after Los Angeles, New York, and Chicago. The currently reported population of about five million represents a .4 percent increase over that counted in 1990. The statistics indicated population growth in the suburban counties surrounding Philadelphia, with a decline in the city itself. The current population of the City of Philadelphia is reported to be about 1.522 million, a decrease of approximately four percent since 1990. These statistics are significant in that demographers believe population growth is directly tied to employment growth. ================================================================================ Population Statistics Philadelphia Metropolitan Area (In Thousands) ================================================================================ % % County 1980 1990 Change 1995 Change ================================================================================ Bucks 483.8 541.2 + 11.9% 570.6 + 5.4% - -------------------------------------------------------------------------------- Chester 320.1 376.4 + 17.6% 399.7 + 6.2% - -------------------------------------------------------------------------------- Delaware 552.2 547.7 - 0.8% 548.2 + .1% - -------------------------------------------------------------------------------- Montgomery 644.6 678.1 + 5.2% 703.2 + 3.7% - -------------------------------------------------------------------------------- Philadelphia 1,668.2 1,585.6 - 5.0% 1,521.5 - 4.0% - -------------------------------------------------------------------------------- Burlington 366.0 395.1 + 8.0% 400.8 + 1.4% - -------------------------------------------------------------------------------- Camden 472.8 502.8 + 6.4% 506.6 + .8% - -------------------------------------------------------------------------------- Gloucester 202.1 230.1 + 13.9% 243.1 + 5.7% - -------------------------------------------------------------------------------- Salem 65.0 65.3 + 0.5% 64.6 - 1.1% ================================================================================ Total Metropolitan Area 4,774.8 4,922.3 + 3.1% 4,958.3 + .7% ================================================================================ Source: U.S. Census Bureau ================================================================================ Employment The traditional economic base of the region was once heavy manufacturing. Concurrent with national trends, the regional economy has now shifted toward a skilled/service oriented base. Approximately 33 percent of the region's 2.15+/- million employees in the wage and salary workforce are now employed in the service industries, as contrasted with the approximate 15 percent employed in manufacturing. Furthermore, another 22 percent of the region's workforce is employed in the wholesale and retail trades, while only 14 percent is employed by government. ================================================================================ -7- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Regional Analysis ================================================================================ <TABLE> <CAPTION> ======================================================================================================= Philadelphia Metropolitan Area January Employment Statistics (In Thousands) ======================================================================================================= 1990 % 1995 % Variance % ======================================================================================================= <S> <C> <C> <C> <C> <C> <C> Manufacturing 358.6 16.3 311.8 14.5 - 46.8 - 13.1 - ------------------------------------------------------------------------------------------------------- Construction & Mining 95.4 4.3 73.9 3.4 - 21.5 - 22.5 - ------------------------------------------------------------------------------------------------------- Transportation, Communication & Utilities 99.0 4.5 104.5 4.9 +5.5 +5.6 - ------------------------------------------------------------------------------------------------------- Wholesale & Retail Trades 508.0 23.1 482.8 23.5 - 25.2 - 5.0 - ------------------------------------------------------------------------------------------------------- Finance, Insurance & Real Estate 167.6 7.6 155.1 7.2 - 12.5 - 7.5 - ------------------------------------------------------------------------------------------------------- Services 659.1 30.1 717.5 33.4 + 58.4 + 8.9 - ------------------------------------------------------------------------------------------------------- Government 308.4 14.1 303.3 14.1 - 5.1 - 1.7 - ------------------------------------------------------------------------------------------------------- Total Wage & Salary Employment 2,196.1 100.0 2,148.9 100.0 - 47.2 - 2.2 - ------------------------------------------------------------------------------------------------------- Total Civilian Labor Force 2,409.0 2,397.6 - 11.4 - 0.5 - ------------------------------------------------------------------------------------------------------- Unemployment 114.1 143.5 + 29.4 + 25.8 - ------------------------------------------------------------------------------------------------------- Unemployment Rate 4.7% 6.0% ======================================================================================================= Source: Pennsylvania Department of Labor and Industry ======================================================================================================= </TABLE> According to a recent study by the Federal Reserve Bank of Philadelphia, the Philadelphia metropolitan area had the weakest economy of any labor market in the Tri State area (Pennsylvania, New Jersey and Delaware) in 1995. Job levels declined .5 percent even though the employment rate remained relatively steady. All of the net job loss was in the City of Philadelphia, while in the suburbs, job growth was an anemic .1 percent. However, the regional economy has improved in 1996 with most sectors enjoying healthy growth. Manufacturing output turned sharply upward, although manufacturing employment remained weak. Residential construction has turned up sharply. Retail sales in the region are growing a little faster than national figures, with sales of durable goods leading the way. Bank lending has been flat. Every sector in the Tri-State area registered gains in employment in the second quarter with the exception of manufacturing and transportation. Growth in the region is expected to be somewhat weaker in the third and fourth quarters and to remain slower than the nation's for the remainder of the year. Inflation remains in check in the region. While only the strongest of manufacturing companies remain in the region, economic leadership is now shared with companies in health care, information processing, pharmaceuticals, education, banking and insurance. A listing of the ten largest employers in Philadelphia County alone bears out this observation. Note that the total civilian labor force, which includes self-employed workers, has generally remained the same since 1990. Wage and salary positions, though, have declined somewhat. ================================================================================ -8- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Regional Analysis ================================================================================ <TABLE> <CAPTION> ============================================================================================= Philadelphia Metropolitan Area January Employment Statistics (In Thousands) ============================================================================================= 1992 1994 Change 1996 Change ============================================================================================= <S> <C> <C> <C> <C> <C> Manufacturing 318.2 310.1 -2.6% 301.2 -2.9% - --------------------------------------------------------------------------------------------- Construction & Mining 67.1 71.1 +6.0% 68.3 -3.9% - --------------------------------------------------------------------------------------------- Transportation, Communication & Utilities 98.9 102.2 +3.3% 101.6 -0.6% - --------------------------------------------------------------------------------------------- Wholesale & Retail Trades 475.9 464.8 -2.3% 482.7 +4.0% - --------------------------------------------------------------------------------------------- Finance, Insurance & Real Estate 156.6 154.6 -1.3% 152.1 -1.6% - --------------------------------------------------------------------------------------------- Services 668.8 697.6 +4.3% 719.8 +3.2% - --------------------------------------------------------------------------------------------- Government 300.3 302.1 +0.6% 299.7 -0.8% - --------------------------------------------------------------------------------------------- Total Wage & Salary Employment 2,085.8 2,102.5 +0.8% 2,125.4 +1.1% - --------------------------------------------------------------------------------------------- Total Civilian Labor Force 2,426.0 2,403.2 -0.9% 2,378.1 -1.0% - --------------------------------------------------------------------------------------------- Unemployment 168.0 142.6 137.3 - --------------------------------------------------------------------------------------------- Unemployment Rate 6.9% 5.9% 5.8% ============================================================================================= Source: Pennsylvania Department of Labor and Industry ============================================================================================= </TABLE> According to the Pennsylvania Department of Labor and Industry, the July, 1996 unemployment rate in the nine county Philadelphia Metropolitan Area was 5.2 percent, as compared to 5.1 percent for the Commonwealth of Pennsylvania and 5.4 percent for the nation as a whole. For the city of Philadelphia, the unemployment rate for July was 4.6 percent. <TABLE> <CAPTION> ========================================================================================================= Largest Non-Public Employers Philadelphia County ========================================================================================================= Employer Local Employees Product or Service ========================================================================================================= <S> <C> <C> University of Pennsylvania 10,900 Education; Research; Health Care - --------------------------------------------------------------------------------------------------------- Thomas Jefferson University 7,400 Education; Research; Health Care - --------------------------------------------------------------------------------------------------------- CoreStates Financial Corporation 6,100 Banking; Financial Services - --------------------------------------------------------------------------------------------------------- Bell Atlantic 5,600 Telecommunications - --------------------------------------------------------------------------------------------------------- Allegheny Health 5,100 Education; Health Care - --------------------------------------------------------------------------------------------------------- Aramark, Inc. 4,600 Food Services - --------------------------------------------------------------------------------------------------------- Einstein Healthcare 4,200 Education; Health Care - --------------------------------------------------------------------------------------------------------- Cigna Corporation 4,100 Insurance, Financial Services - --------------------------------------------------------------------------------------------------------- ConRail, Inc. 3,800 Rail Freight Transportation - --------------------------------------------------------------------------------------------------------- PECO Energy Company 3,400 Public Utility ========================================================================================================= Source: Philadelphia Business Journal ========================================================================================================= </TABLE> Income The median effective household buying income or disposable income after federal taxes in the Philadelphia Metropolitan Area is currently estimated to be $39,470 or 28th of the 320 metro markets surveyed. This compares to $33,333 for the Commonwealth of Pennsylvania, $42,247 for the state of New Jersey and $32,238 for the United States as a whole. Philadelphia ranks last in current median household income level in the Metropolitan Area at $27,542 per household. ================================================================================ -9- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Regional Analysis ================================================================================ ================================================================================ Income Statistics Philadelphia Metropolitan Area ================================================================================ Effective Buying Income (In Median County Households Thousands) Household EBI ================================================================================ Bucks 203,700 $11,424,599 $ 48,814 - -------------------------------------------------------------------------------- Chester 143,400 9,732,884 55,798 - -------------------------------------------------------------------------------- Delaware 202,900 10,359,964 42,366 - -------------------------------------------------------------------------------- Montgomery 269,700 16,369,926 47,723 - -------------------------------------------------------------------------------- Philadelphia 571,500 20,080,366 27,542 - -------------------------------------------------------------------------------- Burlington 140,600 7,341,632 44,967 - -------------------------------------------------------------------------------- Camden 178,900 8,049,714 37,788 - -------------------------------------------------------------------------------- Gloucester 83,900 3,700,926 39,978 - -------------------------------------------------------------------------------- Salem 23,500 1,019,275 38,123 ================================================================================ Total 1,818,100 $88,079,286 $ 39,470 ================================================================================ Source: Sales & Marketing Management ================================================================================ Linkages The Philadelphia Metropolitan Area benefits from an admirable transportation system linking the region to the rest of the nation and points throughout the world. The Port of Philadelphia is one of the largest fresh water ports in the country. The Philadelphia International Airport provides service to most major North American cities and many European destinations. From its central location in the heart of the eastern megalopolis, excellent highway and rail accessibility is also available. Cultural, Educational and Recreational Resources Educational opportunities abound throughout the region, with twelve major colleges and universities located here. There are also four teaching medical college hospitals in the Philadelphia area. As the nation's fourth largest urban center and first capital, cultural and recreational activities available to the populace are widely diverse. Conclusions The central core of this metropolitan area, the City of Philadelphia, continues to experience a fiscal crisis precipitated by a diminishing tax base and the increased need for new and costly municipal services. However, the current administration and council are now cooperating to promote fiscal responsibility which is creating a positive response among many. On the other hand, the surrounding suburban counties have been the focus of the region's population and job growth over the last decade. This trend is expected to continue into the next century. ================================================================================ -10- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Regional Analysis ================================================================================ Overall, the Philadelphia Metropolitan Area is an older, densely developed region with a mature economy which can only be expected to grow less and at a slower pace in the months and years to come. Taxes and labor costs throughout the Northeastern United States are higher than elsewhere so that there are fewer opportunities for low cost start-up companies. Fortunately, the patchwork of existing small to mid-sized companies in the Philadelphia Metropolitan Area should protect this region from the severe economic shocks seen in many single industry towns. Thus, over the long term, the Philadelphia Metropolitan Area benefits from a diversified economic base which should protect the region from the effects of wide swings in the economy. The region's strategic location along the eastern seaboard and its reputation as a major business center should further enhance the area's long term outlook. The region's real estate market is beginning to give way to some optimism as availabilities are slowly absorbed through the current economic expansion. It is our conclusion that the long term trends of the region should eventually exert positive influences on the values of well located and well designed real property. Summary o Philadelphia is the fifth largest city in the country but, due to the population of its suburbs, it is the fourth largest metropolitan area. Just by sheer size, the region represents a broad marketplace for all commodities including real estate. o The region's economy is diversified with the service industries now the largest single sector; manufacturing has stabilized after three decades of decline. The region's economy is now growing though the number of people employed is about the same as it was three years ago due to new business technologies which increase productivity. This has served to lessen demand for most types of space in the Philadelphia Metropolitan Area. o Regional economic trends point toward an era of modest growth which, over time, should eventually alleviate the current imbalance between supply and demand for most types of real property. However, only those with a desirable location and functional design will outperform inflation in the general economy. ================================================================================ -11- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> [GRAPHIC OMITTED] <PAGE> NEIGHBORHOOD ANALYSIS ================================================================================ Northeast Philadelphia and Bensalem Township The subject property lies in the Parkwood neighborhood of Northeast Philadelphia and immediately south of the border between Northeast Philadelphia and Bensalem Township in Bucks County, Pennsylvania, approximately fifteen miles northeast of Philadelphia's central business district. Parkwood is a densely populated residential area of the city which was developed in the Fifties and early Sixties. Northeast Philadelphia extends from Bridge Street at the southern end to the Poquessing Creek and Bucks County at the northern end, and from Montgomery County in the west to the Delaware River in the east. Northeast Philadelphia has evolved from a predominately rural area into a densely populated community. Approximately one quarter of a million people now live in this area which is now nearly 100 percent developed. This growth in population was basically brought about by the migration of younger families seeking to escape the overcrowding and decay of other older sections of the city. If Northeast Philadelphia were severed from the rest of Philadelphia, it would become the third largest city in Pennsylvania in terms of population. Northeast Philadelphia is primarily a residential community. The principal residential dwelling unit is the attached, "row", or townhouse unit. The Northeast section of the city is characterized by densely populated residential developments. There are also semi-detached and detached, single family dwellings with higher average values than townhouse units. An adequate supply of rental housing is also available, including a large number of garden apartments. Homes are generally well kept, pride of ownership is obvious, and the entire area is considered to be largely stable. In conjunction with this population growth, commercial land uses evolved along the main traffic arteries which circulate through Parkwood and the other sections of Northeast Philadelphia. Major regional retail land uses include Roosevelt Mall, Northeast Tower Center and the Franklin Mills Mall. Within Northeast Philadelphia there are also numerous commercial districts catering essentially to pedestrian traffic. These are mainly found along the parts of Torresdale Avenue, Frankford Avenue, Cottman Avenue, Bustleton Avenue, Castor Avenue and Rising Sun Avenue. Along with this population explosion has come a corresponding influx industry into Northeast Philadelphia capitalizing on the newly relocated labor force of young, skilled and semi-skilled workers. Presently, Northeast Philadelphia represents one of the more concentrated industrial sections of the city. Within a several miles radius of the subject are located numerous industrial parks and designated industrial districts which form the economic base of this area. The largest of these is the Philadelphia Industrial Park located approximately three miles east of the subject property. ================================================================================ -12- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Neighborhood Analysis ================================================================================ Contributing greatly to the neighborhood's desirability is the area's excellent highway and transportation systems. Roosevelt Boulevard is one of the major traffic arteries which traverses Northeast Philadelphia and connects with the Schuylkill Expressway (Interstate 76) to the south and the Philadelphia Interchange of the Pennsylvania Turnpike to the north. The Delaware Expressway (Interstate 95), the other major traffic artery in the area, connects to Center City Philadelphia to the south, and Trenton and New York to the north. Woodhaven Road (Route 63) is a limited access highway for a part of its length connecting the Roosevelt Boulevard with Interstate 95. Public transportation is excellent with the Southeastern Pennsylvania Transportation Authority (SEPTA) providing bus and commuter rail service throughout the area. Rail freight is available through ConRail. Located at Grant Avenue, within the center of the Philadelphia Industrial Park, is North Philadelphia Airport. This is principally a private and executive-oriented facility, but one which does provide commuter service to Philadelphia and Newark International Airports. As noted, the subject property is located immediately south of the border between Philadelphia and Bensalem Township in Bucks County. Bucks County geographically encompasses 610 square miles. Located north of Philadelphia, the county is divided into 54 municipalities, each possessing the powers of police and taxation. Bensalem Township, which is located on the southeastern boundary of the county, is bordered by the City of Philadelphia to the south, the Delaware River, Bristol Township and Bristol Borough to the east, Lower Southampton Township to the west and Pendel Borough and Middletown Township to the north. The 1990 population figures for the township were 56,788, up 8.4 percent since the 1980 census. The growth of Bensalem Township is directly attributable to the excellent transportation system which serves it. Interstate 95, which traverses the township, links Bensalem Township to Philadelphia on the south and Trenton, New Jersey to the north. Access to the Pennsylvania Turnpike, leading to New Jersey to the east and Ohio to the west, is two miles northwest of the subject at U.S. Route 1. U.S. Route 1 provides access to Philadelphia to the south and Trenton to the north. Routes 132, 413 and 513 also serve the township. Residential uses in Bensalem Township vary widely and include attached, semi-detached and detached single family dwellings as well as garden apartments and condominiums. The total housing stock of over 15,000 units represents an increase of approximately 56 percent since 1980. A wide variety of commercial and office uses are located in Bensalem Township primarily along Street Road and Route 1. Located here are a variety of community and strip shopping centers as well as the Neshaminy Mall, a 950,000 square foot regional mall anchored by Sears, Boscov's and Strawbridge's. In addition, Federal Realty Investor's Trust has recently announced plans to construct a 688,000 square foot retail center to be named Gateway Center on a 196 acre tract located on the north side of Street Road, west of its interchange of I-95. This mixed use development would contain 200 hotel rooms, a 115,000 square foot entertainment center and a 60,000 square foot assisted living facility. This proposal was presented to the Bucks County Planning Commission in July, 1996 and a lengthy approval process is anticipated. ================================================================================ -13- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Neighborhood Analysis ================================================================================ Light industrial development in Bensalem Township was fostered by the completion of Interstate 95 in this area in the early 1970's. This area was the first to be developed with industrial parks which attracted businesses from Philadelphia by offering a suburban location with good highway access to the city without the city's onerous tax climate found there. Major industrial park developments in Bensalem Township include the Expressway 95 Industrial Park, Riverview Industrial Park, Metropolitan Industrial Park, and Bridgewater Industrial Park, among others. The area immediately surrounding and directly influencing the subject consists of the retail commercial uses of Franklin Mills as well as the peripheral outparcel development. Franklin Mills is a 1.757 million square foot regional mall, anchored by JC Penney, Boscov's, Burlington Coat Factory, Spiegel, Sam's Wholesale Club, and Marshall's. In addition, the mall is surrounded by freestanding stores occupied by Toys R Us and General Cinema. Other significant retail development surrounding the mall includes the Philadelphia Design Center and Liberty Plaza. Philadelphia Design Center is a strip center anchored by Hechingers and with in-line tenants oriented towards home furnishings. Liberty Plaza, is a power shopping center anchored by Service Merchandise and Dicks Sporting Goods. It is proposed that Wal-Mart will soon occupy a former Bradlees store in this center. There is also a new Giant Supermarket planned for this site. Surrounding the mall are residential subdivisions of detached single family, twins and rowhomes as well as several multifamily apartment complexes. The subject neighborhood has easy access to major highways including Interstate 95, U.S. Route 1 and the Pennsylvania Turnpike. Summary In summary, the subject property is situated in a largely built-up location in the Northeast section of Philadelphia and immediately adjacent to the suburban community of Bensalem Township. The area boosts a widely diverse mix of residential, commercial and light industrial uses. This populous area also benefits from being within the fourth largest urban area and the fifth largest city in the country. o The immediate neighborhood of the subject is characterized by a variety of land uses typical to an urban neighborhood. o For retail development such as the subject, the advantages of this neighborhood include the density of population and good highway access. o The disadvantages of this neighborhood relative to suburban locations include declining municipal services and an onerous employee wage tax. o The general trend or the neighborhood appears to be stable. ================================================================================ -14- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> MILLS CORPORATION PROFILE ================================================================================ Company Profile The Mills Corporation is a full service Washington, D.C. based retail developer with a portfolio of approximately 9.0 million square feet. The company's signature concept, The Mills project, combines anchor and specialty retail stores from all major categories of value retailers in a fully enclosed super-regional mall setting. Founded in 1967 as Western Development Corp., the company focuses primarily on the Mills projects and operates now as the Mills Corp., which went public in April, 1994. The company also owns and operates twelve community centers. The typical Mills project ranges in size from 1.5 to 1.8 million square feet of GLA. In aggregate, the four existing projects contain 6,911,000 square feet with approximately 65 anchor and major stores and nearly 800 specialty stores. In 1995 the centers produced aggregate sales of approximately $1.5 billion with specialty tenant sales of $294 per square foot. This compares with $220 per square foot for traditional outlets, $203 per square foot for super-regional malls and $176 per square foot for regional malls. The average occupancy for the four projects was 94.1 percent at year end 1995. Three additional Mills super-regional/value-oriented malls are presently underway, including Ontario Mills, Grapevine Mills, and Arizona Mills. In total, these projects represent an additional 4.7 million square feet of GLA for The Mills Corporation portfolio. Ground breaking occurred on July 10, 1996 for Grapevine Mills in Grapevine, Texas (Dallas/Fort Worth) and August 1, 1996 for Arizona Mills in Tempe, Arizona (Phoenix/Mesa). The grand opening of Ontario Mills (Los Angeles) was November 14, 1996. The center reportedly had an overall opening occupancy of 93.0 percent and an average rent of $12.00 to $15.00 per square foot. The Mills projects are comprised of a mix of off-price and outlet stores. Collectively, they are referred to as value retail centers. Value Retail Categories Value Retail is generally segmented into the following categories: o Manufacturer Factory Outlets are owned and operated by manufacturers. The sell merchandise directly to the consumer, eliminating mark-ups of the traditional distribution channels. These stores feature the same designer names and a major selection from each line. Manufacturer outlets in the Mills include Calvin Klein, Carter's, London Fog and Jockey. o Department Store Outlets are operated by nationally or regionally recognized department store chains traditionally found in regional malls. They stock both excess inventory and out-of-season merchandise. Their considerable buying strength allows them to purchase excess merchandise directly from manufacturers and to pass the savings to the consumer in an outlet store format. Department store outlets in the Mills constitute anchor and major stores and include Saks Off Fifth, Neiman Marcus Last Call, and Nordstrom Rack. ================================================================================ -15- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Mills Corporation Profile ================================================================================ o Specialty Retail Store Outlets are operated by nationally or regionally known specialty retail chains traditionally found in regional malls. These stores are the outlets for excess inventory and out-of-season merchandise of specialty retailers and include Ann Taylor Loft, Benetton, and The Sharper Image. They sell manufacturer overruns, unclaimed orders and off-season items that did not sell in department stores. o Off-Price Retailers buy excess inventory from manufacturers of brand-name goods and offer these goods at mid to higher-level price points. Off-price retailers in the Mills include Payless ShoeSource, and Dress Barn. o Catalog Outlets are operated by nationally and regionally recognized catalogers which sell at substantial discounts averaging 50 percent below full-retail prices. The merchandise sold by these outlets consists mainly of end-of-season or the previous season's warehoused goods. Catalog outlets in the Mills include ChildCraft, J.C. Penney Catalog Outlet, and Spiegel Outlet. o Big Box/Power Stores - superstores and category dominant stores that specialize in a line of goods in a large format qualify as value retailers today. Their critical mass enables them to offer advantageous prices. Toys R' Us was the original category dominant operation with its toy superstores, offering a huge selection of value priced toys and children's goods. Other category dominant stores include Best Buy (home electronics), The Sports Authority (sporting goods), Home Depot (hardware, home improvement) and Bed Bath & Beyond (bath/bed/linen). The Mills Corporation has provided us with a profile of their tenant mix at the existing Mills projects along with a projection for the composition of the Ontario project. Provided below is a summary, as of April 1, 1996, of the tenant breakdown. ================================================================================ Mills Specialty Tenant Mix As of April 1996 ================================================================================ Potomac Franklin Sawgrass Gurnee Ontario ================================================================================ Manufacturers 35% 23% 32% 34% 46% Retail Outlets 25% 32% 14% 33% 29% Value/Off Price 26% 33% 46% 25% 6% Food 6% 8% 1% 4% 4% Service 6% 3% 7% 2% 1% Catalogs 1% 1% 0% 2% 0% Other N/A N/A N/A N/A 14% - -------------------------------------------------------------------------------- Total 100% 100% 100% 100% 100% ================================================================================ Competitive Advantages Based in part on data provided by the Urban Land Institute, the Mills' principal advantages and distinctions are: ================================================================================ -16- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Mills Corporation Profile ================================================================================ o Value Retail Focus -- Each Mills is tenanted almost exclusively by value retailers offering a broad selection of brand-name and other quality merchandise. Each Mills offers significant discounts from prices charged by the traditional department and specialty store tenants of conventional super-regional malls. o Size -- The Mills average size is approximately two-thirds larger than a conventional super-regional mall, ranging from approximately 1.6 to 1.8 million square feet of gross leasable area. Conventional super-regional malls average 972,000 square feet of total occupancy area. o Market Area -- The Mills typically serve a primary market area of approximately 40 miles and a secondary market area of up to 100 miles. Conventional super-regional malls typically serve a primary market of 12 miles and a secondary market of 20 miles. o Number and Size of Anchor and Major Stores -- Each Mills contains between 14 and 19 anchor/major stores ranging in size from 20,000 to 156,000 square feet of gross leasable area. The typical conventional super-regional mall includes at least three full-line department stores of generally not less than 100,000 square feet of gross leasable area each. o Size of Specialty Stores -- Specialty store tenants at the Mills, on average, occupy approximately 3,100 square feet of gross leasable area, compared to approximately 1,875 square feet of gross leasable area at a conventional super-regional mall. This larger store area allows specialty stores to sell a broader selection of merchandise at a lower cost per square foot, thereby producing higher unit volumes with virtually no increase in occupancy cost per unit as compared to a typical super-regional mall. o Efficient and Flexible Design -- Approximately 78 percent of the total area of each of the Mills is leasable, compared to an average of 63 percent for conventional super-regional malls. This design results in comparatively lower common area maintenance costs at the Mills due to the smaller sized common area. In addition, the single story design and physical structure of the Mills afford greater flexibility in making configuration changes and expansions than the typical multi-level conventional super-regional mall. Tourism Draw Each Mills property has a tourism program, which promotes the Mills in the travel industry both nationally and internationally, thereby making the Mills a well-recognized tourist attraction. As a result, the Mills have become destination shopping points, attracting, on average, over 13,000 bus tours and hundreds of thousands of individual tourists each year. Potomac Mills, the first Mills project, is recognized as the top rated tourist attraction in the State of Virginia. Sawgrass Mills, near Fort Lauderdale, draws more visitors than any other tourist attraction in the state except for Walt Disney World. According to the Philadelphia Scarborough Report commissioned by The Philadelphia Inquirer, Franklin Mills has been the number one shopping center destination in the greater Delaware Valley since its opening. Based on data supplied by the State of Illinois, Gurnee Mills (with its approximately 16 million visitors each year) draws more visitors than the top three Illinois tourist attractions combined. ================================================================================ -17- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Mills Corporation Profile ================================================================================ A brief profile of each of the four existing projects is presented below. More detailed financial information particular to each project is contained within the Income Approach section of this appraisal. Franklin Mills Franklin Mills is located off of Interstate 95 at the intersection of Woodhaven and Knights Road in Philadelphia, PA. Franklin Mills contains a total of 1,736,000 square feet with 17 anchor and major tenants and over 200 value-oriented and specialty retailers. The mall opened in 1989. An allocation of the GLA is shown on the following page. ================================================================================ Component As Renovated % ================================================================================ Anchors 420,966 24% - -------------------------------------------------------------------------------- Majors 352,560 20% - -------------------------------------------------------------------------------- Specialty Stores 602,379 35% - -------------------------------------------------------------------------------- Total Owned 1,375,905 79% - -------------------------------------------------------------------------------- Non - Owned 360,972 21% - -------------------------------------------------------------------------------- Total GLA 1,736,877 100% ================================================================================ Major tenants include Spiegel, JC Penney, Burlington Coat Factory; Bed Bath & Beyond, Saks Off Fifth; Filene's Basement, Last Call from Neiman Marcus; Marshalls; Nordstrom Rack and Ports of the World (Boscovs). Franklin Mills is going through a major construction and remerchandising effort that will bring a new 14 screen movie theatre to the mall, plus a specialty restaurant (Rain Forest Cafe), as well as add major specialty stores such as the GAP, Talbots and Polo. A profile of the mall's demographics is shown below. ================================================================================ Franklin Mills Demographic Profile ================================================================================ 10 Mile 20 Mile 30 Mile 40 Mile ================================================================================ Population 1,179,154 3,607,676 4,763,994 6,072,609 - -------------------------------------------------------------------------------- Average HH Income $ 49,656 $ 50,273 $ 52,863 $ 54,333 - -------------------------------------------------------------------------------- % of HH with Income over $40,000 51% 49% 52% 54% - -------------------------------------------------------------------------------- Five Year Growth HH Income 1990-95 17% 18% 18% 19% ================================================================================ Source: Urban Decision Systems 3/95 ================================================================================ ================================================================================ -18- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Mills Corporation Profile ================================================================================ Potomac Mills Potomac Mills is located at Exit 156 off of Interstate 95 in Woodbridge, Virginia, a suburb of Washington, D.C. Potomac contains 1,655,000 square feet of total GLA featuring five anchors, several major tenants and over 200 value-oriented and specialty retailers. It has been built in three phases between 1985 and 1993. An allocation of the GLA is shown below. ================================================================================ Component GLA Percentage ================================================================================ Anchors 588,000 36% - -------------------------------------------------------------------------------- Majors 337,000 20% - -------------------------------------------------------------------------------- Specialty Stores 650,000 39% - -------------------------------------------------------------------------------- Non-Owned 80,000 5% - -------------------------------------------------------------------------------- Total 1,655,000 100% ================================================================================ Major tenants include Burlington Coat Factory; Saks Off Fifth; IKEA; JC Penney Outlet Store; Marshalls; Nordstrom Rack; Spiegel Outlet Store; The Sports Authority and Waccamaw Pottery. Among The Mills projects, Potomac Mills ranks second in aggregate sales, as well as average sales per square foot ($240/SF). Mall shops report average sales of $308 per square foot, while anchors are $197 per foot. A profile of the mall's demographics is shown below. ================================================================================ Potomac Mills Demographic Profile ================================================================================ 10 Mile 20 Mile 30 Mile 40 Mile ================================================================================ Population 278,956 1,394,541 3,069,540 4,154,066 Average HH Income $ 68,644 $ 68,670 $ 67,203 $ 66,342 - -------------------------------------------------------------------------------- % of HH with Income over $40,000 74% 70% 64% 65% - -------------------------------------------------------------------------------- Five Year Growth HH Income 1990-95 16% 16% 18% 17% ================================================================================ Source: Urban Decision Systems 3/95 ================================================================================ Gurnee Mills Gurnee Mills is located at the intersection of Interstate 94 and Route 132 in Lake County, IL, midway between Chicago and Milwaukee. Gurnee Mills opened in August, 1991. It contains 1,752,000 square feet with 11 anchors and 230 specialty shops. An allocation of the GLA is shown below. ================================================================================ Component GLA Percentage ================================================================================ Anchors 663,000 38% - -------------------------------------------------------------------------------- Majors 240,000 14% - -------------------------------------------------------------------------------- Specialty Stores 639,000 37% - -------------------------------------------------------------------------------- Non-Owned 210,000 12% - -------------------------------------------------------------------------------- Total 1,752,000 100% ================================================================================ Mall shops average about $246 per square foot, while anchors average $193 per foot. The overall average rental rate at Gurnee is approximately $12.13 per square foot, with mall shops averaging $22.38 and anchors averaging $5.90 per square foot. A profile of the mall's demographics is shown on the following page. ================================================================================ -19- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Mills Corporation Profile ================================================================================ ================================================================================ Gurnee Mills Demographic Profile ================================================================================ 10 Mile 20 Mile 30 Mile 40 Mile ================================================================================ Population 340,737 1,026,399 2,562,724 5,240,830 - -------------------------------------------------------------------------------- Average HH Income $ 55,650 $ 68,803 $ 63,027 $ 55,701 - -------------------------------------------------------------------------------- % of HH with Income over $40,000 59% 61% 59% 53% - -------------------------------------------------------------------------------- Five Year Growth HH Income 1990-95 15% 16% 15% 15% ================================================================================ Source: Urban Decision Systems 3/95 ================================================================================ Sawgrass Mills Sawgrass Mills was constructed in late 1990 in Sunrise, FL, approximately 11 miles west of Ft. Lauderdale and a thirty minute drive from Miami. The 1,743,000 square foot center has 16 anchors/major tenants and 200+/-value-oriented and specialty retailers. An allocation of the GLA is shown below. ================================================================================ Component GLA GLA ================================================================================ Anchors 657,000 38% - -------------------------------------------------------------------------------- Majors 268,000 15% - -------------------------------------------------------------------------------- Specialty Stores 590,000 34% - -------------------------------------------------------------------------------- Non-Owned 228,000 13% - -------------------------------------------------------------------------------- Total 1,743,000 * 100% - -------------------------------------------------------------------------------- Excludes 1995/96 expansion of 150,000 S.F. ================================================================================ Sawgrass Mills is by far the most productive of The Mills properties. Anchored by Burlington Coat, JC Penney Outlet, Marshalls, Target, Brandsmart, Spiegel, Bed Bath & Beyond, and Waccamaw, the center reports aggregate sales of $604.2 million ($335/SF). Mall shops show average sales of $403 per square foot, with anchors at $293. Anchor tenant rents average $7.49 per square foot, while mall shops average $18.99. The overall average rent for the center is reported to be $11.67 per square foot. A profile of the mall's demographics is shown below. Sawgrass Mills Demographic Profile ================================================================================ 10 Mile 20 Mile 30 Mile 40 Mile ================================================================================ Population 750,525 2,107,274 3,265,813 4,005,298 - -------------------------------------------------------------------------------- Average HH Income $ 46,549 $ 46,311 $ 44,701 $ 46,311 - -------------------------------------------------------------------------------- % of HH with Income over $40,000 46% 43% 40% 42% - -------------------------------------------------------------------------------- Five Year Growth HH Income 1990-95 16% 14% 15% 14% ================================================================================ Source: Urban Decision Systems 3/95 ================================================================================ ================================================================================ -20- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Mills Corporation Profile ================================================================================ Proposed/Under Construction As noted, 3 new Mills projects are currently underway. Ground has been recently broken on Arizona Mills (Tempe, Arizona) and Grapevine Mills (Dallas/Fort Worth, Texas). Each of these new projects are being developed as a newly formed joint venture with Simon Property Group. An affiliation was also formed with Taubman Realty Group and Grossman Company Properties on the Arizona project. Grapevine Mills will be a 1,490,001 square foot project, with 593,120 square feet of specialty shops and food court. Anchors will include Off Fifth-Saks Fifth Avenue, Burlington Coat, Bed Bath & Beyond, GroupUSA, Rain Forest Cafe, and 16 other major tenants. Rental rates for mall shops range from $15.00 to $45.00 per square foot, with an overall average of about $24.00. Anchor leases range from $5.50-$20.00 per square foot, with an average of $9.75. Opening is slated for November 1997. Ontario Mills, the company's fifth project, opened its doors in November 1996, with a total GLA of about 1.6 million square feet and 19 anchor stores, 13 of which were leased at opening. The project has a "Racetrack" design and an entertainment component that is a new concept for a Mills. The property opened with an overall occupancy of 93.0 percent and an average rental rate of $12.00 to $15.00 per square foot for all tenants. Mall shop rents average about $22.00 to $23.00 per square foot and opened at 87.0 percent. Anchor stores show average rental rates ranging from $5.00 to $18.00 per square foot, with an overall average of $8.45. The $190.0 million project created some 2,500 construction jobs and another 5,000 permanent jobs at completion. Sales at Ontario Mills are expected to reach at least $250 per square foot in the first year, with mall shops performing at $275 to $280 per square foot in year three. Future projects have been announced for Orange, California (The City Mills) and Carlstadt, New Jersey (Meadowlands Mills). Sales Levels We have been provided with detailed sales reports for existing Mills projects. The chart on the following page summarizes the performance of each for calendar year 1995. <TABLE> <CAPTION> ============================================================================================================= MILLS PROJECTS 1995 Sales Results ($000) ============================================================================================================= Franklin Mills Gurnee Mills Potomac Mills Sawgrass Mills - ------------------------------------------------------------------------------------------------------------- Unit Unit Unit Unit Rate Rate Rate Rate Sales (SF) Sales (SF) Sales (SF) Sales (SF) ============================================================================================================= <S> <C> <C> <C> <C> <C> <C> <C> <C> Specialty Shops $123,124,200 $232 $154,430,127 $246 $180,841,225 $308 $276,575,504 $403 Anchors/Majors* $161,484,426 $175 $ 90,263,682 $142 $177,676,181 $197 $327,657,475 $293 - ------------------------------------------------------------------------------------------------------------- Total Sales $284,608,622 $196 $244,693,809 $193 $358,517,406 $240 $604,232,979 $335 Shops Ratio 45.6% 63% 50% 46% ============================================================================================================= * Includes Entertainment Shops. ============================================================================================================= </TABLE> ================================================================================ -21- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Mills Corporation Profile ================================================================================ From the above we see that Sawgrass Mills is by far the most productive of the Mills projects. Specialty shop sales were $276.6 million in 1995, equivalent to $403 per square foot. Shops sales at the other projects range from $232 per square foot at Franklin Mills to $308 per square foot at Potomac Mills. Mall shop sales account for approximately 45 percent to 63 percent of total center sales. It is expected that sales at Ontario Mills should equal at least $250 per square foot in its first year. By year three, sales should increase by 10 to 12 percent to $275 to $280 per square foot. Provided in the following section is a discussion of the manufacturers outlet segment of the industry, followed by a trade area analysis discussion. ================================================================================ -22- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> MANUFACTURER'S OUTLET MARKET ANALYSIS ================================================================================ Introduction Outlet centers are a highly specialized type of retail development having tenant, consumer and market area characteristics different from conventional shopping centers. Manufacturer's outlet centers must also be differentiated from "off-price" shopping centers. Off-price stores are retailers who sell name brand irregular and overrun goods from a variety of manufacturers at discount prices, while outlet stores are owned and operated by the manufacturers to sell their own irregular and overrun goods. Dollars and Cents of Off-Price Shopping Centers, previously published by the Urban Land Institute in 1986, provides the following definitions: "...an off-price shopping center is defined as a shopping center with multiple tenants, the majority of which (50 percent or more) sell name brand goods at 20 to 60 percent off "retail" prices. This center type may include factory outlet stores as part of its non off-price tenantry." "...the outlet center... is a shopping center with multiple tenants, the majority of which (50 percent or more) are factory outlet stores. A factory outlet store is defined as one that functions as a direct outlet for one or more manufacturers. An outlet center may include off-price stores as part of its non-outlet store tenancy. A further distinction between off-price and outlet centers is the outlet center serves an extra regional market area, while the off-price center tends to serve a community/regional market." Manufacturer's outlet stores will generally locate only in outlet centers. Since existing conventional shopping centers in the surrounding area are typically not in direct competition for outlet tenants, rents in the outlet centers often bear little relation to rents in nearby conventional shopping centers. Outlet stores began as shops attached to the manufacturing plant, which offered irregular and overstocked goods at discount prices. Cities with a concentration of these factory stores, most notably Reading, Pennsylvania, attracted a large clientele drawn from a wide surrounding area. Additional manufacturers began to open stores which were not directly attached to their factories in order to benefit from this consumer traffic. Currently, cities such as Reading; Flemington and Secaucus, New Jersey; and Freeport and Kittery, Maine have developed into destination shopping areas based upon their outlet stores. With the success of the outlet format, outlet centers have been developed in areas far removed from manufacturing facilities. Historically, the centers had generally been placed adjacent to major interstate highways, well removed from major cities to avoid direct competition with the retailers who carry the manufacturers' products. Typically, these outlet centers attract customers who are passing through on the highway, as well as serving as day trip destinations for bargain hunting shoppers. Based upon this draw, it is common for major outlet shopping centers to have trade areas extending from 50 to 70 miles, and even more in some instances. ================================================================================ -23- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Manufacturer's Outlet Market Analysis ================================================================================ Most manufacturer's outlet centers typically do not have anchor tenants in a traditional sense, but rather depend on a wide variety of well known, high quality manufacturers to draw customers and additional tenants. The exception to this trend is Vanity Fair (VF), Saks and Spiegel, which are anchor tenants for several outlet centers. Vanity Fair often takes stores ranging in size from 20,000 to 30,000 square feet; Saks typically requires 15,000 square feet and Spiegel usually occupies stores with 30,000 square feet. A large number of the outlet centers are oriented toward well-educated, upper-middle class consumers who desire top quality name brand goods at discounted prices. This is differentiated from the focus of typical discount department stores toward attracting predominantly middle class shoppers who are generally less quality oriented. However, with the proliferation of outlet stores, some developers have targeted more moderate price outlet tenants. Even so, the emphasis on all outlet tenants is a "discount" from normal retail prices on recognized brands. Market Trends - Outlet REITs During the past two years, the outlet marketplace has been significantly impacted by the tremendous growth in real estate investment trusts (REITs). In the late 1980's and early 1990's, problems in the financial markets resulted in the lack of available financing for factory outlet centers. Development of outlet centers declined and lending became a major issue in the industry. As a result, a number of large REITs were formed for the purpose of developing, acquiring and operating outlet center properties. These REITs have been put together by some of the larger outlet center developers and they have raised over $1.15 billion in capital. A summary of the outlet center REITs initial public offerings is included in the following table. ================================================================================ OUTLET REITs ================================================================================ Offer Dollar Company Date Amount ================================================================================ Tanger Factory Outlet Centers 5/93 $ 92,300,000 - -------------------------------------------------------------------------------- Factory Stores of America(2) 6/93 140,200,000 - -------------------------------------------------------------------------------- McArthur/Glen Realty (1) 10/93 212,100,000 - -------------------------------------------------------------------------------- Chelsea GCA Realty 10/93 254,100,000 - -------------------------------------------------------------------------------- Horizon Outlet Centers(1) 11/93 201,600,000 - -------------------------------------------------------------------------------- Prime Retail 3/94 250,000,000 ================================================================================ Total $1,150,300,000 ================================================================================ (1) McArthur/Glen Realty and Horizon REITs merged in July 1995 to form Horizon Realty Inc. (2) Merged with Charter Oak during late 1995 ================================================================================ While a large portion of the capital raised through REIT offerings was used to retire debt and buy out equity partners, another large portion of the capital has gone to fund new acquisitions and development. As such, funds for new development have become more readily available and investment demand for well-located product has increased. ================================================================================ -24- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Manufacturer's Outlet Market Analysis ================================================================================ Because of the large influx of REIT investors, there are several aggressive buyers currently in the market. These buyers have shown a preference for properties that have high cash returns and creditworthy tenants. General risks include the concern the "herd" of manufacturers will, at some point, decide to refocus on their core design/manufacturing business and close their outlet operations. Finally, there is the risk that shoppers will tire of outlet shopping and decide they can find as much value shopping sales at the local regional mall or power center. These risks are offset by the generally good to excellent results shown by well-designed centers in good locations around the country. By any measure, the power of the outlet REIT in the industry is measurable. According to a September 1995 article in Value Retail News, as of year-end 1994, the previously detailed REITs controlled 39 percent of all outlet centers and 45 percent of the industry's total square footage. After accounting for the Factory Outlet/Charter Oak merger, the figures increase to 42 percent and 50 percent, respectively. Going forward, REIT executives plan to fuel their expansions plans by increasing the outlets' share of total retail sales. Expansion plans for the five major REITs were revealed to Value Retail News recently and are summarized in the following table. <TABLE> <CAPTION> ======================================================================================================= OUTLET REITs CURRENT INVENTORY AND EXPANSION PLANS ======================================================================================================= Current Inventory Company ----------------------------------- Expansion Plans Number of Centers SF in Millions ======================================================================================================= <S> <C> <C> <C> Tanger Factory Outlet Centers 26 3.6 One center planned for 1996 - ------------------------------------------------------------------------------------------------------- Factory Stores of America 51 8.0 Nothing planned for 1996 - ------------------------------------------------------------------------------------------------------- Horizon Realty Inc. 35 8.4 Two centers planned for 1996 - ------------------------------------------------------------------------------------------------------- Chelsea GCA Realty 17 3.0 Two centers planned for 1996 - ------------------------------------------------------------------------------------------------------- Prime Retail 17 3.1 Five centers planned for 1996 ======================================================================================================= Source: Value Retail News ======================================================================================================= </TABLE> Inventory Outlet centers generally range in size from 60,000 to 200,000 square feet, with some centers being opened at even greater sizes. During 1993, a total of 32 outlet centers opened, bringing the industry's project count to 294 and a gross leasable area to nearly 40.0 million square feet. Across the country, only six more projects opened in 1993 than 1992, but the average GLA nearly doubled compared to the previous year. As a result, there was a dramatic increase in the average center size in 1993. Average center size in 1993 was 133,967, compared to an average center size in 1992 of 85,094 square feet. ================================================================================ -25- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Manufacturer's Outlet Market Analysis ================================================================================ Fueled by the REITs investment, outlet center development during 1994 surpassed the 300-center benchmark, with a total GLA in excess of 44.0 million square feet. Industry growth during 1994 was impressive, posting the second-highest opening performance in four years. Only pure outlet centers have been included in the statistics; projects with less than 50 percent outlet tenants, such as Mill's megamalls, are excluded. During 1994, 27 new centers came on-line, bringing the nation's total to 311, a net increase of 17 centers after accounting for closures. The average center size in 1994 was 148,176 square feet, a 10.6 percent increase from 1993. Of the 27 outlet centers opened during 1994, seven centers, or 25.9 percent, were in excess of 200,000 square feet. Although only 23 new outlet projects opened in 1995, the average GLA was 170,857 square feet, a 15.3 percent increase over the average size of 1994's new projects (148,176 square feet). And although the number of new center openings was the lowest since VRN began tracking the data in 1988, total new phase I GLA for 1995 was 3.93 million square feet, only 1.75 percent below 1994's 4.00 million square feet. Ten of the 23 projects were opened by the five outlet center REIT's. Those ten total 55 percent of the year's new GLA. Horizon Realty led the way with four new centers totaling 715,784 square feet. Prime followed with 3 new centers totaling 683,000 square feet. Among the 11 independent developers opening new centers, Charter Oak Partners was number one with three projects totaling 578,331 square feet. The following chart summarizes the number of new centers, total GLA and average GLA of the new centers developed between 1992 through 1995. ================================================================================ OUTLET CENTER-NEW CONSTRUCTION STATISTICS ================================================================================ Total GLA % Year New Centers (millions) Change Average GLA % Change ================================================================================ 1992 26 2.21 -- 85,094 -- - -------------------------------------------------------------------------------- 1993 32 4.29 +94.1% 133,967 57.4% - -------------------------------------------------------------------------------- 1994 27 4.00 - 6.76 148,176 10.6% - -------------------------------------------------------------------------------- 1995 23 3.93 - 1.75% 170,857 15.3% - -------------------------------------------------------------------------------- CAGR -4.0% +21.15% +26.16% 1992-95 ================================================================================ Source: Value Retail News ================================================================================ While the number of centers being built per year has declined at an annual compound growth rate of 4.0 percent, the Total GLA and Average GLA have both increased from 1992 to 1995 at rates of 21.15 percent and 26.16 percent respectively. Without question, outlet centers continue to be larger than in previous years. The following chart tracks industry-wide statistics from 1987 through 1995. The statistics include the number of new centers constructed per year, the total number of centers industry-wide (with adjustments for centers closed during the year), and the industry-wide GLA. ================================================================================ -26- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Manufacturer's Outlet Market Analysis ================================================================================ ================================================================================ New Outlet Centers and Total GLA 1987-1995 (in millions of square feet) ================================================================================ New Total Centers Year Centers (Net of Closings) Total GLA % Change ================================================================================ 1987 -- 108 13.9 -- - -------------------------------------------------------------------------------- 1988 34 142 18.3 +31.7% - -------------------------------------------------------------------------------- 1989 41 183 22.4 +22.4% - -------------------------------------------------------------------------------- 1990 39 222 28.1 +25.4% - -------------------------------------------------------------------------------- 1991 27 249 32.1 +14.2% - -------------------------------------------------------------------------------- 1992 26 275 35.1 + 9.3% - -------------------------------------------------------------------------------- 1993 32 294 39.3 +12.0% - -------------------------------------------------------------------------------- 1994 27 311 44.4 +13.0% - -------------------------------------------------------------------------------- 1995 23 324 50.1* +12.8% - -------------------------------------------------------------------------------- Compound Annual Growth Rate 14.7% 17.4% ================================================================================ * This is a preliminary figure as of 4/96 ================================================================================ Source: Value Retail News, Outlet Industry Benchmarks ================================================================================ From 1988 to 1995, the total number of outlet centers nationwide has grown from 108 to 324, an increase of 200 percent. Likewise, the total outlet center GLA nationwide has grown from 13.9 million in 1988 to 50.1 million currently, an increase of 260 percent. This verifies that the centers being constructed today are larger than they have been in the past. The growth of this industry has been enormous, and projections for 1996 do not show a reversal of this trend. In 1996, Value Retail News reports that 65 outlet centers are projected to open nationwide in 1996, with a total GLA of 11.5 million. It is anticipated that one third of the proposed centers will be actually developed, which would yield similar results to 1995. These indicators provide good support for the industry in general. Geographic Distribution of New Development The Midwest and Southwest were the most popular areas for new outlet center development during 1993 and 1994. In 1995, the southeast experienced the most activity, followed by the northeast and southwest. Over the past three years, more outlet centers were developed in the southwest than any other region of the country. The midwest ranks second followed by the southeast and the northeast. The northeast and northwest have experienced the smallest amount of outlet center development over the past three years. New outlet center development during 1993 and 1994, by geographic region, is summarized in the following table. ================================================================================ -27- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Manufacturer's Outlet Market Analysis ================================================================================ <TABLE> <CAPTION> ==================================================================================================================================== U.S. Outlet Center Development by Geographic Region 1993 - 1995 ==================================================================================================================================== Projects Projects Projects Opened % of Opened % of Opened % of Total % of Region in 1993 total in 1994 total in 1995 total 1993-95 Total ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> NE 3 9.4 5 18.5 5 21.7 13 15.9 - ------------------------------------------------------------------------------------------------------------------------------------ MW 10 31.2 6 22.2 4 17.4 20 24.4 - ------------------------------------------------------------------------------------------------------------------------------------ SE 3 9.4 4 14.8 8 34.8 15 18.3 - ------------------------------------------------------------------------------------------------------------------------------------ SW 8 25.0 10 37.0 5 21.7 23 28.0 - ------------------------------------------------------------------------------------------------------------------------------------ NW 8 25.0 2 7.4 1 4.4 11 13.4 ==================================================================================================================================== Totals 32 100.0 27 100.0 23 100.0 82 100.0 ==================================================================================================================================== </TABLE> Demand for New Development According to Value Retail News, for the second year in a row, New Jersey was ranked first on the VRN Outlet Opportunity Index. The index calculates a state's potential outlet center demand by considering the 1995 population, geographic size and existing outlet GLA. After two years at the top of the list, New Jersey has attracted substantial attention from developers. As of September 1995, two megamalls and five outlet centers, totaling 3.0 million square feet, are in the planning stages statewide. The top ten states, as rated by the VRN Outlet Opportunity Index, are summarized in the table on the following page. ================================================================================ VRN OUTLET OPPORTUNITY INDEX ================================================================================ Population Outlet Center Rank State (in millions) SF Index ================================================================================ 1 New Jersey 7.9 0.84 751 2 Connecticut 3.3 0.28 602 3 Massachusetts 6.0 0.64 538 4 Maryland 5.0 0.55 349 5 Ohio 11.0 1.00 222 6 New York 18.2 2.50 210 7 Illinois 11.7 0.88 210 8 Mississippi 2.6 0.07 154 9 California 31.2 4.20 111 10 Virginia 6.5 0.92 87 ================================================================================ According to William Haueisen, president of Sterling Research, the index favors heavily populated, geographically small states. For example, while California has more outlet GLA (4.2 million SF) than any other state, New Hampshire and Maine have the highest outlet center GLA per capita. Therefore, according to the index, these two states offer few opportunities for outlet center developers. Mr. Haueisen further cautioned that the index should be used as a general guideline because a number of other important factors, such as tourism and outlet center GLA in adjacent states, are not reflected. ================================================================================ -28- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Manufacturer's Outlet Market Analysis ================================================================================ Average Base Rental Rates With the exception of 1991, average base rental rates in outlet centers have increased steadily since 1989. According to the survey published by Value Retail News, average base rental rates increased 4.1 percent, to $13.67 per square foot in 1994. The reported median figure was $14.00 per square foot. Among the 111 chains reporting rental information, approximately 85 percent reported base rental averages between $11.00 and $20.00 per square foot, on a net basis. A summary of historical average base rental rates since 1986 is included in the following table. ================================================================================ AVERAGE BASE RENTAL RATES PER SF ================================================================================ Base Rent Percent Year per SF Change ================================================================================ 1986 $ 8.93/SF --- 1987 $10.46/SF 17.13% 1988 $10.69/SF 2.20% 1989 $10.57/SF (1.12%) 1990 $12.01/SF 13.62% 1991 $11.99/SF (0.17%) 1992 $12.24/SF 2.09% 1993 $13.13/SF 7.27% 1994 $13.67/SF 4.11% ================================================================================ Average Annual Increase 5.47% ================================================================================ Average Gross Rental Rates In addition to base rental rates, the majority of outlet center leases include percentage rent clauses and require tenants to reimburse the landlord for marketing fund expenditures and the majority of the center's operating expenses. With respect to percentage rent clauses, the average breakpoints according to the Value Retail News survey were $211 per square foot in 1991, $236 per square foot in 1992, $261 per square foot in 1993 and $273 per square foot in 1994. The 4.6 percent increase in the average breakpoint from 1993 to 1994 was most likely the result of contractual rental escalations for existing leases. Outlet retailers' average percentage rent as a percent of sales has decreased from 3.83 percent in 1992 to 3.68 percent in 1994. The average marketing costs in outlet centers increased from $1.65 per square foot in 1993 to $1.90 per square foot in 1994. According to Value Retail News, the average for 1994 represents a 9.94 percent compound average annual increase over the 1991 figure of $1.43 per square foot. Typically, outlet retailers will expect to contribute anywhere from $1.50 to $2.50 per square foot to a marketing pool. Outlet retailers reported a 4.69 percent increase in CAM costs from 1993 to 1994. As of year-end 1994, CAM costs averaged $2.90 per square foot, as compared to $2.77 per square foot in 1993 and $2.31 per square foot in 1992. According to the survey, average gross rents increased 2.8 percent to $19.80 per square foot in 1994. The reported median figure was $19.00 per square foot. Among the 46 chains reporting gross rental information, more than 60 percent reported gross rental averages between $18.00 and $22.00 per square foot. A summary of historical average gross rental rates since 1992 is included in the following table. ================================================================================ -29- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Manufacturer's Outlet Market Analysis ================================================================================ ================================================================================ AVERAGE GROSS RENTAL RATES PER SF ================================================================================ Base Rent Percent Year per SF Change ================================================================================ 1992 $15.93/SF -- 1993 $19.25/SF 20.84% 1994 $19.80/SF 2.86% ================================================================================ Outlet Center Sales As consumers became increasingly value conscious, the outlet segment emerged as a significant industry group. According to estimates prepared by Value Retail News, total outlet industry sales totaled $11.4 billion in 1994, up 15.1 percent from $9.9 million in 1993. However, the significant increase in outlet center sales was primarily fueled by the 1,074 new stores opened during the year. Aggressive pricing by department stores resulted in stagnant sales for many existing outlet center tenants. According to the Value Retail News Comp-store Index, outlet centers posted only a 0.20 percent increase in comparable store sales for year-end 1994. Data through October 1995 indicates that outlet centers have been affected by the general malaise in the national retail market. According to information compiled from 37 retailers, representing 1,454 units, year-to-date October 1995 comparable store sales were down 3.51 percent. Despite the decrease in comparable store sales, the popularity of outlet centers continues to produce dramatic increases in average sales per square foot. Average outlet center sales per square foot have increased at a compound average annual rate of 4.45 percent since 1988. Average outlet sales per square foot from 1988 to 1994 are summarized in the following table. The percent distribution of reporting outlet center chains on a per square foot basis is graphically presented below. ================================================================================ AVERAGE OUTLET CENTER SALES PER SF Year Sales/SF % Change ================================================================================ 1988 $211 7.7% 1989 $233 10.4% 1990 $235 0.9% 1991 $242 3.0% 1992 $240 (0.8%) 1993 $257 7.1% 1994 $274 6.6% - -------------------------------------------------------------------------------- Compound Annual Growth 4.45% ================================================================================ Confidential gross sales information in our files for outlet centers nationwide indicate typical average sales in the $225 to $300 per square foot range for the overall center, with many of the individual outlet stores having gross sales in the $300 to $400 per square foot range. ================================================================================ -30- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Manufacturer's Outlet Market Analysis ================================================================================ A more recent survey, prepared by the International Council of Shopping Centers, which focused on sales at 90 outlet centers during the Fourth Quarter 1995, with the balance of the report on sales at 133 centers during the First Quarter 1996, reflects sales for factory outlet centers at $225 per square foot, for the year-end December 31, 1995. The 90 participating centers generated total sales of about $3.3 billion, an 18.0 percent increase over sales in 1994. However, since gross leasable area (GLA) at the centers grew at an uneven faster clip than sales in each quarter, the $220 sales per square foot figure represented a 3.0 percent decline from the level in 1994. <TABLE> <CAPTION> ==================================================================================================================================== SPACE ALLOCATION AND SALES PSF IN OUTLET CENTERS, BY KEY STORE TYPE, FOURTH QUARTER, 1995; 12 MONTHS ENDED DECEMBER 31, 1995; FIRST QUARTER, 1996; AND 12 MONTHS ENDED MARCH 31, 1996 ==================================================================================================================================== Rolling 4 Rolling 4 United States 4th Quarter, 1995 Quarters(1) 1st Quarter, 1996 Quarters(2) - ------------------------------------------------------------------------------------------------------------------------------------ % of Sales/SF % Sales/SF % Chng. % of Sales/SF % Sales/SF % Chng. Total Chng Prior Total Chng Prior Space Yr. Ago Yr Space Yr. Ago Yr ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Apparel & Accessories Women's Apparel 20.1% $ 58 -7.9% $ 215 -7.4% 18.3% $ 39 -4.8% $ 209 -6.0% Men's Apparel 6.7% $ 66 -7.6% $ 218 -7.3% 6.4% $ 36 -0.5% $ 210 -3.0% Children's Apparel 4.0% $ 53 -4.5% $ 186 -5.5% 3.3% $ 35 -2.3% $ 183 -0.7% Family Apparel 24.5% $ 73 -0.8% $ 241 -3.6% 28.0% $ 38 2.1% $ 218 -0.7% Women's Shoes 2.5% $ 59 -0.3% $ 229 -0.3% 2.2% $ 50 -8.6% $ 233 3.1% Men's Shoes 0.7% $ 52 -0.3% $ 187 -3.8% 0.7% $ 34 10.0% $ 174 -7.6% Family Shoes 5.6% $ 70 -0.2% $ 264 -3.6% 6.6% $ 43 0.3% $ 233 -1.7% Shoes Miscellaneous 3.4% $ 91 6.1% $ 377 -2.4% 3.4% $ 66 4.7% $ 349 -0.5% Apparel & Accessories 1.3% $ 60 -4.6% $ 192 -5.9% 1.2% $ 32 -2.4% $ 182 -4.7% Subtotal 68.9% $ 66 -2.9% $ 234 -4.7% 70.0% $ 40 0.0% $ 220 -2.2% Home Furnishings Home Ent & Electronics 2.0% $ 127 19.5% $ 353 31.9% 2.3% $ 58 8.7% $ 348 23.7% Home Furnishings 6.8% $ 46 -2.7% $ 141 -3.6% 7.5% $ 22 -1.8% $ 129 -2.2% Tabletop 8.3% $ 59 -2.0% $ 174 -3.9% 8.1% $ 31 -3.3% $ 167 -4.4% Subtotal 17.1% $ 61 3.0% $ 183 3.6% 17.9% $ 31 0.8% $ 175 3.0% Other GAFO Stores Luggage & Leather Goods 3.2% $ 73 0.5% $ 244 0.7% 3.0% $ 42 6.1% $ 240 2.5% Jewelry 2.0% $ 91 2.6% $ 262 -0.1% 2.1% $ 41 2.2% $ 258 4.8% Subtotal 5.2% $ 80 2.2% $ 251 0.7% 5.1% $ 42 4.5% $ 247 3.6% Food Service Fast Food 1.8% $ 77 -5.1% $ 258 -9.0% 1.3% $ 47 -15.5% $ 264 -9.1% All Other All Other Outlet Stores 5.0% $ 54 -1.9% $ 153 0.1% 5.0% $ 29 -7.2% $ 155 -3.8% All Non-Outlet Stores 2.0% $ 50 -23.4% $ 164 -18.4% 0.5% $ 33 10.1% $ 164 -19.3% - ------------------------------------------------------------------------------------------------------------------------------------ Subtotal 7.0% $ 53 -7.2% $ 155 -2.4% 5.5% $ 30 -7.2% $ 157 -5.3% - ------------------------------------------------------------------------------------------------------------------------------------ GRAND TOTAL 100.0% $ 66 -1.9% $ 220 -3.0% 100.0% $ 38 -0.2% $ 210 -1.3% - ------------------------------------------------------------------------------------------------------------------------------------ (1) Rolling 4 Quarters: Quarters 1 through 4 of 1995 compared with Quarters 1 through 4 of 1994. (2) Rolling 4 Quarters: Quarters 2 of 1995 through Quarter 1 of 1996 compared with Quarter 2 of 1994 through Quarter 1 of 1995. ==================================================================================================================================== </TABLE> ================================================================================ -31- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Manufacturer's Outlet Market Analysis ================================================================================ According to the above survey, conducted by the International Council of Shopping Centers, the leading merchandise categories by sales per square foot were miscellaneous shoes, at $377.00 per square foot, followed by home entertainment and electronics at $353.00 per square foot, family shoes at $264.00 per square foot, and jewelry at $262.00 per square foot. Regarding home entertainment and electronics, sales per square foot significantly increased by 31.9 percent in 1995 over the previous year. The categories which saw a decline in sales from 1994 to 1995 were women's apparel at 7.4 percent, men's apparel at 7.3 percent and family apparel, which is the largest segment of the index, at 3.6 percent. However, retail sales data for January and February of 1996 indicate a possible turnaround in consumer demand for apparel that may soon translate into higher outlet center sales. The International Council of Shopping Center's Monthly Mall Merchandise Index, and the U.S. Department of Commerce's advanced monthly retail sales for February, and other indicators, contain encouraging signs for apparel sales, which make up the largest sector of the market. According to Value Retail News, a unit of the International Council of Shopping Centers, despite several droughts in some parts of the Southwest and Midwest and major flooding and tornadoes in some midwestern states, outlet comp-store sales increased 1.0 percent in May, 1996. Significantly, May was the first back-to-back monthly increase posted on VRNs' Outlet Sales Index since January 1995, and year-to-date comp-store sales increased 1.40 percent. For the month of May, it reflects sales data supplied on a total of 1,763 comp-stores by 45 outlet chains. The 22 reporting apparel chains, operating 859 comp-stores, posted a 1.0 percent gain for the month of May, 1996, with year-to-date comp-store sales down 2.13 percent. The 23 reporting non-apparel chains, operating 904 comp-stores, achieved a 1.12 percent gain, while year-to-date sales were down .35 percent. Occupancy Costs According to Value Retail News, with the exception of a substantial increase in marketing charges, the increase in occupancy costs was moderate over the past year. Occupancy costs are defined by Value Retail News as base rent, operating expenses and marketing charges as a percent of sales. While increases in base rent and common area maintenance costs were generally less than 5.0 percent, marketing costs increased over 15.0 percent. The increase in marketing costs was reportedly the result of a nationwide public relations campaign funded by member companies of the Developers of Outlet Centers (DOC). Despite the significant increase in marketing costs over the past year, total occupancy costs declined, due to strong outlet center sales figures. A summary of historical average occupancy costs since 1992 is included in the following table. The 1995 figures have not yet been published. ================================================================================ OCCUPANCY COSTS ================================================================================ Average Percent Year Occupancy Cost(1) Change ================================================================================ 1992 9.33% -- 1993 9.57% 2.57% 1994 8.73% (8.78%) - -------------------------------------------------------------------------------- (1) Base rent, operating expense and marketing as a percent of sales. ================================================================================ ================================================================================ -32- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Manufacturer's Outlet Market Analysis ================================================================================ Tenant improvement allowances vary dramatically by tenant, center and location. Typically speaking, retail outlet developers provide a shell tenant improvement package that includes gypsum wallboard, sealed concrete floor, heating and ventilation, restrooms to code and, on many occasions, acoustical tile inserts or other ceiling materials. In addition, the landlord often provides additional tenant improvement funds to induce tenants to sign leases. Tenant improvement allowances over the shell vary, but have averaged between $2.00 and $15.00 per square foot. While this information was not detailed in the 1994 survey, according to previous Value Retail News surveys, average tenant improvement costs over a shell have historically ranged from $5.33 per square foot in 1991 to $6.55 per square foot by 1993. Shopping Patterns The typical outlet shopper is identified in a survey by Data Plan, and supplemented by another survey by The Joy of Shopping magazine. The surveys indicate that outlet shoppers tend to know and understand the concept of an outlet mall, and were interested in price, quality and selection. Approximately one-third of these shoppers used outlet malls as part of their normal shopping activity, and another one-half shopped at an outlet mall at least once per year. Seventy-seven percent of these shoppers live in a metropolitan area and 65 percent stopped because they saw the center as they drove by in an automobile. The average expenditure was $71 per visit. Summary In summary, the market for factory outlet developers and tenants has changed dramatically in the past five years. Overall, there has been a significant increase in interest from tenants resulting in increased levels of product delivery by outlet developers. Typically 70 percent of the tenants in a manufacturers' outlet center are owned by the manufacturer, with the remainder of the tenants generally consisting of restaurants and other specialty retailers. The manufacturer operated retail stores primarily sell first quality, current and past season branded merchandise at significant discounts from retail prices charged by department stores. The outlet stores in these centers usually sell at least 50 percent of their goods under labels owned by the parent company. The outlet center development trend slowed dramatically in the late 1980s and early 1990s as the lack of available bank financing impacted a number of new projects that could be built. However, the recent trend has been for significant capital flowing into REITs which have then fueled new acquisitions and proposed new development. In the next five years, the awareness of factory outlets will be increased dramatically as new products are developed throughout the country, along with possible risks in over-development. At this point, outlet developers and tenants are speculating on possible over-development, but there is still significant interest in the part of outlet retailers as these properties tend to be a good way to roll out new products, test new products and dispose of surplus goods. We view the subject to be a well located outlet center. It is accessible and visible within a large and affluent residential population. Also, it is positioned distant enough from competitive properties so that its tenants will have the opportunity to achieve acceptable sales levels. ================================================================================ -33- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> MARKET ANALYSIS ================================================================================ Retail Market Overview Nationwide, the retail industry is undergoing a period of restructuring and consolidation after two decades of unparalleled growth. Retail supply is at the saturation point in most metropolitan and suburban markets. Newer retail formats, such as Big Box and large scale discounters, have had a profound impact on the regional mall industry in general and specialty retailers in particular. Value retailers, through the introduction of big boxes, category killers, warehouse clubs and factory outlets, have done a better job in meeting customer demands while traditional mall based retailers have been slow in reacting. To counter this competition, mall owners are attempting to attract destination type entertainment retailers, including large scale cinema operators and restaurant operations, to improve shopper's experience and regain lost market share. The growth in personal and household income has widely dispersed and segmented the population base. Lower income households (the bottom 60%) have seen flat or flat income growth over the last twenty years, leading to sharp declines in consumer confidence and retail expenditures and an increasing shift to lower priced goods. Upper income households have seen moderate increases in real income. Rising household wealth, gained primarily through real estate and stock investment as opposed to wages, has allowed regional centers in high income areas to do well. Department stores, once considered a retailing dinosaur, have quickly re-emerged as a force. Department stores have emerged from the consolidation of the late 1980's much stronger through streamlined operations and increased productivity. Over the past two years, further consolidations have occurred in the department store industry. Federated Department stores has purchased Broadway, Joseph Hornes and Macy's. The May Company recently purchased Woodward & Lothrop (Wanamakers) as well as the Strawbridge & Clothier chain which were dominant retailers in the Philadelphia region. However, some of the renewed strength of department store chains has come through an increased focus on apparel and largely to the detriment of in-line mall specialty stores, long a mainstay of regional malls. National specialty store operators are in the midst of an extensive period of bankruptcies, closures and consolidations. Apparel operators, particularly women's wear, continue to suffer as current consumer focus is on value and convenience. Discounting has depressed gross margins on many mall based retailers, forcing operators to seek lower cost locations outside regional centers in efforts to improve profitability. Led by growth in power and community shopping center categories, openings of new shopping centers again rose in 1996 according to an analysis performed by the National Research Bureau. In 1996, 895 shopping centers opened, a 3.2 percent increase over 1995, and the third consecutive annual increase. New growth has been promoted by increased liquidity in the capital markets for real estate. Real estate investment trusts (REITS), securitized debt financing and commercial banks provided the capital for new growth. ================================================================================ -34- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ According to the NRB study, the greatest growth in number of centers came in the less than 100,000 square foot category, totaling 496 new centers. However, this represented a decline from the 551 new centers in this category constructed during 1995. The largest gain occurred in the 200,001 to 400,000 square foot category, which saw 132 new centers built in 1996. This level indicates an increase of 40 percent over the 94 completions in this size range during 1995. Also, eight new regional malls between 800,000 and 1,000,000 square feet were constructed in 1996. These additions continue a trend which has seen the number of regional malls constructed double every year since 1992, when no new malls in this size range were opened. Pennsylvania ranked eleventh in the nation in new centers constructed with 28 new centers built in 1996. The average gross leasable area of retail space per capita for the nation was 19.23 square feet in 1996, up from 18.90 square feet in 1995. Florida had the largest gross leasable area of retail space at 28.05 square feet per person. Pennsylvania ranked 22nd at 18.66 square feet of leasable area per person. During the period 1980 through 1996, total retail sales in the United States increased at a compound annual rate of 6.1 percent. Data for the period 1990 through 1996 show that sales growth has slowed to an annual average of 5.0 percent. This information is summarized on the following chart. ================================================================================ Total U.S. Retail Sales (1) ================================================================================ Amount Annual Year (Billions) Change ================================================================================ 1980 $ 957,400 N/A - -------------------------------------------------------------------------------- 1985 $1,375,027 N/A - -------------------------------------------------------------------------------- 1990 $1,844,611 N/A - -------------------------------------------------------------------------------- 1991 $1,855,937 .61% - -------------------------------------------------------------------------------- 1992 $1,951,589 5.2% - -------------------------------------------------------------------------------- 1993 $2,074,499 6.3% - -------------------------------------------------------------------------------- 1994 $2,236,966 7.8% - -------------------------------------------------------------------------------- 1995 $2,340,817 4.6% - -------------------------------------------------------------------------------- 1996(2) $2,465,835 5.3% - -------------------------------------------------------------------------------- Compound Annual Growth Rate 1980-1996 +6.1% - -------------------------------------------------------------------------------- CAGR: 1990 - 1996 +5.0% ================================================================================ 1 1985 - 1995 data reflects recent revisions by the U.S. Department of Commerce: Combined Annual and Revised Monthly Retail Trade. 2 Preliminary advance estimates. ================================================================================ Source: Monthly Retail Trade Reports Business Division, Current Business Reports, Bureau of the Census, U.S. Department of Commerce. ================================================================================ ================================================================================ -35- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ Overview A retail center's trade area contains people who are likely to patronize that particular retail center. These customers are drawn by a given class of goods and services from a particular tenant mix. A center's fundamental drawing power comes from the strength of the anchor tenants as well as the regional and local tenants which complement and support the anchors. A successful combination of these elements creates a destination for customers seeking a variety of goods and services while enjoying the comfort and convenience of an integrated shopping environment. Including non-owned stores, Franklin Mills contains 1,757,868+/- square feet. As such, the subject can be described as a superregional shopping center. The super regional center provides for extensive variety in general merchandise, apparel, furniture, and home furnishings in depth and variety, as well as a variety of services and recreational facilities. It is built around three or more full-line department stores of generally not less than 100,000 square feet. In theory the typical size of a super regional center is about 800,000 square feet of gross leasable area. In practice, the size ranges from about 600,000 to more than 2,000,000 square feet. Source: Urban Land Institute Dollars and Cents of Shopping Centers - 1995. Trade Area Analysis In order to define and analyze the market potential for Franklin Mills, it is important to first establish the boundaries of the trade area from which the subject will draw its customers. In some cases, defining the trade area may be complicated by the existence of other retail facilities on main thoroughfares within trade areas that are not clearly defined or whose trade areas overlap with that of the subject. The geographic area from which a steady, sustaining patronage is obtained for a shopping center is referred to as a trade area. These patrons are drawn by a given class of goods and services from a particular tenant mix. A center's fundamental drawing power comes from the strength of the anchor tenants as well as the regional and local tenants which complement and support the anchors. The successful combination of these elements created a destination for customers seeking a variety of goods and services while enjoying the comfort and convenience of an integrated shopping environment. To define and analyze the market potential for the subject, it is important to first establish the boundaries of the trade area from which the subject will draw its customers. In some cases, defining the trade area may be complicated by the existence of other retail facilities on main thoroughfares within trade area that are not clearly defined or whose trade areas overlap with that of the subject. To understand the subject property in its proper context, we must examine the nature of the most direct competition. The subject has three malls in its market area, Neshaminy, Oxford Valley and Willow Grove Mall. As an outlet mall, the subject's marketing emphasis and trade area is somewhat different than a traditional regional mall. However, the presence of regional malls in the primary trade area has significant impact on the buying patterns of neighborhood residents. Provided on the following pages are profiles of each of these competitive centers. ================================================================================ -36- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ Competitive Center #1 Neshaminy Mall Location: U.S. Route 1 and Rockhill Road Bensalem, Pennsylvania Neshaminy Mall is a regional mall located approximately 3 miles north of the subject. Containing 945,000 square feet of rentable area, this center was constructed in 1968 and most recently renovated in 1995. Anchors include Sears, Strawbridge's and Boscov's. The $6.8 million 1995 renovation included moving the food court, renovation of the mall common areas and conversion and renovation of a former Bon-Ton Department store to a Boscov's department store. In July, 1996, the Strawbridge & Clothier chain was sold to the May Company. The May Company will operate the Strawbridge & Clothier stores as well as the Hecht's department stores in the Philadelphia area (formerly Wanamakers) under the name Strawbridge's. Ownership is considering a Phase III of the mall to include a 24 screen movie theater to be operated by AMC plus additional retail space. Finally, ownership reports that there is interest by JC Penney to occupy a fourth anchor pad space to be constructed at the front of the mall adjoining the new food court. However, final plans for Phase III or a potential fourth anchor have not been announced. Inline mall space at Neshaminy Mall is currently 88 percent leased. The current vacancy is higher than historical levels. A portion of the vacancy was a result of bankruptcies which occurred in 1995, primarily affecting the apparel sector. Another portion of the vacancy was planned to create larger spaces for such tenants such as Disney and Eddie Bauer. Mall store sales were $256 per square foot in 1995. CAM costs are currently $10.69 per square foot. Competitive Center #2 Oxford Valley Mall Location: Route 1 and Oxford Valley Road, Middletown Township Bucks County, Pennsylvania Oxford Valley Mall is a 1.12 million square foot two level regional mall which was constructed in 1973 and is located nine miles northeast of the subject. The mall was developed as part of a 300+/- acre site which encompasses Sesame Place plus single and multi-story office buildings. Anchors of the mall include Macy's, Sears, JC Penney and Strawbridge's. The most recent renovation was in 1990. There has been a proposal to convert a vacant second floor Woolworth's to a food court, but that has not yet commenced. Current occupancy at the Oxford Mall is 95%. CAM expenses are $11.98 per square foot. Total mall store sales in 1995 were $252 per square foot and are projected to increase by 3 percent in 1996. Mall store sales have been negatively impacted by the construction of a new power center across from the mall, The Court at Oxford Valley. Major tenants in the Court at Oxford Valley include Dicks Sports, Home Place and Best Buy. ================================================================================ -37- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ Competitive Center #3 Willow Grove Mall Location: Route 63 and Easton Road Abington Township Montgomery County, Pennsylvania Willow Grove Mall is a 961,000 square foot regional mall located in Abington Township, Montgomery County. The Willow Grove Mall is located approximately 11 miles from the subject. When Willow Grove Mall opened in 1982, it was expected to operate as a fashion mall due to the income characteristics of its immediate trade area. The original anchors of the mall included Abraham and Strauss, B. Altman and Bloomingdales. However, the center is now oriented more toward the middle market with the anchors being Sears, Strawbridge's and Bloomingdales. Mall stores reported sales of $358 per square foot in 1995 and the current occupancy of the malls stores is 96 percent. Current CAM costs for mall tenants are $12.79 per square foot. Trade Area Definition Franklin Mills is located on Woodhaven Road (Route 63) approximately 1 mile east of Interstate 95 and approximately 3 miles west of US Highway #1 (Roosevelt Boulevard). This location makes it one of the more accessible retail locations within the greater Philadelphia area. The advantage of highway proximity has the effect of expanding the center's trade area by virtue of reducing travel time for residents in more distant locations. As discussed in the previous section, the location and accessibility of competing centers also has direct bearing on the formation and make-up of a particular area. Franklin Mills is the major retail center in this trade area. The balance of area retail facilities act as a traffic generators that increases the area's status as a destination retail hub. To summarize, the foundation of our analysis in the delineation of the trade area of the subject may be summarized as follows: 1. Highway accessibility including area traffic patterns, geographical constraints and nodes of residential development. 2. The position and nature of the area retail structure including the location of destination retail centers and the strength and composition of the retail infill. 3. The size, anchor tenancy and merchandising composition of the tenant(s), both as existing and as proposed. As an super regional outlet mall, it is typical that the subject would attract customers from a large trade area. On balance, we have established a total trade area for the subject on the basis of a 60 mile radius emanating from the center. So as to add some perspective to our analysis, we have segregated this survey as prepared by Equifax National Decision Systems (ENDS) into 10, 40 and 60 mile concentric circles. We believe that the 10 mile radius constitutes the primary market. This report is provided in the Addenda. The chart below presents relevant statistics for the total trade area as segregated by primary and secondary components. ================================================================================ -38- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ ================================================================================ Subject Property Estimated Trade Area Market Support Factors ================================================================================ 10 Mile 40 Mile 60 Mile Primary Secondary Secondary Trade Area Trade Area Trade Area ================================================================================ Population 1990 Census 1,192,949 6,004,278 10,450,192 1996 Estimate 1,186,232 6,107,319 10,751,532 2001 Projection 1,180,784 6,155,103 10,911,361 % Compound Annual Change: 1990-1996 -.09% .28% .47% 1996-2001 -.09% .16% .30% - -------------------------------------------------------------------------------- Households 1990 Census 439,447 2,203,426 3,814,371 1996 Estimate 450,255 2,313,191 4,043,780 2001 Projection 452,352 2,348,892 4,142,795 % Compound Annual Change: 1990-1996 .41% .81% .98% 1996-2001 .09% .31% .49% - -------------------------------------------------------------------------------- Average Household Income - 1996 (Est.) $ 55,355 $ 59,948 $ 60,792 - -------------------------------------------------------------------------------- Median Household Income - 1996 (Est.) $ 44,638 $ 46,910 $ 47,768 - -------------------------------------------------------------------------------- Median Age 36.50 35.76 35.97 - -------------------------------------------------------------------------------- 1990 Median Home Value $ 101,020 $ 123,587 $ 138,191 ================================================================================ Source: Equifax National Decision Systems ================================================================================ Population Once the market has been established, the focus of our analysis centers on the trade area's population. ENDS provides historical, current and forecasted population estimates for the total trade area. Patterns of development density and migration are reflected in the current levels of population estimates. The report provided in the Addenda presents the statistics on the basis of the radii discussed above. As is demonstrated, there has been a small decline in population in the subject's ten mile primary trade area between 1990 and 1996. Over the next five years, ENDS reports that the population will continue to decline gradually. The ten mile primary trade area encompasses a portion of the City of Philadelphia which has experienced overall declines in population over the last two decades. Despite these losses, the neighborhood remains densely populated. Approximately, 1,186,000 people are located within a ten mile radius of the subject. We note that the declines in population in the primary trade area are more than offset by the gains in the 40 to 60 mile secondary trade area. Both radii have shown moderate gains over the last six years, and the rate of population increase is anticipated to increase over the next five years. Regardless of the recent declines in population in the primary trade area, the overall population density of the primary and secondary trade area is highly favorable for retail development. ================================================================================ -39- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ Households A household consists of all the people occupying a single housing unit. While individual member of a household purchase goods and services, these purchases actually reflect household needs and decisions. Thus, the household is a critical unit to be considered when reviewing market data and forming conclusions about the trade area as it impacts the retail center. National trends indicate that the number of households are increasing at a faster rate than the growth of the population. Several noticeable changes in the way households are being formed have caused the acceleration in this growth, specifically: The population in general is living longer on average. This results in an increase of single and two person households. The divorce rate increased dramatically during the last two decades, again resulting in an increase in single person households. Many individuals have postponed marriage, thus also resulting in more single person households. Both the primary and secondary trade areas have experienced increases in households in the period between 1990 and 1996. This trend is expected to continue over the next five years. Consistent with the national trend, the trade area is experiencing household growth at rates in excess of population changes primarily due to factors mentioned above. Correspondingly, a greater number of smaller households with fewer children generally indicates more disposable income. In 1996, there were 2.63 persons per household in the ten mile primary trade area and by 2001, it is forecasted to decrease to 2.61. Trade Area Income Income levels, either on a per capita, per family or household basis, indicate the economic level of the residents of the market area and form an important component of this total analysis. More directly, average household income, when combined with the number of households, is a major determinant of an area's retail sales potential. The trade area income figures support the profile of a broad-based middle income market. According to ENDS, average household income within the total trade area in 1996 was estimated at $60,792. Trade area income statistics are exhibited below. ================================================================================ Average Household Income ================================================================================ Area Income ================================================================================ 10 Mile $55,355 - -------------------------------------------------------------------------------- 40 Mile $59,848 - -------------------------------------------------------------------------------- 60 Mile $60,792 ================================================================================ ================================================================================ -40- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ Retail Sales Retail sales in the Philadelphia Metropolitan Area are currently estimated to approach $44 billion annually. The Philadelphia area ranked fifth nationally behind Chicago, Los Angeles, New York and Washington, D.C. in total retail sales for 1995, the last year for which statistics are currently available. Retail sales in this metropolitan area have increased at a compound annual rate of 3.6 percent since 1989. Within Philadelphia, the annual retail sales for 1995 were estimated to be about $8.9 billion, unchanged from the previous year sales. Sales and Marketing Management Magazine projects that retail sales in the Philadelphia region will increase to $51.8 billion by the year 2000, reflecting a compound annual change of 3.6 percent for the five year period. For Philadelphia County, retail sales are projected to increase to $9.9 billion by the year 2000, reflecting a compound annual change of 2.0 percent. ================================================================================ Retail Sales Philadelphia Metropolitan Area and Philadelphia County (In Thousands) ================================================================================ Metropolitan Philadelphia Year Philadelphia % Change County % Change ================================================================================ 1989 $35,816,878 -- $7,661,352 -- - -------------------------------------------------------------------------------- 1990 $36,033,312 + 0.6% $7,741,383 + 1.1% - -------------------------------------------------------------------------------- 1991 $35,120,446 - 2.5% $7,451,387 - 3.8% - -------------------------------------------------------------------------------- 1992 $39,811,716 + 13.4% $8,447,600 + 13.4% - -------------------------------------------------------------------------------- 1993 $43,480,561 + 2.6% $8,323,384 - 1.5% - -------------------------------------------------------------------------------- 1994 $43,480,561 +6.4% $8,985,763 +8.0% - -------------------------------------------------------------------------------- 1995 $44,309,612 1.9% $8,950,479 -.4% - -------------------------------------------------------------------------------- 2000 (Est). $51,804,581 $9,883,537 - -------------------------------------------------------------------------------- Compound Annual Change (1989 -1995) +3.2% +2.6% ================================================================================ Projected Compound Annual Change (1995 - 2000) +3.6% +2.0% ================================================================================ Source: Sales & Marketing Management Magazine 1990-1996 ================================================================================ The Subject Property Franklin Mills is currently undergoing a major renovation and remerchandising. At the south end of the mall, the former Sears store has been demolished and a new 61,000 square foot, 14 screen General Cinema movie theater will be constructed. The existing freestanding General Cinema movie theater will be demolished. It is projected that the new theater will be constructed by December, 1997. Adjoining the movie theater, ownership is projecting a new 20,000 square foot Rain Forest Cafe Theme restaurant. The restaurant is proposed for a May, 1998 opening. Following completion of the theater and restaurants, the south end of the mall will have a concentration of entertainment uses. ================================================================================ -41- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ Conversely, the north end of the mall is projected for new upscale and fashion tenants. Saks Fifth Avenue recently expanded from 28,000 to 46,000 square feet. Saks will also be opening a Saks Final Stop store at the north end by the Fall of 1997. Other fashion tenants which will be occupying the north end include The GAP, Perry Ellis, Polo, Talbots, Kenneth Cole, and Estee Lauder. Upon completion of the remerchadising plan, the orientation of the mall will have fashion and upscale tenants at the northern end, moving to more value oriented retailers in the middle and entertainment in the southern portion. Other significant projected changes include the following: o TJ Maxx and Marshalls, both of which had stores at Franklin Mills, merged operations in 1996. TJ Maxx closed their store, effective January, 1997. Neiman Marcus, which currently occupies 34,918 square feet, will downsize and occupy the 26,900 square foot former TJ Maxx space. Saks Last Stop will occupy the former 34,918 square foot Neiman Marcus store. o I. Goldberg vacated their lease on 23,254 square feet. Saks Last Stop is currently occupying this space until it can move in to the former Neiman Marcus space. The former I. Goldgerg space will be available for lease by late Summer of 1997. o Mall store sales were $232 per square foot in 1995 and increased to $268 per square foot in 1996. Typical CAM charges, real estate and use and occupancy taxes for mall specialty tenants are estimated at $15.84 per square foot in 1997. In addition, mall tenants pay a marketing/promotion fee of between $1.00 and $5.50 per square foot. o As of the date of appraisal approximately 34,000 square feet of the specialty store space was vacant, indicating an overall vacancy of 5.6% of mall store space. This is a significant improvement from mid year 1996 when mall vacancy was approximately 117,000 square feet. In addition, the 23,254 square foot former I. Goldberg space will be available by the end of the summer of 1997. Conclusion A metropolitan and locational overview was presented which highlighted important points about the study area and demographic and economic data specific to the trade area were presented. The trade area profile discussed encompassed a radii based analysis that was established based upon a study of the competitive retail structure. Marketing information relating to these sectors was presented and analyzed to determine patterns of change and growth as they impact the subject. Next we discussed the subject neighborhood's retail sales history along with its performance potential over the near term. The given data is useful in establishing quantitative dimensions of the total trade area, while our comments serve to provide qualitative insight into this market. A compilation of this data provides the basis for our projections and forecasts for the subject property. The following summarizes our key conclusions. ================================================================================ -42- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Market Analysis ================================================================================ o The area surrounding the subject is densely populated. There are current approximately 1,186,000 people living within a ten mile radius of the subject and approximately 10,751,000 people living within a sixty mile radius. While the immediate 10 mile trade area is expected to show modest declines in population over the next five years, the total trade area is expected to show increases. o Access to the site is excellent. The subject lies on Woodhaven Road near its intersection with Interstate 95. The subject also lies near US Highway 1, an important local commuting and commercial arteries. o The subject property is current undergoing a major reconstruction and remerchandising. The former Sears store has been demolished and a new movie theater will be constructed in its place. The orientation of the mall will change with a concentration of high end retail tenants at the north end with more value oriented retailers in the middle and entertainment at the south end. o Franklin Mills presents a viable economic concept which should meet with continued market acceptance through aggressive promotion and competent management. Exposure Time Exposure Time is defined as the estimated 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 estimated market value on the effective date of the appraisal. It is a retrospective estimate based upon analysis of past events assuming a competitive and open market. Thus, exposure time is presumed to precede the effective date of the appraisal. According to a recent Cushman & Wakefield survey, investors project an exposure time ranging from three to nine months for all types of retail property, with an average of 6.5 months. Similarly, our conversations with active commercial brokers indicate than an exposure time of nine months would be appropriate for the subject. ================================================================================ -43- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> [GRAPHIC OMITTED] <PAGE> PROPERTY DESCRIPTION ================================================================================ Site Description Location: Southeast quadrant of Woodhaven and Knights Roads Philadelphia, Pennsylvania Shape: Irregular Area: 136.86+/- Acres Frontage: The site has frontage along Franklin Mills Circle, a ring road surrounding the mall. Topography/Terrain: Generally level and at street grade. Street Improvements: Franklin Mills Circle is macadam paved and has concrete curbs and street lighting. 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 the existing structures. We did not observe any evidence to the contrary during our physical inspection of the property. The tract's drainage appears to be adequate. Utilities: Water: City of Philadelphia Sewer: City of Philadelphia Telephone: Bell Atlantic Electricity: PECO Energy Gas: Philadelphia Gas Works 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 Hazard: According to Community Panel No. 420757 0129 F, National Flood Insurance Rate Map, effective August 2, 1996, the subject is in Flood Hazard Zone X, an area of minimal flooding and, therefore, does not require flood hazard insurance. ================================================================================ -44- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> [GRAPHIC OMITTED] <PAGE> Property Description ================================================================================ 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. Hazardous Substances: We observed no evidence of toxic or hazardous substances during our inspection. However, we are not trained to perform technical environmental inspections and recommend the services of a professional engineer for this purpose. Comments: Overall, the subject site is typical of large commercial sites in the area, functionally adequate and well suited for its existing use. Externally, no deleterious influences were noted. Improvements Description The site is improved with a single story super regional outlet mall known as Franklin Mills. The improvements were constructed in 1989 and are currently undergoing a major construction and remerchandising effort. The following is a more complete description of the improvements. General Description Year Built: 1989 Rentable Area (After Renovations): Anchors: 420,966 S.F. Major Tenants: 360,972 S.F. Specialty Tenants: 588,748 S.F. Food Court: 12,850 S.F. Kiosks: 781 S.F. -------------- Total: 1,375,905 S.F. Construction Detail Foundations: Reinforced concrete footings, reinforced concrete slab on grade. Framing: Structural steel. Floors: Finished concrete slab on grade. Walls: Metal walls with dryvit and stucco cover. Roof: Standing seam roof system with skylights and glass panels. Pedestrian Doors: Aluminum and plate glass double entrance doors. ================================================================================ -45- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Property Description ================================================================================ Mechanical Detail Heating and Cooling: Roof mounted combination HVAC units provide heat and air conditioning. Plumbing: Assumed to be to municipal code. Electrical Service: Standard commercial service. Tenants are separately metered for electric use. Fire/Safety Systems: The improvements are fully wet sprinklered. Interior Detail Layout: The improvements are of a single story design with the exception of mezzanine spaces in two of the anchor stores. There are seven existing anchor stores, plus the movie theatre which is under construction. for a total of eight anchors.. Five are owned (Spiegel, JC Penney, Burlington Coat, Marshalls and General Cinema); two are non owned (Sam's Wholesale Club and Phar-Mor); and one anchor is on a land lease (Ports of the World). A floor plan for the subject is exhibited on the opposing page. The mall has been segregated into four neighborhoods, classified as red, blue, yellow and green. Each neighborhood has a connecting courtyard, plus color coded entranceways. There are two food courts located on opposite wings of the mall. Attractive indoor plantings and seating are located throughout the mall. At all main entrances, computerized electronic directories are available for locating stores and services. Overhead audio visual systems provide entertainment, store commercials and public service announcements. Floor Covering: Wood in mall common area. Predominantly vinyl tile in tenant areas. Walls: Painted sheetrock. Ceilings: Exposed metal roof deck and acoustical tile in metal track. Lighting: Recessed fluorescent and incandescent light. Rest Rooms: Multi-fixture men's and women's restrooms are provided. ================================================================================ -46- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Property Description ================================================================================ Hazardous Substances: The appraisers have no knowledge of any hazardous substances present in the improvements to the subject property. A professional study is recommended for final determination of any such substance. Site Improvements: The mall site contains parking for 7,100 cars or 5.2 spaces per thousand square feet of leasable area. There are additional parking areas associated with the non owned anchor and major stores. Paved and lined parking and loading areas are provided. Additionally, there are pole mounted parking lot lighting and concrete walkways to all entrances. Landscaping: Low maintenance trees, shrubs and plantings are situated around the building. Comments: Ownership is constructing a new 61,000 square feet movie theater on the former Sears site to be occupied by General Cinema. Management is estimating net costs of approximately $9.3 million ($149.18/s.f.) for demolition and construction of the new store, purchase and demolition of the existing movie theater and sale of the land underlying the existing cinema. The movie theatre is projected to open by December, 1997. Adjoining the movie theatre, ownership will be constructing a 20,000 Theme restaurant to be occupied by Rain Forest Cafe. Construction cost for this tenant are projected at $2.75 million or $137.50 per square foot. Other major tenant costs include relocation of Neiman Marcus and Saks Last Call ($950,000), plus new tenant spaces for the GAP, Talbots and Polo ($1,585,000). At the time of inspection, the improvements were in good condition with no significant items of deferred maintenance noted. Functionally, the center has a design and layout which are conducive to continued retail use. Externally, no deleterious influences were noted. Personal Property Included in Value Estimate: None. ================================================================================ -47- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> Franklin Mills Philadelphia, PA Tax Comparables ==================================================================================================================================== Proximity to Subject Assessed Value NRA Current Annual Assessed Value Tax % of Assessed Year Built/Occupancy Real Estate Taxes Per SF Per SF Value ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> Franklin Mills Woodhaven Road at Knights Road L $ 8,247,420 1,554,563 $3,985,739 $31.02 $2.56 8.26% Philadelphia, Pa. B $39,982,724 1989/91% T $48,230,144 - ------------------------------------------------------------------------------------------------------------------------------------ Comp. 1: Sams Wholesale Club L $ 52,800 133,010 $ 163,217 $14.85 $1.23 8.26% 4301 Byberry Road B $ 1,922,240 Philadelphia, Pa. T $ 1,975,040 Less than 1 mile 1991/100% - ------------------------------------------------------------------------------------------------------------------------------------ Comp. 2: Toys R Us L $ 51,200 46,653 $ 69,748 $18.09 $1.50 8.26% 4401 Byberry Road B $ 792,800 Philadelphia, Pa. T $ 844,000 Less than 1 mile 1990/100% - ------------------------------------------------------------------------------------------------------------------------------------ Comp. 3: Philadelphia Home & Design Center L $ 1,028,157 218,086 $ 290,893 $16.14 $1.33 8.26% 12131 Knights Road B $ 2,491,843 Philadelphia, Pa. T $ 3,520,000 Less than 1 mile 1988/75% - ------------------------------------------------------------------------------------------------------------------------------------ Comp. 4: Phar-Mor L $ 37,484 85,000 $ 99,168 $14.12 $1.17 8.26% 4301 Barberry Road B $ 1,162,516 Philadelphia, Pa T $ 1,200,000 Less than 1 mile 1988/100% ==================================================================================================================================== </TABLE> <PAGE> REAL PROPERTY TAXES AND ASSESSMENT ================================================================================ The subject property is assessed by the City of Philadelphia for the payment of real estate taxes. The City identifies the subject as Ward 88 Book 2 Number 693014 (4301 Woodhaven Road). For 1997. it is assessed in the following manner: ================================================================================ Land $ 8,247,420 - -------------------------------------------------------------------------------- Improvements $39,982,724 - -------------------------------------------------------------------------------- Total $48,230,144 ================================================================================ The 1997 tax rate applicable to the subject property is $82.64 per $1,000 of assessed value. The current tax rate has not changed since 1991. This total tax rate is attributable to the following jurisdictions: ================================================================================ Jurisdiction Rate ================================================================================ City of Philadelphia $37.45 - -------------------------------------------------------------------------------- School District $45.19 - -------------------------------------------------------------------------------- Total $82.64 ================================================================================ An application of the tax rate outlined above to the current assessment results in an annual real estate tax liability of $3,985,739 in 1997. This tax liability is equivalent to $2.61 per square foot of gross rentable area including Ports of the World (1,528,275 square feet). Ports of the World (Boscov's) is on a land lease, but pays its pro rata share of taxes on the land and its improvements as part of the mall. Assessments in the City of Philadelphia are based upon 32 percent of the assessor's estimate of market value or, in the case of the subject, $150,719,200 in 1997. As a practicality, this ratio is rarely achieved. The current total assessment over the subject property implies a value for tax purposes that appears reasonable based our subsequent valuation. The City of Philadelphia examines its assessments annually. On the opposing page is a survey of tax comparables for retail properties surrounding Franklin Mills. While the subject has a higher assessed value per square foot than the comparables, the overall assessment appears reasonable based upon the assessment to value ratio of 32 percent. Commercial tenants in Philadelphia are subject to the Philadelphia School District's Use and Occupancy Tax which is equal to $46.20 per $1,000 of the real estate assessment. For 1997, tenants will be paying approximately $1.44 per square foot for this tax. We would note, however, that this is an expense to the tenants and not to ownership. ================================================================================ -48- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> ZONING ================================================================================ The subject property is zoned ASC, Area Shopping Center District by the City of Philadelphia. This zoning districts allows for a variety of retail services in an enclosed building. Developmental requirements include the following. ================================================================================ Minimum Lot Size 15,000 s.f. - -------------------------------------------------------------------------------- Setback Requirements None - -------------------------------------------------------------------------------- Minimum Street Frontage 100' - -------------------------------------------------------------------------------- Maximum Building Height 35' - -------------------------------------------------------------------------------- Parking 4 spaces for every 1,000 s.f. of net leasable area on the first floor; 2 spaces for every 1,000 square feet above the street level ================================================================================ We are not experts in the interpretation of complex zoning ordinances but the current development of the subject appears to be a legal use based on our review of public information. We know of no deed restrictions, private or public, that further limit the subject property's use. 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. ================================================================================ -49- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> HIGHEST AND BEST USE ================================================================================ According to The Dictionary of Real Estate Appraisal, Third Edition (1993), a publication of the Appraisal Institute (formerly the American Institute of Real Estate Appraisers), the highest and best use of real property is defined as: 1. The reasonable and probable use that supports the highest present value of vacant land or improved property, as defined, as of the date of the appraisal. 2. The reasonably probable and legal use of land or sites as though vacant, found to be physically possible, appropriately supported, financially feasible, and that results in the highest present land value. 3. The most profitable use. We evaluated the site's highest and best use both as currently improved and as if vacant since the highest and best use of the land can be different from that of the property (land plus improvements). The existing use will continue, however, until the value of the underlying land, at its highest and best use, exceeds the total value of the property as currently utilized. In each case, whether as vacant land or as improved, the highest and best use of the real estate must meet four criteria. The use must be (1) physically possible, (2) legally permissible, (3) financially feasible, and (4) maximally productive. The Subject Site - As Vacant As noted in our description of the subject site, the land's size and shape are conducive to a variety of developments. All utilities necessary for development are in place and the soil is assumed to have sufficient load-bearing capacity to support most types of structures. The site is generally level in topography and presents good visibility and accessibility. Compatibility with existing surrounding land uses is also an important physical consideration for a harmonious development. Our discussion of the immediate neighborhood of the subject site indicates an area predominated by the retail commercial land uses on the major commercial thoroughfares but with residential land uses on surrounding streets. Thus, from a physical perspective, a variety of uses would be a possible homogeneous use of the land. Legal restrictions, as they apply to the subject site, are private restrictions of deed and the public restrictions of zoning. As noted, the subject is zoned for shopping center use. There are no private restrictions which are known to adversely affect the utilization of the land. Thus, commercial utilization of this site is legally permissible. After analyzing the physically possible and legally permissible aspects of the site, 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. Among the financially feasible uses, the use that provides the highest rate of return is the highest and best use. ================================================================================ -50- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Highest and Best Use ================================================================================ The subject has been developed as a super regional outlet mall. This location has attracted national and regional anchor tenants as well as considerable interest from other local and national tenants. The rent levels which are being negotiated are sufficient to support development. The site lies near an interchange of Interstate 95 in a densely populated neighborhood with income levels that are higher than regional averages. As compared to many other types of development, lenders are more willing to underwrite retail development. It is, therefore, our conclusion that, as a vacant site, the current highest and best use of this land is for retail development. The Subject Site - As Improved The subject site is improved with a 1,375,905+/-square foot super regional outlet mall which was constructed in 1989 and which is undergoing new construction and renovation. The improvements are in good overall condition and offer to the market functional and attractively designed retail space. As previously stated, we are not experts in the interpretation of complex zoning ordinances. However, based upon our review of public information, it appears that the current use and development of the subject have been accepted by the local zoning officials. Thus, a retail utilization for the subject site, as improved, is legally permissible. On a financial basis, market evidence indicates that there is a continued demand for physically sound retail properties affording functional utility. The value of a property like the subject on an improved basis is greater than that of the site as vacant. It is, therefore, our conclusion that, on an improved basis, the highest and best use is for the existing retail use. In our opinion, such a use would yield to ownership the largest return over the longest period of time. ================================================================================ -51- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> VALUATION PROCESS ================================================================================ There are three conventional approaches to real estate valuation, namely; Cost, Income Capitalization and Sales Comparison. The Cost Approach renders an estimate of value based upon the price of obtaining a site and constructing improvements, both with equal desirability and utility as that of the subject property. The Income Capitalization Approach renders an estimate of value based upon the present worth of the potential benefits derived from ownership of the subject property. The Sales Comparison Approach renders an estimate of value based upon the competitive prices at which an equally desirable substitute property can be acquired in the open market. Due to the age of the existing improvements and the resulting subjectivity in the estimation of the total accrued depreciation inherent in them, the Cost Approach was not considered applicable to the valuation of the subject property. Because real property such as the subject is regularly bought and sold in the open market, the Income Capitalization and Sales Comparison Approaches are felt to be most germane to this valuation. The strengths and weaknesses of each approach toward the valuation of the subject property are then reviewed. The valuation analysis concludes with a reconciliation of the outstanding differences between the two approaches and a final estimate of value of the subject property is rendered ================================================================================ -52- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> SALES COMPARISON APPROACH ================================================================================ Methodology Upon Completion and at Stabilization The Sales Comparison Approach provides an estimate of market value by comparing recent sales of similar properties in the surrounding or competing area to the subject property. Inherent in this approach is the principle of substitution, which holds 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 arms-length transactions between willing and knowledgeable buyers and sellers, market value and price trends can be identified. Comparability in physical, locational, and economic characteristics is an important criterion when comparing sales to the subject property. The basic steps involved in the application of this approach are as follows: 1. Research recent, relevant property sales and current offerings throughout the competitive marketplace; 2. Select and analyze properties considered most similar to the subject, giving consideration to the time of sale, change in economic conditions which may have occurred since date of sale, and other physical, functional, or locational factors; 3. Identify sales which include favorable financing and calculate the cash equivalent price; and 4. Reduce the sale prices to a common unit of comparison, such as price per square foot of gross leasable area sold; 5. Make appropriate adjustments between the comparable properties and the property appraised; 6. Interpret the adjusted sales data and draw a logical value conclusion. The most widely-used, market-oriented units of comparison for properties such as the subject are the sale price per square foot of gross leasable area (GLA) purchased, and the overall capitalization rate extracted from the sale. Market Overview The typical purchaser of properties of the subject's caliber includes both foreign and domestic insurance companies, large retail developers, pension funds, and real estate investment trusts (REIT's). The large capital requirements necessary to participate in this market and the expertise demanded to successfully operate an investment of this type, both limit the number of active participants and, at the same time, expand the geographic boundaries of the marketplace to include the international arena. Due to the relatively small number of market participants and the moderate amount of quality product available in the current marketplace, strong demand exists for the nation's quality retail developments. ================================================================================ -53- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ Most institutional grade retail properties are existing, seasoned centers with good inflation protection. These centers offer stability in income and are strongly positioned to the extent that they are formidable barriers to new competition. They tend to be characterized as having three to five department store anchors, most of which are dominant in the market. Mall shop sales are at least $300 per square foot and the trade area offers good growth potential in terms of population and income levels. Equally important are centers which offer good upside potential after face-lifting, renovations, or expansion. With new construction down substantially, owners have accelerated their renovation and remerchandising programs. Little competition from over-building is likely in most mature markets within which these centers are located. Environmental concerns and "no-growth" mentalities in communities continue to be serious impediments to new retail developments. Over the past 18+/- months, we have seen real estate investment return to favor as an important part of many institutional investors' diversified portfolios. Banks are aggressively competing for business, trying to regain market share lost to Wall Street, while the more secure life insurance companies are also reentering the market. The re-emergence of real estate investment trusts (REITs) has helped to provide liquidity within the real estate market, pushing demand for well-tenanted, quality property, particularly regional malls. Currently, REITs are one of the most active segments of the industry and are particularly attractive to institutional investors due to their liquidity. However, overbuilding in the retail industry has resulted in the highest GLA per capita ever (19 square feet per person). As a consequence, institutional investors are more selective than ever with their underwriting criteria. Many investors are even shunning further retail investment at this time, content that their portfolios have a sufficient weighting in this segment. The market for dominant Class A institutional quality malls is tight, as characterized by the limited amount of good quality product available. It is the overwhelming consensus that Class A property would trade in the 7.0 to 8.0 percent capitalization rate range, with rates below 7.5 percent likely limited to the top 15 to 20 malls with sales at least $350 per square foot. Conversely, there are many second tier and lower quality malls offered on the market at this time. With limited demand from a much thinner market, cap rates for this class of malls are felt to be in the much broader 9.5 to 14.0 percent range. Reportedly, there are over 50 malls on the market currently. Pessimism about the long term viability of many of these lower quality malls has been fueled by the recent turmoil in the retail industry. To better understand where investors stand in today's marketplace, we have surveyed active participants in the retail investment market. Based upon our survey, the following points summarize some of the more important "hot buttons" concerning investors: ================================================================================ -54- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ 1. Occupancy Costs - This "health ratio" measure is of fundamental concern today. The typical range for total occupancy cost-to-sales ratios falls between 10.0 and 15.0 percent. With operating expenses growing faster than sales in many malls, this issue has become even more important. As a general rule of thumb, malls with sales under $250 per square foot generally support ratios of 10.0 to 12.0 percent; $250 to $300 per square foot support 12.0 to 13.5 percent; and over $300 per square foot support 13.5 to 15.0 percent. Experience and research show that most tenants will resist total occupancy costs that exceed 15.0 to 18.0 percent of sales. However, ratios of upwards to 20.0 percent are not uncommon for some higher margin tenants. This appears to be by far the most important issue to an investor today. Investors are looking for long term growth in cash flow and want to realize this growth through real rent increases. High occupancy costs limit the amount of upside potential at lease rollovers. 2. Market Dominance - The mall should truly be the dominant mall in the market, affording it a strong barrier to entry for new competition. Some respondents feel this is more important than the size of the trade area itself. 3. Strong Anchor Alignment - Having at least three department stores (four are ideal), two of which are dominant in that market. The importance of the traditional department store as an anchor tenant has returned to favor after several years of weak performance and confusion as to the direction of the industry. As a general rule, most institutional investors would not be attracted to a two-anchor mall. 4. Dense Marketplace - Several of the institutional investors favor markets of 300,000 to 500,000 people or greater within a 5- to 7-mile radius. Population growth in the trade area is also very important. One advisor likes to see growth 50.0 percent better than the U.S. average. Another investor cited that they will look at trade areas of 200,000+/- but, if there is no population growth forecasted in the market, a 50+/- basis point adjustment to the cap rate at the minimum is warranted. 5. Income Levels - Household incomes of $50,000+ which tends to be limited in many cases to top 50 MSA locations. Real growth with spreads of 200 to 300 basis points over inflation are ideal. 6. Good Access - Interstate access with good visibility and a location within or proximate to the growth path of the community. 7. Tenant Mix - A complimentary tenant mix is important. Mall shop ratios of 35+/-percent of total GLA are considered average with 75.0 to 80.0 percent allocated to national tenants. Mall shop sales of at least $250 per square foot with a demonstrated positive trend in sales is also considered to be important. 8. Physical Condition - Malls that have good sight lines, an updated interior appearance and a physical plant in good shape are looked upon more favorably. While several developers are interested in turn-around situations, the risk associated with large capital infusions can add at least 200 to 300 basis points onto a cap rate. ================================================================================ -55- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ 9. Environmental Issues - The impact of environmental problems cannot be understated. There are several investors who won't even look at a deal if there are any potential environmental issues no matter how seemingly insignificant. 10. Operating Covenants - Some buyers indicated that they would not be interested in buying a mall if the anchor store operating covenants were to expire over the initial holding period. Others weigh each situation on its own merit. If it is a dominant center with little likelihood of someone coming into the market with a new mall, they are not as concerned about the prospects of loosing a department store. If there is a chance of loosing an anchor, the cost of keeping them must be weighed against the benefit. In many of their malls they are finding that traditional department stores are not always the optimum tenant but that a category killer or other big box use would be a more logical choice. In the following section we will discuss trends which have become apparent over the past several years involving sales of regional malls. Regional Mall Property Sales Evidence has shown that mall property sales which include anchor stores have lowered the square foot unit prices for some comparables, and have affected investor perceptions. In our discussions with major shopping center owners and investors, we learned that capitalization rates and underwriting criteria have become more sensitive to the contemporary issues affecting department store anchors. Traditionally, department stores have been an integral component of a successful shopping center and, therefore, of similar investment quality if they were performing satisfactorily. During the 1980's a number of acquisitions, hostile take-overs and restructurings occurred in the department store industry which changed the playing field forever. Weighted down by intolerable debt, combined with a slumping economy and a shift in shopping patterns, the end of the decade was marked by a number of bankruptcy filings unsurpassed in the industry's history. Evidence of further weakening continued into 1991-1992 with filings by such major firms as Carter Hawley Hale, P.A. Bergner & Company, and Macy's. In early 1994, Woodward & Lothrop announced their bankruptcy involving two department store divisions that dominate the Philadelphia and Washington D.C. markets. Recently, most of the stores were acquired by the May Department Stores Company, effectively ending the existence of the 134 year old Wanamaker name, the nation's oldest department store company. More recently, however, department stores have been reporting a return to profitability resulting from increased operating economies and higher sales volumes. Sears, once marked by many for extinction, has more recently won the praise of analysts. Federated Department Stores has also been acclaimed as a text book example on how to successfully emerge from bankruptcy. They have merged with Macy's and more recently acquired the Broadway chain to form one of the nation's largest department store companies. The trend of continued consolidation and vulnerability of the regional chains continues into 1996. ================================================================================ -56- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ With all this in mind, investors are looking more closely at the strength of the anchors when evaluating an acquisition. Most of our survey respondents were of the opinion that they were indifferent to acquiring a center that included the anchors versus stores that were independently owned if they were good performers. However, where an acquisition includes anchor stores, the resulting cash flow is typically segregated with the income attributed to anchors (base plus percentage rent) analyzed at a higher cap rate then that produced by the mall shops. However, more recent data suggests that investors are becoming more troubled by the creditworthiness of the mall shops. With an increase in bankruptcies, store closures and consolidations, we see investors looking more closely at the strength and vulnerabilities of the in-line shops. As a result, there has been a marked trend of increasing capitalization rates. Cushman & Wakefield has extensively tracked regional mall transaction activity for several years. In this analysis we discuss sale trends since 1991. Summary data sheets for the more recent period (1995 to 1996) are displayed on the Following Pages. Summary information for prior years (1991 to 1994) are maintained in our files. These sales are inclusive of good quality Class A or B+/- properties that are dominant in their market. Also included are weaker properties in second tier cities that have a narrower investment appeal. As such, the mall sales presented in this analysis show a wide variety of prices on a per unit basis, ranging from $59 per square foot up to $686 per square foot of total GLA purchased. When expressed on the basis of mall shop GLA acquired, the range is more broadly seen to be $93 to $686 per square foot. Alternatively, the overall capitalization rates that can be extracted from each transaction range from 5.60 percent to rates in excess of 11.0 percent. One obvious explanation for the wide unit variation is the inclusion (or exclusion) of anchor store square footage which has the tendency to distort unit prices for some comparables. Other sales include only mall shop area where small space tenants have higher rents and higher retail sales per square foot. A shopping center sale without anchors, therefore, gains all the benefits of anchor/small space synergy without the purchase of the anchor square footage. This drives up unit prices to over $250 per square foot, with most sales over $300 per square foot of salable area. A brief discussion of historical trends in mall transactions follows. ================================================================================ -57- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ o Cushman & Wakefield has researched 19 mall transactions for 1995. With the exception of possibly Natick Mall and Smith Haven Mall, by and large the quality of malls sold are lower than what has been shown for prior years. For example, the average transaction price has been slipping. In 1993, the peak year, the average deal was nearly $133.8 million. In 1995, it is shown to be $88.6 million which is even skewed upward by Natick and Smith Haven Malls which had a combined price of $486.0 million. The average price per square foot of total GLA sold is calculated to be $193 per square foot. The range in values of mall GLA sold are $93 to $686 with an average of $285 per square foot. The upper end of the range is formed by Queens Center with mall shop sales of nearly $700 per square foot. Characteristics of these lesser quality malls would be higher initial capitalization rates. The range for these transactions is 7.25 to 11.10 percent with a mean of 9.13 percent. Most market participants indicated that continued turmoil in the retail industry will force cap rates to move higher. o 1996 has been the most active year in recent times in terms of transactions. REIT's have far and away been the most active buyers. We believe this increase in activity is a result of a combination of dynamics. The liquidity of REIT's as well as the availability of capital has made acquisitions much easier. In addition, sellers have become much more realistic in there pricing, recognizing that the long term viability of a regional mall requires large infusions of capital. The 26 transactions we have tracked range in size from approximately $22.2 million to $266.0 million. The malls sold also run the gamut of quality ranging from several secondary properties in small markets to such higher profile properties as Old Orchard Shopping Center in Chicago and South Park Mall in Charlotte. Sale prices per SF of mall shop GLA range from $126 to $534 with a mean of $242. REIT's primary focus on initial return with their underwriting centered on in place income. As such, capitalization rates ranged from 7.0 percent to 12.0 percent with a mean of 9.35 percent. ================================================================================ -58- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> ==================================================================================================================================== REGIONAL MALL SALES 1995 1995 Transaction Chart Cushman & Wakefield, Inc. ==================================================================================================================================== Sale Sale Year Total Sold Shop Shop Occu- No. Property/Location Date Built Sale Price GLA GLA GLA Ratio pancy ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 95- 1 Queens Center Dec-95 1973/ $108,000,000 625,859 157,516 157,516 25.2% 99.0% Elmhurst, NY 90/95 - ------------------------------------------------------------------------------------------------------------------------------------ 95- 2 Natick Mall Dec-95 1994 $265,000,000 1,160,733 646,733 436,733 37.6% 99.0% Natick, MA (redevel.) - ------------------------------------------------------------------------------------------------------------------------------------ 95- 3 Ridgedale Center Dec-95 1974/ $114,500,000 1,040,285 334,937 334,937 32.2% 97.0% Minnetonka, MN 82/93 - ------------------------------------------------------------------------------------------------------------------------------------ 95- 4 Southland Mall Dec-95 1970/ $ 82,500,000 902,000 318,606 318,606 35.3% 93.0% Taylor, MI 88/92 - ------------------------------------------------------------------------------------------------------------------------------------ 95- 5 Smith Haven Mall Dec-95 1969/ $221,000,000 1,351,913 813,786 505,626 37.4% 93.0% Lake Grove, NY 86 - ------------------------------------------------------------------------------------------------------------------------------------ 95- 6 Capltola Mall Dec-95 1977/ $ 52,500,000 577,396 577,396 197,396 34.2% 92.0% (1) Capitola, CA 88 - ------------------------------------------------------------------------------------------------------------------------------------ 95- 7 Eastview Mall Oct.95 1971/ $126,850,000 1,309,488 534,458 534,458 40.8% 88.0% (2) Victor, NY 95 - ------------------------------------------------------------------------------------------------------------------------------------ 95- 8 Centre at Salisbury Aug-95 1990 $ 78,000,000 884,825 744,825 278,915 31.5% 89.0% Salisbury, MD - ------------------------------------------------------------------------------------------------------------------------------------ 95- 9 Colonial Park Mall Jul-95 1960/ $ 46,500,000 736,177 380,944 242,766 33.0% 96.0% Harrisburg, PA 90 - ------------------------------------------------------------------------------------------------------------------------------------ 95-10 Piedmont Mall Jul-95 1983/ $ 39,000,000 534,135 409,135 188,049 35.2% -- Darwille, VA 84 - ------------------------------------------------------------------------------------------------------------------------------------ 95-11 River Oaks Center Jul-95 1978/ $ 26,200,000 574,657 493,791 219,099 38.1% -- Decatur, AL 89 - ------------------------------------------------------------------------------------------------------------------------------------ 95-12 Columbia Mall Jul-95 1988 $ 27,650,000 351,364 351,364 128,024 36.4% 96.0% Bloomsberg, PA - ------------------------------------------------------------------------------------------------------------------------------------ 95-13 Hot Springs Mall Jun-95 1982 $ 22,775,000 389,914 318,033 156,000 40.0% 83.0% Hot Springs. AR - ------------------------------------------------------------------------------------------------------------------------------------ 95-14 Westgate Mall May-95 1960/ $ 43,000,000 649,185 448,268 253,993 39.1% 77.9% San Jose, CA 89 - ------------------------------------------------------------------------------------------------------------------------------------ 95-15 Silver City Galleria Apr.95 1992 $159,106,000 1,005,595 749,595 349,107 34.7% 96.0% East Taunton, MA - ------------------------------------------------------------------------------------------------------------------------------------ 95-16 Westgate Mall Apr-95 1975 $ 25,300,000 768,000 449,974 272,630 35.5% 85.0% Spartanburg, SC - ------------------------------------------------------------------------------------------------------------------------------------ 95-17 Hanover Mall Jan-95 1971/ $ 38,000,000 649,130 649,130 298,531 46.0% 90.0% Hanover, MA 93 - ------------------------------------------------------------------------------------------------------------------------------------ 95-18 Greanbrier Mall Jan-95 1981 $ 84,700,000 774,201 594,201 318,595 41.2% 96.0% Chesapeake, VA - ------------------------------------------------------------------------------------------------------------------------------------ 95-19 Galleria at Tyler Jan-95 1970/ $123,750,000 1,044,536 431,640 411,640 39.4% 86.0% (3) Riverside, CA 91 ==================================================================================================================================== Survey Low: $ 22,775,000 351,364 l57,516 128,024 25.2% 77.9% Survey High: $265,000,000 1,351,913 813,786 534,458 46.0% 99.0% - ------------------------------------------------------------------------------------------------------------------------------------ Survey Mean: $ 88,649,000 806,800 494,965 294,875 36.5% 91.5% ==================================================================================================================================== <CAPTION> ==================================================================================================================================== Capitalization Rates Unit Rate Comparison -------------------- --------------------- Sale Shop Going-In Terminal Price/GLA Price/Mall Sales No. Property/Location Sales/Net NOI NOI/sf OAR OAR IRR Purchased Shop GLA Multiple ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 95- 1 Queens Center $686 $10,487,000 $66.58 9.71% -- -- $686 $686 1.00 Elmhurst, NY - ------------------------------------------------------------------------------------------------------------------------------------ 95- 2 Natick Mall $416 $21,311.000 $32.95 8.04% 8.00% 10.75% $410 $607 1.46 Natick, MA - ------------------------------------------------------------------------------------------------------------------------------------ 95- 3 Ridgedale Center $339 $ 8,938,100 $26.68 7.80% -- 11.00% $342 $342 1.01 Minnetonka, MN - ------------------------------------------------------------------------------------------------------------------------------------ 95- 4 Southland Mall $261 $ 7,143.200 $22.42 8.66% -- 11.75% $259 $259 0.99 Taylor, MI - ------------------------------------------------------------------------------------------------------------------------------------ 95- 5 Smith Haven Mall $425 $17,127.500 $21.05 7.75% 8.25% 11.10% $272 $437 1.03 Lake Grove, NY - ------------------------------------------------------------------------------------------------------------------------------------ 95- 6 Capltola Mall $262 $ 4,987.500 $ 8.64 9.50% -- -- $ 91 $266 1.02 (1) Capitola, CA - ------------------------------------------------------------------------------------------------------------------------------------ 95- 7 Eastview Mall $290 $ 9,200.000 $17.21 7.25% -- 12.00% $237 $237 0.82 (2) Victor, NY - ------------------------------------------------------------------------------------------------------------------------------------ 95- 8 Centre at Salisbury $257 $ 7,020,000 $ 9.43 9.00% -- -- $105 $280 1.09 Salisbury, MD - ------------------------------------------------------------------------------------------------------------------------------------ 95- 9 Colonial Park Mall $275 $ 4,417.500 $11.60 9.50% -- -- $122 $192 0.70 Harrisburg, PA - ------------------------------------------------------------------------------------------------------------------------------------ 95-10 Piedmont Mall $250 $ 3,600.000 $ 8.80 9.23% -- -- $ 95 $207 0.83 Darwille, VA - ------------------------------------------------------------------------------------------------------------------------------------ 95-11 River Oaks Center $200 $ 2,908.200 $ 5.89 11.10% -- -- $ 53 $120 0.60 Decatur, AL - ------------------------------------------------------------------------------------------------------------------------------------ 95-12 Columbia Mall $165 $ 2,958.500 $ 8.42 10.70% -- -- $ 79 $216 1.31 Bloomsberg, PA - ------------------------------------------------------------------------------------------------------------------------------------ 95-13 Hot Springs Mall $240 $ 2,277.500 $ 7.16 10.00% -- -- $ 72 $146 0.61 Hot Springs. AR - ------------------------------------------------------------------------------------------------------------------------------------ 95-14 Westgate Mall $191 $ 4,096,457 $ 9.14 9.53% -- -- $ 96 $169 0.89 San Jose, CA - ------------------------------------------------------------------------------------------------------------------------------------ 95-15 Silver City Galleria $290 $13,219.000 $17.63 8.31% 8.00% 11.00% $212 $456 1.57 East Taunton, MA - ------------------------------------------------------------------------------------------------------------------------------------ 95-16 Westgate Mall $240 $ 2,403.500 $ 5.34 9.50% -- -- $ 56 $ 93 0.39 Spartanburg, SC - ------------------------------------------------------------------------------------------------------------------------------------ 95-17 Hanover Mall $204 $ 3,811,400 $ 5.87 10.03% -- -- $ 59 $127 0.62 Hanover, MA - ------------------------------------------------------------------------------------------------------------------------------------ 95-18 Greanbrier Mall $250 $ 6,600.000 $11.11 7.79% 8.00% 11.50% $143 $266 1.06 Chesapeake, VA - ------------------------------------------------------------------------------------------------------------------------------------ 95-19 Galleria at Tyler $244 $ 9,600,000 $22.24 7.76% 8.00% 10.50% $287 $301 1.23 (3) Riverside, CA ==================================================================================================================================== Survey Low: $165 $ 2,277,500 $ 5.34 7.25% 8.00% 10.50% $ 53 $ 93 0.39 Survey High: $686 $21,311,000 $66.58 11.10% 8.25% 12.00% $686 $686 1.57 - ------------------------------------------------------------------------------------------------------------------------------------ Survey Mean: $289 $ 7,479,177 $16.74 9.13% 8.05% 11.20% $193 $284 0.96 ==================================================================================================================================== </TABLE> - ---------------- (1) Cash equivelent price (2) Includes 62,770 square foot strip center (3) Net of allocation for excess land. Sale includes cinema CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> ==================================================================================================================================== REGIONAL MALL SALES 1996 1996 Transaction Chart Cushman & Wakefield, Inc. ==================================================================================================================================== Sale Sale Year Grantor/ Total Sold No. Property/Location Date Built Grantee Sale Price GLA GLA <S> <C> <C> <C> <C> <C> <C> <C> ==================================================================================================================================== 96- 1 Old Orchard Shopping Center Dec-96 1958/ Zell Merritt Lynch RE Opport/ $266,000,000 1,800,000 955,752 Skokie, Illinois 85 Urban Shopping Centers, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ 96- 2 Citicorp Package Dec-96 Citicorp Real Estate/ $126,100,000 2,641,816 964,348 1) Buenaventura Mall 1964/ The Macerich Company Ventura, California 85 2) Fresno Fashion Fair 1970 Fresno, California 3) Huntington Center Mall 1966/ Huntington, California 93 - ------------------------------------------------------------------------------------------------------------------------------------ 96- 3 Forbes/Cohen Package Dec-96 Forbes/Cohen Properties/ $134,000,000 1,841,236 1,036,827 1) Westwood Mall 1972 General Growth Properties Jackson, Michigan 2) Lakeview Square 1983 Battle Creek, Michigan 3) Lansing Mall 1966/ Lansing, Michigan 88 - ------------------------------------------------------------------------------------------------------------------------------------ 96- 4 Rimrock Mall Dec-96 1975 Trizec Hahn Centers/ $ 43,900,000 583,112 406,140 Billings, MT The Macerich Company - ------------------------------------------------------------------------------------------------------------------------------------ 96- 5 Vintage Falls Mall Dec-96 1977/ Trizec Hahn Centers/ $ 74,300,000 1,052,701 811,352 Modesto, CA 87 The Macerich Company - ------------------------------------------------------------------------------------------------------------------------------------ 96- 6 La Cumbre Plaza Dec-96 1967/ Trizec Hahn Centers/ $ 22,225,000 476,360 176,360 (1) Santa Barbara, California 88 Taubman Realty Group, LP - ------------------------------------------------------------------------------------------------------------------------------------ 96- 7 Valley Fair Mall Dec-96 1970/ Safco/ $ 35,000,000 608,000 608,000 West Valley City, Utah 88 Excel Realty Trust, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ 96- 8 Quall Springs Mall Nov-96 1981 Equitable Life Assurance Society/ $ 47,345,700 1,016,909 329.056 (2) Oklahoma City, Oklahoma General Growth Properties, Inc - ------------------------------------------------------------------------------------------------------------------------------------ 96- 9 St. Clair Square Nov-96 1974/ Prudential Property Companies/ $ 66,400,000 1,044,781 307,791 (2) Fairvew Heights, IL 83 CBL & Associates - ------------------------------------------------------------------------------------------------------------------------------------ 96-10 South Park Mall Nov-96 1970 BAC, Inc (Belk Brothers Prop.)/ $153,000,000 1,142,345 353,003 Charlotte, North Carolina HRE Charlotte, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ 96-11 Sooner Mall Nov-96 1976/ Equitable Life Assurance Society/ $ 26,775.000 503,891 367,482 Norman, Oklahoma 89 Generel Growlh Properties, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ 96-12 Park Mall Oct-96 1974 Kivel Realty Investments/ $ 49,950,000 909,000 489,000 Tucson. Arizona General Growth Properties, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ 96-13 Valley View Center Oct-96 1973/ LaSalle Street Fund/ $ 85,500,000 1,567,000 729,481 Dallas, TX 83/96 The Macerich Conrpany - ------------------------------------------------------------------------------------------------------------------------------------ 96-14 The Mall At Johnson City Oct-96 1971/ Johnson City Mall Assoc./ $ 42,750,000 557,715 557,715 (3) Johnson City, Tennessee 1981 Glimcher Realty Trust - ------------------------------------------------------------------------------------------------------------------------------------ 96-15 Briarcliffe Mall Jul-96 1986/ Briarcliffe Mall Ltd Partnership/ $ 42,200,000 488,426 460,426 Myrtle Beach. South Carolina 94 Colonial Properties Trust - ------------------------------------------------------------------------------------------------------------------------------------ 96-16 Fairlane Town Center Jul-96 1978 Pacific Telesis Pension Trust/ $ 91,500,000 1,519,000 629,000 Dearborn, Michigan Taubman Realty - ------------------------------------------------------------------------------------------------------------------------------------ 96-17 Paseo Nuevo Center Jun-96 1990 JMB Realty Corpi. $ 37,000,000 434,831 136,841 Santa Barbara, California Taubman Realty - ------------------------------------------------------------------------------------------------------------------------------------ ==================================================================================================================================== Mall Mall Mall Sale Shop Shop Occu- Shop No. Property/Location GLA Ratio pancy Sales/Net NOI NOI/sf ==================================================================================================================================== 96- 1 Old Orchard Shopping Center 550,000 30.8% 88.0% $350 $21,546,000 $22.54 Skokie, Illinois - ------------------------------------------------------------------------------------------------------------------------------------ 96- 2 Citicorp Package 829,938 31.4% -- $260 $13,135,500 $13.62 1) Buenaventura Mall Ventura, California 2) Fresno Fashion Fair Fresno, California 3) Huntington Center Mall Huntington, California - ------------------------------------------------------------------------------------------------------------------------------------ 96- 3 Forbes/Cohen Package 699,514 38.0% 85.0% $233 $14,070,000 $13.57 1) Westwood Mall Jackson, Michigan 2) Lakeview Square Battle Creek, Michigan 3) Lansing Mall Lansing, Michigan - ------------------------------------------------------------------------------------------------------------------------------------ 96- 4 Rimrock Mall 267,840 45.9% -- $231 $ 4,346,100 $10.70 Billings, MT - ------------------------------------------------------------------------------------------------------------------------------------ 96- 5 Vintage Falls Mall 352,352 33.5% -- $263 $ 6,761,300 $11.06 Modesto, CA - ------------------------------------------------------------------------------------------------------------------------------------ 96- 6 La Cumbre Plaza 176,360 37.0% 90.0% $387 $ 2,667,000 $15.12 (1) Santa Barbara, California - ------------------------------------------------------------------------------------------------------------------------------------ 96- 7 Valley Fair Mall 265,298 43.6% 85 0% $250 $ 4,000,000 $ 6.58 West Valley City, Utah - ------------------------------------------------------------------------------------------------------------------------------------ 96- 8 Quall Springs Mall 329,056 32.4% 77.1% $215 $ 4,882,760 $14.84 (2) Oklahoma City, Oklahoma - ------------------------------------------------------------------------------------------------------------------------------------ 96- 9 St. Clair Square 307,791 29.5% 93.7% $330 $ 7,733,000 $25.12 (2) Fairvew Heights, IL - ------------------------------------------------------------------------------------------------------------------------------------ 96-10 South Park Mall 353,003 30.9% 98.0% $400 $10,710,000 $30.34 Charlotte, North Carolina - ------------------------------------------------------------------------------------------------------------------------------------ 96-11 Sooner Mall 198,939 39.5% 80.0% $225 $ 2,948,969 $ 8.02 Norman, Oklahoma - ------------------------------------------------------------------------------------------------------------------------------------ 96-12 Park Mall 390,687 43.0% 85.0% $225 $ 4,995,000 $10.21 Tucson. Arizona - ------------------------------------------------------------------------------------------------------------------------------------ 96-13 Valley View Center 496,481 31.7% -- $228 $ 7,994,250 $10.96 Dallas, TX - ------------------------------------------------------------------------------------------------------------------------------------ 96-14 The Mall At Johnson City 223,110 40.0% 81.0% $236 $ 4,338,750 $ 7.78 (3) Johnson City, Tennessee - ------------------------------------------------------------------------------------------------------------------------------------ 96-15 Briarcliffe Mall 235,544 48.2% 95.0% $225 $ 4,384,580 $ 9.52 Myrtle Beach. South Carolina - ------------------------------------------------------------------------------------------------------------------------------------ 96-16 Fairlane Town Center 629,000 41.4% 90.0% $275 $ 7,091,250 $11.27 Dearborn, Michigan - ------------------------------------------------------------------------------------------------------------------------------------ 96-17 Paseo Nuevo Center 136,841 31.5% 90.0% $380 $ 4,070,000 $29.74 Santa Barbara, California - ------------------------------------------------------------------------------------------------------------------------------------ ==================================================================================================================================== Capitalization Rates Unit Rate Comparison -------------------- ---------------------- Sale Going-In Terminal Price/GLA Price/Mall Sales No. Property/Location OAR OAR IRR Purchased Shop GLA Multiple ==================================================================================================================================== 96- 1 Old Orchard Shopping Center 8.10% -- -- $278 $484 1.38 Skokie, Illinois - ------------------------------------------------------------------------------------------------------------------------------------ 96- 2 Citicorp Package 10.50% -- -- $130 $151 0.58 1) Buenaventura Mall Ventura, California 2) Fresno Fashion Fair Fresno, California 3) Huntington Center Mall Huntington, California - ------------------------------------------------------------------------------------------------------------------------------------ 96- 3 Forbes/Cohen Package 10.50% -- -- $129 $102 0.82 1) Westwood Mall Jackson, Michigan 2) Lakeview Square Battle Creek, Michigan 3) Lansing Mall Lansing, Michigan - ------------------------------------------------------------------------------------------------------------------------------------ 96- 4 Rimrock Mall 9.90% -- -- $108 $164 0.71 Billings, MT - ------------------------------------------------------------------------------------------------------------------------------------ 96- 5 Vintage Falls Mall 9.10% -- -- $122 $211 0.80 Modesto, CA - ------------------------------------------------------------------------------------------------------------------------------------ 96- 6 La Cumbre Plaza 12.00% -- -- $126 $126 0.33 (1) Santa Barbara, California - ------------------------------------------------------------------------------------------------------------------------------------ 96- 7 Valley Fair Mall 11.43% -- -- $ 58 $132 0.53 West Valley City, Utah - ------------------------------------------------------------------------------------------------------------------------------------ 96- 8 Quall Springs Mall 10.31% -- -- $144 $144 0.67 (2) Oklahoma City, Oklahoma - ------------------------------------------------------------------------------------------------------------------------------------ 96- 9 St. Clair Square 8.95% -- -- $281 $281 0.85 (2) Fairvew Heights, IL - ------------------------------------------------------------------------------------------------------------------------------------ 96-10 South Park Mall 7.00% -- -- $433 $433 1.08 Charlotte, North Carolina - ------------------------------------------------------------------------------------------------------------------------------------ 96-11 Sooner Mall 11.01% 11.00% -- $ 73 $135 0.60 Norman, Oklahoma - ------------------------------------------------------------------------------------------------------------------------------------ 96-12 Park Mall 10.00% -- -- $102 $128 0.57 Tucson. Arizona - ------------------------------------------------------------------------------------------------------------------------------------ 96-13 Valley View Center 9.35% -- -- $117 $172 0.76 Dallas, TX - ------------------------------------------------------------------------------------------------------------------------------------ 96-14 The Mall At Johnson City 10.15% 10.00% 11.50% $ 77 $192 0.81 (3) Johnson City, Tennessee - ------------------------------------------------------------------------------------------------------------------------------------ 96-15 Briarcliffe Mall 10.39% 10.50% 14.00% $ 92 $179 0.80 Myrtle Beach. South Carolina - ------------------------------------------------------------------------------------------------------------------------------------ 96-16 Fairlane Town Center 7.75% -- -- $145 $145 0.53 Dearborn, Michigan - ------------------------------------------------------------------------------------------------------------------------------------ 96-17 Paseo Nuevo Center 11.00% -- -- $270 $270 0.71 Santa Barbara, California - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> ==================================================================================================================================== REGIONAL MALL SALES 1996 1996 Transaction Chart Cushman & Wakefield, Inc. ==================================================================================================================================== Sale Sale Year Grantor/ Total Sold No. Property/Location Date Built Grantee Sale Price GLA GLA <S> <C> <C> <C> <C> <C> <C> <C> ==================================================================================================================================== 96-18 Fashion Show Mall Jun-96 1981/ Howard Hughes Corporation/ $164,400,000 840,000 308,000 Las Vegas, Nevada 93 Rouse Company - ------------------------------------------------------------------------------------------------------------------------------------ 96-19 Charlottesville Fashion Sq. May-96 1980 Leonard Farber, Inc. $ 37,250,000 574,953 410,300 Charlottesville, Virginia Shopping Center Associates - ------------------------------------------------------------------------------------------------------------------------------------ 96-20 Grand Teton Mall Apr-98 1984/ Equitable/ $ 34,375,000 521,048 521,048 Idaho Fall, Idaho 90 J.P. Realty, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ 96-21 Danbury Fair Mall Mar-96 1986/ Danbury Fair Mall Associates/ $254,000,000 1,270,146 499,868 Danbury, Connecticut 91 Fair Properties Inc.(Private REIT) - ------------------------------------------------------------------------------------------------------------------------------------ 96-22 Charlestowne Mall Mar-96 1991/ Charwil Associates/ $128,344,000 824,900 744,900 St. Charles, Illinois 93/95 Fox Properties (Private REIT) - ------------------------------------------------------------------------------------------------------------------------------------ 96-23 Fashion Square Sherman Oaks Mar-98 1962/ Prudential Assurance Corp./ $125,200,000 837,147 365,000 Sherman Oaks, California 90 City Freeholds - ------------------------------------------------------------------------------------------------------------------------------------ 96-24 Regency Square Mall Feb-96 1967/ N. American Properly Unit Tr./ $119,200,000 1,341,631 530,000 Jacksonville, Florida 93 MEPC PLC - ------------------------------------------------------------------------------------------------------------------------------------ 96-25 Valley Plaza Center Feb-98 1967/ N. American Properly Unit Tr./ $ 91,000,000 1,073,587 381,000 Bakersfield, California 90 MEPC PLC - ------------------------------------------------------------------------------------------------------------------------------------ 96-26 Clearview Mall Feb-96 1981 Metropolitan Life Inaurance/ $ 27,000,000 500,454 359,898 Bulter, Pennsylvania Clearview Mall Associates ==================================================================================================================================== Survey Low: $ 22,225,000 434,837 136,641 Survey High: $266,000,000 2,641,616 1,036,627 - ------------------------------------------------------------------------------------------------------------------------------------ Survey Mean: $ 90,058,258 998,877 509,176 ==================================================================================================================================== ==================================================================================================================================== Mall Mall Mall Sale Shop Shop Occu- Shop No. Property/Location GLA Ratio pancy Sales/Net NOI NOI/sf ==================================================================================================================================== 96-18 Fashion Show Mall 308,000 36.7% 93.0% $455 $12,330,000 $40.03 Las Vegas, Nevada - ------------------------------------------------------------------------------------------------------------------------------------ 96-19 Charlottesville Fashion Sq. 193,800 33.1% 95.0% $275 $ 3,445,600 $ 8.40 Charlottesville, Virginia - ------------------------------------------------------------------------------------------------------------------------------------ 96-20 Grand Teton Mall 198,958 38.2% 95.7% $234 $ 3,550,000 $ 6.81 Idaho Fall, Idaho - ------------------------------------------------------------------------------------------------------------------------------------ 96-21 Danbury Fair Mall 499,868 39.4% 90.0% $400 $17,780,000 $35.57 Danbury, Connecticut - ------------------------------------------------------------------------------------------------------------------------------------ 96-22 Charlestowne Mall 315,297 38.2% 85.0% $220 $ 9,500,000 $12.75 St. Charles, Illinois - ------------------------------------------------------------------------------------------------------------------------------------ 96-23 Fashion Square Sherman Oaks 365,000 43.6% 90.0% $300 $10,625,000 $29.11 Sherman Oaks, California - ------------------------------------------------------------------------------------------------------------------------------------ 96-24 Regency Square Mall 530,000 39.5% 96.0% $260 $ 9,178,400 $17.32 Jacksonville, Florida - ------------------------------------------------------------------------------------------------------------------------------------ 96-25 Valley Plaza Center 381,000 35.5% 98.0% $250 $ 6,643,000 $17.44 Bakersfield, California - ------------------------------------------------------------------------------------------------------------------------------------ 96-26 Clearview Mall 198,884 39.7% 94.0% $206 $ 2,881,100 $ 8.01 Bulter, Pennsylvania ==================================================================================================================================== Survey Low: 136,841 29.5% 77.1% $206 $ 2,687,000 $ 8.58 Survey High: 829,938 48.2% 98.0% $455 $21,546,000 $40.03 - ------------------------------------------------------------------------------------------------------------------------------------ Survey Mean: 362,783 37.4% 89.8% $281 $ 7,754,137 $16.40 ==================================================================================================================================== ==================================================================================================================================== Capitalization Rates Unit Rate Comparison -------------------- ---------------------- Sale Going-In Terminal Price/GLA Price/Mall Sales No. Property/Location OAR OAR IRR Purchased Shop GLA Multiple ==================================================================================================================================== 96-18 Fashion Show Mall 7.50% -- -- $534 $534 1.17 Las Vegas, Nevada - ------------------------------------------------------------------------------------------------------------------------------------ 96-19 Charlottesville Fashion Sq. 9.25% -- -- $ 91 $192 0.70 Charlottesville, Virginia - ------------------------------------------------------------------------------------------------------------------------------------ 96-20 Grand Teton Mall 10.33% -- -- $ 66 $173 0.74 Idaho Fall, Idaho - ------------------------------------------------------------------------------------------------------------------------------------ 96-21 Danbury Fair Mall 7.00% -- 12.00% $508 $508 1.27 Danbury, Connecticut - ------------------------------------------------------------------------------------------------------------------------------------ 96-22 Charlestowne Mall 7.52% -- 12.00% $170 $401 1.82 St. Charles, Illinois - ------------------------------------------------------------------------------------------------------------------------------------ 96-23 Fashion Square Sherman Oaks 8.50% -- 10.60% $342 $342 1.14 Sherman Oaks, California - ------------------------------------------------------------------------------------------------------------------------------------ 96-24 Regency Square Mall 7.70% -- -- $225 $225 0.87 Jacksonville, Florida - ------------------------------------------------------------------------------------------------------------------------------------ 96-25 Valley Plaza Center 7.30% -- -- $239 $239 0.96 Bakersfield, California - ------------------------------------------------------------------------------------------------------------------------------------ 96-26 Clearview Mall 10.67% -- -- $ 75 $136 0.86 Bulter, Pennsylvania ==================================================================================================================================== Survey Low: 7.00% 10.00% 10.60% $ 58 $126 0.33 Survey High: 12.00% 11.00% 14.00% $534 $534 1.82 - ------------------------------------------------------------------------------------------------------------------------------------ Survey Mean: 9.35% 10.50% 12.02% $190 $242 0.84 ==================================================================================================================================== </TABLE> - ---------------- (1) Reflects sale of leashold estate with 32 years remaining on ground lease (2) Adjusted to reflect 100% interest. (3) Actual sales price of $44.5 million adjusted to reflect free rent CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ While these unit prices implicitly contain both the physical and economic factors affecting the real estate, the statistics do not explicitly convey many of the details surrounding a specific property. Thus, this single index to the valuation of the subject property has limited direct application. The price per square foot of mall shop GLA acquired yields one common form of comparison. However, this can be distorted if anchor and/or other major tenants generate a significant amount of income. Chart A, following, shows this relationship along with other selected indices. ================================================================================ CHART A * Selected Average Indices ================================================================================ Transaction Price/SF Range ** Price/SF Range Sales Capitalization Year of Total GLA/Mean of Mall Shop GLA/Mean Multiple Rates ================================================================================ 1991 $156 - $556 $203 - $556 1.17 6.44% $282 $357 - -------------------------------------------------------------------------------- 1992 $136 - $511 $226 - $511 1.07 7.31% $259 $320 - -------------------------------------------------------------------------------- 1993 $ 73 - $471 $173 - $647 1.15 7.92% $242 $363 - -------------------------------------------------------------------------------- 1994 $ 83 - $378 $129 - $502 0.96 8.37% $197 $288 - -------------------------------------------------------------------------------- 1995 $ 53 - $686 $ 93 - $686 0.96 9.13% $193 $284 - -------------------------------------------------------------------------------- 1996 $ 58 - $534 $126 - $534 0.84 9.35% $190 $242 ================================================================================ * Includes all transactions for particular year ** Based on total GLA acquired ================================================================================ The chart above shows that the annual average price per square foot of total GLA acquired has ranged from $190 to $282 per square foot. A declining trend has been in evidence as cap rates have risen. As discussed, one of the factors which may influence the unit rate is whether or not anchor stores are included in the total GLA which is transferred. Thus, a further refinement can be made between those malls which have transferred with anchor space and those which have included only mall GLA. The price per square foot of mall shop GLA has declined from a high of $357 per square foot in 1991 to $242 per square foot in 1996. In order to gain a better perspective into this measure, we can isolate only those sales which involved a transfer of the mall shop GLA. Chart B, following, makes this distinction. We have displayed only the more recent transactions (1995-1996). ================================================================================ -62- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ ================================================================================ CHART B Regional Mall Sales Involving Mall Shop Space Only ================================================================================ 1995 1996 - -------------------------------------------------------------------------------- Sale Unit NOI Sale Unit NOI Per No. Rate Per SF No. Rate SF ================================================================================ 95- 1 $686 $66.58 96- 6 $126 $15.12 - -------------------------------------------------------------------------------- 95- 3 $342 $26.68 96- 8 $144 $14.84 - -------------------------------------------------------------------------------- 95- 4 $259 $22.42 96- 9 $281 $25.12 - -------------------------------------------------------------------------------- 95- 7 $237 $17.21 96-10 $433 $30.34 - -------------------------------------------------------------------------------- 96-16 $145 $11.27 - -------------------------------------------------------------------------------- 96-17 $270 $29.74 - -------------------------------------------------------------------------------- 96-18 $534 $40.03 - -------------------------------------------------------------------------------- 96-21 $508 $35.57 - -------------------------------------------------------------------------------- 96-23 $342 $29.11 - -------------------------------------------------------------------------------- 96-24 $225 $17.32 - -------------------------------------------------------------------------------- 96-25 $239 $17.44 ================================================================================ Mean $381 $33.22 $295 $24.17 ================================================================================ From the above we see that the mean unit rate for sales involving mall shop GLA only has ranged from approximately $126 to $686 per square foot with yearly averages of $295 and $381 per square foot for the most recent two year period. We recognized that these averages may be skewed somewhat by the size of the sample, particularly in 1995. Alternately, where anchor store GLA has been included in the sale, the unit rate is shown to range widely from $53 to $410 per square foot of salable area, indicating a mean of $143 per square foot in 1995, and only $113 per square foot in 1996. Chart C, following, depicts these data. ================================================================================ -63- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ ================================================================================ CHART C Regional Mall Sales Involving Mall Shops and Anchor GLA ================================================================================ Sale Unit NOI Sale Unit NOI No. Rate Per SF No. Rate Per SF ================================================================================ 95- 2 $410 $32.95 96- 1 $278 $22.54 - -------------------------------------------------------------------------------- 95- 5 $272 $21.05 96- 2 $130 $13.62 - -------------------------------------------------------------------------------- 95- 6 $ 91 $ 8.64 96- 3 $129 $13.57 - -------------------------------------------------------------------------------- 95- 8 $105 $ 9.43 96- 4 $108 $10.70 - -------------------------------------------------------------------------------- 95- 9 $122 $11.60 96- 5 $122 $11.06 - -------------------------------------------------------------------------------- 95-10 $ 95 $ 8.80 96- 7 $ 58 $ 6.58 - -------------------------------------------------------------------------------- 95-11 $ 53 $ 5.89 96-11 $ 73 $ 8.02 - -------------------------------------------------------------------------------- 95-12 $ 79 $ 8.42 96-12 $102 $10.21 - -------------------------------------------------------------------------------- 95-13 $ 72 $ 7.16 96-13 $117 $10.96 - -------------------------------------------------------------------------------- 95-14 $ 96 $ 9.14 96-14 $ 77 $ 7.78 - -------------------------------------------------------------------------------- 95-15 $212 $17.63 96-15 $ 92 $ 9.52 - -------------------------------------------------------------------------------- 95-16 $ 56 $ 5.34 96-19 $ 91 $ 8.40 - -------------------------------------------------------------------------------- 95-17 $ 59 $ 5.87 96-20 $ 66 $ 6.81 - -------------------------------------------------------------------------------- 95-18 $143 $11.11 96-22 $170 $12.75 - -------------------------------------------------------------------------------- 95-19 $287 $22.24 96-26 $ 75 $ 8.01 ================================================================================ Mean $143 $12.35 Mean $113 $10.70 ================================================================================ * Sale included peripheral GLA ================================================================================ Analysis of Sales Within Charts B and C, we have presented a summary of several transactions involving regional and super-regional-sized retail shopping malls from which price trends may be identified for the extraction of value parameters. These transactions have been segregated by year of acquisition so as to lend additional perspective on our analysis. Comparability in both physical and economic characteristics are the most important criteria for analyzing sales in relation to the subject property. However, it is also important to recognize the fact that regional shopping malls are distinct entities by virtue of age and design, visibility and accessibility, the market segmentation created by anchor stores and tenant mix, the size and purchasing power of the particular trade area, and competency of management. Thus, the Sales Comparison Approach, when applied to a property such as the subject can, at best, only outline the parameters in which the typical investor operates. The majority of these sales transferred either on an all cash (100 percent equity) basis or its equivalent utilizing market-based financing. Where necessary, we have adjusted the purchase price to its cash equivalent basis for the purpose of comparison. As suggested, sales which include anchors typically have lower square foot unit prices. In our discussions with major shopping center owners and investors, we learned that capitalization rates and underwriting criteria have become more sensitive to the contemporary issues dealing with the department store anchors. As such, investors are looking more closely than ever at the strength of the anchors when evaluating an acquisition. ================================================================================ -64- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ As the reader shall see, we have attempted to make comparisons of the transactions to the subject primarily along economic lines. For the most part, the transactions have involved dominant or strong Class A centers in top 50 MSA locations which generally have solid, expanding trade areas and good income profiles. Some of the other transactions are in decidedly inferior second tier locations with limited growth potential and near term vacancy problems. These sales tend to reflect lower unit rates and higher capitalization rates. ============================================= Application to Subject Property As Stabilized ============================================= Because the subject is theoretically selling both mall shop GLA and owned department stores, we will look at the recent sales summarized in Chart C more closely. As a basis for comparison, we will analyze the subject based upon projected "stabilized" NOI. The FY 1999 NOI has been projected to be $21,202,666 or $15.41 per square foot, based upon 1,375,905 square feet of owned GLA after completion of the renovation. Derivation of the subject's projected net operating income is presented in the Income Capitalization Approach section of this report as calculated by the Pro-Ject model. With projected NOI of $15.41 per square foot, the subject falls at the high end of the range exhibited by most of the comparable sales. Since the income that an asset will produce has direct bearing on the price that a purchaser is willing to pay, it is obvious that a unit price which falls at the high end of the range indicated by the comparables would be applicable to the subject. The subject's anticipated net income can be initially compared to the composite mean of the annual transactions in order to place the subject in a frame of reference. This is shown on the following chart. ================================================================================ Sales Mean Subject Subject Year NOI Forecast Ratio ================================================================================ 1991 $14.25 $15.41 108.1% - -------------------------------------------------------------------------------- 1992 $16.01 $15.41 96.3% - -------------------------------------------------------------------------------- 1993 $15.51 $15.41 99.4% - -------------------------------------------------------------------------------- 1994 $15.62 $15.41 98.7% - -------------------------------------------------------------------------------- 1995 $12.35 $15.41 124.8% - -------------------------------------------------------------------------------- 1996 $10.70 $15.41 144.0% ================================================================================ With first year stabilized NOI forecasted at approximately 96.3 to 144.0 percent of the mean of these sales in each year, the unit price which the subject property would command should be expected to fall within a relative range. ================================================================================ -65- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ Net Income Multiplier Method Many of the comparables were bought on expected income, not gross leasable area, making unit prices a somewhat subjective reflection of investment behavior regarding regional malls. In order to quantify the appropriate adjustments to the indicated per square foot unit values, we have compared the subject's first year pro forma net operating income to the pro forma income of the individual sale properties. In our opinion, a buyer's criteria for the purchase of a retail property is predicated primarily on the property's income characteristics. Thus, we have identified a relationship between the net operating income and the sales price of the property. Typically, a higher net operating income per square foot corresponds to a higher sales price per square foot. Therefore, this adjustment incorporates factors such as location, tenant mix, rent levels, operating characteristics, and building quality. Provided below, we have extracted the net income multiplier from each of the improved sales. We have included only the more recent sales data (1996) which had net operating incomes of approximately $10.00 per square foot or higher. The equation for the net income multiplier (NIM), which is the inverse of the equation for the capitalization rate (OAR), is calculated as follows: NIM = Sales Price Net Operating Income ================================================================================ Net Income Multiplier Calculation ================================================================================ = Net Income Sale No. Price/SF + NOI/SF Multiplier ================================================================================ 96-1 $278 $22.54 12.33 - -------------------------------------------------------------------------------- 96-4 $108 $10.70 10.09 - -------------------------------------------------------------------------------- 96-5 $122 $11.06 11.03 - -------------------------------------------------------------------------------- 96-12 $102 $10.21 9.99 - -------------------------------------------------------------------------------- 96-13 $117 $10.96 10.68 - -------------------------------------------------------------------------------- 96-19 $91 $8.40 10.83 ================================================================================ Mean $136 $12.31 10.83 ================================================================================ Valuation of the subject property utilizing the net income multipliers (NIMs) from the comparable properties accounts for the disparity of the net operating incomes ($NOIs) per square foot between the comparables and the subject. Within this technique, each of the adjusted NIMs are multiplied by the $NOI per square foot of the subject, which produces an adjusted value indication for the subject. The net operating income per square foot for the subject property is calculated as the first year of the holding period, as detailed in the Income Capitalization Approach section of this report. ================================================================================ -66- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ ================================================================================ Adjusted Unit Rate Summary ================================================================================ Subject Net Income Indicated Sale No. NOI/SF X Multiplier Price = $/SF ================================================================================ 96-1 $15.41 12.33 $190.06 - -------------------------------------------------------------------------------- 96-4 $15.41 10.09 $155.44 - -------------------------------------------------------------------------------- 96-5 $15.41 11.06 $169.98 - -------------------------------------------------------------------------------- 96-12 $15.41 9.99 $153.95 - -------------------------------------------------------------------------------- 96-13 $15.41 10.68 $164.50 - -------------------------------------------------------------------------------- 96-19 $15.41 10.83 $166.83 ================================================================================ Mean $15.41 10.83 $166.83 ================================================================================ From the process above, we see that the indicated net income multipliers range from 9.99 to 10.83 with a mean of 10.83. The adjusted unit rates range from $154 to $190 per square foot of owned GLA with a mean of $167 per square foot. We recognize that the sale price per square foot of gross leasable area, including land, implicitly contains both the physical and economic factors of the value of a shopping center. Such statistics by themselves, however, do not explicitly convey many of the details surrounding a specific income producing property like the subject. Nonetheless, the process we have undertaken here is an attempt to quantify the unit price based upon the subject's income producing potential. Considering the characteristics of the subject relative to the above, we believe that a unit rate range of $166 to $168 per square foot would be appropriate for the subject As Stabilized. Applying this unit rate range to 1,375,905+/- square feet of owned GLA results in a value of approximately $228.4 million to 231.1 million for the subject as shown below. 1,375,905 S.F. 1,375,905 S.F. x $166 x $168 -------------- -------------- $228,400,000 $231,150,000 ============================== Value Conclusion As Stabilized ============================== It is difficult to relate the subject to comparables that are in such widely divergent markets with different cash flow characteristics. The subject is the dominant mall in its market area and is benefited by having a good anchor alignment, with several major tenants and specialty stores that are unique to the region. After considering all of the available market data in conjunction with the characteristics of the subject property, the indices of investment that generated our value ranges are as follows: ================================================================================ -67- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Sales Comparison Approach ================================================================================ Rounded Value Estimate - Market Sales Unit Rate Comparison As Stabilized as of June 1, 1998 $228,000,000 to $231,000,000 Rentable SF: 1,375,905+/- Indicated Value Per Square Foot: $166 to $168 ================ Analysis - As Is ================ As previously noted, the subject will be undergoing substantial remerchandising effort over the next eighteen months. Included in this will be construction of a new 61,000 square foot movie theatre, construction of a new 20,000 square foot theme restaurant, relocation of two major tenants (Neiman Marcus and Saks), plus fitout for three large mall tenants (Polo, Gap. and Talbots), as well as fitout for smaller tenant spaces. Ownership estimates the total costs for the remerchandising effort at approximately $16.4 million. In addition to the basic construction costs, a further adjustment would be necessary to recognize the entrepreneurial effort necessary to bring the property to stabilization. In the subsequent Income Capitalization Approach, we project a stabilized yield on invested capital of approximately 11.00 percent for the subject property. Similarly, we project a 12.00 percent yield on an As Is basis, thereby giving the current purchaser a premium for accepting the risks of bringing the subject property to stabilization. At a 11.00 percent yield, the present worth of the property cash flows from the subject property is equal to $208,000,000; at 12.00 percent, these compute to $193,000,000. The difference between these, $15,000,000, is indicative of the economically necessary provision for the purchaser's entrepreneurial profit to acquire an incomplete project like the subject and to bring it to stabilization Deducting the $16.4 million base cost plus the $15.0 million allowance for entrepreneurial profit from our estimated range of values As Stabilized, renders an adjusted value range As Is as of April 16, 1997 of between $197,000,000 and $200,000,000. The investment parameters generated by this value conclusion are as follows: Indicated Value Range: $197,000,000 - $200,000,000 Indicated Value Per Square Foot: $143 - $145 ================================================================================ -68- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> INCOME CAPITALIZATION APPROACH ================================================================================ Introduction The Income Approach is based upon the economic principle that the value of a property capable of producing income is the present worth of anticipated future net benefits. The net income projected for the property is translated into a present value indication using the capitalization process. There are various methods of capitalization that are based on inherent assumptions concerning the quality, durability, and pattern of the income projection. Where the pattern of income is irregular due to existing leases that will terminate at staggered, future dates, or to an absorption or stabilization requirement on a newer development, the discounted cash flow analysis is the most accurate. Discounted Cash Flow Analysis (DCF) is a method of estimating the present worth of future cash flow expectancies by individually discounting each anticipated collection at an appropriate discount rate. The indicated market value by this approach is the accumulation of the present worth of future projected years' net income (before income taxes and depreciation) and the present worth of the reversion of the estimated property value at the end of the projection period. The estimated value of the reversion at the end of the projection period is based on the capitalization of the next year's projected net income. Discounted Cash Flow Analysis - Franklin Mills As Is The application of the discounted cash flow analysis (DCF) produces an estimate of value through an economic analysis of the subject property in which the net income generated by the asset is converted to a capital sum at an appropriate rate. First, the revenues which a fully informed investor can expect the subject to produce over a specified time horizon are established through an analysis of the current rent roll, as well as the rental market for similar properties. Second, the projected expenses incurred in generating these gross revenues are deducted. Finally, the residual net income is discounted into a capital sum at an appropriate rate which is then indicative of the subject property's current value in the marketplace. In this Income Capitalization Approach to the valuation of the subject, we have utilized a eleven year holding period for our As Is analysis in the subject property, with the cash flow analysis commencing on May 1, 1997. This period is considered to be a sufficient time for an investor to benefit from an investment in the subject property as well as long enough to allow the property to return to stabilized operations after the proposed remerchandising. This holding period is also consistent with market based criteria as will be discussed in further detail. It is noted that we have presented the cash flows on a fiscal year basis commencing on May 1, 1997. Although an asset such as the subject has a much longer useful life, investment analysis becomes more meaningful if limited to a time period considerably less than the real estate's economic life, but of sufficient length for an investor to model its performance. An eleven year holding period for this investment is long enough to model the asset's performance and benefit from its continued remerchandising, but short enough to reasonably estimate the expected income and expenses of the real estate. The liquidation date (reversion sale) in the discounting model As Is is deemed to occur on April 30, 2008. The valuation At Stabilization will commence on June 1, 1998 and will utilize a 10-year holding period ================================================================================ -69- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ The revenues and expenses which an informed investor may expect to incur from the subject property will vary, without a doubt, over the holding period. Major investors active in the market for this type of real estate establish certain parameters in the computation of these cash flows and criteria for decision making which this valuation analysis must include if it is to be truly market-oriented. These current computational parameters are dependent upon market conditions in the area of the subject property as well as the market parameters for this type of real estate, which we view as being national in scale. By forecasting the anticipated income stream and discounting the future value at reversion to current value, the capitalization process may be applied to derive a value that an investor would pay to receive that particular income stream. Typical investors price real estate on their expectations of the magnitude of these benefits and their judgment of the risks involved. Our valuation endeavors to reflect the most likely actions of typical buyers and sellers of property interest similar to the subject. In this regard we see the subject as an important long term investment opportunity for a competent owner. An analytical real estate computer model that simulates the behavioral aspects of the property and examines the results mathematically is employed for the discounted cash flow analysis. In this instance, it is the PRO-JECT Plus+ computer model. Since investors are the basis of the marketplace in which the subject property will be bought and sold, this type of analysis is particularly germane to the appraisal problem at hand. On the facing page is a summary of the expected annual cash flows from the operation of the subject over the stated investment holding period. A general outline summary of the major steps involved in projecting the discounted cash flow may be listed as follows: 1. Analysis of the income stream: establishment of an economic (market) rent for tenant space; projection of future annual revenues based upon existing and pending leases, probable renewals at market rentals, and expected vacancy experience; 2. An estimate of a reasonable period of time to achieve stabilized occupancy of the existing property and make all necessary improvements for marketability; 3. Analysis of projected escalation recovery income based upon an analysis of the property's leasing structure as well as the experiences of comparable properties; 4. Derivation of the most probable net operating income less reserves, tenant improvements, leasing commissions, and any extraordinary expenses to be generated by the property by subtracting all property expenses from the effective gross income; and 5. Estimation of a reversionary sales price based upon capitalization of the net operating income (before reserves, tenant improvements, leasing commissions, and other possible capital items). Following is a detailed discussion of the components which form the basis of this analysis. Again, this discussion focuses on the revenue producing ability of the asset on a fiscal basis (FY 1998). ================================================================================ -70- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> FRANKLIN MILLS - AS IS ANNUAL CASH FLOW REPORT BEGINNING 5/1/97 FOR 12 YEARS FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 ----------- ----------- ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> INCOME - ------ MINIMUM RENT: ALL TENANTS 16,846,966 19,543,956 19,629,232 20,640,100 21,193,036 21,705,192 22,619,568 ----------- ----------- ----------- ----------- ----------- ----------- ----------- TOTAL MINIMUM RENT 16,846,966 19,543,956 19,629,232 20,640,100 21,193,036 21,705,192 22,619,568 RECOVERIES: CAM RECOVERIES 4,362,408 4,869,555 4,899,919 5,050,383 5,135,005 5,203,972 5,593,371 TAX RECOVERIES 1,798,799 2,109,233 2,105,245 2,160,911 2,196,713 2,147,218 2,230,895 FOOD COURT RECOVER 383,559 421,977 443,767 482,405 496,339 529,598 547,434 MAJORS CAM RECOVER 1,241,339 1,361,054 1,361,860 1,372,142 1,405,662 1,405,106 1,444,390 MAJORS TAX RECOVER 2,015,968 2.241,779 2,245,060 2,337,428 2,392,229 2,465,434 2,545,082 ----------- ----------- ----------- ----------- ----------- ----------- ----------- TOTAL RECOVERIES 9,802,073 11,003,498 11,055,851 11,403,269 11,625,948 11,751,328 12,361,172 OVERAGE RENT 715,161 724,778 739,064 532,752 464,288 491,040 549,840 RECAPTURES (99,312) (101,041) (104,985) 0 0 0 0 SALES VOLUME (000) 268,424 278,387 282,845 294,459 306,719 317,517 330,241 ----------- ----------- ----------- ----------- ----------- ----------- ----------- GROSS RENTAL INCOME 27,264,888 31,171,192 31,319,164 32,576,120 33,283,272 33,947,560 35,530,580 CREDIT LOSS (679,626) (777,225) (780,861) (912,222) (829,834) (846,376) (885,882) MISCELLANEOUS 931,821 964,435 998,190 1,033,126 1,069,286 1,106,711 1,145,446 UTILITES INCOME 1,677,730 1,736,450 1,797,226 1,860,129 1,925,234 1,992,617 2,062,358 ----------- ----------- ----------- ----------- ----------- ----------- ----------- TOTAL INCOME 29,194,812 33,094,856 33,333,720 34,657,152 35,447,960 36,200,512 37,852,504 EXPENSES - -------- PROMOTIONS 926,077 958,489 992,036 1,026,758 1,062,694 1,099,889 1,138,385 ADMINISTRATIVE 409,378 423,706 438,536 453,885 469,771 486,213 503,230 MANAGEMENT FEES 788,260 893,561 900,010 935,743 957,095 977,414 1,022,018 FOOD COURT 455,560 471,504 488,007 505,087 522,765 541,062 559,999 PROPERTY TAXES 4,012,311 4,092,557 4,174,408 4,257,896 4,343,054 4,429,915 4,518,514 CAM 4,972,648 5,146,691 5,326,825 5,513,264 5,706,229 5,905,947 6,112,655 ----------- ----------- ----------- ----------- ----------- ----------- ----------- TOTAL EXPENSES 11,564,234 11,996,508 12,319,822 12,692,633 13,061,608 13,440,440 13,854,801 ----------- ----------- ----------- ----------- ----------- ----------- ----------- NET OPERATING INCOME 17,630,578 21,108,348 21,013,898 21,964,520 22,386,352 22,760,072 23,997,704 ALTERATIONS 13,250,629 3,161,304 852,839 406,756 377,992 855,524 387,990 COMMISSIONS 130,808 194,004 278,501 360,414 431,844 463,592 471,640 CAPITAL RESERVES 139,690 140,727 145,653 150,751 156,027 161,488 167,140 ----------- ----------- ----------- ----------- ----------- ----------- ----------- CASH FLOW 4,109,451 17,612,312 19,736,908 21,046,600 21,420,488 21,279,468 22,970,934 FY2005 FY2006 FY2007 FY2008 FY2009 ----------- ----------- ----------- ----------- ----------- INCOME - ------ MINIMUM RENT: ALL TENANTS 22,768,554 23,298,498 23,731,582 24,723,938 26,157,184 ----------- ----------- ----------- ----------- ----------- TOTAL MINIMUM RENT 22,769,554 23,298,498 23,731,582 24,723,938 26,157,184 RECOVERIES: CAM RECOVERIES 5,755,162 5,969,296 6,271,300 6,395,813 6,774,641 TAX RECOVERIES 2,243,478 2,238,730 2,268,718 2,215,956 2,225,603 FOOD COURT RECOVER 581,484 610,715 594,192 582,540 585,880 MAJORS CAM RECOVER 1,484,016 1,523,775 1,557,081 1,581,046 1,636,595 MAJORS TAX RECOVER 2,593,455 2,653,876 2,695,230 2,707,248 2,843,499 ----------- ----------- ----------- ----------- ----------- TOTAL RECOVERIES 12,657,595 12,996,392 13,386,521 13,482,603 14,066,218 OVERAGE RENT 635,044 625,810 572,797 394,162 489,160 RECAPTURES 0 0 0 0 SALES VOLUME (000) 337,510 349,486 358,248 375,270 392,094 ----------- ----------- ----------- ----------- ----------- GROSS RENTAL INCOME 36,061,192 36,920,696 37,690,900 38,600,704 40,712,560 CREDIT LOSS (899,075) (920,492) (939,670) (962,338) (1,015,051) MISCELLANEOUS 1,185,536 1,227,030 1,269,976 1,314,425 1,360,430 UTILITES INCOME 2,134,541 2,209,250 2,286,574 2,366,604 2,449,435 ----------- ----------- ----------- ----------- ----------- TOTAL INCOME 38,482,192 39,436,484 40,307,776 41,319,392 43,507,376 EXPENSES - -------- PROMOTIONS 1,178,228 1,219,466 1,262,147 1,306,323 1,352,044 ADMINISTRATIVE 520,843 539,073 557,940 577,468 597,679 MANAGEMENT FEES 1,039,019 1,064,785 1,088,310 1,115,624 1,174,699 FOOD COURT 579,599 599,885 620,881 642,612 665,103 PROPERTY TAXES 4,608,884 4,701,062 4,795,083 4,890,984 4,988,804 CAM 6,326,598 6,548,029 6,777,210 7,014,412 7,259,917 ----------- ----------- ----------- ----------- ----------- TOTAL EXPENSES 14,253,171 14,672,300 15,101,571 15,547,423 16,038,246 ----------- ----------- ----------- ----------- ----------- NET OPERATING INCOME 24,229,020 24,764,184 25,206,204 25,771,968 27,469,130 ALTERATIONS 393,712 693,244 762,560 1,477,661 570,428 COMMISSIONS 493,313 501,991 545,872 570,501 573,105 CAPITAL RESERVES 172,990 179,044 185,311 191,797 198,510 ----------- ----------- ----------- ----------- ----------- CASH FLOW 23,169,006 23,389,904 23,712,460 23,532,012 26,127,086 </TABLE> <PAGE> Income Capitalization Approach ================================================================================ =================================== Discounted Cash Flow As Is Analysis =================================== Potential Gross Revenues - Analysis Potential gross revenues generated by the subject property are composed of a number of distinct elements; minimum rent determined by lease agreement; overage rent based upon a percentage of retail sales; a reimbursement of certain expenses incurred in the ownership and operation of the real estate; and other miscellaneous revenues. The minimum base rent represents a legal contract establishing a return to the investors in the real estate, while the passing of certain expenses onto tenants serves to maintain this return in an era of continually rising costs of operation. The additional rent based upon a percentage of retail sales experienced at the subject property serves to preserve the purchasing power of the residual income to an equity investor over time. Finally, miscellaneous income adds an additional important source of revenue in the complete operation of the subject property. In the first fiscal year of the investment, FY 1998, it is projected that the subject property will generate approximately $29,874,439 in potential gross revenues, equivalent to $21.73 per square foot of owned GLA after renovations of 1,375,905 square feet, which consists of mall shop GLA and leased anchor space. On the basis of mall (specialty shop) GLA (588,748 square feet), potential gross revenues are equivalent to $47.58 per square foot. These forecasted revenues may be allocated to the following components: ================================================================================ Revenue Summary Initial Fiscal Year of Investment - 1998 ================================================================================ Revenue Component Amount Unit Rate * Income Ratio ================================================================================ Minimum Rent $16,846,966 $ 12.24 56.4% - -------------------------------------------------------------------------------- Overage Rent - ** $ 615,849 $ .45 2.1% - -------------------------------------------------------------------------------- Expense Recoveries $ 9,802,073 $ 7.12 32.8% - -------------------------------------------------------------------------------- Utilities Income $ 1,677,730 $ 1.22 5.6% - -------------------------------------------------------------------------------- Miscellaneous Income $ 931,821 $ .68 3.1% - -------------------------------------------------------------------------------- Total $29,874,439 $ 21.71 100.0% ================================================================================ * Reflects total owned GLA of 1,375,905 S.F. after renovations ================================================================================ ** Overage rent net of recaptures ================================================================================ Minimum Rental Income The rental income which an asset such as the subject property will generate for an investor is analyzed as to its quality, quantity, and durability. The quality and probable duration of income will affect the amount of risk which an informed investor may expect over the property's useful life. Segregation of the income stream along these lines allows us to control the variables related to the center's forecasted performance with greater accuracy. Each tenant type lends itself to a specific weighing of these variables as the risk associated with each varies. ================================================================================ -71- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ Minimum rent produced by the subject property is derived from that rent paid by the various tenant types. The projection utilized in this analysis is based upon the actual rent roll and projected leasing schedule as of the date of appraisal, together with our assumptions as to the absorption of the vacant space, market rent growth rates, and renewal/ turnover probability. We have also made specific assumptions regarding the forecasted tenant mix of the mall based upon deals that are in progress and have a strong likelihood of coming to fruition. In this regard, we have worked with Mills Corporation leasing personnel and, where possible, have analyzed pending deals on a case-by-case basis. For those pending leases that are substantially along in the negotiating process and are believed to have a reasonable likelihood of being completed, we have reflected those terms in our cash flow. We believe that these assumptions represent a reasonable and prudent view from an investor's standpoint. In our investigation and analysis of the marketplace, we have surveyed, and ascertained where possible, rent levels being commanded by competing centers. However, it should be recognized that a large retail shopping mall is generally considered to be a separate entity by virtue of age and design, accessibility, visibility, tenant mix, and the size and purchasing power of its trade area. Consequently, the best measure of minimum rental income is its actual rent roll leasing schedule. This is particularly true for a property such as the subject wherein the property has generated a significant amount of leasing activity from an array of national and regional tenants. Even of greater bearing is the fact that many of these same tenants are found in each of the Mills projects. As such, our analysis of recently negotiated leases for tenants at the subject provides important insight into perceived market rent levels for the mall. This is of particular importance since tenants are cognizant of the mall's position in the market and are factoring this knowledge into their lease negotiations. Inasmuch as a tenant's ability to pay rent is based upon expected sales achievement, the level of negotiated rents is directly related to the tenant's perception of expected performance at the mall. The minimum rents forecasted at the subject property are essentially derived from various tenant categories; major tenant revenue consisting of base rent obligations from anchor and major tenants; and mall tenant revenues consisting of all in-line mall shops. Anchor revenues are discussed in detail by store type. Because of the various tenant types which comprise all of the mall GLA, we have essentially analyzed the mall shop space based upon the following categories. o In-line shop space o Food court space o Kiosk space. Interior Mall Shops Rent from all interior mall tenants (exclusive of anchor tenants) comprise the majority of minimum rent at the subject property. Aggregate rent in the initial full year of investment is shown to be $10,989,975 or $18.67 per square foot based upon a total specialty mall GLA after renovations of 586,748 square feet. The following chart details the components of minimum rent for the initial year of the investment. ================================================================================ -72- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ ================================================================================ Minimum Rent Allocation Initial Fiscal Year 1998 ================================================================================ Revenue Applicable GLA Unit Rate (SF) ================================================================================ Mall Shops $10,989,975 588,748 S.F. $18.67 - -------------------------------------------------------------------------------- Food Court $ 589,962 12,850 S.F $45.91 - -------------------------------------------------------------------------------- Kiosks $ 75,201 781 S.F. $96.29 - -------------------------------------------------------------------------------- Total $11,655,138 602,379 S.F. $19.37 ================================================================================ As such, our analysis of recently negotiated leases for new and renewal tenants at the subject provides important insight into perceived market rent levels for the mall. This is of particular importance since tenants recognize the mall's position in the market and factor this knowledge into their lease negotiations. Inasmuch as a tenant's ability to pay rent is based upon expected sales achievement, the level of negotiated rents is directly related to the individual tenant's perception of their expected performance at the mall. The following table presents an analysis of minimum rent levels projected at the subject property for mall shop space in 1997. These revenues reflect leased mall shop tenants only and excludes food court, kiosks, anchor and major tenants (these tenant types are treated separately in a subsequent section of this report). Note that these are achieved rents for all leases in-place as of this analysis. ================================================================================ FRANKLIN MILLS 1997 MINIMUM RENT ATTAINMENT FOR MALL SHOP SPACE BY TENANT SIZE ================================================================================ Suite Size Rent Total Occupied Average Attainment GLA GLA Unit Rate ================================================================================ Mall Shop < 1,000 SF $ 753,074 17,274 S.F. 16,509 S.F. $45.62 - -------------------------------------------------------------------------------- 1,000- 1,999 SF $ 1,312,964 51,905 S.F 36,814 S.F. $35.66 - -------------------------------------------------------------------------------- 2,000 - 4,999 SF $ 4,083,554 235,940 S.F. 226,525 S.F. $17.96 - -------------------------------------------------------------------------------- 5,000 - 9,999 SF $ 2,504,760 163,821 S.F. 158,780 S.F. $15.77 - -------------------------------------------------------------------------------- Mall Shop > 10,000 SF $ 1,171,058 109,695 S.F. 109,695 S.F. $10.68 - -------------------------------------------------------------------------------- Jewelry Stores $ 436,127 10,113 S.F. 10,113 S.F. $43.13 - -------------------------------------------------------------------------------- Total/Average $10,261,537 588,748 S.F. 568,400 S.F. $18.03 ================================================================================ From the above we would expect to see a general pattern of an inverse relationship between size and rent. That is, as the suite size increases, the average unit base rent achieved declines. We have segregated jewelry stores from our size category classification as they will typically pay a premium over in-line space due to the high sales volumes which they generate. ================================================================================ -73- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> ====================================================================================================================== Recent Lease Transactions Franklin Mills ====================================================================================================================== Category Tenant Term Leased Rent/S.F. Area ====================================================================================================================== <S> <C> <C> <C> <C> Kiosk Auntie Anns 7/94 - 5 Yrs. 300 S.F. $83.33 - ---------------------------------------------------------------------------------------------------------------------- Food Court China Buddha 7/96 - 6 Yrs 218 S.F. $50.00 McDonald's 9/96 - 5.5 Yrs. 694 S.F. $40.00 Bavarian Pretzel 11/96 - 5 Yrs. 510 S.F.. $50.96 - ---------------------------------------------------------------------------------------------------------------------- 0 -1,000 S.F. Small's Formalwear 3/97 - 5 Yrs. 817 S.F. $35.00 Yrs. 1-3 $37.00 Yrs. 4-5 Dairy Queen 11/96 - 5 Yrs. 633 S.F. $45.00 Yrs. 1-2 $47.00 Yrs. 3-5 Perfume Romance 7/96 - 5 Yrs 455 S.F. $42.92 Yrs. 1-2 $44.83 Yrs. 3-5 Let's Talk Cellular 10/96 915 S.F. $40.00 Lids For Less 5/96 -10 Yrs. 550 S.F. $63.64 Yrs. 1-5 $72.73 Yrs. 6-10 - ---------------------------------------------------------------------------------------------------------------------- 1,001 - 2,000 S.F. Giorgio Brutini 7/97 - 5 Yrs. 1,915 S.F. $26.00 Yrs. 1-3 $28.00 Yrs. 4-5 Burger King 5/97 - 5 Yrs. 1,600 S.F. $25.00 Maternity Works 10/96 - 5 Yrs. 1,466 S.F. $27.00 Yrs. 1-2 $29.00 Yrs. 3-5 Episode 11/96 - 4 Yrs. 1,468 S.F. $14.00 Yr. 1 $20.00 Yrs. 2-4 - ---------------------------------------------------------------------------------------------------------------------- </TABLE> CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> ====================================================================================================================== Recent Lease Transactions Franklin Mills ====================================================================================================================== <S> <C> <C> <C> <C> 2,001 - 5,000 S.F. Diesel 6/97 - 5 Yrs. 3,353 S.F. $22.00 Donna Karan 6/97 - 5 Yrs. 4,582 S.F. $22.00 Yrs. 1-3 $24.00 Yrs. 4-5 Perry Ellis 4/97 - 5 Yrs. 2,129 S.F. $22.00 Yrs. 1-3 $23.00 Yrs. 4-5 American Outpost 3/97 - 3 Yrs. 3,107 S.F. $21.00 Yrs. 1-2 $23.00 Yr. 3 Aeropostale 1/97 - 3 Yrs. 4,865 S.F. $18.05 Aerosoles 9/96 - 10 Yrs. 2,001 S.F. $18.00 Yrs. 1-4 $19.00 Yrs. 5-7 $20.00 Yrs. 8-10 Philly Leather 9/96 - 5 Yrs. 4,094 S.F. $16.00 Yrs. 1-2 $18.00 Yrs. 3-5 American Tourister 8/96 - 5 Yrs. 2,897 S.F. $20.00 Yrs.. 1-2 $22.00 Yrs. 3-5 Brooks Brothers 6/96 - 5 Yrs. 4,856 S.F. $16.50 Tommy Hilfinger 4/96 - 5 Yrs. 4,357 S.F. $25.64 Bostonian 2/96 - 5 Yrs. 3,056 S.F. $16.00 Yrs. 1-3 $18.00 Yrs. 4-5 ====================================================================================================================== </TABLE> CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> ====================================================================================================================== Recent Lease Transactions Franklin Mills ====================================================================================================================== Category Tenant Term Leased Rent/S.F. Area ====================================================================================================================== <S> <C> <C> <C> <C> 5,000 + S.F. We're Entertainment 6/97 - 5 Yrs. 5,287 S.F. $18.00 Yrs. 1-3 $19.00 Yrs. 4-5 Boston Traders 6/96 - 6 Yrs. 6,446 S.F. 19.96 Group USA 5/96 - 5 Yrs. 5,003 S.F. $17.99 - ---------------------------------------------------------------------------------------------------------------------- Jewelry Claire's 12/96 - 5 Yrs. 1,455 S.F. $27.00 Yrs. 1-2 $32.00 Yrs. 3-5 CR Jewelers 4/96 - 5 Yrs. 1,255 S.F. $35.00 Yrs. 1-3 $37.00 Yrs. 4-5 Hat Trick Jewelry 4/96 - 5 Yrs. 1,264 S.F. $37.00 Yrs. 1-3 $39.00 Yrs. 4-5 Swatch 12/95- 5 Yrs. 1,721 S.F. $40.00 - ---------------------------------------------------------------------------------------------------------------------- 10,000 + S.F. Gap 6/97 - 5 Yrs. 12,000 S.F. $8.00 Talbots 6/97 - 5 Yrs. 11,000 S.F. $15.00 Polo 11/97- 5 Yrs. 10,029 S.F. $17.00, Increasing 2% per year ====================================================================================================================== </TABLE> CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> =============================================================================================================== Franklin Mills Large Tenant Leases =============================================================================================================== Category Tenant Term Leased Rent/S.F. T.I. Area =============================================================================================================== <S> <C> <C> <C> <C> <C> Anchor General Cinema 12/97 - 20 Yrs. 61,000 S.F. $15.57 Yrs. 1-10 $152.46 $17.13 Yrs. 11-20 - --------------------------------------------------------------------------------------------------------------- Major Rain Forest 5/98 - 10 Yrs. 20,000 S.F. $30.00 Yrs. 1-10 $137.50 $31.00 Yrs. 11-20 - --------------------------------------------------------------------------------------------------------------- Major Saks 11/96 - 10 Yrs. 46,406 S.F. $10.41 Yrs. 1-4 $43.10 $10.94 Yrs. 5-9 $11.52 Yr. 10 - --------------------------------------------------------------------------------------------------------------- Major Off Fifth Saks 9/97 -10 Yrs. 34,918 S.F. $ 6.00 $8.59 - --------------------------------------------------------------------------------------------------------------- Major Neiman Marcus 6/97 -10 Yrs. 26,900 S.F. $17.66 Yrs. 1-5 $24.16 $19.42 Yrs. 6-10 =============================================================================================================== </TABLE> CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ Overall, for the 568,400 square feet of mall tenants surveyed, the average attained base rent for the mall was shown to be $18.03 per square foot in 1997. As expected, a declining rent trend relative to suite size is generally in evidence. Since the 1997 rent attainment levels of the mall would necessarily be impacted by the existence of older leases as well as new tenants which had been in occupancy for less than one year, we have focused more directly on the subject's recent leasing activity. We have been provided with a current rent roll report (March, 1997) as prepared by The Mills Corporation. Given the characteristics of the subject, together with recent leasing activity, we believe that this sampling of transactions presents a good indication of potential rent levels at the subject property. Recent Leasing By Size In analyzing recent leasing activity, we have segregated the most recent leases by size category on the facing and following page facing chart. The size breaks have been established in accordance with suite sizes that reflect reasonably quantifiable categories based on leasing experience. In total, 30 leases have been included which substantially represent all new activity. It is recognized that the data generally supports one of our inherent assumptions that market rental rates have an inverse relationship with suite size. The 30 mall shop leases (excluding kiosks and food court tenants) show a range in initial rental rates from $8.00 to $67.02 per square foot. The highest overall average rent is represented by those leases in the "less than 1,000 square feet" category which show an average of $56.57. The averages then decline by category to the lowest average of $13.62 found in the "greater than 5,000" square foot category. ================================================================================ Franklin Mills Most Recent Leasing Activity ================================================================================ Category No. of Tenants Applicable GLA Rent/SF ================================================================================ 1: Less Than 1,000 SF 5 3,370 S.F. $44.55 - -------------------------------------------------------------------------------- 2: 1,001 - 2,000 SF 4 6,449 S.F. $24.85 - -------------------------------------------------------------------------------- 3: 2,001 - 5,000 SF 11 39,297 S.F. $20.13 - -------------------------------------------------------------------------------- 4: 5,001 - 9,999 SF 3 16,736 S.F. $18.88 - -------------------------------------------------------------------------------- 5: Over 10,000 SF 3 33,029 S.F. $13.27 - -------------------------------------------------------------------------------- 5: Jewelry 4 5,695 S.F. $36.03 - -------------------------------------------------------------------------------- Total/Average 30 104,576 S.F. $19.71 ================================================================================ To reiterate the following chart delineates our conclusions for existing, new and proposed leasing activity at the subject by size. ================================================================================ -74- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ ================================================================================ Category Average Average Estimate of Existing New Market Rent ================================================================================ 1: Less Than 1,000 SF $45.62 $44.55 $46.00 - -------------------------------------------------------------------------------- 2: 1,001 - 2,000 SF $35.66 $24.85 $25.00 - -------------------------------------------------------------------------------- 3: 2,001 - 5,000 SF $17.96 $20.13 $21.00 - -------------------------------------------------------------------------------- 4: 5,001 - 9,999 SF $15.77 $18.88 $19.00 - -------------------------------------------------------------------------------- 5: Over 10,000 SF $10.68 $13.27 $13.50 - -------------------------------------------------------------------------------- 5: Jewelry $43.13 $36.03 $37.00 - -------------------------------------------------------------------------------- Total/ Weighted Average $18.03 $19.71 $20.41 ================================================================================ These transactions implicitly support the assumption that, typically, there is an inverse correlation between unit rates and the amount of space being leased, and they reflect average rates. We recognize that, in practice, there are unit rate gradations with tenant categories based on such attributes as location within the center/building, unit frontage and depth, tenant type and credit worthiness, concessions/tenant allowances, etc. However, as the tenant mix and configuration may not be fixed over time, it is more appropriate to estimate what the average base rental levels paid at the property would be for the different tenant categories. Lease Term and Steps The majority of tenant leases for mall tenants are for five year terms, and in our analysis, we have utilized a five year term for new and renewal tenants. Most of the mall tenants have fixed rental payments throughout the term, while a minority have an increase of $1.00 to $2.00 per square foot typically after the third year. Our analysis of rent levels is based on the average rent throughout the term which accounts for the rental increases. Thus our estimates of market rent reflect a weighted average of leases having a fixed rent as well as leases which have steps during the term. Market Comparisons - Occupancy Cost Ratios In further support of developing a forecast for market rent levels, we have undertaken a comparison of minimum rent to projected sales and total occupancy costs to sales ratios. Generally, our research and experience with other regional malls shows that the ratio of minimum rent to sales falls within the 8 to 12 percent range in the initial year of the lease with 8 percent to 10 percent being most typical. By adding additional costs to the tenant, such as real estate tax and common area maintenance recoveries, a total occupancy cost may be derived. Expense recoveries and other tenant charges can add up to 100 percent of minimum rent and comprise the balance of total tenant costs. The typical range for total occupancy cost-to-sales ratios falls between 12 and 15 percent. As a general rule, where sales exceed $250 to $275 per square foot, 14 to 15 percent would be a reasonable cost of occupancy. Experience and research show that most tenants will resist total occupancy costs that exceed 16 to 18 percent of sales. However, ratios of upwards to 20 percent are not uncommon. Obviously, this comparison will vary from tenant to tenant and property to property. ================================================================================ -75- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> ==================================================================================================================================== OCCUPANCY COST ANALYSIS/COMPARISON Cushman & Wakefield, Inc. ==================================================================================================================================== Budget Year No. Total Shop Avg. Rec- Avg. No. Area Location State Year Built Stories GLA GLA Rent overies Sales ==================================================================================================================================== ** ULI-Super-Regional Malls US 1995 -- -- 999,544 342,260 $ 16.30 $ 8.72 $ 203.09 - ------------------------------------------------------------------------------------------------------------------------------------ ** ULI-Regional Malls US 1995 -- -- 582,893 261,553 $ 12.05 $ 5.82 $ 176.16 - ------------------------------------------------------------------------------------------------------------------------------------ ** ICSC-All Enclosed Malls US 1995 -- -- 582,893 261,553 $ 12.05 $ 5.82 $ 176.16 - ------------------------------------------------------------------------------------------------------------------------------------ ** ICSC-Malls>1,000,000sf US 1995 -- -- 1,206,574 407,060 $ 20.01 $ 12.57 $ 271.64 ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1 Saratoga County MSA NY 1995 1990/91/93 1 656,501 256,668 $ 15.79 $ 15.54 $ 194.00 - ------------------------------------------------------------------------------------------------------------------------------------ 2 Syracuse MSA NY 1995 1954/96 2 1,035,525 410,818 $ 17.00 $ 12.90 $ 208.00 - ------------------------------------------------------------------------------------------------------------------------------------ 3 Syracuse MSA NY 1995 1988/94 1 776,571 311,557 $ 17.00 $ 12.12 $ 198.00 - ------------------------------------------------------------------------------------------------------------------------------------ 4 Rochester MSA NY 1995 1967/93 2 1,533,574 495,040 $ 18.00 $ 13.03 $ 247.00 - ------------------------------------------------------------------------------------------------------------------------------------ 5 Jefferson County MSA NY 1995 1986/93 1 635,765 209,873 $ 21.96 $ 15.89 $ 231.00 - ------------------------------------------------------------------------------------------------------------------------------------ 6 Buffalo MSA NY 1996 1985/89 1 753,105 285,771 $ 19.67 $ 14.83 $ 250.00 - ------------------------------------------------------------------------------------------------------------------------------------ 7 White Plains MSA NY 1995 1980/83 4 882,689 326,774 $ 34.00 $ 25.31 $ 380.00 - ------------------------------------------------------------------------------------------------------------------------------------ 8 Fairfield County MSA CT 1995 1986/91 2 1,270,146 499,868 $ 32.00 $ 17.20 $ 425.00 - ------------------------------------------------------------------------------------------------------------------------------------ 9 Meriden MSA CT 1994 1971/94 2 711,626 292,877 $ 27.00 $ 14.20 $ 333.00 - ------------------------------------------------------------------------------------------------------------------------------------ 10 Worcester County MSA MA 1996 1971/87 1 445,875 182,372 $ 22.36 $ 14.93 $ 288.00 - ------------------------------------------------------------------------------------------------------------------------------------ 11 Boston MSA MA 1995 1980/93 1 322,120 155,080 $ 18.50 $ 17.40 $ 208.00 - ------------------------------------------------------------------------------------------------------------------------------------ 12 Bristol County MSA MA 1995 1992 2 1,005,595 349,107 $ 21.50 $ 22.09 $ 280.00 - ------------------------------------------------------------------------------------------------------------------------------------ 13 Bristol County MSA MA 1995 1987/89 2 967,363 374,630 $ 31.00 $ 21.71 $ 404.00 - ------------------------------------------------------------------------------------------------------------------------------------ 14 Essex County MSA MA 1995 1993/94 2 836,344 329,065 $ 36.95 $ 11.27 $ 350.00 - ------------------------------------------------------------------------------------------------------------------------------------ 15 Kingston MSA MA 1994 1989/92 1 771,007 295,562 $ 18.44 $ 14.32 $ 211.00 - ------------------------------------------------------------------------------------------------------------------------------------ 16 Burlington MSA VT 1995 1979/89/92 1 490,424 185,398 $ 23.00 $ 9.51 $ 294.00 - ------------------------------------------------------------------------------------------------------------------------------------ 17 Bucks County MSA PA 1995 1968/75 1 348,309 305,212 $ 19.35 $ 10.00 $ 239.00 - ------------------------------------------------------------------------------------------------------------------------------------ 18 Monmouth County MSA NJ 1994 1990/91/94 2 1,153,396 525,741 $ 31.00 $ 15.70 $ 338.00 - ------------------------------------------------------------------------------------------------------------------------------------ 19 Westminster MSA MD 1995 1987/94 1 524,964 193,557 $ 16.74 $ 17.93 $ 228.00 - ------------------------------------------------------------------------------------------------------------------------------------ 20 Washington-Baltimore MD 1995 1979/93 2 661,639 245,217 $ 22.10 $ 19.86 $ 285.00 - ------------------------------------------------------------------------------------------------------------------------------------ 21 Baltimore MSA MD 1995 1956/91 1 863,376 242,376 $ 19.87 $ 14.93 $ 214.00 - ------------------------------------------------------------------------------------------------------------------------------------ 22 Prince William Cty. MSA VA 1995 1972/96 1 716,796 278,494 $ 21.50 $ 15.11 $ 236.00 - ------------------------------------------------------------------------------------------------------------------------------------ 23 Arlington MSA VA 1994 1986 4 491,057 222,800 $ 28.00 $ 12.98 $ 300.00 - ------------------------------------------------------------------------------------------------------------------------------------ 24 Bloomingdale MSA IL 1995 1981-88-91 2 1,292,186 427,609 $ 21.84 $ 10.37 $ 250.00 - ------------------------------------------------------------------------------------------------------------------------------------ 25 Minneapolis MSA MN 1995 1962/94 1 982,228 201,561 $ 21.00 $ 22.51 $ 262.00 - ------------------------------------------------------------------------------------------------------------------------------------ 26 Genesee County MSA MI 1995 1980/93 1 451,036 230,625 $ 16.00 $ 9.01 $ 219.00 - ------------------------------------------------------------------------------------------------------------------------------------ 27 Indianapolis MSA IN 1995 1968/97 1 1,239,059 260,359 $ 22.43 $ 9.00 $ 235.00 - ------------------------------------------------------------------------------------------------------------------------------------ 28 Tampa MSA FL 1995 1995 1 977,047 359,579 $ 27.00 $ 12.77 $ 300.00 - ------------------------------------------------------------------------------------------------------------------------------------ 29 Plantation MSA FL 1995 1979/93 1 1,004,061 282,952 $ 28.22 $ 12.40 $ 314.00 - ------------------------------------------------------------------------------------------------------------------------------------ 30 Miami MSA FL 1995 1982 1 1,120,827 290,385 $ 29.36 $ 16.55 $ 355.00 - ------------------------------------------------------------------------------------------------------------------------------------ 31 Coral Springs MSA FL 1995 1984/96 1 1,171,127 293,183 $ 25.90 $ 11.55 $ 284.00 - ------------------------------------------------------------------------------------------------------------------------------------ 32 North/Central Kansas KS 1995 1987/90 1 400,307 185,324 $ 14.97 $ 10.31 $ 212.00 - ------------------------------------------------------------------------------------------------------------------------------------ 33 Amarillo MSA TX 1995 1982/86 1 889,508 316,190 $ 18.00 $ 7.53 $ 200.00 - ------------------------------------------------------------------------------------------------------------------------------------ 34 Las Vegas MSA NV 1995 1992 1 241,580 241,580 $ 91.50 $ 22.04 $1,183.00 - ------------------------------------------------------------------------------------------------------------------------------------ 35 Las Vegas MSA NV 1994 1981/93 2 819,374 286,936 $ 35.00 $ 13.21 $ 405.00 - ------------------------------------------------------------------------------------------------------------------------------------ 36 Knoxville MSA TN 1995 1972/94 1 1,333,018 382,150 $ 23.80 $ 14.00 $ 333.00 - ------------------------------------------------------------------------------------------------------------------------------------ 37 Nashville MSA TN 1995 1990 2 716,462 373,662 $ 15.25 $ 13.30 $ 180.00 - ------------------------------------------------------------------------------------------------------------------------------------ 38 Riverside County MSA CA 1995 1970/91 1 1,044,536 411,610 $ 22.59 $ 17.00 $ 250.00 - ------------------------------------------------------------------------------------------------------------------------------------ 39 Orange County MSA CA 1994 1975/94 1 810,470 273,970 $ 21.00 $ 10.28 $ 270.00 - ------------------------------------------------------------------------------------------------------------------------------------ 40 Bellingham MSA WA 1994 1988 1 769,187 337,557 $ 20.85 $ 12.54 $ 283.00 - ------------------------------------------------------------------------------------------------------------------------------------ 41 Seattle MSA WA 1995 1979/95 1 1,012,754 311,019 $ 27.35 $ 7.86 $ 325.00 ==================================================================================================================================== Survey Mean: 833,950 304,724 $ 23.89 $ 13.86 $ 289.51 ==================================================================================================================================== =============================================================== Rent- Total No. Area Location Sales Cost Location =============================================================== ** ULI-Super-Regional Malls 8.0% 12.3% -- - --------------------------------------------------------------- ** ULI-Regional Malls 6.8% 10.1% -- - --------------------------------------------------------------- ** ICSC-All Enclosed Malls 6.8% 10.1% -- - --------------------------------------------------------------- ** ICSC-Malls>1,000,000sf 7.4% 12.0% -- =============================================================== 1 Saratoga County MSA 8.1% 16.1% Suburban - --------------------------------------------------------------- 2 Syracuse MSA 8.2% 14.4% Suburban - --------------------------------------------------------------- 3 Syracuse MSA 8.6% 14.7% Suburban - --------------------------------------------------------------- 4 Rochester MSA 7.3% 12.6% Suburban - --------------------------------------------------------------- 5 Jefferson County MSA 9.5% 16.4% Suburban - --------------------------------------------------------------- 6 Buffalo MSA 7.9% 13.8% Suburban - --------------------------------------------------------------- 7 White Plains MSA 8.9% 15.6% Urban - --------------------------------------------------------------- 8 Fairfield County MSA 7.5% 11.6% Suburban - --------------------------------------------------------------- 9 Meriden MSA 8.1% 12.4% Suburban - --------------------------------------------------------------- 10 Worcester County MSA 7.8% 12.9% Suburban - --------------------------------------------------------------- 11 Boston MSA 8.9% 17.3% Urban - --------------------------------------------------------------- 12 Bristol County MSA 7.7% 15.6% Suburban - --------------------------------------------------------------- 13 Bristol County MSA 7.7% 13.0% Suburban - --------------------------------------------------------------- 14 Essex County MSA 10.6% 13.8% Suburban - --------------------------------------------------------------- 15 Kingston MSA 8.7% 15.5% Suburban - --------------------------------------------------------------- 16 Burlington MSA 7.8% 11.1% Suburban - --------------------------------------------------------------- 17 Bucks County MSA 8.1% 12.3% Suburban - --------------------------------------------------------------- 18 Monmouth County MSA 9.2% 13.8% Suburban - --------------------------------------------------------------- 19 Westminster MSA 7.3% 15.2% Suburban - --------------------------------------------------------------- 20 Washington-Baltimore 7.8% 14.7% Suburban - --------------------------------------------------------------- 21 Baltimore MSA 9.3% 16.3% Suburban - --------------------------------------------------------------- 22 Prince William Cty. MSA 9.1% 15.5% Suburban - --------------------------------------------------------------- 23 Arlington MSA 9.3% 13.7% Urban - --------------------------------------------------------------- 24 Bloomingdale MSA 8.7% 12.9% Suburban - --------------------------------------------------------------- 25 Minneapolis MSA 8.0% 16.6% Suburban - --------------------------------------------------------------- 26 Genesee County MSA 7.3% 11.4% Suburban - --------------------------------------------------------------- 27 Indianapolis MSA 9.5% 13.4% Suburban - --------------------------------------------------------------- 28 Tampa MSA 9.0% 13.3% Suburban - --------------------------------------------------------------- 29 Plantation MSA 9.0% 12.9% Suburban - --------------------------------------------------------------- 30 Miami MSA 8.3% 12.9% Suburban - --------------------------------------------------------------- 31 Coral Springs MSA 9.1% 13.2% Suburban - --------------------------------------------------------------- 32 North/Central Kansas 7.1% 11.9% Suburban - --------------------------------------------------------------- 33 Amarillo MSA 9.0% 12.8% Suburban - --------------------------------------------------------------- 34 Las Vegas MSA 7.7% 9.6% Suburban - --------------------------------------------------------------- 35 Las Vegas MSA 8.6% 11.9% Urban - --------------------------------------------------------------- 36 Knoxville MSA 7.1% 11.4% Urban - --------------------------------------------------------------- 37 Nashville MSA 8.5% 15.9% Suburban - --------------------------------------------------------------- 38 Riverside County MSA 9.0% 15.8% Suburban - --------------------------------------------------------------- 39 Orange County MSA 7.8% 11.6% Suburban - --------------------------------------------------------------- 40 Bellingham MSA 7.4% 11.8% Suburban - --------------------------------------------------------------- 41 Seattle MSA 8.4% 10.8% Suburban =============================================================== Survey Mean: 8.3% 13.4% =============================================================== </TABLE> <PAGE> Income Capitalization Approach ================================================================================ In higher end markets where tenants are able to generate sales above industry averages, tenants can generally pay rents which fall toward the upper end of the ratio range. Moreover, if tenants perceive that their sales will be increasing at real rates that are in excess of inflation, they will typically be more inclined to pay higher initial base rents. In this context, we have provided an occupancy cost analysis for several regional malls with which we have had direct insight over the past two years. This information is provided on the following page. On average, these ratio comparisons provide a realistic check against projected market rental rate assumptions. From this analysis we see that the ratio of base rent to sales ranges from 7.1 to 10.6 percent, while the total occupancy cost ratios vary from 9.6 to 17.63 percent when all recoverable expenses are included. The surveyed mean for the 22 malls analyzed is 8.3 percent and 13.4 percent, respectively. Some of the higher ratios are found in older malls situated in urban areas that have higher operating structures due to less efficient layout and designs, older physical plants, and higher security costs, which in some malls can add upwards of $2.00 per square foot to common area maintenance. These relative measures can be compared with two well known publications, The Score (1994) by the International Council of Shopping Centers and Dollars & Cents of Shopping Centers (1995) by the Urban Land Institute. The most recent publications indicate base rent to sales ratios of approximately 7.0 to 8.0 percent and total occupancy cost ratios of 10.1 and 12.3 percent, respectively. In general, while the rental ranges and ratio of base rent to sales vary substantially from mall to mall and tenant to tenant, they do provide general support for the rental ranges and ratio which is projected for the subject property. Conclusion - Market Rent Estimate for In-Line Shops Assuming hat sales grow by 3.5 percent over 1996 volumes, comparable mall sales in calendar year 1997 are estimated at $268 per square foot. After considering all of the above, we have developed a weighted average rental rate of approximately $20.40 per square foot based upon a relative weighting of a tenant space by size. The average rent is a weighted average rent for all mall tenants. This average market rent has been allocated to the various space categories as shown on the following page. ================================================================================ -76- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ ================================================================================ AVERAGE MALL SHOP RENT CALCULATION Franklin Mills (Philadelphia, PA) Cushman & Wakefield, Inc. ================================================================================ Applicable Pro-Rata Initial Market Weighted Suite Size GLA Share Rent Average - -------------------------------------------------------------------------------- 1 Less Than 999 SF 17,274 S.F. 3.9% $46.00 $1.35 - -------------------------------------------------------------------------------- 2 1,000- 1,999 SF 51,905 S.F. 8.8% $25.00 $2.20 - -------------------------------------------------------------------------------- 3 2,000 - 4,999 SF 235,940 S.F. 40.1% $21.00 $8.42 - -------------------------------------------------------------------------------- 4 5,000 - 9,999 SF 163,821 S.F. 27.8% $19.00 $5.29 - -------------------------------------------------------------------------------- Greater than 10,000 SF 109,695 S.F. 18.6% $13.50 $2.52 - -------------------------------------------------------------------------------- 7 Jewelry Stores 10,113 S.F. 1.7% $37.00 $.64 - -------------------------------------------------------------------------------- Mall Shop Average Rent 588,748 S.F. 100.0% $20.41 ================================================================================ The average rent is a weighted average rent for all in-line mall tenants only. As can be seen, the market rents chosen range from $13.50 to $46.00 per square foot, with a composite weighted average of $20.41 per square foot. This is based on the 588,748 square feet of mall shop GLA and is exclusive of food court and kiosks which are treated separately. One final test of this conclusion can be made within the context of its relationship to total occupancy costs. Occupancy Cost Analysis - Test of Reasonableness The weighted average rental rate assumptions can next be tested for reasonableness against the total occupancy costs projected for the subject mall property. A total built-up occupancy cost can be derived by taking the weighted average rent and adding projected occupancy costs for tenants in the mall. This total can then be tested against the average sales for mall tenants. The occupancy cost analysis has been presented on the following chart. ================================================================================ -77- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ ================================================================================ In-Line Tenants Total Occupancy Cost Analysis - 1997 ================================================================================ Cushman & Wakefield Tenant Cost (Annualized) Estimated Expenses/SF ================================================================================ Economic Base Rent $ 20.41 (Weighted Average) - -------------------------------------------------------------------------------- Occupancy Costs Common Area Maintenance(1) $ 10.82 - -------------------------------------------------------------------------------- Real Estate Taxes(2) $ 3.57 - -------------------------------------------------------------------------------- Use and Occupancy Tax (3) $ 1.44 - -------------------------------------------------------------------------------- Total Tenant Costs $ 36.24 - -------------------------------------------------------------------------------- 1997 Mall Sales (Estimate) $268.00 - -------------------------------------------------------------------------------- Base Rent-Sales Ratio 7.6% - -------------------------------------------------------------------------------- Cost of Occupancy Ratio 13.5% ================================================================================ (1) The standard formula for the calculation of CAM is based on the average occupied area (GLOA) of in-line space. This area measure is exclusive of anchors and major tenants . Historically, the standard lease clause provides for an 15 percent administrative factor plus the recovery of the property management charge A complete discussion of the standard recovery formula is presented later in this report. (2) Tax estimate is for mall shops only and is based upon an average occupied area of which is the standard recovery basis for taxes. It is based on actual 1997 taxes net of the major's contributions (3) Use and Occupancy Tax is a City of Philadelphia tax payable by tenants, which is calculated based upon a percentage of the assessed value. ================================================================================ Total costs, on average, are shown to be 13.5 percent of projected average retail sales, which is considered reasonable, particularly based upon the upside potential growth in sales after the proposed renovations are completed. We also note that we have not included tenant marketing fees or the cost of energy. Sometimes only the profit portion of energy costs is included for occupancy cost analysis. Since energy usage varies from tenant to tenant, this occupancy cost is usually not considered in such an analysis. Food Court and Kiosks We have also elected to ascribe an individual unit market rate to the food court and kiosk tenants. Franklin Mills has two food court areas comprising 12,850 square feet with 18 units, indicating an average size of 714 square feet per unit. This average unit size is fairly typical of industry figures. As of the appraisal date, 16 of the 18 food court units were leased. The Mills Corporation has provided us with information on the food courts at the other Mills malls. This information is summarized on the following page. ================================================================================ -78- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ ================================================================================ Mills Centers Average Food Court Rents ================================================================================ Center GLA (SF) Annual Rent Unit Rate - -------------------------------------------------------------------------------- Gurnee Mills 18,392 $1,002,637 $ 54.51 - -------------------------------------------------------------------------------- Potomac Mills 8,916 $ 569,739 $ 63.90 - -------------------------------------------------------------------------------- Sawgrass Mills 24,468 $1,215,019 $ 49.66 - -------------------------------------------------------------------------------- Total/Average 43,911 $2,404,618 $ 54.73 - -------------------------------------------------------------------------------- Franklin Mills 11,589 $ 575,963 $ 49.70 ================================================================================ From the above, we see that among the three existing Mills projects, food court rents range from an average of $49.66 per square foot at Sawgrass to a high of $63.90 per square foot at Potomac Mills. Overall, the average rent for the nearly 43,911 square feet of food court space is $54.73 per square foot. Food court revenues account for approximately 4.8 percent of all base rent at the Mills projects. As detailed in the previous section, the most recent food court leases at Franklin Mills were to McDonalds for 694 square foot for 5 1/2 years at $40.00 per square foot and a two year lease to Subway for 490 square feet at $24.49 per square foot. The weighted average of the 11.589 square feet of occupied space is $49.70 per square foot. Based upon our total analysis, we have ascribed an average market rent of $40.00 per square foot for a food court tenant. Per recent practice, we have assumed a seven year term for all food court tenants. As a check upon our estimate of market rent, we have referenced the publication Dollars and Cents of Shopping Centers as published by the Urban Land Institute. In that publication we note that food court tenants pay, on average, total occupancy costs of 16.8% of sales. For 1996, food court sales at the subject were $493 per square foot. Assuming a 3.5 percent growth in sales, we estimate 1997 sales at $510 per square foot. Food court tenants are expected to pay a higher cost of occupancy than other tenants at the subject. In many regional malls, food court tenants will generally pay the greater of 3.0 percent of sales or a flat cost per square foot for the cost of operating the food court. For 1997, we calculate the standard food court recovery to be approximately $35 per square foot. This charge is in addition to the standard mall operating expenses of $15.46 per square foot Thus, base rent ($40.00) plus all pass-through charges ($50.46) can be estimated at approximately $90.46 per square foot on average. Considering that food court tenants had sales of $510 per square foot, the implied occupancy cost would be 17.7 percent, which is achievable for most food court tenants. This amount appears reasonable in light of the subject's attained rents as well as our experience with other regional malls. ================================================================================ -79- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ ================================================================================ Food Court Tenants Total Occupancy Cost Analysis - 1996 ================================================================================ Cushman & Wakefield Tenant Cost (Annualized) Estimated Expenses/SF ================================================================================ Economic Base Rent $ 40.00 (Weighted Average) - -------------------------------------------------------------------------------- Occupancy Costs - -------------------------------------------------------------------------------- Common Area Maintenance $ 10.45 - -------------------------------------------------------------------------------- Real Estate Taxes $ 3.57 - -------------------------------------------------------------------------------- Use and Occupancy Tax $ 1.44 - -------------------------------------------------------------------------------- Food Court Expenses $ 35.00 - -------------------------------------------------------------------------------- Total Tenant Costs $ 90.46 - -------------------------------------------------------------------------------- 1997 Sales (Estimates) $510.00 - -------------------------------------------------------------------------------- Base Rent-Sales Ratio 7.8% - -------------------------------------------------------------------------------- Cost of Occupancy Ratio 17.7% ================================================================================ We have performed a similar analysis for the kiosk tenants. Franklin Mills contains three permanent kiosks totaling 781 square feet with an average tenant size for 260 square feet. The current average contract rent is $91.97 per square foot. The most recent lease was signed in 1994 for a 300 square foot tenants at $83.33 per square foot for five year terms. Based upon our total analysis, we have ascribed an average market rent of $90.00 per square foot for a kiosk tenant. Per recent practice, we have assumed a five year term for all kiosk tenants. The kiosk tenants pay the same operating expenses of $15.46 per square foot that the mall tenants pay. Based upon the 1997 actual sales at the subject for kiosks of $1,422, the total cost of occupancy for kiosk tenants would be 7.4%. ================================================================================ Kiosk Tenants Total Occupancy Cost Analysis - 1997 ================================================================================ Cushman & Wakefield Tenant Cost (Annualized) Estimated Expenses/SF ================================================================================ Economic Base Rent $ 90.00 (Weighted Average) - -------------------------------------------------------------------------------- Occupancy Costs - -------------------------------------------------------------------------------- Common Area Maintenance $ 10.87 - -------------------------------------------------------------------------------- Real Estate Taxes $ 3.57 - -------------------------------------------------------------------------------- Use and Occupancy Tax $ 1.44 - -------------------------------------------------------------------------------- Total Tenant Costs $ 105.88 - -------------------------------------------------------------------------------- 1997 Sales (Estimate) $1,422.00 - -------------------------------------------------------------------------------- Base Rent-Sales Ratio 6.3% - -------------------------------------------------------------------------------- Cost of Occupancy Ratio 7.4% ================================================================================ Anchor and Other Major Tenant Revenues An investor in Franklin Mills would assume a leased fee interest in several anchor and major tenants. The schedule below briefly summarizes the rent obligation of each. ================================================================================ -80- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ <TABLE> <CAPTION> ==================================================================================================================================== Scheduled Anchor and Major Tenant Obligations As of May, 1997 ==================================================================================================================================== Demised Base Base Unit Suite Tenant Area (SF) Term Term Options Rate (SF) ==================================================================================================================================== <S> <C> <C> <C> <C> <C> B Spiegel 60,115 7/1992 - 8 Yrs. Two 5-yr. $ 6.50 7/2000 - ------------------------------------------------------------------------------------------------------------------------------------ D JC Penney 100,200 5/1989 - 10 Yrs. Three 5-yr. $ 5.47 5/1999 - ------------------------------------------------------------------------------------------------------------------------------------ E Burlington Coat Factory 128,950 11/1993- 10 Yrs. Four 5-yr. $ 4.19 10/2003 - ------------------------------------------------------------------------------------------------------------------------------------ F Marshalls 70,701 11/90- 10 yrs. Three 5-yr. $ 6.85 1/2001 - ------------------------------------------------------------------------------------------------------------------------------------ H Ports of the World 152,370 5/1989- 20 yrs. Three 10-yr. $ .41 (Ground Lease) 1/2010 - ------------------------------------------------------------------------------------------------------------------------------------ M OfficeMax 30,237 5/1992- 10 yrs. Two 5-yr. $ 8.00 4/2002 - ------------------------------------------------------------------------------------------------------------------------------------ 1100 Syms 25,127 11/93- 5 Yrs. Two 5-yr. $ 6.45 11/98 - ------------------------------------------------------------------------------------------------------------------------------------ 1123 Neiman Marcus 26,900 6/1997- 10 yrs. Two 5-yr. $17.66 5/2007 - ------------------------------------------------------------------------------------------------------------------------------------ 1319 Filene's Basement 32,637 8/1989- 10 yrs. Two- 5 yr. $ 9.11 1/2000 - ------------------------------------------------------------------------------------------------------------------------------------ 1341 Bed, Bath & Beyond 40,232 5/1989- 10 yrs. Two- 5 yr. $ 9.20 5/1999 - ------------------------------------------------------------------------------------------------------------------------------------ 1620 Nordstrom 42,241 8/1993- 10 yrs. Four 5-yr. $ 6.00 1/2004 - ------------------------------------------------------------------------------------------------------------------------------------ 1624 Saks 46,406 11/1996- 10 yrs. Three 5-yr. $10.41 11/2006 - ------------------------------------------------------------------------------------------------------------------------------------ 1827 Modells 30,608 5/1989- 18 yrs. Two- 5 yr. $ 9.87 5/2007 - ------------------------------------------------------------------------------------------------------------------------------------ 1125 Vacant 23,254 (Former I. Goldberg) . Sub-Total 809,978 - ------------------------------------------------------------------------------------------------------------------------------------ G General Cinema 61,000 12/1997 - 20 yrs. Six - 4 and 5 Yr. $15.57 (Sears Space) 11/2017 - ------------------------------------------------------------------------------------------------------------------------------------ 446 Rain Forest 20,000 5/1998- 10 yrs. Three - 5 Yrs. $30.00 (Proposed) 4/2008 ==================================================================================================================================== </TABLE> The existing center includes 14 anchor and major tenant spaces involving 657,608 square feet plus one anchor on a pad lease occupying 152,370 square feet. The former Sears store has been be demolished for construction of a 61,000 General Cinema movie theater which is scheduled to open by December, 1997. Additionally, a new 20,000 square foot major tenant, Rain Forest, will be constructed adjoining the theater. After completion of the new construction, the subject will contain 420,966 square feet of owned anchor space and 352,560 square feet of major tenant space for a total of owned anchor/major tenant area (excluding the land leased Ports of the World) of 773,526 square feet. ================================================================================ -81- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> ==================================================================================================================================== DEPARTMENT STORE LEASES Cushman & Wakefield, Inc. ==================================================================================================================================== Lease Leased Annual Rent No. Name/Location Tenant Start Term Area Rent Sq/Ft ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> 1 Spokane Valley Mall JC Penney Sep-97 20 yrs. 126,006 $523,924 (1-20) $5.25 Spokane, Washington (JP Realty) - ------------------------------------------------------------------------------------------------------------------------------------ 2 Coventry Mall JC Penney Aug-96 15 yrs. 91,719 $598,770 (1-15) $6.00 Chester County, Pennsylvania (The Goodman Company) - ------------------------------------------------------------------------------------------------------------------------------------ 3 Crabtree Valley Mall Lord & Taylor Jan-96 10 yrs. 99,795 $299,385 (1-10) $3.00 Raleigh, North Carolina Signed +Fourteen (CMV Associates) 1993 5 yr. opt. - ------------------------------------------------------------------------------------------------------------------------------------ 4 Dayton Mall JC Penney Nov-95 15 yrs. 179,424 $762,652 (1-15) $4.25 Dayton, Ohio Signed - five (JMS Retail Properties) 1994 5 yr. opt. - ------------------------------------------------------------------------------------------------------------------------------------ 5 Mission Valley Mall Mervyn's Oct-95 40 yrs. 75,000 $446,250 (1-40) $5.95 San Diego, California Signed 1994 - ------------------------------------------------------------------------------------------------------------------------------------ 6 Independence Commons Kohl's Sep-95 20 yrs. 80,684 $526,867 (1-2) $6.53 Independence, Missouri $576,891 (3-10) $7.15 (Homart) $597,062 (11-15) $7.40 $617,233 (16-20) $7.65 - ------------------------------------------------------------------------------------------------------------------------------------ 7 Keystone Plaza Kohl's May-95 15 yrs. 80,684 $564,788 (1-20) $7.00 Erie, Pennsylvania Signed 1994 - ------------------------------------------------------------------------------------------------------------------------------------ 8 Aviation Mall JC Penney Apr-95 15 yrs. 83,370 $288,460 (1-15) $3.46 Glens Falls, New York Signed + five (The Pyramid Co.) Nov-94 5 yr. opt Montgomery Ward Apr-95 15 yrs. 85,000 $260,000 (1-15) $4.00 Signed Nov-94 - ------------------------------------------------------------------------------------------------------------------------------------ 9 Brandon Town Center Burdines Mar-95 20 yrs. 140,000 $1,463,000 (1-2) $10.45 Tampa, Florida + six $1,544,200 (3-5) $11.03 (Urban Properties) 5 yr. opt. $1,625,400 (6-20) $11.61 Sears Feb-95 20 yrs. 132,468 $529,872 (1-20) $4.00 + one 5 yr. opt. - ------------------------------------------------------------------------------------------------------------------------------------ 10 Confidential Confidential 1995 20 yrs. 129,000 $0 (1-20) $0.00 Top Ten MSA Locations Signed + eight 1992 10 yr. opt. Confidential 1995 30 yrs. 172,000 $140,000 (1-30) $0.81 Signed + six 1992 10 yr. opt. Confidential 1995 20 yrs. 100,000 $0 (1-20) $0.00 Signed + eight 1992 10 yr. opt. ==================================================================================================================================== ======================================================================================================= Estimated Estimated Total Breakpoint/ Sales % Rent Rent as No. Name/Location Breakpoint/SF Sales/SF % Rent/SF % of Sales ======================================================================================================= 1 Spokane Valley Mall 1.50% > $33,076,578 N/A -- -- Spokane, Washington $262.60 (JP Realty) - ------------------------------------------------------------------------------------------------------- 2 Coventry Mall 1.50% > $22,938,500 N/A -- -- Chester County, Pennsylvania $250.00 (The Goodman Company) - ------------------------------------------------------------------------------------------------------- 3 Crabtree Valley Mall 1.00% > $29,938,500 $20,958,950 -- 1.43% Raleigh, North Carolina $300.00 $210.00 (CMV Associates) - ------------------------------------------------------------------------------------------------------- 4 Dayton Mall 1.50% > $38,127,600 $26,195,904 -- 2.91% Dayton, Ohio $212.50 $146.00 (JMS Retail Properties) - ------------------------------------------------------------------------------------------------------- 5 Mission Valley Mall 2.00% > $22,312,500 $15,000,000 -- 2.98% San Diego, California $297.50 $200.00 - ------------------------------------------------------------------------------------------------------- 6 Independence Commons 0.00% > $0 -- -- -- Independence, Missouri $0.00 -- (Homart) - ------------------------------------------------------------------------------------------------------- 7 Keystone Plaza 1.00% > $18,000,000 -- -- -- Erie, Pennsylvania $223.09 -- - ------------------------------------------------------------------------------------------------------- 8 Aviation Mall 1.50% > $14,406,000 $10,838,100 -- 2.66% Glens Falls, New York $172.80 $130.00 (The Pyramid Co.) 1.50% > $12,000,000 -- -- -- $184.62 -- - ------------------------------------------------------------------------------------------------------- 9 Brandon Town Center 1.00% > $36,086,000 $28,280,000 -- 5.17% Tampa, Florida $257.76 $202.00 (Urban Properties) 1.00% > $33,098,000 $22,387,000 -- 2.37% $249.86 $169.00 - ------------------------------------------------------------------------------------------------------- 10 Confidential 1.00% to $40,000,000 $42,800,000 $433,600 1.01% Top Ten MSA Locations $310.08 $331.79 $3.36 -- $63,600,400 -- 0.20% $369.77 1.00% to $40,000,000 $32,000,000 $320,000 1.00% 0.50% > $40,000,000 $320.00 $3.20 ======================================================================================================= ===================================================================================== No. Name/Location Comments ===================================================================================== 1 Spokane Valley Mall JC Penney at proposed mall scheduled for Spokane, Washington opening in Nov=97. CAM at $.50/sf, increasing (JP Realty) $.05 every 5 yrs. Sales est. at $20,650,000. - ------------------------------------------------------------------------------------- 2 Coventry Mall Anchor addition to Coventry Mall originally Chester County, Pennsylvania constructed in 1966. Mall includes 4 anchor (The Goodman Company) and has a total area of 818,161+/-sf. - ------------------------------------------------------------------------------------- 3 Crabtree Valley Mall May Company unit taking over former Raleigh, North Carolina Hect's store. Will expand from 85,761 SF. (CMV Associates) Taxes over base + nominal CAM contribution. - ------------------------------------------------------------------------------------- 4 Dayton Mall Tenant relocating to new store at mall. Dayton, Ohio CAM at $.35/sf. Increasing to $.40/sf in (JMS Retail Properties) year 11. Sales=chain average. - ------------------------------------------------------------------------------------- 5 Mission Valley Mall Former Saks store being leased and San Diego, California sold back to mall. No Tls given, no CAM, sales=chain average - ------------------------------------------------------------------------------------- 6 Independence Commons New 363,853 SF power center. Store Independence, Missouri scheduled to open November, 1995. No (Homart) percentage rent. Kohl's given Tls of $30 per square foot. - ------------------------------------------------------------------------------------- 7 Keystone Plaza Regional dept chain lease in new power Erie, Pennsylvania center anchored by Wal-Mart. Tenant to pay nominal CAM and own tax bill. - ------------------------------------------------------------------------------------- 8 Aviation Mall Mall expansion underway. JC Penney to Glens Falls, New York occupy new store. CAM of $.45/sf, pro rata (The Pyramid Co.) taxes over 3rd year. Montgomery Wards term of 15 years is still to be determined. They are occupying a new store at the mall. - ------------------------------------------------------------------------------------- 9 Brandon Town Center New regional mall in Tampa, Fl. Burdines's Tampa, Florida separately assessed; pays CAM at $.30/sf (Urban Properties) increasing by $.07/sf every 5 years. Sears also is assessed separately; pays CAM of $.19/sf in years 1-5. Increasing to $.30 in year 6 & $.05/sf every five yeras after. - ------------------------------------------------------------------------------------- 10 Confidential Percentage rent clause for years 1-5; base Top Ten MSA Locations rent determined in year 6 by 70% of average rent paid in years 3-5. Contribution capped at $500K. Second anchor has flat rent, no percentage rent clause. Third anchor to repay a $14 million tenant allowance over term of lease. Minimum of $200,000 in percentage rent to be paid annually. ===================================================================================== </TABLE> <PAGE> Income Capitalization Approach ================================================================================ The four anchor tenants (Speigel, JC Penney, Burlington Coat Factory and Marshalls) have rental rates ranging from $4.19 to $6.50 per square foot with the larger tenants at the lower end of the range. All have incorporated some form of rent step with increases of $0.25 to $0.75 per square foot appearing to be most typical. All of the tenants have multiple options with rent increases of approximately $.25 to $.75 per square foot. ================================================================================ Scheduled Anchor Obligations As of May 1, 1997 ================================================================================ Demised Base Base Option Tenant Area (SF) Term Rent (SF) Options Rent (SF) ================================================================================ Burlington Coat 128,950 11/1993- $4.19 Four 5-yr. (1) $4.61 Factory 10/2003 (2) $4.82 (3) $5.03 (4) $5.23 - -------------------------------------------------------------------------------- JC Penney 100,200 5/1989 - $5.47 Three 5-yr. (1) $5.97 5/1999 (2) $6.47 (3) $6.97 - -------------------------------------------------------------------------------- Spiegel 60,115 7/1992 - $6.50 Two 5-yr. (1) $7.25 7/2000 (2) $8.50 - -------------------------------------------------------------------------------- Marshalls 70,701 11/90- $6.85 Three 5-yr. (1) $7.35 1/2001 (2) $7.85 (3) $8.35 - -------------------------------------------------------------------------------- The following chart summarizes rent, percentage rent, if any, and CAM contributions for anchor tenants. We have compared these costs to projected sales to estimate the reasonableness of current obligations. ================================================================================ Rent/ Taxes & Total Total Cost Tenant S.F. CAM/S.F. Costs/S.F. Sales/S.F as % of Sales ================================================================================ Burlington Coat Factory $ 4.19 $ 3.62 $ 7.81 $ 108 7.2% - -------------------------------------------------------------------------------- JC Penney $ 5.65 $ 1.48 $ 7.13 $ 341 2.1% - -------------------------------------------------------------------------------- Spiegel $ 6.50 $ 3.65 $10.15 $ 123 8.3% - -------------------------------------------------------------------------------- Marshalls $ 6.85 $ 3.66 $10.51 $ 140 7.5% ================================================================================ On the opposing page is a summary of anchor store leases throughout the United States. Based upon that survey, the base lease and option terms for the anchor tenants are at the middle to low end of the range. We have, therefore, assumed that the anchor tenants will exercise their options and will occupy their space for the term of our analysis. As a linchpin of its remerchandising plan, ownership has recently demolished a former Sears Department store for construction of a 61,000 square foot multiplex theater. Ownership is in negotiation with General Cinema to occupy the new theater. General Cinema currently operates a movie theater on land it owns adjacent to the mall. Ownership would purchase that site and demolish the existing improvements. The total cost of demolition, acquisition and construction is estimated at $12.05 million, less a credit of $2.75 million for sale of the movie theater site, for a net construction cost of $9.3 million. ================================================================================ -82- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> ====================================================================================================================== Franklin Mills Rent Comparables 24-Apr-97 Philadelphia, PA Major Tenants All Effective Rents discounted at 10.50% ====================================================================================================================== Property Name - Tenant Name Commencement Lease NRA Contract Rent Lease Address & Proximity to Subject % Lease Term Condition of Space PSF/Unit Concessions Building NRA/Age & Occupancy New/Expand/Renov CPI/Escalations $ Per S.F. Add On Factor ====================================================================================================================== <S> <C> <C> <C> <C> Subject: n/a 1-5 F/R(mos): 0 Market Terms 10.00 2nd Generation $12.00 F/R: $0.00 Franklin Mills Years 6-10 M/A: $0.00 $13.00 PKG: $0.00 1,402,193/1989 11-15 LBO: $0.00 $ 0.00 Other: $0.00 16-20 $ 0.00 - ---------------------------------------------------------------------------------------------------------------------- Comp 1: 1997 20,000 1-5 F/R(mos): 0 Rain Forest 10.00 2nd Generation $30.00 F/R: $0.00 Franklin Mills Years 6-10 M/A: $0.00 Subject $31.00 PKG: $0.00 1,402,193/1989 11-15 LBO: $0.00 $ 0.00 Other: $0.00 16-20 $ 0.00 - ---------------------------------------------------------------------------------------------------------------------- Comp 2: 1997 26,000 1-5 F/R(mos): 0 Neiman Marcus(Relocation) 10.00 2nd Generation $17.66 F/R: $0.00 Franklin Mills Years 6-10 M/A: $0.00 Subject $19.42 PKG: $0.00 1,402,193/1989 11-15 LBO: $0.00 $ 0.00 Other: $0.00 16-20 $ 0.00 - ---------------------------------------------------------------------------------------------------------------------- Comp 3: 1996 46,406 1-5 F/R(mos): 0 Saks (Expansion) 10.00 2nd Generation $10.41 F/R: $0.00 Franklin Mills Years 6-10 M/A: $0.00 Subject $11.06 PKG: $0.00 1,402,193/1989 11-15 LBO: $0.00 $ 0.00 Other: $0.00 16-20 $ 0.00 - ---------------------------------------------------------------------------------------------------------------------- Comp 4: 1995 20,000 1-5 F/R(mos): 0 Old Navy 15.00 1st Generation $14.50 F/R: $0.00 East Gate Square Years New 6-10 M/A: $0.00 10 Miles from subject $17.00 PKG: $0.00 744,000 sf NRA/1993-1996/90% 11-15 LBO: $0.00 $20.00 Other: $0.00 - ---------------------------------------------------------------------------------------------------------------------- Comp 5: 1993 20,000 1-5 F/R(mos): 0 AC Moore 15.00 1st Generation $13.00 F/R: $0.00 East Gate Square Years New 6-10 M/A: $0.00 10 Miles from subject $14.00 PKG: $0.00 744,000 sf NRA/1993-1996/90% 11-15 LBO: $0.00 $15.00 Other: $0.00 - ---------------------------------------------------------------------------------------------------------------------- Comp 6: 1993 20,000 1-5 F/R(mos): 0 Linens N Things 15.00 1st Generation $12.00 F/R: $0.00 East Gate Square Years 6-10 M/A: $0.00 10 Miles from subject $13.00 PKG: $0.00 744,000 sf NRA/1993-1996/90% 11-15 LBO: $0.00 $14.00 Other: $0.00 - ---------------------------------------------------------------------------------------------------------------------- Comp 7: 1996 26,752 1-5 F/R(mos): 0 Petsmart 10.00 $16.00 F/R: $0.00 The Court at Oxford Valley Years 6-10 M/A: $0.00 5 Miles from Subject $17.00 PKG: $0.00 430,000 sf NRA/1996/100% 11-15 LBO: $0.00 $18.00 Other: $0.00 16-20 $ 0.00 - ---------------------------------------------------------------------------------------------------------------------- Comp 8: 1996 26,752 1-5 F/R(mos): 0 PetsMart 15.50 1st Generation $13.50 F/R: $0.00 Brandywine Square Years New 6-10 M/A: $0.00 15 Miles from Subject $14.85 PKG: $0.00 579,000 sf NRA/1996/100% 11-15 LBO: $0.00 $16.34 Other: $0.00 16-20 $ 0.00 ====================================================================================================================== ======================================================================================================= Property Name - Tenant Name Effective Adj. Address & Proximity to Subject Workletter Effective Rent Effective Building NRA/Age & Occupancy $ Per S.F. Rent Adjustments Rent Per S.F./Unit ==================================================================================================================================== Subject: $15.00 $9.94 Quality/Age: 0% $9.94 NPV 76.41 Market Terms Location: 0% Workletter (15.00) Franklin Mills Size/Credit: 0% Commissions 0.00 Amenities: 0% Other 0.00 1,402,193/1989 Lease Term: 0% -------------------------- Other 0% Adj NPV 61.41 ----------------------- -------------------------- Total Adj: 0% G Eff Rent $9.94 Optg Exp n/a -------------------------- Net Eff Rent $9.94 - ------------------------------------------------------------------------------------------------------------------------------------ Comp 1: $137.50 $8.11 Quality/Age: 0% $8.11 NPV 187.57 Rain Forest Location: 0% Workletter (137.50) Franklin Mills Size/Credit: 0% Commissions 0.00 Subject Amenities: 0% Other 0.00 1,402,193/1989 Lease Term: 0% -------------------------- Other 0% Adj NPV 50.07 ----------------------- -------------------------- Total Adj: 0% G Eff Rent $8.11 Optg Exp n/a -------------------------- Net Eff Rent $8.11 - ------------------------------------------------------------------------------------------------------------------------------------ Comp 2: $24.16 $14.40 Quality/Age: 0% $12.96 NPV 113.11 Neiman Marcus(Relocation) Location: 0% Workletter (24.16) Franklin Mills Size/Credit: 0% Commissions 0.00 Subject Amenities: 0% Other 0.00 1,402,193/1989 Lease Term: 0% -------------------------- Other 0% Adj NPV 88.95 ----------------------- -------------------------- Total Adj: 0% G Eff Rent $14.40 Optg Exp n/a -------------------------- Net Eff Rent $14.40 - ------------------------------------------------------------------------------------------------------------------------------------ Comp 3: $43.10 $3.67 Quality/Age: 0% $3.67 NPV 65.78 Saks (Expansion) Location: 0% Workletter (43.10) Franklin Mills Size/Credit: 0% Commissions 0.00 Subject Amenities: 0% Other 0.00 1,402,193/1989 Lease Term: 0% -------------------------- Other 0% Adj NPV 22.68 ----------------------- -------------------------- Total Adj: 0% G Eff Rent $3.67 Optg Exp n/a -------------------------- Net Eff Rent $3.67 - ------------------------------------------------------------------------------------------------------------------------------------ Comp 4: $25.00 $12.94 Quality/Age: 5% $9.71 NPV 122.56 Old Navy Location: 20% Workletter (25.00) East Gate Square Size/Credit: 0% Commissions 0.00 10 Miles from subject Amenities: 0% Other 0.00 744,000 sf NRA/1993-1996/90% Lease Term: 0% -------------------------- Other 0% Adj NPV 97.56 ----------------------- -------------------------- Total Adj: 25% G Eff Rent $12.94 Optg Exp n/a -------------------------- Net Eff Rent $12.94 - ------------------------------------------------------------------------------------------------------------------------------------ Comp 5: $5.00 $13.00 Quality/Age: 5% $9.75 NPV 103.03 AC Moore Location: 20% Workletter (5.00) East Gate Square Size/Credit: 0% Commissions 0.00 10 Miles from subject Amenities: 0% Other 0.00 744,000 sf NRA/1993-1996/90% Lease Term: 0% -------------------------- Other 0% Adj NPV 98.03 ----------------------- -------------------------- Total Adj: 25% G Eff Rent $13.00 Optg Exp n/a -------------------------- Net Eff Rent $13.00 - ------------------------------------------------------------------------------------------------------------------------------------ Comp 6: $5.00 $12.00 Quality/Age: 5% $9.00 NPV 95.49 Linens N Things Location: 20% Workletter (5.00) East Gate Square Size/Credit: 0% Commissions 0.00 10 Miles from subject Amenities: 0% Other 0.00 744,000 sf NRA/1993-1996/90% Lease Term: 0% -------------------------- Other 0% Adj NPV 90.49 ----------------------- -------------------------- Total Adj: 25% G Eff Rent $12.00 Optg Exp n/a -------------------------- Net Eff Rent $12.00 - ------------------------------------------------------------------------------------------------------------------------------------ Comp 7: $25.00 $13.35 Quality/Age: 5% $10.01 NPV 125.64 Petsmart Location: 20% Workletter (25.00) The Court at Oxford Valley Size/Credit: 0% Commissions 0.00 5 Miles from Subject Amenities: 0% Other 0.00 430,000 sf NRA/1996/100% Lease Term: 0% -------------------------- Other 0% Adj NPV 100.64 ----------------------- -------------------------- Total Adj: 25% G Eff Rent $13.35 Optg Exp n/a -------------------------- Net Eff Rent $13.35 - ------------------------------------------------------------------------------------------------------------------------------------ Comp 8: $25.00 $11.18 Quality/Age: 5% $10.05 NPV 110.40 PetsMart Location: 5% Workletter (25.00) Brandywine Square Size/Credit: 0% Commissions 0.00 15 Miles from Subject Amenities: 0% Other 0.00 579,000 sf NRA/1996/100% Lease Term: 0% -------------------------- Other 0% Adj NPV 85.40 ----------------------- -------------------------- Total Adj: 10% G Eff Rent $11.18 Optg Exp n/a -------------------------- Net Eff Rent $11.18 ==================================================================================================================================== </TABLE> <PAGE> Income Capitalization Approach ================================================================================ The current proposal calls for General Cinema to occupy this space for twenty years at an annual rent of $950,000 ($15.57 per square foot) for the first ten years and $1,045,000 ($17.13 per square foot) for the following ten years for an average effective rent of $15.98. The following is a summary of recent lease transactions for movie theaters. <TABLE> <CAPTION> ======================================================================================================== Movie Theater Lease Transactions ======================================================================================================== Location Tenant Term Size Rent/S.F. ======================================================================================================== <S> <C> <C> <C> <C> Richland Crossing Magic Cinema 1997- 42,300 S.F. $7.57 (Yrs. 1-5) Route 309 25 Yrs. $8.32 (Yrs. 6-10) Richland Township $9.15 (Yrs. 11-15) Bucks County, Pa $10.07 (Yrs. 16-20) $11.08 (Yrs. 21-25) - -------------------------------------------------------------------------------------------------------- Independence Commons AMC 1997 - 63,800 S.F. $13.50 (Yrs. 1-2) 39th Street 20 Yrs. $14.75 (Yrs. 3-4) Independence, Mo. $15.50 (Yrs. 6-10) $16.50 (Yrs. 11-14) $17.50 (Yrs. 15-18) $17.00 (Yrs. 19-20) - -------------------------------------------------------------------------------------------------------- Courtland Center Startime Cinema 1996- 25,000 S.F. $10.00 (Yrs. 1-10) Burton, Michigan 20 Yrs. $12.00 (Yrs. 11-20) - -------------------------------------------------------------------------------------------------------- Keystone Plaza Cinemark 1995- 73,294 S.F. $10.50 (Yrs. 1-5) Rte. 19 15 Yrs. $11.50 (Yrs. 6-10) Erie, Pa. $12.00 (Yrs. 11-15) - -------------------------------------------------------------------------------------------------------- Mall at Steamtown United Artists 1995- 30,000 S.F. $9.50 (Yrs. 1-3) Lackawanna Avenue 21 Yrs. $11.25 (Yrs. 4-7) Scranton, Pa. $13.75 (Yrs. 8-14 $15.75 (Yrs. 15-21) ======================================================================================================== </TABLE> Despite the high average rent proposed for the movie theater lease at the subject, this transaction would not be economically feasible on its own merits due to the high construction costs. Assuming a cost of capital of 10.5 percent, the General Cinema lease has a negative net present value. However, ownership is convinced that this lease structure is necessary to attract the cinema to the mall, which will add a strong entertainment focus to the south end of the mall, when combined with the proposed adjoining 20,000 square foot Rain Forest restaurant to be built adjacent the theater. Therefore, our analysis assumes that the General Cinema lease will be signed under the proposed terms and conditions. On the opposing page is a summary of recent market transactions for major tenants at the subject property and at area retail centers. As noted, the Saks expansion lease calls for a ten year term with a base rent of $10.41 per square foot for the first four years, $10.94 per square foot for the next five years and $11.52 per square foot for the tenth year with a workletter of $43.10 per square foot. Saks will also occupy the 34,918 square foot former Neiman Marcus space for a ten year term at $6.00 per square foot. As this space was in excellent condition, tenant improvements were less than typical at $8.59 per square foot. ================================================================================ -83- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ There is a lease proposal to construct a 20,000 square foot restaurant at the subject named Rain Forest Cafe. This lease proposal calls for a ten year term with a base rent of $30.00 per square foot for the first five years increasing to $31.00 per square foot for the second five years with a tenant workletter of $137.50 per square foot. The final lease at the subject is the projected relocation of Neiman Marcus from its current location to the former TJ Maxx space. At the new location, Neiman Marcus would pay $17.66 per square foot for the first five years, increasing to $19.42 per square foot for the final five years with a workletter of $24.16 per square foot. We have also compiled lease transaction for Big Box retail tenants in the trade area. Prior to adjustment these tenants have base rents ranging from $12.00 to $16.00 per square foot. These lease transactions are for fifteen year terms with increases every five years ranging from $1.00 to $2.50 per square foot. Based upon our total analysis, we have ascribed an average market rent of $12.00 per square foot for major tenants (20,000 - 60,000 square feet) for a ten year term with an increase of $1.00 per square foot after five years. We have also projected an average workletter of $15.00 per square foot for new major tenants. We would note that two major tenants, Syms and Nordstroms, have option periods with rental rates which are significantly below market. Nordstroms has an option at $7.00 per square foot and Syms has an option at $7.10 per square foot. Since these option terms are extremely favorable to the tenant, we have assumed that they will be exercised. Owned anchor and major tenants (exclusive of ground leased pads) comprise 773,526 square feet, or 56 percent of the total owned GLA. During fiscal year 1998, these tenants are forecasted to account for approximately $5.1 million in minimum rent, which is approximately 30 percent of all forecasted minimum rent that year. Because of the overall creditworthiness of these tenants, we see this as adding stability to the cash flow. Concessions A developer has a variety of leasing strategies available in which to reduce the effective rent which the tenant would ultimately pay. Two concessions which reduce the effective rent which a tenant would pay involve free or reduced rent and tenant improvement allowances (TIs). Upon lease expirations, it is necessary that we consider the level of concessions, which would be necessary to continue to achieve market rents at the subject. It is noted that while we have not ascribed any free rent to future tenants, we have, however, made allowances for tenant improvements which act as a form of inducement to convince a tenant to locate at the subject. These allowances are conservative to the extent that in many instances ownership has been successful in leasing space as is to tenants. Where we have reflected a pending lease deal, we have included any negotiated tenant allowance as provided by management. ================================================================================ -84- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ Free Rent Free rent is an inducement offered by developers to entice a tenant to locate in their project over a competitor's. This marketing tool has become popular in the leasing of office space, particularly in view of the over-building which has occurred in many markets. As a rule, most major retail developers have been successful in negotiating leases without including free rent. Our experience with regional malls shows that free rent is generally limited to new projects in marginal locations without strong anchor tenants that are having trouble leasing, as well as older centers that are losing tenants to new malls in their trade area. A review of the rent roll and most recent leasing activity suggests that free rent has been has been a relative non-issue at the subject to date. In this regard, no free rent has been considered for future leasing activity at the subject. Given the strength of the local trade area and performance at competing centers, it is reasonable to assume that this form of concession will not become an issue in the foreseeable future. As such, we believe that our tenant improvement allowance sufficiently covers the need to offer any tenant inducement. Tenant Improvements Recent lease negotiations indicate that, tenants have been receiving significant tenant improvement allowances. Our analysis of recent lease proposals indicates that tenant improvement allowances can range from no dollars to $138 per square foot for a new tenant space involving major reconfiguration of existing tenant areas. For this analysis, we have made an allowance of $15.00 per square foot for future turnover space where a tenant is projected to leave their space. Upon lease expiration, however, a cosmetic remodel may only be needed as opposed to a complete renovation or reconfiguration of the space. Furthermore, it is not uncommon for tenants to bear the cost of remodeling space at their own expense. Also many existing materials can typically be recycled. Therefore, we have not included a tenant improvement provision for renewal tenants. These tenant improvement allowances are blended based upon the assumed tenant retention ratio of 75 percent with a turnover probability of 25 percent. This calculation results initially in a weighted allowance rate of $3.75 per square foot applied to all tenant space. Absorption Currently, there is 33,991 square feet of mall and food court space available which includes 12,121 square feet which will be created by the new construction in the Cinema/Rain Forest area. In addition there are 43,793 square feet of mall tenants which are considered temporary tenants or paying percentage rent only. Finally, there is the 23,254 square foot former I. Goldberg space which is available. In 1997 and 1998, a major remerchandising of the mall will be completed which will include a new GAP, Polo and Talbot's store in the north end of the mall plus a new movie theatre and Rain Forest restaurant on the south end. In this analysis, we have assumed that all percentage rent and temporary tenants will go to a market lease under a normal speculative renewal probability. For the former I. Goldberg space, we have assumed an eight month marketing period, plus full tenant improvement costs and leasing commissions. Finally, we have assumed a phased absorption of the remaining 33,991 square feet of vacant space on an eighteen month period. This absorption schedule equates to approximately 5,700 square feet per quarter. The following is a summary of our absorption schedule for the subject. ================================================================================ -85- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ ================================================================================ Franklin Mills Absorption Schedule ================================================================================ Tenant Term Leased Area Rent/S.F. TI ================================================================================ Former I. 2/98 -10 Yrs. 23,254 S.F. $12.00 Yrs. 1-5 $15.52 Goldberg $13.00 Yrs. 6-10 - -------------------------------------------------------------------------------- Suite 112 11/97 - 5 Yrs. 2,717 S.F. $21.00 $15.00 Suite 113 $21.00 Suite 457 $25.00 - -------------------------------------------------------------------------------- Suite 421 2/98 - 5 Yrs. 5,041 S.F. $19.67 $15.53 Suite 448 2,094 S.F. $21.74 - -------------------------------------------------------------------------------- Suite 425 5/98 - 5 Yrs. 2,971 S.F. $21.74 $15.53 Suite 449 1,988 S.F. $25.88 Suite 839 765 S.F. $25.75 Suite F884 635 S.F. $41.40 Suite F887 626 S.F. $41.40 - -------------------------------------------------------------------------------- Suite 446 8/98-5 Yrs. 8,039 S.F. $19.67 $16.63 ================================================================================ Income Growth Rates Market rent will, over the life of a prescribed holding period, quite obviously follow an erratic pattern. A review of investor's expectations regarding income and expense growth shows that projections range between 3.00 and 4.00 percent for regional malls. Cushman & Wakefield's Autumn 1996 survey of pension funds, REITs, bank and insurance companies, and institutional advisors reveals that current income forecasts are utilizing average annual growth rates between 1.5 and 4.0 percent. The low and high mean is which to be 3.3 and 3.5 percent respectively. The Peter F. Korpacz Investor Survey (Fourth Quarter 1996) shows similar results with average rent growth of 2.64 percent. After considering the above, we have utilized a rent growth rate of 3.50 percent which is in line with current investor surveys. Releasing Assumption Most of the leases for mall specialty tenants and kiosks tenants are for five year terms, while the food court tenants typically have a seven year terms, and the major tenants typically have a ten year term. Our releasing scenario assumes these lease terms for the various categories of tenants. With the exception of the major tenants, most leases at the subject are flat throughout the term. The major tenants typically have increases during the term ranging from $.50 to $3.00 per square foot. In our analysis, we have projected a $1.00 per square foot increase after five years for major tenants, with the smaller tenants having a flat rental stream throughout their term. Upon lease expiration, it is our best estimate that there is a 75 percent probability that an existing tenant will renew their lease while the remaining 25 percent will vacate their space at this time. While the 25 percent may be conservative by some historic measures in other malls, we think that it is a market oriented assumption. Upon lease rollover/turnover, space is forecasted to be released at the higher of the last effective rent (defined as minimum rent plus overage rent if any) and the previously ascribed market rent, increasing by our market rent growth rate assumption. ================================================================================ -86- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Franklin Mills Sales Volumes Sales Occupied Sales Per Volume Area S.F. 1996 Total Sales $ 97,699,228 365,807 $ 267.08 Kiosk $ 763,798 556 $1,373.74 Food Court $ 4,742,984 9,615 $ 493.29 Mall $ 92,192,446 355,636 $ 259.23 1995 Total Sales $123,124,300 530,092 $ 232.27 Kiosk $ 915,646 856 $1,069.68 Food Court $ 5,049,985 10,527 $ 479.72 Mall $117,158,669 518,709 $ 225.87 1994 Total Sales $133,854,621 554,795 $ 241.27 Kiosk $ 1,028,838 1,306 $ 787.78 Food Court $ 6,777,477 14,201 $ 477.25 Mall $126,048,306 539,288 $ 233.73 <PAGE> Income Capitalization Approach ================================================================================ It is our assumption that a standard tenant improvement allowance for a new tenant would be $15.00 per square foot. Per recent practice at the subject, no tenant improvement allowance would be payable to rollover or kiosk tenants. For speculative tenants, the same 75%/25% probability would apply, indicating a weighted average tenant improvement allowance of $3.75 per square foot for speculative renewals in the initial year of our analysis. Leasing commissions at the subject are paid to management at a rate of three percent of the annual rent, payable over the term of the lease. For tenants which renew, a two percent leasing commission is payable. For speculative tenants, we utilized the same 75%/25% probability. Our global market assumptions for non-anchor tenants may be summarized on the following chart. <TABLE> <CAPTION> ==================================================================================================================================== Renewal Assumptions ==================================================================================================================================== Lease Free Leasing Tenant Tenant Type Term Rent Steps Rent Commissions Alterations ==================================================================================================================================== <S> <C> <C> <C> <C> <C> In-Line Mall Shops 5 yrs. None No Yes Yes - ------------------------------------------------------------------------------------------------------------------------------------ Kiosks 5 yrs. None No Yes No - ------------------------------------------------------------------------------------------------------------------------------------ Food Court 7 yrs. None No Yes Yes - ------------------------------------------------------------------------------------------------------------------------------------ Major 10 yrs. $1.00/S.F. after 5 yrs. No Yes Yes ==================================================================================================================================== </TABLE> Conclusion - Minimum Rent In the initial full year of the investment (Fiscal Year 1998), it is projected that the subject property will produce approximately $16,846,966 in minimum rental income. This estimate of base rental income is equivalent to $12.24 per square foot of total owned GLA. Alternatively, minimum rental income accounts for 56.4 percent of all potential gross revenues. Further analysis shows that over the eleven years of our holding period (FY 1998 - FY 2009), minimum rent advances at an average compound annual rate of 3.91 percent. Overage Rent In addition to the minimum base rent, many of the tenants of the subject property have contracted to pay a percentage of their gross annual sales over a pre-established base amount as overage rent. Many leases have a natural breakpoint although an equal number do have stipulated breakpoints. The average overage percentage for mall shop tenants is in a range of 5.0 to 8.0 percent with food court and kiosk tenants generally at 8.0 to 10.0 percent. Anchor tenants typically have the lowest percentage clause with ranges of 1.0 to 3.0 percent which is typical and is usually pared with a stipulated breakpoint. Traditionally, it takes a number of years for a retail center to mature and gain acceptance before generating any sizable percentage income. As a center matures, the level of overage rents typically becomes a larger percentage of total revenue. It is a major ingredient protecting the equity investor against inflation. Because of the dynamics of the economy and marketplace, it is difficult to predict with accuracy what sales will be on an individual tenant level. ================================================================================ -87- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ According to both the Cushman & Wakefield and Korpacz surveys, major investors are looking at a range of growth rates of 0 percent initially to a high of 6 percent in their computational parameters. Most typically, stabilized growth rates of 4 percent to 5 percent are seen in these surveys, although investors are tending to be more cautious over the short term. Sales and Marketing Management Magazine projects that retail sales in the Philadelphia region will increase to $51.8 Billion by the year 2000, reflecting a compound annual change of 3.6 percent for the five year period. For Philadelphia County, retail sales are projected to increase to $9.9 billion by the year 2000, reflecting a compound annual change of 2.0 percent. Obviously it is difficult to ascribe estimated growth rates which are to be projected in future years. However, the overall outlook for the subject location is positive. A summary of historical retail sales for the subject is included on the opposing page. For existing tenants which report sales, we have forecasted that sales will grow at an annual rate of 3.50%, which is consistent with our expectation of inflation. Due to its speculative nature, we have not forecasted any overage rent for new tenants. Tenants which are generating overage rent would have their renewal rent set at their current rent plus overage rent which would reset their natural breakpoint to a higher level. Expense Reimbursement Structure By lease agreement, tenants at the subject are required to reimburse the lessor for certain operating expenses. Included among these operating items are real estate taxes and common area maintenance (CAM). Food court tenants also pay a separate charge for the maintenance of the food court, which is in addition to the standard mall CAM charge. Common area maintenance and real estate tax recoveries are generally based upon the tenant's pro rata share of the expense. Standard lease terms require in-line tenants to reimburse ownership for their pro rata share of common area costs. A 15 percent fee is added to common area costs to cover administrative expenses. Historically, the standard Mills lease allowed ownership to recover the management fee as well as certain amortized capital expenditures. The standard CAM recovery is calculated on the basis of a tenant's pro-rata share determined on occupied mall area, net of the anchor and major tenants. In a few instances, pro-rata share is calculated on either an occupied area basis, inclusive of anchors or on a straight GLA basis. We note that the standard lease method results in the least amount of slippage to an owner and is therefore the preferred method. Miscellaneous Income The mall receives miscellaneous income from a variety of sources. Included among these are seasonal tenancies and miscellaneous items such as pay telephones, late charges and cart rentals. In aggregate, management project that approximately $921,575 will be generated from miscellaneous income in 1997. For FY 1998, miscellaneous income is projected at $931,821. Mall HVAC and Utilities Income The mall is serviced by a central plant which is operated as a profit center. In addition, the mall pays for electric costs at a lower bulk industrial rate, but tenants are billed at the typical retail rate. For FY 1998, utilities income is projected at $1,677,730. ================================================================================ -88- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ Anchor and Ring Road Tenant Obligations Anchor and ring road tenants have specified expense obligations. Generally, anchor tenants pay pro rata real estate taxes based on the following formula: Demised Area ------------ Total GLA of the Center Some exceptions will exist to this formula but for most it does apply. Contributions from the major anchor tenants toward common area maintenance are identified on the cash flow report as "Majors Cam Recovery and Majors Tax Recovery". During FY 1998, the forecasted amount from these two sources is $3,257,307. Specialty Shops Common Area Maintenance Recovery Under the mall's standard lease, the mall tenants will pay their pro rata share of the CAM expense plus an administrative charge of typically 15 percent. Pro-rata share is most typically determined on the basis of gross leasable occupied area (GLOA) as opposed to a predetermined gross leasable area (GLA). GLOA for reimbursement purposes excludes all anchor and ring road tenants. Below we have recited the standard CAM building formula. ================================================================================ Franklin Mills Common Area Maintenance Recovery Calculation ================================================================================ CAM Expense Actual common area operating costs for the mall - -------------------------------------------------------------------------------- Less Food Court Allocation - -------------------------------------------------------------------------------- Add Amortized Capital Expenditures - -------------------------------------------------------------------------------- Add 15% Administration Fee - -------------------------------------------------------------------------------- Equals GLA CAM Pool - -------------------------------------------------------------------------------- Less Anchor & Ring Road Tenant Contributions - -------------------------------------------------------------------------------- Equals Net pro-ratable CAM billable to mall tenants on the basis of gross leasable occupied area (GLOA) ================================================================================ Food Court Food court tenants will be assessed an additional seating charge for the costs associated with maintaining the food court area, including common seating costs, trash and maintenance services. The assessment is passed through on the basis of pro rata share calculated over occupied area of the food court. There is a 15 percent administrative fee added to the expense before passing it through to the food court tenants on the basis of occupied area. Real Estate Tax Recovery Real estate tax recoveries are typically based upon a tenant's pro rata share of the expense using GLOA as the denominator basis. Anchor tenant contributions (if not separately assessed) will be deducted prior to billing a specialty tenant. ================================================================================ -89- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> Franklin Mills Income and Expense Statement 1997 Unit Rate 1996 Unit Rate 1995 Unit Rate 1994 Unit Rate <S> <C> <C> <C> <C> <C> <C> <C> <C> Revenue Minimum Rent $16,583,984 $12.05 $16,522,492 $12.01 $16,497,447 $11.99 $17,025,354 $12.37 Recoveries $11,804,621 $ 8.58 $11,736,306 $ 8.53 $ 9,513,268 $ 6.91 $ 8,974,302 $ 6.52 Percentage Rent $ 1,038,872 $ 0.76 $ 505,746 $ 0.37 $ 401,855 $ 0.29 $ 455,365 $ 0.33 Other $ 921,575 $ 0.67 $ 652,498 $ 0.47 $ 2,575,560 $ 1.87 $ 1,686,368 $ 1.23 Total Rental Revenue $30,349,052 $22.06 $29,417,042 $21.38 $28,988,130 $21.07 $28,141,389 $20.45 Expenses Recoverable Expenses $10,285,693 $ 7.48 $10,060,690 $ 7.31 $ 8,959,682 $ 6.51 $ 8,241,244 $ 5.99 Management $ 808,112 $ 0.59 $ 707,229 $ 0.51 $ 799,455 $ 0.58 $ 730,752 $ 0.53 General & Administrative $ 1,217,005 $ 0.88 $ 1,181,560 $ 0.86 $ 758,300 $ 0.55 $ 1,360,390 $ 0.99 Total Operating Expenses $12,310,810 $ 8.95 $11,949,479 $ 8.68 $10,517,437 $ 7.64 $10,332,386 $ 7.51 Net Operating Income $18,038,242 $13.11 $17,467,563 $12.70 $18,470,693 $13.42 $17,809,003 $12.94 </TABLE> <PAGE> Income Capitalization Approach ================================================================================ Allowance for Vacancy and Credit Loss Investors are primarily interested in the cash revenues that an income-producing property is likely to produce annually rather than what it could produce if it were always 100 percent occupied and all the tenants were actually paying rent in full and on time. It is normally a prudent practice to expect some income loss, either in the form of actual vacancy or in the form of turnover, non-payment or slow payment by tenants. The first step is to establish a contingency reserve for a global provision for the above items that would apply equally to all tenants that comprise the investment. We have utilized a 2.5 percent credit loss figure in our analysis. Note that this credit loss provision is applied to all tenants equally including the revenues generated by anchor and major stores. Additionally, our analysis has incorporated a lag vacancy allowance which provides for down time between the expiration of an existing lease and the commencement of a new lease. Upon the expiration of a lease, it is our best estimate that there is a 75 percent probability that the tenant will renew and a 25 percent probability that the tenant will vacate. Upon renewal, no down time is recognized. Should a tenant vacate, then it is our expectation that an average down time of eight months time would be reasonable. Therefore, the weighted average lag vacancy utilized between lease expirations in this report is two months. We have calculated the effect of the total provision of vacancy and credit loss on the in-line shops (excluding major tenants). On average, the total allowance for vacancy and credit loss over the projection period is approximately 5.5 percent. On balance, the aggregate deductions of all gross revenues reflected in this analysis are based upon overall long-term market occupancy levels and are considered what a prudent investor would allow for credit loss. The remaining sum is effective gross income which an informed investor may anticipate the subject property to produce. We believe this is reasonable in light of overall vacancy in this subject's market area, as well as the current leasing structure at the property. Effective Gross Income In the initial full year of the investment, FY 1998, effective gross revenues (Total Income line on cash flow) are forecasted to amount to approximately $29.19 million, equivalent to $21.22 per square foot of total owned GLA. ================================================================================ Effective Gross Revenue Summary Initial Fiscal Year of Investment - 1998 ================================================================================ Aggregate Sum Unit Rate Income Ratio ================================================================================ Potential Gross Income $29,874,438 $21.71 100.0% - -------------------------------------------------------------------------------- Less: Vacancy and Credit Loss $ 679,626 $ 0.49 2.3% - -------------------------------------------------------------------------------- Effective Gross Income $29,194,812 $21.22 97.7% ================================================================================ - -------------------------------------------------------------------------------- -90- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> ==================================================================================================================================== COMMON AREA MAINTENANCE EXPENSE COMPARABLES Cushman & Wakefield, Inc. ==================================================================================================================================== Budget Year No. Total Shop Budgeted Expense No. Area Location State Year Built Stories GLA GLA CAM Expense Per Sq/Ft Location ==================================================================================================================================== <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 1 Saratoga County MSA NY 1995 1990/91/93 1 656,501 256,668 $1,900,000 $ 7.40 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 2 Pittsburgh MSA PA 1996 1965/1990 2 973,000 356,812 $3,451,894 $ 9.67 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 3 Syracuse MSA NY 1995 1988/94 1 776,571 311,557 $2,100,000 $ 6.74 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 4 Rochester MSA NY 1995 1967/93 2 1,533,574 495,040 $3,265,000 $ 6.60 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 5 Pittsburgh MSA PA 1996 1969/1984 2 853,431 438,664 $3,245,937 $ 7.40 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 6 Buffalo MSA NY 1996 1985/89 1 753,105 285,771 $1,665,000 $ 5.83 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 7 White Plains MSA NY 1995 1980/83 4 882,689 326,774 $3,190,000 $ 9.76 Urban - ------------------------------------------------------------------------------------------------------------------------------------ 8 Fairfield County MSA CT 1995 1986/91 2 1,270,146 499,868 $3,583,000 $ 7.17 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 9 Pittsburgh MSA PA 1995 1986 2 1,220,283 377,229 $2,899,809 $ 7.69 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 10 Worcester County MSA MA 1996 1971/87 1 445,875 182,372 $1,410,000 $ 7.73 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 11 Boston MSA MA 1995 1980/93 1 322,120 155,080 $1,600,000 $10.32 Urban - ------------------------------------------------------------------------------------------------------------------------------------ 12 Bristol County MSA MA 1995 1992 2 1,005,595 349,107 $2,055,000 $ 5.89 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 13 Bristol County MSA MA 1995 1987/89 2 967,363 374,630 $2,762,000 $ 7.37 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 14 Essex County MSA MA 1995 1993/94 2 836,344 329,065 $2,315,000 $ 7.04 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 15 Kingston MSA MA 1994 1989/92 1 771,007 295,562 $1,682,000 $ 5.69 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 16 Burlington MSA VT 1995 1979/89/92 1 490,424 185,398 $1,000,000 $ 5.39 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 17 Bucks County MSA PA 1995 1968/75 1 348,309 304,436 $2,018,408 $ 6.63 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 18 Westminster MSA MD 1995 1987/94 1 524,964 193,557 $1,350,000 $ 6.97 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 19 Washington-Baltimore MD 1995 1979/93 2 661,639 245,217 $1,880,000 $ 7.67 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 20 Baltimore MSA MD 1995 1956/91 1 863,376 242,376 $1,940,000 $ 8.00 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 21 Prince William Cty. MSA VA 1995 1972/96 1 716,796 278,494 $1,600,000 $ 5.75 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 22 Arlington MSA VA 1994 1986 4 491,057 222,800 $1,930,000 $ 8.66 Urban - ------------------------------------------------------------------------------------------------------------------------------------ 23 Chicago/DuPage County IL 1995 1962/91 1 2,012,665 830,287 $5,790,000 $ 6.97 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 24 Chicago/DuPage County IL 1995 1975/96 2 1,477,103 569,926 $4,928,000 $ 8.65 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 25 Chicago/Cook County IL 1995 1976/94 2 1,251,294 499,999 $4,176,000 $ 8.35 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 26 Philadelphia MSA PA 1996 1973 2 1,118,511 355,953 $4,264,317 $11.98 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 27 Bloomingdale MSA IL 1995 1981/88/91 2 1,292,186 427,609 $2,030,000 $ 4.75 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 28 Minneapolis MSA MN 1995 1962/94 1 982,228 201,561 $1,950,000 $ 9.67 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 29 Milwaukee MSA WN 1995 1972 1 1,014,851 395,598 $2,420,000 $ 6.12 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 30 Milwaukee MSA WN 1995 1970 1 1,257,676 371,420 $2,700,000 $ 7.27 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 31 Philadelphia MSA PA 1996 1982 3 960,871 339,584 $4,343,279 $12.79 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 32 Louisville/Clark County IN 1995 1990 1 750,343 306,059 $1,676,000 $ 5.48 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 33 Indianapolis MSA IN 1995 1968/97 1 1,239,059 260,359 $1,431,000 $ 5.50 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 34 Tampa MSA FL 1995 1995 1 977,047 359,579 $1,980,000 $ 5.51 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 35 Plantation MSA FL 1995 1979/93 1 1,004,061 282,952 $1,829,000 $ 6.46 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 36 Miami MSA FL 1995 1982 1 1,120,827 290,385 $1,820,000 $ 6.27 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 37 Coral Springs MSA FL 1995 1984/90 1 1,171,127 293,183 $1,700,000 $ 5.80 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 38 North/Central Kansas KS 1995 1987/90 1 400,307 185,324 $ 830,000 $ 4.48 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 39 Las Vegas MSA NV 1995 1992 1 241,580 241,580 $3,190,000 $13.20 Urban - ------------------------------------------------------------------------------------------------------------------------------------ 40 Las Vegas MSA NV 1994 1981/93 2 819,374 286,936 $2,455,000 $ 8.56 Urban - ------------------------------------------------------------------------------------------------------------------------------------ 41 Nashville MSA TN 1995 1990 2 716,462 373,662 $2,280,000 $ 6.10 Suburban - ------------------------------------------------------------------------------------------------------------------------------------ 42 Riverside County MSA CA 1995 1970/91 1 1,044,536 411,610 $3,000,000 $ 7.29 Suburban ==================================================================================================================================== Survey Mean: 910,559 333,097 $2,467,515 $ 7.44 ==================================================================================================================================== </TABLE> <PAGE> Income Capitalization Approach ================================================================================ Expenses Total expenses incurred in the production of income from the subject property are divided into two categories; reimbursable and non-reimbursable items. The major expenses which are reimbursable include real estate taxes, management, mall and food court common area maintenance. Non-reimbursable expenses associated with the subject property include certain general and administrative expenses, alteration costs associated with bringing space up to occupancy standards, leasing commissions and reserves for replacement of capital items. Various expenses incurred in the operation of the subject property have been estimated from information provided by a number of sources. We have reviewed the subject's operating budget for 1997 as well as historical statements for 1994, 1995 and 1996. A summary of this information is provided on the facing page. We have compared this information to published data which are available as well as our experience with other regional shopping centers. Expense Growth Rates Expense growth rates are generally forecasted to be more consistent with inflationary trends than necessarily with competitive market forces. Cushman and Wakefield's Autumn 1996 survey indicates that investors are utilizing expense growth rates between 3.4% and 3.7%. The Peter J. Korpacz Investor Survey indicates and average annual expense growth rate of 3.99%. With the exception of management and real estate taxes, we have projected that expenses will grow at 3.5% throughout the holding period. The management expense is based upon a percentage of minimum rent, percentage rent and miscellaneous revenues. The real estate tax rate in the City of Philadelphia has not changed since 1991. The City is under considerable pressure to avoid tax increases to deter companies from leaving Philadelphia for the suburbs. While there must be some growth in income for the City over time, it is expected to be less than the projected inflation growth rate. In this analysis, we project that real estate taxes will grow at a rate of two percent per year over the holding period. Reimbursable Operating Expenses We have analyzed each item of expense individually and attempted to project what the typical investor in a property like the subject would consider reasonable, based upon informed opinion, judgment, and experience. The following is a detailed summary and discussion of the reimbursable operating expenses incurred in the operation of the subject property during the initial full year of the investment holding period. Real Estate Taxes - In 1997, taxes will be $3,985,739. As discussed, this expense is recovered on the basis of average occupied area of non-major mall tenant GLA after deduction for anchor and major tenants. A complete discussion of the real estate tax calculation was previously presented. This expense item is projected to increase by 2.0 percent per annum over the investment holding period. ================================================================================ -91- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ Common Area Maintenance - This expense category includes the annual cost of miscellaneous building maintenance contracts, recoverable labor and benefits, security, insurance, landscaping, cleaning and janitorial, supplies, common area trash removal, exterior lighting, common area energy, snow removal, equipment rental, gas and fuel, and other miscellaneous charges. In addition, ownership can generally recoup the cost of certain capital items from the tenants such as paving or other expenses. For billing purposes, management is also permitted to add certain non-operational charges for interest and depreciation of capital repairs. The 1997 budgeted CAM expenses, prior to management fees and the administrative surcharge and net of the food court CAM equates to $4,915,303. The Mills Corporation's standard lease has historically allowed ownership to pass along a 15 percent administrative surcharge. Management estimates that the typical CAM costs for most mall specialty tenants would be $10.87 per square foot. Provided on the facing page are actual CAM expense comparables for malls which we have recent information. This data shows CAM budgets which range from $4.48 to $13.20 per square foot with a mean of $7.44 per square foot. Food Court CAM - Additional costs associated with maintaining the common seating areas in the food court are forecasted to be $450,306 ($35.04 per square foot of food court GLA) in 1997. Included here are charges for cleaning and janitorial services, repairs and maintenance and water charges. Comparable budgeted expenses as provided by The Mills Corp. can be summarized as follows: ================================================================================ Mills Centers Food Court CAM Budgets - 1996 ================================================================================ Center Unit Rate ================================================================================ Gurnee Mills $37.27 - -------------------------------------------------------------------------------- Potomac Mills $48.50 - -------------------------------------------------------------------------------- Sawgrass Mills $27.26 ================================================================================ Average $37.68 ================================================================================ The subject's operating budget is within the range of the other Mills projects, and is considered reasonable. Food court tenants are generally assessed the cost based upon their pro-rata share. Management - The current management contract is based upon 4.0 percent of minimum rent, percentage rent and miscellaneous income. It excludes income from expense recoveries and energy resale.. Alternatively, this amount is equal to approximately 2.7 percent of effective gross income. In the initial fiscal year management costs are estimated to be $788,260 or $.57 per square foot of owned leaseable area. Management expense is typically passed through to the mall tenants as part of their CAM reimbursements. ================================================================================ -92- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ Our investigation into the market for this property type indicates an overall range of fees of 3 to 5 percent of effective gross income, which would indicate the current management contract is below the range. However, as management at the subject is also receiving leasing commissions on new and rollover tenants, the current contract appears reasonable and market oriented. Non-Reimbursable Expenses The total annual non-reimbursable expenses of the subject property are projected from accepted practices and industry standards. Again, we have analyzed each item of expenditure in an attempt to project what the typical investor in a property similar to the subject would consider reasonable, based upon actual operations, informed opinion, and experience. The following is a detailed summary and discussion of non-reimbursable expenses incurred in the operation of the subject property for the initial year of investment. Unless otherwise stated, it is our assumption that these expenses will increase by 3.5 percent per annum throughout the holding period. General and Administrative - Expenses related to the administrative aspects of the mall include costs particular to its operation, including salaries, travel and entertainment, other office-related expenses, dues and subscriptions, printing and postage, telephone, professional fees and sales incentives. The 1997 budgeted general and administrative expenses are estimated at $404,657. For FY 1998, general and administrative expense is projected at $409,378, equivalent to $.30 per square foot. This projection is consistent with the current budget for this item. Promotional and Marketing Expense - These charges represent the landlord's contribution to the cost of marketing services (media and promotional funds) for the property. Ownership has projected that its cost will be $915,397 for promotion and marketing in 1997. In this initial fiscal year of investment, we have forecasted an expense of $926,077 as ownership's contribution towards this expense which is consistent with the budgeted amount. We would note that tenants pay between $1.00 and $5.00 per square foot as their contribution to promotion and marketing expenses. However, as the tenant's contribution is directly offset by the non landlord funded promotional expenses, the tenant's contribution and corresponding expense for this item has not been included in this analysis. Alterations - The subject property is undergoing a substantial remerchandising effort. Included in this effort is construction of a new movie theater, demolition of the old movie theater, and construction of a new 20,000 square foot restaurant inside the mall. Additionally, there is the planned move of Neiman Marcus and Saks into the old Neiman Marcus space. Finally, there are lease proposals for a variety of new specialty mall tenants such as GAP, Talbots and Polo, many of which will entail significant tenant improvement costs. Our analysis incorporates these projected expenditures. ================================================================================ -93- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ In addition, at the start of a new lease or the expiration of an existing lease, we have made a provision for the likely expenditure of some money for tenant improvement allowances. In this regard, we have forecasted a cost of $15.00 per square foot for turnover space (initial cost growing at rent expense rate) weighted by our turnover probability of 25 percent. Based on historical practice at Franklin Mills, we have not included a forecast for renewal (rollover) tenants. The weighted average for a speculative tenant in the initial year of our analysis is $3.75 per square foot. These costs are forecasted to increase at our implied expense growth rate. Leasing Commissions - Ownership has been charging leasing commissions for internally generated deals. A typical structure is 3 percent of minimum rent for new tenants and 2 percent of minimum rent for renewal tenants. The current practice at the subject is that this leasing commission is paid over the life of the lease as collected and we have reflected current practice in our analysis. For speculative renewal tenants, we have utilized the same probability of 75%/25%, resulting in a weighted average leasing commission of 2.25 percent for speculative renewals. Replacement Reserves - It is customary and prudent to set aside an amount annually for the replacement of short-lived capital items such as the roof, parking lot, and certain mechanical items. We feel that over a holding period, some repairs or replacements will be needed that will not be passed on to the tenants. For purposes of this report, we have estimated an expense of approximately $139,360, or approximately $0.10 per square foot of owned GLA during the first year, thereafter increasing by 3.5 percent per year throughout our cash flow analysis. Net Income/Net Cash Flow Total expenses of the subject property including alterations, commissions, and reserves are annually deducted from total income, thereby leaving a residual net operating income or net cash flow to the investors in each year of the holding period before debt service. In the first year of the investment, fiscal year 1998, the net cash flow (before debt service) which the subject property is projected to generate is $17,630,578 equivalent to $12.81 per square foot of rentable area. ================================================================================ Operating Summary First Year of Investment - FY 1998 ================================================================================ Aggregate Sum Unit Rate * Operating Ratio ================================================================================ Effective Gross Income $29,194,812 $21.21 100.0% - -------------------------------------------------------------------------------- Operating Expenses $11,564,234 $8.40 39.6% - -------------------------------------------------------------------------------- Net Income $17,630,578 $12.81 60.4% - -------------------------------------------------------------------------------- Other Expenses $13,521,127 $9.83 46.3% - -------------------------------------------------------------------------------- Cash Flow $4,109,451 $2.99 14.1% ================================================================================ * Based on total owned GLA of 1,375,905 square feet ================================================================================ ================================================================================ -94- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ Investment Parameters After projecting the income and expense components of the subject property, investment parameters must be set in order to forecast property performance over the holding period. These parameters include the selection of capitalization rates (both initial and terminal) and application of the appropriate discount or yield rate. Selection of Capitalization Rates The overall capitalization rate bears a direct relationship between net operating income generated by the real estate in the initial year of investment (or initial stabilized year) and the value of the asset in the marketplace. Overall rates are also affected by the existing leasing schedule of the property, the strength or weakness of the local rental market, the property's position relative to competing properties, and the risk/return characteristics associated with competitive investments. For retail properties, the trend has been for rising capitalization rates. We feel that much of this has to do with the quality of product that has been selling. Sellers of better performing dominant Class A malls have been unwilling to waver on their pricing. Many of the malls sold over the past 18-24 months are found in less desirable, second or third tier locations, or rep-resent turnaround situations with properties that are poised for expansion or remerchandising. With fewer buyers for the top performing assets, sales have been somewhat limited. ================================================================================ -95- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ ================================================================================ Overall Capitalization Rates Regional Mall Sales ================================================================================ Year Range Mean Point Change ================================================================================ 1988 5.00% - 6.19% - 8.00% - -------------------------------------------------------------------------------- 1989 4.57% - 6.22% + 3 7.26% - -------------------------------------------------------------------------------- 1990 5.06% - 6.29% + 7 9.11% - -------------------------------------------------------------------------------- 1991 5.60% - 6.44% + 15 7.82% - -------------------------------------------------------------------------------- 1992 6.00% - 7.31% + 87 7.97% - -------------------------------------------------------------------------------- 1993 7.00% - 7.92% + 61 10.10% - -------------------------------------------------------------------------------- 1994 6.98% - 8.37% + 45 10.29% - -------------------------------------------------------------------------------- 1995 7.25% - 9.13% + 76 11.10% - -------------------------------------------------------------------------------- 1996 7.00% - 9.35% + 22 12.00% ================================================================================ Basis Point Change ================================================================================ 1988-1996 316 Basis Points - -------------------------------------------------------------------------------- 1992-1996 204 Basis Points ================================================================================ The data show that the average capitalization rate has shown a rising trend each year. Between 1988 and 1996, the average capitalization rate has risen 316 basis points. Since 1992, the rise has been 204 basis points. This change is a reflection of both rising interest rates and increasing first year returns demanded by investors in light of several fundamental changes which have occurred in the retail sector. The 22 basis point change in the mean between 1995 and 1996 may be an indication that rates are approaching stabilization. As noted, much of the buying over the past 18 to 24 months has been opportunistic acquisitions involving properties selling near or below replacement cost. Many of these properties have languished due to lack of management focus or expertise, as well as a limited ability to make the necessary capital commitments for growth. As these opportunities become harder to find, we believe that investors will again begin to focus on the stable returns of the dominant Class A product. ================================================================================ -96- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ The Cushman & Wakefield's Autumn 1996 survey reveals that going-in cap rates for Class A regional shopping centers range between 7.00 and 9.50 percent, with a low average of 7.90 percent and high average of 8.20 percent, respectively; a spread of 30 basis points. Generally, the change in average capitalization rates over the Winter 1995 survey shows that the low average decreased by 50 basis points, while the upper average remained the same. Terminal, or going-out rates are now averaging 8.20 and 8.60 percent, indicating a spread between 30 to 40 basis points over the going-in rates. For Class B properties, the average low and high going-in rates are 9.30 and 9.60 percent, respectively, with terminal rates of 9.60 and 10.00 percent. <TABLE> <CAPTION> ==================================================================================================================================== Cushman & Wakefield Valuation Advisory Services National Investor Survey - Regional Malls (%) ==================================================================================================================================== Investment Winter 1995 Spring 1996 Autumn 1996 Parameters -------------------------------- -------------------------------- -------------------------------- Low High Low High Low High ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> OAR/Going-In 7.0 - 8.0 7.5 - 9.0 7.5 - 9.0 7.5 - 9.5 7.0 - 9.0 7.5 - 9.5 7.47 8.25 8.0 8.2 7.9 8.2 - ------------------------------------------------------------------------------------------------------------------------------------ OAR/Terminal 7.0 - 9.0 8.0 - 10.0 7.0 - 9.5 7.8 - 11.0 7.0 - 9.5 7.8 - 11.0 8.17 8.83 8.3 8.7 8.2 8.6 - ------------------------------------------------------------------------------------------------------------------------------------ IRR 10.0 - 11.5 10.5 - 12.0 10.0 - 15.0 11.0 - 15.0 10.0 - 15.0 11.0 - 15.0 10.72 11.33 11.5 11.8 11.4 11.8 ==================================================================================================================================== </TABLE> Cushman & Wakefield now surveys respondents on their criteria for both Class B and "Value Added" malls (see Addenda for complete survey results). As expected, going-in capitalization and yield rates range from 100 to 300 basis points above rates for Class A assets. Our current survey also shows that investors have become more cautious in their underwriting, positioning "retail" lower on their investment rating scales in terms of preferred investments. The Fourth Quarter 1996 Peter F. Korpacz survey concurs with these findings, citing that regional malls are near the bottom of investor preferences. As such, they foresee some opportunities for select investing. Pricing is lower then it has been in years. With expense growth surpassing sales increases in many markets, occupancy cost issues have also become of greater concern. Even in some malls where sales approach the lofty level of $350+/- per square foot, it is not uncommon for occupancy costs to limit the opportunity to grow rents. Thus, with limited upside growth in net income, cap rates are generally well above 8.0 percent. Even at this level, cap rates are lower than other property types. One attraction for malls is that pricing is based upon the expectation of lower rents while most other property types are analyzed with higher rents. ================================================================================ -97- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ <TABLE> <CAPTION> ==================================================================================================================================== NATIONAL REGIONAL MALL MARKET FOURTH QUARTER 1996 ==================================================================================================================================== CURRENT LAST KEY INDICATORS QUARTER QUARTER YEAR AGO ==================================================================================================================================== <S> <C> <C> <C> Free & Clear Equity IRR - ------------------------------------------------------------------------------------------------------------------------------------ RANGE 10.00%-14.00% 10.00%-14.00% 10.00%-14.00% AVERAGE 11.69% 11.56% 11.55% - ------------------------------------------------------------------------------------------------------------------------------------ CHANGE (Basis Points) -- +13 +14 - ------------------------------------------------------------------------------------------------------------------------------------ Free & Clear Going-In Cap Rate - ------------------------------------------------------------------------------------------------------------------------------------ RANGE 6.25%-11.00% 6.25%-11.00% 6.25%-11.00% AVERAGE 8.57% 8.33% 7.86% - ------------------------------------------------------------------------------------------------------------------------------------ CHANGE (Basis Points) -- +24 +71 - ------------------------------------------------------------------------------------------------------------------------------------ Residual Cap Rate - ------------------------------------------------------------------------------------------------------------------------------------ RANGE 7.50%-11.00% 7.00%-11.00% 7.00%-11.00% AVERAGE 8.76% 8.71% 8.45% - ------------------------------------------------------------------------------------------------------------------------------------ CHANGE (Basis Points) -- +5 +31 ==================================================================================================================================== Source: Peter Korpacz Associates, Inc. - Real Estate Investor Survey Fourth Quarter - 1996 ==================================================================================================================================== </TABLE> As can be seen from the above, the average IRR has increased by 14 basis point to 11.69 percent from one year ago. It is noted that this measure has been relatively stable over the past 12 months. The quarter's average initial free and clear equity cap rate rose 71 basis points to 8.57 percent from a year earlier, while the residual cap rate increased 31 basis points to 8.76 percent. Most retail properties that are considered institutional grade are existing, seasoned centers with good inflation protection that offer stability in income and are strongly positioned to the extent that they are formidable barriers to new competition. Equally important are centers which offer good upside potential after face-lifting, renovations, or expansion. With new construction down substantially, owners have accelerated renovation and re-merchandising programs. Little competition from over-building is likely in most mature markets within which these centers are located. Environmental concerns and "no-growth" mentalities in communities are now serious impediments to new retail development. Finally, investors have recognized that the retail landscape has been fundamentally altered by consumer lifestyles changes, industry consolidations and bankruptcies. This trend was strongly in evidence as the economy enters 1997 in view of the wave of retail chains whose troublesome earnings are forcing major restructures or even liquidation. Trends toward more casual dress at work and consumers growing pre-occupation with their leisure and home lives have created the need for refocused leasing efforts to bring those tenants to the mall that help differentiate them from the competition. As such, entertainment, a loosely defined concept, is one of the most common directions malls have taken. A trend toward bringing in larger specialty and category tenants to the mall is also in evidence. The risk from an owners standpoint is finding that mix which works the best. Nonetheless, the cumulative effect of these changes has been a rise in rates as investors find it necessary to adjust their risk premiums in their underwriting. Based upon this discussion, we are inclined to group and characterize regional malls into the general categories following: ================================================================================ -98- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ Cap Rate Range Category - -------------- -------- 7.0% to 7.5% Top 15 to 20+/- malls in the country. Excellent demographics with high sales ($400+/-/SF) and good upside. 7.5% to 8.5% Dominant Class A investment grade property, high sales levels, relatively good health ratios, excellent demographics (top 50 markets), and considered to present a significant barrier to entry within its trade area. Sales tend to be in the $300 to $350 per square foot range. 8.5% to 11.0% Somewhat broad characterization of investment quality properties ranging from primary MSAs to second tier cities. Properties at the higher end of the scale are probably somewhat vulnerable to new competition in their market. 11.0% to 14.0% Remaining product which has limited appeal or significant risk which will attract only a smaller, select group of investors. Conclusion - Terminal Capitalization Rate Franklin Mills is the dominant facility of its type with a substantial trade area. Within the primary market, we see moderate growth in income, population and households. We are optimistic about the subject's long term potential. The anchor alignment appears to be properly positioned in the trade area and the mall shops are merchandised to meet the needs of the population. On balance, we believe that a property with the characteristics of the subject would potentially trade at an overall rate between 9.00 and 9.25 percent based on first year income if it were operating on a stabilized operating income basis. For the reversion year, additional basis points would be added to the going-in rate to account for future risks of operating the property. This contingency is typically used to cover any risks associated with lease-up of vacant space, costs of maintaining occupancy, prospects of future competition, and the uncertainty of maintaining forecasted growth rates over the holding period. Investors may structure a differential of up to 100 basis points in their analysis depending on the quality and attributes of the property and its market area. In the surveys cited, typical reversion, or going-out rates run between 10 and 60 basis points above the initial cap. By adding 25 points to the subject's overall rate, the implied terminal capitalization rate would run between 9.25 and 9.50 percent. By applying a rate of say, 9.25 percent to the reversion year's net operating income, before reserves, capital expenditures, leasing commissions, and alterations, yields an overall sale price at the end of the holding period of approximately $296.9 million for the subject (based on net income in fiscal year ending April 30, 2008). ================================================================================ -99- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ From the projected reversionary value, we have made a deduction to account for the various transaction costs associated with the sale of an asset of this type. In real estate transactions in the City of Philadelphia, a 4 percent transfer fee is charged, which typically is split between the buyer and the seller. For the subject at reversion, we have allocated 3.0 percent of the total disposition price of the subject property as an allowance for transfer taxes, professional fees, and other miscellaneous expenses that the seller pays at final closing. Deducting these transaction costs from the computed reversion renders the pre-tax net proceeds of sale to be received by an investor in the subject property at the end of the holding period. ================================================================================ Net Proceeds at Reversion ================================================================================ NOI Gross Sale Price Less Costs of Sale and FY 2009 at Disposition Miscellaneous Expenses @ 3% Net Proceeds ================================================================================ $27,469,130 $296,963,568 $8,907,504 $288,056,064 ================================================================================ Selection of Discount Rate The discounted cash flow analysis makes several assumptions which reflect typical investor requirements for yield on real property. These assumptions are difficult to directly extract from any given market sale or by comparison to other investment vehicles. Instead, investor surveys of major real estate investment funds and trends in bond yield rates are often cited to support such analysis. A yield or discount rate differs from an income rate, such as cash-on-cash (equity dividend rate), in that it takes into consideration all equity benefits, including the equity reversion at the time of resale and annual cash flow from the property. The internal rate of return is the single-yield rate that is used to discount all future equity benefits (cash flow and reversion) into the initial equity investment. Thus, a current estimate of the subject's present value may be derived by discounting the projected income stream and reversion year sale at the property's yield rate. Yield rates on long term real estate investments range widely between property types. As cited in Cushman & Wakefield's Fall 1996 survey, investors in regional malls are currently looking at broad rates of return between 10.0 and 12.00 percent, down slightly from our last two surveys. The indicated low and high means are 11.50 and 11.80 percent, respectively. Peter F. Korpacz reports an average internal rate of return of 11.56 percent for the Fourth Quarter 1996, down 1 basis points from the year ago level. The yield rate on a long term real estate investment can also be compared with yield rates offered by alternative financial investments since real estate must compete in the open market for capital. In developing an appropriate risk rate for the subject, consideration has been given to a number of different investment opportunities. ================================================================================ -100- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ Due to its relative illiquidity, real estate investment typically requires a higher rate of return (yield) than a financial investment such as government bonds. A retail center investment tends to incorporate a blend of risk and credit based on the tenant mix, the anchors that are included (or excluded) in the transaction, and the assumptions of growth incorporated within the cash flow analysis. An appropriate discount rate selected for a retail center thus attempts to consider the underlying credit and security of the income stream, and includes an appropriate premium for liquidity issues relating to the asset. There has historically been a consistent relationship between the spread in rates of return for real estate and the "safe" rate available through long-term treasuries or high-grade corporate bonds. A wider gap between return requirements for real estate and alternative investments has been created in recent years due to illiquidity issues, the absence of third party financing, and the decline in property values. Investors have suggested that the regional mall market has become increasingly "tiered" over the past two years. The country's premier malls are considered to have the strongest trade areas, excellent anchor alignments, and significant barriers of entry to future competitive supply. These and other "dominant" malls will have average mall shop sales above $300 per square foot and be attractive investment vehicles in the current market. It is our opinion that the subject would attract high interest from institutional investors if offered for sale in the current marketplace. There is not an abundance of regional mall assets of comparable quality currently available, and many regional malls have been included within REITs, rather than offered on an individual property basis. However, we must further temper our analysis due to the fact that there remains some risk that the inherent assumptions employed in our model come to full fruition. We recognize that the subject, while not a traditional regional mall investment, does offer some of the same investment characteristics. However, the shorter term leases would entail a slightly higher risk level. Finally, application of these rate parameters to the subject must consider the proposed remerchandisng of the mall. The subject is projected to undergo a substantial reconstruction over the next year, involving demolition of an existing anchor and construction of a new movie theater in its place. Further, a re-tenanting of the mall is expected with considerable shifting about of existing tenants and attraction of a significant number of new high end tenants. It is the intention that at the end of this reconstruction period, that the mall will have a new merchandising concept, emphasizing higher end retailers at the north end, moving toward more discount oriented retailers in the middle with a new "entertainment" focus at the south end. The goal of the remerchandising effort is to improve the bottom line performance of the center. However, to achieve this goal, the subject will require a substantial contribution of capital, entrepreneurial effort and marketing risk. An investor in the property today would need to be rewarded for these factors and the risk that the assumptions inherent in our projection will not come to fruition. ================================================================================ -101- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ If the subject were at stabilization, it could be expected to appeal to investors at a discount rate of between 11.00 and 12.00 percent. The investment parameters cited are for newly constructed Class A centers which are at stabilized operations. Cushman and Wakefield has also surveyed investors for properties such as the subject that would be classified as Value Added. A Value Added property is one which is not at stabilization and would require entrepreneurial effort and capital expenditures to market, lease and retrofit a significant amount of vacant space. For Value Added properties, investors are seeking internal rates of return between 11 and 15 percent with an average of 12.33 percent. The subject property will require a substantial remerchandising effort as well as significant capital expenditures to bring it back to stabilized operations. However, as compared to a regional mall, a higher proportion of the rental income comes from the anchor and major tenants (approximately 35% of total rental income) which lends a greater stability to the cash flow. Considering the financial characteristics, locational attributes and physical traits of the subject property, we believe a discount rate ranging from 11.5 to 12.5 percent would be appropriate for the subject property in light of the investment criteria presented here. Thus, we have discounted the projected future pre-tax cash flows to be received by an investor in the subject property to a present value so as to yield between 11.5 percent to 12.5 percent on capital at 25 basis point intervals over the holding period. This discounting process is summarized as follows: ================================================================================ Investment Summary ================================================================================ Discount Rate Present Worth Overall Rate Unit Rate - * ================================================================================ 11.50% $200,491,000 8.79% $145.72 - -------------------------------------------------------------------------------- 11.75% $196,935,000 8.95% $143.13 - -------------------------------------------------------------------------------- 12.00% $193,462,000 9.11% $140.61 - -------------------------------------------------------------------------------- 12.25% $190,068,000 9.28% $138.14 - -------------------------------------------------------------------------------- 12.50% $186,752,000 9.44% $135.73 ================================================================================ * - Unit Rate based upon 1,375,905 square feet of owned rentable area, after renovations. Through such a sensitivity analysis, it can be seen that the present value of the subject property varies from approximately $186.8 to $200.5 million. Giving consideration to all of the characteristics of the subject previously discussed, we feel that a prudent investor would require a yield which falls near the middle of the range outlined above for this property or approximately 12 percent. In view of the analysis presented here, it becomes our opinion that the discounted cash flow analysis indicates a market value of $193,000,000 for the subject property As Is as of April 16, 1997. The indices of investment generated through this indicated value conclusion are shown on the following page. ================================================================================ -102- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Income Capitalization Approach ================================================================================ ================================================================================ Investment Indices ================================================================================ Equity Yield (IRR) 12.03% - -------------------------------------------------------------------------------- Overall Capitalization Rate * 9.14% - -------------------------------------------------------------------------------- Price/SF of Mall Shop GLA ** $327.81 - -------------------------------------------------------------------------------- Price/SF of Owned GLA *** $140 ================================================================================ * Based on net income of $17,630,578 for first year ** Based on 588,748+/- square feet *** Based on 1,375,905+/- square feet ================================================================================ We would note that as the subject is not at stabilization, the indicated overall rate is less useful as a financial indicator and is included here for informational purposes. Our analysis of the components of the yield indicates that approximately 57 percent comes from cash flow and 43 percent comes from the reversion. This represents is a reasonable allocation which meets with current investor expectations. ================================================================================ -103- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> <TABLE> <CAPTION> FRANKLIN MILLS - AS STABILIZED ANNUAL CASH FLOW REPORT BEGINNING 6/1/98 FOR 11 YEARS FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 <S> <C> <C> <C> <C> <C> <C> INCOME MINIMUM RENT: ALL TENANTS 19,608,348 19,693,644 20,662,140 21,218,224 21,810,912 22,661,196 ----------- ----------- ----------- ----------- ----------- ----------- TOTAL MINIMUM RENT 19,608,348 19,693,644 20,662,140 21,218,224 21,810,912 22,661,196 RECOVERIES: CAM RECOVERIES 4,902,688 4,904,394 5,046,716 5,150,247 5,222,995 5,622,062 TAX RECOVERIES 2,122,648 2,104,028 2,162,719 2,198,947 2,146,104 2,238,759 FOOD COURT RECOVER 424,496 446,682 483,547 497,040 529,711 554,099 MAJORS CAN RECOVER 1,364,017 1,359,925 1,374,792 1,405,633 1,408,133 1,447,847 MAJORS TAX RECOVER 2,246,116 2,248,628 2,341,955 2,389,617 2,480,668 2,550,074 ----------- ----------- ----------- ----------- ----------- ----------- TOTAL RECOVERIES 11,059,965 11,063,657 11,409,729 11,641,484 11,787,611 12,412,841 OVERAGE RENT 723,772 741,976 532,462 463,127 492,891 552,295 RECAPTURES (101,041) (104,985) 0 0 0 0 SALES VOLUME (000) 279,310 283,418 295,003 307,927 318,553 331,078 ----------- ----------- ----------- ----------- ----------- ----------- GROSS RENTAL INCOME 31,291,044 31,394,292 32,604,330 33,322,836 34,091,416 35,626,332 CREDIT LOSS (780,216) (782,735) (812,921) (830,818) (849,967) (888,269) MISCELLANEOUS 967,215 1,001,068 1,036,105 1,072,369 1,109,902 1,148,748 UTILITES INCOME 1,741,457 1,802,408 1,865,492 1,930,784 1,998,362 2,068,304 ----------- ----------- ----------- ----------- ----------- ----------- TOTAL INCOME 33,219,500 33,415,032 34,693,008 35,495,168 36,349,712 37,955,116 EXPENSES PROMOTIONS 961,253 994,897 1,029,718 1,065,758 1,103,060 1,141,667 ADMINISTRATIVE 424,928 439,800 455,193 471,125 487,614 504,681 MANAGEMENT FEES 896,927 902,206 936,711 958,370 981,442 1,024,788 FOOD COURT 472,864 489,414 506,543 524,272 542,622 561,614 PROPERTY TAXES 4,099,333 4,181,319 4,264,946 4,350,245 4,437,250 4,525,995 CAM 5,161,529 5,342,163 5,529,159 5,722,680 5,922,974 6,130,278 ----------- ----------- ----------- ----------- ----------- ----------- TOTAL EXPENSES 12,016,834 12,349,819 12,722,270 13,092,450 13,474,962 13,889,023 ----------- ----------- ----------- ----------- ----------- ----------- NET OPERATING INCOME 21,202,666 21,065,212 21,970,738 22,402,718 22,874,750 24,066,092 ALTERATIONS 311,385 853,716 410,506 466,347 847,078 294,930 COMMISSIONS 196,365 288,211 365,566 438,238 468,274 468,707 CAPITAL RESERVES 140,727 145,653 150,751 156,027 161,488 167,140 ----------- ----------- ----------- ----------- ----------- ----------- CASH FLOW 20,554,188 19,777,632 21,043,916 21,342,108 21,397,910 23,135,316 FY2005 FY2006 FY2007 FY2008 FY2009 INCOME MINIMUM RENT: ALL TENANTS 22,730,282 23,380,862 23,770,410 24,809,958 26,289,416 ----------- ----------- ----------- ----------- ----------- TOTAL MINIMUM RENT 22,730,282 23,380,862 23,770,410 24,809,958 26,289,416 RECOVERIES: CAM RECOVERIES 5,735,932 6,014,955 6,277,071 6,413,213 6,825,874 TAX RECOVERIES 2,230,667 2,248,001 2,264,054 2,206,546 2,241,757 FOOD COURT RECOVER 582,457 615,151 589,176 581,675 586,085 MAJORS CAN RECOVER 1,487,314 1,527,119 1,560,230 1,584,859 1,638,234 MAJORS TAX RECOVER 2,597,457 2,659,085 2,700,218 2,712,714 2,849,107 ----------- ----------- ----------- ----------- ----------- TOTAL RECOVERIES 12,633,827 13,064,311 13,390,749 13,499,007 14,141,057 OVERAGE RENT 637,041 628,428 548,202 394,779 489,798 RECAPTURES 0 0 0 0 0 SALES VOLUME (000) 337,370 351,014 359,708 376,280 393,209 ----------- ----------- ----------- ----------- ----------- GROSS RENTAL INCOME 36,001,148 37,073,600 37,709,360 38,703,744 40,920,272 CREDIT LOSS (897,569) (924,308) (940,125) (964,907) (1,020,236) MISCELLANEOUS 1,188,954 1,230,568 1,273,637 1,318,215 1,364,352 UTILITES INCOME 2,140,695 2,215,619 2,293,166 2,373,427 2,456,497 ----------- ----------- ----------- ----------- ----------- TOTAL INCOME 38,433,232 39,595,480 40,336,036 41,430,480 43,720,884 EXPENSES PROMOTIONS 1,181,625 1,222,982 1,265,786 1,310,089 1,355,942 ADMINISTRATIVE 522,345 540,627 559,549 579,133 599,403 MANAGEMENT FEES 1,037,697 1,069,078 1,089,073 1,118,623 1,180,464 FOOD COURT 581,270 601,614 622,671 644,465 667,021 PROPERTY TAXES 4,616,515 4,708,845 4,803,022 4,899,082 4,997,064 CAM 6,344,838 6,566,907 6,796,749 7,034,635 7,280,847 ----------- ----------- ----------- ----------- ----------- TOTAL EXPENSES 14,284,290 14,710,053 15,136,850 15,586,027 16,080,741 ----------- ----------- ----------- ----------- ----------- NET OPERATING INCOME 24,148,942 24,885,428 25,199,186 25,844,452 27,640,144 ALTERATIONS 443,621 664,244 767,211 1,465,695 591,558 COMMISSIONS 492,483 504,102 547,122 577,081 570,307 CAPITAL RESERVES 172,990 179,044 185,311 191,797 198,510 ----------- ----------- ----------- ----------- ----------- CASH FLOW 23,039,846 23,538,038 23,699,544 23,609,880 26,279,770 </TABLE> <PAGE> PROSPECTIVE FUTURE MARKET VALUE ================================================================================ Methodology - Upon Completion and at Stabilization We have also been requested by our client to give our opinion of the upon completion and at stabilization. In our previous analysis, we estimate that construction of the Rain Forest restaurant will be completed by May, 1998. While there may be some mall tenant space available, the major focus of the remerchandising will be complete at that point. Therefore by June, 1998, it is projected that the subject will be substantially at stabilized operations following final tenant fitout costs for Rain Forest. In this second analysis, we have again utilized the discounted cash flow methodology, incorporating basically the same assumptions as in our previous analysis As Is. However, in this second analysis, all of the costs associated with bringing the property to stabilization will have been incurred prior to the beginning of our analysis. On the opposing page is a presentation of the cash flows which an informed investor can annually expect from the subject property over the next ten years following stabilization. These cash flows incorporate the following general assumptions: (1) The commencement date of the investment holding period is June 1, 1998 and continues on a fiscal basis for a period of 10 years until May 30, 2008. (2) All existing and projected leases at the subject property are in full force and effect at the commencement of the investment holding period. (3) With the exception of management and real estate taxes, expenses are projected to increase at 3.5 percent per annum over the investment holding period. Management is based upon a percentage of minimum rent, percentage rent and miscellaneous income. Real estate taxes are projected to increase at 2.0 percent per annum over the investment holding period. (4) The investment will be liquidated based upon what would be the eleventh year's net operating income capitalized at an overall rate of 9.25 percent less transaction costs equal to 3 percent of the projected reversionary sale price. In the previous section we discussed the investment parameters regional malls which are at stabilized operations. As noted in recent investment surveys, the average internal rate of return for stabilized properties is between 11.00 and 12.00 percent. Considering the financial characteristics, locational attributes and physical traits of the subject property, we believe a discount rate ranging from 11.0 to 12.0 percent would be appropriate for the subject property As Stabilized in light of the investment criteria presented here. Thus, we have discounted the projected future pre-tax cash flows to be received by an investor in the subject property to a present value so as to yield between 11.00 percent to 12.0 percent on capital at 25 basis point intervals over the holding period. This discounting process is summarized as follows: ================================================================================ -104- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Prospective Future Market Value ================================================================================ ================================================================================ Investment Summary ================================================================================ Discount Rate Present Worth Overall Rate Unit Rate ================================================================================ 11.00% $230,055,000 9.22% $167.20 - -------------------------------------------------------------------------------- 11.25% $226,407,000 9.36% $164.55 - -------------------------------------------------------------------------------- 11.50% $222,837,000 9.51% $161.96 - -------------------------------------------------------------------------------- 11.75% $219,344,000 9.67% $159.42 - -------------------------------------------------------------------------------- 12.00% $215,925,000 9.82% $156.93 ================================================================================ Through such a sensitivity analysis, it can be seen that the current value of the subject property varies from approximately $215.9 to $230.1 million. All things considered, we believe a discount rate which falls at the low end of the range to be appropriate for the subject property at stabilization. Conclusion - Upon Completion and At Stabilization In view of the analysis presented here, it becomes our opinion that the Income Capitalization Approach indicates a prospective future market value of TWO HUNDRED THIRTY MILLION DOLLARS ($230,000,000) for the subject property, Upon Completion and At Stabilization projected for June 1, 1998. The indices of investment generated through this indicated value conclusion are shown below. ================================================================================ Investment Indices ================================================================================ Equity Yield (IRR) 11.00% - -------------------------------------------------------------------------------- Overall Capitalization Rate * 9.22% - -------------------------------------------------------------------------------- Price/SF of Mall Shop GLA ** $390.66 - -------------------------------------------------------------------------------- Price/SF of Owned GLA *** $167 ================================================================================ * Based on net income of $21,202,666 for first year ** Based on 588,748+/- square feet *** Based on 1,375,905+/- square feet ================================================================================ We would note that as the subject is not at stabilization, the indicated overall rate is less useful as a financial indicator and is included here for informational purposes. Our analysis of the components of the yield indicates that approximately 57 percent comes from cash flow and 43 percent comes from the reversion. This represents is a reasonable allocation which meets with current investor expectations. ================================================================================ -105- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> RECONCILIATION AND FINAL VALUE ESTIMATE ================================================================================ Reconciliation is the process of deriving a single point value estimate for the subject property from the indications provided by the approaches at hand. This process requires the weighing of each approach as they relate to the appraisal assignment and resolving the differences among the valuation procedures. In the end, a single estimate of market value is concluded based upon the appropriateness of each value indication. Only two of the three approaches to value have been utilized for this analysis. In general terms, the approaches included provide complimentary results, each approach or technique supporting the other. A summary of the value indications for the subject is set forth below. ================================================================================ Franklin Mills -As Is ================================================================================ Sales Comparison Approach $197,000,000 - $200,000,000 - -------------------------------------------------------------------------------- Income Capitalization Approach $193,000,000 ================================================================================ ================================================================================ Franklin Mills Upon Completion and at Stabilization ================================================================================ Sales Comparison Approach $228,000,000 - $231,000,000 - -------------------------------------------------------------------------------- Income Capitalization Approach $230,000,000 ================================================================================ Sales Comparison Approach The Sales Comparison Approach has arrived at a value indication for the improved portion of the subject property by analyzing historical arm's-length transactions, reducing the gathered information to common units of comparison, adjusting the sale data for differences with the subject, and interpreting the results to yield a meaningful value conclusion. The basis of these conclusions have been analyzed on the cash-on-cash return based upon net income multiplier. The process of comparing historical sales data to assess what purchasers have been paying for similar type properties is weak in estimating future expectations. Although the unit sale price yields comparable conclusions, it is not the primary tool by which the investor market for a property like the subject operates. In addition, no two properties are alike with respect to quality of construction, location, market segmentation and income profile. As such, subjective judgment necessarily becomes a part of the comparative process. The usefulness of this approach is that it interprets specific investor parameters established in their analysis and ultimate purchase of a property. In light of the above, this methodology is best suited as support for the conclusions of the Income Approach. Income Capitalization Approach - Discounted Cash Flow Analysis The subject property is highly suited to analysis by the discounted cash flow method as it will be bought and sold in investment circles. The focus on property value in relation to anticipated income is well founded since the basis for investment is profit in the form of return or yield on invested capital. ================================================================================ -106- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Reconciliation And Final Value Estimate ================================================================================ The subject property, as an investment vehicle, is sensitive to all changes in the economic climate and the economic expectations of investors. The discounted cash flow analysis may easily reflect changes in the economic climate of investor expectations by adjusting the variables used to qualify the model. In the case of the subject property, the Income Approach can analyze existing leases, the probabilities of future rollovers and turnovers, and reflect the expectations of overage rents. Essentially, the Income Capitalization Approach can model many of the dynamics of a complex shopping center. We have relied heavily upon the results of the discounted cash flow analysis in the valuation of the subject because of the applicability of this method in accounting for the particular characteristics of the property, as well as being the tool used by many purchasers. Conclusions We have briefly discussed the applicability of each of the methods presented. Because of certain vulnerable characteristics in the Sales Comparison Approach, it has been used as supporting evidence and as a final check on the value conclusion indicated by the Income Capitalization Approach. As a result of our analysis, we have formed the opinion that the market value of the leased fee estate in the subject property, As Is, as of April 16, 1997 was: ONE HUNDRED NINETY THREE MILLION DOLLARS ($193,000,000) Further, based upon the total analysis contained in this report, it is our conclusion that, as of November 1, 1998, the prospective future market value of the leased fee estate in the subject property, Upon Completion and As Stabilized, would be: TWO HUNDRED THIRTY MILLION DOLLARS ($230,000,000) We would particularly note that our estimates of value incorporate a proposed major remerchandising plan. Ownership has demolished a vacant Sears store and is constructing a 61,000 square foot movie theater on the site. In addition, they will construct a 20,000 square foot restaurant adjoining the theater site. Further, they intend to remerchandise the mall by emphasizing higher end fashion tenants at the north end of the mall, moving towards more discount oriented retailers at the middle of mall with an entertainment focus at the south end anchored by the new movie theater and restaurant. The renovations and remerchandising are projected for 1997 and 1998. ================================================================================ -107- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> ASSUMPTIONS AND LIMITING CONDITIONS ================================================================================ "Appraisal" means the appraisal report and opinion of value stated therein; or the letter opinion of value 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(s)" means the employee(s) of C&W who prepared and signed the Appraisal. 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 estimates, opinions, dimensions, sketched, 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 property 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. 5. Except as may be otherwise stated in our 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. ================================================================================ -108- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> Assumptions and Limiting Conditions ================================================================================ 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 considered in the Appraisal; and (d) all required licenses, certificates of occupancy and the governmental consents have been or can be obtained and renewed for any use on which the value estimate contained in the Appraisal is based. 7. The physical condition of the improvements considered by 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 forecasted 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 forecasts of income and expenses are not predictions of the future. Rather, they are the Appraiser's best estimated of current market thinking on future income and expenses. The Appraiser and C&W make no warranty or representation that these forecasts will materialize. The real estate market is constantly fluctuating and changing. It is not the Appraiser's task to predict or in any way warrant the conditions of a future real estate market; the Appraiser can only reflect what the investment community, as of the date of the Appraisal, envisages for the future in terms of rental rates, expenses, supply and demand. 10. Unless otherwise stated in the Appraisal, the existence of potentially hazardous or toxic materials which may have been used in construction or maintenance of the improvements or may be located at or about the Property was not considered 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 considered in arriving at the opinion of value. Failure to comply with the requirement of the ADA may adversely affect the value of property. C&W recommends that an expert in this field be employed. ================================================================================ -109- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> CERTIFICATION OF APPRAISAL ================================================================================ We certify that, to the best our knowledge and belief: 1. Gerald B. McNamara, MAI, and Richard W. Latella, MAI inspected the property. 2. The statements of fact contained in this report are true and correct. 3. The reported analyses, opinion, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. 4. We have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. 5. Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. The appraisal assignment was not based on a requested minimum valuation, a specific valuation or the approval of a loan. 6. No one provided significant professional assistance to the person signing this report. 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. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representative, 9. As of the date of this report, Gerald B. McNamara, MAI and Richard W. Latella, MAI have completed the requirements of the continuing education program of the Appraisal Institute. /s/Gerald B. McNamara /s/Richard W. Latella Gerald B. McNamara, MAI Richard W. Latella, MAI Associate Director Senior Director Valuation Advisory Services Valuation Advisory Services Pennsylvania Certified Pennsylvania Certified General Appraiser #GA-000267-L General Appraiser #GA-00103-R ================================================================================ -110- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> ADDENDA ================================================================================ ================================================================================ -111- CUSHMAN & WAKEFIELD(R) --------------------------- VALUATION ADVISORY SERVICES --------------------------- <PAGE> NATIONAL RETAIL MARKET OVERVIEW ================================================================================ Introduction Shopping centers constitute the major form of retail activity in the United States today. Approximately 55 percent of all non-automotive retail sales occur in shopping centers. It is estimated that consumer spending accounts for about two-thirds of all economic activity in the United States. As such, retail sales patterns have become an important indicator of the country's economic health. The early part of the 1990s was a time of economic stagnation and uncertainty in the country. The gradual recovery, which began as the nation crept out of the last recession, has shown some signs of weakness as corporate downsizing has accelerated. But as the recovery period reaches into its fifth year and the retail environment remains volatile, speculation regarding the nation's economic future remains. It is this uncertainty which has shaped recent consumer spending patterns. We shall first provide a brief overview of broad economic measures that are important in terms of long range retail sales forecasting and general investment underwriting. This is followed by a discussion of retail sales trends along with selected statistics of the shopping center industry. Also included is a discussion of contemporary industry trends, valuation issues and a brief overview of the REIT market. Personal Income and Consumer Spending Americans' personal income advanced by eight-tenths of a percent in December, which helped raise income for all of 1996 by 5.5 percent. This was less than 1995 but it far outpaced the 2.5 percent in 1994. ================================================================================ Personal Income Consumer Spending ================================================================================ Year % Change Year % Change ================================================================================ 1993 4.7 1993 5.8 - -------------------------------------------------------------------------------- 1994 2.5 1994 5.5 - -------------------------------------------------------------------------------- 1995 6.1 1995 4.8 - -------------------------------------------------------------------------------- 1996 5.5 1996 4.6 ================================================================================ Source: Commerce Dept. ================================================================================ American workers won wage gains in 1996 that were the largest since 1990. Nationwide, average hourly wages rose by 3.8 percent to $11.98 in 1996, about five-tenths of a percent above the inflation rate. This compares with 3.2 percent in 1995. Personal income grew three-tenths of a percent in January 1997. Consumer spending is another closely watched indicator of economic activity. The importance of consumer spending is that it represents two-thirds of the nation's economic activity. Total consumer spending rose by 4.6 percent in 1996, slightly off of the 4.8 percent rise in 1995. These increases followed a significant lowering on unemployment and bolstered consumer confidence. Personal spending grew seven-tenths of a percent in January 1997, well above analysts' expectations. <PAGE> National Retail Market Overview ================================================================================ Unemployment Trends The Clinton Administration touts that its economic policy has dramatically increased the number of citizens who have jobs. Correspondingly, the nation's unemployment rate continues to decrease from its recent peak in 1992. Selected statistics released by the Bureau of Labor Statistics are summarized as follows: ================================================================================ Selected Employment Statistics ================================================================================ Civilian Labor Force Employed ================================================================================ Total Workers Total Workers Unemployment Year (000) % Change (000) % Change Rate ================================================================================ 1990 124,787 .7 117,914 .5 5.5 - -------------------------------------------------------------------------------- 1991 125,303 .4 116,877 - .9 6.7 - -------------------------------------------------------------------------------- 1992 126,982 1.3 117,598 .6 7.4 - -------------------------------------------------------------------------------- 1993 128,040 .8 119,306 1.5 6.8 - -------------------------------------------------------------------------------- 1994 131,056 2.4 123,060 3.1 6.1 - -------------------------------------------------------------------------------- 1995 132,337 .98 124,926 1.5 5.6 - -------------------------------------------------------------------------------- 1996 135,022 2.0 127,855 2.3 5.3 ================================================================================ CAGR 1.32 1.37 1990-1996 ================================================================================ ^1 Year Ending December 31 ================================================================================ Source: Bureau of Labor Statistics U.S. Department of Labor ================================================================================ During 1996, the labor force increased by 2,685,000 or approximately 2.0 percent. Correspondingly, the level of employment increased by 2,929,000 or 2.3 percent. As such, the year end unemployment rate dropped by three-tenths of a percent to 5.3 percent. For 1996, monthly job growth averaged 224,000. On balance, over 10.0 million jobs have been created since the recovery began. Preliminary data for January 1997 shows that the unemployment rate edged up to 5.4 percent. Housing Trends Housing trends are an important economic measure due to the substantial economic activity generated when a home changes hands (i.e. spending on repairs by sellers, redecorating by buyers, fees, commissions and taxes). For all of 1996, new single family home sales totaled 756,000, up 13.3 percent from 667,000 in 1995. The yearly sales level was the highest since 1978. The median new home price of new homes sold in 1995 was $133,900, up 3 percent from the median of $130,000 for 1994. Through September 1996, it was tracking at $137,500. Sales of new homes rose 8.6 percent in January 1997. The increase in January is likely a result of the abnormally low sales volume in January 1996 due to last year's blizzard. Builders are currently reporting a 4.5 inventory of unsold homes. Sales of existing single family homes hit an 18-year record in 1996 to 4.09 million units, up 7.5 percent from 3.8 million in 1995. The median price jumped by 4.6 percent to $118,100. In a surprise to most analysts who follow the housing market, data in December 1996 shows that starts dropped 12.2 percent from the previous month to a seasonally adjusted annual rate of 1.38 million units. However, this was not enough to offset the 8.8 percent increase for all of 1996 to 1.47 million units, the most since 1988. <PAGE> National Retail Market Overview ================================================================================ The home ownership rate seems to be rising, after remaining stagnant over the last decade. For 1995, the share of households that own their homes was 64.7 percent, compared to 64.0 percent for a year earlier. Lower mortgage rates are cited as a factor. Gross Domestic Product The report on the gross domestic product (GDP) showed that output for goods and services expanded at an annual rate of just .9 percent in the fourth quarter of 1995. Overall, the economy gained 2.0 percent in 1995, the weakest showing in four years since the 1991 recession. Conversely, the fourth quarter (1996) GDP grew at a surprisingly robust 4.7 percent. As a result, the GDP posted a 2.5 percent annual gain for all of 1996, topping the 2.0 percent rise in 1995. The Fed foresees a continuation of this trend and expects the U.S. economy will expand at a 2.0 to 2.50 percent pace during 1997 which is in-line with White House forecasts and a pace which is viewed as the economy's non-inflationary growth limit. The following chart cites the annual change in real GDP since 1990. ================================================================================ Real GDP ================================================================================ Year % Change ================================================================================ 1990 1.2 - -------------------------------------------------------------------------------- 1991 -.6 - -------------------------------------------------------------------------------- 1992 2.3 - -------------------------------------------------------------------------------- 1993 3.1 - -------------------------------------------------------------------------------- 1994 4.1 - -------------------------------------------------------------------------------- 1995* 2.0 - -------------------------------------------------------------------------------- 1996 2.5 ================================================================================ * Reflects new chain weighted system of measurement. Comparable 1994 measure would be 3.5% ================================================================================ Source: Bureau of Economic Analysis ================================================================================ Wholesale Prices Soaring energy prices in December drove wholesale costs to a twelve month high. For the year, the Producer Price Index (PPI) gained 2.8 percent. However, excluding energy, the PPI rose just 1.4 percent in all of 1996. In 1995, the index rose 2.3 percent. Projections for 1997 show that most economists expect a 2.5 percent rise and a core increase of 1.5 percent. Consumer Prices The Bureau of Labor Statistics has reported that consumer prices rose by only 2.5 percent in 1995, the fifth consecutive year in which inflation was under 3.0 percent. This was the lowest rate in nearly a decade when the overall rate was 1.1 percent in 1986. All sectors were down substantially in 1995 including the volatile health care segment which recorded inflation of only 3.9 percent, the lowest rate in 23 years. <PAGE> National Retail Market Overview ================================================================================ The following chart tracks the annual change in the CPI since 1990. ================================================================================ Consumer Price Index(1) ================================================================================ Year CPI % Change ================================================================================ 1990 133.8 6.1 - -------------------------------------------------------------------------------- 1991 137.9 3.0 - -------------------------------------------------------------------------------- 1992 141.9 2.9 - -------------------------------------------------------------------------------- 1993 145.8 2.7 - -------------------------------------------------------------------------------- 1994 149.7 2.7 - -------------------------------------------------------------------------------- 1995 153.5 2.5 - -------------------------------------------------------------------------------- 1996 158.6(2) 3.3 ================================================================================ (1) All Urban Workers (2) Preliminary ================================================================================ Source: Dept. of Labor, Bureau of Labor Statistics ================================================================================ Preliminary data for the year shows the consumer prices rose in line with investor expectations. The index was up three-tenths of a percent in December, its third consecutive gain at this level. On an annualized basis, the inflation rate was reported at 3.3 percent for year, the highest rate of increase since 1990. Since then, inflation has eased every year except for 1994 when it was unchanged. Excluding food and energy, the 77 percent of the index known as the core index, the underlying inflation rate was 2.6 for the previous twelve months, the lowest core rate since 1965, with the exception of an increase of the same size in 1994. Recently, a special advisory panel of prominent economists have contended that the current method of calculating the Consumer Price Index overstates inflation by 1.1 percentage points annually. The government is currently reviewing the far ranging implications a change in procedure may have. Other Indicators The government's main economic forecasting gauge, the Index of Leading Economic Indicators is intended to project economic growth over the next six to nine months. The Conference Board, an independent business group, reported that the index increased three-tenths of a percent in January 1997, its thirteenth consecutive gain. The Conference Board also reported that consumer confidence rose in January 1997 to 116.8, its highest level since November 1989. This was above the consensus opinion. Accordingly, consumers attitudes about the economy remain upbeat. Measures of consumer confidence are watched closely for indications of future consumer spending. In another sign of increasingly pinched household budgets, consumers are showing signs of curtailing new installment debt, which stand near a record 20.8 percent of disposable income. Even though consumers bought more credit in November than they did in October, analysts felt they were exercising more restraint than they did earlier in the year. The Federal Reserve said consumer credit expanded at a seasonally adjusted $7.4 billion in November or at a 7.4 percent annual rate. Nonetheless, the levels of consumer credit is a cause for concern. Credit card delinquencies and personal bankruptcies remain near record levels indicating that consumers may be reaching a point of saturation with respect to new debt. <PAGE> The Employment Cost Index is a measure of overall compensation including wages, salaries and benefits. Despite a tight labor market, American workers have not won pay and benefit increases large enough to push inflation higher, at least for the near term. The Labor Department reported that the index rose by 2.9 percent in 1996, up slightly from the 2.7 percent rise in 1995. Productivity is a key element in measuring the standard of living since increased efficiency allows businesses to increase workers compensation without having to raise prices. Through the first 70 years of this century, non-farm productivity rose at an annual rate of 2.2 percent. Between 1973 and 1995, a marked slowdown has been in evidence with only a 1 percent annual rate. The Labor Department reports that the productivity of American workers grew by eight-tenths of a percent in 1996, the largest gain since a 3.2 percent advance in 1992. Productivity increased by three-tenths of a percent in 1995. Economic Outlook The WEFA Group, an economic consulting company, opines that the current state of the economy is a "central bankers" dream, with growth headed toward the Fed's 2.5 percent target, accompanied by stable if not falling inflation. They project that inflation will track at about 2.5 percent through 1998. Over the longer term, inflation is expected to average 2.7 percent. This will have a direct influence on consumption (consumer expenditures). Potential GDP provides an indication of the expansion of output, real incomes, real expenditures, and the general standard of living of the population. WEFA estimates that real U.S. GOP will grow at an average annual rate of 2.3 percent over the next decade, and slow to about 2.1 percent by 2019. Consumption expenditures are primarily predicated on the growth of real permanent income, demographic influences, and changes in relative prices over the long term. Changes in these key variables explain much of the consumer spending patterns of the 1970s and mid-1980s, a period during which baby boomers were reaching the asset acquisition stages of their lives; purchasing automobiles and other consumer and household durables. Increases in real disposable income supported this spending spurt with an average annual increase of 2.9 percent per year over the past twenty years. Real consumption expenditures increased at an average annual rate of 3.1 percent during the 1970s and by an average of 4.0 percent from 1983 to 1988. WEFA projects that consumption expenditure growth will slow as a result of slower population growth and aging. It is also projected that the share of personal consumption expenditures relative to GDP will decline over the next decade. Consumer spending as a share of GDP peaked in 1993 at 68.0 percent after averaging about 63.0 percent over much of the post-war period. WEFA estimates that real consumption expenditure growth will average 2.2 percent per year through 2005 and slows to 2.1 percent thereafter. Retail Sales During the period 1980 through 1996, total retail sales in the United States increased at a compound annual rate of 6.1 percent. Data for the period 1990 through 1996 shows that sales growth has slowed to an annual average of 5.0 percent. This information is summarized on the following chart. <PAGE> National Retail Market Overview ================================================================================ ================================================================================ Total U.S. Retail Sales(1) ================================================================================ Year Amount Annual (Billions) Change ================================================================================ 1980 $ 957,400 N/A - -------------------------------------------------------------------------------- 1985 $1,375,027 N/A - -------------------------------------------------------------------------------- 1990 $1,844,611 N/A - -------------------------------------------------------------------------------- 1991 $1,855,937 .61% - -------------------------------------------------------------------------------- 1992 $1,951,589 5.2% - -------------------------------------------------------------------------------- 1993 $2,074,499 6.3% - -------------------------------------------------------------------------------- 1994 $2,236,966 7.8% - -------------------------------------------------------------------------------- 1995 $2,340,817 4.6% - -------------------------------------------------------------------------------- 1996(2) $2,465,835 5.3% - -------------------------------------------------------------------------------- Compound Annual Growth +6.1% Rate 1980-1996 - -------------------------------------------------------------------------------- CAGR: 1990-1996 +5.0% ================================================================================ 1 1985 - 1995 data reflects recent revisions by the U.S. Department of Commerce: Combined Annual and Revise Monthly Retail Trade. 2 Preliminary advance estimates. ================================================================================ Source: Monthly Retail Trade Reports Business Division, Current Business Reports, Bureau of the Census, U.S. Department of Commerce. ================================================================================ The Census Bureau of the Department of Commerce reports that advance estimates for U.S. retail sales for 1996 were $2.465 trillion, an increase of $125.0 billion, or 5.3 percent from 1995. For the month of December 1996, sales were up six-tenths of a percent. Provided on the following chart is a summary of overall and same store sales growth for selected national merchants for the most recent period. <PAGE> National Retail Market Overview ================================================================================ ================================================================================ Same Store Sales for the Month of January 1997 ================================================================================ % Change From Previous Year --------------------------- Name of Retailer Overall Same Store Basis ================================================================================ Wal-Mart +15.0% + 6 6% - -------------------------------------------------------------------------------- Kmart + 5.0% + 7.2% - -------------------------------------------------------------------------------- Sears, Roebuck & Company +12.0% + 5.8% - -------------------------------------------------------------------------------- J.C. Penney +15.0% +13.0% - -------------------------------------------------------------------------------- Dayton Hudson Corporation +12.0% + 5.5% - -------------------------------------------------------------------------------- May Department Stores +13.0% + 6.7% - -------------------------------------------------------------------------------- Federated Department Stores N/A + 9.4% - -------------------------------------------------------------------------------- The Limited Inc. +25.0% +17.0% - -------------------------------------------------------------------------------- Gap Inc. +21.0% + 8.0% - -------------------------------------------------------------------------------- Ann Taylor + 6.0% + 2.5% - -------------------------------------------------------------------------------- Woolworth's - 1.0% + 2.5% - -------------------------------------------------------------------------------- Best Buy - 7.0% -15.0% ================================================================================ Source: New York Times/Wall Street Journal ================================================================================ o Sales at many of the nation's largest retailers were up in December 1996 but below most analysts' and retailers expectations after a fast start following Thanksgiving. Wal-Mart, Kmart, Sears, and JC Penney did well, however, May and Federated were notable laggards. The Goldman Sachs retail composite index of same store sales rose 2.9 percent for stores open at least one year. The figure put the 1996 Christmas season among the worst in more than a decade but still better than the 2 percent rise in 1995. Nonetheless the rise was below analysts expectations of 4 to 6 percent. Electronics suffered led by Best Buy's 13 percent drop. Some apparel did well such as Ann Taylor and TJX. A strong contrast in luxury sales was seen in Neiman Marcus' .6 percent decline as compared to Saks which had a 10.6 percent increase for the month. o Data for January 1997 shows that shoppers were attracted to the promotional sales offered by merchants during this traditionally slow period. The Goldman Sachs index rose 5.8 percent, up sharply from last year's 1.1 percent increase. Strong gains were seen across the board from apparel to household items. Luxury retailers such as Saks (14.3 percent gain) did particularly well. The only segment which did not benefit from the strong sales growth were home electronics companies such as Best Buy (-15.0 percent) and Circuit City (-11.0 percent). <PAGE> National Retail Market Overview ================================================================================ The outlook for retail sales growth is one of cautious optimism. It appears as if the low price department stores and off price apparel segment is poised to continue to do well, as they tend to be representative of those industry segments which have gone through mergers and are benefiting from fewer competitors. Some analysts point to the fact that consumer confidence has resulted in increases in personal debt which may be troublesome in the long run. Consumer loans by banks continue to rise. But data gathered by the Federal Reserve on monthly payments suggest that debt payments are not taking as big a bite out of income as in the late 1980s, largely because of the record refinancings at lower interest rates in recent years and the efforts by many Americans to repay debts. GAFO and Shopping Center Inclined Sales In a true understanding of shopping center dynamics, it is important to focus on both GAFO sales or the broader category of Shopping Center Inclined Sales. GAFO goods comprise the overwhelming bulk of goods and products carried in shopping centers and department stores and consist of the following categories: o General merchandise stores including department and other stores; o Apparel and accessory stores; o Furniture and home furnishing stores; and o Other miscellaneous shoppers goods stores. Shopping Center Inclined Sales are somewhat broader and include such classifications as home improvement and grocery stores. The store types that comprise shopping centers comprised approximately 53 percent of total retail sales in 1995. The balance were generated by auto dealers, gas stations, food service facilities and other miscellaneous establishments. Total retail sales grew by 4.6 percent in the United States in 1995 to $2.341 trillion, an increase of $104 billion over 1994. This followed an increase of 7.8 percent or $162 billion over 1993. Automobile dealers captured $34+/- billion of total retail sales growth last year, while Shopping Center Inclined Sales accounted for nearly 50.0 percent of the increase ($50 billion). GAFO sales increased by $32.5 billion. This group was led by department stores which posted a $14.4 billion increase in sales. The following chart summarizes the performance for this most recent comparison period. <PAGE> National Retail Market Overview ================================================================================ ================================================================================ Retail Sales by Major Store Type 1994-1995 ($Mil.) ================================================================================ Store Type 1994 1995 Percent of 1994-1995 Income (1) % Changes ================================================================================ GAFO: General Merchandise $ 282,541 $ 296,904 5.1% Apparel & Accessories 109,603 109,962 .3% Furniture & Furnishings 119,626 129,923 8.6% Other GAFO 80,533 88,029 9.3% - -------------------------------------------------------------------------------- GAFO Subtotal $ 592,303 $ 624,818 14.4% 5.5% - -------------------------------------------------------------------------------- Convenience Stores: Grocery $ 376,330 $ 389,134 3.4% Other Food 21,470 21,378 (.4)% - -------------------------------------------------------------------------------- Subtotal $ 397,800 $ 410,512 9.5% 3.2% Drug 81,538 84,240 2.0% 3.3% - -------------------------------------------------------------------------------- Convenience Subtotal - $ 479,338 $ 494,752 3.2% - -------------------------------------------------------------------------------- Other Home Improvement & Building Supplies Stores $ 122,533 $ 124,626 2.9% 1.7% Shopping Center-Inclined Subtotal $1,194,174 $1,244,196 28.8% 4.2% Automobile Dealers 526,319 560,624 6.5% Gas Stations 142,193 148,192 4.2% Eating and Drinking Places 228,351 233,606 2.3% All Other 145,929* 154,199* 5.7% - -------------------------------------------------------------------------------- Total Retail Sales $2,236,966 $2,340,817 4.6% ================================================================================ * Estimated Sales - -------------------------------------------------------------------------------- 1 Current Population Report, Page 60. Estimated at 96.8 million households @ $44,100 = 4.3 trillion. ================================================================================ Source: U.S. Department of Commerce, Bureau of the Census and Dougal M. Casey: Various ICSC White Papers. ================================================================================ GAFO sales grew by 5.5 percent in 1995 to $624.8 billion. From the above it can be calculated that GAFO sales accounted for 26.7 percent of total retail sales and nearly 50.0 percent of all shopping center-inclined sales. GAFO sales have also risen relative to household income. In 1990 these sales represented 13.9 percent of average household income. By 1994/1995 they rose to 14.4 percent. Projections through 2000 show a continuation of this trend to 14.7 percent. On average, total sales were equal to nearly 55.0 percent of household income in 1994. <PAGE> National Retail Market Overview ================================================================================ <TABLE> <CAPTION> ============================================================================================= Determinants of Retail Sales Growth and U.S. Retail Sales by Key Store Type ============================================================================================= 1990 1994 2000^p ============================================================================================= <S> <C> <C> <C> Determinants Population 248,700,000 260,000,000 276,200,000 Households 91,900,000 95,700,000 103,700,000 Average Household Income $37,400 $42,600 $51,600 Total Census Money Income: $3.4 Tril. $4.1 Tril. $5.4 Tril. - --------------------------------------------------------------------------------------------- % Allocations of Income to Sales GAFO Stores 13.9% 14.4% 14.7% Convenience Stores 12.9% 11.7% 10.7% Home Improvement Stores 2.8% 3.0% 3.3% Total Shopping Center-Inclined Stores 29.6% 29.1% 28.8% Total Retail Stores 54.3% 54.6% 52.8% - --------------------------------------------------------------------------------------------- Sales ($Billion) GAFO Stores $472 $592 $795 Convenience Stores 439 479 580 Home Improvement Stores 95 123 180 Total Shopping Center-Inclined Stores $1,005 $1,194 $1,555 TOTAL RETAIL SALES $1,845 $2,237 $2,850 ============================================================================================= Note: Sales and income figures are for the full year; population and household figures are as of April 1 in each respective year. P=Projected. ============================================================================================= Source: U.S. Census of Population, 1990; U.S. Bureau of the Census Current Population Reports: Consumer Income P6-168, 174,180,184 and 188; Berna Miller with Linda Jacobsen, "Household Futures", American Demographics, March 1995; Retail Trade sources already cited; and Dougal M. Casey: ICSC White Paper ============================================================================================= </TABLE> GAFO sales have risen at a compound annual rate of approximately 6.8 percent since 1991 based on the following annual change in sales. ================================================================================ 1990/91 2.9% - -------------------------------------------------------------------------------- 1991/92 7.0% - -------------------------------------------------------------------------------- 1992/93 6.6% - -------------------------------------------------------------------------------- 1993/94 7.0% - -------------------------------------------------------------------------------- 1994/95 5.5% ================================================================================ According to a recent study by the ICSC, GAFO sales are expected to grow by 5.0 percent per annum through the year 2000, which is well above the 4.1 percent growth for all retail sales. This information is presented in the following chart. <PAGE> National Retail Market Overview ================================================================================ ================================================================================ Retail Sales Forecasts in the United States, by Major Store Type ================================================================================ 1994 2000(P) Percent Change - -------------------------------------------------------------------------------- Compound Store Type ($ Billions) ($ Billions Total Annual ================================================================================ GAFO: $ 283 $ 370 30.7% 4.6% General Merchandise 110 135 22.7% 3.5% Apparel & Accessories 120 180 50.0% 7.0% Furniture/Home Furnishings 81 110 35.8% 5.2% Other Shoppers Goods - -------------------------------------------------------------------------------- GAFO Subtotal $ 592 $ 795 34.3% 5.0% - -------------------------------------------------------------------------------- CONVENIENCE GOODS: $ 398 $ 480 20.6% 3.2% Food Stores 82 100 22.0% 3.4% Drugstores - -------------------------------------------------------------------------------- Convenience Subtotal $ 479 $ 580 21.1% 3.2% - -------------------------------------------------------------------------------- Home Improvement 123 180 46.3% 6.6% - -------------------------------------------------------------------------------- Shopping Center-Inclined $1,194 $1,555 30.2% 4.5% Subtotal - -------------------------------------------------------------------------------- All Other 1,043 1,295 24.2% 3.7% - -------------------------------------------------------------------------------- Total $2,237 $2,850 27.4% 4.1% ================================================================================ Note: P = Projected. Some figures rounded. ================================================================================ Source: U.S. Department of commerce, Bureau of the Census and Dougal M. Casey. ================================================================================ According to the ICSC White Paper: Overstoring - A Look at Retail Space and Sales Performance; Shopping Center Inclined Sales have grown from $257 billion in 1972 to $1.244 trillion in 1995, a 7.1 percent annual growth rate. Historical data is shown below. ================================================================================ Shopping Center Inclined Store Sales 1972-1995 (Billions) ================================================================================ 1972 1980 1990 1995 ================================================================================ Sales $257 $532 $1,000 $1,244 - -------------------------------------------------------------------------------- Compound Annual Growth - -------------------------------------------------------------------------------- 1972-1995 7.1% - -------------------------------------------------------------------------------- 1972-1980 9.5% - -------------------------------------------------------------------------------- 1980-1990 6.6% - -------------------------------------------------------------------------------- 1990-1995 4.3% ================================================================================ Source: U.S. Bureau of The Census and ICSC White Paper: Overstoring - A Look at Retail Space and Sales Performance. ================================================================================ From the above, we see that the most recent annual rate of growth (1990-1995) in Shopping Center Inclined Sales of 4.3 percent has decreased to less than half of what it was during the 1970s (9.5 percent). Projections through December 2000 are for a compound growth rate of 4.5 percent. <PAGE> National Retail Market Overview ================================================================================ Shopping centers have stabilized their share of shopping center inclined sales. In 1972 this share was estimated at 48 percent. Since the early 1980s, this share has stabilized in the 72 to 73 percent range. For example, the estimated sales total of $894 billion of shopping center sales in 1995 was equal to 72 percent of total inclined sales. <PAGE> National Retail Market Overview ================================================================================ The International Council of Shopping Centers (ICSC) publishes a Monthly Mall Merchandise Index which tracks sales by store type for more than 400 regional shopping centers. The index shows that total sales per square foot rose by .5 percent to $261 per square foot in 1995. Data through the first half of 1996 shows that sales are running 3.9 percent ahead of the comparable period in 1995. The following chart identifies the most recent year-end results. ================================================================================ 1995 Year End Performance Non-Anchor Tenant Sales In U.S. Malls ================================================================================ ICSC Index % Change Store Type 1995 (SF*) From YE 1994 ================================================================================ GAFO Categories: Apparel and Accessories Women's Accessories and Specialties $ 285 -2.6% Women's Ready-To-Wear 184 -3.5% Men's Apparel 234 -0.2% Children's Apparel 346 -1.3% Family Apparel 292 -0.1% Women's Shoes 295 1.3% Men's Shoes 345 -0.5% Family Shoes 253 -1.8% Shoes Miscellaneous 338 2.1% Apparel and Accessories - Misc. $ 286 19.5% - -------------------------------------------------------------------------------- SUBTOTAL $ 238 -0.8% - -------------------------------------------------------------------------------- Furniture and Furnishings: Home Furniture & Furnishings $ 255 -6.3% Home Entertainment & Electronics 317 -3.8% Home Furnishings - Misc. 300 -2.1% - -------------------------------------------------------------------------------- SUBTOTAL $ 297 -4.8% - -------------------------------------------------------------------------------- Other GAFO: Jewelry $ 606 6.3% Stationery/Cards/Gifts/Novelty 255 2.8% Books 249 -5.9% Sporting Goods/Bicycles 239 0.7% Other GAFO - Misc. 294 2.9% - -------------------------------------------------------------------------------- SUBTOTAL $ 328 2.2% - -------------------------------------------------------------------------------- TOTAL GAFO $ 268 -0.2% - -------------------------------------------------------------------------------- NON GAFO Categories: Food Services Fast Food $ 381 0.9% Restaurants 259 0.5% Food Services - Misc. 236 5.8% - -------------------------------------------------------------------------------- SUBTOTAL $ 313 0.4% - -------------------------------------------------------------------------------- OTHER NON-GAFO Categories: Specialty Food Stores $ 351 4.5% Supermarkets 307 14.0% Drug/HBA 285 7.9% Personal Services 273 3.2% Automotive 133 -6.3% Home Improvement 222 4.2% Mall Entertainment 77 -0.8% Other Non-GAFO - Misc. 303 4.9% - -------------------------------------------------------------------------------- SUBTOTAL $ 208 3.3% - -------------------------------------------------------------------------------- TOTAL NON-GAFO $ 246 2.2% - -------------------------------------------------------------------------------- OTHER CATEGORIES-MISCELLANEOUS $ 142 7.4% - -------------------------------------------------------------------------------- Memo: GAFO & Food Service Total $ 273 -0.1% - -------------------------------------------------------------------------------- GRAND TOTAL $ 261 0.5% - -------------------------------------------------------------------------------- <PAGE> National Retail Market Overview ================================================================================ ================================================================================ * Sales per square foot derived as total non-anchor mall sales divided by total occupied square footage. ================================================================================ Source: ICSC - Research Quarterly ================================================================================ Non-Store Retailing In 1995, non-store retailing accounted for $69.7 billion, or 3.92 percent of total non-automotive retail sales. Of this total, $49.7 billion was attributed to mail/telephone order catalog retailers. The balance is comprised of coin- operated vending machines, house-to-house canvassing, party plan (i.e. Tupperware parties) telemarketing and other non-store venues such as home shopping networks and electronic commerce. ================================================================================ Non-Store and Total Retail Sales ================================================================================ Year Total Mail Order Non-Store Total Non-Auto Sales % of Total ================================================================================ 1985 $15,848 mil. $28,275 mil. $1,071,828 2.64% - -------------------------------------------------------------------------------- 1990 $26,577 mil. $45,632 mil. $1,457,006 3.13% - -------------------------------------------------------------------------------- 1995 $49,710 mil. $69,667 mil. $1,778,915 3.92% ================================================================================ Source: Department of Commerce ================================================================================ Mail order sales, currently at only 2.8 percent of total retail sales, continue to grow. Estimates currently place on-line sales at $518.0 million or 1 percent of the mail order tally. Estimates place total on-line sales as high as $6.6 billion by the year 2000. Since 1990, mail order sales have grown at an annual rate of 9.9 percent which is double the average growth of non-automotive retail sales and 1.7 times the average growth of GAFO store sales. One measure of this growing trend is the November/December ratio of mail order to GAF store sales. In 1990, the ratio was 5.4 percent. By 1992 it had grown to 6.9 percent and by 1995 it was 7.6 percent. Industry Trends According to the National Research Bureau, there were a total of 41,235 shopping centers in the United States at the end of 1995. During this year, 867 new centers opened, an 18.0 percent increase over the 735 that opened in 1994. This followed a 10 percent increase in 1994. The greatest growth came in the small center category (less than 100,000 square feet) where 551 centers were constructed. In terms of GLA added, new construction in 1995 was up 2.2 percent resulting in an addition of 106.2 million square feet of GLA from approximately 4.86 billion to 4.97 billion square feet. In other important trends, the development of regional and super-regional malls hit a three year high in 1995 with the opening of eight centers, twice as many as in 1994. This boosted the nation's total of regionals to 301 and super-regionals to 380. Power and community center development in 1995 was up 17.9 percent in terms of the number of centers opening. The following chart highlights trends over the period 1987 through 1995. <PAGE> National Retail Market Overview ================================================================================ <TABLE> <CAPTION> ======================================================================================================================== Census Data: 9-Year Trends ======================================================================================================================== Total Average Average % Change % Increase No. of Total Sales GLA per Sales per in Sales New in Total Year Centers GLA (Billions) Center Sq. Ft. per Sq. Ft. Centers Centers ======================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> 1987 30,641 3,722,957,095 $602,294,426 121,502 $161.78 2.41% 2,145 7.53% - ------------------------------------------------------------------------------------------------------------------------ 1988 32,563 3,947,025,194 $641,096,793 121,212 $162.43 0.40% 1,922 6.27% - ------------------------------------------------------------------------------------------------------------------------ 1989 34,683 4,213,931,734 $682,752,628 121,498 $162.02 -0.25% 2,120 6.51% - ------------------------------------------------------------------------------------------------------------------------ 1990 36,515 4,390,371,537 $706,380,618 120,235 $160.89 -0.70% 1,832 5.28% - ------------------------------------------------------------------------------------------------------------------------ 1991 37,975 4,563,791,215 $716,913,157 120,179 $157.09 -2.37% 1,460 4.00% - ------------------------------------------------------------------------------------------------------------------------ 1992 38,966 4,678,527,428 $768,220,248 120,067 $164.20 4.53% 991 2.61% - ------------------------------------------------------------------------------------------------------------------------ 1993 39,633 4,770,760,559 $806,645,004 120,373 $169.08 2.97% 667 1.71% - ------------------------------------------------------------------------------------------------------------------------ 1994 40,368 4,860,920,056 $851,282,088 120,415 $175.13 3.58% 735 1.85% - ------------------------------------------------------------------------------------------------------------------------ 1995 41,235 4,967,160,331 $893,814,776 120,460 $179.94 2.75% 867 2.15% - ------------------------------------------------------------------------------------------------------------------------ Compound Annual Growth +3.78% +3.67% +5.06% -.11% +1.34% N/A N/A N/A ======================================================================================================================== Source: National Research Bureau Shopping Center Database and Statistical Model ======================================================================================================================== </TABLE> From the chart we see that both total GLA and total number of centers, have increased at a compound annual rate of approximately 3.7 percent since 1987. New construction was up 2.2 percent in 1995, a slight increase over 1994 but still well below the peak year 1987 when new construction increased by 7.5 percent. California was by far the most active state with 139 new centers opening, followed by North Carolina (64) and Florida (53). Among the 41,235 centers in 1995, the following breakdown by size can be shown. ================================================================================ U.S. Shopping center Inventory, YE December 1995 ================================================================================ Size Range (SF) Number of Centers Square Feet (Millions) --------------------------------------------------- Amount Percent Amount Percent ================================================================================ Under 100,000 26,001 63.1% 1,266.9 25.5% - -------------------------------------------------------------------------------- 100,001 - 200,000 9,974 24.2% 1,367.9 27.5% - -------------------------------------------------------------------------------- 200,001 - 400,000 3,345 8.1% 886.2 17.8% - -------------------------------------------------------------------------------- 400,001 - 800,000 1,234 3.0% 668.7 13.5% - -------------------------------------------------------------------------------- 800,001 -1,000,000 301 .7% 271.0 5.5% - -------------------------------------------------------------------------------- Over 1,000,000 380 .9% 486.4 9.8% - -------------------------------------------------------------------------------- Total 41,235 100.0% 4,967.2 100.0% ================================================================================ Source: National Research Bureau (some numbers slightly rounded). ================================================================================ Empirical data shows that the average GLA per capita is increasing. In 1995, the average for the nation was 18.9. This was up 17 percent from 16.1 in 1988 and more recently, 18.7 square feet per capita in 1994. Among states, Arizona surpassed Florida and now has the highest GLA per capita with 28.1 square feet. South Dakota has the lowest at 9.08 square feet. Per capita GLA for regional malls (defined as all centers in excess of 400,000 square feet) has also been rising from 5.0 in 1988 to 5.5 in 1995. This information is presented on the following chart. <PAGE> National Retail Market Overview ================================================================================ ================================================================================ GLA per Capita ================================================================================ Year All Centers Regional Malls ================================================================================ 1988 16.1 5.0 - -------------------------------------------------------------------------------- 1989 17.0 5.2 - -------------------------------------------------------------------------------- 1990 17.7 5.3 - -------------------------------------------------------------------------------- 1991 18.1 5.3 - -------------------------------------------------------------------------------- 1992 18.3 5.5 - -------------------------------------------------------------------------------- 1993 18.5 5.5 - -------------------------------------------------------------------------------- 1994 18.7 5.4 - -------------------------------------------------------------------------------- 1995 18.9 5.5 ================================================================================ Source: International Council of Shopping Center. The Scope of The Shopping Center Industry and National Research Bureau ================================================================================ While per capita GLA has continued to increase, a key issue is that the rate of increase has slowed. Per capita space has increased by only one square foot during the period 1990 through 1995. This trend is manifested in the pace of inventory increases from 165 million square feet per year between 1972 and 1980, to 143 million square feet per year (1980-1990), and 115 million square feet per year (1990-1995). Construction data also indicates that while the overall pace of shopping center openings has eased, the pace of large store (50,000 to 200,000 square feet) construction has more than doubled. During the more recent five year period, big boxes have accounted for 41 percent of inventory additions. ================================================================================ Trends In Inventory Growth* 1972-1995 ================================================================================ 1972-1980 1980-1990 1990-1995 ================================================================================ Shopping Center Space Added 164 143 115 - -------------------------------------------------------------------------------- Free-Standing Stores 36 34 79 (50,000 - 200,000 SF) - -------------------------------------------------------------------------------- Total 200 177 194 - -------------------------------------------------------------------------------- Big Box Allocation of Inventory Growth 18% 19% 41% ================================================================================ * Average Annual Increase (Million Square Feet) ================================================================================ Source: NRB and F.W. Dodge ================================================================================ In their publication, NRB/Shopping Centers Today 1995 Shopping Center Census, the National Research Bureau reports that overall retail conditions continued to improve in 1995. Total shopping center sales increased 5.0 percent to $893.8 billion in 1995, up from $851.3 billion in 1994. Shopping center sales have also increased from $123 billion in 1972, a 9 percent compound annual rate of growth. Total retail sales per square foot have shown positive increases over the past several years, rising by 26.5 percent from approximately $161 per square foot in 1990, to $180 per square foot in 1995. It is noted that the increase in productivity has exceeded the increase in inventory which bodes well for the industry in general. This data is summarized on the following table. <PAGE> National Retail Market Overview ================================================================================ <TABLE> <CAPTION> ==================================================================================================================== Shopping Center Statistics 1990-1995 ==================================================================================================================== % Compound Change Annual 1990 1991 1992 1993 1994 1995 1990-95 Growth ==================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> Retail Sales in Shopping Centers * $706.40 $716.90 $768.20 $806.60 $851.30 $893.81 36.5% 4.8% - -------------------------------------------------------------------------------------------------------------------- Total Leasable Area ** 4.39 4.56 4.68 4.77 4.86 4.97 13.2% 2.5% - -------------------------------------------------------------------------------------------------------------------- Unit Rate $160.89 $157.09 $164.20 $169.08 $175.13 $179.94 1 1.8% 2.3% ==================================================================================================================== * Billions of Dollars ** Billions of Square Feet ==================================================================================================================== Source: National Research Bureau ==================================================================================================================== </TABLE> According to the National Research Bureau, total sales in shopping centers have grown at a compound rate of 5.06 percent since 1987. With sales growth outpacing new construction, average sales per square foot have been showing positive increases since the last recession. Aggregate sales were up 5.5 percent nationwide from $851.3 billion (1994) to $893.8 billion (1995). In 1995, average sales were $179.94 per square foot, up nearly 2.7 percent over 1994 and 1.34 percent (compound growth) over the past several years. The biggest gain came in the super-regional category (more than 1.0 million square feet) where sales were up 4.10 percent to $201.05 per square foot. The following chart tracks the change in average sales per square foot by size category between 1993 and 1995. ================================================================================ Sales Trends by Size Category 1993-1995 ================================================================================ Average Sales Per Square Foot % Change --------------------------------------------------- Category 1993 1994 1995 1994-95 1993-95* ================================================================================ Less than 100,000 SF $193.10 $199.70 $204.94 +2.6% +3.0% - -------------------------------------------------------------------------------- 100,001 to 200,000 SF $156.18 $161.52 $166.00 +2.8% +3.1% - -------------------------------------------------------------------------------- 200,001 to 400,000 SF $147.57 $151.27 $153.96 +1.8% +2.1% - -------------------------------------------------------------------------------- 400,001 to 800,000 SF $157.04 $163.43 $168.21 +2.9% +3.5% - -------------------------------------------------------------------------------- 800,001 to 1,000,000 SF $194.06 $203.20 $210.40 +3.5% +4.1% - -------------------------------------------------------------------------------- More than 1,000,000 SF $183.90 $193.13 $201.05 +4.1% +4.6% - -------------------------------------------------------------------------------- Total $169.08 $175.13 $179.94 +2.75% +3.2% ================================================================================ * Compound Annual Change ================================================================================ Source: National Research Bureau ================================================================================ Consumers demand for value and selection have led to an unprecedented growth of the category killer, superstore and warehouse club concepts. In its annual industry report, Discount Store News has identified the nation's top 200 merchants. Overall, these merchants posted sales of $313.9 billion, up 8.1 percent over 1994. The chart below highlights the year-to-year performance along with 1996 projections. <PAGE> National Retail Market Overview ================================================================================ ================================================================================ Sales by Segment (in billions $) ================================================================================ 1994 1995 % Change 1996 (Proj.) ================================================================================ Full-Line Discount Stores(1) $138.3 $151.1 9.2% $157.3 - -------------------------------------------------------------------------------- Specialty Discounters(2) 55.6 68.1 22.5% 77.3 - -------------------------------------------------------------------------------- Warehouse Clubs 39.0 41.1 5.4% 42.3 - -------------------------------------------------------------------------------- Other Discount Mass 33.3 31.4 1.9 15.5 Merchants(3) - -------------------------------------------------------------------------------- Off-Price Apparel Chains 17.0 15.4 (9.4) - -------------------------------------------------------------------------------- Jewelry/Hard Lines Retailers 7.2 6.9 (4.2) 6.8 - -------------------------------------------------------------------------------- Total Market $290.4 $313.9 8.1% $332.2 ================================================================================ 1 Includes full-line discount department stores, supercenters, closeouters and single-price retailers. 2 Includes home, automotive, crafts, toys, office supplies, book, computer superstores, baby superstores, pet supplies, consumer electronics and sporting goods specialty stores. 3 Includes Sears, Ward, QVC, HSN and variety stores. ================================================================================ Source: DSN Research ================================================================================ As can be seen, the largest segment is comprised of full line discount stores which was up 9.2 percent to $151.1 billion. However, the fastest growing segment of specialty discounters were up a healthy 22.5 percent which was partially due to the inclusion of the $2.2 billion book superstore and $501 million baby superstore categories. The Urban Land Institute, in the 1995 edition of Dollars and Cents of Shopping Centers, reports that vacancy rates range from a low of 2.0 percent in neighborhood centers to 14.0 percent for regional malls. Super-regional malls reported a vacancy rate of 7.0 percent and community centers were 4.0 percent based upon their latest survey. The retail industry's importance to the national economy can also be seen in the level of direct employment. According to F.W. Dodge, the construction information division of McGraw-Hill, new projects in 1994 generated $2.6 billion in construction contract awards and supported 41,600 jobs in construction trade and related industries. This is nearly half of the construction employment level of 95,360 for new shopping center development in 1990. It is estimated that 10.18 million people are now employed in shopping centers, equal to about one of every nine non-farm workers in the country. Market Shifts - Contemporary Trends in the Retail Industry The mid 1990s have continued the trend of profound changes in the retail industry. Department stores have emerged from the troubles of late 1980s and early 1990s to be stronger than ever. Continued consolidations in this industry segment should continue. Specialty retailers continue to experience a shakeout of weaker, out of favor formats while discounters gain market share. Power centers, the growth vehicle of the last several years have reached a point of saturation that has undermined investor's interest in this product. Outlet centers are still struggling, however, the super-regional mega-center appears poised to be the hot concept for the next few years. <PAGE> National Retail Market Overview ================================================================================ Some of the important developments in the industry over the past year can be summarized as follows: o The 1996 Christmas selling season ended on a down note with sales finishing below most analysts expectations. For most consumer electronics and computer retailers, the season was horrible with December sales down 4.8 percent on average. Best Buy, last year's rising star, was off 13.0 percent. Apparel sales rose 3.3 percent led in part by Ann Taylor up 8.8 percent following last year's 2.9 percent decline. Department stores registered an average increase of 3.9 percent while discounters had a 4.7 percent rise on average. A summary of some year over year comparable store sales results is shown below. ==================================================================== Comparable Store Sales (%) Change Over Last 12 Months ==================================================================== Discounters Wal-Mart 4.5 Kmart 2.3 Dayton Hudson 2.4 -------------------------------------------------------------------- Department Stores Sears 6.1 Federated 2.8 JC Penney 2.9 Dillards 2.0 -------------------------------------------------------------------- Apparel Limited 2.0 The Gap 5.0 TJX 7.0 -------------------------------------------------------------------- Miscellaneous Best Buy -4.0 Tandy .4 Woolworth - 2.0 Pier 1 12.0 ==================================================================== Source: Wall Street Journal ==================================================================== <PAGE> National Retail Market Overview ================================================================================ o Consolidation in the department store industry segment continued, albeit at a slower pace than seen over the last few years. o Strawbridge & Clothier - 128 year old Philadelphia based institution sold 13 unit department store division to May Company. Its 27 unit discount Clover division went to Kimco which is putting Kohl's in several of the units, their initial foray into the East. o Profits - Acquired 38 unit Parisian chain for $221 million. Company now controls 141 stores in 19 states. They have also announced an agreement to acquire G.R. Herberger's, a 40-unit department store chain based in St. Cloud, Minnesota for $153 million. o Rich's - 26 unit New England based regional chain closes. o Federated - Continues its conversion of Broadway stores in California to Macy's and Bloomingdales. o Discounters are being attacked from two sides. Big Box category killers have rapidly expanded on one side. Alternatively, full service department stores have become more promotional, closing the price advantage gap discounters have traditionally enjoyed. For example, Bradlees and Caldor remain in bankruptcy and Ames continues to struggle looking for the right strategy to compete against Wal- Mart, Kmart, Target and now Kohl's. o Troubles continues for several specialty retailers as the protracted shake- out continued with several Chapter 11 filings, downsizings, and some cases, outright liquidations. Among the more notable: o McCrory Corp. - Seeking court approval to close 307 of its 461 remaining stores and liquidate. At one time it ran 820 stores in 1992 when it filed for protection. o Limited - Will close 200 of its 4,500 units during 1997. o Handy Andy - Regional home improvement chain closed remaining 54 stores. o Herman's - Liquidated all of its sporting goods stores in the northeast. o Today's Man - 35 unit apparel super store chain filed Chapter 11. o Barney's - High profile New York based upscale retailer filed Chapter 11. o Merry-Go-Round - Liquidated and closed its remaining 560 units including Chess King, Dejaiz and Cignal units. o Jamesway - Regional discount department store chain in the northeast liquidated. o Incredible Universe - After aggressive foray into this mega store format (185,000+/- square feet), Tandy closes division down. Tandy will also close the remaining 53 units of its struggling McDuff Electronics chain and 19 of its 108 Computer City units. <PAGE> National Retail Market Overview ================================================================================ o Ernst Home Centers - Board approved liquidation of 53-unit chain. o Kids Mart - 144-unit children's apparel chain rumored to be close to filing Chapter 11. o Sun Television and Appliance - Considering closing 9 of its 50 stores citing losses. o Best - Closes 81 of its 169 catalog showrooms and agrees to sell remaining units to Shottenstein Corp. o Rickel Home Centers - 86 unit home improvement chain filed Chapter 11. o House of Fabrics - Filed Chapter 11 and closes 86 of its 361 units. o Discovery Zone - Fast expanding children's entertainment and recreation oriented concept filed Chapter 11. o Ben Franklin - Arts and crafts retailer filed Chapter 11. o Kuppenheimer - Apparel retailer files Chapter 11 and plans to close half of its 87 units. o County Seat - 740-unit apparel retailer has filed Chapter 11 and will close 200 units. The Wet Seal has made a proposal to acquire 508 of the stores. o All For A Dollar - 111-unit close-out chain has filed Chapter 11. o Mergers and consolidations among specialty retailers, drug, supermarket and apparel categories continue. o Staples merging with Office Depot in a $3.4 billion deal making it by far the largest in the office superstore category. o Toys R Us acquired Baby Superstore in $407 million deal. o Melville sold Kay Bee Toys to Consolidated Stores adding to its Toy Liquidators, Toys Unlimited and Amazing Toys close-out units for $315 million. Melville has officially changed its name to CVS Corp. o Safeway to acquire Von's in a $1.65 billion deal, creating an operation with 1,400 stores, 139,000 employees and $22.0 billion in revenues. They will still trail the industry leader, Kroger, in size. o JC Penney, parent of Thrift Drug, announced they will acquire Fay's Inc., operator of 272 units, making Thrift the nation's eighth largest chain. Penney's acquisition of Eckerd Drug has been cleared by the FTC. o Sears & Roebuck acquired the 61 unit Orchard Supply Hardware chain for $415 million. o Waban, Inc. - to spin off BJ's Wholesale Club and change its name to its other wholesale club division, HomeBase. o Food Lion - announced its pending acquisition of Kash N Karry in a $341.0 million deal. <PAGE> National Retail Market Overview ================================================================================ o PetsMart - Announced plans to acquire Pet City Holdings, the largest pet superstore chain in the UK. o TJX Companies - announced intent to sell its Chadwick's of Boston catalog to Brylane LP. o Revco - completed its tender offer for Big B drug store chain. o Quality Food Centers - Bellevue, WA based supermarket chain to acquire 56-unit Hughes Family Markets for $360 million. o REITs ended the year with generally good gains over the thrashing many of their stock prices took earlier in the year. Through October, the average mall REIT was up 23.4 percent, while shopping center REITs were up 16.2 percent. Outlet center REITs were the notable laggards with a .2 percent loss. The most significant deal in 1996 involved Simon Property Group's $1.5 billion acquisition of The DeBartolo Realty Corp. The combined company has a market capitalization of $7.5 billion and a portfolio of 111 regional malls, 66 strip centers, and several specialty centers. o Power center growth has arguably fueled the industry's expansion over the past few years. With investors having become more pessimistic due to overbuilding and cannibalization of sales, a new growth vehicle is emerging, the supercenter. This concept combines the elements of a neighborhood center, discounter, supermarket, and drug store into one unit of 150,000 to 200,000 square feet. At the end of 1995 there were 500+/- supercenters. A recent ICSC Survey expects the market to reach buildout in 2003 with 1,800 stores. Leading chains include Wal-Mart, Kmart, Target and Meyer. o Despite trends towards consolidation and downsizing, retailers say they will continue aggressive expansions over the next four years. These results were tabulated from Shopping Center World's 16th Annual Retailer's Expansion Plans Survey. Retailers say they will open 28,000 stores between 1997 and the end of 2000. Among the 148 responding retailers, 83 percent planned their expansions in shopping centers led by regional malls. o Regional Malls 72% o Power Centers 50% o Neighborhood Centers 46% o Community Centers 34% o Outlet Centers 20% o Off-Price Centers 17% 37 percent cited the southeastern part of the country as the hottest growth area. <PAGE> National Retail Market Overview ================================================================================ o As of January 1, 1995 there were 311 outlet centers with 44.4 million square feet of space. Outlet GLA has grown at a compound annual rate of 18.1 percent since 1989. The five outlet center REITs operated 132 centers as of mid-year 1996. By the year 2000 they expect to operate nearly 175 units. Overall occupancy in 1995 (1996 not available at this writing) slipped to 93.3 percent from 95.5 percent in 1994. Concerns of over-building, tenant bankruptcies, and consolidations have now negatively impacted this industry as evidenced by the hit the outlet REIT stocks have taken. Outlet tenants have not been immune to the global troubles impacting retail sales as comparable store sales were down .2 percent to $212 per square foot for the four quarters ended September 30,1996. o Category Killers and discount retailers have continued to drive the demand for additional space. In 1995, new contracts were awarded for the construction or renovation of 260 million square feet of stores and shopping centers, up from 173 million square feet in 1991 according to F.W. Dodge, matching the highest levels over the past two decades. It is estimated that between 1992 and 1994, approximately 55.0 percent of new retail square footage was built by big box retailers. In 1994, it is estimated that they accounted for 80.0 percent of all new stores. Most experts agree that the country is over-stored. Ultimately, it will lead to higher vacancy rates and place severe pressure on aging, capital intensive centers. Many analysts predict that consolidation will occur soon in other superstores categories such as in the office products segment where Office Depot and Staples have announced a merger. o Entertainment is clearly the new operational requisite for property owners and developers who are incorporating some form of entertainment into their designs. With a myriad of concepts available, ranging from mini-amusement parks to multiplex theater and restaurant themes, to interactive high-tech applications, choosing the right formula is a difficult task. Many of the nation's largest media and entertainment companies are getting into the retail business in some fashion. AMC Entertainment has formed a separate subsidiary, Centertainment, Inc., to work with developers to create entertainment based retail projects. o Super-regional value-oriented mega malls such as The Mills concept are expected to be one area of growth over the next several years. This hybrid concept incorporates the diverse mix of super-regional malls with the value-oriented aspects of factory outlets, category killers, off-price merchants and retailer clearance outlets under one roof. In addition, they add an entertainment component that is designed to extend the stay of the patron from approximately one to one and one-half hours in a traditional mall format to three to five hours. These malls are at least 1.0 million square feet although the Mills design averages 1.5 million square feet. They can contain between 7 and 20 anchors and have trade areas stretching upwards to 100 miles. <PAGE> National Retail Market Overview ================================================================================ Investment Criteria and Institutional Investment Performance Investment criteria for mall properties range widely. Many firms and organizations survey individuals active in this industry segment in order to gauge their current investment criteria. These criteria can be measured against traditional units of comparison such as price (or value) per square foot of GLA and overall capitalization rates. The price that an investor is willing to pay represents the current or present value of all the benefits of ownership. Of fundamental importance is their expectation of increases in cash flow and the appreciation of the investment. Investors have shown a shift in preference to initial return, placing probably less emphasis on the discounted cash flow analysis (DCF). A DCF is defined as a set of procedures in which the quantity, variability, timing, and duration of periodic income, as well as the quantity and timing of reversions, are specified and discounted to a present value at a specified yield rate. Understandably, market thinking has evolved after a few hard years of reality where optimistic cash flow projections did not materialize. The DCF is still, in our opinion, a valid valuation technique that when properly supported, can present a realistic forecast of a property's performance and its current value in the marketplace. Equitable Real Estate Investment Management, Inc. reports in their Emerging Trends in Real Estate - 1997 that their respondents give retail investments generally poor performance forecasts in their latest survey due to the protracted merchant shakeout which will continue into 1997 and the general overbuilding which has had a fundamental change on the industry. While dominant, Class A malls are still considered to be one of the best real estate investments anywhere, only 20 percent of the respondents recommended buying malls. Among the nine real estate categories tracked by Emerging Trends, each had estimated 1996 and forecasted 1997 value gains except for regional malls and power centers. Community centers showed a very modest (less than 1 percent) increase. One of the most daunting tasks facing owners is the competition for good tenants and the huge capital outlays needed to keep the properties functional and up-to-date. Emerging Trends views REITs as being buyers but the capital needs of many of these centers will likely hit FFO hard over the next twelve to eighteen months. New REIT IPOs will be limited but consolidations and follow-up offerings will increase as REIT companies seek to grow capitalizations for greater operating efficiencies. Power centers were hit particularly hard in the latest survey. By some estimates this industry niche now accounts for 25 percent of all retail sales and not only have they hurt regional malls but their overbuilding has cannibalized each other. Power centers are now shown to be one of the riskiest investment classes with only 4 percent of the respondents saying its a good time to buy. For 1997, the interviewees see community and strip centers as offering the best investment opportunity in the retail sector. <PAGE> National Retail Market Overview ================================================================================ The following chart summarizes the results of their current survey. ================================================================================ Retail Property Rankings and Forecasts ================================================================================ Property Type Investment Potential Predicted Value Gains -------------------- 1996 --------------------- Rating(1) Ranking (2) Rent Change l Yr. 5 Yrs. l0 Yrs. ================================================================================ Regional Malls 4.9 8th -0.1% -1.7% 12.7% 26.6% - -------------------------------------------------------------------------------- Power Centers 4.1 9th 0.1% -2.3% 9.1% 19.7% - -------------------------------------------------------------------------------- Community Centers 5.3 6th (tie) 1.6% 0.3% 12.5% 26.1% ================================================================================ 1 Scale of 1 to 10 2 Based on 9 property types Source: Emerging Trends in Real Estate - 1997 ================================================================================ The NCREIF Property Index represents data collected from the Voting Members of the National Council of Real Estate Investment Fiduciaries. As shown in the following table, data through the fourth quarter of 1996 shows that the retail index posted a positive 5.08 percent increase in total return for the year. Increased competition in the retail sector from new and expanding formats and changing locational references has caused the retail index to trail all other property types. In fact, this was the fifth consecutive quarter in which retail properties posted the lowest return among the five NCREIF property types. Overall, It appears also that value write-downs have continued. The -1.73 percent in negative appreciation for the retail subindex marked the continuation of this trend. Continuing concerns about overbuilding competition and capital requirements are cited as the primary factors for the pessimistic performance. ================================================================================ Retail Property Returns NCREIF Index Fourth Quarter 1996 (%) ================================================================================ Period Income Appreciation Total Change in CPI* ================================================================================ 4th Qtr. 1996 2.09 -1.73 .36 .51 - -------------------------------------------------------------------------------- One Year 8.46 -3.18 5.08 3.32 - -------------------------------------------------------------------------------- Three Years 8.26 -2.82 5.27 2.85 - -------------------------------------------------------------------------------- Five Years 7.88 -3.94 3.71 2.84 - -------------------------------------------------------------------------------- Ten Years 7.26 -1.49 5.69 3.68 ================================================================================ * Annualized year ending 12/31 ================================================================================ Source: Real Estate Performance Report National Council of Real Estate Investment Fiduciaries ================================================================================ Retail's total return of 5.08 percent for 1996 was substantially behind the other investment categories including Apartment (11.10%), Office (12.74%), R&D (17.64%), and Warehouse (12.69%). Among the different retail categories, neighborhood centers posted the best total performance, while regional malls were laggards. <PAGE> National Retail Market Overview ================================================================================ ================================================================================ Retail Segment Performance ================================================================================ Category Income Appreciation Total ================================================================================ Neighborhood 8.85% - .63% 8.17% - -------------------------------------------------------------------------------- Community 9.03% -2.10% 6.79% - -------------------------------------------------------------------------------- Regional Malls 7.74% -3.98% 3.53% - -------------------------------------------------------------------------------- Super Regional Malls 8.04% -3.29% 4.55% ================================================================================ From the above, it is clear that value declines were still in evidence during 1996. Private investor underwriting has become more conservative with respect to vacancy allowances, growth rates (rent, sales) and occupancy cost tolerance levels. The reduced spread between cash returns and internal rate of returns is evidence that buyers seek a higher proportion of their expected return from income rather than from appreciation. The Cushman & Wakefield Investor Survey also confirms trends that capitalization rates for most retail categories have risen. Regional malls have been the most affected. This is partly due to the fact that over 75 malls are currently available for sale. Real Estate Investment Trust Market (REITs) To date, the impact of REITs on the retail investment market has been significant, although the majority of Initial Property Offerings (IPOs) involving regional malls, shopping centers, and outlet centers did not enter the market until the latter part of 1993 and early 1994. It is noted that REITs have dominated the investment market for apartment properties and have evolved into a major role for retail properties as well. Currently, there are in excess of 300 REITs in the United States, more than three-quarters of which are publicly traded. The advantages provided by REITs, in comparison to more traditional real estate investment opportunities, include the diversification of property types and location, increased liquidity due to shares being traded on major exchanges, and the exemption from corporate taxes when 95.0 percent of taxable income is distributed. There are essentially three kinds of REITs which can either be "open-ended", or Finite-life (FREITs) which have specified liquidation dates, typically ranging from eight to fifteen years. o Equity REITs center around the ownership of properties where ownership interests (shareholders)receive the benefit of returns from the operating income as well as the anticipated appreciation of property value. Equity REITs typically provide lower yields than other types of REITs, although this lower yield is theoretically offset by property appreciation. o Mortgage REITs invest in real estate through loans. The return to shareholders is related to the interest rate for mortgages placed by the REIT. o Hybrid REITs combine the investment strategies of both the equity and mortgage REITs in order to diversify risk. <PAGE> National Retail Market Overview ================================================================================ The influx of capital into REITs has provided property owners with an significant alternative marketplace of investment capital and resulted in a considerably more liquid market for real estate. A number of "non-traditional" REIT buyers, such as utility funds and equity/income funds, established a major presence in the market during 1993/94. 1995 was not viewed as a great year for REITs relative to the advances seen in the broader market. Through the end of December, equity REITs posted nearly a 10 percent total return according to the National Association of Real Estate Investment Trusts (NAREIT). The best performer among equity REITs was the office sector with a 38.8 percent total return. This was followed by self-storage (34.9%), hotels (30.8%), triple-net lease (31.6%), and industrial/self-storage (27.9%). One equity REIT sector was in the red - outlet centers (-2.80%). Retail REITs As of December 31,1996, there were a total of 43 REITs specializing in retail, making up sizable percentage of the securities in the REIT market. Forty-two of these 43 REIT companies are Equity REITs. Depending upon the property type in which they specialize, retail REITs are divided into three categories: shopping centers, regional malls, and outlet centers. The REIT performance indices chart, shown as Table A, displays a summary performance of the three composite categories. ================================================================================ Table A - Retail REIT Performance As of December 31,1996 ================================================================================ Y-T-D Total Dividend No. of REIT Market Return Yield Securities Capitalization* ================================================================================ ALL REITs 39.96% 6.59% 43 $20,190.7 Strip centers 32.88% 6.50% 26 $11,145.8 Regional Malls 44.63% 6.60% 10 $7,349.0 Outlet Centers 3.78% 9.22% 6 $1,300.2 - -------------------------------------------------------------------------------- * Number reported in thousands. Source: Realty Stock Review ================================================================================ As can be seen, the 43 REIT securities have a market capitalization of approximately $20.2 billion. Total returns of nearly 40.0 percent were well ahead of the stock market as a whole and also exceeded the 35.8 percent return for all REITs. Regional malls did exceptionally well with nearly a 45 percent return followed by strip centers. Outlet centers, which were posting negative returns through the third quarter, recovered to show a 3.8 percent return for the year. Accordingly, dividend yields for this group are 9.22 percent, some 266 basis points above the composite average return. While many of the country's best quality malls and shopping centers have recently been offered in the public market, this heavily capitalized marketplace has provided sellers with an attractive alternative to the more traditional market for large retail properties. <PAGE> National Retail Market Overview ================================================================================ Regional Mall REITs The accompanying exhibit Table B summarizes the basic characteristics of nine REITs and one publicly traded real estate operating company (Rouse Company) comprised exclusively or predominantly of regional mall properties. Excluding the Rouse Company (ROUS), the IPOs have all been completed since November 1992. The nine public offerings with available information have a total of 281 regional or super regional malls with a combined leasable area of approximately 229 million square feet. This figure represents more than 14.0 percent of the total national supply of this product type. The ten companies are among the largest and best capitalized domestic real estate equity securities, and are considerably more liquid than more traditional real estate related investments. Through October 31, 1996, the regional mall segment has outperformed its shopping and outlet center counterparts with 23.43 percent total return. <TABLE> <CAPTION> ==================================================================================================================================== Table B - REGIONAL MALL REIT ANALYSIS Cushman & Wakefield, Inc. ==================================================================================================================================== REIT PORTFOLIO CBL CWN GGP JPR MAC MLS CBL & Crown General JP Realty The Macerich The Mills Assoc. American Growth Inc. Company Corp. ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> - ----------------------- Company Overview - ----------------------- No of Retail Centers 105 25 67 n/a 20 18 No. of Regional Malls 16 25 66 10 17 4 Mall as % of Portfolio 71% 99% 98% 71% 97% 82% Avg. Total GLA/Center* 655 545 699 493 735 1,500 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------------- Mall Operations - ----------------------- Reporting Year 1995 1995 1995 1995 1995 1995 Avg. sales PSF of Mall shop GLA $ 232 $ 206 $ 235 $ 208 $ 290 $ 297 Avg. Rent on Recent Leases $ 17.41 $ 17.96 $ 21.80 $ 21.45 $ 23.00 $ 25.00 Minimum Rent/Sales Ratio 7.5% 8.7% 9.3% 10.3% 7.9% 84% Total Occupancy Cost/Sales Ratio 12.3% 11.1% 12.1% 10.2% 11.3% 11.6% Mall Shop Occupancy Level 88.2% 82.0% 86.2% 86.5% 92.2% 90.0% - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------------- Share Prices - ----------------------- IPO Date 10/27/93 8/9/93 4/8/93 n/a 3/9/94 4/94 IPO Price $ 19.50 $ 17.15 $ 22.00 n/a $ 19.00 $ 23.50 Current Price (11/29/96) $ 24.50 $ 7.63 $ 27.75 $ 19.50 $ 23.25 $ 20.75 52 - Week High $ 25.00 $ 8.75 $ 28.38 $ 19.75 $ 24.00 $ 22.50 52 - Week Low $ 19.50 $ 6.63 $ 18.50 $ 15.13 $ 19.00 $ 16.50 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------------- Capitalization & Yields - ----------------------- Market Capitalization** $ 1,266 $ 842 $ 2,744 $ 661 $ 1,328 $ 1,481 Annual Dividend $ 1.68 $ 0.80 $ 1.72 $ 1.92 $ 1.76 $ 1.89 Dividend Yield (11/29/96) 6.86% 10.48% 6.20% 9.85% 7.57% 9.11% FFO 1996*** $ 2.03 $ 1.29 $ 1.95 $ 1.83 $ 1.96 $ 1.96 FFO Yield (11/29/96) 8.29% 16.91% 7.03% 9.38% 8.43% 9.45% ==================================================================================================================================== ============================================================================================== REIT PORTFOLIO SPG URB RSE Simon TCO Urban Rouse Property Taubman Shopping Company Group Centers Centers ============================================================================================== - ----------------------- Company Overview - ----------------------- No of Retail Centers 69 177 19 12 No. of Regional Malls 38 113 19 8 Mall as % of Portfolio 75% 77% 100% 95% Avg. Total GLA/Center* 873 759 1,102 1,040 - ---------------------------------------------------------------------------------------------- - ----------------------- Mall Operations - ----------------------- Reporting Year 1995 1995 1995 1995 Avg. sales PSF of Mall Shop GLA $ 289 $ 276 $ 352 $ 344 Avg. Rent on Recent Leases $ 24.90 $21.92 $ 41.27 $ 34.64 Minimum Rent/Sales Ratio 8.6% 7.9% 11.7% 10.1% Total Occupancy Cost/Sales Ratio 12.2% 11.0% 15.1% 11.4% Mall Shop Occupancy Level 95.2% 86.4% 88.0% 92.6% - ---------------------------------------------------------------------------------------------- - ----------------------- Share Prices - ----------------------- IPO Date 1966 12/26/93 11/18/92 10/6/93 IPO Price n/a $ 22.25 $ 11.00 $ 23.50 Current Price (11/29/96) $ 26.50 $ 27.38 $ 11.63 $ 26.50 52 - Week High $ 27.38 $ 27.88 $ 12.50 $ 27.88 52 - Week Low $ 18.25 $ 21.13 $ 9.25 $ 20.13 - ---------------------------------------------------------------------------------------------- - ----------------------- Capitalization & Yields - ----------------------- Market Capitalization** $ 3,936 $ 5,900 $ 3,127 $ 1,072 Annual Dividend $ 0.88 $ 1.97 $ 0.88 $ 1.98 Dividend Yield (11/29/96) 3.32% 7.20% 7.57% 7.47% FFO 1996*** $ 2.42 $ 2.34 $ 0.98 $ 2.41 FFO Yield (11/29/96) 9.13% 8.55% 8.43% 9.09% ============================================================================================== Source: Salomon Bothers, Realty Stock Review; Annual Reports and Green Sheet Advisors, Inc. * Numbers in thousands (000) includes malls only. ** Numbers in millions. *** Funds From Operations is defined as net income (loss) before depreciation, amortization, other non-cash items, extraordinary items, gains or losses on sales of assets and before minority interests in the Operating Partnership. ============================================================================================== </TABLE> <PAGE> National Retail Market Overview ================================================================================ Shopping Center REITs Shopping center REITs comprise the largest sector of the retail REIT market accounting for 26 out of the total 43 securities. General characteristics of seven of the largest shopping center REITs are summarized on Table C. The public equity market capitalization of the seven companies totaled $6.1 billion as of October 31, 1996. The two largest, Kimco Realty Corp. and New Plan Realty Trust have a market capitalization equal to approximately 34.4 percent of the group total. Year-to-date returns have been 16.19 percent for all shopping center REITs including a 7.36 percent dividend yield. <TABLE> <CAPTION> ==================================================================================================================================== Table C - SHOPPING CENTER REIT ANALYSIS Cushman & Wakefield, Inc. ==================================================================================================================================== REIT PORTFOLIO DDR FRT GRT JPR KIM NPR VNO WRI Devel. Federal Glimcher JP Kimco New Plan Vornado Weingarten Diversified Realty Inv. Realty Realty Inc. Realty Corp. Realty Realty Realty ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> - ----------------------- Company Overview - ----------------------- Total Properties 111 53 84 46 193 123 65 161 Total Retail Centers 104 53 84 40 193 102 56 141 Total Retail GLA* 23,600 11,200 12,300 6,895 26,001 14,500 9,501 13,293 Avg. Total GLA/Center* 227 211 146 172 135 142 170 94 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------------- Mall Operations - ----------------------- Reporting Year _ _ 1994 _ 1994 _ _ 1994 Total Rental Income _ _ $ 71,101 _ $125,272 _ _ $112,233 Average Rent/Square Foot $ 6.04 _ $ 5.78 _ $ 4.82 _ _ $ 8.44 Total Operating Expenses _ _ $ 45,746 _ $ 80,563 _ _ $ 76,771 Operating Expenses/Square Foot _ _ $ 3.72 _ 3.10 _ _ $ 5.78 Operating Expense Ratio _ _ 64.3% _ 64.3% _ _ 68.4% Total Occupancy Level 96.6% 95.1% 96.3% 94.0% 94.7% 95.4% 94.0% 92.0% - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------------- Share Prices - ----------------------- IPO Date 1992 1993 1994 1994 1991 1973 1993 1985 IPO Price $ 19.50 $ 17.25 $ 14.75 $ 22.00 $ 19.00 _ $ 22.25 _ Current Price (12/15/95) $ 29.88 $ 23.38 $ 17.75 $ 20.63 $ 42.25 $ 21.63 $ 36.13 $36.13 52 - Week High 32.00 23.75 $ 22.38 $ 21.38 $ 42.25 $ 23.00 $38.13 $38.13 52 - Week Low $ 26.13 $ 19.75 $ 16.63 $ 17.38 $ 35.00 $ 18.75 $ 32.75 $ 32.75 - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------------- Capitalization & Yields - ----------------------- Outstanding Shares** 18.96 32.22 24.48 19.72 22.43 53.26 24.20 26.53 Market Capitalization** $ 567 $ 753 435 $ 407 $ 948 $ 1,152 $ 874 $ 959 Annual Dividend $ 2.40 $ 1.64 1.92 $ 1.68 $ 2.16 $ 1.39 $ 2.24 $ 2.40 Dividend Yield (12/15/95) 8.03% 7.01% 10.82% 8.14% 5.11% 6.43% 6.20% 6.64% FFO 1995*** $ 2.65 $ 1.78 $ 2.25 $ 1.83 $ 3.15 $ 1.44 $ 2.67 $ 2.80 FFO Yield (12/15/95) 8.87% 7.61% 12.68% 8.87% 7.46% 6.66% 7.39% 7.75% ==================================================================================================================================== Source. Salmon Bothers and Realty Stock Review; Annual Reports * Numbers in thousands (000) includes retail properties only. ** Numbers in millions. *** Funds From Operations is defined as net income (loss) before depreciation, amortization, other non-cash items, extraordinary items, gains or losses on sales of assets and before minority interests in the Operating Partnership. ==================================================================================================================================== </TABLE> <PAGE> National Retail Market Overview ================================================================================ Outlook A review of various data sources reveals the intensity of the development community's efforts to serve a U.S. retail market that is still growing, shifting and evolving. It is estimated 25-30 power centers appear to be capable of opening annually, generating more than 12 million square feet of new space per year. That activity is fueled by the locational needs of key power center tenants, 27 of which indicated in recent year-end reports to shareholders an appetite for 900 new stores annually, an average of 30 new stores per firm. With a per capita GLA figure of 19 square feet, most analysts are in agreement that the country is already over-stored. As such, new centers will become feasible through the following demand generators: o The gradual obsolescence of some existing retail locations and retail facilities; o The evolution of the locational needs and format preferences of various anchor tenants; and o Rising retail sales generated by increasing population and household levels. By the year 2000, total retail sales are projected to rise from $2.237 trillion in 1994 to almost $2.9 trillion; shopping center-inclined sales are projected to rise by $361 billion, from $1.194 trillion in 1994 to nearly $1.6 trillion in the year 2000. Those increases reflect annual compound growth rates of 4.1 percent and 4.5 percent, respectively, for the six-year period. On balance, we conclude that the outlook for the retail industry is one of cautious optimism. Because of the importance of consumer spending to the economy, the retail industry is one of the most studied and analyzed segments of the economy. One obvious benefactor of the aggressive expansion and promotional pricing which has characterized the industry is the consumer. There will continue to be an increasing focus on choosing the right format and merchandising mix to differentiate the product from the competition and meet the needs of the consumer. Quite obviously, many of the nations' existing retail developments will find it difficult if not impossible to compete. Tantamount to the success of these older centers must be a proper merchandising or repositioning strategy that adequately considers the feasibility of the capital intensive needs of such an undertaking. Coincident with all of the change which will continue to influence the industry is a general softening of investor bullishness. This will lead to a realization that the collective interaction of the fundamentals of risk and reward now require higher capitalization rates and long term yield expectations in order to attract investment capital. <PAGE> [MILLS LOGO] THE MILLS CORPORATION RENT ROLL - ALL CHARGES EFFECTIVE 3/1/97 <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END =========================================================================================== <S> <C> <C> <C> <C> <C> <C> 43000B SPIEGEL 60,115 60,115 Primary 7/30/92 7/29/2000 1st Option 7/30/2000 7/29/2006 2nd Option 7/30/2006 7/29/2012 ---------------------------------- ANCHORS - ------------------------------------------------------------------------------------------- 43000C PHAR-MOR 75,592 75,592 Primary 5/24/89 ANCHORS - ------------------------------------------------------------------------------------------- 43000D JC PENNEY 100,200 100,200 Primary 5/11/89 5/31/99 1st Option 6/1/99 5/31/2004 2nd Option 6/1/2004 5/31/2009 3rd Option 6/1/2009 5/31/2014 ANCHORS ---------------------------------- - ------------------------------------------------------------------------------------------- 43000E BURLINGTON COAT 128,950 128,950 Primary 11/1/93 10/31/2003 FACTORY 1st Option 11/1/2003 10/31/2008 2nd Option 11/1/2008 10/31/2013 3rd Option 11/1/2013 10/31/2016 4th Option 11/1/2018 9/30/2023 ---------------------------------- ANCHORS - ------------------------------------------------------------------------------------------- 43000F MARSHALLS 70,701 70,701 Primary 11/16/90 1/31/2001 1st Option 2/1/2001 1/31/2006 2nd Option 2/1/2006 1/31/2011 3rd Option 2/1/2011 1/31/2016 ---------------------------------- ANCHORS - ------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM RENT BREAKPOINTS L/Y ANN PSF SPACE TENANT TERM START /MO /YEAR PSF RPT MO TERM START BKPT BKPT ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43000B SPIEGEL P 10/1/92 26,300.31 315,603.72 5.25 M Jan P 7/30/92 20,000,000 332.70 P 7/30/94 30,057.50 360,690.00 6.00 P 7/30/92 35,000,000 582.22 P 7/30/96 32,562.29 390,747.48 6.50 1 7/30/2002 25,000,000 415.87 1 7/30/2002 35,319.48 435,833.76 7.25 1 7/30/2002 35,000,000 582.22 2 7/30/2007 40,076.67 480,920.04 7.00 --------------------------------------- ANCHORS ----------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43000C PHAR-MOR N Jan ANCHORS - ------------------------------------------------------------------------------------------------------------------------------------ 43000D JC PENNEY 1/1/92 41,456.25 497,475.00 4.96 A Jun P 6/1/89 27,500,000 274.45 6/1/94 45,643.75 547,725.00 5.47 P 6/1/94 32,525,000 324.60 6/1/99 49,831.25 597,975.00 5.97 1 6/1/99 37,550,000 374.75 8/1/2004 54,018.75 848,225.00 6.47 2 6/1/2004 42,575,000 424.90 ANCHORS 5/1/2009 58,206.25 698,415.00 6.97 3 6/1/2009 47,600,000 475.05 ---------------------------------------- ------ --------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43000E BURLINGTON COAT 10/31/93 24,677.37 296,128.44 2.30 A Jan * 1/1/93 5,769,863 44.74 FACTORY 11/8/93 45,000.00 540,000.00 4.19 P 1/1/94 27,000,000 209.38 P 12/1/93 45,000.00 540,000.00 4.19 P 1/1/98 27,227,290 211.15 P 11/1/98 47,250.00 567,000.00 4.40 P 1/1/99 28,350,000 219.85 1 11/1/2003 49,500.00 594,000.00 4.61 P 1/1/2003 28,575,820 221.60 2 11/1/2006 51,750.00 621,000.00 4.82 * 1/1/2004 29,700,000 230.32 3 11/1/2013 54,000.00 648,000.00 5.03 * 1/1/2008 29,925,820 232.07 4 11/1/2016 56,250.00 675,000.00 5.23 * 1/1/2009 31,050,000 240.79 ---------------------------------------- ------ * 1/1/2013 31,275,620 242.54 * 1/1/2014 32,400,000 251.26 * 1/1/2018 32,625,620 253.01 * 1/1/2019 33,750,000 261.73 ANCHORS * 1/1/2023 25,243,150 195.70 --------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43000F MARSHALLS 1/1/92 37,412.61 448,951.32 6.35 A Jan p 1/1/91 22,000,000 311.17 12/1/95 40,358.46 464,301.86 6.85 12/1/2000 43,304.36 519,652.32 7.35 1 12/1/2005 46,250.24 555,002.88 7.65 2 12/1/2010 49,196.11 590,353.32 8.35 ANCHORS ---------------------------------------- ------ - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - --------------------------------------------------------------------------------------------------------------- CURRENT MO CHARGES RENT MEMO ANN SPACE TENANT % C F T STARTS $/MO $/YR PSF =============================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> 43000B SPIEGEL 1.50% MIN M Step 7/30/96 35,582.29 390,747.48 6.50 1.00% CAM M Step 7/30/95 5,260.06 63,120.72 1.05 1.50% PRO M Step 10/1/92 500.96 6,011.52 0.10 1.00% OCC M Step 1/1/97 7,213.80 86,565.60 1.44 ----- --------- ---------- ----- ANCHORS TOTAL 45,537.11 546,445.32 9.09 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- 43000C PHAR-MOR CAM M Step 1/1/95 6,677.29 80,127.48 1.06 PRO M Step 3/1/93 716.38 8,596.56 0.11 --------- ---------- ----- ANCHORS TOTAL 7,393.67 88,724.04 1.17 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- 43000D JC PENNEY 1.00% MIN M Step 6/1/94 45,643.75 547,725.00 5.47 1.00% CAM M Step 1/1/92 6,262.50 75,150.00 0.75 1.00% OCC M Step 1/1/97 12,024.00 144,288.00 1.44 1.00% --------- ---------- ----- ANCHORS 1.00% TOTAL 63,930.25 767,163.00 7.66 ----- --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- 43000E BURLINGTON COAT 1.50% MIN M Step 2/1/93 45,000.00 540,000.00 4.19 FACTORY 1.50% CAM M Cap 1/1/97 9,731.00 116,772.00 0.93 1.50% PRO M Step 1/1/94 450.00 5,400.00 0.04 1.50% OCC M Step 1/1/97 12,960.00 155,520.00 1.21 1.50% --------- ---------- ----- 1.50% TOTAL 88,141.00 617,892.00 6.37 1.50% --------------------------------------------------------- 1.50% 1.50% 1.50% 1.50% 1.50% ANCHORS 1.50% ----- - --------------------------------------------------------------------------------------------------------------- 43000F MARSHALLS 2.00% MIN M Step 12/1/95 40,358.49 484,301.88 6.85 CAM M Step 1/1/97 6,480.93 777,771.16 1.10 PRO M Step 1/1/92 589.18 7,070.16 0.10 OCC M Step 1/1/97 8,484.12 101,809.44 1.44 --------- ---------- ----- ANCHORS TOTAL 55,912.72 670,952.64 9.49 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- Run Date 3/31/97 10:24:03 AM Run By barbie Franklin Mills PAGE 1 </TABLE> <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END =========================================================================================== <S> <C> <C> <C> <C> <C> <C> 43000G VACANT 101,805 101,805 VACANT - ------------------------------------------------------------------------------------------- 43000H BOSCOV'S 152,370 152,370 Primary 5/8/89 1/31/2019 1st Option 2/1/2010 1/31/2020 2nd Option 2/1/2020 1/31/2030 3rd Option 2/1/2030 1/31/2040 ---------------------------------- ANCHORS - ------------------------------------------------------------------------------------------- 43000M OFFICEMAX, INC. 30,237 30,237 Primary 5/1/92 4/30/2002 1st Option 5/1/2002 4/30/2007 2nd Option 5/1/2007 4/30/2012 ---------------------------------- MAJORS - ------------------------------------------------------------------------------------------- 43000M1 SAMS WHOLESALE CLUB 133,010 133,010 Primary 1/17/91 NONREPORTING - ------------------------------------------------------------------------------------------- 43001100 SYMS 25,127 25,127 Primary 11/1/93 10/31/98 1st Option 11/1/98 10/31/2003 2nd Option 11/1/2003 10/31/2006 3rd Option 11/1/2006 10/31/2013 4th Option 11/1/2013 10/31/2013 ---------------------------------- MAJORS - ------------------------------------------------------------------------------------------- 43001123 NEIMAN MARCUS 34,918 34,918 Primary 4/1/93 3/31/2003 1st Option 4/1/2003 3/31/2006 2nd Option 4/1/2008 3/31/2013 3rd Option 4/1/2013 3/31/2018 ---------------------------------- MAJORS - ------------------------------------------------------------------------------------------- 43001125 VACANT 23,254 23,254 VACANT - ------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM RENT BREAKPOINTS L/Y ANN PSF SPACE TENANT TERM START /MO /YEAR PSF RPT MO TERM START BKPT BKPT ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43000G VACANT M Jan VACANT - ----------------------------------------------------------------------------------------------------------------------------------- 43000H BOSCOV'S 1/1/92 5,208.33 62,499.96 0.41 * A Feb * 1/1/89 18,424,660 120.97 0.25% 1/1/2000 5,208.33 62,499.96 0.41 * * 1/1/89 22,109,590 145.10 0.50% 6/1/2009 5,208.33 62,499.96 0.41 * P 2/1/90 25,000,000 164.07 0.25% 6/1/2019 5,208.33 62,499.96 0.41 * P 2/1/90 30,000,000 196.89 0.50% 6/1/2029 5,208.33 62,499.96 0.41 * ----------------------------------------- ANCHORS ---------------------------------------- ------ - ----------------------------------------------------------------------------------------------------------------------------------- 43000M OFFICEMAX, INC. P 5/1/92 20,158.00 241,896.00 8.00 N Jun P 4/30/97 21,417.86 257,014.56 8.50 P 4/30/2002 22,677.75 272,133.00 9.00 1 4/30/2007 23,937.63 287,251.58 9.50 MAJORS 2 4/30/2012 25,197.50 302,370.00 10.00 ---------------------------------------- ------ - ----------------------------------------------------------------------------------------------------------------------------------- 43000M1 SAMS WHOLESALE CLUB N Jan NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------------- 43001100 SYMS 12/1/93 13,505.76 182,069.12 8.45 A Jan * 10/1/93 1,753,900 69.80 2.00% 10/14/98 14,888.81 178,401.72 7.10 P 1/1/94 8,103,456 322.50 2.00% 10/14/2003 16,332.55 195,990.80 7.80 P 1/1/98 8,239,935 327.93 2.00% 10/14/2008 18,007.68 216,092.18 8.60 1 1/1/99 8,920,085 355.00 2.00% ---------------------------------------- ------ 1 1/1/2003 9,007,081 360.85 2.00% 2 1/1/2004 9,799,530 390.00 2.00% 2 1/1/2008 9,967,043 396.67 2.00% 3 1/1/2009 10,804,810 430.00 2.00% MAJORS 3 1/1/2013 8,998,908 358.14 2.00% ----------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------ 43001123 NEIMAN MARCUS 5/1/93 35,000.00 420,000.00 12.03 A Jan P 4/1/93 21,000,000 601.41 2.00% p 5/1/98 27,704.75 332,457.00 9.52 P 4/1/96 21,875,000 626.47 2.00% p 11/1/98 24,980.30 299,763.60 8.58 1 4/1/2003 23,187,500 664.08 2.00% 4/1/98 36,458.33 437,499.98 12.53 2 4/1/2006 24,062,500 689.11 2.00% 4/1/2003 38,645.83 463,749.96 13.28 3 4/1/2013 24,937,500 714.17 2.00% 4/1/2008 40,104.17 481,250.04 13.78 3 4/1/2017 23,661,460 677.63 2.00% 4/1/2013 41,562.50 496,750.00 14.28 ----------------------------------------- MAJORS 3 4/1/2017 43,020.83 516,249.96 14.78 ---------------------------------------- ------ - ------------------------------------------------------------------------------------------------------------------------------- 43001125 VACANT M Jan VACANT - ---------------------------------------------------------------------------------------------------------------------------------- <CAPTION> - --------------------------------------------------------------------------------------------------------------- CURRENT MO CHARGES RENT MEMO ANN SPACE TENANT % C F T STARTS $/MO $/YR PSF =============================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> 43000G VACANT VACANT - --------------------------------------------------------------------------------------------------------------- 43000H BOSCOV'S MIN M Step 1/1/92 5,208.33 62,499.96 0.41 CAM M Step 8/1/94 4,583.33 54,999.96 0.36 PRO M Step 1/1/92 1,037.50 12,450.00 0.08 OCC M Step 1/1/97 18,284.40 219,412.80 1.44 --------- ---------- ----- ANCHORS TOTAL 27,113.56 349,362.72 2.29 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- 43000M OFFICEMAX, INC. MIN M Step 5/1/92 20,158.00 241,896.00 8.00 CAM M Cap 1/1/97 2,566.00 30,792.00 1.02 OCC M Step 1/1/97 3,628.44 43,541.28 1.44 --------- ---------- ----- MAJORS TOTAL 26,352.44 318,229.28 10.46 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- 43000M1 SAMS WHOLESALE CLUB CAM M Cap 1/1/97 6,350.00 76,200.00 0.57 PRO M Step 1/1/93 331.25 3,975.00 0.03 NONREPORTING --------- ---------- ----- TOTAL 6,681.25 80,175.00 0.60 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- 43001100 SYMS MIN M Step 12/1/93 13,505.76 162,089.12 8.45 CAM M Cap 1/1/97 4,198.00 50,376.00 2.00 PRO M Step 12/1/93 104.70 1,256.40 0.05 OCC M Step 7/1/93 3,015.24 36,152.88 1.44 --------- ---------- ----- TOTAL 20,823.70 249,884.40 9.94 --------------------------------------------------------- MAJORS - --------------------------------------------------------------------------------------------------------------- 43001123 NEIMAN MARCUS MIN M Step 11/1/96 24,980.30 299,763.60 8.58 CAM M Step 11/1/96 4,153.00 49,836.00 1.43 PRO M Step 11/1/96 103.82 1,245.84 0.04 OCC M Step 1/1/97 2,990.18 35,881.92 1.03 --------- ---------- ----- TOTAL 32,227.28 386,727.36 11.08 --------------------------------------------------------- MAJORS - --------------------------------------------------------------------------------------------------------------- 43001125 VACANT VACANT - --------------------------------------------------------------------------------------------------------------- Run Date 3/31/97 10:25:41 AM Run By barbie Franklin Mills PAGE 2 </TABLE> <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END =========================================================================================== <S> <C> <C> <C> <C> <C> <C> 43001319 FILENES BASEMENT 32,637 32,637 Primary 8/10/89 1/29/2000 1st Option 1/30/2000 1/29/2005 2nd Option 1/30/2005 1/29/2010 ---------------------------------- MAJORS - ------------------------------------------------------------------------------------------- 43001341 BED, BATH & BEYOND 40,232 40,232 Primary 5/11/89 5/10/99 1st Option 5/11/99 5/10/2004 2nd Option 5/11/2004 5/10/2009 ---------------------------------- MAJORS - ------------------------------------------------------------------------------------------- 43001620 NORDSTROM 42,241 42,241 Primary 8/5/93 1/31/2004 1st Option 2/1/2004 1/31/2009 2nd Option 2/1/2009 1/31/2014 3rd Option 2/1/2014 1/31/2019 4th Option 2/1/2019 12/31/2023 MAJORS ---------------------------------- - ------------------------------------------------------------------------------------------- 43001624 SAKS 46,406 46,406 Primary 2/9/90 11/7/95 Primary 11/8/95 11/30/2006 1st Option 12/1/2006 11/30/2011 2nd Option 12/1/2011 11/30/2016 3rd Option 12/1/2016 11/30/2021 ---------------------------------- MAJORS - ------------------------------------------------------------------------------------------- 43001629 VACANT 26,900 26,900 VACANT - ------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM RENT BREAKPOINTS L/Y ANN PSF SPACE TENANT TERM START /MO /YEAR PSF RPT MO TERM START BKPT BKPT ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43001319 FILENES BASEMENT 1/1/92 22,064.47 264,773.64 8.11 A Feb P 2/1/92 10,590,950 324.51 2/1/95 24,771.34 297,256.08 9.11 P 2/1/95 11,890,240 364.32 2/1/2000 27,478.59 329,743.08 10.10 1 2/1/2000 13,189,720 404.13 2/1/2005 30,185.84 362,230.08 11.10 2 2/1/2005 14,489,200 443.95 --------------------------------------- MAJORS - ------------------------------------------------------------------------------------------------------------------------------------ 43001341 BED, BATH & BEYOND 1/1/92 26,821.33 321,855.96 8.00 A Jan * 1/1/89 10,000,000 248.56 5/1/94 29,546.72 354,560.64 8.81 P 7/1/89 10,000,000 248.56 6/1/94 30,844.53 370,134.36 9.20 1 1/1/2000 10,000,000 248.56 5/11/99 35,471.21 425,654.52 10.58 2 1/1/2009 10,000,000 248.56 5/11/2004 40,791.90 489,502.80 12.17 --------------------------------------- ---------------------------------------- ------ MAJORS - ------------------------------------------------------------------------------------------------------------------------------------ 43001620 NORDSTROM P 10/1/93 21,120.50 253,446.00 6.00 M Jan * 2/1/93 16,471,230 389.93 P 2/1/99 22,880.54 274,566.48 6.50 * 2/1/93 19,216,440 454.92 2/1/2004 24,640.58 295,686.95 7.00 P 8/5/93 8,876,712 210.14 2/1/2009 25,520.60 306,247.20 7.25 P 8/5/93 10,256,160 242.80 2/1/2014 26,400.63 316,807.56 7.50 P 2/1/94 18,000,000 426.13 MAJORS 2/1/2019 27,280.65 327,367.80 7.75 P 2/1/94 21,000,000 497.15 ---------------------------------------- ------ --------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43001624 SAKS 4/1/93 14,314.17 171,770.04 6.10 A Feb P 2/1/93 7,834,840 305.00 11/8/96 40,257.21 483,086.52 10.41 P 2/1/93 10,834,840 421.79 P 12/1/2000 42,306.80 507,681.60 10.94 P 2/1/94 8,588,495 334.34 12/1/2005 44,549.76 534,597.12 11.52 P 2/1/94 11,877,070 462.36 12/1/2006 44,549.76 534,597.12 11.52 P 3/1/97 15,500,000 550.45 12/1/2011 45,361.86 544,342.32 11.73 1 2/1/2000 9,334,709 363.39 12/1/2015 48,068.88 576,826.56 12.43 1 2/1/2000 12,623,290 491.41 ---------------------------------------- ------ 1 2/1/2005 10,151,320 395.18 1 2/1/2005 13,439,900 523.20 2 2/1/2010 10,019,480 390.05 3 2/1/2010 11,052,410 430.26 2 2/1/2010 13,019,480 506.83 3 2/1/2010 14,340,990 558.29 3 2/1/2011 10,082,540 392.50 3 2/1/2011 13,082,540 509.28 3 2/1/2015 773,455 30.11 MAJORS 3 2/1/2015 1,003,592 39.07 --------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43001629 VACANT M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - --------------------------------------------------------------------------------------------------------------- CURRENT MO CHARGES RENT MEMO ANN SPACE TENANT % C F T STARTS $/MO $/YR PSF =============================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43001319 FILENES BASEMENT 2.50% MIN M Step 2/1/95 24,771.34 297,256.08 9.11 2.50% CAM M Cap 1/1/97 4,611.00 55,332.00 1.70 2.50% PRO M Step 1/1/92 135.99 1,631.88 0.05 2.50% OCC M Step 1/1/97 3,916.44 46,997.28 1.44 ----- --------- ---------- ----- MAJORS TOTAL 33,434.77 401,217.24 12.30 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- 43001341 BED, BATH & BEYOND 3.00% MIN M Step 6/1/94 30,844.53 370,134.36 9.20 3.00% CAM M Step 1/1/97 10,058.00 120,696.00 3.00 3.00% TAX M Est 1/1/97 11,701.00 140,412.00 3.49 3.00% PRO M Step 1/1/92 1,676.33 20,115.96 0.50 ----- OCC M Step 1/1/97 4,827.84 57,934.08 1.44 --------- ---------- ----- MAJORS TOTAL 59,107.70 709,292.40 17.63 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- 43001620 NORDSTROM 0.75% MIN M Step 10/1/93 21,120.50 253,446.00 6.00 0.50% CAM M Step 10/1/93 2,604.86 31,258.32 0.74 0.75% PRO M Step 10/1/93 35.20 422.40 0.01 0.50% OCC M Step 1/1/97 5,068.92 60,827.04 1.44 0.75% --------- ---------- ----- MAJORS 0.50% TOTAL 28,829.48 345,953.76 8.19 ----- --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- 43001624 SAKS 2.00% MIN M Step 11/8/96 40,257.21 483,086.52 10.41 1.00% CAM M Step 11/8/96 2,900.38 34,804.50 0.75 2.00% PRO M Step 11/8/96 270.70 3,248.42 0.07 1.00% OCC M Step 11/8/96 5,568.72 66,824.64 1.44 2.00% --------- ---------- ----- 2.00% TOTAL 48,997.01 587,964.06 12.67 1.00% --------------------------------------------------------- 2.00% 1.00% 2.00% 2.00% 1.00% 1.00% 2.00% 1.00% 2.00% MAJORS 1.00% ----- - --------------------------------------------------------------------------------------------------------------- 43001629 VACANT VACANT - --------------------------------------------------------------------------------------------------------------- Run Date 3/31/97 10:25:41 AM Run By barbie Franklin Mills PAGE 3 </TABLE> <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END =========================================================================================== <S> <C> <C> <C> <C> <C> <C> 43001627 MODELLS SPORTING GOO 30,608 30,608 Primary 5/11/89 5/10/2007 1st Option 5/11/2007 5/10/2013 2nd Option 5/11/2013 5/10/2018 ---------------------------------- MAJORS - ------------------------------------------------------------------------------------------- 43112 VACANT 2,717 2,717 VACANT - ------------------------------------------------------------------------------------------- 43113 VACANT 3,727 3,727 VACANT - ------------------------------------------------------------------------------------------- 43115 BOMBAY COMPANY 3,600 3,600 Primary 2/24/92 12/31/2001 ---------------------------------- ART & HOME FURNISHINGS - ------------------------------------------------------------------------------------------- 43117 ELECTRONICS BOUTIQUE 1,000 1,000 Primary 8/1/97 8/16/2001 ---------------------------------- TOY & HOBBY - ------------------------------------------------------------------------------------------- 43119 CLASS PERFUME 1,437 1,437 Primary 10/14/91 10/13/2001 ---------------------------------- HEALTH & BEAUTY AIDS - ------------------------------------------------------------------------------------------- 43121 PEEPERS OPTICAL 954 954 Primary 8/15/96 2/15/97 ---------------------------------- Holdover TEMPORARY - ------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM RENT BREAKPOINTS L/Y ANN PSF SPACE TENANT TERM START /MO /YEAR PSF RPT MO TERM START BKPT BKPT ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43001627 MODELLS SPORTING GOO 1/1/92 23,250.00 279,000.00 9.12 Q Jan * 4/1/1989 5,270,000 172.18 5/1/95 24,562.50 294,750.00 9.63 P 7/1/1997 9,300,000 303.84 6/1/95 25,187.50 302,250.00 9.67 P 4/1/1995 9,707,671 317.18 5/1/2001 26,471.77 317,661.24 10.38 P 7/1/1995 10,075,000 329.16 6/1/2001 27,083.33 324,999.96 10.62 P 4/1/2001 10,471,230 342.11 5/1/2007 28,395.83 340,749.96 11.13 P 7/1/2001 10,833,330 353.94 6/1/2007 29,020.83 345,749.95 11.38 P 4/1/2007 11,236,600 367.12 5/1/2013 32,365.59 388,387.08 12.69 1 7/1/2007 11,608,330 379.26 MAJORS 6/1/2013 33,958.33 407,499.90 13.31 1 4/1/2013 12,009,680 392.37 --------------------------------------- ------ --------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43112 VACANT M Jan VACANT - ----------------------------------------------------------------------------------------------------------------------------------- 43113 VACANT M Jan VACANT - ----------------------------------------------------------------------------------------------------------------------------------- 43115 BOMBAY COMPANY 11/1/92 6,600.00 79,200.00 22.00 M Jan P 2/24/92 1,320,000 366.67 --------------------------------------- ------ P 2/24/97 1,440,000 400.00 --------------------------------------- ART & HOME FURNISHINGS - ----------------------------------------------------------------------------------------------------------------------------------- 43117 ELECTRONICS BOUTIQUE 8/1/92 2,500.00 30,000.00 30.00 M Jan P 1/1/93 500,000 500.00 8/17/96 2,915.67 35,000.04 35.00 P 6/7/96 583,330 583.33 --------------------------------------- ------ --------------------------------------- TOY & HOBBY - ----------------------------------------------------------------------------------------------------------------------------------- 43119 CLASS PERFUME 1/1/92 5,625.00 67,500.00 46.97 M Jan P 10/14/91 1,125,000 782.88 10/1/94 5,755.64 69,067.68 48.06 P 10/14/94 1,170,000 814.20 11/1/94 5,850.00 70,200.00 48.85 P 10/14/97 1,216,800 846.76 10/14/97 6,084.00 73,008.00 50.81 --------------------------------------- --------------------------------------- ------ HEALTH & BEAUTY AIDS - ----------------------------------------------------------------------------------------------------------------------------------- 43121 PEEPERS OPTICAL Z Jan P 8/15/96 240,000 251.57 P 11/1/96 360,000 377.36 Holdover TEMPORARY P 1/1/97 240,000 251.57 --------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- <CAPTION> - --------------------------------------------------------------------------------------------------------------- CURRENT MO CHARGES RENT MEMO ANN SPACE TENANT % C F T STARTS $/MO $/YR PSF ================================================================================================================ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43001627 MODELLS SPORTING GOO 3.00% MIN M Step 6/1/95 25,187.50 302,250.00 9.67 3.00% CAM M Cap 1/1/97 3,509.00 42,108.00 1.38 3.00% TAX M Est 1/1/97 8,902.00 106,824.00 3.49 3.00% PRO M Step 1/1/92 1,033.33 12,399.96 0.41 3.00% OCC M Step 1/1/97 3,672.96 44,075.52 1.44 3.00% --------- ---------- ----- 3.00% TOTAL 42,304.79 507,857.48 16.59 3.00% --------------------------------------------------------- MAJORS 3.00% ------ - ---------------------------------------------------------------------------------------------------------------- 43112 VACANT VACANT - ---------------------------------------------------------------------------------------------------------------- 43113 VACANT VACANT - ---------------------------------------------------------------------------------------------------------------- 43115 BOMBAY COMPANY 6.00% MIN M Step 11/1/92 6,600.00 78,200.00 22.00 6.00% CAM M Step 2/1/97 3,021.00 36,252.00 10.07 ------ TAX M Est 1/1/97 1,242.00 14,904.00 4.14 PRO M CStep 1/1/97 527.00 6,329.66 1.78 OCC M Step 1/1/97 432.00 5,184.00 1.44 --------- ---------- ----- ART & HOME TOTAL 11,822.49 141,869.86 39.41 FURNISHINGS --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- 43117 ELECTRONICS BOUTIQUE 6.00% MIN M Step 8/17/96 2,916.67 35,000.04 35.00 6.00% CAM M Est 1/1/97 912.00 10,944.00 10.95 ------ TAX M Est 1/1/97 345.00 4,140.00 4.14 PRO M CStep 1/1/97 431.46 5,177.49 5.18 OCC M Step 1/1/97 120.00 1,440.00 1.44 --------- ---------- ----- TOY & HOBBY TOTAL 4,725.13 56,701.53 56.71 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- 43119 CLASS PERFUME 6.00% MIN M Step 11/1/94 5,850.00 70,200.00 48.85 6.00% CAM M Est 1/1/97 1,311.00 15,732.00 10.95 6.00% TAX M Est 1/1/97 496.00 5,952.00 4.14 ------ PRO M CStep 1/1/97 619.99 7,439.83 5.18 OCC M Step 1/1/97 172.44 2,069.28 1.44 --------- ---------- ----- HEALTH & BEAUTY AIDS TOTAL 8,449.43 101,393.11 70.58 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- 43121 PEEPERS OPTICAL 10.00% TLA M Step 1/1/97 2,000.00 24,000.00 25.16 10.00% --------- ---------- ----- Holdover TEMPORARY 10.00% TOTAL 2,000.00 24,000.00 25.16 ------ --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- Run Date 3/31/97 10:25:41 AM Run By barbie Franklin Mills PAGE 4 </TABLE> <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END =========================================================================================== <S> <C> <C> <C> <C> <C> <C> 43124 CONFECTION CONNECTION 1,220 1,220 Primary 8/24/95 8/31/96 Primary 9/1/96 2/28/97 ---------------------------------- Holdover TEMPORARY - ------------------------------------------------------------------------------------------- 43138 LET'S TALK CELLULAR & 915 915 Primary 10/25/96 10/24/2001 1st Option 10/25/2000 10/24/2006 ----------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------- 43139 SUNGLASS HUT 546 546 Primary 7/1/92 6/30/97 1st Option 7/1/97 6/30/99 ---------------------------------- SERVICES - ------------------------------------------------------------------------------------------- 43140 VACANT 1,468 1,468 VACANT - ------------------------------------------------------------------------------------------- 43141 CLAIRES 932 932 Primary 10/1/92 9/30/2002 ----------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------- 43143 NATURE FOOD CENTERS 1,851 1,851 Primary 6/12/92 12/31/2002 ----------------------------------- HEALTH & BEAUTY AIDS - ------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM RENT BREAKPOINTS L/Y ANN PSF SPACE TENANT TERM START /MO /YEAR PSF RPT MO TERM START BKPT BKPT ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43124 CONFECTION CONNECTION P 8/24/95 1,821.58 21,858.96 14.78 * Z Jan P 8/24/94 15,000 10.09 10.00% P 1/1/98 821.56 9,858.72 6.63 * P 9/24/95 240,000 161.40 10.00% P 4/1/96 1,821.56 21,858.72 14.70 * 1/1/96 120,000 80.70 10.00% ---------------------------------------- ------ P 3/1/96 180,000 121.05 10.00% P 4/1/96 240,000 161.40 10.00% * 9/1/96 0 0.00 10.00% Holdover TEMPORARY P 10/1/96 197,040 161.51 10.00% --------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43138 LET'S TALK CELLULAR & 10/25/99 3,050.00 36,600.00 40.00 Z Jan P 10/25/96 0 0.00 5.00% 10/25/2001 3,202.50 38,430.00 42.00 P 10/25/99 732,000 800.00 5.00% 10/25/2003 3,355.00 40,260.00 44.00 1 10/25/2001 768,800 840.00 5.00% ---------------------------------------- ------ 1 10/25/2003 805,200 880.00 5.00% --------------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ 43139 SUNGLASS HUT 12/1/92 2,916.67 35,000.04 64.10 M Jan P 7/1/92 350,000 641.03 10.00% 7/1/97 2,957.50 35,490.00 65.00 P 7/1/95 380,000 395.97 10.00% ---------------------------------------- ------ 7/1/97 354,900 650.00 10.00% --------------------------------------- SERVICES - ------------------------------------------------------------------------------------------------------------------------------------ 43140 VACANT M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43141 CLAIRES 12/1/92 2,640.67 31,688.04 34.00 M Jan P 10/1/92 452,686 485.71 7.00% P 10/1/95 2,796.00 33,552.00 36.00 P 10/1/95 479,314 514.29 7.00% 10/1/99 2,951.33 35,415.96 38.00 P 10/1/99 505,943 542.86 7.00% ---------------------------------------- ------ --------------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ 43143 NATURE FOOD CENTERS P 6/12/92 4,166.67 50,000.04 27.01 A Jan P 6/12/92 1,000,000 540.25 5.00% P 1/1/96 4,583.33 54,999.96 29.71 P 6/12/96 1,100,000 594.27 5.00% P 1/1/2001 5,000.00 60,000.00 32.41 P 6/12/2000 1,200,000 648.30 5.00% ---------------------------------------- ------ HEALTH & BEAUTY AID - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - --------------------------------------------------------------------------------------------------------------- CURRENT MO CHARGES RENT MEMO ANN SPACE TENANT C F T STARTS $/MO $/YR PSF ========================================================================================================= <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43124 CONFECTION CONNECTION TLA M Step 10/1/96 H 1,642.00 19,704.00 16.15 % RENT ONLY -------- ---------- ----- AS OF 9/1/96 TOTAL 1,642.00 19,704.00 16.15 --------------------------------------------------------- Holdover TEMPORARY - --------------------------------------------------------------------------------------------------------- 43138 LET'S TALK CELLULAR & CAM M Cap 1/1/97 835.00 10,020.00 10.95 TAX M Est 1/1/97 316.00 3,792.00 4.14 PRO M CStep 1/1/97 429.14 5,149.68 5.63 OCC M Step 1/1/97 109.80 1,317.60 1.44 -------- ---------- ----- SPECIALTY TOTAL 1,689.94 20,279.28 22.16 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- 43139 SUNGLASS HUT MIN M Step 12/1/92 2,916.67 35,000.04 64.10 CAM M Est 1/1/97 498.00 5,976.00 10.95 TAX M Est 1/1/97 188.00 2,256.00 4.14 PRO M CStep 1/1/97 427.17 5,126.06 9.39 OCC M Step 1/1/97 65.52 786.24 1.44 -------- ---------- ----- SERVICES TOTAL 4,095.36 46,144.36 90.02 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- 43140 VACANT VACANT - --------------------------------------------------------------------------------------------------------- 43141 CLAIRES MIN M Step 10/1/95 2,796.00 33,552.00 38.00 CAM M Est 1/1/97 850.00 10,200.00 10.95 TAX M Est 1/1/97 322.00 3,864.00 4.14 PRO M CStep 1/1/97 397.25 4,767.04 5.11 OCC M Step 1/1/97 111.84 1,342.08 1.44 -------- ---------- ----- SPECIALTY TOTAL 4,477.09 53,725.12 57.64 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- 43143 NATURE FOOD CENTERS MIN M Step 1/1/96 4,583.33 54,999.96 29.71 CAM M Est 1/1/97 1,689.00 20,268.00 10.95 TAX M Est 1/1/97 639.00 7,668.00 4.14 PRO M CStep 1/1/97 394.47 4,733.67 2.56 OCC M Step 1/1/97 222.12 2,665.44 1.44 -------- ---------- ----- HEALTH & BEAUTY AID TOTAL 7,527.92 90,335.07 48.80 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- Run Date 3/31/97 10:25:41 AM Run By barbie Franklin Mills PAGE 5 </TABLE> <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END =========================================================================================== <S> <C> <C> <C> <C> <C> <C> 43145 AEROSOLES 2,011 2,011 Primary 9/1/96 8/31/2006 ----------------------------------- SHOES - ------------------------------------------------------------------------------------------- 43147 KASPER 2,522 2,522 Primary 11/15/95 11/14/96 ----------------------------------- Holdover WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------- 43149 VACANT 2,404 2,404 VACANT - ------------------------------------------------------------------------------------------- 43150 ZALES JEWELERS 2,218 2,218 Primary 10/15/93 10/14/98 1st Option 10/15/98 10/14/2003 2nd Option 10/15/2008 10/14/2008 ----------------------------------- JEWELRY - ------------------------------------------------------------------------------------------- 43153 SMALLS FORMALWEAR 817 817 Primary 3/7/97 6/30/2002 1st Option 7/1/2002 6/30/2007 ----------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------- 43155 VACANT 2,129 2,129 VACANT - ------------------------------------------------------------------------------------------- 43159 EQUIFAX QUICK 2,370 2,370 Primary 1/1/91 12/31/2000 TEST OPI 1st Option 1/1/2001 12/31/2010 ----------------------------------- NONREPORTING - ------------------------------------------------------------------------------------------- 43160 U.S. POSTAL SERVICE 1,690 1,690 Primary 12/1/90 11/30/95 1st Option 12/1/95 11/30/2000 ----------------------------------- NONREPORTING - ------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM RENT BREAKPOINTS L/Y ANN PSF SPACE TENANT TERM START /MO /YEAR PSF RPT MO TERM START BKPT BKPT ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43145 AEROSOLES P 9/1/96 3,016.50 36,198.00 18.00 M Jan P 9/1/96 723,960 360.00 9/1/2000 3,184.00 38,208.00 19.00 P 9/1/2000 764,180 380.00 9/1/2003 0.00 0.00 0.00 P 9/1/2003 804,400 400.00 --------------------------------------- ------ ---------------------------------------- SHOES - ------------------------------------------------------------------------------------------------------------------------------------ 43147 KASPER Z Jan P 11/15/95 0 0.00 ---------------------------------------- Holdover WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ M Jan - ------------------------------------------------------------------------------------------------------------------------------------ 43150 ZALES JEWELERS 11/12/93 7,393.33 88,719.96 40.00 M Jan P 10/15/93 1,478,667 666.67 12/1/93 7,393.33 88,719.96 40.00 P 10/15/98 1,663,500 750.00 10/15/96 8,317.50 99,810.00 45.00 ---------------------------------------- --------------------------------------- ------ JEWELRY - ------------------------------------------------------------------------------------------------------------------------------------ 43153 SMALLS FORMALWEAR P 3/7/97 2,382.92 76,595.04 35.00 M Jan P 3/7/97 408,500 500.00 7/1/2000 2,519.08 30,228.96 37.00 P 7/1/2000 431,843 528.57 7/1/2002 2,655.25 31,863.00 39.00 1 7/1/2002 455,186 557.14 7/1/2004 2,723.33 32,679.96 40.00 1 7/1/2004 466,857 571.43 --------------------------------------- ------ ---------------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ 43155 VACANT M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43159 EQUIFAX QUICK 1/1/93 5,430.55 65,166.60 27.50 N Jan TEST OPI 1/1/94 5,593.47 67,121.64 28.32 P 1/1/95 5,761.27 69,135.24 29.17 P 1/1/96 5,934.11 71,209.32 30.05 P 1/1/97 6,112.13 73,345.60 30.95 P 1/1/98 5,934.11 71,209.32 30.05 NONREPORTING ---------------------------------------- ------ - ------------------------------------------------------------------------------------------------------------------------------------ 43160 U.S. POSTAL SERVICE 1/1/92 1,762.59 21,151.08 12.52 N Jan 12/1/95 2,042.59 24,511.08 14.50 --------------------------------------- ------ NONREPORTING - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - --------------------------------------------------------------------------------------------------------------- CURRENT MO CHARGES RENT MEMO ANN SPACE TENANT % C F T STARTS $/MO $/YR PSF =============================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43145 AEROSOLES 5.00% MIN M Step 9/1/96 3,016.50 36,198.00 18.00 5.00% CAM M Cap 1/1/97 1,821.00 21,852.00 10.87 5.00% TAX M Est 1/1/97 694.00 8,328.00 4.14 ----- PRO M CStep 1/1/97 345.20 4,142.41 7.06 OCC M Step 1/1/97 241.32 2,895.84 1.44 -------- ---------- ----- SHOES TOTAL 6,118.02 73,416.25 36.51 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- 43147 KASPER 8.00% ----- Holdover WOMENS READY TO WEAR - --------------------------------------------------------------------------------------------------------------- 43150 VACANT VACANT - --------------------------------------------------------------------------------------------------------------- 43150 ZALES JEWELERS 4.00% MIN M Step 12/1/93 7,393.33 88,719.96 40.00 4.00% CAM M EST 1/1/97 2,024.00 24,288.00 10.95 ----- TAX M Est 1/1/97 765.00 9,180.00 4.14 PRO M CStep 1/1/97 843.44 10,121.27 4.56 OCC M Step 1/1/97 266.16 3,193.92 1.44 --------- ---------- ----- JEWELRY TOTAL 11,291.93 135,503.15 61.09 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- 43153 SMALLS FORMALWEAR 7.00% MIN M Step 3/7/97 2,382.92 28,595.04 35.00 7.00% CAM M Est 3/7/97 745.51 8,946.15 10.95 7.00% TAX M Step 3/7/97 281.87 3,382.38 4.14 7.00% PRO M Step 3/7/97 208.33 2,500.00 3.06 ----- OCC M Step 3/7/97 98.04 1,176.48 1.44 -------- ---------- ----- SPECIALTY TOTAL 3,716.67 44,600.05 54.59 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- 43155 VACANT VACANT - --------------------------------------------------------------------------------------------------------------- 43159 EQUIFAX QUICK MIN M C Step 1/1/97 6,112.13 73,345.60 30.95 TEST OPI CAM M Est 1/1/97 2,163.00 25,956.00 10.95 TAX M Est 1/1/97 818.00 9,816.00 4.14 PRO M CStep 1/1/97 1,134.92 13,619.03 5.75 OCC M Step 1/1/97 284.40 3,412.80 1.44 --------- ---------- ----- NONREPORTING TOTAL 10,512.45 126,149.43 53.22 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- 43160 U.S. POSTAL SERVICE MIN M Step 12/1/95 2,042.59 24,511.08 14.50 PRO M CStep 1/1/97 667.99 8,015.89 4.74 -------- ---------- ----- NONREPORTING TOTAL 2,710.58 32,526.97 19.24 --------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- Run Date 3/31/97 10:25:41 AM Run By barbie Franklin Mills PAGE 6 </TABLE> <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END =========================================================================================== <S> <C> <C> <C> <C> <C> <C> 43161 FOOTQUARTERS 6,354 6,354 Primary 5/11/89 5/10/94 1st Option 5/11/94 5/10/99 ----------------------------------- ATHLETIC & SPORTING GOODS - ------------------------------------------------------------------------------------------- 43162 COST CUTTERS 2,030 2,030 Primary 3/12/92 3/11/97 1st Option 3/12/97 3/11/2002 ----------------------------------- SERVICES - ------------------------------------------------------------------------------------------- 43202 BOSTON TRADERS 6,446 6,446 Primary 6/7/96 1/31/20 1st Option 2/1/2002 1/31/2007 ----------------------------------- UNISEX - ------------------------------------------------------------------------------------------- 43207 EDDIE BAUER 6,208 6,208 Primary 11/17/90 1/31/2001 1st Option 2/1/2001 1/31/2006 2nd Option 2/1/2006 1/31/2011 ----------------------------------- UNISEX - ------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM RENT BREAKPOINTS L/Y ANN PSF SPACE TENANT TERM START /MO /YEAR PSF RPT MO TERM START BKPT BKPT ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43161 FOOTQUARTERS 1/1/92 6,830.42 81,965.04 12.00 M Jan P 5/11/89 2,049,125 322.49 1 5/11/94 7,881.25 94,575.00 14.88 1 5/11/94 2,364,375 372.11 ---------------------------------------- ------ -------------------------------------- ATHLETIC & SPORTING GOODS - ------------------------------------------------------------------------------------------------------------------------------------ 43162 COST CUTTERS 1/1/94 3,383.33 40,599.96 20.00 Q Jan P 1/1/94 676,668 333.33 3/12/97 3,721.67 44,660.04 22.00 1 3/12/97 744,333 366.37 3/12/98 4,060.00 48,720.00 24.00 1 3/12/98 812,000 400.00 3/12/99 4,398.33 52,779.96 26.00 1 3/12/99 879,667 433.33 3/12/2000 4,736.67 58,840.04 28.00 1 3/12/2000 947,333 466.67 3/12/2001 5,075.00 60,900.00 30.00 1 3/12/2001 1,015,000 500.00 ---------------------------------------- ------ -------------------------------------- SERVICES - ------------------------------------------------------------------------------------------------------------------------------------ 43202 BOSTON TRADERS P 6/7/96 10,723.33 128,679.96 19.96 M Jan P 6/7/96 2,573,600 399.26 6/7/96 11,795.67 141,548.04 21.96 P 6/7/99 2,830,960 439.18 1 2/1/2002 12,868.00 154,416.00 23.96 1 2/1/2002 3,088,320 479.11 1 2/1/2004 13,940.33 167,283.96 25.95 1 2/1/2004 3,345,680 519.03 ---------------------------------------- ------ -------------------------------------- UNISEX - ------------------------------------------------------------------------------------------------------------------------------------ 43207 EDDIE BAUER 1/1/92 4,653.75 55,845.00 9.00 M Jan P 1/1/92 1,396,125 224.89 P 5/1/96 8,012.50 96,150.00 15.49 P 11/18/95 1,396,125 224.89 ---------------------------------------- ------ P 1/1/96 2,403,750 387.20 -------------------------------------- UNISEX - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - --------------------------------------------------------------------------------------------------------------- CURRENT MO CHARGES RENT MEMO ANN SPACE TENANT % C F T STARTS $/MO $/YR PSF ================================================================================================================= <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43161 FOOTQUARTERS 4.00% MIN M Step 5/11/94 7,881.25 94,575.00 14.88 4.00% CAM M Est 1/1/97 5,798.00 69,578.00 10.95 ------- TAX M Est 1/1/97 2,192.00 26,304.00 4.14 PRO M CStep 1/1/97 1,910.98 22,931.77 3.61 OCC M Step 1/1/97 762.48 9,149.78 1.44 --------- ---------- ----- ATHLETIC & SPORTING TOTAL 18,544.71 222,536.53 35.02 GOODS --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 43162 COST CUTTERS 6.00% MIN M Step 1/1/94 3,383.33 40,599.96 20.00 6.00% MIN M Step 3/12/97 3,721.67 44,660.04 22.00 6.00% CAM M Est 1/1/97 1,852.00 22,224.00 10.95 6.00% TAX M Est 1/1/97 700.00 8,400.00 4.14 6.00% PRO M CStep 1/1/97 703.02 8,436.23 4.16 6.00% OCC M Step 1/1/97 243.60 2,923.20 1.44 ------- --------- ---------- ----- SERVICES TOTAL 10,603.62 127,243.43 62.69 --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 43202 BOSTON TRADERS 5.00% MIN M Step 6/7/96 10,723.33 128,679.96 19.96 5.00% CAM M Cap 1/1/97 5,629.00 67,548.00 10.48 5.00% TAX M Est 1/1/97 2,224.00 26,688.00 4.14 5.00% PRO M Step 6/7/96 1,611.50 19,338.00 3.00 ------- OCC M Step 1/1/97 773.52 9,282.24 1.44 --------- ---------- ----- UNISEX TOTAL 20,961.35 251,536.20 39.02 --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 43207 EDDIE BAUER 4.00% MIN M Step 5/1/96 8,012.50 96,150.00 15.49 4.00% CAM M Step 1/1/96 5,173.00 62,076.00 10.00 4.00% TAX M Est 1/1/97 2,142.00 25,704.00 4.14 ------- PRO M Step 3/1/96 778.00 9,312.00 1.50 OCC M Step 1/1/97 744.96 8,939.52 1.44 --------- ---------- ----- UNISEX TOTAL 16,848.46 202,181.52 32.57 --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Run Date 3/31/97 10:25:41 AM Run By barbie Franklin Mills PAGE 7 </TABLE> <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END =========================================================================================== <S> <C> <C> <C> <C> <C> <C> 43208 NORDICTRACK 2,736 2,736 Primary 4/30/94 4/30/95 Primary 5/1/95 4/30/98 1st Option 5/1/98 4/30/2001 ----------------------------------- ATHLETIC & SPORTING GOODS - ------------------------------------------------------------------------------------------- 43209 MAIDENFORM 3,217 3,217 Primary 7/6/90 7/5/95 1st Option 7/5/95 7/5/2000 ----------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------- 43211 TOMMY HILFIGER 4,357 4,357 Primary 4/11/96 4/10/2001 1st Option 4/11/2001 4/10/2006 ----------------------------------- MENS READY TO WEAR - ------------------------------------------------------------------------------------------- 43214 BENETTON OUTLET 2,899 2,899 Primary 5/9/92 5/8/96 1st Option 5/9/96 5/8/2003 ----------------------------------- UNISEX - ------------------------------------------------------------------------------------------- 43215 9 WEST & CO OUTLET 3,104 3,104 Primary 11/2/89 11/1/92 1st Option 11/2/92 11/1/99 ----------------------------------- SHOES - ------------------------------------------------------------------------------------------- 43217 VACANT 4,582 4,582 VACANT - ------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM RENT BREAKPOINTS L/Y ANN PSF SPACE TENANT TERM START /MO /YEAR PSF RPT MO TERM START BKPT BKPT ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43208 NORDICTRACK 5/23/94 7,421.40 89,058.80 32.55 M Jan P 5/23/94 1,231,200 450.00 5/1/95 4,104.00 49,248.00 18.00 P 5/1/95 1,231,200 450.00 5/1/98 4,560.00 54,720.00 20.00 1 5/1/98 1,368,000 500.00 ---------------------------------------- ------ -------------------------------------- ATHLETIC & SPORTING GOODS - ------------------------------------------------------------------------------------------------------------------------------------ 43209 MAIDENFORM 1/1/92 3,333.33 399,999.96 12.43 Q Jan P 7/6/90 768,000 236.73 7/6/95 4,021.25 48,255.00 15.00 1 7/6/95 921,600 288.48 ---------------------------------------- ------ -------------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ 43211 TOMMY HILFIGER P 4/11/96 9,309.46 11,713.52 25.64 M Jan P 4/11/96 2,832,050 650.00 4/11/99 10,005.82 120,427.44 27.64 P 4/11/99 2,940,975 675.00 4/11/2001 10,761.79 129,141.48 29.64 1 4/11/2001 3,049,900 700.00 MENS READY TO WEAR 4/11/2003 11,487.96 131,855.52 31.64 1 4/11/2003 3,158,825 725.00 ---------------------------------------- ------ -------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43214 BENETTON OUTLET 1/1/93 4,831.07 57,986.04 20.00 M Jan P 5/9/92 844,000 291.13 P 7/1/94 5,225.45 62,705.40 21.63 P 1/1/93 877,760 302.78 P 5/9/95 5,435.83 65,226.56 22.50 P 1/1/94 912,870 314.89 P 5/9/96 5,435.83 65,226.56 22.50 P 1/1/95 949,385 327.49 1 5/9/99 5,653.05 67,836.60 23.40 P 1/1/96 987,360 340.59 ---------------------------------------- ------ 1 5/9/96 988,295 340.91 UNISEX 1 5/9/99 1,027,827 354.55 -------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43215 9 WEST & CO OUTLET P 11/2/89 5,407.50 64,890.00 20.91 Q Jan P 11/2/89 1,300,000 418.81 1 11/2/92 5,922.50 71,070.00 22.90 1 11/2/92 1,425,000 459.09 1 11/2/96 6,695.00 80,340.00 25.88 1 11/2/96 1,600,000 515.46 ---------------------------------------- ------ -------------------------------------- SHOES - ------------------------------------------------------------------------------------------------------------------------------------ 43217 VACANT M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - --------------------------------------------------------------------------------------------------------------- CURRENT MO CHARGES RENT MEMO ANN SPACE TENANT % C F T STARTS $/MO $/YR PSF ================================================================================================================= <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43208 NORDICTRACK 4.00% MIN M Step 5/1/95 4,104.00 49,248.00 18.00 4.00% CAM M Cap 1/1/97 2,390.00 28,680.00 10.48 4.00% TAX M Est 1/1/97 944.00 11,328.00 4.14 ------ PRO M CStep 1/1/97 482.84 5,794.09 2.12 OCC M Step 1/1/97 328.32 3,939.84 1.44 --------- ---------- ----- ATHLETIC & SPORTING TOTAL 8,249.16 96,989.93 36.16 GOODS --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 43209 MAIDENFORM 3.00% MIN M Step 7/6/95 4,021.25 48,255.00 15.00 3.00% CAM M Cap 1/1/97 2,936.00 35,232.00 10.95 ------ TAX M Est 1/1/97 1,110.00 13,320.00 4.14 PRO M CStep 1/1/97 1,056.30 12,675.66 3.94 OCC M Step 1/1/97 386.04 4,632.48 1.44 --------- ---------- ----- SPECIALTY TOTAL 9,509.59 114,115.14 35.47 --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 43211 TOMMY HILFIGER 3.00% MIN M Step 9/1/96 9,309.46 111,713.52 25.64 3.00% OCC M Step 1/1/97 522.84 6,274.08 1.44 3.00% --------- ---------- ----- MENS READY TO WEAR 3.00% TOTAL 9,832.30 117,987.60 27.08 ------ --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 43214 BENETTON OUTLET 5.00% MIN M Step 5/9/96 5,435.63 65,227.56 22.50 5.00% CAM M Cap 1/1/97 2,645.00 31,740.00 10.95 5.00% TAX M Est 1/1/97 1,000.00 12,000.00 4.14 5.00% PRO M CStep 1/1/97 556.60 6,679.87 2.30 5.00% OCC M Step 1/1/97 347.88 4,174.56 1.44 5.00% --------- ---------- ----- UNISEX 5.00% TOTAL 9,985.17 119,821.99 41.33 ------ --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 43215 S WEST & CO OUTLET 5.00% MIN M Step 11/2/96 6,695.00 80,340.00 25.88 5.00% CAM M Est 1/1/97 2,832.00 33,984.00 10.85 5.00% TAX M Est 1/1/97 1,071.00 12,852.00 4.14 ------ PRO M CStep 1/1/97 1,059.53 12,714.34 4.10 OCC M Step 1/1/97 372.48 4,469.76 1.44 --------- ---------- ----- SHOES TOTAL 12,030.01 144,360.10 46.51 --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 43217 VACANT VACANT - ----------------------------------------------------------------------------------------------------------------- Run Date 3/31/97 10:24:38 AM Run By barbie Franklin Mills PAGE 8 </TABLE> <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END =========================================================================================== <S> <C> <C> <C> <C> <C> <C> 43219 BROOKS BROTHERS 4,856 4,856 Primary 6/19/96 3/31/2001 1st Option 4/1/2001 3/31/2006 2nd Option 4/1/2006 3/31/2011 ----------------------------------- UNISEX - ------------------------------------------------------------------------------------------- 43221 BANISTER SHOES 8,837 8,837 Primary 7/9/93 7/8/98 1st Option 7/9/98 7/8/2003 ----------------------------------- SHOES - ------------------------------------------------------------------------------------------- 43225 HE-RO 4,514 4,514 Primary 5/4/92 5/3/97 1st Option 5/4/97 5/3/2002 ----------------------------------- WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------- 43227 FIRST CHOICE 3,703 3,703 Primary 7/13/91 7/12/98 ----------------------------------- WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------- 43231 NAUTICA 6,110 6,110 Primary 11/20/95 11/19/2013 ----------------------------------- UNISEX - ------------------------------------------------------------------------------------------- 43233 GROUP USA 5,003 5,003 Primary 8/30/95 12/31/2005 ----------------------------------- WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM RENT BREAKPOINTS L/Y ANN PSF SPACE TENANT TERM START /MO /YEAR PSF RPT MO TERM START BKPT BKPT ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43219 BROOKS BROTHERS P 6/19/96 4,796.00 57,552.00 11.85 M Jan P 6/19/96 2,751,733 566.67 2/1/97 6,879.33 82,551.96 17.00 1 4/2/2001 3,075,467 633.33 4/1/2001 7,688.67 92,264.04 19.00 2 4/1/2006 3,399,200 700.00 4/1/2006 8,498.00 101,976.00 21.00 -------------------------------------- ---------------------------------------- ------ UNISEX - ------------------------------------------------------------------------------------------------------------------------------------ 43221 BANISTER SHOES P 7/9/93 11,230.35 134,764.20 15.25 A Jan P 7/9/93 4,492,143 508.33 P 7/9/94 12,334.98 148,019.76 16.75 P 7/9/94 4,933,992 558.33 P 7/9/97 13,623.71 163,484.52 18.50 P 7/9/97 5,449,484 616.67 * 7/9/2001 14,728.33 176,739.96 20.00 1 7/9/98 5,449,484 616.67 ---------------------------------------- ------ -------------------------------------- SHOES - ------------------------------------------------------------------------------------------------------------------------------------ 43225 HE-RO P 8/1/96 4,514.00 54,168.00 12.00 M Jan * 1/1/92 677,100 150.00 ---------------------------------------- ------ * 1/1/92 1,052,100 233.07 -------------------------------------- WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ 43227 FIRST CHOICE M Jan P 7/31/91 0 0.00 P 7/13/91 454,000 122.60 P 7/13/91 600,000 162.03 P 7/13/91 1,000,000 270.05 WOMENS READY TO WEAR -------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43231 NAUTICA * 11/20/95 4,166.67 50,000.04 9.46 * M Nov P 11/20/95 1,111,111 210.16 P 3/1/96 4,166.67 50,000.04 9.46 * P 11/20/95 3,000,000 567.43 ---------------------------------------- ------ P 11/20/95 3,500,000 862.00 P 11/20/95 4,000,000 756.57 P 11/20/2001 1,444,444 273.21 P 11/20/2001 3,000,000 567.43 P 11/20/2001 3,500,000 662.00 P 11/20/2001 4,000,000 756.57 P 11/20/2007 1,666,667 315.24 P 11/20/2007 3,000,000 567.43 P 11/20/2007 3,500,000 662.00 UNISEX P 11/20/2007 4,000,000 756.57 -------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43233 GROUP USA N Jan WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - --------------------------------------------------------------------------------------------------------------- CURRENT MO CHARGES RENT MEMO ANN SPACE TENANT % C F T STARTS $/MO $/YR PSF ================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43219 BROOKS BROTHERS 3.00% MIN M Step 2/1/97 6,879.33 82,551.96 17.00 3.00% CAM M Cap 1/1/97 4,241.00 50,892.00 10.48 3.00% TAX M Cap 1/1/97 1,565.00 18,780.00 3.87 ------- PRO M CStep 1/1/97 416.00 5,001.37 1.03 OCC M Step 1/1/97 582.72 6,992.64 1.44 ---------- ---------- ----- UNISEX TOTAL 13,684.83 164,217.97 33.82 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 43221 BANISTER SHOES 3.00% MIN M Step 7/9/94 12,334.98 148,019.76 16.75 3.00% CAM M CStep 1/1/97 4,800.67 57,607.32 6.52 3.00% TAX M CStep 1/1/97 2,400.30 28,803.60 3.26 3.00% PRO M CStep 1/1/97 1,200.16 14,401.86 1.63 ------ OCC M Step 1/1/97 1,060.44 12,725.26 1.44 ---------- ---------- ----- SHOES TOTAL 21,796.48 251,557.81 29.60 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 43225 HE-RO 8.00% NLI M Step 1/1/97 4,514.00 54,168.00 12.00 10.00% OCC M Step 1/1/97 541.68 6,500.16 1.44 ------ ---------- ---------- ----- WOMENS READY TO WEAR TOTAL 5,055.68 60,666.16 13.44 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 43227 FIRST CHOICE 7.00% CAM M Cap 1/1/97 1,301.00 15,612.00 4.22 6.00% TAX M Est 1/1/97 435.00 5,220.00 2.61 Tenant pays percent of rent 5.00% OCC M Step 1/1/97 444.36 5,332.32 1.44 in lieu of min rent plus CAM 4.00% ---------- ---------- ----- & Tax, no % rent due WOMENS READY TO WEAR ------ TOTAL 2,180.36 26,164.32 8.27 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 43231 NAUTICA 4.50% NLI M Step 1/1/97 4,168.67 50,000.04 8.16 3.50% OCC M Step 1/1/97 634.44 7,613.28 1.44 3.00% ---------- ---------- ----- 2.00% TOTAL 4,801.11 57,613.32 9.62 4.50% --------------------------------------------------------- 3.50% 3.00% 2.00% 4.50% 3.50% 3.00% UNISEX 2.00% ------- - ---------------------------------------------------------------------------------------------------------------------------------- 43233 GROUP USA NLI M Step 1/1/97 8,250.00 99,000.00 19.79 ---------- ---------- ----- WOMENS READY TO WEAR TOTAL 8,250.00 99,000.00 19.79 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Run Date 3/31/97 10:24:43 AM Run By barbie Franklin Mills PAGE 9 </TABLE> <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END =========================================================================================== <S> <C> <C> <C> <C> <C> <C> 43235 BUGLE BOY OUTLET 8,971 8,971 Primary 5/11/89 5/31/2000 1st Option 6/1/2000 5/31/2005 ----------------------------------- UNISEX - ------------------------------------------------------------------------------------------- 43307 GUESS? 7,289 7,289 Primary 5/24/93 1/31/95 1st Option 2/1/95 1/31/2000 ----------------------------------- UNISEX - ------------------------------------------------------------------------------------------- 43309 BALLY OF SWITZERLAND 5,450 5,450 Primary 5/11/89 5/10/99 ----------------------------------- SHOES - ------------------------------------------------------------------------------------------- 43311 VAN HEUSEN 3,736 3,736 Primary 5/11/89 5/10/92 1st Option 5/11/92 5/10/95 2nd Option 5/11/95 5/10/99 3rd Option 5/11/99 5/10/2004 ----------------------------------- MENS READY TO WEAR - ------------------------------------------------------------------------------------------- 43313 LESLIES HANDBAGS 1,636 1,636 Primary 5/11/89 5/10/99 ----------------------------------- HANDBAGS, LEATHER & LUGGAGE - ------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM RENT BREAKPOINTS L/Y ANN PSF SPACE TENANT TERM START /MO /YEAR PSF RPT MO TERM START BKPT BKPT ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43235 BUGLE BOY OUTLET 1/1/92 20,048.63 240,583.56 26.82 Q Jan P 5/11/89 6,060,000 431.65 6/1/94 23,059.06 276,708.72 30.84 P 5/11/89 6,395,778 455.57 P 6/9/95 14,734.87 176,818.44 19.71 P 5/11/94 6,969,950 496.47 1/1/96 14,734.87 176,818.44 19.71 P 5/11/94 7,356,148 523.98 6/1/2000 16,207.61 194,491.32 21.88 P 6/9/95 4,393,852 489.78 ---------------------------------------- ------ * 8/1/2000 4,833,014 538.74 UNISEX -------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43307 GUESS? 1 2/1/95 10,238.65 122,863.92 16.86 M Feb P 10/1/93 0 0.00 ---------------------------------------- ------- P 2/1/94 0 0.00 1 2/4/95 3,071,000 421.32 -------------------------------------- UNISEX - ------------------------------------------------------------------------------------------------------------------------------------ 43309 BALLY OF SWITZERLAND 6/1/92 5,037.12 60,445.44 11.09 Q Jan P 5/11/89 1,400,000 256.88 5/11/98 5,450.00 65,400.00 12.00 P 5/11/92 1,525,000 279.82 ---------------------------------------- ------- P 5/11/96 1,650,000 302.75 -------------------------------------- SHOES - ------------------------------------------------------------------------------------------------------------------------------------ 43311 VAN HEUSEN P 5/11/89 5,806.37 69,676.44 18.65 M Jan P 5/11/89 1,143,900 306.18 1 5/11/92 5,806.37 69,576.44 18.65 P 5/11/94 1,286,888 344.46 1 5/11/94 6,538.00 78,456.00 21.00 5/11/99 1,260,900 337.50 2 5/11/95 5,806.37 69,676.44 18.65 -------------------------------------- 5/11/99 8,530.00 78,458.00 21.00 ---------------------------------------- ------- MENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ 43313 LESLIES HANDBAGS 1/1/93 3,732.76 44,793.12 27.38 Q Jan P 5/11/89 800,000 489.00 1/1/94 3,758.43 45,101.16 27.57 -------------------------------------- 5/1/94 3,983.05 47,796.60 29.22 6/1/94 4,090.00 49,080.00 30.00 P 1/1/95 4,116.67 49,400.04 30.20 P 1/1/96 4,145.58 49,746.96 30.41 P 1/1/97 4,176.60 50,119.17 30.64 HANDBAGS, LEATHER P 1/1/98 4,145.58 49,746.96 30.41 & LUGGAGE ---------------------------------------- ------- - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - --------------------------------------------------------------------------------------------------------------- CURRENT MO CHARGES RENT MEMO ANN SPACE TENANT % C F T STARTS $/MO $/YR PSF ================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43235 BUGLE BOY OUTLET 4.00% MIN M Step 1/1/96 14,734.87 176,818.44 19.71 5.00% CAM M Est 1/1/97 8,186.00 98,232.00 10.95 4.00% TAX M Est 1/1/97 3,095.00 37,140.00 4.14 5.00% PRO M CStep 1/1/97 1,746.54 20,958.54 2.34 4.00% OCC M Step 1/1/97 1,076.52 12,918.24 1.44 4.00% --------- ---------- ----- UNISEX ------- TOTAL 28,838.93 346,067.72 38.58 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 43307 GUESS? 0.00% MIN M Step 2/1/95 10,238.66 122,863.92 16.86 0.00% CAM M Est 1/1/97 6,651.00 79,812.00 10.95 4.00% TAX M Est 1/1/97 2,515.00 30,180.00 4.14 ------- PRO M CStep 1/1/97 1,540.08 18,480.99 2.57 OCC M Step 1/1/97 874.68 10,496.16 1.44 --------- ---------- ----- UNISEX TOTAL 21,819.42 261,833.07 35.98 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 43309 BALLY OF SWITZERLAND 4.00% MIN M Step 5/11/96 5,450.00 65,400.00 12.00 4.00% CAM M CStep 1/1/97 4,307.16 51,685.93 9.48 4.00% TAX M Est 1/1/97 1,880.00 22,560.00 4.14 ------- PRO M CStep 1/1/97 1,742.19 20,906.23 3.84 OCC M Step 1/1/97 654.00 7,848.00 1.44 --------- ---------- ----- SHOES TOTAL 14,033.35 168,400.16 30.90 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 43311 VAN HEUSEN 4.00% MIN M Step 5/11/95 5,806.37 69,676.44 18.65 4.00% CAM M Cap 1/1/97 2,532.00 30,384.00 8.13 4.00% TAX M Est 1/1/97 1,108.00 13,296.00 3.56 ------- PRO M CStep 1/1/97 1,401.66 16,620.14 4.50 OCC M Step 1/1/97 440.32 5,370.04 1.44 --------- ---------- ----- MENS READY TO WEAR TOTAL 11,296.37 135,558.42 36.28 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 43313 LESLIES HANDBAGS 3.00% MIN M CStep 1/1/97 4,176.60 50,119.17 30.64 ------- CAM M Est 1/1/97 1,493.00 17,916.00 10.95 TAX M Est 1/1/97 564.00 6,768.00 4.14 PRO M CStep 1/1/97 704.41 8,452.91 5.17 OCC M Step 1/1/97 196.32 2,355.84 1.44 --------- ---------- ----- TOTAL 7,134.33 85,611.93 52.33 HANDBAGS, LEATHER --------------------------------------------------------- & LUGGAGE - ---------------------------------------------------------------------------------------------------------------------------------- Run Date 3/31/97 10:24:41 AM Run By barbie Franklin Mills PAGE 10 </TABLE> <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END =========================================================================================== <S> <C> <C> <C> <C> <C> <C> 43316 EARRING WORLD 1,021 1,021 Primary 5/5/95 5/4/2000 ----------------------------------- JEWELRY - ------------------------------------------------------------------------------------------- 43317 ACCENT ON ANIMALS 881 881 Primary 5/11/89 4/30/96 Primary 5/1/96 12/31/97 ----------------------------------- CARDS & GIFTS - ------------------------------------------------------------------------------------------- 43321 ALDO FOR LESS 2,636 2,636 Primary 10/19/95 10/18/2000 1st Option 10/19/2000 10/18/2005 ----------------------------------- SHOES - ------------------------------------------------------------------------------------------- 43325 INJEANIUS 2,122 2,122 Primary 5/24/92 5/14/93 Primary 5/15/93 2/29/96 Primary 3/1/96 2/28/99 1st Option 3/1/99 2/28/2001 ----------------------------------- UNISEX - ------------------------------------------------------------------------------------------- 43327 CASUAL CORNER 4,559 4,559 Primary 3/25/94 2/28/95 1st Option 3/1/95 2/28/98 2nd Option 3/1/98 2/28/2001 3rd Option 3/1/2001 2/28/2004 ----------------------------------- WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM RENT BREAKPOINTS L/Y ANN PSF SPACE TENANT TERM START /MO /YEAR PSF RPT MO TERM START BKPT BKPT ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43316 EARRING WORLD P 5/5/95 4,838.68 58,064.16 56.87 M Jan P 5/5/95 725,803 710.88 ---------------------------------------- ----- ------------------------------------- JEWELRY - ------------------------------------------------------------------------------------------------------------------------------------ 43317 ACCENT ON ANIMALS 6/1/93 2,699.56 32,394.72 36.77 Q Jan P 5/11/97 600,000 681.04 5/11/95 2,828.11 33,937.32 36.52 P 5/11/93 830,000 715.10 P 5/1/96 2,643.00 31,716.00 36.00 P 5/11/95 660,000 748.15 ---------------------------------------- ----- P 5/1/96 528,600 600.00 ------------------------------------- CARDS & GIFTS - ------------------------------------------------------------------------------------------------------------------------------------ 43321 ALDO FOR LESS P 10/19/95 4,632.66 57,991.92 22.00 M Jan P 10/19/95 1,159,840 440.00 10/19/98 5,272.00 63,264.00 24.00 1/1/99 1,265,280 480.00 10/19/2002 5,711.33 68,535.96 26.00 1 1/1/2003 1,370,720 520.00 ---------------------------------------- ----- ------------------------------------- SHOES - ------------------------------------------------------------------------------------------------------------------------------------ 43325 INJEANIUS 8/1/93 4,420.83 53,049.06 25.00 M Jan P 5/15/93 663,125 312.50 P 3/1/95 5,495.36 65,944.32 31.08 P 3/1/95 588,643 277.40 3/1/96 3,492.46 41,909.52 19.75 P 3/1/96 838,190 395.00 3/1/99 3,713.50 44,562.00 21.00 1 3/1/99 891,240 420.00 ---------------------------------------- ----- ------------------------------------- UNISEX - ------------------------------------------------------------------------------------------------------------------------------------ 43327 CASUAL CORNER P 3/25/94 8,655.00 103,860.00 22.78 M Jan P 3/25/94 1,367,750 300.01 1 3/1/95 4,559.00 54,708.00 12.00 1 3/1/95 1,367,700 300.00 2 3/1/98 4,938.92 59,267.04 13.00 2 3/1/98 1,481,675 325.00 3 3/1/2001 5,318.83 63,825.96 14.00 1 3/1/2001 1,505,650 350.00 ---------------------------------------- ----- ------------------------------------- WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - --------------------------------------------------------------------------------------------------------------- CURRENT MO CHARGES RENT MEMO ANN SPACE TENANT % C F T STARTS $/MO $/YR PSF ================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43316 EARRING WORLD 8.00% MIN M Step 5/5/95 4,838.68 58,064.16 56.87 ------- CAM M Est 1/1/97 932.00 11,164.00 10.95 TAX M Est 1/1/97 352.00 4,224.00 4.14 PRO M CStep 1/1/97 360.38 4,324.34 4.24 OCC M Step 1/1/97 122.52 1,470.24 1.44 --------- ---------- ----- JEWELRY TOTAL 6,605.56 79,266.74 77.64 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 43317 ACCENT ON ANIMALS 6.00% MIN M Step 5/1/96 2,643.00 31,716.00 36.00 6.00% CAM M Est 1/1/97 804.00 9,648.00 10.95 6.00% TAX M Est 1/1/97 304.00 3,648.00 4.14 6.00% PRO M Step 5/1/96 293.67 3,524.00 4.00 ------- OCC M Step 1/1/97 105.72 1,268.64 1.44 --------- ---------- ----- CARDS & GIFTS TOTAL 4,150.39 49,804.64 56.53 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 43321 ALDO FOR LESS 5.00% MIN M Step 10/19/95 4,832.66 57,991.92 22.00 5.00% CAM M Est 1/1/97 2,405.00 28,860.00 10.95 5.00% TAX M Est 1/1/97 909.00 10,908.00 4.14 ------- PRO M CStep 1/1/97 735.29 8,823.44 3.35 OCC M Step 1/1/97 316.32 3,795.84 1.44 --------- ---------- ----- SHOES TOTAL 9,198.27 110,379.20 41.88 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 43325 INJEANIUS 6.00% MIN M Step 3/1/96 3,492.46 41,909.52 19.75 5.00% CAM M Step 3/1/97 1,936.33 23,235.90 10.95 5.00% TAX M Step 3/1/97 732.09 8,785.34 4.14 5.00% PRO M CStep 3/1/97 429.82 5,157.84 2.43 ------- OCC M Step 3/1/96 254.64 3,055.58 1.44 --------- ---------- ----- UNISEX TOTAL 6,845.34 82,144.02 38.71 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 43327 CASUAL CORNER 4.00% MIN M Step 3/1/95 4,559.00 54,708.00 12.00 4.00% CAM M Est 1/1/97 4,160.00 49,920.00 10.95 4.00% TAX M Est 1/1/97 1,573.00 18,878.00 4.14 4.00% PRO M Step 3/1/95 1,100.75 13,677.00 3.00 ------- OCC M Step 1/1/97 547.08 6,564.96 1.44 --------- ---------- ----- WOMENS READY TO WEAR TOTAL 11,978.83 143,745.96 31.53 --------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Run Date 3/31/97 10:24:52 AM Run By barbie Franklin Mills PAGE 11 </TABLE> <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END =========================================================================================== <S> <C> <C> <C> <C> <C> <C> 43329 CASUAL MALE BIG & TAL 4,011 4,011 Primary 6/28/90 6/27/2000 1st Option 6/29/2000 6/27/2005 ----------------------------------- MENS READY-TO-WEAR - ------------------------------------------------------------------------------------------- 43335 CARTERS CHILDRENSWE 4,812 4,812 Primary 11/19/95 11/30/2000 1st Option 12/1/2000 11/30/2005 ----------------------------------- CHILDRENS READY-TO-WEAR - ------------------------------------------------------------------------------------------- 43337 CLAIRES 1,455 1,455 Primary 10/28/96 10/27/2001 1st Option 10/28/2000 10/27/2006 ----------------------------------- JEWELRY - ------------------------------------------------------------------------------------------- 43345 J RIGGINGS 1,827 11,827 Primary 1/13/96 12/31/96 ------------------------------------ Holdover MENS READY-TO-WEAR - ------------------------------------------------------------------------------------------- 43349 PAUL HARRIS 6,284 6,284 Primary 10/26/94 1/31/96 ----------------------------------- Holdover WOMENS READY-TO-WEAR - ------------------------------------------------------------------------------------------- 43351 RACK ROOM 5,409 5,409 Primary 5/11/89 5/10/94 1st Option 5/11/94 5/10/99 ------------------------------------ SHOES - ------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM RENT BREAKPOINTS L/Y ANN PSF SPACE TENANT TERM START /MO /YEAR PSF RPT MO TERM START BKPT BKPT ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43329 CASUAL MALE BIG & TAL 1/1/92 5,849.38 70,192.56 17.50 M Jan P 6/28/90 1,500,000 373.97 1/1/2000 5,849.38 70,192.56 17.50 -------------------------------------- 6/28/2010 7,353.50 88,242.00 22.00 ---------------------------------------- ----- MENS READY-TO-WEAR - ------------------------------------------------------------------------------------------------------------------------------------ 43335 CARTERS CHILDRENSWE P 11/19/95 6,817.00 81,804.00 17.00 M Jan P 11/19/95 1,636,060 340.00 12/1/98 7,218.00 86,616.00 18.00 P 12/1/98 1,732,320 360.00 12/1/2000 8,020.00 96,240.00 20.00 1 12/1/2000 1,924,800 400.00 ---------------------------------------- ----- -------------------------------------- CHILDRENS READY-TO-WEAR - ------------------------------------------------------------------------------------------------------------------------------------ 43337 CLAIRES P 10/28/96 3,273.75 39,285.00 27.00 M Jan P 10/28/96 561,214 385.71 10/28/98 3,880.00 46,580.00 32.00 P 10/28/98 665,143 457.14 10/28/2001 4,122.50 49,470.00 34.00 1 10/28/2001 706,714 485.71 ---------------------------------------- ----- -------------------------------------- JEWELRY - ------------------------------------------------------------------------------------------------------------------------------------ 43345 J RIGGINGS P 1/13/96 2,592.76 31,113.12 2.63 M Jan P 1/13/96 1,600,000 135.28 P 3/1/96 2,580.76 30,969.12 2.62 -------------------------------------- * 1/1/97 2,580.76 30,969.12 2.62 HOLDOVER MENS READY-TO-WEAR ---------------------------------------- ------- - ------------------------------------------------------------------------------------------------------------------------------------ 43349 PAUL HARRIS Z Jan P 10/26/94 0 0.00 * 2/1/96 0 0.00 HOLDOVER WOMENS READY-TO-WEAR * 3/1/96 0 0.00 -------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43351 RACK ROOM 6/1/92 8,434.38 101,212.56 18.71 Q Jan P 5/12/92 1,686,675 311.86 5/11/95 9,446.50 113,358.00 20.96 1 5/12/95 1,889,300 349.29 ---------------------------------------- ----- -------------------------------------- SHOES - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - --------------------------------------------------------------------------------------------------------------- CURRENT MO CHARGES RENT MEMO ANN SPACE TENANT % C F T STARTS $/MO $/YR PSF ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43329 CASUAL MALE BIG & TAL 4.00% MIN M Step 1/1/92 5,849.38 70,192.58 17.50 ------- CAM M Est 1/1/97 3,660.00 43,920.00 10.95 TAX M Est 1/1/97 1,324.00 15,888.00 3.96 PRO M CStep 1/1/97 746.92 8,963.09 2.23 BUS M Step 4/1/96 81.30 975.60 0.24 OCC M Step 1/1/97 481.32 5,775.84 1.44 --------- ---------- ----- MENS READY-TO-WEAR TOTAL 12,142.92 145,715.09 36.32 --------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43335 CARTERS CHILDRENSWE 5.00% MIN M Step 11/19/95 6,817.00 81,804.00 17.00 5.00% CAM M Cap 1/1/97 4,203.00 50,436.00 10.48 5.00% TAX M Est 1/1/97 1,588.00 19,056.00 3.98 ------- PRO M CStep 1/1/97 1,273.82 15,285.79 3.18 OCC M Step 1/1/97 577.44 6,929.28 1.44 --------- ---------- ----- CHILDRENS READY-TO-WEAR TOTAL 14,459.26 173,511.07 36.06 --------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43337 CLAIRES 7.00% MIN M Step 10/28/96 3,273.75 39,285.00 27.00 7.00% CAM M Step 1/1/97 1,327.69 15,932.25 10.95 7.00% TAX M Est 1/1/97 501.98 6,023.70 4.14 ------- PRO M Step 10/28/96 485.00 5,820.00 4.00 OCC M Step 1/1/97 174.60 2,095.20 1.44 --------- ---------- ----- JEWELRY TOTAL 5,763.02 69,158.15 47.53 --------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43345 J RIGGINGS 3.00% MIN M Step 3/1/96H 2,580.76 30,969.12 2.62 ------- OCC M Step 3/1/96H 1,419.24 17,030.88 1.44 --------- ---------- ----- HOLDOVER MENS READY TO WEAR TOTAL 4,000.00 48,000.00 4.06 --------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43349 PAUL HARRIS 10.00% OCC M Step 1/1/95 H 754.44 9,053.28 1.44 10.00% --------- ---------- ----- HOLOVER WOMENS READY TO WEAR 10.00% TOTAL 754.44 9,053.28 1.44 ------- --------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43351 RACK ROOM 3.00% MIN M Step 5/11/95 9,446.50 113,358.00 20.96 3.00% CAM M CStep 1/1/97 2,690.05 32,280.59 5.97 ------- TAX M Est 1/1/97 1,785.00 21,420.00 3.96 PRO M CStep 1/1/97 1,729.10 21,749.14 3.84 OCC M Step 1/1/97 649.08 7,788.96 1.44 --------- ---------- ----- SHOES TOTAL 16,299.72 195,596.70 36.16 --------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Run Date 3/31/97 10:24:57 AM Run By barbie Franklin Mills PAGE 12 </TABLE> <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END =========================================================================================== <S> <C> <C> <C> <C> <C> <C> 43429 DOLLAR MANIA 5,207 5,207 Primary 9/21/96 8/31/97 ---------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------- 43431 FARAONE ORIENTAL RUG 2,837 2,837 Primary 7/21/96 12/31/96 ---------------------------------- Holdover TEMPORARY - ------------------------------------------------------------------------------------------- 43433 PHILLY LEATHER OUTLET 4,094 4,094 Primary 9/7/96 9/6/2001 1st Option 9/7/2001 9/6/2006 ---------------------------------- HANDBAGS, LEATHER & LUGGAGE - ------------------------------------------------------------------------------------------- 43435 QUAILS OUTLET 3,084 3,084 Primary 11/2/90 1/31/2001 ---------------------------------- MENS READY TO WEAR - ------------------------------------------------------------------------------------------- 43437 TOY WORKS 13,040 13,040 Primary 10/15/90 10/14/95 1st Option 10/15/95 10/14/2000 2nd Option 10/15/2000 10/14/2005 ----------------------------------- TOY & HOBBY - ------------------------------------------------------------------------------------------- 43441 WALL 7,546 7,546 Primary 5/11/89 5/10/99 -------------------------------- BOOKS, RECORDS & TAPES - ------------------------------------------------------------------------------------------- 43443 MAGIC MOMENTS 1,294 1,294 Primary 10/1/96 1/1/97 -------------------------------- Holdover TEMPORARY - ------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM RENT BREAKPOINTS L/Y ANN PSF SPACE TENANT TERM START /MO /YEAR PSF RPT MO TERM START BKPT BKPT ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43429 DOLLAR MANIA P 9/21/96 6,128.21 73,538.52 14.12 Z Jan P 9/21/96 0 0.00 ----------------------------------------- ----- -------------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ 43431 FARAONE ORIENTAL RUG Z Jan P 7/21/96 180,000 63.45 P 8/21/96 240,000 84.60 -------------------------------------- Holdover TEMPORARY - ------------------------------------------------------------------------------------------------------------------------------------ 43433 PHILLY LEATHER OUTLET P 9/7/96 5,458.67 65,504.04 16.00 M Jan P 9/7/96 1,091,733 266.67 9/7/98 6,141.00 73,692.00 18.00 P 9/7/98 1,228,200 300.00 9/7/2001 6,823.33 81,879.96 20.00 1 9/7/2001 1,364,667 333.33 9/7/2003 7,505.67 90,068.04 22.00 1 9/7/2003 1,501,133 366.67 ----------------------------------------- ----- -------------------------------------- HANDBAGS, LEATHER & LUGGAGE - ------------------------------------------------------------------------------------------------------------------------------------ 43435 QUAILS OUTLET 1/1/92 4,936.75 59,241.00 19.21 M Jan P 11/2/90 759,500 246.27 11/1/93 5,487.39 65,848.68 21.35 -------------------------------------- 1/1/93 5,506.38 68,076.56 21.43 11/2/97 6,139.29 73,671.48 23.89 ----------------------------------------- ----- MENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ 43437 TOY WORKS 11/1/92 14,191.83 170,301.96 13.06 M Jan P 10/15/90 5,559,387 426.33 10/15/95 16,354.33 196,251.96 15.05 P 10/15/92 5,878,747 435.33 10/15/2000 18,527.67 222,332.04 17.05 1 10/15/95 6,541,734 501.67 ----------------------------------------- ----- 2 10/15/2000 7,411,067 568.33 -------------------------------------- TOY & HOBBY - ------------------------------------------------------------------------------------------------------------------------------------ 43441 WALL P 5/11/89 15,720.83 188,649.96 25.00 Q Jan P 5/11/89 3,800,000 503.58 P 5/11/94 17,689.08 212,268.96 28.13 -------------------------------------- ----------------------------------------- ----- BOOKS, RECORDS & TAPES - ------------------------------------------------------------------------------------------------------------------------------------ 43443 MAGIC MOMENTS N Jan Holdover TEMPORARY - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - --------------------------------------------------------------------------------------------------------------- CURRENT MO CHARGES RENT MEMO ANN SPACE TENANT % C F T STARTS $/MO $/YR PSF ================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43429 DOLLAR MANIA 4.00% MIN M Step 9/21/96 6,128.21 73,538.52 14.12 ------- OCC M Step 1/1/97 629.88 7,558.56 1.45 --------- ---------- ------- SPECIALTY TOTAL 6,756.09 81,097.08 15.57 ---------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------ 43431 FARAONE ORIENTAL RUG 10.00% TLA M Step 9/1/96 H 2,000.00 24,000.00 8.46 10.00% --------- ---------- ------- ------- TOTAL 2,000.00 24,000.00 8.46 ---------------------------------------------------------- Holdover TEMPORARY - ------------------------------------------------------------------------------------------------------------------ 43433 PHILLY LEATHER OUTLET 6.00% MIN M Step 9/7/96 5,458.67 65,504.04 16.00 6.00% CAM M Est 1/1/97 3,736.00 44,832.00 10.95 6.00% TAX M Est 1/1/97 1,412.00 16,944.00 4.14 6.00% PRO M CStep 9/7/97 1,023.50 12,282.00 3.00 ------- OCC M Step 1/1/97 491.28 5,895.36 1.44 --------- ---------- ------- HANDBAGS, LEATHER TOTAL 12,121.45 145,457.40 35.53 & LUGGAGE ---------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------ 43435 QUAILS OUTLET 6.00% MIN M Step 12/1/93 5,506.38 66,076.56 21.43 ------- CAM M Est 1/1/97 2,814.00 33,768.00 10.95 TAX M Est 1/1/97 1,064.00 12,768.00 4.14 PRO M CStep 1/1/97 990.41 11,884.92 3.85 OCC M Step 1/1/97 170.08 4,440.00 1.44 --------- ---------- ------- MENS READY TO WEAR TOTAL 10,748.07 128,938.44 41.81 ---------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------ 43437 TOY WORKS 3.00% MIN M Step 10/15/95 16,354.33 196,251.96 15.05 3.00% CAM M CStep 1/1/97 7,145.13 85,741.61 8.58 3.00% TAX M CStep 1/1/97 700.74 6,408.89 0.64 3.00% PRO M CStep 1/1/97 1,749.99 20,999.91 1.61 ------- OCC M Step 1/1/97 1,564.80 18,777.60 1.44 --------- ---------- ------- TOY & HOBBY TOTAL 27,515.00 330,179.97 25.32 ---------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------ 43441 WALL 5.00% MIN M Step 5/11/94 17,689.08 212,268.96 28.13 ------- CAM M Est 1/1/97 6,886.00 82,632.00 10.95 TAX M Est 1/1/97 2,603.00 31,236.00 4.14 PRO M CStep 1/1/96 1,100.46 13,205.52 1.75 OCC M Step 1/1/97 905.52 10,866.24 1.44 --------- ---------- ------- BOOKS, RECORDS TOTAL 29,184.06 350,208.72 46.41 & TAPES ---------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------ 43443 MAGIC MOMENTS TLA M Step 10/1/96 H 2,000.00 24,000.00 18.55 --------- ---------- ------- Holdover TEMPORARY TOTAL 2,000.00 24,000.00 18.55 ---------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------ Run Date 3/31/97 10:25:41 AM Run By barbie Franklin Mills PAGE 17 </TABLE> <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END =========================================================================================== <S> <C> <C> <C> <C> <C> <C> 43444 VACANT 4,356 4,356 VACANT - ------------------------------------------------------------------------------------------- 43445 VACANT 5,062 5,062 VACANT - ------------------------------------------------------------------------------------------- 43446 VACANT 8,039 8,039 VACANT - ------------------------------------------------------------------------------------------- 43448 AMERICAN EAGLE 2,094 2,094 Primary 3/7/97 4/6/97 ---------------------------------- TEMPORARY - ------------------------------------------------------------------------------------------- 43449 VACANT 1,988 1,988 VACANT - ------------------------------------------------------------------------------------------- 43451 WICKER DISCOUNT CENT 3,000 3,000 Primary 4/7/93 8/31/95 Primary 7/1/96 6/30/97 ---------------------------------- TEMPORARY - ------------------------------------------------------------------------------------------- 43453 GAMES N GADGETS 1,107 1,107 Primary 11/16/91 11/15/2001 ----------------------------------- TOY & HOBBY - ------------------------------------------------------------------------------------------- 43455 H & R BLOCK 1,281 1,281 Primary 10/14/96 4/30/98 1st Option 5/1/98 4/30/2000 ---------------------------------- NONREPORTING - ------------------------------------------------------------------------------------------- 43456 HAIRCUTTERY 1,056 1,056 Primary 5/11/89 5/10/99 ---------------------------------- SERVICES - ------------------------------------------------------------------------------------------- 43457 AFFORDABLE AIRBRUSHI 1,478 1,478 Primary 9/16/96 1/31/97 ---------------------------------- Holdover TEMPORARY - ------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ MINIMUM RENT BREAKPOINTS L/Y ANN PSF SPACE TENANT TERM START /MO /YEAR PSF RPT MO TERM START BKPT BKPT ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43444 VACANT M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43445 VACANT M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43446 VACANT M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43448 AMERICAN EAGLE N Jan TEMPORARY - ------------------------------------------------------------------------------------------------------------------------------------ 43449 VACANT M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43451 WICKER DISCOUNT CENT P 1/1/95 2,043.00 24,516.00 8.17 Z Jan 9/29/93 216,000 124.86 P 1/1/96 2,043.00 24,516.00 8.17 9/1/94 216,000 72.00 ----------------------------------------- ----- 1/1/96 216,000 72.00 TEMPORARY -------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43453 GAMES N GADGETS 1/1/92 1,845.00 22,140.00 20.00 M Jan P 11/16/91 369,000 333.33 ----------------------------------------- ----- P 11/16/94 461,250 416.67 P 11/16/98 553,500 500.00 -------------------------------------- TOY & HOBBY - ------------------------------------------------------------------------------------------------------------------------------------ 43455 H & R BLOCK P 10/14/96 2,028.25 24,339.00 19.00 N Jan 9/1/98 2,741.75 26,901.00 21.00 ----------------------------------------- ----- NONREPORTING - ------------------------------------------------------------------------------------------------------------------------------------ 43456 HAIRCUTTERY P 5/11/89 2,112.00 25,344.00 24.00 Z Jan P 5/11/89 570,000 539.77 P 5/11/91 2,200.00 26,400.00 25.00 -------------------------------------- P 5/11/93 2,288.00 27,456.00 26.00 P 5/11/95 2,376.00 28,512.00 27.00 P 5/11/97 2,464.00 29,568.00 28.00 ----------------------------------------- ----- SERVICES - ------------------------------------------------------------------------------------------------------------------------------------ 43457 AFFORDABLE AIRBRUSHI Z Jan P 9/10/96 180,000 121.79 P 11/1/96 300,000 202.98 Holdover TEMPORARY P 1/1/97 180,000 121.79 -------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - --------------------------------------------------------------------------------------------------------------- CURRENT MO CHARGES RENT MEMO ANN SPACE TENANT % C F T STARTS $/MO $/YR PSF ================================================================================================================= <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43444 VACANT VACANT - ----------------------------------------------------------------------------------------------------------------- 43445 VACANT VACANT - ----------------------------------------------------------------------------------------------------------------- 43446 VACANT VACANT - ----------------------------------------------------------------------------------------------------------------- 43448 AMERICAN EAGLE TLA M Step 3/7/97 4,000.00 48,000.00 22.92 ========= ========== ======= TEMPORARY TOTAL 4,000.00 48,000.00 22.92 --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 43449 VACANT VACANT - ----------------------------------------------------------------------------------------------------------------- 43451 WICKER DISCOUNT CENT 10.00% MIN M Step 7/1/96 2,043.00 24,516.00 8.17 Tenant's amount 5.00% OCC M Step 1/1/97 360.00 4,320.00 1.44 for min rent 5.00% ========= ========== ======= includes CAM, TEMPORARY ------- TOTAL 2,403.00 28,836.00 9.61 tax & promo --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 43453 GAMES N GADGETS 6.00% MIN M Step 1/1/92 1,845.00 22,140.00 20.00 6.00% CAM M Est 1/1/97 1,010.00 12,120.00 10.95 6.00% TAX M Est 1/1/97 382.00 4,584.00 4.14 ------- PRO M CStep 1/1/97 477.63 5,731.55 5.18 OCC M Step 1/1/97 132.84 1,594.08 1.44 ========= ========== ======= TOY & HOBBY TOTAL 3,847.47 46,169.63 41.71 --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 43455 H & R BLOCK MIN M Step 10/14/96 2,028.25 24,339.00 19.00 OCC M Step 1/1/97 153.72 1,844.64 1.44 ========= ========== ======= TOTAL 2,181.97 26,183.64 20.44 NONREPORTING --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 43456 HAIRCUTTERY 6.00% MIN M Step 5/11/95 2,378.00 28,512.00 27.00 ------- CAM M Est 1/1/97 984.00 11,568.00 10.95 TAX M Est 1/1/97 364.00 4,368.00 4.14 PRO M CStep 1/1/97 253.19 3,038.25 2.88 OCC M Step 1/1/97 126.72 1,520.64 1.44 ========= ========== ======= SERVICES TOTAL 4,083.91 49,006.89 46.41 --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- 43457 AFFORDABLE AIRBRUSHI 10.00% TLA M Step 1/1/97 H 1,500.00 18,000.00 12.18 10.00% ========= ========== ======= Holdover TEMPORARY 10.00% TOTAL 1,500.00 18,000.00 12.18 ------- --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Run Date 3/31/97 10:25:41 AM Run By barbie Franklin Mills PAGE 18 </TABLE> <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43458 MARTINOS ITALIAN EATE 2,982 2,982 Primary 8/5/98 8/4/98 10/1/93 2,982.00 35,784.00 12.00 1st Option 8/5/98 8/5/98 --------------------------------------------- RESTAURANT - ------------------------------------------------------------------------------------------------------------------------------------ 43501 CHINA BUDDHA INN 3,939 3,939 Primary 5/11/89 5/10/97 1/1/93 6,775.23 81,302,76 20.64 Primary 5/11/97 5/10/2002 1/1/94 6,961.58 83,538.96 21.21 1st Option 5/11/2002 5/102007 5/1/94 7,248.84 86,986.08 22.08 6/1/94 7/385.84 88,627.56 22.50 P 1/1/95 7,578.25 90,939.00 23.09 P 1/1/96 7,791.15 93,493.80 23.74 P 1/1/97 8,024.33 96,291.92 24.45 1 5/11/2002 7,221.50 86,658.00 22.00 RESTAURANT - ------------------------------------------------------------------------------------------------------------------------------------ 43501A ATM MACHINE 160 160 NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------------- 43502 EPISODE 1,449 1,449 Primary 11/1/96 12/31/97 P 11/1/96 1,745.00 20,940.00 14.45 ---------------------------------- --------------------------------------------- TEMPORARY - ------------------------------------------------------------------------------------------------------------------------------------ 43503 P.S. PLUS SIZES 4,995 4,995 Primary 3/24/91 3/23/96 1/1/92 6,660.00 79,920.00 16.00 1st Option 3/24/96 3/23/2001 3/1/94 6,767.42 81,209.04 16.26 2nd Option 3/24/2001 3/23/2006 4/1/94 7,076.25 84,915.00 17.00 ---------------------------------- 3/24/96 7,700.63 92,407.56 18.50 3/24/99 8,116.88 97,402.56 19.50 3/24/2001 8,116.88 97,402.56 19.50 --------------------------------------------- WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ 43507 PAYLESS SHOESSOURCE 3,714 3,714 Primary 6/16/89 6/15/99 9/1/92 7,851.19 94,214.28 25.37 1st Option 10/30/97 10/29/2002 P 6/16/95 8,790.65 105,487.80 28.40 ---------------------------------- --------------------------------------------- SHOES - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - -------------------------------------------------------------------------------------------------------------------------------- BREAKPOINTS CURRENT MO CHARGES L/Y ANN PSF SPACE TENANT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ================================================================================================================================ <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43458 MARTINOS ITALIAN EATE M Jan . 1/1/93 243,462 81.64 6.00% MIN M Step 10/1/93 2,982.00 P 1/1/94 596,400 200.00 6.00% CAM M Est 1/1/97 2,721.00 P 1/1/96 791,941 265.57 6.00% TAX M Est 1/1/97 1,029.00 P 1/1/97 745,500 250.10 6.00% PRO M CStep 1/1/97 1,032.69 P 1/1/98 806,366 270.41 6.00% OCC M Step 1/1/97 357.84 . 1/1/99 894,600 300.00 6.00% --------- . 1/1/2003 529,407 177.53 6.00% TOTAL 8,122.53 --------------------------------------------- --------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 43501 CHINA BUDDHA INN Q Jan P 5/11/89 700,000 177.71 10.00% MIN M CStep 1/1/97 8,024.33 P 5/11/92 800,000 203.10 10.00% CAM M Est 1/1/97 3,594.00 P 5/11/95 900,000 228.48 10.00% TAX M Est 1/1/97 1,359.00 P 5/11/97 748,410 190.00 10.00% PRO M CStep 1/1/97 1,407.79 1 5/11/2002 866,580 220.00 10.00% OCC M Step 1/1/97 472.68 --------------------------------------------- --------- RESTAURANT TOTAL 14,857.80 --------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 43501A ATM MACHINE N Jan NONREPORTING --------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 43537 EPISODE Z Jan P 11/1/96 349,000 240.86 6.00% MIN M Step 11/1/96 1,745.00 --------------------------------------------- CAM M Est 1/1/97 1,322.21 TEMPORARY TAX M Est 1/1/97 499.91 PRO M CStep 1/1/97 241.50 OCC M Step 1/1/97 173.88 --------- TOTAL 3,982.50 --------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 43503 P.S PLUS SIZES Q Jan P 3/24/91 1,332,000 266.67 5.00% MIN M Step 3/24/96 7,700.63 P 3/24/93 1,415,250 283.33 5.00% CAM M Est 1/1/97 4,558.00 1 3/24/96 1,540,125 308.33 5.00% TAX M Est 1/1/97 1,723.00 1 3/24/99 1,623,375 325.00 5.00% PRO M CStep 1/1/97 808.16 --------------------------------------------- OCC M Step 1/1/97 599.40 --------- WOMENS READY TO WEAR TOTAL 15,389.19 --------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 43507 PAYLESS SHOESOURCE M Jan P 6/16/89 1,556,806 419.17 5.00% MIN M Step 6/16/95 8,790.65 --------------------------------------------- CAM M Est 1/1/97 2,938.00 TAX M Est 1/1/97 1,111.00 PRO M CStep 1/1/97 1,049.13 OCC M Step 1/1/97 445.68 --------- SHOES TOTAL 14,334.46 --------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- </TABLE> - ------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO ANN SPACE TENANT $/YR PSF ============================================================= 43458 MARTINOS ITALIAN EATE 35,784.00 12.00 32,652.00 10.95 12,348.00 4.14 12,392.26 4.16 4,294.08 1.44 RESTAURANT ---------- ----- 97,470.34 32.69 ------------------ - ------------------------------------------------------------- 43501 CHINA BUDDHA 96,291.92 24.45 43,128.00 10.95 16,308.00 4.14 16,893.46 4.29 5,672.16 1.44 ---------- ----- SHOES 178,293.54 45.26 ------------------ - ------------------------------------------------------------- 43501A ATM MACHINES NONREPORTING - ------------------------------------------------------------- 43502 EPISODE 20,940.00 14.45 15,866.55 10.95 TEMPORARY 5,998.86 4.14 2,898.00 2.00 2,086.56 1.44 ---------- ----- 47,789.97 32.98 ------------------ - ------------------------------------------------------------- 43503 P.S PLUS SIZES 92,407.56 18.50 54,696.00 10.95 20,676.00 4.14 9,697.97 1.94 7,192.80 1.44 ---------- ----- WOMENS READY TO WEAR 184,670.33 36.97 ------------------ - ------------------------------------------------------------- 43537 PAYLESS SHOESOURCE 105,487.80 28.40 35,258.00 10.95 SHOES 13,332.00 4.14 12,589.52 3.39 5,348.18 1.44 ---------- ----- 172,013.48 48.32 ------------------ Run Date 3/31/97 10:25:41 AM Run By barbie Franklin Mills PAGE 19 <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43509 WALL 5,684 5,684 Primary 8/17/90 8/16/2000 1/1/92 11,841.67 142,100.04 25.00 ---------------------------------- 8/17/95 13,324.17 159,890.04 28.13 ----------------------------------------- BOOKS, RECORDS & TAPES - ------------------------------------------------------------------------------------------------------------------------------------ 43511 A FORMAL CELEBRATION 4,091 4,091 Primary 12/1/92 8/27/96 1/1/93 3,490.00 41,880.00 20.00 Primary 8/28/96 8/27/2001 P 3/1/96 3,490.00 41,880.00 8.00 1st Option 8/28/2001 5/10/97 P 8/28/96 7,500.17 90,002.04 22.00 2nd Option 5/11/97 8/27/2006 8/28/99 8,182.00 98,184.00 24.00 ---------------------------------- 8/28/2001 8,863.83 106,365.96 26.00 8/28/2003 9,545.67 114,548.04 28.00 --------------------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ 43513 DRESS BARN 4,940 4,940 Primary 5/11/89 5/10/92 12/1/92 7,525.27 90,303.24 18.28 1st Option 5/11/92 5/10/99 1/1/2000 7,525.27 90,303.24 18.26 2nd Option 5/11/99 1/31/2005 5/11/2004 8,464.97 101,579.64 20.56 ---------------------------------- --------------------------------------------- WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ 43515 VACANT 3,088 3,088 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43515 VACANT 5,238 5,238 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43515 VACANT 4,970 4,970 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 3515 VACANT 3,399 3,399 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43515 VACANT 3,088 3,088 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43515 VACANT 4,253 4,253 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43527 RADIO SHACK 3,438 3,4381 Primary 5/4/90 5/3/2000 6/1/93 4,165.20 49,982.40 14.54 --------------------------------- 5/1/97 4,587.91 55,054.92 16.01 6/1/97 4,633.20 55,598.40 16.17 --------------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ BREAKPOINTS CURRENT MO CHARGES LEASABLE L/Y ANN PSF SPACE TENANT SQ FT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43509 WALLS 5,684 Q Jan P 8/17/90 2,803,500 493.23 5.00% MIN M Step 8/17/95 13,324.17 P 8/17/95 3,154,480 554.98 5.00% CAM M Est 1/1/97 5,187.00 ----------------------------------------- TAX M Est 1/1/97 1,961.00 PRO M Step 1/1/96 1,421.00 OCC M Step 1/1/97 682.08 BOOKS, RECORDS & TAPES --------- TOTAL 22,575.25 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43511 A FORMAL CELEBRATION 4,091 Q Jan P 12/1/92 598,300 285.72 6.00% MIN M Step 8/28/96 7,500.17 P 8/28/96 1,800,040 440.00 5.00% CAM M Est 1/1/97 3,733.00 P 5/28/99 1,963,680 480.00 5.00% TAX M Est 1/1/97 1,411.00 1 8/28/2001 2,127,320 520.00 5.00% PRO M CSTEP 1/1/97 1,053.36 1 8/28/2003 2,290,960 560.00 5.00% OCC M Step 1/1/97 490.92 ----------------------------------------- --------- TOTAL 14,188.45 ------------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ 43513 DRESS BARN 4,940 M Jan P 5/11/89 1,250,000 253.04 4.00% MIN M Step 12/1/92 7,525.27 1 11/5/2000 1,406,250 284.67 4.00% CAM M Cap 1/1/97 3,889.00 2 5/11/2000 1,582,030 320.25 4.00% TAX M Cap 1/1/97 1,704.00 ----------------------------------------- PRO M CStep 1/1/97 782.73 OCC M Step 1/1/97 592.80 --------- WOMENS READY TO WEAR TOTAL 14,493.80 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43515 VACANT 3,088 M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43515 VACANT 5,238 M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43515 VACANT 4,970 M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 3515 VACANT 3,399 M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43515 VACANT 3,088 M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43515 VACANT 4,253 M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43527 RADIO SHACK 3,438 M Jan P 5/4/90 1,497,600 435.60 3.00% MIN M Step 6/1/93 4,165.20 P 5/4/93 1,666,080 484.61 3.00% CAM M Est 1/1/97 2,563.00 P 5/4/97 1,853,280 539.06 3.00% TAX M Est 1/1/97 969.00 ----------------------------------------- PRO M CStep 1/1/97 862.42 OCC M Step 1/1/97 4,950.72 --------- SPECIALTY TOTAL 8,972.18 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - ----------------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO LEASABLE ANN SPACE TENANT SQ FT $/YR PSF ======================================================================= 43509 WALL 5,684 159,890.04 28.13 62,244.00 10.95 23,532.00 4.14 17,052.25 3.00 8,184.96 1.44 BOOKS, RECORDS & TAPES ---------- ----- 270,903.00 47.66 ------------------- - ----------------------------------------------------------------------- 43511 A FORMAL CELEBRATION 4,091 90,002.04 22.00 44,796.00 10.95 16,932.00 4.14 12,640.31 3.09 5,891.04 1.44 ---------- ----- SPECIALTY 170,261.39 41.62 ------------------- - ----------------------------------------------------------------------- 43513 DRESS BARN 4,940 90,303.24 18.28 46,668.00 9.45 20,448.00 4.14 9,392.70 1.90 7,133.60 1.44 ---------- ----- WOMENS READY TO WEAR 173,925.54 35.21 ------------------- - -------------------------------------------------------------------------------- 43515 VACANT 3,088 VACANT - -------------------------------------------------------------------------------- 43515 VACANT 5,238 VACANT - -------------------------------------------------------------------------------- 43515 VACANT 4,970 VACANT - -------------------------------------------------------------------------------- 3515 VACANT 3,399 VACANT - -------------------------------------------------------------------------------- 43515 VACANT 3,088 VACANT - -------------------------------------------------------------------------------- 43515 VACANT 4,253 VACANT - ----------------------------------------------------------------------- 43527 RADIO SHACK 3,438 49,982.40 14.54 30,756.00 10.95 11,628.00 4.14 10,349.05 3.01 4,950.72 1.44 ---------- ----- SPECIALTY 107,666.17 34.08 ------------------- - ----------------------------------------------------------------------- 43607 MARINA 3,533 4,828.32 1.44 ---------- ----- 4,828.32 1.44 TEMPORARY ------------------- - ----------------------------------------------------------------------- 43611 TROPIK SUN FRUIT & NUT 761 52,318.68 68.75 8,328.00 10.95 3,156.00 4.14 5,294.41 6.96 1,095.84 1.44 ---------- ----- FOOD SPECIALTY 70,192.93 92.24 ------------------- - ----------------------------------------------------------------------- Run Date 3/31/97 10:25:46 AM Run By barbie Franklin Mills PAGE 20 <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43529 IZOD 3,967 3,967 Primary 5/11/89 5/31/99 7/1/92 5,950.50 71,406.00 18.00 1st Option 6/1/99 5/31/2004 5/11/96 6,611.67 79,340.04 20.00 ---------------------------------- 1 6/1/99 6,887.50 82,530.00 20.80 --------------------------------------------- UNISEX - ------------------------------------------------------------------------------------------------------------------------------------ 43531 VACANT VACANT 5,287 5,287 - ------------------------------------------------------------------------------------------------------------------------------------ 43533 MARTYS WAREHOUSE OU 7,424 7,424 Primary 5/11/89 7/31/99 6/1/92 9,898.67 118,784.04 16.00 1st Option 8/1/99 7/31/2004 5/11/96 10,517.33 126,207.96 17.00 ---------------------------------- 8/1/99 11,136.00 133,632.00 18.00 8/1/2002 11,754.67 141,056.04 19.00 --------------------------------------------- SHOES - ------------------------------------------------------------------------------------------------------------------------------------ 43537 AMERICAN OUTPOST 3,017 3,017 Primary 3/1/97 1/31/2000 P 3/1/97 5,279.75 63,357.00 21.00 1st Option 2/1/2000 7/31/2003 2/1/99 5,782.58 69,390.96 23.00 ---------------------------------- 2/1/2000 6,285.42 75,425.04 25.00 2/1/2002 6,788.25 81,459.00 27.00 --------------------------------------------- UNISEX - ------------------------------------------------------------------------------------------------------------------------------------ 43539 JOCKEY 3,509 3,509 Primary 10/31/92 10/29/97 11/1/92 5,263.50 63,162.00 18.00 1st Option 10/30/97 10/29/2002 P 10/30/95 5,846.33 70,179.96 20.00 ---------------------------------- 10/30/97 6,286.96 75,443.52 21.50 10/30/2000 6,275.58 80,706.96 23.00 --------------------------------------------- UNISEX - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - -------------------------------------------------------------------------------------------------------------------------------- BREAKPOINTS CURRENT MO CHARGES L/Y ANN PSF SPACE TENANT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ================================================================================================================================ <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43529 IZOD M Jan P 5/11/89 1,572,000 396.27 4.00% MIN M Step 5/11/96 6,611.67 P 5/11/92 1,768,000 445.68 4.00% CAM M Est 1/1/97 3,620.00 P 5/11/96 1,965,000 495.34 4.00% TAX M Est 1/1/97 1,369.00 1 6/1/99 2,063,250 520.10 4.00% PRO M CStep 1/1/97 1,268.13 --------------------------------------------- OCC M Step 1/1/97 476.04 UNISEX --------- TOTAL 13,344.84 --------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 43531 VACANT VACANT M Jan - -------------------------------------------------------------------------------------------------------------------------------- 43533 MARTYS WAREHOUSE OU M Jan P 5/11/89 2,812,500 378.84 4.00% MIN M Step 5/11/96 10,517.33 P 5/11/92 3,000,000 404.09 4.00% CAM M Est 1/1/97 6,774.00 P 5/11/96 3,187,500 429.35 4.00% TAX M Est 1/1/97 2,561.00 1 8/1/99 3,375,000 454.61 4.00% PRO M CStep 1/1/97 1,779.91 1 8/1/2002 3,562,500 479.86 4.00% OCC M Step 1/1/97 890.88 --------------------------------------------- --------- SHOES TOTAL 22,523.12 --------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 43537 AMERICAN OUTPOST M Jan P 3/1/97 1,267,140 420.00 5.00% MIN M Step 3/1/97 5,279.75 P 1/1/99 1,387,820 460.00 5.00% CAM M Est 3/1/97 2,753.01 P 2/1/2000 1,508,500 500.00 5.00% TAX M Est 3/1/97 1,040.87 1 2/1/2002 1,629,180 540.00 5.00% PRO M CStep 3/1/97 817.10 --------------------------------------------- OCC M Step 3/1/97 362.04 --------- UNISEX TOTAL 10,252.77 --------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 43537 JOCKEY M Jan 1 10/30/90 1,345,117 383.33 4.00% MIN M Step 10/30/95 5,848.33 P 10/30/92 1,052,700 300.00 4.00% CAM M Est 1/1/97 3,202.00 P 10/30/95 1,169,667 333.33 4.00% TAX M Est 1/1/97 1,211.00 1 10/30/97 1,257,392 358.33 4.00% PRO M CStep 1/1/97 841.30 --------------------------------------------- OCC M Step 1/1/97 421.08 --------- UNISEX TOTAL 11,523.71 --------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- </TABLE> - ------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO ANN SPACE TENANT $/YR PSF ============================================================= 43529 IZOD 79,340.04 20.00 43,440.00 10.95 16,428.00 4.14 15,217.56 3.84 5,712.48 1.44 UNISEX ---------- ----- 160,138.08 40.37 ------------------ - ------------------------------------------------------------- 43531 VACANT VACANT - ------------------------------------------------------------- 43533 MARTYS WAREHOUSE OU 126,207.96 17.00 81,288.00 10.95 30,732.00 4.14 21,358.94 2.88 10,690.56 1.44 ---------- ----- SHOES 270,277.46 36.41 ------------------ - ------------------------------------------------------------- 43537 AMERICAN OUTPOST 63,357.00 21.00 33,036.15 10.95 12,490.38 4.14 9,805.25 3.25 4,344.48 1.44 ---------- ----- UNISEX 123,033.28 40.78 ------------------ - ------------------------------------------------------------- 43537 JOCKEY 70,179.96 20.00 38,424.00 10.95 14,532.00 4.14 10,095.56 2.88 5,052.96 1.44 ---------- ----- UNISEX 138,284.48 39.41 ------------------ - ------------------------------------------------------------- Run Date 3/31/97 10:25:41 AM Run By barbie Franklin Mills PAGE 21 <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43543 AMERICAN TOURISTER 2,897 2,897 Primary 8/27/96 8/26/2001 P 8/27/96 4,828.24 57,940.08 20.00 1st Option 8/27/2001 8/26/2006 8/27/98 5,311.17 63,734.04 22.00 ---------------------------------- 8/27/2001 5,794.00 69,528.00 24.00 8/27/2003 6,276.84 75,322.08 26.00 --------------------------------------------- HANDBAGS, LEATHER & LUGGAGE - ------------------------------------------------------------------------------------------------------------------------------------ 43601 SAM GOODY 12,092 12,092 Primary 5/11/89 5/10/92 6/1/92 16,122.67 193,472.04 16.00 1st Option 5/11/92 5/10/97 5/11/97 18,138.00 217,656.00 18.00 2nd Option 5/11/97 5/10/2002 --------------------------------------------- ---------------------------------- BOOKS, RECORDS & TAPES - ------------------------------------------------------------------------------------------------------------------------------------ 43603 GEOFFREY BEENE 5,882 5,882 Primary 11/5/94 11/4/2000 P 11/5/94 6,666.26 79,995.12 13.60 1st Option 11/5/2000 11/4/2004 1 11/5/2000 7,666.21 91,994.52 15.64 2nd Option 11/5/2004 11/4/2009 2 11/5/2004 8,813.20 105,758.40 17.98 ---------------------------------- --------------------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ 43605 CARD AND GIFT OUTLET 3,532 3,532 Primary 7/25/94 7/24/99 P 7/25/94 6,181.00 74,172.00 21.00 1st Option 7/25/99 7/24/2004 P 7/25/96 6,769.67 81,236.04 23.00 ---------------------------------- 1 7/25/98 7,852.07 81,832.04 26.00 --------------------------------------------- CARDS & GIFTS 15 - ------------------------------------------------------------------------------------------------------------------------------------ 43607 MARINA 3,533 3,533 Primary 11/22/96 3/31/97 ---------------------------------- TEMPORARY - ------------------------------------------------------------------------------------------------------------------------------------ 43611 TROPIK SUN FRUIT & NUT 761 761 Primary 5/11/89 1/31/95 1/1/92 3,740.87 44,890.44 58.99 Primary 2/1/95 5/31/96 5/1/94 3,867.57 46,410.84 60.99 1st Option 6/1/96 5/31/2001 6/1/94 3,927.91 47,134.92 61.94 2nd Option 6/1/2001 5/31/2004 * 6/1/96 4,359.89 52,318.68 68.75 6/1/2001 4,593.90 55,126.80 72.44 FOOD SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ BREAKPOINTS CURRENT MO CHARGES LEASABLE L/Y ANN PSF SPACE TENANT SQ FT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43543 AMERICAN TOURISTER 2,897 M Jan P 8/27/96 965,667 333.33 6.00% MIN M Step 8/27/96 4,828.34 P 8/27/98 1,062,233 366.67 6.00% CAM M Est 1/1/97 2,644.00 1 8/27/2001 1,158,800 400.00 6.00% TAX M Est 1/1/97 999.00 1 8/27/2003 1,255,367 433.33 6.00% TAX M Est 1/1/97 784.60 ----------------------------------------- PRO M Step 1/1/97 347.64 HANDBAGS, LEATHER & LUGGAGE --------- TOTAL 9,603.58 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43601 SAM GOODY 12,092 Q Jan P 7/1/89 3,385,760 280.00 5.00% MIN M Step 6/1/92 16,122.67 P 5/11/92 3,869,440 320.00 5.00% CAM M Est 1/1/97 11,034.00 * 5/11/97 4,353,120 360.00 5.00% TAX M Est 1/1/97 4,172.00 ----------------------------------------- PRO M CStep 1/1/97 2,578.97 OCC M Step 1/1/97 1,451.04 --------- BOOKS, RECORDS & TAPES TOTAL 35,356.68 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43603 GEOFFREY BEENE 5,882 M Jan P 11/5/94 1,717,200 291.94 3.00% MIN M Step 11/5/94 6,666.26 1 11/5/2000 1,717,200 291.94 3.00% CAM M Cap 1/1/97 4,130.00 2 11/5/2004 2,046,375 347.90 3.00% TAX M Cap 1/1/97 1,608.00 ----------------------------------------- PRO M Step 1/1/96 1,145.83 OCC M Step 1/1/97 205.84 --------- SPECIALTY TOTAL 14,255.93 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43605 CARD AND GIFT OUTLET 3,532 M Jan P 7/25/94 988,960 280.00 7.50% MIN M Step 7/25/96 8,769.67 P 7/25/96 1,083,147 ILLEGIB 7.50% CAM M Est 1/1/97 1,221.00 1 7/25/99 1,224,427 ILLEGIB 7.50% TAX M Est 1/1/97 1,219.00 ----------------------------------------- PRO M CStep 1/1/97 1,039.30 OCC M Step 1/1/97 434.84 --------- CARDS & GIFTS 15 TOTAL 12,674.81 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43607 MARINA 3,533 Z Jan P 11/22/96 0 0.00 7.00% OCC M Step 1/1/97 402.36 P 1/1/97 0 0.00 10.00% --------- ----------------------------------------- TOTAL 402.36 TEMPORARY ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43611 TROPIK SUN FRUIT & NUT 761 Q Jan P 5/11/89 400,000 525.62 10.00% MIN M Step 6/1/96 4,359.89 P 5/11/91 420,000 551.91 10.00% CAM M Est 1/1/97 694.00 P 5/11/94 441,000 579.50 10.00% TAX M Est 1/1/97 263.00 2/1/95 471,363 619.40 10.00% PRO M CStep 1/1/97 441.20 6/1/96 523,188 687.50 10.00% OCC M Step 1/1/97 91.32 6/1/2001 551,266 724.40 10.00% --------- FOOD SPECIALTY ----------------------------------------- TOTAL 5,849.41 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - ----------------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO LEASABLE ANN SPACE TENANT SQ FT $/YR PSF ======================================================================= 43543 AMERICAN TOURISTER 2,897 57,940.08 20.00 31,728.00 10.95 11,988.00 4.14 9,415.25 3.25 4,171.68 1.44 HANDBAGS, LEATHER & LUGGAGE ---------- ----- 115,243.01 39.78 ------------------- - ----------------------------------------------------------------------- 43601 SAM GOODY 12,092 193,472.04 16.00 132,408.00 10.95 50,064.00 4.14 30,923.68 2.56 17,412.48 1.44 ---------- ----- BOOKS, RECORDS & TAPES 424,280.20 35.09 ------------------- - ----------------------------------------------------------------------- 43603 GEOFFREY BEENE 5,882 79,995.12 13.60 49,560.00 8.43 19,296.00 4.14 13,749.96 2.56 8,470.08 1.44 ---------- ----- SPECIALTY 171,071.16 29.50 ------------------- - ----------------------------------------------------------------------- 43605 CARD AND GIFT OUTLET 3,532 81,230.04 23.00 ILLEGIBLE 10.95 14,628.00 4.14 12,471.61 3.53 5,086.08 1.44 ---------- ----- CARDS & GIFTS 15 152,097.73 43.06 ------------------- - ----------------------------------------------------------------------- 43607 MARINA 3,533 4,828.32 1.44 ---------- ----- 4,828.32 1.44 TEMPORARY ------------------- - ----------------------------------------------------------------------- 43611 TROPIK SUN FRUIT & NUT 761 52,318.68 68.75 8,328.00 10.95 3,156.00 4.14 5,294.41 6.96 1,095.84 1.44 ---------- ----- FOOD SPECIALTY 70,192.93 92.24 ------------------- - ----------------------------------------------------------------------- Run Date 3/31/97 10:25:46 AM Run By barbie Franklin Mills PAGE 22 <PAGE> <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43612 ANITA BELLE 1,915 1,915 Primary 5/5/94 5/4/97 P 6/1/94 3,989.58 47,874.96 25.00 1st Option 5/5/97 5/4/2000 1 5/5/97 4,468.33 53,619.96 28.00 ---------------------------------- ------------------------------------------- WOMENS READY TO WEAR - ---------------------------------------------------------------------------------------------------------------------------------- 43613 CAMERA SHOP, THE 1,561 1,561 Primary 5/11/89 5/31/99 7/1/92 3,150.00 37,800.00 24.22 ---------------------------------- 5/11/96 3,316.66 39,799.92 25.50 ------------------------------------------- SERVICES - ---------------------------------------------------------------------------------------------------------------------------------- 43615 COSMETIC CENTER 1,808 1,808 Primary 11/29/96 11/28/2001 P 11/29/96 4,520.00 54,240.00 30.00 1st Option 11/5/2000 11/29/2006 11/29/99 4,821.33 57,855.96 32.00 ---------------------------------- 11/29/2001 5,122.67 61,472.04 34.00 11/29/2004 5,424.00 65,088.00 36.00 ------------------------------------------- HEALTH & BEAUTY AIDS - ---------------------------------------------------------------------------------------------------------------------------------- 43617 ENZO ANGIOLINI 1,460 1,460 Primary 11/23/94 12/31/99 P 11/23/94 3,163.33 37,959.96 26.00 1st Option 1/1/2000 12/21/2004 P 11/23/97 3,650.00 43,800.00 30.00 ----------------------------------- P 11/23/2001 4,136.66 49,639.92 34.00 ------------------------------------------- SHOES - ---------------------------------------------------------------------------------------------------------------------------------- 43619 ST. JOHN OUTLET 1,396 1,396 Primary 11/11/93 11/10/98 1/1/94 2,326.67 27,920.04 20.00 1st Option 11/11/98 11/10/2003 * 11/11/96 2,792.00 33,504.00 24.00 ----------------------------------- WOMENS READY TO WEAR - ---------------------------------------------------------------------------------------------------------------------------------- <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ BREAKPOINTS CURRENT MO CHARGES LEASABLE L/Y ANN PSF SPACE TENANT SQ FT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43612 ANITA BELLE 1,915 M Jan * 5/5/94 670,007 349.87 7.00% MIN M Step 6/1/94 3,989.58 * 5/5/97 766,000 400.00 7.00% CAM M Cap 1/1/97 1,747.00 ------------------------------------------ TAX M Est 1/1/97 661.00 PRO M CStep 1/1/97 663.19 OCC M Step 1/1/97 229.80 WOMENS READY TO WEAR --------- TOTAL 7,290.57 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43613 CAMERA SHOP, THE 1,561 N Jan P 5/11/89 0 0.00 7.00% MIN M Step 5/11/96 3,316.66 P 5/11/89 0 0.00 3.00% CAM M Est 1/1/97 1,424.00 P 5/11/89 500,000 320.31 1.00% TAX M Est 1/1/97 539.00 P 5/11/89 850,000 544.52 2.00% PRO M CStep 1/1/97 706.93 ------------------------------------------ OCC M Step 1/1/97 187.32 --------- SERVICES TOTAL 6,173.91 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43615 COSMETIC CENTER 1,808 M Jan P 11/29/96 1,084,800 600.00 4.00% MIN M Step 11/29/96 4,520.00 P 11/29/99 1,157,120 640.00 4.00% CAM M Step 1/1/97 1,649.80 1 11/29/2001 1,229,400 680.00 4.00% TAX M Est 1/1/97 623.76 1 11/29/2004 1,301,760 720.00 4.00% PRO M Step 1/1/97 602.67 OCC M Step 1/1/97 216.96 --------- HEALTH & BEAUTY AIDS TOTAL 7,613.19 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43617 ENZO ANGIOLINI 1,460 M Jan P 11/23/94 759,200 520.00 5.00% MIN M Step 11/23/94 3,163.33 P 1/1/97 876,000 600.00 5.00% CAM M CStep 1/1/97 1,165.89 1 11/23/99 876,000 600.00 5.00% TAX M Est 1/1/97 504.00 1 1/1/2001 992,800 680.00 5.00% PRO M CStep 1/1/97 450.89 OCC M Step 1/1/97 175.20 --------- SHOES TOTAL 5,459.31 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43619 ST. JOHN OUTLET 1,396 M Jan P 11/11/93 698,000 500.00 4.00% MIN M Step 1/1/94 2,326.67 * 11/11/98 837,600 600.00 4.00% CAM M Est 1/1/97 1,274.00 ------------------------------------------ TAX M Est 1/1/97 482.00 WOMENS READY TO WEAR PRO M CStep 1/1/97 410.78 OCC M Step 1/1/97 167.52 --------- TOTAL 4,660.97 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - --------------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO LEASABLE ANN SPACE TENANT SQ FT $/YR PSF ===================================================================== 43612 ANITA BELLE 1,915 47,874.96 25.00 20,964.00 10.95 7,932.00 4.14 7,958.30 4.16 2,757.60 1.44 WOMENS READY TO WEAR --------- ----- 87,486.86 45.89 ----------------- - --------------------------------------------------------------------- 43613 CAMERA SHOP, THE 1,561 39,799.92 25.50 17,088.00 10.95 6,468.00 4.14 8,483.19 5.43 2,247.84 1.44 --------- ----- SERVICES 74,088.95 47.46 ----------------- - --------------------------------------------------------------------- 43615 COSMETIC CENTER 1,808 54,240.00 30.00 19,797.60 10.95 7,485.12 4.14 7,232.00 4.00 2,603.52 1.44 --------- ----- HEALTH & BEAUTY AIDS 91,358.24 50.53 ----------------- - --------------------------------------------------------------------- 43617 ENZO ANGIOLINI 1,460 37,959.96 26.00 13,990.67 9.58 6,048.00 4.14 5,410.71 3.71 2,102.40 1.44 --------- ----- SHOES 65,511.74 44.87 ----------------- - --------------------------------------------------------------------- 43619 ST. JOHN OUTLET 1,396 27,920.04 20.00 15,288.00 10.95 5,784.00 4.14 WOMENS READY TO WEAR 4,929.32 3.53 2,010.24 1.44 --------- ----- 55,931.60 40.06 ----------------- - --------------------------------------------------------------------- Run Date 3/31/97 10:25:50 AM Run By barbie Franklin Mills PAGE 23 <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43642 PERFUMANIA 1,410 1,410 Primary 6/15/90 6/14/95 11/1/92 4,087.99 49,055.88 34.79 1st Option 6/15/95 6/14/2000 P 6/15/94 4,193.33 50,319.96 35.69 ---------------------------------- 6/15/95 4,193.32 50,319.84 35.69 6/15/96 4,298.65 51,583.80 36.58 6/15/98 4,403.99 52,847.88 37.48 HEALTH & BEAUTY AIDS ------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43643 SWATCH 1,721 1,721 Primary 12/2/95 12/1/2000 P 12/2/95 5,736.67 68,840.04 40.00 1st Option 12/2/2000 12/1/2005 1 12/2/2000 6,453.75 77,445.00 45.00 ---------------------------------- ------------------------------------------- JEWELRY - ------------------------------------------------------------------------------------------------------------------------------------ 43647 NATURES ELEMENTS 632 632 Primary 10/30/94 10/29/97 P 10/30/94 2,500.00 30,000.00 47.47 1st Option 10/30/97 10/29/2000 1 10/30/97 2,916.67 35,000.04 55.38 ----------------------------------- ------------------------------------------- HEALTH & BEAUTY AIDS - ------------------------------------------------------------------------------------------------------------------------------------ 43651 BABY GUESS 1,495 1,495 Primary 9/2/93 9/1/98 10/1/93 3,488.33 41,859.96 28.00 1st Option 9/2/98 9/2/98 ------------------------------------------- ---------------------------------- CHILDRENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ 43653 ANN TAYLOR 8,647 8,647 Primary 11/22/89 12/31/91 5/1/94 14,411.67 172,940.04 20.00 1st Option 1/1/92 12/31/94 1/1/95 15,852.83 190.233.96 22.00 2nd Option 1/1/95 12/31/99 ------------------------------------------- WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ BREAKPOINTS CURRENT MO CHARGES LEASABLE L/Y ANN PSF SPACE TENANT SQ FT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43642 PERFUMANIA 1,410 M Jan P 6/15/90 796,531 564.92 6.00% MIN M Step 6/15/96 4,298.65 P 6/15/92 817,597 579.86 6.00% CAM M Est 1/1/97 1,287.00 P 6/15/94 838,664 594.80 6.00% TAX M Est 1/1/97 486.00 1 6/15/95 838,664 594.80 6.00% PRO M CStep 1/1/97 518.16 1 6/15/96 859,731 609.74 6.00% OCC M Step 1/1/97 169.20 HEALTH & BEAUTY AIDS 1 6/15/98 880,797 624.68 6.00% --------- ------------------------------------------ TOTAL 6,759.01 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43643 SWATCH 1,721 M Jan P 12/2/95 1,241,635 721.46 6.00% MIN M Step 12/2/95 5,736.67 P 1/1/97 1,147,333 666.67 6.00% CAM M Est 1/1/97 1,570.00 1 12/2/2000 1,290,750 750.00 6.00% TAX M Est 1/1/97 594.00 ------------------------------------------ PRO M CStep 1/1/97 607.44 OCC M Step 1/1/97 206.52 --------- JEWELRY TOTAL 8,714.86 -------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43647 NATURES ELEMENTS 632 M Jan P 10/30/94 375,000 593.35 8.00% MIN M Step 10/30/94 2,500.00 1 10/30/97 437,000 691.48 8.00% CAM M Est 1/1/97 577.00 ------------------------------------------ TAX M Est 1/1/97 218.00 PRO M CStep 1/1/97 271.62 OCC M Step 1/1/97 75.84 --------- HEALTH & BEAUTY AIDS TOTAL 3,642.46 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43651 BABY GUESS 1,495 M Jan P 9/2/93 1,046,500 700.00 4.00% MIN M Step 10/1/93 3,488.33 1 9/2/98 1,233,375 825.00 4.00% CAM M Est 1/1/97 1,364.00 ------------------------------------------ TAX M Est 1/1/97 516.00 PRO M CStep 1/1/97 637.21 OCC M Step 1/1/97 179.40 --------- CHILDRENS READY TO WEAR TOTAL 6,184.94 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43653 ANN TAYLOR 8,647 N Jan P 1/1/93 0 0.00 7.00% MIN M Step 1/1/95 15,852.82 P 1/1/93 3,000,000 346.94 5.00% CAM M Est 1/1/97 7,890.00 P 1/1/93 4,000,000 462.59 4.00% TAX M Est 1/1/97 2,983.00 ------------------------------------------ PRO M CStep 1/1/97 1,809.97 OCC M Step 1/1/97 1,037.64 --------- WOMENS READY TO WEAR TOTAL 29,573.44 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - ---------------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO LEASABLE ANN SPACE TENANT SQ FT $/YR PSF ====================================================================== 43642 PERFUMANIA 1,410 51,583.80 36.58 15,444.00 10.95 5,832.00 4.14 6,217.88 4.41 2,030.40 1.44 HEALTH & BEAUTY AIDS ---------- ----- 81,108.08 57.52 ------------------ - ---------------------------------------------------------------------- 43643 SWATCH 1,721 68,840.04 40.00 18,840.00 10.95 7,128.00 4.14 7,289.30 4.24 2,478.24 1.44 ---------- ----- JEWELRY 104,575.58 60.77 ----------------- - ---------------------------------------------------------------------- 43647 NATURES ELEMENTS 632 30,000.00 47.47 6,924.00 10.95 2,616.00 4.14 3,259.48 5.16 910.08 1.44 ---------- ----- HEALTH & BEAUTY AIDS 43,709.56 69.16 ------------------ - ---------------------------------------------------------------------- 43651 BABY GUESS 1,495 41,859.96 28.00 16,368.00 10.95 6,192.00 4.14 7,646.48 5.11 2,152.80 1.44 ---------- ----- CHILDRENS READY TO WEAR 74,219.24 49.64 ------------------ - ---------------------------------------------------------------------- 43653 ANN TAYLOR 8,647 190,233.96 22.00 94,680.00 10.95 35,796.00 4.14 21,719.58 2.51 12,451.68 1.44 ---------- ----- WOMENS READY TO WEAR 354,881.22 41.04 ------------------ - ---------------------------------------------------------------------- Run Date 3/31/97 10:25:54 AM Run By barbie Franklin Mills PAGE 24 <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43656 MATERNITY WORKS 1,466 1,466 Primary 10/1/96 9/30/2001 P 10/1/96 3,298.50 39,582.00 27.00 1st Option 10/1/2001 9/30/2006 10/1/98 3,542.83 45,513.96 29.00 ---------------------------------- 10/1/2001 3,787.17 45,446.04 31.00 10/1/2003 4,013.50 48,162.00 32.85 --------------------------------------------- WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ 43657 AUSSIE OUTLET 2,261 2,261 Primary 2/1/97 1/15/98 ---------------------------------- TEMPORARY - ------------------------------------------------------------------------------------------------------------------------------------ 43661 RUBY TUESDAY 4,800 4,800 Primary 7/10/90 7/9/2005 1/1/92 7,400.00 88,800.00 18.50 --------------------------------- 7/10/95 8,600.00 103,200.00 21.50 7/10/2000 9,400.00 112,800.00 23.50 --------------------------------------------- RESTAURANT - ------------------------------------------------------------------------------------------------------------------------------------ 43700 ITALIAN BISTRO # 700 5,422 5,422 Primary 5/11/89 5/10/2004 1/1/93 5,713.45 68,561.40 12.65 ---------------------------------- 1/1/94 5,726.02 68,712.24 12.67 5/1/94 6,897.43 82,769.16 15.27 6/1/94 7,455.25 89,463.00 16.50 P 1/1/95 7,470.81 89,649.72 16.53 P 8/1/95 4,808.41 57,700.92 10.64 P 4/1/96 7,470.81 89,649.72 16.53 P 9/1/96 2,486.78 29,841.36 5.50 4/1/97 7,488.74 89,864.88 16.57 RESTAURANT 5/11/99 9,036.67 108,440.04 20.00 - ------------------------------------------------------------------------------------------------------------------------------------ 43701 DAIRY QUEEN/ORANGE J 633 633 Primary 11/24/96 11/23/2001 P 11/24/96 2,373.75 28,485.00 45.00 1st Option 11/24/2000 11/23/2006 P 11/24/98 2,479.25 29,751.00 47.00 ----------------------------------- P 11/24/2000 2,584.75 31,017.00 49.00 1 11/24/2001 2,584.75 31,017.00 49.00 1 11/24/2002 2,690.25 32,283.00 51.00 1 11/24/2004 2,795.75 33,549.00 53.00 FOOD SPECALITY --------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ BREAKPOINTS CURRENT MO CHARGES LEASABLE L/Y ANN PSF SPACE TENANT SQ FT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43656 MATERNITY WORKS 1,466 M Jan P 10/1/96 659,700 450.00 6.00% MIN M Step 10/1/96 3,298.50 P 10/1/98 708,567 483.33 6.00% CAM M Est 1/1/97 1,338.00 1 10/1/2001 757,433 516.67 6.00% TAX M Est 1/1/97 506.00 1 10/1/2003 806,300 550.00 6.00% PRO M Step 10/1/96 488.67 ------------------------------------------- OCC M Step 1/1/97 175.92 WOMENS READY TO WEAR --------- TOTAL 5,807.09 ------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43657 AUSSIE OUTLET 2,261 Z Jan P 2/1/97 240,000 106.15 10.00% TLA M Step 2/1/97 2,000.00 P 4/1/97 360,000 159.22 10.00% --------- P 5/1/97 240,000 106.15 10.00% TOTAL 2,000.00 P 8/1/97 360,000 159.22 10.00% P 11/1/97 420,000 185.76 10.00% TEMPORARY P 1/1/98 240,000 106.15 10.00% - ------------------------------------------------------------------------------------------------------------------------------------ 43661 RUBY TUESDAY 4,800 M Jan P 7/10/90 1,776,000 370.00 5.00% MIN M Step 7/10/95 8,600.00 P 7/10/95 2,064,000 430.00 5.00% CAM M Cap 1/1/97 2,917.00 P 7/10/2000 2,256,000 470.00 5.00% TAX M Est 1/1/97 1,658.00 PRO M Step 1/1/96 300.00 OCC M Step 1/1/97 576.00 --------- RESTAURANT TOTAL 14,049.00 ------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43700 ITALIAN BISTRO # 700 5,422 Q Jan P 5/11/89 1,250,000 230.54 5.00% NT3 M Step 3/1/97 1,046.67 ------------------------------------------- MIN M Step 9/1/96 2,486.78 CAM M Step 1/1/97 3,868.00 TAX M Step 1/1/97 1,615.00 PRO M Step 1/1/97 1,379.58 OCC M Step 1/1/97 650.64 --------- TOTAL 11,046.67 RESTAURANT - ------------------------------------------------------------------------------------------------------------------------------------ 43701 DAIRY QUEEN/ORANGE J 633 M Jan P 1/4/97 284,850 450.00 10.00% MIN M Step 11/24/96 2,373.75 P 1/4/99 297,510 470.00 10.00% CAM M Step 1/1/97 577.61 P 1/4/2001 310,170 490.00 10.00% TAX M Step 1/1/97 218.39 1 1/4/2002 310,170 490.00 10.00% PRO M Step 1/1/97 429.13 1 1/4/2003 322,830 510.00 10.00% OCC M Step 1/1/97 75.96 1 1/4/2005 335,490 530.00 10.00% --------- FOOD SPECALITY ------------------------------------------- TOTAL 3,674.84 ------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - ---------------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO LEASABLE ANN SPACE TENANT SQ FT $/YR PSF ====================================================================== 43656 MATERNITY WORKS 1,466 39,582.00 27.00 16,056.00 10.95 6,072.00 4.14 5,864.00 4.00 2,111.04 1.44 WOMENS READY TO WEAR ---------- ----- 69,685.04 47.53 ------------------ - ---------------------------------------------------------------------- 43657 AUSSIE OUTLET 2,261 24,000.00 10.61 ---------- ----- 24,000.00 10.61 TEMPORARY - ---------------------------------------------------------------------- 43661 RUBY TUESDAY 4,800 103,200.00 21.50 35,004.00 7.29 19,872.00 4.14 3,600.00 0.75 6,912.00 1.44 ---------- ----- RESTAURANT 168,588.00 35.12 ------------------ - ---------------------------------------------------------------------- 43700 ITALIAN BISTRO # 700 5,422 12,560.04 2.32 29,841.36 5.50 46,416.00 8.58 19,380.00 3.57 16,554.96 3.05 7,807.68 1.44 ---------- ----- 132,560.04 24.45 RESTAURANT - ---------------------------------------------------------------------- 43701 DAIRY QUEEN/ORANGE J 633 28,485.00 45.00 6,931.35 10.95 2,620.62 4.14 5,149.56 8.14 911.52 1.44 ---------- ----- FOOD SPECALITY 44,098.05 69.67 ------------------ - ---------------------------------------------------------------------- Run Date 3/31/97 10:25:59 AM Run By barbie Franklin Mills PAGE 25 <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43702 O.J. ART GALLERY 1,088 1,088 Primary 5/11/89 5/10/99 6/1/92 3,580.69 42,968.28 39.39 ---------------------------------- 1/1/94 3,679.17 44,150.04 40.58 P 1/1/95 3,775.13 45,301.56 41.64 P 1/1/96 3,881.19 46,574.28 42.81 P 1/1/97 3,997.35 47,968.17 44.09 P 1/1/98 3,881.19 46,574.28 42.81 ART & HOME FURNISHINGS - ------------------------------------------------------------------------------------------------------------------------------------ 43703 FLAG SHOP 958 958 Primary 3/16/91 3/3/96 1/1/93 3,062.51 36,750.12 38.36 1st Option 3/4/96 3/3/2001 1/1/94 3,146.74 37,760.88 39.42 2nd Option 3/4/2001 3/3/2006 P 1/1/95 3,228.81 38,745.72 40.44 P 1/1/96 3,319.52 39,834.24 41.58 P 3/4/96 2,794.17 33,530.04 35.00 1 1/1/97 2,877.80 34,533.54 36.05 SPECIALTY 1 1/1/98 2,794.17 33,530.04 35.00 P 3/4/99 2,953.83 35,445.96 37.00 1 3/4/2001 3,113.50 37,362.00 39.00 1 3/4/2003 3,273.17 39,278.04 41.00 ------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43704 FUDGERY, THE 794 794 Primary 5/11/89 5/10/97 1/1/93 3,998.59 47,983.08 60.43 Primary 5/11/97 5/10/2000 1/1/94 4,098.55 49,182.60 61.94 ---------------------------------- P 1/1/95 4,201.01 50,412.12 63.49 P 1/1/96 4,306.04 51,072.48 65.08 P 1/1/97 4,413.00 52,004.29 66.71 5/11/97 4,306.13 51,673.58 65.08 FOOD SPECIALTY 5/11/98 4,499.33 53,991.96 68.00 ------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43705 MR. BULKY 2,295 2,295 Primary 5/11/89 5/10/99 1/1/93 5,020.27 60,243.24 26.25 ---------------------------------- 1/1/94 5,061.69 60,740.28 26.47 P 1/1/95 5,101.29 61,215.48 26.67 P 1/1/96 5,144.28 61,731.30 26.00 P 1/1/97 5,190.47 62,285.61 27.14 P 1/1/98 5,144.28 61,731.36 26.90 FOOD SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ 43707 WILSONS 3,675 3,675 Primary 10/10/91 10/9/2001 1/1/92 5,512.50 66,150.00 18.00 ---------------------------------- 11/1/94 6,125.00 73,500.00 20.00 P 11/1/97 6,737.50 80,850.00 22.00 HANDBAGS, LEATHER & LUGGAGE - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ BREAKPOINTS CURRENT MO CHARGES LEASABLE L/Y ANN PSF SPACE TENANT SQ FT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43702 O.J. ART GALLERY 1,088 Q Jan P 5/11/89 355,950 327.16 8.00% MIN M CStep 1/1/97 3,997.35 P 5/11/92 376,290 345.85 8.00% CAM M Est 1/1/97 993.00 P 5/11/95 399,663 367.34 8.00% TAX M Est 1/1/97 375.00 PRO M CStep 1/1/97 483.74 OCC M Step 1/1/97 130.56 --------- TOTAL 5,959.64 ART & HOME FURNISHINGS ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43703 FLAG SHOP 958 Q Jan * 3/4/91 355,550 371.14 10.00% MIN M CStep 1/1/97 2,877.80 P 3/4/96 335,300 350.00 10.00% CAM M Est 1/1/97 874.00 P 3/4/99 354,460 370.00 10.00% TAX M Est 1/1/97 331.00 1 3/4/2001 373,620 390.00 10.00% PRO M CStep 1/1/97 539.32 1 3/4/2003 392,780 410.00 10.00% OCC M Step 1/1/97 114.96 ------------------------------------------ --------- SPECIALTY TOTAL 4,737.08 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43704 FUDGERY, THE 794 M Jan P 5/11/89 440,000 554.16 10.00% MIN M CStep 1/1/97 4,413.69 P 5/11/97 516,735 650.80 10.00% CAM M Est 1/1/97 725.00 P 5/11/98 539,920 680.00 10.00% TAX M Est 1/1/97 274.00 ------------------------------------------ PRO M CStep 1/1/97 531.05 OCC M Step 1/1/97 95.28 --------- FOOD SPECIALTY TOTAL 6,039.62 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43705 MR. BULKY 2,295 M Jan P 5/11/89 1,192,880 519.77 5.00% MIN M CStep 1/1/97 5,190.47 ------------------------------------------ CAM M Est 1/1/97 2,094.00 TAX M Est 1/1/97 792.00 PRO M CStep 1/1/97 978.18 OCC M Step 1/1/97 275.40 --------- FOOD SPECIALTY TOTAL 9,330.05 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43707 WILSONS 3,675 M Jan P 10/1/91 1,653,750 450.00 4.00% MIN M Step 11/1/94 6,125.00 P 11/1/94 1,857,500 505.44 4.00% CAM M CStep 1/1/97 1,958.92 P 11/1/97 2,021,250 550.00 4.00% TAX M Est 1/1/97 1,213.00 ------------------------------------------ PRO M CStep 1/1/97 529.25 OCC M Step 1/1/97 441.00 --------- HANDBAGS, LEATHER & LUGGAGE TOTAL 10,267.17 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - ---------------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO LEASABLE ANN SPACE TENANT SQ FT $/YR PSF ====================================================================== 43702 O.J. ART GALLERY 1,088 47,968.17 44.09 11,916.00 10.95 4,500.00 4.14 5,564.83 5.11 1,566.72 1.44 ---------- ----- 71,515.72 65.73 ART & HOME FURNISHINGS ------------------ - ---------------------------------------------------------------------- 43703 FLAG SHOP 958 34,533.54 36.05 10,488.00 10.95 3,972.00 4.14 6,471.86 6.76 1,379.52 1.44 ---------- ----- SPECIALTY 56,844.92 59.33 ------------------ - ---------------------------------------------------------------------- 43704 FUDGERY, THE 794 52,964.29 66.71 8,700.00 10.95 3,288.00 4.14 6,379.79 8.01 1,143.36 1.44 ---------- ----- FOOD SPECIALTY 72,475.44 91.27 ------------------ - ---------------------------------------------------------------------- 43705 MR. BULKY 2,295 62,285.61 27.14 25,128.00 10.95 9,504.00 4.14 11,738.22 5.11 3,304.80 1.44 ---------- ----- FOOD SPECIALTY 111,960.63 48.78 ------------------ - ---------------------------------------------------------------------- 43707 WILSONS 3,675 73,500.00 20.00 23,507.00 6.40 14,556.00 3.96 6,350.99 1.73 5,292.00 1.44 ---------- ----- HANDBAGS, LEATHER & LUGGAGE 123,206.08 33.52 ------------------ - ---------------------------------------------------------------------- Run Date 3/31/97 10:26:03 AM Run By barbie Franklin Mills PAGE 26 <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43708 CONTEMPO CASUALS 3,703 3,703 Primary 11/4/92 11/3/97 12/1/92 5,863.08 70,356,96 19.00 1st Option 11/4/97 5/31/2002 ----------------------------------------------- --------------------------------- WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ 43710 FAMOUS FOOTWEAR 10,389 10,389 Primary 5/11/89 5/10/92 7/1/93 12,540.08 150,480.96 14.48 1st Option 5/11/92 5/10/97 5/11/97 13,404.92 150,859.04 15.48 2nd Option 5/11/97 5/10/2002 ----------------------------------------------- --------------------------------- SHOES - ------------------------------------------------------------------------------------------------------------------------------------ 43712 DELTA HOSIERY 646 646 Primary 5/11/89 5/10/94 1/1/93 1,292.70 15,512.40 24.01 Primary 5/11/94 5/10/99 1/1/94 1,328.25 15,939.00 24.67 --------------------------------- 5/11/94 1,615.00 19,380.00 30.00 ----------------------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ 43713 SENTIMENTAL JEWELRY 854 854 Primary 10/29/90 10/28/2000 10/1/93 2,932.80 35,193.60 41.21 ---------------------------------- 11/1/93 3,083.33 36,999.96 43.33 10/29/97 3,400.00 40,800.00 47.78 ----------------------------------------------- JEWELRY - ------------------------------------------------------------------------------------------------------------------------------------ 43715 CHILDRENS PLACE OUTL 4,350 4,350 Primary 3/21/90 3/20/95 1/1/92 5,557.50 66,690.00 15.33 1st Option 3/21/95 3/20/2000 3/21/95 7,039.50 84,474.00 19.42 ---------------------------------- ----------------------------------------------- CHILDRENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ BREAKPOINTS CURRENT MO CHARGES LEASABLE L/Y ANN PSF SPACE TENANT SQ FT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43708 CONTEMPO CASUALS 3,703 M Jan P 11/4/92 1,172,617 316.67 5.00% MIN M Step 12/1/92 5,863.08 P 11/4/95 1,296,050 350.00 5.00% CAM M Est 1/1/97 3,379.00 1 11/4/97 1,419,483 383.33 5.00% TAX M Est 1/1/97 1,278.00 ------------------------------------------ PRO M CStep 1/1/97 532.68 OCC M Step 1/1/97 444.36 --------- WOMENS READY TO WEAR TOTAL 11,497.12 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43710 FAMOUS FOOTWEAR 10,389 Q Jan P 5/11/89 2,001,472 192.65 4.00% MIN M Step 7/1/93 12,540.08 P 5/11/92 2,149,729 206.92 4.00% CAM M Est 1/1/97 9,099.00 2 5/11/97 2,297,986 221.19 4.00% TAX M Est 1/1/97 3,420.00 ----------------------------------------- PRO M Step 1/1/96 1,515.06 OCC M Step 1/1/97 1,246.68 --------- SHOES TOTAL 27,820.82 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43712 DELTA HOSIERY 646 Q Jan P 5/11/89 519,200 803.72 4.00% MIN M Step 5/11/94 1,615.00 5/11/94 323,000 500.00 6.00% CAM M Est 1/1/97 589.00 ------------------------------------------ TAX M Est 1/1/97 233.00 PRO M CStep 1/1/97 452.71 OCC M Step 1/1/97 77.52 --------- SPECIALTY TOTAL 2,957.23 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43713 SENTIMENTAL JEWELRY 854 M Jan P 10/29/90 437,000 511.71 8.00% MIN M Step 11/1/93 3,083.33 P 10/29/93 465,000 544.50 8.00% CAM M Est 1/1/97 779.00 P 10/28/97 500,000 585.48 8.00% TAX M Est 1/1/97 295.00 ------------------------------------------ PRO M CStep 1/1/97 497.06 OCC M Step 1/1/97 102.48 --------- JEWELRY TOTAL 4,758.87 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43715 CHILDRENS PLACE OUTL 4,350 A Feb P 3/21/90 1,333,800 306.62 5.00% MIN M Step 3/21/95 7,039.50 1 3/21/95 1,689,480 388.39 5.00% CAM M Est 1/1/97 3,969.00 ------------------------------------------ TAX M Est 1/1/97 1,501.00 PRO M Step 1/1/96 1,087.50 OCC M Step 1/1/97 522.00 --------- CHILDRENS READY TO WEAR TOTAL 14,119.00 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - ---------------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO LEASABLE ANN SPACE TENANT SQ FT $/YR PSF ====================================================================== 43708 CONTEMPO CASUALS 3,703 70,358.96 19.00 40,548.00 10.95 15,336.00 4.14 6,392.15 1.73 5,332.32 1.44 ---------- ----- WOMENS READY TO WEAR 137,965.43 37.28 ------------------ - ---------------------------------------------------------------------- 43710 FAMOUS FOOTWEAR 10,389 150,480.96 14.48 109,188.00 10.51 41,040.00 3.95 18,180.72 1.75 14,960.16 1.44 ---------- ----- SHOES 333,849.84 32.13 ------------------ - ---------------------------------------------------------------------- 43712 DELTA HOSIERY 646 19,380.00 30.00 7,068.00 10.95 2,676.00 4.14 5,432.46 8.41 930.24 1.44 ---------- ----- SPECIALTY 35,486.70 54.94 ------------------ - ---------------------------------------------------------------------- 43713 SENTIMENTAL JEWELRY 854 36,999.96 43,33 9,348.00 10.95 3,540.00 4.14 5,964.77 6.98 1,229.76 1.44 ---------- ----- JEWELRY 57,082.49 66.84 ------------------ - ---------------------------------------------------------------------- 43715 CHILDRENS PLACE OUTL 4,350 84,474.00 19.42 47,628.00 10.95 18,012.00 4.14 13,050.00 3.00 6,264.00 1.44 ---------- ----- CHILDRENS READY TO WEAR 169,428.00 38.95 ------------------ - ---------------------------------------------------------------------- Run Date 3/31/97 10:26:08 AM Run By barbie Franklin Mills PAGE 27 <PAGE> <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------------------------------------- *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF =================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43717 AEROPOSTALE 4,865 4,865 Primary 1/31/97 1/30/2000 P 1/31/97 7,317.77 87,813.24 18.05 ---------------------------------- -------------------------------------------- UNISEX - ----------------------------------------------------------------------------------------------------------------------------------- 43719 ARCHIE JACOBSON 4,622 4,622 Primary 5/10/91 5/9/2001 1/1/92 5,323.42 63,881.04 15.02* ---------------------------------- 5/1/94 5,758.45 69,101.40 16.25* 6/1/94 5,936.42 71,237.04 16.75* P 1/30/97 5,396.18 84,754.16 14.01 5/10/98 8,370.56 76,447.92 17.98* ------------------------------------------- MENS READY-TO-WEAR - ----------------------------------------------------------------------------------------------------------------------------------- 43721 CHAMPS 8,841 8,841 Primary 11/20/92 11/19/2002 P 12/1/92 11,051.25 132,615.00 15.00 1st Option 11/20/2000 11/19/2007 P 11/20/97 12,524.75 150,297.00 17.00 ---------------------------------- 1 11/20/2002 13,998.25 167,979.00 19.00 ------------------------------------------- ATHLETIC & SPORTING GOODS - ----------------------------------------------------------------------------------------------------------------------------------- 43725 VACANT 3,655 3,655 VACANT - ----------------------------------------------------------------------------------------------------------------------------------- 43727 DRESS BARN 5,562 5,562 Primary 5/11/89 1/31/2000 12/1/92 8,602.56 103,230.72 18.56 1st Option 2/1/2000 1/31/2005 1/1/2000 8,602.56 103,230.72 18.56 ---------------------------------- 2/1/2000 9,698.76 116,385.12 20.93 ------------------------------------------- WOMENS READY TO WEAR - ----------------------------------------------------------------------------------------------------------------------------------- 43729 HAMILTON LUGGAGE 3,227 3,227 Primary 5/11/89 5/10/99 6/1/92 5,166.67 62,000.04 19.21 ---------------------------------- 5/11/96 5,666.67 68,000.04 21.07 ------------------------------------------- WOMENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ BREAKPOINTS CURRENT MO CHARGES LEASABLE L/Y ANN PSF SPACE TENANT SQ FT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43717 AEROPOSTALE 4,865 M Jan P 1/31/97 1,463,554 300.83 6.00% MIN M Step 1/31/97 7,317.77 ------------------------------------------ CAM M Step 1/31/97 4,439.31 TAX M Step 1/31/97 1,678.43 PRO M Step 1/31/97 608.13 OCC M Step 1/31/97 583.80 UNISEX --------- TOTAL 14,627.44 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43719 ARCHIE JACOBSON 4,622 M Jan P 5/10/91 1,064,683 250.34 6.00% MIN M Step 1/30/97 5,398.18 P 5/10/94 1,187,295 279.17 6.00% CAM M Step 1/30/97 4,217.58 P 1/30/97 1,079,237 233.50 6.00% TAX M Step 1/30/97 1,594.59 P 5/10/98 1,274,131 299.58 6.00% PRO M Step 1/30/97 1,421.27 ------------------------------------------ OCC M Step 1/30/97 554.64 --------- MENS READY-TO-WEAR TOTAL 13,184.26 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43721 CHAMPS 8,841 M Jan P 11/20/92 2,210,250 250.00 5.00% MIN M Step 12/1/92 11,051.25 P 11/20/97 2,504,950 283.33 5.00% CAM M Est 1/1/97 8,067.00 1 11/20/2002 2,799,650 316.67 5.00% TAX M Est 1/1/97 3,050.00 ------------------------------------------ PRO M CStep 1/1/97 1,884.13 OCC M Step 1/1/97 1,060.92 --------- ATHLETIC & SPORTING GOODS TOTAL 25,113.30 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43725 VACANT 3,655 M Jan VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43727 DRESS BARN 5,562 M Jan P 5/11/89 1,531,921 275.43 4.00% MIN M Step 12/01/92 8,602.56 P 5/11/92 1,723,411 300.85 4.00% CAM M Cap 1/1/97 4,380.00 1 5/11/2000 1,938,838 348.59 4.00% TAX M Est 1/1/97 1,919.00 ------------------------------------------ PRO M CStep 1/1/97 881.28 OCC M Step 1/1/97 667.44 --------- WOMENS READY TO WEAR TOTAL 16,450.28 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43729 HAMILTON LUGGAGE 3,227 Q Jan P 5/11/89 1,100,000 340.87 5.00% MIN M Step 5/11/96 5,666.67 P 5/11/92 1,200,000 371.86 5.00% CAM M Est 1/1/97 2,853.00 P 5/11/96 1,300,000 402.85 5.00% TAX M Est 1/1/97 1,113.00 ------------------------------------------ PRO M CStep 1/1/97 1,103.88 OCC M Step 1/1/97 387.24 --------- WOMENS READY TO WEAR TOTAL 11,123.79 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - ---------------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO LEASABLE ANN SPACE TENANT SQ FT $/YR PSF ====================================================================== 43717 AEROPOSTALE 4,865 87,813.24 18.05 53,271.75 10.95 20,141.00 4.14 7,297.50 1.50 7,005.60 1.44 UNISEX ---------- ----- 175,529.19 36.08 ------------------ - ---------------------------------------------------------------------- 43719 ARCHIE JACOBSON 4,622 64,754.16 14.01 50,610.90 10.95 19,135.08 4.14 17,055.18 3.69 6,655.68 1.44 ---------- ----- MENS READY-TO-WEAR 158,211.00 34.23 ------------------ - ---------------------------------------------------------------------- 43721 CHAMPS 8,841 132,615.00 15.00 96,804.00 10.95 36,600.00 4.14 22,609.57 2.56 12,731.04 1.44 ---------- ----- ATHLETIC & SPORTING GOODS 301,359.61 34.09 ------------------ - ---------------------------------------------------------------------- 43725 VACANT 3,655 VACANT - ---------------------------------------------------------------------- 43727 DRESS BARN 5,562 103,230.72 18.56 52,580.00 9.45 23,028.00 4.14 10,575.35 1.90 8,009.28 1.44 ---------- ----- WOMENS READY TO WEAR 197,403.35 35.49 ------------------ - ---------------------------------------------------------------------- 43729 HAMILTON LUGGAGE 3,227 68,000.04 21.07 34,236.00 10.61 13,356.00 4.14 13,246.53 4.10 4,646.88 1.44 ---------- ----- WOMENS READY TO WEAR 133,485.45 41.36 ------------------ - ---------------------------------------------------------------------- Run Date 3/31/97 10:26:13 AM Run By barbie Franklin Mills PAGE 28 <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43731 ATHLETES FOOT OUTLET 4,167 4,167 Primary 5/18/95 5/17/2000 P 5/18/95 6,945.00 83,340.00 20.00 1st Option 5/18/2000 5/17/2005 P 5/18/97 8,334.00 100,008.00 24.00 ---------------------------------- 1 5/18/2000 9,375.75 112,509.00 27.00 ----------------------------------------------- ATHLETIC & SPORTING GOODS - ------------------------------------------------------------------------------------------------------------------------------------ 43735 BOOT FACTORY 1,615 1,615 Primary 7/13/92 7/12/97 8/1/92 2,691.67 32,300.04 20.00 1st Option 7/13/97 7/12/2002 7/13/95 3,095.42 37,145.04 23.00 ---------------------------------- 7/13/97 3,364.58 40,374.96 25.00 ----------------------------------------------- SHOES - ------------------------------------------------------------------------------------------------------------------------------------ 43737 02 KOOL 1,730 1,730 Primary 3/7/97 1/15/98 ---------------------------------- ----------------------------------------------- TEMPORARY - ------------------------------------------------------------------------------------------------------------------------------------ 43801 LEVIS 15,845 15,845 Primary 5/11/89 6/30/93 7/1/93 18,815.94 225,791.28 14.25 1st Option 7/1/93 1/31/96 2/1/95 20,136.36 241,638.32 15.25 2nd Option 2/1/96 1/31/2000 2 2/1/96 21,456.77 257,481.24 16.25 3rd Option 2/1/2000 1/31/2005 2/1/2000 22,777.18 273.326.16 17.25 4th Option 2/1/2005 1/31/2010 2/1/2005 24,097.60 289,171.20 18.25 ---------------------------------- ----------------------------------------- UNISEX - ------------------------------------------------------------------------------------------------------------------------------------ 43802 BOSTONIAN 3,058 3,056 Primary 2/6/96 2/5/2001 P 2/6/96 4,074.67 48,896.04 18.00 1st Option 2/6/2001 2/5/2006 2/6/99 4,584.00 55,008.00 18.00 --------------------------------- 2/6/2001 5,093.33 61,119.96 20.00 ----------------------------------------------- SHOES - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified BREAKPOINTS CURRENT MO CHARGES LEASABLE L/Y ANN PSF SPACE TENANT SQ FT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43731 ATHLETES FOOT OUTLET 4,167 M Jan P 5/18/95 1,666,800 400.00 5.00% MIN M Step 5/18/95 6,945.00 P 5/18/97 2,000,160 480.00 5.00% CAM M Cap 1/1/97 3,802.00 1 5/18/2000 2,250,180 540.00 5.00% TAX M Est 1/1/97 1,438.00 ------------------------------------------ PRO M CStep 1/1/97 984.01 OCC M Step 1/1/97 500.04 ATHLETIC & SPORTING GOODS --------- TOTAL 13,669.05 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43735 BOOT FACTORY M Jan P 7/13/92 403,750 250.00 4.00% MIN M Step 7/13/95 3,095.42 P 7/13/95 444,125 275.00 4.00% CAM M Cap 1/1/97 1,474.00 1 7/13/97 484,500 300.00 4.00% TAX M Est 1/1/97 557.00 ------------------------------------------ PRO M CStep 1/1/97 600.98 OCC M Step 1/1/97 193.80 --------- SHOES TOTAL 5,921.20 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43737 02 KOOL Z Jan P 3/7/97 180,000 104.05 10.00% TLA M Step 3/7/97 1,500.00 ------------------------------------------ --------- TEMPORARY TOTAL 1,500.00 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43801 LEVIS M Jan P 5/11/89 4,250,000 268.22 3.00% MIN M Step 2/1/96 21,456.77 2 2/1/96 4,517,215 285.09 3.00% CAM M Est 1/1/97 14,261.00 3 2/1/2000 4,795,198 302.63 3.00% TAX M Est 1/1/97 5,467.00 4 2/1/2005 5,073,180 320.18 3.00% PRO M CStep 1/1/97 2,751.97 ------------------------------------------ OCC M Step 1/1/97 1,901.40 --------- UNISEX TOTAL 45,838.14 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43802 BOSTONIAN M Jan P 2/6/96 977,920 320.00 5.00% MIN M Step 2/6/96 4,074.67 P 2/6/99 1,100,160 360.00 5.00% CAM M Est 1/1/97 2,789.00 1 2/6/2001 1,222,400 400.00 5.00% TAX M Est 1/1/97 1,054.00 ------------------------------------------ PRO M CStep 1/1/97 852.44 OCC M Step 1/1/97 366.72 SHOES --------- TOTAL 9,136.83 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - ----------------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO ANN SPACE TENANT $/YR PSF ======================================================================= 43731 ATHLETES FOOT OUTLET 83,340.00 20.00 45,624.00 10.95 17,256.00 4.14 11,808.17 2.83 6,000.48 1.44 ATHLETIC & SPORTING GOODS ---------- ----- 164,028.65 39.36 ------------------- - ----------------------------------------------------------------------- 43735 BOOT FACTORY 37,145.04 23.00 17,688.00 10.95 6,684.00 4.14 7,211.81 4.47 2,325.60 1.44 ---------- ----- SHOES 71,054.45 44.00 ------------------- - ----------------------------------------------------------------------- 43737 02 KOOL 1,730 18,000.00 10.40 ---------- ----- TEMPORARY 18,000.00 10.40 ------------------- - ----------------------------------------------------------------------- 43801 LEVIS 15,845 257,481.24 10.25 171,132.00 10.80 85,604.00 4.14 33,023.58 2.08 22,816.80 1.44 ---------- ----- UNISEX 550,057.62 34.71 ------------------- - ----------------------------------------------------------------------- 43802 BOSTONIAN 48,896.04 16.00 33,468.00 10.95 12,648.00 4.14 10,229.29 3.35 4,400.64 1.44 SHOES ---------- ----- 109,641.97 35.88 ------------------- - ----------------------------------------------------------------------- Run Date 3/31/97 10:26:17 AM Run By barbie Franklin Mills PAGE 29 <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43803 WEARGUARD WORK WEA 3,685 3,685 Primary 11/5/92 11/4/97 12/1/92 6,141.87 73,700.04 20.00 1st Option 11/5/97 11/4/2002 ----------------------------------------------- ---------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ 43807 WEST COAST OPTICAL 1,308 1,308 Primary 10/15/93 10/14/96 11/16/92 1,793.23 21,518.76 16.45 1st Option 10/15/96 10/14/99 12/1/93 3,270.00 39,240.00 30.00 ---------------------------------- 10/15/96 3,815.00 45,780.00 35.00 SERVICES - ------------------------------------------------------------------------------------------------------------------------------------ 43809 PALACE ELECTRONICS 1,475 1,475 Primary 10/6/90 10/5/2000 1/1/92 4,302.09 51,625.08 35.00 ---------------------------------- 10/6/95 4,670.83 56,049.96 38.00 ----------------------------------------------- SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ 43813 SPAINS CARDS & GIFTS 3,787 3,787 Primary 8/10/89 8/9/92 9/1/93 7,067.50 84,810.00 22.40 1st Option 8/10/92 8/9/99 8/1/94 7,523.46 90,281.52 23.84 ----------------------------------- 9/1/94 7,710.00 92,520.00 24.43 8/10/96 8,352.50 100,230.00 28.47 CARDS & GIFTS - ------------------------------------------------------------------------------------------------------------------------------------ 43820 VACANT 6,241 6,241 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43821 VACANT 3,910 3,910 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43825 KID CITY 10,646 10,646 Primary 3/10/97 12/31/97 --------------------------------- TEMPORARY - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified BREAKPOINTS CURRENT MO CHARGES LEASABLE L/Y ANN PSF SPACE TENANT SQ FT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43803 WEARGUARD WORK WEA M Jan P 11/5/92 1,228,000 333.24 5.00% MIN M Step 6/1/94 6,164.67 1 11/5/97 1,350,000 366.57 5.00% CAM M Cap 1/1/97 3,363.00 ------------------------------------------ TAX M Cap 1/1/97 1,208.00 PRO M CStep 1/1/97 1,147.58 OCC M Step 1/1/97 442.20 --------- SPECIALTY TOTAL 12,302.45 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43807 WEST COAST OPTICAL M Jan P 10/15/93 490,500 375.00 8.00% MIN M Step 10/15/96 3,815.00 * 10/15/96 572,250 437.50 8.00% CAM M Est 1/1/97 1,194.00 TAX M Est 1/1/97 451.00 ------------------------------------------ PRO M CStep 1/1/97 259.78 OCC M Step 1/1/97 156.96 --------- SERVICES TOTAL 5,876.74 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43809 PALACE ELECTRONICS M Jan P 10/6/90 1,720,833 166.67 3.00% MIN M Step 10/6/95 4,670.83 P 10/6/95 1,888,333 266.67 3.00% CAM M Est 1/1/97 1,346.00 ------------------------------------------ TAX M Est 1/1/97 509.00 PRO M CStep 1/1/97 588.51 OCC M Step 1/1/97 177.00 --------- SPECIALTY TOTAL 7,289.34 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43813 SPAINS CARDS & GIFTS Q Jan P 8/10/89 1,000,000 264.06 5.00% MIN M Step 8/10/98 8,352.50 P 8/10/90 1,200,000 316.87 5.00% CAM M Step 1/1/97 3,456.00 P 8/10/91 1,659,840 438.30 5.00% TAX M Est 1/1/97 1,307.00 1 8/10/92 1,619,000 427.52 5.00% PRO M CStep 1/1/97 1,274.95 1 8/10/93 1,696,200 477.90 5.00% OCC M Step 1/1/97 454.44 1 8/10/94 1,850,400 488.62 5.00% --------- CARDS & GIFTS 1 8/10/96 2,004,600 529.34 5.00% TOTAL 14,844.89 ------------------------------------------ ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43820 VACANT M Jan ------------------------------------- VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43821 VACANT M Jan ------------------------------------- VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43825 KID CITY Q Jan * 2/27/97 1,500,000 140.90 10.00% TLA M Step 2/28/97 12,500.00 ------------------------------------------ --------- TEMPORARY TOTAL 12,500.00 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - ----------------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO LEASABLE ANN SPACE TENANT SQ FT $/YR PSF ======================================================================= 43803 WEARGUARD WORK WEA 73,700.04 20.00 40,356.00 10.95 14,496.00 3.93 13,770.93 3.74 5,306.40 1.44 ---------- ----- SPECIALTY 147,629.37 40.06 ------------------- - ----------------------------------------------------------------------- 43807 WEST COAST OPTICAL 45,780.00 35.00 14,328.00 10.95 5,412.00 4.14 3,117.35 2,38 1,883.52 1.44 ---------- ----- SERVICES 70,520.87 53.91 ------------------- - ----------------------------------------------------------------------- 43809 PALACE ELECTRONICS 56,049.96 38.00 16,152.00 10.95 6,108.00 4.14 7,038.16 4.77 2,124.00 1.44 ---------- ----- SPECIALTY 87,472.12 59.30 ------------------- - ----------------------------------------------------------------------- 43813 SPAINS CARDS & GIFTS 100,230.00 26.47 41,472.00 10.95 15,684.00 4.14 15,299.38 4.04 5,453.28 1.44 ---------- ----- CARDS & GIFTS 178,138.66 47.04 ------------------- - ----------------------------------------------------------------------- 43820 VACANT -------------------- VACANT - ----------------------------------------------------------------------- 43821 VACANT -------------------- VACANT - ----------------------------------------------------------------------- 43825 KID CITY 10,646 150,000.00 14.09 ---------- ----- TEMPORARY 150,000.00 14.09 ------------------- - ----------------------------------------------------------------------- Run Date 3/31/97 10:26:22 AM Run By barbie Franklin Mills PAGE 30 <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43831 RITZ CAMERA 1,437 1,437 Primary 6/1/89 5/31/99 1/1/92 2,760.24 33,122.88 23.05 ---------------------------------- 6/1/94 3,181.89 38,181.12 26.57 ----------------------------------------------- SERVICES - ------------------------------------------------------------------------------------------------------------------------------------ 43833 PRESTIGE FRAGRANCE & 1,376 1,376 Primary 2/6/92 2/4/97 P 5/1/93 3,440.00 41,280.04 30.00 1st Option 2/5/97 2/4/2002 P 2/5/95 3,784.00 45,408.00 33.00 ---------------------------------- 1 2/5/97 4,128.00 49,536.00 36.00 1 2/5/2000 4,472.00 53,664.04 39.00 ----------------------------------------------- Holdover HEALTH & BEAUTY AIDS - ------------------------------------------------------------------------------------------------------------------------------------ 43835 CR JEWELERS OUTLET 1,255 1,255 Primary 4/20/96 4/19/2001 P 4/20/96 3,680.42 43,925.04 35.00 1st Option 4/20/2001 4/19/2006 4/20/99 3,889.58 48,434.96 37.00 ---------------------------------- 4/20/2001 4,078.75 48,945.00 39.00 4/20/2003 4,287.92 51,455.04 41.00 JEWELRY - ------------------------------------------------------------------------------------------------------------------------------------ 43837 SO FUN KIDS 1,840 1,840 Primary 3/12/96 3/10/97 P 4/1/96 2,148.20 25,778.40 14.01 ---------------------------------- ----------------------------------------------- CHILDRENS READY TO WEAR - ------------------------------------------------------------------------------------------------------------------------------------ 43838 ORIGINAL COOKIE COMP 574 574 Primary 5/11/89 5/10/99 1/1/92 4,783.33 57,399.96 100.00 --------------------------------- ----------------------------------------------- FOOD SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ 43839 VACANT 765 765 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43841 SNO BIZ 1,259 1,259 Primary 8/22/96 12/31/96 UNISEX - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified BREAKPOINTS CURRENT MO CHARGES LEASABLE L/Y ANN PSF SPACE TENANT SQ FT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43831 RITZ CAMERA Q Jan P 6/1/89 493,929 343.72 7.00% MIN M Step 6/1/94 3,181.76 P 6/1/89 1,152,500 802.02 3.00% CAM M Est 1/1/97 1,311.00 P 6/1/94 589,357 396.21 7.00% TAX M Est 1/1/97 496.00 P 6/1/94 1,328,500 924.50 3.00% PRO M CStep 1/1/97 612.48 ----------------------------------------- OCC M Step 1/1/97 172.44 --------- SERVICES TOTAL 5,773.68 -------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43833 PRESTIGE FRAGRANCE Q Jan P 2/5/92 589,714 428.57 5.00% MIN M Step 2/5/95 H 3,784.00 P 2/5/95 648,686 471.43 5.00% CAM M Est 1/1/97 H 1,256.00 1 2/5/97 707,657 514.29 5.00% TAX M Est 1/1/97 H 475.00 1 2/5/2000 766,629 557.14 5.00% PRO M CStep 1/1/97 H 528.44 ----------------------------------------- OCC M Step 1/1/97 H 165.12 --------- Holdover HEALTH & BEAUTY AIDS -------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43835 CR JEWELERS OUTLET M Jan P 4/20/96 878,500 700.00 5.00% MIN M Step 4/20/96 3,660.42 P 4/20/99 928,700 740.00 5.00% CAM M Est 1/1/97 1,145.00 1 4/20/2001 978,900 780.00 5.00% TAX M Est 1/1/97 433.00 1 4/20/2003 1,029,100 820.00 5.00% PRO M CStep 1/1/97 430.85 ----------------------------------------- OCC M Step 1/1/97 150.60 --------- JEWELRY TOTAL 5,819.87 -------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43837 SO FUN KIDS Z Jan P 3/12/96 144,000 78.26 4.00% MIN M Step 4/1/96 2,148.20 ----------------------------------------- OCC M Step 4/1/96 220.80 --------- CHILDRENS READY TO WEAR TOTAL 2,369.00 -------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43838 ORIGINAL COOKIE COMP Q Jan P 5/11/89 600,000 045.30 10.00% MIN M Step 1/1/92 4,783.33 ----------------------------------------- CAM M Est 1/1/97 524.00 FOOD SPECIALTY TAX M Est 1/1/97 198.00 PRO M CStep 1/1/97 266.37 OCC M Step 1/1/97 68.88 --------- TOTAL 5,840.58 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43839 VACANT 765 N Jan VACANT ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43841 SNO BIZ 1,259 Z Jan P 8/22/96 180,000 142.97 10.00% TLA M Step 8/22/96 1,500.00 UNISEX --------- TOTAL 1,500.00 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - ---------------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO LEASABLE ANN SPACE TENANT SQ FT $/YR PSF ====================================================================== 43831 RITZ CAMERA 38,181.12 26.57 15,732.00 10.95 5,952.00 4.14 7,349.73 5.11 2,069.28 1.44 ---------- ----- SERVICES 69,284.13 48.21 ----------------- - -------------------------------------------------------- 43833 PRESTIGE FRAGRANCE & 1,376 45,408.00 33.00 15,072.00 10.95 5,700.00 4.14 6,341.23 4.61 1,981.44 1.44 ---------- ----- Holdover HEALTH & BEAUTY AIDS ----------------- - ---------------------------------------------------------------------- 43835 CR JEWELERS OUTLET 1,255 43,925.04 35.00 13,740.00 10.95 5,196.00 4.14 5,170.20 4.12 1,807.20 1.44 ---------- ----- JEWELRY 69,838.44 55.65 ----------------- - ---------------------------------------------------------------------- 43837 SO FUN KIDS 1,840 25,778.40 14.01 2,649.60 1.44 ---------- ----- CHILDRENS READY TO WEAR 28,428.44 15.45 ----------------- - ------------------------------------------------------ 43838 ORIGINAL COOKIE COMP 574 57,399.96 100.00 6,288.00 10.95 FOOD SPECIALTY 2,376.00 4.14 3,196.44 5.57 826.56 1.44 ---------- ----- 70,086.96 122.10 ------------------ - ---------------------------------------------------------------------- 43839 VACANT 765 VACANT ------------------ - ---------------------------------------------------------------------- 43841 SNO BIZ 1,259 18,000.00 14.30 UNISEX ---------- ----- 18,000.00 14.30 ------------------ - ---------------------------------------------------------------------- Run Date 3/31/97 10:26:28 AM Run By barbie Franklin Mills PAGE 31 <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43852 HAT TRICK JEWELRY 1,264 1,264 Primary 4/26/96 1/31/2001 * 4/26/96 3,897.33 46,767.96 37.00 1st Option 2/1/2001 1/13/2006 P 1/1/97 1,053.33 12,639.96 10.00 ---------------------------------- 7/1/97 3,897.33 46,767.96 37.00 4/26/99 4,108.00 49,296.00 39.00 2/1/2001 4,318.67 51,824.04 41.00 JEWELRY - ------------------------------------------------------------------------------------------------------------------------------------ 43853 PORTRAITS PLUS 584 584 Primary 4/8/96 7/1/96 Primary 7/8/96 9/30/96 Primary 10/1/96 12/31/96 Primary 1/1/97 6/30/97 ---------------------------------- TEMPORARY - ------------------------------------------------------------------------------------------------------------------------------------ 43854 LOLLIPOP BOUTIQUE 650 650 Primary 9/5/96 1/4/97 Primary 1/5/97 6/30/97 --------------------------------- TEMPORARY - ------------------------------------------------------------------------------------------------------------------------------------ 43863 GNC 1,047 1,047 Primary 1/10/92 1/9/2002 4/1/92 2,000.00 24,000.00 22.92 ---------------------------------- 3/10/95 2,166.66 25.999.92 24.83 3/10/99 2,333.33 27,999.96 26.74 ----------------------------------------- HEALTH & BEAUTY AIDS - ------------------------------------------------------------------------------------------------------------------------------------ 43865 MAJOR JEWELERS OUTL 1,197 1,197 Primary 11/8/90 1/31/2001 1/1/92 3,996.67 47,960.04 40.07 ----------------------------------- 11/8/95 4,496.25 53,955.00 45.08 ----------------------------------------------- JEWELRY - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified BREAKPOINTS CURRENT MO CHARGES LEASABLE L/Y ANN PSF SPACE TENANT SQ FT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43852 HAT TRICK JEWELRY 1,264 M Jan P 4/26/96 467,680 370.00 10.00% MIN M Step 1/1/97 1,053.33 P 4/26/99 492.960 390.00 10.00% CAM M Est 1/1/97 1,153.00 1 2/1/2001 518,240 410.00 10.00% TAX M Est 1/1/97 436.00 ------------------------------------------ PRO M CStep 1/1/97 433.94 OCC M Step 1/1/97 151.68 JEWELRY --------- TOTAL 3,227.95 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43853 PORTRAITS PLUS 584 Z Jan P 4/8/96 180,000 308.22 10.00% TLA M Step 3/1/97 2,000.00 P 11/1/96 240,000 410.96 10.00% --------- 12/1/96 300,000 513.70 10.00% TOTAL 2,000.00 P 1/1/97 180,000 308.22 10.00% ------------------------------------ P 3/1/97 240,000 410.96 10.00% TEMPORARY P 4/1/97 180,000 108.22 10.00% - ------------------------------------------------------------------------------------------------------------------------------------ 43854 LOLLIPOP BOUTIQUE 650 Z Jan P 9/5/96 180,000 276.92 10.00% TLA M Step 3/1/97 1,500.00 P 11/1/96 240,000 369.23 10.00% --------- P 12/1/96 300,000 461.54 10.00% TOTAL 1,500.00 P 1/1/97 144,000 221.54 10.00% ------------------------------------- P 3/1/97 180,000 276.92 10.00% TEMPORARY - ------------------------------------------------------------------------------------------------------------------------------------ 43863 GNC 1,047 M Jan P 3/10/92 400,000 382.04 6.00% MIN M Step 3/10/95 2,166.66 P 3/10/95 433,333 413.88 6.00% CAM M Est 1/1/97 955.00 P 3/10/99 466,667 445.72 6.00% TAX M Est 1/1/97 361.00 ------------------------------------------ PRO M CStep 1/1/97 446.25 OCC M Step 1/1/97 125.64 --------- HEALTH & BEAUTY AIDS TOTAL 4,054.55 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43865 MAJOR JEWELERS OUTL 1,197 M Jan P 11/8/90 1,300,000 086.05 5.00% MIN M Step 11/8/95 4,496.25 P 11/8/95 1,500,000 253.13 5.00% CAM M Est 1/1/97 1,092.00 ------------------------------------------ TAX M Est 1/1/97 413.00 PRO M CStep 1/1/97 473.13 OCC M Step 1/1/97 143.64 --------- JEWELRY TOTAL 6,618.02 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - ---------------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO LEASABLE ANN SPACE TENANT SQ FT $/YR PSF ====================================================================== 43852 HAT TRICK JEWELRY 1,264 12,839.96 10.00 13,836.00 10.95 5,232.00 4.14 5,207.28 4.12 1,820.16 1.44 JEWELRY ---------- ----- 38,735.40 30.65 ------------------ - ---------------------------------------------------------------------- 43853 PORTRAITS PLUS 584 24,000.00 41.10 ---------- ----- 24,000.00 41.10 ----------------- TEMPORARY - ---------------------------------------------------------------------- 43854 LOLLIPOP BOUTIQUE 650 18,00.000 27.69 ---------- ----- 18,000.00 27.69 ------------------ TEMPORARY - ---------------------------------------------------------------------- 43863 GNC 1,047 25,999.92 24.83 11,460.00 10.95 4,332.00 4.14 5,354.97 5.11 1,507.68 1.44 ---------- ----- HEALTH & BEAUTY AIDS 48,854.57 40.47 ----------------- - ---------------------------------------------------------------------- 43865 MAJOR JEWELERS OUTL 1,197 53,955.00 45.08 13,104.00 10.95 4,956.00 4.14 5,677.54 4.74 1,723.68 1.44 ---------- ----- JEWELRY 79,416.22 66.35 ------------------ - ---------------------------------------------------------------------- Run Date 3/31/97 10:26:32 AM Run By barbie Franklin Mills PAGE 32 <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43871 HOUSE OF PERFUMES, IN 924 924 Primary 11/17/90 11/16/2000 1/1/92 3,418.50 41,022.00 44.40 ---------------------------------- 12/1/93 2,941.50 35,298.00 38.20 11/17/97 3,100.50 37,206.00 40.27 ----------------------------------------------- HEALTH & BEAUTY AIDS - ------------------------------------------------------------------------------------------------------------------------------------ 43874 UNITED CHECK CASHING 355 355 Primary 7/12/93 7/11/98 8/1/93 1,216.67 14,600.04 41.13 ---------------------------------- 7/12/96 1,416.81 17,001.77 47.89 ----------------------------------------------- SERVICES - ------------------------------------------------------------------------------------------------------------------------------------ 43875 ENCORE BOOKS 13,216 13,216 Primary 5/1/96 4/30/2001 P 5/1/96 11,013.33 132,159.96 10.00 1st Option 5/1/2001 4/30/2006 5/1/2001 14,317.33 171,807.96 13.00 ---------------------------------- ----------------------------------------------- BOOKS RECORDS & TAPES - ------------------------------------------------------------------------------------------------------------------------------------ 43F127 BAVARIAN PRETZEL 510 510 Primary 11/11/96 11/10/2001 P 11/11/96 2,165.83 25,989.98 50.96 1st Option 11/20/200 11/10/2006 11/11/2001 2,300.00 27,600.00 54.12 ---------------------------------- ----------------------------------------------- FOOD SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ 43F129 VACANT 1,600 1,600 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43F132 CHINA BUDDHA EXPRESS 218 218 Primary 7/26/96 5/10/2002 * 7/26/96 908/33 10,899.96 50.00 1st Option 5/11/2002 5/10/2007 5/11/2002 999.17 11,990.04 55.00 ---------------------------------- ----------------------------------------------- FOOD COURT - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified BREAKPOINTS CURRENT MO CHARGES LEASABLE L/Y ANN PSF SPACE TENANT SQ FT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43871 HOUSE OF PERFUMES, IN 924 M Jan P 11/17/90 417,375 451.70 8.00% MIN M Step 12/1/93 2,941.50 P 11/17/93 441,225 477.52 8.00% CAM M Est 1/1/97 843.00 P 11/17/97 465,075 503.33 8.00% TAX M Est 1/1/97 319.00 ------------------------------------------ PRO M CStep 1/1/97 458.53 OCC M Step 1/1/97 110.88 HEALTH & BEAUTY AIDS --------- TOTAL 4,670.91 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43874 UNITED CHECK CASHING 355 M Jan P 7/12/93 500,000 408.45 6.00% MIN M Step 7/12/96 1,416.81 ------------------------------------------ CAM M Est 1/1/97 324.00 TAX M Est 1/1/97 122.00 PRO M CStep 1/1/97 532.79 OCC M Step 1/1/97 42.60 SERVICES --------- TOTAL 2,438.21 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43875 ENCORE BOOKS 13,216 M Jan P 5/1/96 2,643,200 200.00 5.00% MIN M Step 5/1/96 11,013.33 1 5/1/2001 3,436,160 360.00 5.00% CAM M Cap 1/1/97 12,060.00 ------------------------------------------ TAX M Est 1/1/97 4,560.00 BOOKS RECORDS & TAPES PRO M CStep 1/1/97 1,134.29 OCC M Step 1/1/97 1,585.92 --------- TOTAL 30,353.54 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43F127 BAVARIAN PRETZEL 510 M Jan P 11/11/96 259,900 509.61 10.00% MIN M Step 11/11/96 2,165.83 1 11/11/2001 276,000 541.18 10.00% CAM M Step 1/1/97 465.38 ------------------------------------------ TAX M Step 1/1/97 175.95 FOOD SPECIALTY PRO M Step 11/11/96 416.67 FCT M Step 1/1/97 669.38 OCC M Step 1/1/97 61.20 --------- TOTAL 3,954.41 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43F129 VACANT 1,600 M Jan VACANT ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43F132 CHINA BUDDHA EXPRESS 218 M Jan P 7/26/96 250,000 146.79 10.00% MIN M Step 7/26/96 908.33 1 5/11/2001 275,000 261.47 10.00% CAM M Est 1/1/97 199.00 ------------------------------------------ TAX M Est 1/1/97 75.00 FOOD COURT PRO M Step 1/1/97 214.58 FCT M Est 1/1/97 701.00 OCC M Step 1/1/97 26.16 --------- TOTAL 2,124.05 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - ---------------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO LEASABLE ANN SPACE TENANT SQ FT $/YR PSF ====================================================================== 43871 HOUSE OF PERFUMES, IN 924 35,298.00 38.20 10,116.00 10.95 3,828.00 4.14 5,478.31 5.93 1,330.56 1.44 HEALTH & BEAUTY AIDS ---------- ----- 56,050.87 60.66 ------------------ - ---------------------------------------------------------------------- 43874 UNITED CHECK CASHING 355 17,001.77 47.89 3,888.00 10.95 1,464.00 4.14 6,393.51 18.01 511.20 1.44 SERVICES ---------- ----- 29,258.48 82.43 ------------------ - ------------------------------------------------------- 43875 ENCORE BOOKS 13,216 132,159.96 10.00 144,720.00 10.95 54,720.00 4.14 BOOKS RECORDS & TAPES 13,611.49 1.03 19,031.04 1.44 ---------- ----- 364,242.49 27.58 ------------------ - ---------------------------------------------------------------------- 43F127 BAVARIAN PRETZEL 510 25,989.96 50.96 5,584.50 10.95 2,111.40 4.14 FOOD SPECIALTY 5,000.00 9.80 8,032.50 1.44 734.40 1.44 ---------- ----- 47,452.76 93.04 ------------------ - ---------------------------------------------------------------------- 43F129 VACANT 1,600 VACANT ------------------ - ---------------------------------------------------------------------- 43F132 CHINA BUDDHA EXPRESS 218 10,899.96 50.00 2,388.00 10.95 900.00 4.14 FOOD COURT 2,574.72 11.81 8,412.00 38.60 313.92 1.44 ---------- ----- 25,488.60 116.94 ------------------ - --------------------------------------------------------------------- Run Date 3/31/97 10:26:36 AM Run By barbie Franklin Mills PAGE 33 <PAGE> <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43F133 NATHANS 674 674 Primary 10/30/89 10/29/9900 1/1/92 4,166.57 50,000.04 58.05 ---------------------------------- 10/1/94 4,220.43 50,645.16 56.78 11/1/94 5,000.00 60.000.00 67.26 P 1/1/97 3,777.77 45,333.24 67.26 ----------------------------------------------- FOOD COURT - ------------------------------------------------------------------------------------------------------------------------------------ 43F136 ARBYS 1,025 1,025 Primary 11/20/89 11/19/99 P 7/1/93 2,135.42 25,825.04 25.00 ---------------------------------- P 11/1/94 2,582.50 30,750.00 30.00 ----------------------------------------------- FOOD COURT - ------------------------------------------------------------------------------------------------------------------------------------ 43F137 BAINS DELI 1,171 1,171 Primary 5/11/89 5/10/99 1/1/93 3,236.87 38,842.44 33.18% ---------------------------------- 1/1/94 3,259.13 39,109.56 33.40% 5/1/94 3,365.00 40,380.00 34.48% 6/1/94 3,415.42 40,985.04 35.00% P 1/1/95 3,437.69 41,252.28 35.23% P 1/1/96 3,461.83 41,541.96 35.48% FOOD COURT P 1/1/97 3,487.73 41,852.78 35.74% P 1/1/93 3,461.83 41,541.96 35.48% ------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43F163 VACANT 1,052 1,052 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43F167 VACANT 688 688 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43F169 VACANT 651 651 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43F171 VACANT 759 759 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43F173 VACANT 628 628 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43F175 VACANT 711 711 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43F177 VACANT 553 553 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43F179 VACANT 485 485 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ *v = Sq Ft has been verified BREAKPOINTS CURRENT MO CHARGES LEASABLE L/Y ANN PSF SPACE TENANT SQ FT RPT MO TERM START BKPT BKPT % C F T STARTS $/MO ==================================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43F133 NATHANS 674 M Jan P 10/30/89 500,000 560.54 10.00% MIN M Step 1/1/97 3,777.77 P 10/30/94 600,000 672.65 10.00% CAM M Est 1/1/97 607.00 ----------------------------------------- TAX M Est 1/1/97 200.00 PRO M CStep 1/1/97 335.00 FCT M Est 1/1/97 1,723.00 OCC M Step 1/1/97 80.88 FOOD COURT --------- TOTAL 6,723.65 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43F136 ARBYS 1,025 M Jan P 11/20/89 419,167 408.94 6.00% NT5 M Step 6/1/96 700.00 P 1/1/94 503,000 490.73 6.00% MIN M Step 11/1/94 2,562.50 ----------------------------------------- CAM M Est 1/1/97 935.00 TAX M Est 1/1/97 354.00 PRO M CStep 1/1/97 525.16 FCT M Est 1/1/97 3,297.00 OCC M Step 1/1/97 123.00 FOOD COURT --------- TOTAL 8,496.66 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43F137 BAINS DELI 1,171 Q Jan * 4/1/89 261,120 222.99 8.00% MIN M CStep 1/1/97 3,487.73 P 7/1/89 460,800 393.51 8.00% CAM M Est 1/1/97 1,069.00 P 1/1/94 504,000 430.00 8.00% TAX M Est 1/1/97 404.00 P 4/1/99 220,932 188.67 8.00% PRO M CStep 1/1/97 499.10 ----------------------------------------- FCT M Est 1/1/97 2,408.00 OCC M Step 1/1/97 140.52 FOOD COURT --------- TOTAL 8,008.36 ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43F163 VACANT 1,052 M Jan VACANT ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43F167 VACANT 688 M Jan VACANT ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43F169 VACANT 651 M Jan VACANT ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43F171 VACANT 759 M Jan VACANT ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43F173 VACANT 628 M Jan VACANT ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43F175 VACANT 711 M Jan VACANT ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43F177 VACANT 553 M Jan VACANT ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ 43F179 VACANT 485 M Jan VACANT ------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ </TABLE> - ----------------------------------------------------------------------- *v = Sq Ft has been verified RENT MEMO LEASABLE ANN SPACE TENANT SQ FT $/YR PSF ====================================================================== 43F133 NATHANS 674 45,333.24 67.26 7,284.00 10.81 2,400.00 3.56 4,019.97 5.96 20,676.00 30.68 970.56 1.44 FOOD COURT ---------- ----- 80,683.77 119.71 ------------------ - ---------------------------------------------------------------------- 43F136 ARBYS 1,025 8,400.00 8.20 30,750.00 30.00 11,220.00 10.95 4,248.00 4.14 39,564.00 38.60 1,476.00 1.44 FOOD COURT ---------- ----- 101,959.93 99.48 ------------------ - ---------------------------------------------------------------------- 43F137 BAINS DELI 1,171 41,852.78 35.74 12,828.00 10.95 4,848.00 4.14 5,989.24 5.11 28,896.00 24.68 1,686.24 1.44 FOOD COURT ---------- ----- 96,100.26 82.07 ------------------ - ------------------------------------------------------- 43F163 VACANT 1,052 VACANT ------------------ - ---------------------------------------------------------------------- 43F167 VACANT 688 VACANT ------------------ - ---------------------------------------------------------------------- 43F169 VACANT 651 VACANT ------------------ - ---------------------------------------------------------------------- 43F171 VACANT 759 VACANT ------------------ - ---------------------------------------------------------------------- 43F173 VACANT 628 VACANT ------------------ - ---------------------------------------------------------------------- 43F175 VACANT 711 VACANT ------------------ - ---------------------------------------------------------------------- 43F177 VACANT 553 VACANT ------------------ - ---------------------------------------------------------------------- 43F179 VACANT 485 VACANT ------------------ - --------------------------------------------------------------------- Run Date 3/31/97 10:26:43 AM Run By barbie Franklin Mills PAGE 34 <PAGE> <TABLE> <CAPTION> ==================================================================================================================================== *V = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF ==================================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43F180 VACANT 518 518 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43F181 VACANT 791 791 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43F856 T. J. CINNAMONS 649 649 Primary 8/11/92 8/10/2002 9/1/92 2,750.00 33,000.00 50.85 ----------------------------- ---------------------------------------------- - FOOD SPECIALTY - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43F877 SBARRO 951 951 Primary 5/11/8 9 5/10/99 P 1/1/93 6,350.30 76,203.60 80.13 ----------------------------- P 1/1/94 6,437.40 77,248.80 81.23 P 1/1/95 6,521.35 78,256.20 82.29 P 1/1/96 6,612.95 79,355.40 83.44 P 1/1/97 6,711.91 80,542.89 84.69 P 1/1/98 6,612.95 79,355.40 83.44 ------------------------------------------------ FOOD COURT - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43F878 DADDYS DELI 476 476 Primary 5/11/89 7/31/96 9/1/93 2,181.67 26,180.04 55.00 ------- Primary 8/1/96 7/31/2006 1/1/94 3,945.34 47,344.08 99.46 ----------------------------- P 1/1/95 4,048.24 48,578.88 120.06 P 1/1/96 4,161.97 49,943.64 104.92 4/1/96 2,024.19 24,290.28 51.03 9/1/96 2,023.00 24,276.00 51.00 8/1/2000 2,102.33 25,227.96 53.00 8/1/2003 2,221.33 26,655.96 56.00 ------------------------------------------------ FOOD COURT - ------------------------------------------------------------------------------------------------------------------------------------ 43F879 VACANT 490 490 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ 43F880 ARTHUR TREACHERS FIS 503 503 Primary 11/24/93 11/23/2003 1/1/94 2,083.33 24,999.96 49.70 ------------------------------ ----------------------------------------------- FOOD COURT ==================================================================================================================================== <CAPTION> =========================================================================================================== *V = Sq Ft has been verified BREAKPOINTS LEASABLE RENTABLE L/Y ANN PSF SPACE TENANT SQ FT SQ FT V* RPT MO TERM START BKPT BKPT % =========================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43F180 VACANT 518 518 M Jan VACANT - ----------------------------------------------------------------------------------------------------------- 43F181 VACANT 791 791 M Jan VACANT - ----------------------------------------------------------------------------------------------------------- 43F856 T. J. CINNAMONS 649 649 M Jan P 8/11/92 412,500 635.59 8.00% P 8/11/97 462,500 712.63 8.00% ---------------------------------------- FOOD SPECIALTY - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- 43F877 SBARRO 951 951 M Jan P 5/11/89 750,000 788.64 9.00% ---------------------------------------- FOOD COURT - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- 43F878 DADDYS DELI 476 476 A Jan P 5/11/89 500,000 050.42 10.00% P 4/1/96 292,894 615.32 10.00% P 8/1/96 292,894 615.32 10.00% P 8/1/2000 307,539 646.09 10.00% P 8/1/2003 322,916 678.39 10.00% ---------------------------------------- FOOD COURT - ----------------------------------------------------------------------------------------------------------- 43F879 VACANT 490 490 M Jan VACANT - ----------------------------------------------------------------------------------------------------------- 43F880 ARTHUR TREACHERS FIS 503 503 M Jan P 11/24/93 312,500 621.27 8.00% P 11/24/98 437,500 869.74 8.00% ---------------------------------------- FOOD COURT =========================================================================================================== <CAPTION> ============================================================================================================================== *V = Sq Ft has been verified CURRENT MO CHARGES RENT MEMO LEASABLE RENTABLE ANN SPACE TENANT SQ FT SQ FT V* C F T STARTS $/MO $/YR PSF ============================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43F180 VACANT 518 518 VACANT - ------------------------------------------------------------------------------------------------------------------------------ 43F181 VACANT 791 791 VACANT - ------------------------------------------------------------------------------------------------------------------------------ 43F856 T. J. CINNAMONS 649 649 MIN M Step 9/1/92 2,750.00 33,000.00 50.85 CAM M Est 1/1/97 592.00 7,104.00 10.95 FOOD SPECIALTY TAX M Est 1/1/97 224.00 2,688.00 4.14 PRO M CStep 1/1/97 532.79 6,393.51 9.85 FCT M Step 1/1/97 703.00 8,436.00 13.00 OCC M Step 1/1/97 77.88 934.56 1.44 -------- --------- ----- TOTAL 4,879.67 58,556.07 90.23 ------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ 43F877 SBARRO 951 951 MIN M CStep 1/1/97 6,711.91 80,542.89 84.69 CAM M Est 1/1/97 868.00 10,416.00 10.95 TAX M Est 1/1/97 328.00 3,936.00 4.14 PRO M CStep 1/1/97 266.37 3,196.44 3.36 FCT M Est 1/1/97 3,059.00 36,708.00 38.60 OCC M Step 1/1/97 114.12 1,369.44 1.44 -------- -------- ----- FOOD COURT TOTAL 11,347.40 136,168.78 143.18 ------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ 43F878 DADDYS DELI 476 476 MIN M Step 9/1/96 2,023.00 24,276.00 51.00 CAM M Est 1/1/97 434.00 5,208.00 10.95 TAX M Est 1/1/97 164.00 1,968.00 4.14 PRO M Cstep 1/1/97 265.65 3,187.79 6.70 FCT M Est 1/1/97 1,531.00 18,372.00 38.60 OCC M Step 1/1/97 57.12 685.44 1.44 -------- --------- ------ TOTAL 4,474.77 53,697.23 112.83 ------------------------------------------------------------- FOOD COURT - ------------------------------------------------------------------------------------------------------------------------------- 43F879 VACANT 490 490 VACANT - ------------------------------------------------------------------------------------------------------------------------------- 43F880 ARTHUR TREACHERS FIS 503 503 MIN M Step 1/1/94 2,083.33 24,999.96 49.70 CAM M Est 1/1/97 459.00 5,508.00 10.95 FOOD COURT TAX M Est 1/1/97 174.00 2,088.00 4.14 PRO M Cstep 1/1/97 174.19 2,090.30 4.16 FCT M Est 1/1/97 1,618.00 19,416.00 38.60 OCC M Step 1/1/97 60.36 724.32 1.44 -------- --------- ------ TOTAL 4,588.88 54,826.58 108.99 ----------------------------------------------------------- ============================================================================================================================== </TABLE> <PAGE> <TABLE> <CAPTION> =================================================================================================================================== *V = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF =================================================================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43F881 MCDONALDS 694 694 Primary 9/26/96 1/31/2002 P 9/26/96 2,313.33 27,759.96 40.00 1st 2/1/2002 1/31/2007 1 2/1/2002 2,544.67 30,536.04 44.00 Option 2nd 2/1/2007 1/31/2012 2 2/1/2007 2,799.08 33,588.96 48.40 Option 3rd 2/1/2012 1/31/2017 3 2/1/2012 3,079.58 36,954.96 53.25 Option ----------------------------- ---------------------------------------------- FOOD COURT - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43F882 MANDARIN EXPRESS 654 654 Primary 5/11/89 5/10/99 12/1/92 5,000.00 80,000.00 91.74 -------------------------- ---------------------------------------------- FOOD COURT - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43F883 CAJUN GOURMET 735 735 Primary 11/26/93 11/25/2003 P 1/1/94 1,837.50 22,050.00 30.00 ------------------------------ P 1/1/99 2,450.00 29,400.00 40.00 ---------------------------------------------- FOOD COURT - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43F884 VACANT 635 635 VACANT - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43F885 A & W HOT DOGS 485 485 Primary 55/1/92 4/30/2002 7/1/92 2,918.67 35,000.04 72.17 ----------------------------- 5/1/97 3,168.67 38,000.04 78.35 ---------------------------------------------- FOOD COURT - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43F886 PHILLY STEAK AND GRIN 637 637 Primary 11/18/89 11/17/99 1/1/92 3,333.33 39,999.96 62.79 ---------------------------- 11/1/94 3,638.89 43,666.68 88.55 12/1/94 3,750.00 45,000.00 70.64 5/1/95 2,750.00 33,000.00 51.81 P 1/1/96 3,750.00 45,000.00 70.64 P 7/1/96 1,875.00 22,500.00 35.32 1/1/97 3,750.00 45,000.00 70.64 --------------------------------------- FOOD COURT - ----------------------------------------------------------------------------------------------------------------------------------- <CAPTION> ============================================================================================================================= *V = Sq Ft has been verified BREAKPOINTS CURRENT MO CHARGES LEASABLE RENTABLE L/Y ANN PSF SPACE TENANT SQ FT SQ FT V* RPT MO TERM START BKPT BKPT % C F T ============================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43F881 MCDONALDS 694 694 M Jan P 9/26/96 600,000 864.55 6.00% MIN M Step 1 2/1/2002 660,000 951.01 6.00% CAM M Cap 2 2/1/2007 726,000 046.11 6.00% TAX M Est 3 2/1/2012 798,600 150.72 6.00% PRO M CStep ----------------------------------------- FOOD COURT FCT M Est OCC M Step ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43F882 MANDARIN EXPRESS 654 654 M Jan P 5/11/89 600,000 917.43 10.00% MIN M Step ------------------------------------------ FOOD COURT CAM M Est TAX M Est PRO M CStep FCT M Est OCC M Step ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43F883 CAJUN GOURMET 735 735 M Jan * 1/1/893 302,810 476.87 8.00% MIN M Step P 1/1/95 275,625 434.06 8.00% CAM M Est P 1/1/99 367,500 578.74 8.00% TAX M Est ----------------------------------------- FOOD COURT FCT M Step OCC M Step ----------------- PRO S Step - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43F884 VACANT 635 635 M Jan VACANT - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43F885 A & W HOT DOGS 485 485 M Jan P 5/1/92 437,500 902.06 8.00% MIN M Step P 5/1/97 475,000 979.38 8.00% CAM M Est ----------------------------------------- TAX M Est FOOD COURT PRO M CStep FCT M Est OCC M Step ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43F886 PHILLY STEAK AND GRIN 637 637 M Jan P 11/18/89 415,845 852.82 10.00% MIN M Step P 11/18/97 450,000 706.44 10.00% CAM M Est ------------------------------------------ TAX M Est PRO M CStep FCT M Est OCC M Step ----------------- FOOD COURT - ----------------------------------------------------------------------------------------------------------------------------- <CAPTION> ============================================================================================================== *V = Sq Ft has been verified CURRENT MO CHARGES RENT MEMO LEASABLE RENTABLE ANN SPACE TENANT SQ FT SQ FT V* STARTS $/MO $/YR PSF ============================================================================================================== - -------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> 43F881 MCDONALDS 694 694 9/26/96 2,313.33 27,759.96 40.00 1/1/97 622.00 7464.00 10.76 1/1/97 239.00 2,868.00 4.14 1/1/97 429.14 5,149.68 7.42 FOOD COURT 1/1/97 2,125.00 25,500.00 36.75 1/1/97 83.28 999.36 1.44 -------- --------- ------ TOTAL 5,811.75 69,741.00 100.51 ----------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43F882 MANDARIN EXPRESS 654 654 12/1/92 5,000.00 60,000.00 91.74 --------------------------------------------------------- FOOD COURT 1/1/97 597.00 7,164.00 10.95 1/1/97 226.00 2,712.00 4.14 1/1/97 266.37 3,196.44 4.89 1/1/97 2,104.00 25,248.00 38.60 1/1/97 78.48 941.76 1.44 -------- --------- ------ TOTAL 8,271.85 99,262.20 151.76 ----------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43F883 CAJUN GOURMET 735 735 1/1/94 1,837.50 22,050.00 30.00 1/1/97 871.00 8,052.00 10.95 1/1/97 254.00 3,048.00 4.14 FOOD COURT 1/1/97 1,838.00 22,056.00 30.01 1/1/97 88.20 1,058.40 1.44 -------- --------- ------ TOTAL 4,688.70 56,264.40 78.54 ----------------------------------------------------------- 5/1/94 5,000.00 6.80 - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43F884 VACANT 635 635 VACANT - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43F885 A & W HOT DOGS 485 485 7/1/92 2,916.67 35,000.04 72.17 1/1/97 443.00 5,316.00 10.95 1/1/97 167.00 2,004.00 4.14 FOOD COURT 1/1/97 532.79 6,393.51 13.18 1/1/97 1,560.00 18,720.00 38.60 1/1/97 58.20 698.40 1.44 -------- --------- ------ TOTAL 5,677.66 68,131.95 140.48 ----------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43F886 PHILLY STEAK AND GRIN 637 637 1/1/97 3,750.00 45,000.00 70.64 1/1/97 581.00 6,972.00 10.95 1/1/97 220.00 2,640.00 4.14 1/1/97 525.16 8,301.93 9.89 1/1/97 2,049.00 24,588.00 38.60 1/1/97 76.44 917.28 1.44 -------- --------- ------ TOTAL 7,201.60 86,419.21 135.67 ----------------------------------------------------------- FOOD COURT - -------------------------------------------------------------------------------------------------------------- </TABLE> PAGE 36 <PAGE> <TABLE> <CAPTION> =================================================================================================================================== *V = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF =================================================================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43F887 VACANT 626 626 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43F901 HAAGEN DAZS 627 627 Primary 5/21/89 5/20/99 1/1/92 4,583.33 54,999.96 87.72 --------------------------- 5/1/94 4,731.18 56,774.16 90.55 6/1/94 5,000.00 60,000.00 95.69 ---------------------------------------------- FOOD COURT - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43K902 POPCORN WORLD #902 225 225 Primary 10/4/95 12/31/95 Primary 1/1/96 6/30/96 --------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Holdover TEMPORARY - ------------------------------------------------------------------------------------------------------------------------------------ 43K903 AUNTIE ANNES 300 300 Primary 7/6/94 7/5/99 7/6/94 2,083.33 24,999.96 83.33 1st 7/6/99 7/5/2004 1 7/6/99 2,500.00 30,000.00 100.00 Option --------------------------- ------------------------------------------------ KIOSK - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43K913 SUNGLASS HUT 256 256 Primary 1/16/92 1/15/97 5/1/92 2,000.00 24,000.00 93.75 1st 1/16/97 1/15/2004 1/16/95 2,166.67 26,000.04 101.56 Option --------------------------- 1/1/97 2,496.00 29,952.00 117.00 1/16/2000 2,752.00 33,024.00 129.00 1/16/2002 3,008.00 36,096.00 141.00 ---------------------------------------- KIOSK - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43R02 LIBERTY PLAZA 0 0 NONREPORTING - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43R04 PHILADELPHIA HOME & D 0 0 NONREPORTING - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43RC22 Toys-R-US 0 0 NONREPORTING - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43RC24 VACANT 0 0 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> ============================================================================================================================= *V = Sq Ft has been verified BREAKPOINTS CURRENT MO CHARGES LEASABLE RENTABLE L/Y ANN PSF SPACE TENANT SQ FT SQ FT V* RPT MO TERM START BKPT BKPT % C F T ============================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43F887 VACANT 626 626 M Jan VACANT - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43F901 HAAGEN DAZS 627 627 M Jan P 5/21/89 687,570 096.60 8.00% MIN M Step ----------------------------------------- CAM M Est TAX M Est FOOD COURT PRO M CStep FCT M Est OCC M Step ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43K902 POPCORN WORLD #902 225 225 Z Jan P 10/4/95 240,000 066.67 10.00% TLA M Step P 1/1/96 120,000 533.33 10.00% ------------------------------------------ - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- Holdover TEMPORARY - ----------------------------------------------------------------------------------------------------------------------------- 43K903 AUNTIE ANNES 300 300 M Jan P 7/6/94 312,500 041.67 8.00% MIN M Step P 7/6/99 375,000 250.00 8.00% CAM M Est ----------------------------------------- KIOSK TAX M Est PRO M CStep OCC M Step ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43K913 SUNGLASS HUT 256 256 Z Jan P 1/16/92 240,000 937.50 10.00% MIN M Step P 1/16/94 260,000 015.63 10.00% CAM M Est 1 1/16/97 299,520 170.00 10.00% TAX M Est 1 1/16/2000 330,240 290.00 10.00% PRO M CStep 1 1/16/2002 360,960 410.00 10.00% OCC M Est ------------------------------------------ KIOSK ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43R02 LIBERTY PLAZA 0 0 N Jan NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43R04 PHILADELPHIA HOME & D 0 0 N Jan CAM M Est NONREPORTING ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RC22 Toys-R-US 0 0 N Jan CAM M Step NONREPORTING ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RC24 VACANT 0 0 M Jan VACANT - ----------------------------------------------------------------------------------------------------------------------------- <CAPTION> ============================================================================================================== *V = Sq Ft has been verified CURRENT MO CHARGES RENT MEMO LEASABLE RENTABLE ANN SPACE TENANT SQ FT SQ FT V* STARTS $/MO $/YR PSF ============================================================================================================== - -------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> 43F887 VACANT 626 626 VACANT - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43F901 HAAGEN DAZS 627 627 6/1/94 5,000.00 60,000.00 95.69 1/1/97 565.00 6,780.00 10.81 1/1/97 186.00 2,232.00 3.56 FOOD COURT 1/1/97 265.65 3,187.83 5.08 1/1/97 1,141.00 13,692.00 21.84 1/1/97 75.24 902.88 1.44 -------- --------- ------ TOTAL 7,232.89 86,794.71 138.42 ------------------------------------------------ - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43K902 POPCORN WORLD #902 225 225 3/1/96H 1,000.00 12,000.00 53.33 -------- --------- ------ TOTAL 1,000.00 12,000.00 53.33 ------------------------------------------------ - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- Holdover TEMPORARY - -------------------------------------------------------------------------------------------------------------- 43K903 AUNTIE ANNES 300 300 7/6/94 2,083.33 24,999.96 83.33 1/1/97 274.00 3,288.00 10.95 KIOSK 1/1/97 103.00 1,236.00 4.14 1/1/97 452.71 5,432.46 18.11 1/1/97 36.00 432.00 1.44 -------- --------- ------ TOTAL 2,949.04 35,388.42 177.97 ------------------------------------------------ - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43K913 SUNGLASS HUT 256 256 1/16/97 2,496.00 29,952.00 117.00 1/1/97 182.00 2,184.00 10.95 1/1/97 69.00 828.00 4.14 2/1/97 308.48 3,701.76 14.46 1/1/97 30.72 368.64 1.44 -------- --------- ------ KIOSK TOTAL 3,086.20 37,034.40 147.99 ------------------------------------------------ - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43R02 LIBERTY PLAZA 0 0 NONREPORTING - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43R04 PHILADELPHIA HOME & D 0 0 1/1/97 3,838.00 46,058.00 -0.96 -------- --------- ------ NONREPORTING TOTAL 3,838.00 46,058.00 -0.96 ---------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43RC22 Toys-R-US 0 0 1/1/96 253.00 3,036.00 -------- --------- ------ NONREPORTING TOTAL 253.00 3,036.00 ---------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43RC24 VACANT 0 0 VACANT - -------------------------------------------------------------------------------------------------------------- </TABLE> PAGE 37 <PAGE> <TABLE> <CAPTION> =================================================================================================================================== *V = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF =================================================================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43RC26 MOBIL OIL 0 0 NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43RC27 NATIONAL TIRE WAREHO 0 0 NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43RE1 VACANT 0 0 VACANT - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43RE2 EXXON CORPORATION 0 0 NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------------- 43RE3 WENDYS 0 0 Primary 8/3/92 12/31/95 ---------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Holdover NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------------- 43RE4 JEWELRY III 0 0 NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43RF5 STATE LIQUOR STORE 0 0 NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43RF6 HOOTERS 0 0 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43RF7 BOSTON CHICKEN 0 0 NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43RF8 PIZZA HUT 0 0 NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43RF9 TACO BELL 0 0 NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43RF10 MCDONALDS 0 0 NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43G11 WHITE CASTLE 0 0 NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 43G12 CARVEL 0 0 NONREPORTING - ------------------------------------------------------------------------------------------------------------------------------ <CAPTION> ============================================================================================================================= *V = Sq Ft has been verified BREAKPOINTS CURRENT MO CHARGES LEASABLE RENTABLE L/Y ANN PSF SPACE TENANT SQ FT SQ FT V* RPT MO TERM START BKPT BKPT % C F T ============================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43RC26 MOBIL OIL 0 0 N Jan CAM M CStep NONREPORTING PRO M Step ----------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RC27 NATIONAL TIRE WAREHO 0 0 N CAM M Step NONREPORTING ----------------- ----------------- PRO A Step ----------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RE1 VACANT 0 0 M Jan VACANT - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RE2 EXXON CORPORATION 0 0 N Jan CAM M Step NONREPORTING ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RE3 WENDYS 0 0 N Jan CAM M Step Holdover NONREPORTING PRO M Step ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RE4 JEWELRY III 0 0 N Jan CAM M Step NONREPORTING ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RF5 STATE LIQUOR STORE 0 0 N Jan CAM M CStep NONREPORTING ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RF6 HOOTERS 0 0 N Jan CAM M Est ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RF7 BOSTON CHICKEN 0 0 N Jan CAM M Cap NONREPORTING ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RF8 PIZZA HUT 0 0 N Jan CAM M Cap NONREPORTING PRO M CStep ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RF9 TACO BELL 0 0 N Jan PRO M CStep NONREPORTING ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RF10 MCDONALDS 0 0 N Jan CAM M Step NONREPORTING ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43G11 WHITE CASTLE 0 0 N Jan CAM M Step NONREPORTING PRO M Step ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43G12 CARVEL 0 0 N Jan CAM M Step NONREPORTING PRO M Step ----------------- - ----------------------------------------------------------------------------------------------------------------------------- <CAPTION> ============================================================================================================== *V = Sq Ft has been verified CURRENT MO CHARGES RENT MEMO LEASABLE RENTABLE ANN SPACE TENANT SQ FT SQ FT V* STARTS $/MO $/YR PSF ============================================================================================================== - -------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> 43RC26 MOBIL OIL 0 0 1/1/97 70.21 842.56 0.00 NONREPORTING 1/1/97 25.45 305.40 0.00 ------ -------- ----- TOTAL 95.66 1,147.96 0.00 --------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- 43RC27 NATIONAL TIRE WAREHO 0 0 1/1/97 271.46 3,257.52 0.00 ------ -------- ----- NONREPORTING TOTAL 271.46 3,257.52 0.00 --------------------------------------- --------------------------------------- 1/1/97 7,464.24 0.00 --------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- 43RE1 VACANT 0 0 VACANT - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- 43RE2 EXXON CORPORATION 0 0 1/1/97 39.00 468.00 -0.58 ------ -------- ----- NONREPORTING TOTAL 39.00 468.00 -0.58 --------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- 43RE3 WENDYS 0 0 11/1/92H 141.67 1,700.04 11/1/92H 56.67 680.04 --------------------------------------- Holdover NONREPORTING - ------------------------------------------------------------------------------------------------------- 43RE4 JEWELRY III 0 0 4/16/96 157.60 1,890.00 0.00 ------ -------- ----- NONREPORTING TOTAL 157.60 1,890.00 0.00 --------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- 43RF5 STATE LIQUOR STORE 0 0 1/1/97 112.55 1,350.58 0.00 ------ -------- ----- NONREPORTING TOTAL 112.55 1,350.58 0.00 --------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- 43RF6 HOOTERS 0 0 1/1/97 216.00 2,592.58 0.58 ------ -------- ----- NONREPORTING TOTAL 216.00 2,592.58 0.58 --------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- 43RF7 BOSTON CHICKEN 0 0 1/1/97 123.00 1,476.00 -0.58 ------ -------- ----- NONREPORTING TOTAL 123.00 1,476.00 -0.58 --------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- 43RF8 PIZZA HUT 0 0 1/1/97 105.32 1,263.84 0.00 NONREPORTING 1/1/97 302.04 3,024.51 0.00 ------ -------- ----- TOTAL 407.38 4,888.35 0.00 --------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- 43RF9 TACO BELL 0 0 1/1/97 148.21 1,778.52 0.00 ------ -------- ----- NONREPORTING TOTAL 148.21 1,778.52 0.00 --------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- 43RG10 MCDONALDS 0 0 1/1/97 124.95 1,499.40 0.00 ------ -------- ----- NONREPORTING TOTAL 124.95 1,499.40 0.00 --------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- 43RG11 WHITE CASTLE 0 0 1/1/97 48.00 576.00 -0.58 NONREPORTING 1/1/97 67.01 804.12 0.00 ------ -------- ----- TOTAL 115.01 1,380.12 -0.58 --------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- 43RG12 CARVEL 0 0 1/1/97 139.39 1,672.73 0.00 NONREPORTING 1/1/97 59.86 718.32 0.00 ------ -------- ----- TOTAL 199.25 2,391.05 0.00 --------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- </TABLE> PAGE 38 <PAGE> <TABLE> <CAPTION> =================================================================================================================================== *V = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF =================================================================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43RG13 LONG JOHN SILVERS 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43RG14 CHI CHIS 0 0 NONREPORTING - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43RH15 BUGABOO CREEK 0 0 Primary 6/21/95 6/20/2004 P 6/21/95 8,750.00 105,000.00 1st 6/21/2004 6/20/2009 Option 2nd 6/21/2009 6/20/2014 Option 3rd 6/21/2014 6/20/2019 Option 4th 6/21/2019 6/20/2023 Option NONREPORTING - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43RH16 VACANT 0 0 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43RH17 PIZZERIA UNO 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43RI18 VACANT 0 0 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43RI18B RAGING WATERS CAR WA 0 0 NONREPORTING - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43RI19 HOLIDAY UNIVERSAL 0 0 NONREPORTING 43RJ20 GENERAL CINEMA 0 0 NONREPORTING - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43RM7 VACANT 0 0 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43RW1 WOODHAVEN SPORTS CE 0 0 Primary 11/1/83 10/31/2003 12/1/93 10,167.82 122,013.84 11/1/98 11,780.19 141,362.28 NONREPORTING - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43ZHOSP VACANT 0 0 VACANT - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43ZMAIN MAIN STREET RETAIL 0 0 Primary 1/1/94 12/31/99 NONREPORTING - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 43ZPHON TELECOIN COMMUNICATI 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> ============================================================================================================================= *V = Sq Ft has been verified BREAKPOINTS CURRENT MO CHARGES LEASABLE RENTABLE L/Y ANN PSF SPACE TENANT SQ FT SQ FT V* RPT MO TERM START BKPT BKPT % C F T ============================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43RG13 LONG JOHN SILVERS 0 0 N Jan CAM M Step PRO M Step ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RG14 CHI CHIS 0 0 N Jan CAM M Step PRO M Step NONREPORTING ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RH15 BUGABOO CREEK 0 0 N Jan CAM M Est PRO M CStep ----------------- NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RH16 VACANT 0 0 M Jan VACANT - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RH17 PIZZERIA UNO 0 0 N Jan CAM M Step PRO M Step ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RI18 VACANT 0 0 M Jan VACANT - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RI18B RAGING WATERS CAR WA 0 0 N Jan CAM M Step NONREPORTING PRO M Step ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RI19 HOLIDAY UNIVERSAL 0 0 N Jan CAM M Est NONREPORTING ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RJ20 GENERAL CINEMA 0 0 N Jan CAM M Est NONREPORTING ----------------- - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RM7 VACANT 0 0 M Jan VACANT - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43RW1 WOODHAVEN SPORTS CE 0 0 N Jan MIN M Step ----------------- NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43ZHOSP VACANT 0 0 M Jan VACANT - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43ZMAIN MAIN STREET RETAIL 0 0 N Jan NONREPORTING - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- 43ZPHON TELECOIN COMMUNICATI 0 0 N Jan MIS M Step ----------------- - ----------------------------------------------------------------------------------------------------------------------------- <CAPTION> ============================================================================================================== *V = Sq Ft has been verified CURRENT MO CHARGES RENT MEMO LEASABLE RENTABLE ANN SPACE TENANT SQ FT SQ FT V* STARTS $/MO $/YR PSF ============================================================================================================== - -------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> 43RG13 LONG JOHN SILVERS 0 0 1/1/97 134.32 1,611.84 0.00 1/1/97 67.17 806.04 0.00 --------- ---------- ----- TOTAL 201.49 2,417.88 0.00 ---------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43RG14 CHI CHIS 0 0 1/1/97 314.07 3,768.87 0.00 NONREPORTING 1/1/97 74.34 892.08 0.00 --------- ---------- ----- TOTAL 388.41 4,660.95 0.00 ---------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43RH15 BUGABOO CREEK 0 0 1/1/97 323.00 3,876.00 -0.58 1/1/97 184.33 2,211.97 0.00 --------- ---------- ----- TOTAL 507.33 6,087.97 -0.58 --------------------------------------------------- NONREPORTING - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43RH16 VACANT 0 0 VACANT - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43RH17 PIZZERIA UNO 0 0 1/1/97 288.75 3,465.00 0.00 1/1/97 143.89 1,726.68 0.00 --------- ---------- ----- TOTAL 432.64 5,191.68 0.00 ---------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43RI18 VACANT 0 0 VACANT - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43RI18B RAGING WATERS CAR WA 0 0 1/1/97 167.17 2,006.04 0.00 NONREPORTING 1/1/97 163.85 1,966.20 0.00 --------- ---------- ----- TOTAL 331.02 3,972.24 0.00 ---------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43RI19 HOLIDAY UNIVERSAL 0 0 1/1/97 1,316.00 15,792.00 -0.61 --------- ---------- ----- NONREPORTING TOTAL 1,316.00 15,792.00 -0.61 ---------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43RJ20 GENERAL CINEMA 0 0 1/1/97 4,208.00 50,496.00 -0.59 --------- ---------- ----- NONREPORTING TOTAL 4,208.00 50,496.00 -0.59 ---------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43RM7 VACANT 0 0 VACANT - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43RW1 WOODHAVEN SPORTS CE 0 0 12/1/93 10,167.82 122,013.84 --------- ---------- ----- TOTAL 10,167.82 122,013.84 ---------------------------------------------------- NONREPORTING - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43ZHOSP VACANT 0 0 VACANT - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43ZMAIN MAIN STREET RETAIL 0 0 NONREPORTING - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- 43ZPHON TELECOIN COMMUNICATI 0 0 1/1/97 5,000.00 60,000.00 0.00 --------- ---------- ----- TOTAL 5,000.00 60,000.00 0.00 ---------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- </TABLE> Page 39 <PAGE> <TABLE> <CAPTION> =================================================================================================================================== *V = Sq Ft has been verified LEASE TERMS MINIMUM RENT LEASABLE RENTABLE SPACE TENANT SQ FT SQ FT V* TERM START END TERM START /MO /YEAR PSF =================================================================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43ZWAST WASTE MGMT OF DEL VA 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ <CAPTION> ============================================================================================================================= *V = Sq Ft has been verified BREAKPOINTS CURRENT MO CHARGES LEASABLE RENTABLE L/Y ANN PSF SPACE TENANT SQ FT SQ FT V* RPT MO TERM START BKPT BKPT % C F T ============================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43ZWAST WASTE MGMT 0 0 N Jan MIS M Step OF DEL VA ----------------- - ----------------------------------------------------------------------------------------------------------------------------- <CAPTION> ============================================================================================================== *V = Sq Ft has been verified CURRENT MO CHARGES RENT MEMO LEASABLE RENTABLE ANN SPACE TENANT SQ FT SQ FT V* STARTS $/MO $/YR PSF ============================================================================================================== - -------------------------------------------------------------------------------------------------------------- <C> <S> <C> <C> <C> <C> <C> <C> 43ZWAST WASTE MGMT OF DEL VA 0 0 1/1/95 3,200.00 38,400.00 0.00 -------- --------- ---- TOTAL 3,200.00 38,400.00 0.00 - -------------------------------------------------- -------------------- TOTAL 1,761,601 1,761,601 -------------------- </TABLE> PAGE 40 <PAGE> ====================================== [LOGO] SUMMARY PAGE FRANKLIN MILLS COMPARABLE Monthly Gross Sales Comparative Report Detail by Category as of December 1996 ====================================== <TABLE> <CAPTION> ============================================================================================================================== CURRENT MONTH GROSS SALES YEAR TO DATE GROSS SALES ------------------------------------------------------------------------------- 1996 1995 SQUARE TOTAL TOTAL CATEGORY FOOTAGE 12/96 12/95 VARIANCE SALES SALES VARIANCE ============================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> ART & HOME FURNISHINGS 12,064 297,736 296,908 0% 1,961,338 2,162,164 -8% - ------------------------------------------------------------------------------------------------------------------------------ ATHLETIC & SPORTING GOODS 17,931 637,421 664,111 -4% 4,860,018 4,200,008 16% - ------------------------------------------------------------------------------------------------------------------------------ BOOKS, RECORDS & TAPES 25,322 722,772 710,440 2% 3,290,596 3,550,451 -7% - ------------------------------------------------------------------------------------------------------------------------------ CARDS & GIFTS 12,244 355,671 392,686 -9% 1,780,375 1,920,382 -7% - ------------------------------------------------------------------------------------------------------------------------------ CHILDRENS READY-TO-WEAR 5,845 47,603 365,790 20% 2,892,622 2,364,676 22% - ------------------------------------------------------------------------------------------------------------------------------ FOOD COURT 9,615 609,712 657,334 -7% 4,742,964 4,789,661 -1% - ------------------------------------------------------------------------------------------------------------------------------ FOOD SPECIALTY 5,073 202,001 201,221 0% 1,598,729 1,431,964 12% - ------------------------------------------------------------------------------------------------------------------------------ HANDBAGS, LEATHER & LUGGAGE 9,739 506,724 390,196 30% 2,423,346 2,457,314 -1% - ------------------------------------------------------------------------------------------------------------------------------ HEALTH & BEAUTY AIDS 9,407 688,771 634,625 9% 3,284,070 3,352,933 -2% - ------------------------------------------------------------------------------------------------------------------------------ JEWELRY 4,852 569,214 705,969 -19% 2,947,763 3,243,534 -9% - ------------------------------------------------------------------------------------------------------------------------------ KIOSK 556 86,760 80,017 8% 763,798 701,530 9% - ------------------------------------------------------------------------------------------------------------------------------ MENS READY-TO-WEAR 19,881 674,437 660,263 2% 4,334,276 4,296,485 1% - ------------------------------------------------------------------------------------------------------------------------------ RESTAURANT 17,143 389,844 374,761 4% 3,507,734 3,466,791 1% - ------------------------------------------------------------------------------------------------------------------------------ SERVICES 9,794 432,293 407,540 6% 3,225,923 3,307,519 -2% - ------------------------------------------------------------------------------------------------------------------------------ SHOES 56,569 1,360,827 1,428,512 -5% 13,092,026 14,170,537 -8% - ------------------------------------------------------------------------------------------------------------------------------ SPECIALTY 28,751 1,197,847 1,377,398 -13% 7,253,046 8,087,356 -10% - ------------------------------------------------------------------------------------------------------------------------------ TOY & HOBBY 15,147 1,451,659 1,473,468 -1% 4,653,025 4,451,466 5% - ------------------------------------------------------------------------------------------------------------------------------ UNISEX 49,463 2,237,958 1,966,144 14% 14,638,545 13,892,639 5% - ------------------------------------------------------------------------------------------------------------------------------ WOMEN'S READY TO WEAR 57,411 1,911,353 1,846,195 4% 16,249,016 17,929,749 -8% ============================================================================================================================== RETAIL COMPARABLE 365,807 14,772,602 14,833,680 1% 97,698,228 99,777,158 -2% ------------------------------------------------------------------------------------------------------------------------ ENTERTAINMENT 3,288 30,960 30,143 3% 294,786 292,423 1% MAJORS 259,254 5,866,077 5,877,735 0% 45,153,317 44,532,703 1% ANCHORS 259,766 5,705,715 4,928,629 16% 31,296,934 32,219,717 -3% ============================================================================================================================== ANHCOR /MAJOR / ENT COMP 522,306 11,602,752 10,836,507 7% 76,745,036 77,044,843 0% ============================================================================================================================== TOTAL COMPARABLE 888,115 26,375,354 25,470,087 4% 174,444,263 176,822,001 -1% <CAPTION> ===================================================================================================== GROSS SALES / SQUARE FOOT ------------------------------------------------------------------- 1996 1995 1996 1995 PROJ ACT/ PROJECTED ANNUALIZED CATEGORY PROJ VARIANCE SALES SALES ===================================================================================================== <S> <C> <C> <C> <C> <C> ART & HOME FURNISHINGS 164 179 -8% 1,981,338 2,162,164 - ----------------------------------------------------------------------------------------------------- ATHLETIC & SPORTING GOODS 271 234 16% 4,860,018 4,200,008 - ----------------------------------------------------------------------------------------------------- BOOKS, RECORDS & TAPES 130 140 -7% 3,290,595 3,550,451 - ----------------------------------------------------------------------------------------------------- CARDS & GIFTS 145 157 -7% 1,780,375 1,920,382 - ----------------------------------------------------------------------------------------------------- CHILDRENS READY-TO-WEAR 495 405 22% 2,892,622 2,364,676 - ----------------------------------------------------------------------------------------------------- FOOD COURT 493 498 -1% 4,742,984 4,789,661 - ----------------------------------------------------------------------------------------------------- FOOD SPECIALTY 315 282 12% 1,598,729 1,431,964 - ----------------------------------------------------------------------------------------------------- HANDBAGS, LEATHER & LUGGAGE 249 252 -1% 2,423,346 2,457,314 - ----------------------------------------------------------------------------------------------------- HEALTH & BEAUTY AIDS 349 256 -2% 3,284,071 3,352,933 - ----------------------------------------------------------------------------------------------------- JEWELRY 608 668 -9% 2,947,764 3,243,534 - ----------------------------------------------------------------------------------------------------- KIOSK 1,374 1,262 9% 763,797 701,530 - ----------------------------------------------------------------------------------------------------- MENS READY-TO-WEAR 218 216 1% 4,334,276 4,296,485 - ----------------------------------------------------------------------------------------------------- RESTAURANT 205 202 1% 3,507,733 3,466,791 - ----------------------------------------------------------------------------------------------------- SERVICES 367 376 -2% 3,225,923 3,307,519 - ----------------------------------------------------------------------------------------------------- SHOES 231 251 -8% 13,092,027 14,170,537 - ----------------------------------------------------------------------------------------------------- SPECIALTY 252 281 -10% 7,253,045 8,087,356 - ----------------------------------------------------------------------------------------------------- TOY & HOBBY 307 294 5% 4,653,026 4,451,466 - ----------------------------------------------------------------------------------------------------- UNISEX 296 281 5% 14,638,546 13,892,639 - ----------------------------------------------------------------------------------------------------- WOMEN'S READY TO WEAR 286 312 -8% 16,429,017 17,929,749 ===================================================================================================== RETAIL COMPARABLE 267 273 -2% 97,699,232 99,777,158 ----------------------------------------------------------------------------------------------- ENTERTAINMENT 90 89 1% 294,786 292,423 MAJORS 174 172 1% 45,153,117 44,532,703 ANCHORS 120 124 -3% 31,296,934 32,219,717 ===================================================================================================== ANCOR /MAJOR / ENT COMP 147 148 0% 76,745,037 77,044,843 ===================================================================================================== TOTAL COMPARABLE 196 199 -1% 174,444,269 176,822,001 </TABLE> <PAGE> --------------------------------------- [Logo of The Franklin Mills Mills Corporation] Monthly Gross Sales Comparative Report S1 Detail by Category as of December 1996 --------------------------------------- Project #43 <TABLE> <CAPTION> ================================================================================================================================= CURRENT MONTH GROSS SALES YEAR TO DATE GROSS SALES ------------------------------------------------------------------------- 1996 #mo 1995 #mo SPACE TENANT SQUARE TOTAL TOTAL Variance FOOTAGE 12/96 12/95 Variance SALES SALES ================================================================================================================================= <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> ART & HOME FURNISHINGS Comparable 43115 BOMBAY COMPANY 3,600 76,690 77,587 -1% 818,317 12 990,992 12 -17% - --------------------------------------------------------------------------------------------------------------------------------- 43423 FAMOUS BRANDS HOUSEWARES OUTLE 3,721 110,533 101,469 9% 609,871 12 535,421 12 14% - --------------------------------------------------------------------------------------------------------------------------------- 43702 O J ART GALLERY 1,088 32,000 16,650 92% 184,907 12 140,146 12 32% - --------------------------------------------------------------------------------------------------------------------------------- 43725 PRICE OUTLET 3,655 78,512 101,202 -22% 368,243 12 495,605 12 -26% - --------------------------------------------------------------------------------------------------------------------------------- Total Comparable 12,064 297,736 296,906 0% 1,981,338 2,162,164 -8% ================================================================================================================================= NonComparable 43820 CATALOG COLLECTIONS 6,241 117,265 434,176 9 0 - --------------------------------------------------------------------------------------------------------------------------------- Total NonComparable 6,241 117,265 434,176 ================================================================================================================================= Total ART & HOME FURNISHINGS 18,305 415,001 296,908 2,415,514 2,162,164 ================================================================================================================================= ================================================================================================================================= ATHLETIC & SPORTING GOODS Comparable 43721 CHAMPS #14983 8,841 366,002 387,777 -6% 2,626,940 12 1,719,496 12 53% - --------------------------------------------------------------------------------------------------------------------------------- 43161 FOOTQUARTERS 6,354 180,278 164,154 10% 1,338,187 12 1,172,552 12 14% - --------------------------------------------------------------------------------------------------------------------------------- 43206 NORDIC TRACK 2,736 91,141 112,180 -19% 894,891 12 1,307,960 12 -32% - --------------------------------------------------------------------------------------------------------------------------------- Total Comparable 17,931 637,421 664,111 -4% 4,860,018 4,200,008 16% ================================================================================================================================= NonComparable 43731 ATHLETE'S FOOT OUTLET 4,167 207,532 173,190 1,582,568 12 921,214 7 - --------------------------------------------------------------------------------------------------------------------------------- Total NonComparable 4,167 207,532 1,582,568 ================================================================================================================================= <CAPTION> ===================================================================================================================== GROSS SALES / SQUARE FOOT -------------------------------------------------------------------------- Bkpt 1996 1995 VARIANCE 1996 1995 SPACE TENANT PROJ ACT/ % PROJECTED ANNUALIZED PROJ Factor SALES SALES ===================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> ART & HOME FURNISHINGS Comparable 43115 BOMBAY COMPANY 367 227 275 -17% 1000 818,317 990,992 - --------------------------------------------------------------------------------------------------------------------- 43423 FAMOUS BRANDS HOUSEWARES OUTLE 360 164 144 14% 1000 609,871 535,421 - --------------------------------------------------------------------------------------------------------------------- 43702 O J ART GALLERY 367 170 129 32% 1000 184,907 140,146 - --------------------------------------------------------------------------------------------------------------------- 43725 PRICE OUTLET 0 101 136 -26% 1000 368,243 495,605 - --------------------------------------------------------------------------------------------------------------------- Total Comparable 164 179 -8% 1,981,338 2,162,164 ===================================================================================================================== NonComparable 43820 CATALOG COLLECTIONS 120 91 0765 567,587 - --------------------------------------------------------------------------------------------------------------------- Total NonComparable 91 567,587 ===================================================================================================================== Total ART & HOME FURNISHINGS 139 2,548,925 2,162,164 ===================================================================================================================== ===================================================================================================================== ATHLETIC & SPORTING GOODS Comparable 43721 CHAMPS #14983 250 297 194 53% 1000 2,626,940 1,719,496 - --------------------------------------------------------------------------------------------------------------------- 43161 FOOTQUARTERS 372 211 185 14% 1000 1,338,187 1,172,552 - --------------------------------------------------------------------------------------------------------------------- 43206 NORDIC TRACK 450 327 478 32% 1000 894,891 1,307,960 - --------------------------------------------------------------------------------------------------------------------- Total Comparable 271 234 16% 4,860,018 4,200,008 ===================================================================================================================== NonComparable 43731 ATHLETE'S FOOT OUTLET 400 380 320 1000 1,582,568 1,335,129 - --------------------------------------------------------------------------------------------------------------------- Total NonComparable 380 1,582,568 1,335,129 ===================================================================================================================== </TABLE> Franklin Mills Run Date 1/31/97 5:47:05 PM Run By Karen PAGE 1 <PAGE> <TABLE> <CAPTION> ================================================================================================================================ CURRENT MONTH GROSS SALES YEAR TO DATE GROSS SALES ------------------------------------------------------------------------ 1996 #mo 1995 #mo SPACE TENANT SQUARE TOTAL TOTAL Variance FOOTAGE 12/96 12/95 Variance SALES SALES ================================================================================================================================ <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> ================================================================================================================================ Total ATHLETIC & SPORTING GOODS 22,096 844,952 837,301 6,442,585 5,121,222 ================================================================================================================================ ================================================================================================================================ BOOKS, RECORDS & TAPES Comparable 43601 SAM GOODY #4606 12,092 278,158 294,626 -6% 1,469,026 12 1,483,405 12 -1% - -------------------------------------------------------------------------------------------------------------------------------- 43441 THE WALL #441 7,546 177,699 250,202 -29% 754,723 12 1,237,999 12 -39% - -------------------------------------------------------------------------------------------------------------------------------- 43509 THE WALL #509 5,684 266,915 165,612 61% 1,066,846 12 828,747 12 29% - -------------------------------------------------------------------------------------------------------------------------------- Total Comparable 25,322 722,772 710,440 2% 3,290,596 3,550,451 -7% ================================================================================================================================ NonComparable 43875 ENCORE BOOKS 13,216 321,355 1,029,696 8 0 - -------------------------------------------------------------------------------------------------------------------------------- Total NonComparable 13,216 321,355 1,029,696 ================================================================================================================================ Total BOOKS, RECORDS & TAPES 38,538 1,044,127 710,440 4,320,292 3,550,451 ================================================================================================================================ ================================================================================================================================ CARDS & GIFTS Comparable 43317 ACCENT ON ANIMALS 881 39,733 38,426 3% 220,212 12 235,888 12 -7% - -------------------------------------------------------------------------------------------------------------------------------- 43605 CARD AND GIFT OUTLET 3,532 64,478 74,907 -14% 358,578 12 387,475 12 -7% - -------------------------------------------------------------------------------------------------------------------------------- 43113 PAPER FACTORY, THE 3,727 30,132 53,019 -43% 308,168 12 363,117 12 -15% - -------------------------------------------------------------------------------------------------------------------------------- 43813 SPAIN'S CARDS AND GIFTS 3,787 163,924 178,137 -8% 673,833 12 728,273 12 -7% - -------------------------------------------------------------------------------------------------------------------------------- 43354 WATCHES GALORE 317 57,404 48,198 19% 219,584 12 205,629 12 7% - -------------------------------------------------------------------------------------------------------------------------------- Total Comparable 12,244 355,671 392,686 -9% 1,780,375 1,920,382 -7% ================================================================================================================================ <CAPTION> ================================================================================================================== GROSS SALES / SQUARE FOOT --------------------------------------------------------------------------- Bkpt 1996 1995 VARIANCE 1996 1995 SPACE TENANT PROJ ACT/ % PROJECTED ANNUALIZED PROJ Factor SALES SALES ================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> ================================================================================================================== Total ATHLETIC & SPORTING GOODS 292 6,442,586 5,535,137 ================================================================================================================== ================================================================================================================== BOOKS, RECORDS & TAPES Comparable 43601 SAM GOODY #4606 320 121 123 -1% 1000 1,469,026 1,483,705 - ------------------------------------------------------------------------------------------------------------------ 43441 THE WALL #441 504 100 164 -39% 1000 754,723 1,237,999 - ------------------------------------------------------------------------------------------------------------------ 43509 THE WALL #509 555 188 146 29% 1000 1,066,846 828,747 - ------------------------------------------------------------------------------------------------------------------ Total Comparable 130 140 -7% 3,290,595 3,550,451 ================================================================================================================== NonComparable 43875 ENCORE BOOKS 200 108 0724 1,422,370 - ------------------------------------------------------------------------------------------------------------------ Total NonComparable 108 1,422,370 ================================================================================================================== Total BOOKS, RECORDS & TAPES 122 4,712,965 3,550,451 ================================================================================================================== ================================================================================================================== CARDS & GIFTS Comparable 43317 ACCENT ON ANIMALS 600 250 268 -7% 1000 220,212 235,888 - ------------------------------------------------------------------------------------------------------------------ 43605 CARD AND GIFT OUTLET 307 102 110 -7% 1000 358,578 387,475 - ------------------------------------------------------------------------------------------------------------------ 43113 PAPER FACTORY, THE 120 83 97 -15% 1000 308,168 363,117 - ------------------------------------------------------------------------------------------------------------------ 43813 SPAIN'S CARDS AND GIFTS 529 178 192 -7% 1000 673,833 728,273 - ------------------------------------------------------------------------------------------------------------------ 43354 WATCHES GALORE 757 693 649 7% 1000 219,584 205,629 - ------------------------------------------------------------------------------------------------------------------ Total Comparable 145 157 -7% 1,780,375 1,920,382 ================================================================================================================== </TABLE> Franklin Mills Run Date 1/31/97 5:47:05 PM Run By Karen PAGE 2 <PAGE> <TABLE> <CAPTION> ================================================================================================================================ CURRENT MONTH GROSS SALES YEAR TO DATE GROSS SALES ------------------------------------------------------------------------ 1996 #mo 1995 #mo SPACE TENANT SQUARE TOTAL TOTAL Variance FOOTAGE 12/96 12/95 Variance SALES SALES ================================================================================================================================ <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Total CARDS & GIFTS 12,244 355,671 392,686 1,780,375 1,920,382 ================================================================================================================================ ================================================================================================================================ CHILDRENS READY-TO-WEAR Comparable 43651 BABY GUESS & GUESS KIDS 1,495 94,297 100,196 -6% 835,082 12 730,879 12 14% - -------------------------------------------------------------------------------------------------------------------------------- 43715 CHILDREN'S OUTLET, THE 4,350 343,306 265,592 29% 2,057,540 12 1,633,797 12 26% - -------------------------------------------------------------------------------------------------------------------------------- Total Comparable 5,845 437,603 365,790 20% 2,892,622 2,364,676 22% ================================================================================================================================ NonComparable 43335 CARTERS CHILDRENSWEAR 4,812 122,712 86,433 992,843 12 111,433 2 - -------------------------------------------------------------------------------------------------------------------------------- 43837 SO FUN KIDS 1,840 17,348 170,956 10 0 - -------------------------------------------------------------------------------------------------------------------------------- Total NonComparable 6,652 140,060 1,163,799 ================================================================================================================================ Total CHILDRENS READY-TO-WEAR 12,497 577,663 452,223 4,056,421 2,476,109 ================================================================================================================================ ================================================================================================================================ FOOD COURT Comparable 43F885 A & W HOTDOG 485 23,796 27,093 -12% 202,053 12 191,889 12 5% - -------------------------------------------------------------------------------------------------------------------------------- 43F136 ARBY'S 1,025 64,320 69,380 -7% 512,253 12 462,415 12 11% - -------------------------------------------------------------------------------------------------------------------------------- 43F880 ARTHUR TREACHERS II 503 52,432 45,196 16% 339,260 12 318,729 12 6% - -------------------------------------------------------------------------------------------------------------------------------- 43F137 BAIN'S DELI 1,171 46,400 51,002 -9% 397,431 12 425,611 12 -7% - -------------------------------------------------------------------------------------------------------------------------------- 43F163 BURGER KING CORP 1,052 71,094 80,092 -11% 651,346 12 653,955 12 0% - -------------------------------------------------------------------------------------------------------------------------------- 43F883 CAJUN GOURMET 735 21,035 27,143 -23% 174,443 12 208,600 12 16% - -------------------------------------------------------------------------------------------------------------------------------- 43F878 DADDY'S DELI 476 28,563 37,607 -24% 242,959 12 269,491 12 -10% - -------------------------------------------------------------------------------------------------------------------------------- 43F901 HAAGEN-DAZS #901 627 26,787 28,067 -5% 201,058 12 220,661 12 -9% - -------------------------------------------------------------------------------------------------------------------------------- 43F911 HAAGEN-DAZS II #911 625 26,914 19,496 38% 172,480 12 178,949 12 -4% - -------------------------------------------------------------------------------------------------------------------------------- 43F882 MANDARIN EXPRESS #17 654 49,550 50,293 -1% 399,856 12 380,516 12 5% - -------------------------------------------------------------------------------------------------------------------------------- 43F133 NATHAN'S 674 71,150 81,547 -13% 402,461 12 494,644 12 19% - -------------------------------------------------------------------------------------------------------------------------------- 43F886 PHILLY STEAK AND GRINDER 637 31,639 35,470 -11% 248,929 12 249,323 12 0% - -------------------------------------------------------------------------------------------------------------------------------- 43F877 SBARRO 951 96,032 104,949 -8% 798,455 12 734,877 12 9% - -------------------------------------------------------------------------------------------------------------------------------- <CAPTION> ====================================================================================================================== GROSS SALES / SQUARE FOOT ---------------------------------------------------------------------------- Bkpt 1996 1995 VARIANCE 1996 1995 SPACE TENANT PROJ ACT/ % PROJECTED ANNUALIZED PROJ Factor SALES SALES ====================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> Total CARDS & GIFTS 145 1,780,375 1,920,382 ====================================================================================================================== ====================================================================================================================== CHILDRENS READY-TO-WEAR Comparable 43651 BABY GUESS & GUESS KIDS 700 559 489 14% 1000 835,082 730,879 - ---------------------------------------------------------------------------------------------------------------------- 43715 CHILDREN'S OUTLET, THE 388 473 376 26% 1000 2,057,540 1,633,797 - ---------------------------------------------------------------------------------------------------------------------- Total Comparable 495 405 22% 2,892,622 2,364,676 ====================================================================================================================== NonComparable 43335 CARTERS CHILDRENSWEAR 340 206 85 1000 992,843 408,828 - ---------------------------------------------------------------------------------------------------------------------- 43837 SO FUN KIDS 78 101 0917 186,469 - ---------------------------------------------------------------------------------------------------------------------- Total NonComparable 177 1,179,312 408,828 ====================================================================================================================== Total CHILDRENS READY-TO-WEAR 326 4,071,934 2,773,504 ====================================================================================================================== ====================================================================================================================== FOOD COURT Comparable 43F885 A & W HOTDOG 902 417 396 5% 1000 202,053 191,889 - ---------------------------------------------------------------------------------------------------------------------- 43F136 ARBY'S 491 500 451 11% 1000 512,253 462,415 - ---------------------------------------------------------------------------------------------------------------------- 43F880 ARTHUR TREACHERS II 621 674 634 6% 1000 339,260 318,729 - ---------------------------------------------------------------------------------------------------------------------- 43F137 BAIN'S DELI 430 339 363 -7% 1000 397,431 425,611 - ---------------------------------------------------------------------------------------------------------------------- 43F163 BURGER KING CORP 792 619 622 0% 1000 651,346 653,955 - ---------------------------------------------------------------------------------------------------------------------- 43F883 CAJUN GOURMET 375 237 284 -16% 1000 174,443 208,600 - ---------------------------------------------------------------------------------------------------------------------- 43F878 DADDY'S DELI 615 510 566 -10% 1000 242,959 269,491 - ---------------------------------------------------------------------------------------------------------------------- 43F901 HAAGEN-DAZS #901 1,097 321 352 -9% 1000 201,058 220,661 - ---------------------------------------------------------------------------------------------------------------------- 43F911 HAAGEN-DAZS II #911 0 276 286 -4% 1000 172,480 178,949 - ---------------------------------------------------------------------------------------------------------------------- 43F882 MANDARIN EXPRESS #17 917 611 582 5% 1000 399,856 380,516 - ---------------------------------------------------------------------------------------------------------------------- 43F133 NATHAN'S 890 597 734 -19% 1000 402,461 494,644 - ---------------------------------------------------------------------------------------------------------------------- 43F886 PHILLY STEAK AND GRINDER 653 391 391 0% 1000 248,929 249,323 - ---------------------------------------------------------------------------------------------------------------------- 43F877 SBARRO 789 840 773 9% 1000 798,455 734,877 - ---------------------------------------------------------------------------------------------------------------------- </TABLE> Franklin Mills Run Date 1/31/97 5:47:05 PM Run By Karen PAGE 3 <PAGE> <TABLE> <CAPTION> =============================================================================================================================== CURRENT MONTH GROSS SALES YEAR TO DATE GROSS SALES ----------------------------------------------------------------------- 1996 #mo 1995 #mo SPACE TENANT SQUARE TOTAL TOTAL Variance FOOTAGE 12/96 12/95 Variance SALES SALES =============================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Total Comparable 9,615 609,712 657,334 -7% 4,742,984 4,789,661 -1% =============================================================================================================================== NonComparable 43F132 CHINA BUDDHA EXPRESS 218 18,674 75,088 5 0 - ------------------------------------------------------------------------------------------------------------------------------- 43F881 MCDONALD'S 694 115,599 297,913 4 0 - ------------------------------------------------------------------------------------------------------------------------------- Total NonComparable 912 134,274 373,001 =============================================================================================================================== Total FOOD COURT 10,527 743,966 657,334 5,115,985 4,789,661 =============================================================================================================================== =============================================================================================================================== FOOD SPECIALTY Comparable 43704 FUDGERY, THE 794 33,455 32,112 4% 277,749 12 295,362 12 -6% - ------------------------------------------------------------------------------------------------------------------------------- 43705 MR BULKY 2,295 72,944 58,496 25% 507,305 12 356,227 12 42% - ------------------------------------------------------------------------------------------------------------------------------- 43838 ORIGINAL COOKIE COMPANY, THE 574 21,092 27,032 -22% 175,843 12 177,436 12 -1% - ------------------------------------------------------------------------------------------------------------------------------- 43F856 T J CINNAMON BUNS 649 34,582 34,040 2% 260,840 12 248,224 12 5% - ------------------------------------------------------------------------------------------------------------------------------- 43611 TROPIK SUN FRUIT & NUT 761 39,927 49,539 -19% 376,992 12 354,716 12 6% - ------------------------------------------------------------------------------------------------------------------------------- Total Comparable 5,073 202,001 201,221 0% 1,598,729 1,431,964 12% =============================================================================================================================== NonComparable 43F127 BAVARIAN PRETZEL 510 27,053 48,737 2 0 - ------------------------------------------------------------------------------------------------------------------------------- Total NonComparable 510 27,053 48,737 =============================================================================================================================== Total FOOD SPECIALTY 5,583 229,053 201,221 1,647,466 1,431,964 =============================================================================================================================== =============================================================================================================================== HANDBAGS, LEATHER & LUGGAGE Comparable 43358 BRIEFCASE UNLIMITED 1,201 61,479 57,390 7% 351,303 12 335,530 12 5% - ------------------------------------------------------------------------------------------------------------------------------- 43729 HAMILTON LUGGAGE 3,227 89,275 56,646 58% 479,172 12 499,280 12 -4% - ------------------------------------------------------------------------------------------------------------------------------- 43313 LESLIE'S HANDBAGS 1,636 52,350 52,200 0% 410,515 12 410,950 12 0% - ------------------------------------------------------------------------------------------------------------------------------- 43707 WILSON'S LEATHER OUTLET 3,675 305,619 223,960 36% 1,182,356 12 1,211,554 12 2% - ------------------------------------------------------------------------------------------------------------------------------- <CAPTION> ======================================================================================================================= GROSS SALES / SQUARE FOOT ----------------------------------------------------------------------------- Bkpt 1996 1995 VARIANCE 1996 1995 SPACE TENANT PROJ ACT/ % PROJECTED ANNUALIZED PROJ Factor SALES SALES ======================================================================================================================= <C> <S> <C> <C> <C> <C> <C> <C> <C> Total Comparable 493 498 -1% 4,742,984 4,789,661 ======================================================================================================================= NonComparable 43F132 CHINA BUDDHA EXPRESS 1,147 658 0523 143,552 - ----------------------------------------------------------------------------------------------------------------------- 43F881 MCDONALD'S 865 1,024 0419 710,536 - ----------------------------------------------------------------------------------------------------------------------- Total NonComparable 937 854,088 ======================================================================================================================= Total FOOD COURT 532 5,597,072 4,789,661 ======================================================================================================================= ======================================================================================================================= FOOD SPECIALTY Comparable 43704 FUDGERY, THE 554 350 372 -6% 1000 277,749 295,362 - ----------------------------------------------------------------------------------------------------------------------- 43705 MR BULKY 520 221 155 42% 1000 507,305 356,227 - ----------------------------------------------------------------------------------------------------------------------- 43838 ORIGINAL COOKIE COMPANY, THE 1,045 306 309 -1% 1000 175,843 177,436 - ----------------------------------------------------------------------------------------------------------------------- 43F856 T J CINNAMON BUNS 636 402 382 5% 1000 260,840 248,224 - ----------------------------------------------------------------------------------------------------------------------- 43611 TROPIK SUN FRUIT & NUT 688 495 466 6% 1000 376,992 354,716 - ----------------------------------------------------------------------------------------------------------------------- Total Comparable 315 282 12% 1,598,729 1,431,964 ======================================================================================================================= NonComparable 43F127 BAVARIAN PRETZEL 510 365 0262 186,163 - ----------------------------------------------------------------------------------------------------------------------- Total NonComparable 365 186,163 ======================================================================================================================= Total FOOD SPECIALTY 320 1,784,892 1,431,964 ======================================================================================================================= ======================================================================================================================= HANDBAGS, LEATHER & LUGGAGE Comparable 43358 BRIEFCASE UNLIMITED 700 293 279 5% 1000 351,303 335,530 - ----------------------------------------------------------------------------------------------------------------------- 43729 HAMILTON LUGGAGE 403 148 155 -4% 1000 479,172 499,280 - ----------------------------------------------------------------------------------------------------------------------- 43313 LESLIE'S HANDBAGS 489 251 251 0% 1000 410,515 410,950 - ----------------------------------------------------------------------------------------------------------------------- 43707 WILSON'S LEATHER OUTLET 505 322 330 -2% 1000 1,182,356 1,211,554 - ----------------------------------------------------------------------------------------------------------------------- </TABLE> Franklin Mills Run Date 1/31/97 5:47:05 PM Run By Karen PAGE 4 <PAGE> <TABLE> <CAPTION> ================================================================================================================================ CURRENT MONTH GROSS SALES YEAR TO DATE GROSS SALES ------------------------------------------------------------------------ 1996 #mo 1995 #mo SPACE TENANT SQUARE TOTAL TOTAL Variance FOOTAGE 12/96 12/95 Variance SALES SALES ================================================================================================================================ <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Total Comparable 9,739 508,724 390,196 30% 2,423,346 2,457,314 1% ================================================================================================================================ NonComparable 43543 AMERICAN TOURISTER 2,897 84,427 235,353 4 0 - -------------------------------------------------------------------------------------------------------------------------------- 43433 PHILLY LEATHER OUTLET 4,094 278,285 620,673 4 0 - -------------------------------------------------------------------------------------------------------------------------------- Total NonComparable 6,991 362,712 856,026 ================================================================================================================================ Total HANDBAGS, LEATHER & LUGGA 16,730 871,435 390,196 3,279,372 2,457,314 ================================================================================================================================ ================================================================================================================================ HEALTH & BEAUTY AIDS Comparable 43119 CLASS PERFUME 1,437 125,175 119,538 5% 564,518 12 569,337 12 -1% - -------------------------------------------------------------------------------------------------------------------------------- 43353 FRAGRANCE OUTLET, THE 1,362 146,838 128,930 14% 576,576 12 610,963 12 -6% - -------------------------------------------------------------------------------------------------------------------------------- 43863 GENERAL NUTRITION 1,047 64,352 30,960 108% 395,680 12 382,328 12 3% - -------------------------------------------------------------------------------------------------------------------------------- 43871 HOUSE OF PERFUMES, INC. 924 55,111 63,965 -14% 246,052 12 270,089 12 -9% - -------------------------------------------------------------------------------------------------------------------------------- 43143 NATURE FOOD CENTRES 1,851 38,689 33,288 16% 310,533 12 359,043 12 -14% - -------------------------------------------------------------------------------------------------------------------------------- 43642 PERFUMANIA 1,410 165,592 146,535 13% 679,463 12 651,278 12 4% - -------------------------------------------------------------------------------------------------------------------------------- 43833 PRESTIGE FRAGRANCE & COSMETICS 1,376 93,014 111,369 -16% 514,249 12 509,895 12 1% - -------------------------------------------------------------------------------------------------------------------------------- Total Comparable 9,407 688,771 634,625 9% 3,284,070 3,352,933 -2% ================================================================================================================================ NonComparable 43615 COSMETICS CO STORE, THE 1,808 93,623 99,663 2 0 - -------------------------------------------------------------------------------------------------------------------------------- 43647 NATURE'S ELEMENTS 632 24,225 52,830 202,613 12 236,846 12 - -------------------------------------------------------------------------------------------------------------------------------- 43405 PERFUME ROMANCE 455 29,686 94,417 6 0 - -------------------------------------------------------------------------------------------------------------------------------- Total NonComparable 2,895 147,534 396,693 ================================================================================================================================ Total HEALTH & BEAUTY AIDS 12,302 836,305 687,455 3,680,763 3,589,779 ================================================================================================================================ ================================================================================================================================ JEWELRY Comparable <CAPTION> ====================================================================================================================== GROSS SALES / SQUARE FOOT ---------------------------------------------------------------------------- Bkpt 1996 1995 VARIANCE 1996 1995 SPACE TENANT PROJ ACT/ % PROJECTED ANNUALIZED PROJ Factor SALES SALES ====================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> Total Comparable 249 252 -1% 2,423,346 2,457,314 ====================================================================================================================== NonComparable 43543 AMERICAN TOURISTER 333 184 0441 533,413 - ---------------------------------------------------------------------------------------------------------------------- 43433 PHILLY LEATHER OUTLET 267 344 0441 1,406,720 - ---------------------------------------------------------------------------------------------------------------------- Total NonComparable 278 1,940,133 ====================================================================================================================== Total HANDBAGS, LEATHER & LUGGA 261 4,363,479 2,457,314 ====================================================================================================================== ====================================================================================================================== HEALTH & BEAUTY AIDS Comparable 43119 CLASS PERFUME 814 393 396 -1% 1000 564,518 569,337 - ---------------------------------------------------------------------------------------------------------------------- 43353 FRAGRANCE OUTLET, THE 734 423 449 -6% 1000 576,576 610,963 - ---------------------------------------------------------------------------------------------------------------------- 43863 GENERAL NUTRITION 414 375 365 3% 1000 395,680 382,328 - ---------------------------------------------------------------------------------------------------------------------- 43871 HOUSE OF PERFUMES, INC. 478 266 292 -9% 1000 246,052 270,089 - ---------------------------------------------------------------------------------------------------------------------- 43143 NATURE FOOD CENTRES 594 168 194 -14% 1000 310,533 359,043 - ---------------------------------------------------------------------------------------------------------------------- 43642 PERFUMANIA 610 482 462 4% 1000 679,463 651,278 - ---------------------------------------------------------------------------------------------------------------------- 43833 PRESTIGE FRAGRANCE & COSMETICS 471 374 371 1% 1000 514,249 509,895 - ---------------------------------------------------------------------------------------------------------------------- Total Comparable 349 356 -2% 3,284,071 3,352,933 ====================================================================================================================== NonComparable 43615 COSMETICS CO STORE, THE 600 277 0000 P 500,120 - ---------------------------------------------------------------------------------------------------------------------- 43647 NATURE'S ELEMENTS 593 321 375 1000 202,613 236,846 - ---------------------------------------------------------------------------------------------------------------------- 43405 PERFUME ROMANCE 537 335 0619 152,596 - ---------------------------------------------------------------------------------------------------------------------- Total NonComparable 295 855,329 236,846 ====================================================================================================================== Total HEALTH & BEAUTY AIDS 336 4,139,400 3,589,779 ====================================================================================================================== ====================================================================================================================== JEWELRY Comparable </TABLE> Franklin Mills Run Date 1/31/97 5:47:05 PM Run By Karen PAGE 5 <PAGE> <TABLE> <CAPTION> ================================================================================================================================ CURRENT MONTH GROSS SALES YEAR TO DATE GROSS SALES ------------------------------------------------------------------------ 1996 #mo 1995 #mo SPACE TENANT SQUARE TOTAL TOTAL Variance FOOTAGE 12/96 12/95 Variance SALES SALES ================================================================================================================================ <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> 43865 MAJOR JEWELERS OUTLET 1,197 151,894 194,776 -22% 627,078 12 796,268 12 -21% - -------------------------------------------------------------------------------------------------------------------------------- 43356 ROYAL JEWELERS 583 66,365 70,612 -6% 290,396 12 300,429 12 -3% - -------------------------------------------------------------------------------------------------------------------------------- 43713 SENTIMENTAL JEWELRY CO OUTLET 854 79,743 83,775 -5% 341,036 12 383,141 12 -11% - -------------------------------------------------------------------------------------------------------------------------------- 43150 ZALES JEWELRY OUTLET 2,218 271,212 356,806 -24% 1,689,254 12 1,763,697 12 -4% - -------------------------------------------------------------------------------------------------------------------------------- Total Comparable 4,852 569,214 705,969 -19% 2,947,763 3,243,534 -9% ================================================================================================================================ NonComparable 43835 C R JEWELERS OUTLET 1,255 111,478 382,274 9 0 - -------------------------------------------------------------------------------------------------------------------------------- 43337 CLAIRE'S ETC 1,455 64,918 111,314 3 0 - -------------------------------------------------------------------------------------------------------------------------------- 43316 EARRING WORLD 1,021 64,489 38,769 377,781 12 188,431 8 - -------------------------------------------------------------------------------------------------------------------------------- 43852 HAT TRICK JEWELRY 1,264 2,537 42,866 9 0 - -------------------------------------------------------------------------------------------------------------------------------- 43643 SWATCH OUTLET 1,721 50,951 47,049 372,709 12 47,049 1 - -------------------------------------------------------------------------------------------------------------------------------- Total NonComparable 6,716 294,372 1,286,944 ================================================================================================================================ Total JEWELRY 11,568 863,586 791,787 4,234,708 3,479,013 ================================================================================================================================ ================================================================================================================================ KIOSK Comparable 43K903 AUNTIE ANNE'S 300 57,525 48,742 18% 447,398 12 396,054 12 13% - -------------------------------------------------------------------------------------------------------------------------------- 43K913 SUNGLASS HUT EXPRESS II 256 29,235 31,276 -7% 316,399 12 305,476 12 4% - -------------------------------------------------------------------------------------------------------------------------------- Total Comparable 556 86,760 80,017 8% 763,798 701,530 9% ================================================================================================================================ Total KIOSK 556 86,760 80,017 763,798 701,530 ================================================================================================================================ ================================================================================================================================ MENS READY-TO-WEAR Comparable 43525 ARCHIE JACOBSON 4,253 110,007 110,233 0% 800,248 12 763,515 12 5% - -------------------------------------------------------------------------------------------------------------------------------- 43413 BRITCHES BASEMENT 4,797 138,446 107,580 29% 877,364 12 877,303 12 0% - -------------------------------------------------------------------------------------------------------------------------------- 43329 CASUAL MALE BIG & TALL #9290 4,011 152,999 171,920 -11% 914,622 12 948,037 12 -4% - -------------------------------------------------------------------------------------------------------------------------------- 43435 QUAIL'S OUTLET 3,084 127,409 124,877 2% 863,107 12 813,845 12 6% - -------------------------------------------------------------------------------------------------------------------------------- 43311 VAN HEUSEN OUTLET 3,736 145,576 145,653 0% 878,935 12 893,785 12 -2% - -------------------------------------------------------------------------------------------------------------------------------- <CAPTION> ======================================================================================================================= GROSS SALES / SQUARE FOOT ---------------------------------------------------------------------------- Bkpt 1996 1995 VARIANCE 1996 1995 SPACE TENANT PROJ ACT/ % PROJECTED ANNUALIZED PROJ Factor SALES SALES ======================================================================================================================= <C> <S> <C> <C> <C> <C> <C> <C> <C> 43865 MAJOR JEWELERS OUTLET 1,253 524 665 -21% 1000 627,078 796,268 - ----------------------------------------------------------------------------------------------------------------------- 43356 ROYAL JEWELERS 650 498 515 -3% 1000 290,396 300,429 - ----------------------------------------------------------------------------------------------------------------------- 43713 SENTIMENTAL JEWELRY CO OUTLET 544 399 449 -11% 1000 341,036 383,141 - ----------------------------------------------------------------------------------------------------------------------- 43150 ZALES JEWELRY OUTLET 667 762 795 -4% 1000 1,689,254 1,763,697 - ----------------------------------------------------------------------------------------------------------------------- Total Comparable 608 668 -9% 2,947,764 3,243,534 ======================================================================================================================= NonComparable 43835 C R JEWELERS OUTLET 700 369 0825 463,216 - ----------------------------------------------------------------------------------------------------------------------- 43337 CLAIRE'S ETC 386 193 0397 280,473 - ----------------------------------------------------------------------------------------------------------------------- 43316 EARRING WORLD 711 370 245 1000 377,781 250,400 - ----------------------------------------------------------------------------------------------------------------------- 43852 HAT TRICK JEWELRY 370 41 0825 51,943 - ----------------------------------------------------------------------------------------------------------------------- 43643 SWATCH OUTLET 721 217 133 1000 372,709 228,902 - ----------------------------------------------------------------------------------------------------------------------- Total NonComparable 230 1,546,122 479,302 ======================================================================================================================= Total JEWELRY 388 4,493,886 3,722,836 ======================================================================================================================= ======================================================================================================================= KIOSK Comparable 43K903 AUNTIE ANNE'S 1,042 1,491 1,320 13% 1000 447,398 396,054 - ----------------------------------------------------------------------------------------------------------------------- 43K913 SUNGLASS HUT EXPRESS II 1,016 1,236 1,193 4% 1000 316,399 305,476 - ----------------------------------------------------------------------------------------------------------------------- Total Comparable 1,374 1,262 9% 763,797 701,530 ======================================================================================================================= Total KIOSK 1,374 763,797 701,530 ======================================================================================================================= ======================================================================================================================= MENS READY-TO-WEAR Comparable 43525 ARCHIE JACOBSON 279 188 180 5% 1000 800,248 763,515 - ----------------------------------------------------------------------------------------------------------------------- 43413 BRITCHES BASEMENT 165 183 183 0% 1000 877,364 877,303 - ----------------------------------------------------------------------------------------------------------------------- 43329 CASUAL MALE BIG & TALL #9290 374 228 236 -4% 1000 914,622 948,037 - ----------------------------------------------------------------------------------------------------------------------- 43435 QUAIL'S OUTLET 246 280 264 6% 1000 863,107 813,845 - ----------------------------------------------------------------------------------------------------------------------- 43311 VAN HEUSEN OUTLET 344 235 239 2% 1000 878,935 893,785 - ----------------------------------------------------------------------------------------------------------------------- </TABLE> Franklin Mills Run Date 1/31/97 5:47:05 PM Run By Karen PAGE 6 <PAGE> <TABLE> <CAPTION> ================================================================================================================================ CURRENT MONTH GROSS SALES YEAR TO DATE GROSS SALES ------------------------------------------------------------------------ 1996 #mo 1995 #mo SPACE TENANT SQUARE TOTAL TOTAL Variance FOOTAGE 12/96 12/95 Variance SALES SALES ================================================================================================================================ <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Total Comparable 19,881 674,437 660,263 2% 4,334,276 4,296,485 1% ================================================================================================================================ NonComparable 43345 J RIGGING'S OUTLET 11,827 104,933 940,822 12 0 - -------------------------------------------------------------------------------------------------------------------------------- 43211 TOMMY HILFIGER 4,357 956,026 3,976,842 9 0 - -------------------------------------------------------------------------------------------------------------------------------- Total NonComparable 16,184 1,060,959 4,917,664 ================================================================================================================================ Total MENS READY-TO-WEAR 36,065 1,735,396 660,263 9,251,939 4,296,485 ================================================================================================================================ ================================================================================================================================ RESTAURANT Comparable 43501 CHINA BUDDHA INN 3,939 39,697 50,141 -21% 452,902 12 478,685 12 -5% - -------------------------------------------------------------------------------------------------------------------------------- 43700 ITALIAN BISTRO # 700 5,422 93,770 99,023 -5% 870,925 12 906,493 12 -4% - -------------------------------------------------------------------------------------------------------------------------------- 43458 MARTINO'S ITALIAN EATERY 2,982 43,232 47,877 -10% 381,934 12 371,788 12 3% - -------------------------------------------------------------------------------------------------------------------------------- 43661 RUBY TUESDAY 4,800 213,145 177,720 20% 1,801,972 12 1,709,825 12 5% - -------------------------------------------------------------------------------------------------------------------------------- Total Comparable 17,143 389,844 374,761 4% 3,507,734 3,466,791 1% ================================================================================================================================ Total RESTAURANT 17,143 389,844 374,761 3,507,734 3,466,791 ================================================================================================================================ ================================================================================================================================ SERVICES Comparable 43613 CAMERA SHOP, THE 1,561 130,411 88,362 48% 694,339 12 571,855 12 21% - -------------------------------------------------------------------------------------------------------------------------------- 43162 COST CUTTERS 2,030 44,136 50,030 -12% 443,424 12 484,819 12 -9% - -------------------------------------------------------------------------------------------------------------------------------- 43456 HAIRCUTTERY 1,056 41,295 40,792 1% 417,501 12 407,458 12 2% - -------------------------------------------------------------------------------------------------------------------------------- 43357 NAILERY V, THE 501 21,408 29,831 -28% 223,362 12 289,142 12 -23% - -------------------------------------------------------------------------------------------------------------------------------- 43831 RITZ CAMERA ONE HOUR PHOTO 1,437 124,410 121,040 3% 661,002 12 759,746 12 -13% - -------------------------------------------------------------------------------------------------------------------------------- 43139 SUNGLASS HUT EXPRESS 546 15,334 15,862 -3% 163,297 12 157,845 12 3% - -------------------------------------------------------------------------------------------------------------------------------- 43874 UNITED CHECK CASHING 355 19,175 15,930 20% 158,587 12 139,744 12 13% - -------------------------------------------------------------------------------------------------------------------------------- 43807 WEST COAST OPTICAL 1,308 36,124 45,693 -21% 464,411 12 496,911 12 -7% - -------------------------------------------------------------------------------------------------------------------------------- Total Comparable 8,794 432,293 407,540 6% 3,225,923 3,307,519 -2% ================================================================================================================================ <CAPTION> ==================================================================================================================== GROSS SALES / SQUARE FOOT --------------------------------------------------------------------------- Bkpt 1996 1995 VARIANCE 1996 1995 SPACE TENANT PROJ ACT/ % PROJECTED ANNUALIZED PROJ Factor SALES SALES ==================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> Total Comparable 218 216 1% 4,334,276 4,296,485 ==================================================================================================================== NonComparable 43345 J RIGGING'S OUTLET 135 80 1000 940,822 - -------------------------------------------------------------------------------------------------------------------- 43211 TOMMY HILFIGER 650 1,105 0826 4,815,978 - -------------------------------------------------------------------------------------------------------------------- Total NonComparable 356 5,756,800 ==================================================================================================================== Total MENS READY-TO-WEAR 280 10,091,076 4,296,485 ==================================================================================================================== ==================================================================================================================== RESTAURANT Comparable 43501 CHINA BUDDHA INN 228 115 122 -5% 1000 452,902 478,685 - -------------------------------------------------------------------------------------------------------------------- 43700 ITALIAN BISTRO # 700 231 161 167 -4% 1000 870,925 906,493 - -------------------------------------------------------------------------------------------------------------------- 43458 MARTINO'S ITALIAN EATERY 266 128 125 3% 1000 381,934 371,788 - -------------------------------------------------------------------------------------------------------------------- 43661 RUBY TUESDAY 430 375 356 5% 1000 1,801,972 1,709,825 - -------------------------------------------------------------------------------------------------------------------- Total Comparable 205 202 1% 3,507,733 3,466,791 ==================================================================================================================== Total RESTAURANT 205 3,507,733 3,466,791 ==================================================================================================================== ==================================================================================================================== SERVICES Comparable 43613 CAMERA SHOP, THE 0 445 366 21% 1000 694,339 571,855 - -------------------------------------------------------------------------------------------------------------------- 43162 COST CUTTERS 333 218 239 9% 1000 443,424 484,819 - -------------------------------------------------------------------------------------------------------------------- 43456 HAIRCUTTERY 540 395 386 2% 1000 417,501 407,458 - -------------------------------------------------------------------------------------------------------------------- 43357 NAILERY V, THE 578 446 577 -23% 1000 223,362 289,142 - -------------------------------------------------------------------------------------------------------------------- 43831 RITZ CAMERA ONE HOUR PHOTO 924 460 529 -13% 1000 661,002 759,746 - -------------------------------------------------------------------------------------------------------------------- 43139 SUNGLASS HUT EXPRESS 696 299 289 3% 1000 163,297 157,845 - -------------------------------------------------------------------------------------------------------------------- 43874 UNITED CHECK CASHING 1,408 447 394 13% 1000 158,587 139,744 - -------------------------------------------------------------------------------------------------------------------- 43807 WEST COAST OPTICAL 438 355 380 7% 1000 464,411 496,911 - -------------------------------------------------------------------------------------------------------------------- Total Comparable 367 376 2% 3,225,923 3,307,519 ==================================================================================================================== </TABLE> Franklin Mills Run Date 1/31/97 5:47:05 PM Run By Karen PAGE 7 <PAGE> <TABLE> <CAPTION> =============================================================================================================================== CURRENT MONTH GROSS SALES YEAR TO DATE GROSS SALES ----------------------------------------------------------------------- 1996 #mo 1995 #mo SPACE TENANT SQUARE TOTAL TOTAL Variance FOOTAGE 12/96 12/95 Variance SALES SALES =============================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Total SERVICES 8,794 432,293 407,540 3,225,923 3,307,519 =============================================================================================================================== =============================================================================================================================== SHOES Comparable 43215 9 WEST & CO OUTLET 3,104 150,156 140,891 7% 1,484,665 12 1,634,407 12 -9% - ------------------------------------------------------------------------------------------------------------------------------- 43309 BALLY OF SWITZERLAND 5,450 153,742 174,314 -12% 1,845,846 12 2,204,227 12 -16% - ------------------------------------------------------------------------------------------------------------------------------- 43221 BANISTER SHOES 8,837 139,759 128,734 9% 1,402,736 12 1,549,545 12 -9% - ------------------------------------------------------------------------------------------------------------------------------- 43735 BOOT FACTORY 1,615 70,215 79,525 -12% 475,514 12 426,632 12 11% - ------------------------------------------------------------------------------------------------------------------------------- 43617 ENZO ANGIOLINI 1,460 80,151 61,241 31% 761,952 12 687,491 12 11% - ------------------------------------------------------------------------------------------------------------------------------- 43710 FAMOUS FOOTWEAR 10,389 199,321 241,042 -17% 1,939,392 12 2,293,236 12 -15% - ------------------------------------------------------------------------------------------------------------------------------- 43515 FLORSHEIM SHOE OUTLET 3,088 47,742 54,154 -12% 454,833 12 531,510 12 -14% - ------------------------------------------------------------------------------------------------------------------------------- 43533 MARTY'S WAREHOUSE OUTLET 7,424 95,721 106,235 -10% 915,008 12 1,001,733 12 -9% - ------------------------------------------------------------------------------------------------------------------------------- 43425 PARADE OF SHOES #113 2,971 87,099 99,146 -12% 775,081 12 960,031 12 -19% - ------------------------------------------------------------------------------------------------------------------------------- 43507 PAYLESS SHOE SOURCE #3293 3,714 71,144 66,727 7% 705,043 12 730,779 12 -4% - ------------------------------------------------------------------------------------------------------------------------------- 43411 PAYLESS SHOE SOURCE #3641 3,106 101,585 97,091 5% 930,319 12 866,168 12 7% - ------------------------------------------------------------------------------------------------------------------------------- 43351 RACK ROOM 5,409 164,192 179,411 -8% 1,401,638 12 1,284,778 12 9% - ------------------------------------------------------------------------------------------------------------------------------- Total Comparable 56,569 1,360,827 1,428,512 -5% 13,092,026 14,170,537 -8% =============================================================================================================================== NonComparable 43145 AEROSOLES 2,011 30,653 123,789 4 0 - ------------------------------------------------------------------------------------------------------------------------------- 43321 ALDO FOR LESS 2,636 80,957 68,641 622,476 12 177,347 3 - ------------------------------------------------------------------------------------------------------------------------------- 43802 BOSTONIAN SHOE OUTLET 3,056 81,955 667,553 11 0 - ------------------------------------------------------------------------------------------------------------------------------- Total NonComparable 7,703 193,565 1,413,817 =============================================================================================================================== Total SHOES 64,272 1,554,392 1,497,153 14,505,843 14,347,884 =============================================================================================================================== =============================================================================================================================== SPECIALTY Comparable 43141 CLAIRE'S BOUTIQUE 932 35,926 52,463 -32% 299,713 12 306,006 12 -2% - ------------------------------------------------------------------------------------------------------------------------------- 43712 DELTA HOSIERY 646 10,525 21,180 -50% 98,771 12 147,376 12 -33% - ------------------------------------------------------------------------------------------------------------------------------- 43153 ELEGANCE 817 34,539 42,980 -20% 300,101 12 345,036 12 -13% - ------------------------------------------------------------------------------------------------------------------------------- <CAPTION> ===================================================================================================================== GROSS SALES / SQUARE FOOT --------------------------------------------------------------------------- Bkpt 1996 1995 VARIANCE 1996 1995 SPACE TENANT PROJ ACT/ % PROJECTED ANNUALIZED PROJ Factor SALES SALES ===================================================================================================================== <C> <S> <C> <C> <C> <C> <C> <C> <C> Total SERVICES 367 3,225,923 3,307,519 ===================================================================================================================== ===================================================================================================================== SHOES Comparable 43215 9 WEST & CO OUTLET 515 478 527 -9% 1000 1,484,665 1,634,407 - --------------------------------------------------------------------------------------------------------------------- 43309 BALLY OF SWITZERLAND 303 339 404 -16% 1000 1,845,846 2,204,227 - --------------------------------------------------------------------------------------------------------------------- 43221 BANISTER SHOES 558 159 175 -9% 1000 1,402,736 1,549,545 - --------------------------------------------------------------------------------------------------------------------- 43735 BOOT FACTORY 275 294 264 11% 1000 475,514 426,632 - --------------------------------------------------------------------------------------------------------------------- 43617 ENZO ANGIOLINI 520 522 471 11% 1000 761,952 687,491 - --------------------------------------------------------------------------------------------------------------------- 43710 FAMOUS FOOTWEAR 207 187 221 -15% 1000 1,939,392 2,293,236 - --------------------------------------------------------------------------------------------------------------------- 43515 FLORSHEIM SHOE OUTLET 458 147 172 -14% 1000 454,833 531,510 - --------------------------------------------------------------------------------------------------------------------- 43533 MARTY'S WAREHOUSE OUTLET 429 123 135 -9% 1000 915,008 1,001,733 - --------------------------------------------------------------------------------------------------------------------- 43425 PARADE OF SHOES #113 618 261 323 -19% 1000 775,081 960,031 - --------------------------------------------------------------------------------------------------------------------- 43507 PAYLESS SHOE SOURCE #3293 419 190 197 -4% 1000 705,043 730,779 - --------------------------------------------------------------------------------------------------------------------- 43411 PAYLESS SHOE SOURCE #3641 520 299 279 7% 1000 930,319 866,168 - --------------------------------------------------------------------------------------------------------------------- 43351 RACK ROOM 349 259 238 9% 1000 1,401,638 1,284,778 - --------------------------------------------------------------------------------------------------------------------- Total Comparable 231 251 -8% 13,092,027 14,170,537 ===================================================================================================================== NonComparable 43145 AEROSOLES 360 161 0382 324,215 - --------------------------------------------------------------------------------------------------------------------- 43321 ALDO FOR LESS 440 236 228 1000 622,476 600,559 - --------------------------------------------------------------------------------------------------------------------- 43802 BOSTONIAN SHOE OUTLET 320 233 0938 711,699 - --------------------------------------------------------------------------------------------------------------------- Total NonComparable 215 1,658,390 600,559 ===================================================================================================================== Total SHOES 229 14,750,417 14,771,096 ===================================================================================================================== ===================================================================================================================== SPECIALTY Comparable 43141 CLAIRE'S BOUTIQUE 514 322 328 -2% 1000 299,713 306,006 - --------------------------------------------------------------------------------------------------------------------- 43712 DELTA HOSIERY 500 153 228 -33% 1000 98,771 147,376 - --------------------------------------------------------------------------------------------------------------------- 43153 ELEGANCE 2,000 367 422 13% 1000 300,101 345,036 - --------------------------------------------------------------------------------------------------------------------- </TABLE> Franklin Mills Run Date 1/31/97 5:47:05 PM Run By Karen PAGE 8 <PAGE> <TABLE> <CAPTION> ============================================================================================================= YEAR TO DATE CURRENT MONTH GROSS SALES GROSS SALES ----------------------------------- ------------------ 1996 #mo SQUARE TOTAL SPACE TENANT FOOTAGE 12/96 12/95 VARIANCE SALES ============================================================================================================= <S> <C> <C> <C> <C> <C> <C> <C> 43703 FLAG SHOP, THE 958 23,621 24,612 -4% 169,001 12 - ------------------------------------------------------------------------------------------------------------- 43603 GEOFFREY BEENE 5,882 152,395 172,717 -12% 905,028 12 - ------------------------------------------------------------------------------------------------------------- 43209 MAIDENFORM FACTORY OUTLET 3,217 117,274 124,192 -6% 940,411 12 - ------------------------------------------------------------------------------------------------------------- 43149 NAP OUTLET 2,404 56,737 47,687 19% 260,435 12 - ------------------------------------------------------------------------------------------------------------- 43355 NEWSTAND OF FRANKLIN MILLS 460 36,480 35,945 1% 303,085 12 - ---------------------------------------------------------------------------------------------- -------------- 43809 PALACE ELECTRONICS 1,475 164,410 187,284 -12% 1,346,721 12 - ------------------------------------------------------------------------------------------------------------- 43527 RADIO SHACK # 01-1816 3,438 145,400 163,080 -11% 714,525 12 - ------------------------------------------------------------------------------------------------------------- 43359 REMINGTON FACTORY OUTLET 1,232 111,799 108,971 3% 505,386 12 - ------------------------------------------------------------------------------------------------------------- 43415 SUNCOAST VIDEO 3,605 172,851 172,329 0% 698,916 12 - ------------------------------------------------------------------------------------------------------------- 43803 WEARGUARD WORK WEAR #8058 3,685 135,889 223,958 -39% 710,952 12 - ------------------------------------------------------------------------------------------------------------- Total Comparable 28,751 1,197,847 1,377,396 -13% 7,253,046 ============================================================================================================= NonComparable 43511 A FORMAL CELEBRATION 4,091 23,089 454,486 10 - ------------------------------------------------------------------------------------------------------------- 43429 DOLLAR MANIA 5,207 156,772 347,136 4 - ------------------------------------------------------------------------------------------------------------- 43138 LET'S TALK CELLLULAR 915 41,237 52,923 3 - ------------------------------------------------------------------------------------------------------------- 43407 LIDS FOR LESS 550 27,966 219,890 8 - ------------------------------------------------------------------------------------------------------------- Total NonComparable 10,763 249,085 1,074,435 - ------------------------------------------------------------------------------------------------------------- Total SPECIALTY 39,514 1,446,932 1,377,398 8,327,481 ============================================================================================================= ============================================================================================================= TOY & HOBBY Comparable 43117 ELECTRONICS BOUTIQUE 1,000 211,385 172,649 22% 736,829 12 - ------------------------------------------------------------------------------------------------------------- 43453 GAMES N GADGETS 1,107 200,085 181,500 10% 674,002 12 - ------------------------------------------------------------------------------------------------------------- 43437 TOY WORKS 13,040 1,040,189 1,119,319 -7% 3,242,195 12 - ------------------------------------------------------------------------------------------------------------- Total Comparable 15,147 1,451,659 1,473,468 -1% 4,653,025 - ------------------------------------------------------------------------------------------------------------- NonComparable 43657 BABBAGES 2,261 147,991 127,313 438,817 12 - ------------------------------------------------------------------------------------------------------------- Total NonComparable 2,261 147,991 438,817 - ------------------------------------------------------------------------------------------------------------- <CAPTION> =============================================================================================================== YEAR TO DATE GROSS SALES GROSS SALES / SQUARE FOOT ------------------------------- ------------------------------------- 1995 #mo Bkpt 1996 1995 TOTAL PROJ ACT/ SPACE TENANT SALES VARIANCE PROJ VARIANCE =============================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> 43703 FLAG SHOP, THE 192,416 12 -12% 350 176 201 -12% - --------------------------------------------------------------------------------------------------------------- 43603 GEOFFREY BEENE 1,099,555 12 -18% 292 154 187 -18% - --------------------------------------------------------------------------------------------------------------- 43209 MAIDENFORM FACTORY OUTLET 1,062,294 12 -11% 286 292 330 -11% - --------------------------------------------------------------------------------------------------------------- 43149 NAP OUTLET 327,236 12 -20% 0 108 136 -20% - --------------------------------------------------------------------------------------------------------------- 43355 NEWSTAND OF FRANKLIN MILLS 303,215 12 0% 1,304 659 659 0% - --------------------------------------------------------------------------------------------------------------- 43809 PALACE ELECTRONICS 1,448,527 12 -7% 1,267 913 982 -7% - --------------------------------------------------------------------------------------------------------------- 43527 RADIO SHACK # 01-1816 839,592 12 -15% 485 208 244 -15% - --------------------------------------------------------------------------------------------------------------- 43359 REMINGTON FACTORY OUTLET 576,636 12 -12% 561 410 468 -12 - --------------------------------------------------------------------------------------------------------------- 43415 SUNCOAST VIDEO 714,034 12 -2% 0 194 198 -2% - --------------------------------------------------------------------------------------------------------------- 43803 WEARGUARD WORK WEAR #8058 725,431 12 -2% 333 193 197 -2 - --------------------------------------------------------------------------------------------------------------- Total Comparable 8,087,356 -10% 252 281 -10% =============================================================================================================== NonComparable 43511 A FORMAL CELEBRATION 0 440 125 0 - --------------------------------------------------------------------------------------------------------------- 43429 DOLLAR MANIA 0 0 152 - --------------------------------------------------------------------------------------------------------------- 43138 LET'S TALK CELLLULAR 0 0 120 - --------------------------------------------------------------------------------------------------------------- 43407 LIDS FOR LESS 0 1,273 538 - --------------------------------------------------------------------------------------------------------------- Total NonComparable 159 - --------------------------------------------------------------------------------------------------------------- Total SPECIALTY 8,087,356 227 =============================================================================================================== =============================================================================================================== TOY & HOBBY Comparable 43117 ELECTRONICS BOUTIQUE 678,938 12 9% 583 737 679 9% - --------------------------------------------------------------------------------------------------------------- 43453 GAMES N GADGETS 604,018 12 12% 417 609 546 12% - --------------------------------------------------------------------------------------------------------------- 43437 TOY WORKS 3,168,510 12 2% 502 249 243 2% - --------------------------------------------------------------------------------------------------------------- Total Comparable 4,451,466 5% 307 294 5% - --------------------------------------------------------------------------------------------------------------- NonComparable 43657 BABBAGES 453,519 11 560 194 207 - --------------------------------------------------------------------------------------------------------------- Total NonComparable 194 - --------------------------------------------------------------------------------------------------------------- <CAPTION> ============================================================================= -------------------------------------- 1996 1995 % PROJECTED ANNUALIZED SPACE TENANT Factor SALES SALES ============================================================================= <S> <C> <C> <C> <C> 43703 FLAG SHOP, THE 1.000 169,001 192,416 - ----------------------------------------------------------------------------- 43603 GEOFFREY BEENE 1.000 905,028 1,099,555 - ----------------------------------------------------------------------------- 43209 MAIDENFORM FACTORY OUTLET 1.000 940.411 1,062.294 - ----------------------------------------------------------------------------- 43149 NAP OUTLET 1.000 260,435 327,236 - ---------------------------------------------------------------------------- 43355 NEWSTAND OF FRANKLIN MILLS 1.000 303,805 303,215 - ---------------------------------------------------------------------------- 43809 PALACE ELECTRONICS 1.000 1,346,721 1,448,527 - ----------------------------------------------------------------------------- 43527 RADIO SHACK # 01-1816 1.000 714,525 839,592 - ----------------------------------------------------------------------------- 43359 REMINGTON FACTORY OUTLET 1.000 505,386 576,636 - ----------------------------------------------------------------------------- 43415 SUNCOAST VIDEO 1.000 698,916 714,034 - ----------------------------------------------------------------------------- 43803 WEARGUARD WORK WEAR #8058 1.000 710,952 725,431 - ----------------------------------------------------------------------------- Total Comparable 7,253,045 8,087,356 ============================================================================= NonComparable 43511 A FORMAL CELEBRATION 0.889 511,348 0 - ----------------------------------------------------------------------------- 43429 DOLLAR MANIA 0.440 789,843 - ----------------------------------------------------------------------------- 43138 LET'S TALK CELLLULAR 0.000 P 110,000 - ----------------------------------------------------------------------------- 43407 LIDS FOR LESS 0.743 296,096 - ----------------------------------------------------------------------------- Total NonComparable 1,707,287 0 - ----------------------------------------------------------------------------- Total SPECIALTY 8,960,332 8,087,356 ============================================================================= ============================================================================= TOY & HOBBY Comparable 43117 ELECTRONICS BOUTIQUE 1.000 736,829 678,938 - ----------------------------------------------------------------------------- 43453 GAMES N GADGETS 1.000 674,002 604,018 - ----------------------------------------------------------------------------- 43437 TOY WORKS 1.000 3,242,195 3,168,510 - ----------------------------------------------------------------------------- Total Comparable 4,653,026 4,451,466 - ----------------------------------------------------------------------------- NonComparable 43657 BABBAGES 1.000 438,817 468,511 - ----------------------------------------------------------------------------- Total NonComparable 438,817 468,511 - ----------------------------------------------------------------------------- </TABLE> PAGE 9 <PAGE> <TABLE> <CAPTION> ================================================================================================================= YEAR TO DATE CURRENT MONTH GROSS SALES GROSS SALES ----------------------------------- ---------------------- 1996 #mo SQUARE TOTAL SPACE TENANT FOOTAGE 12/96 12/95 VARIANCE SALES ================================================================================================================= <S> <C> <C> <C> <C> <C> <C> <C> Total TOY & HOBBY 17,408 1,599,650 1,600,781 5,091,842 ================================================================================================================= ================================================================================================================= UNISEX Comparable 43217 AMERICAN EAGLE OUTFITTERS 4,582 168,664 112,357 50% 813,907 12 - ----------------------------------------------------------------------------------------------------------------- 43214 BENETTON OUTLET 2,899 58,130 73,788 21% 776,370 12 - ----------------------------------------------------------------------------------------------------------------- 43207 EDDIE BAUER 6,206 535,784 471,146 14% 2,556,001 12 - ----------------------------------------------------------------------------------------------------------------- 43307 GUESS? #105 7,289 267,830 243,565 10% 2,337,835 12 - ----------------------------------------------------------------------------------------------------------------- 43325 INJEANIUS 2,122 133,297 97,689 36% 853,198 12 - ----------------------------------------------------------------------------------------------------------------- 43529 IZOD 3,967 146,283 133,903 9% 785,618 12 - ----------------------------------------------------------------------------------------------------------------- 43427 JEAN OUTLET, THE 3,042 208,811 193,683 8% 1,168,047 12 - ----------------------------------------------------------------------------------------------------------------- 43539 JOCKEY OUTLET 3,509 128,283 122,873 4% 831,749 12 - ----------------------------------------------------------------------------------------------------------------- 43801 SPECIALS EXCLUSIVELY LEVI 15,845 590,876 517,140 14% 4,515,821 12 - ----------------------------------------------------------------------------------------------------------------- Total Comparable 49,463 2,237,958 1,966,144 14% 14,638,545 - ----------------------------------------------------------------------------------------------------------------- NonComparable 43202 BOSTON TRADERS 6,446 110,317 420,522 7 - ----------------------------------------------------------------------------------------------------------------- 43219 BROOKS BROTHERS 4,856 216,402 1,088,412 7 - ----------------------------------------------------------------------------------------------------------------- 43235 BUGLE BOY OUTLET 8,971 540,521 374,655 3,125,429 12 - ----------------------------------------------------------------------------------------------------------------- 43231 NAUTICA OUTLET 6,110 722,275 583,051 3,569,192 12 - ----------------------------------------------------------------------------------------------------------------- Total NonComparable 26,383 1,589,514 8,203,585 - ----------------------------------------------------------------------------------------------------------------- Total UNISEX 75,846 3,827,472 2,923,850 22,842,130 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- WOMENS READY TO WEAR Comparable 43417 $9.99 STOCKROOM 3,893 164,829 157,260 5% 1,286,808 12 - ----------------------------------------------------------------------------------------------------------------- 43612 ANITA BELLE 1,915 19,552 37,796 -48% 267,547 12 - ----------------------------------------------------------------------------------------------------------------- 43653 ANN TAYLOR CLEARANCE CTR 8,647 631,619 622,123 2% 6,081,849 12 - ----------------------------------------------------------------------------------------------------------------- 43327 CASUAL CORNER 4,559 83,552 96,045 -13% 740,214 12 - ----------------------------------------------------------------------------------------------------------------- 43708 CONTEMPO CASUALS 3,703 72,235 57,679 25% 526,874 12 - ----------------------------------------------------------------------------------------------------------------- <CAPTION> ========================================================================================================== YEAR TO DATE GROSS SALES GROSS SALES / SQUARE FOOT ---------------------------- ------------------------------------- 1995 #mo Bkpt 1996 1995 TOTAL PROJ ACT/ SPACE TENANT SALES VARIANCE PROJ VARIANCE ========================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> Total TOY & HOBBY 4,904,985 293 ========================================================================================================== ========================================================================================================== UNISEX Comparable 43217 AMERICAN EAGLE OUTFITTERS 728,881 12 12% 400 178 158 12% - ---------------------------------------------------------------------------------------------------------- 43214 BENETTON OUTLET 760,642 12 2% 341 268 262 2% - ---------------------------------------------------------------------------------------------------------- 43207 EDDIE BAUER 2,515,706 12 2% 387 412 405 2% - ---------------------------------------------------------------------------------------------------------- 43307 GUESS? #105 2,026,514 12 15% 421 321 278 15% - ---------------------------------------------------------------------------------------------------------- 43325 INJEANIUS 548,833 12 55% 395 402 259 55% - ---------------------------------------------------------------------------------------------------------- 43529 IZOD 901,786 12 -13% 495 198 227 -13% - ---------------------------------------------------------------------------------------------------------- 43427 JEAN OUTLET, THE 1,156,966 12 1% 400 384 380 1% - ---------------------------------------------------------------------------------------------------------- 43539 JOCKEY OUTLET 786,333 12 6% 333 237 224 6% - ---------------------------------------------------------------------------------------------------------- 43801 SPECIALS EXCLUSIVELY LEVI 4,466,978 12 1% 285 285 282 1% - ---------------------------------------------------------------------------------------------------------- Total Comparable 13,892,639 5% 296 281 5% - ---------------------------------------------------------------------------------------------------------- NonComparable 43202 BOSTON TRADERS 0 399 95 - ---------------------------------------------------------------------------------------------------------- 43219 BROOKS BROTHERS 0 567 325 - ---------------------------------------------------------------------------------------------------------- 43235 BUGLE BOY OUTLET 1,667,647 6 490 348 0 - ---------------------------------------------------------------------------------------------------------- 43231 NAUTICA OUTLET 726,136 2 182 584 422 - ---------------------------------------------------------------------------------------------------------- Total NonComparable 337 - ---------------------------------------------------------------------------------------------------------- Total UNISEX 16,286,421 310 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- WOMENS READY TO WEAR Comparable 43417 $9.99 STOCKROOM 1,061,375 12 21% 286 331 273 21% - ---------------------------------------------------------------------------------------------------------- 43612 ANITA BELLE 320,608 12 -17% 350 140 167 -17% - ---------------------------------------------------------------------------------------------------------- 43653 ANN TAYLOR CLEARANCE CTR 7,657,534 12 21% 0 703 886 21% - ---------------------------------------------------------------------------------------------------------- 43327 CASUAL CORNER 848,655 12 -13% 300 162 186 13% - ---------------------------------------------------------------------------------------------------------- 43708 CONTEMPO CASUALS 368,350 12 43% 350 142 99 43% - ---------------------------------------------------------------------------------------------------------- <CAPTION> =============================================================================== ---------------------------------------- 1996 1995 % PROJECTED ANNUALIZED SPACE TENANT Factor SALES SALES =============================================================================== <S> <C> <C> <C> <C> Total TOY & HOBBY 5,091,843 4,919,977 =============================================================================== =============================================================================== UNISEX Comparable 43217 AMERICAN EAGLE OUTFITTERS 1.000 813,907 728,881 - ------------------------------------------------------------------------------- 43214 BENETTON OUTLET 1.000 776,370 760,642 - ------------------------------------------------------------------------------- 43207 EDDIE BAUER 1.000 2,556,001 2,515,706 - ------------------------------------------------------------------------------- 43307 GUESS? #105 1.000 2,337,835 2,026,514 - ------------------------------------------------------------------------------- 43325 INJEANIUS 1.000 853,198 548,833 - ------------------------------------------------------------------------------- 43529 IZOD 1.000 785,618 901,786 - ------------------------------------------------------------------------------- 43427 JEAN OUTLET, THE 1.000 1,168,047 1,156,966 - ------------------------------------------------------------------------------- 43539 JOCKEY OUTLET 1.000 831,749 786,333 - ------------------------------------------------------------------------------- 43801 SPECIALS EXCLUSIVELY LEVI 1.000 4,515,821 4,466,978 - ------------------------------------------------------------------------------- Total Comparable 14,638,546 13,892,639 - ------------------------------------------------------------------------------- NonComparable 43202 BOSTON TRADERS 0.689 610,168 - ------------------------------------------------------------------------------- 43219 BROOKS BROTHERS 0.689 1,579,148 - ------------------------------------------------------------------------------- 43235 BUGLE BOY OUTLET 1.000 3,135,429 0 - ------------------------------------------------------------------------------- 43231 NAUTICA OUTLET 1.000 3,569,192 2,576,436 - ------------------------------------------------------------------------------- Total NonComparable 8,883,937 2,576,436 - ------------------------------------------------------------------------------- Total UNISEX 23,522,483 16,469,075 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------- WOMENS READY TO WEAR Comparable 43417 $9.99 STOCKROOM 1.000 1,286,808 1,061,375 - ------------------------------------------------------------------------------- 43612 ANITA BELLE 1.000 267,547 320,608 - ------------------------------------------------------------------------------- 43653 ANN TAYLOR CLEARANCE CTR 1.000 6,081,849 7,657,534 - ------------------------------------------------------------------------------- 43327 CASUAL CORNER 1.000 740,214 848,655 - ------------------------------------------------------------------------------- 43708 CONTEMPO CASUALS 1.000 526.874 368,350 - ------------------------------------------------------------------------------- </TABLE> PAGE 10 <PAGE> <TABLE> <CAPTION> =============================================================================================================== YEAR TO DATE CURRENT MONTH GROSS SALES GROSS SALES ----------------------------------- -------------------- 1996 #mo SQUARE TOTAL SPACE TENANT FOOTAGE 12/96 12/95 VARIANCE SALES =============================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> 43727 DRESS BARN OUTLET #445 5,562 138,325 119,720 16% 950,273 12 - --------------------------------------------------------------------------------------------------------------- 43513 DRESS BARN WOMAN #888 4,940 95,587 73,377 30% 790,941 12 - --------------------------------------------------------------------------------------------------------------- 43227 FIRST CHOICE 3,703 146,959 127,600 15% 1,263,740 12 - --------------------------------------------------------------------------------------------------------------- 43225 HE-RO GROUP 4,514 41,714 56,493 -26% 634,214 12 - --------------------------------------------------------------------------------------------------------------- 43416 NO NAME STORES 3,300 138,179 178,317 -23% 916,358 12 - --------------------------------------------------------------------------------------------------------------- 43349 PAUL HARRIS 6,284 194,007 157,619 23% 1,113,639 12 - --------------------------------------------------------------------------------------------------------------- 43503 PS/PLUS SIZE/ PLUS SAVINGS 4,995 62,980 65,332 -4% 660,370 12 - --------------------------------------------------------------------------------------------------------------- 43619 ST JOHN OUTLET 1,396 121,816 96,835 26% 1,196,190 12 - --------------------------------------------------------------------------------------------------------------- Total Comparable 57,411 1,911,353 1,846,195 4% 16,429,016 =============================================================================================================== NonComparable 43155 CAPACITY 2,129 40,100 77,028 335,291 12 - --------------------------------------------------------------------------------------------------------------- 43233 GROUP USA 5,003 96,432 58,801 963,671 12 - --------------------------------------------------------------------------------------------------------------- 43147 KASPER 2,522 82,196 93,305 921,294 12 - --------------------------------------------------------------------------------------------------------------- 43656 MATERNITY WORKS 1,466 37,404 114,429 3 - --------------------------------------------------------------------------------------------------------------- Total NonComparable 11,120 256,132 2,334,685 =============================================================================================================== Total WOMENS READY TO WEAR 68,531 2,167,485 2,075,329 18,763,701 =============================================================================================================== Total RETAIL Comparable Reporting 365,807 14,772,602 14,633,580 1% 97,699,228 Total RETAIL Reporting 488,421 20,022,003 16,414,644 123,253,870 =============================================================================================================== ENTERTAINMENT Comparable 43401 TIME OUT #11813 3,288 30,960 30,143 3% 294,786 12 - --------------------------------------------------------------------------------------------------------------- Total Comparable 3,288 30,960 30,143 3% 294,786 12 - --------------------------------------------------------------------------------------------------------------- Total Entertainment 3,288 30,960 30,143 294,786 12 =============================================================================================================== ================================================================================================================ MAJORS Comparable 43001341 BED 'N BATH 40,232 768,025 725,112 6% 6,397,232 12 - ---------------------------------------------------------------------------------------------------------------- 43001319 FILENE'S BASEMENT 32,637 958,018 971,959 -1% 6,179,563 12 - ---------------------------------------------------------------------------------------------------------------- 43001123 LAST CALL FROM NEIMAN MARCUS 34.918 698,780 664,112 5% 7,220,238 12 - ---------------------------------------------------------------------------------------------------------------- <CAPTION> ====================================================================================================== YEAR TO DATE GROSS SALES GROSS SALES / SQUARE FOOT ------------------------- ------------------------------------- 1995 #mo Bkpt 1996 1995 TOTAL PROJ ACT/ PACE TENANT SALES VARIANCE PROJ VARIANCE ====================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> <C> 43727 DRESS BARN OUTLET #445 908,085 12 5% 310 171 163 5% - ------------------------------------------------------------------------------------------------------ 43513 DRESS BARN WOMAN #888 722,322 12 9% 285 160 146 9% - ------------------------------------------------------------------------------------------------------ 43227 FIRST CHOICE 1,435,357 12 -12% 0 341 388 -12% - ------------------------------------------------------------------------------------------------------ 43225 HE-RO GROUP 789,409 12 -20% 150 140 175 -20% - ------------------------------------------------------------------------------------------------------ 43416 NO NAME STORES 1,028,500 12 -11% 501 278 312 -11% - ------------------------------------------------------------------------------------------------------ 43349 PAUL HARRIS 1,075,116 12 4% 0 177 171 4% - ------------------------------------------------------------------------------------------------------ 43503 PS/PLUS SIZE/ PLUS SAVINGS 739,848 12 -11% 308 132 148 -11% - ------------------------------------------------------------------------------------------------------ 43619 ST JOHN OUTLET 974,592 12 23% 500 857 698 23% - ------------------------------------------------------------------------------------------------------ Total Comparable 17,929,749 -8% 286 312 -8% ====================================================================================================== NonComparable 43155 CAPACITY 281,111 5 0 157 273 - ------------------------------------------------------------------------------------------------------ 43233 GROUP USA 299,988 5 0 193 124 - ------------------------------------------------------------------------------------------------------ 43147 KASPER 166,070 2 0 365 179 - ------------------------------------------------------------------------------------------------------ 43656 MATERNITY WORKS 0 450 274 - ------------------------------------------------------------------------------------------------------ Total NonComparable 236 ====================================================================================================== Total WOMENS READY TO WEAR 18,676,917 278 ====================================================================================================== Total RETAIL Comparable Reporting 99,777,158 -2% 267 273 -2% Total RETAIL Reporting 105,053,948 264 ====================================================================================================== ENTERTAINMENT Comparable 43401 TIME OUT #11813 292,423 12 1% 90 90 89 1% - ------------------------------------------------------------------------------------------------------ Total Comparable 292,423 1% 90 89 1% - ------------------------------------------------------------------------------------------------------ Total Entertainment 292,423 90 ====================================================================================================== ====================================================================================================== MAJORS Comparable 43001341 BED 'N BATH 6,397,309 12 4% 249 153 159 4% - ------------------------------------------------------------------------------------------------------ 43001319 FILENE'S BASEMENT 6,172,082 12 0% 364 189 189 0% - ------------------------------------------------------------------------------------------------------ 43001123 LAST CALL FROM NEIMAN MARCUS 7,144,573 12 1% 601 207 205 1% - ------------------------------------------------------------------------------------------------------ <CAPTION> ================================================================================ ---------------------------------------- 1996 1995 % PROJECTED ANNUALIZED PACE TENANT Factor SALES SALES ================================================================================ <S> <C> <C> <C> <C> 43727 DRESS BARN OUTLET #445 1.000 950,273 908,085 - -------------------------------------------------------------------------------- 43513 DRESS BARN WOMAN #888 1.000 790,941 722,322 - -------------------------------------------------------------------------------- 43227 FIRST CHOICE 1.000 1,263,740 1,435,357 - -------------------------------------------------------------------------------- 43225 HE-RO GROUP 1.000 634,214 789,409 - -------------------------------------------------------------------------------- 43416 NO NAME STORES 1.000 916,358 1,028,500 - -------------------------------------------------------------------------------- 43349 PAUL HARRIS 1.000 1,113,639 1,075,116 - -------------------------------------------------------------------------------- 43503 PS/PLUS SIZE/ PLUS SAVINGS 1.000 660,370 739,848 - -------------------------------------------------------------------------------- 43619 ST JOHN OUTLET 1.000 1,196,190 974,592 - ------------------------------------------------------------------------------- Total Comparable 16,429,017 17,929,749 ================================================================================ NonComparable 43155 CAPACITY 1.000 335,291 580,966 - -------------------------------------------------------------------------------- 43233 GROUP USA 1.000 963,671 619,978 - -------------------------------------------------------------------------------- 43147 KASPER 1.000 921,294 452,102 - -------------------------------------------------------------------------------- 43656 MATERNITY WORKS 0.285 402,013 - -------------------------------------------------------------------------------- Total NonComparable 2,622,269 1,653,046 ================================================================================ Total WOMENS READY TO WEAR 19,051,286 19,582,795 ================================================================================ Total RETAIL Comparable Reporting 97,699,232 99,777,158 Total RETAIL Reporting 128,900,404 107,535,815 ================================================================================ ENTERTAINMENT Comparable 43401 TIME OUT #11813 1.000 294,786 292,423 - -------------------------------------------------------------------------------- Total Comparable 1.000 294,786 292,423 - -------------------------------------------------------------------------------- Total Entertainment 1.000 294,786 292,423 ================================================================================ ================================================================================ MAJORS Comparable 43001341 BED 'N BATH 1.000 6,138,232 6,397,309 - -------------------------------------------------------------------------------- 43001319 FILENE'S BASEMENT 1.000 6,179,563 6,172,082 - -------------------------------------------------------------------------------- 43001123 LAST CALL FROM NEIMAN MARCUS 1.000 7,220,238 7,144,573 - -------------------------------------------------------------------------------- </TABLE> PAGE 11 <PAGE> <TABLE> <CAPTION> ================================================================================================================== YEAR TO DATE CURRENT MONTH GROSS SALES GROSS SALES ----------------------------------- ----------------------- 1996 #mo SQUARE TOTAL SPACE TENANT FOOTAGE 12/96 12/95 VARIANCE SALES ================================================================================================================== <S> <C> <C> <C> <C> <C> <C> <C> 43001827 MODELLS SPORTING GOODS 30,608 1,131,567 1,152,261 -2% 6,577,557 12 - ------------------------------------------------------------------------------------------------------------------ 43001620 NORDSTROM, INC. 42,241 972,817 1,006,877 -3% 8,535,261 12 - ------------------------------------------------------------------------------------------------------------------ 43000M OFFICEMAX, INC. 30,237 470,984 407,492 16% 3,579,590 12 - ------------------------------------------------------------------------------------------------------------------ 43001125 ORIGINAL I.GOLDBERG 23,254 258,043 292,021 -12% 1,604,881 12 - ------------------------------------------------------------------------------------------------------------------ 43001100 SYMS 25,127 607,843