<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
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(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
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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
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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
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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
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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.
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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
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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.
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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."
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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.
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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
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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
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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.
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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.
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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.
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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).
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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
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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.
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[NEIGHBORHOOD MAP OMITTED]
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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
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AREA AND SUBJECT DESCRIPTION
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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.
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[TAX RATE AREA MAP OMITTED]
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AREA AND SUBJECT DESCRIPTION
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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.
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[GRAPHIC OMITTED]
[ZONING MAP OMITTED]
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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.
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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.
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AREA AND SUBJECT DESCRIPTION
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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.
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AREA AND SUBJECT DESCRIPTION
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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.
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HIGHEST AND BEST USE
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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).
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HIGHEST AND BEST USE
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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.
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VALUATION
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VALUATION
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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
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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.
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Arthur Andersen LLP -- Valuation Services Group 26
<PAGE>
VALUATION
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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.
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Arthur Andersen LLP -- Valuation Services Group 27
<PAGE>
VALUATION
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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.
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Arthur Andersen LLP -- Valuation Services Group 28
<PAGE>
VALUATION
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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
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Arthur Andersen LLP -- Valuation Services Group 29
<PAGE>
VALUATION
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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
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<PAGE>
VALUATION
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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
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Arthur Andersen LLP -- Valuation Services Group 31
<PAGE>
VALUATION
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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
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Arthur Andersen LLP -- Valuation Services Group 32
<PAGE>
VALUATION
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[GRAPHIC OMITTED]
[COMPARABLE SALES MAP OMITTED]
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Arthur Andersen LLP -- Valuation Services Group 33
<PAGE>
VALUATION
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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.
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Arthur Andersen LLP -- Valuation Services Group 34
<PAGE>
VALUATION
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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.
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Arthur Andersen LLP -- Valuation Services Group 35
<PAGE>
VALUATION
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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.
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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
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<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.
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Arthur Andersen LLP -- Valuation Services Group 38
<PAGE>
VALUATION
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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
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Arthur Andersen LLP -- Valuation Services Group 39
<PAGE>
VALUATION
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[GRAPHIC OMITTED]
[COMPARABLE RENTALS MAP OMITTED]
- --------------------------------------------------------------------------------
Arthur Andersen LLP -- Valuation Services Group 40
<PAGE>
VALUATION
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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
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Arthur Andersen LLP -- Valuation Services Group 41
<PAGE>
VALUATION
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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
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Arthur Andersen LLP -- Valuation Services Group 42
<PAGE>
VALUATION
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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
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Arthur Andersen LLP -- Valuation Services Group 43
<PAGE>
VALUATION
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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).
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Arthur Andersen LLP -- Valuation Services Group 44
<PAGE>
VALUATION
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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
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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
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<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)
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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
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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%
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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
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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.
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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.
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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.
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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
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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.
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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
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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
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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.
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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.
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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
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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
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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
- --------------------------------------------------------------------------------
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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.
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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.
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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.
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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
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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
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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%
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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
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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
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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
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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.
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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,
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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.
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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.
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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
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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.
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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
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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.
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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.
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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.
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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
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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.
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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]
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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]
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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]
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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]
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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
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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.
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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.
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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
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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
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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
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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
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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
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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
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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)
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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SUBJECT PHOTOGRAPHS
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SUBJECT PHOTOGRAPHS
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REGIONAL LOCATION MAP
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MAP OF
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NEIGHBORHOOD LOCATION MAP
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PLAT MAP
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TAX CODE AREA
COUNTY OF MONTEREY
ASSESSOR'S MAP
BOOK 3 PAGE 80
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ZONING MAP
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RENTAL LOCATION MAP
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COMPARABLE SALES LOCATION MAP
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COMPARABLE SALES LOCATION MAP San Jose
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COMPARABLE SALES LOCATION MAP Santa Cruz
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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
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Value Indicators: Price/Unit: $73,387 Price/Room: $17,773
GIM: 7.04 Price/RSF: $85.17
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Stabilized NOI Est.: $1,165,752
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OAR: 8.54%
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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
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Value Indicators: Price/Unit: $63,000 Price/Room: $16,406
GIM: 16.5 Price/RSF: $78.04
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Stabilized NOI Est.: $543,984
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OAR: 8.6%
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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
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<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
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Value Indicators: Price/Unit: $55,655 Price/Room: $15,688
GIM: 6.8 Price/RSF: $66.31
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Stabilized NOI Est.: $850,850
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OAR: 9.1%
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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
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Value. Indicators Price/Unit: $50,634 Price/Room: $16,878
GIM: 6.01 Price/RSF: $66.22
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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
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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
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Value Indicators: Price/Unit: $50,685 Price/Room: $16,818
GIM: 6.78 Price/RSF: $77.81
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Stabilized NOI Est.: $710,400
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OAR: 9.6%
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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]
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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
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Value Indicators: Price/Unit: $74,348 Price/Room: $19,344
GIM: 6.11 Price/RSF: $81.88
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Stabilized NOI Est.: $867,825
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OAR: 10.15%
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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]
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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+/-
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Value Indicators: Price/Unit: $51,200 Price/Room: $14,157
GIM: 7.83 Price/RSF: $61.46
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Stabilized NOI Est.: $242,445
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OAR: 7.9%
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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]
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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
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Value Indicators: Price/Unit: $53,125 Price/Room: $14,442
GIM: 6.4 Price/RSF: $59.11
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Stabilized NOI Est.: $573,218
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OAR: 9.69%
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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)
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC
PAGE 6
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC
PAGE 7
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<PAGE>
CERTIFICATION (Continued)
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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
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC
PAGE 8
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC
PAGE 9
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC
PAGE 10
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<PAGE>
================================================================================
PREMISES OF THE APPRAISAL
================================================================================
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC
PAGE 11
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC
PAGE 12
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<PAGE>
PROPERTY RIGHTS BEING APPRAISED
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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."
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC
PAGE 13
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC
PAGE 14
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<PAGE>
HISTORY OF THE PROPERTIES
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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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC
PAGE 15
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC
PAGE 16
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<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)
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC
PAGE 17
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<PAGE>
================================================================================
PRESENTATION OF DATA
================================================================================
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
PAGE 18
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
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PAGE 19
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<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:
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REGIONAL AND CITY DATA (Continued)
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<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%
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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:
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REGIONAL AND CITY DATA (continued)
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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
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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
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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
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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
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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.
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REGIONAL AND CITY DATA (continued)
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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:
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REGIONAL AND CITY DATA (continued)
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================================================================================
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.
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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).
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REGIONAL AND CITY DATA (continued)
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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.
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REGIONAL AND CITY DATA (continued)
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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,
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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
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REGIONAL AND CITY DATA (continued)
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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:
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Distance- Approximate
Destination Miles Travel Time
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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
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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.
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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.
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NEIGHBORHOOD INFORMATION
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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
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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.
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[GRAPHIC OMITTED]
DOWNTOWN DISTRICT
-- of --
MINNEAPOLIS
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[GRAPHIC OMITTED]
[MAP]
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NEIGHBORHOOD INFORMATION (continued)
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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.
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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.
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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.
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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.
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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.
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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%
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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
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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.
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<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:
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
PAGE 43
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<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
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
PAGE 44
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
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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
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
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<PAGE>
LAND SALES COMPARISON APPROACH (continued)
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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
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
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LAND SALES COMPARISON APPROACH (continued)
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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
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
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LAND SALES COMPARISON APPROACH (continued)
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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)
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
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<PAGE>
LAND SALES COMPARISON APPROACH (continued)
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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
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
PAGE 55
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<PAGE>
LAND SALES COMPARISON APPROACH (continued)
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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
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
PAGE 56
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
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<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>
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID
DeCASTER & LAMMERS, INC.
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<PAGE>
LAND SALES COMPARISON APPROACH (continued)
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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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID
DeCASTER & LAMMERS, INC.
PAGE 61
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<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
==========
================================================================================
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID
DeCASTER & LAMMERS, INC.
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<PAGE>
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DAIN PLAZA & GAVIIDAE II
================================================================================
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
REID DeCASTER & LAMMERS, INC.
PAGE 63
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<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%
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
REID DeCASTER & LAMMERS, INC.
PAGE 65
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<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
================================================================================
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
REID DeCASTER & LAMMERS, INC.
PAGE 66
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<PAGE>
================================================================================
PRESENTATION OF DATA
================================================================================
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
REID DeCASTER & LAMMERS, INC.
PAGE 67
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
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PAGE 69
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<PAGE>
PLAT MAP
The following plat map has been included for visual reference.
================================================================================
[GRAPHIC OMITTED]
================================================================================
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
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<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
------------------
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
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PAGE 72
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
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PAGE 73
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
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PAGE 74
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
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PAGE 75
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
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PAGE 76
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
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PAGE 77
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
REID DeCASTER & LAMMERS, INC.
PAGE 78
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST
REID DeCASTER & LAMMERS, INC.
PAGE 79
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
PAGE 88
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID
DeCASTER & LAMMERS, INC.
PAGE 89
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID
DeCASTER & LAMMERS, INC.
PAGE 90
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID
DeCASTER & LAMMERS, INC.
PAGE 91
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID
DeCASTER & LAMMERS, INC.
PAGE 92
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID
DeCASTER & LAMMERS, INC.
PAGE 93
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<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
-----------------------------------------------------------------------
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID
DeCASTER & LAMMERS, INC.
PAGE 94
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<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>
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID
DeCASTER & LAMMERS, INC.
PAGE 95
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<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
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID
DeCASTER & LAMMERS, INC.
PAGE 96
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<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%,
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID
DeCASTER & LAMMERS, INC.
PAGE 97
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<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:
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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.
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PAGE 99
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<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.
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<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
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<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.
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<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
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PAGE 103
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<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.
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<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
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
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<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.
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- --------------------------------------------------------------------------------
<PAGE>
Improved Sale Comparable No. 4 (cont'd)
[Paragraph illegible]
[Paragraph illegible]
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PAGE 108
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<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.
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<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
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PAGE 111
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<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.
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PAGE 112
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<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
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PAGE 113
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II LUNZ MASSOPUST REID
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PAGE 114
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<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:
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INCOME APPROACH (continued)
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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:
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INCOME APPROACH (continued)
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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.
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<PAGE>
INCOME APPROACH (continued)
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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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
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PAGE 155
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
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PAGE 156
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
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PAGE 157
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<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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
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PAGE 158
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<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:
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<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%
- --------------------------------------------------------------------------------
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC
PAGE 161
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<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
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<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
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<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
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<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
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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
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<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
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<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.
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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
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<PAGE>
PLAT MAP
- --------------------------------------------------------------------------------
The following plat map has been included for visual reference.
================================================================================
[GRAPHIC OMITTED]
================================================================================
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
PAGE 193
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<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
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<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
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PAGE 196
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<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%
---------------------------------------------------
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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
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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
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
PAGE 135
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<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
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
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PAGE 136
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<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
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
PAGE 137
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<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%
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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.
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GAVIIDAE I AND DAIN PLAZA/GAVIIDAE II
LUNZ MASSOPUST REID DeCASTER & LAMMERS, INC.
PAGE 139
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<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.
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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.
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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).
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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)
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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.
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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."
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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.
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"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
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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."
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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."
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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."
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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."
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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."
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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
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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.
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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."
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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.
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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.
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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.
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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
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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.
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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,
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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.
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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,
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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.
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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.
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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.
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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%
==============================================================
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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.
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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.
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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.
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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
======================================
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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.
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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.
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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.
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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.
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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.
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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>
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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
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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.
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- --------------------------------------------------------------------------------
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.
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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.
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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
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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.
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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
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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
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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
=====================================================================
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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
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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.
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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.
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- --------------------------------------------------------------------------------
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
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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.
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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
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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.
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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.
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================================================================================
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
PLAT MAP
================================================================================
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================================================================================
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
FLOOD PLAIN MAP
================================================================================
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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
====================================================
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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
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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
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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.
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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
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SUBJECT PHOTOGRAPHS TAKEN ON AUGUST 7, 1997
================================================================================
[GRAPHIC OMITTED]
================================================================================
View of building exterior and parking lot
================================================================================
[GRAPHIC OMITTED]
================================================================================
View of covered parking area
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SUBJECT PHOTOGRAPHS TAKEN ON AUGUST 7, 1997
================================================================================
[GRAPHIC OMITTED]
================================================================================
Typical kitchen
================================================================================
[GRAPHIC OMITTED]
================================================================================
Typical bedroom
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SUBJECT PHOTOGRAPHS TAKEN ON AUGUST 7, 1997
================================================================================
[GRAPHIC OMITTED]
================================================================================
Typical bathroom
================================================================================
[GRAPHIC OMITTED]
================================================================================
Typical living room
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SUBJECT PHOTOGRAPHS TAKEN ON AUGUST 7, 1997
================================================================================
[GRAPHIC OMITTED]
================================================================================
Interior view of clubhouse
================================================================================
[GRAPHIC OMITTED]
================================================================================
View of typical swimming pool
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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
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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.
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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.
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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.
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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
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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.
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====================================================
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
====================================================
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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.
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=============================================
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%
=============================================
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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
=========================================
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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
==========================================================
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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.
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<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.
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<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
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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
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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.
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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.
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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.
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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
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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:
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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.
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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.
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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.
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<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.
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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.
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[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
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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.
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<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.
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<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.
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<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
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<PAGE>
studios, one-bed/one-bath units, two-bed/one-bath
units, two-bed/two-bath units, three-bed/two-bath
units.
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<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
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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.
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<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
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<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.
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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.
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<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.
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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
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<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
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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
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<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
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<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,
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<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.
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<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
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<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.
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<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
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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.
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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
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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.
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COMPETENCY STATEMENT
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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.
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Robert Saia & Associates 313 Avalon Avenue Santa Cruz, CA (408) 458-9095 7
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REGIONAL ANALYSIS
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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
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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)
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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%
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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.
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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)
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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
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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
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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.
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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
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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.
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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.
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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)
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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
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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
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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
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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.
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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.
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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
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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
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1995 370,996 122,390
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1990 355,657 108,777
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1980 289,861 80,479
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1970 247,450 58,896
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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%
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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
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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
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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
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Cypress Landing Apartments 112 0 0
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Los Padres Apartments 220 4 2
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Mariner Village Apartments 176 1 3
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Northridge Park Apartments 232 3 3
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Kipling Manor Apartments 92 0 0
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Olive Tree Apartments 34 1 0
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Shadowbrook Apartments 88 3 0
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Sheridan Park Apartments 116 0 10
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Village Green Apartments 104 0 4
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TOTALS 1,462 12 34
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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
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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
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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.
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
--------
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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.
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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]
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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]
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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]
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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]
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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]
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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]
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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.
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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:
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- --------------------------------------------------------------------------------
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
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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
================================================================================
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<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.
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<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
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- ADDENDA -
71
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SUBJECT PHOTOGRAPHS
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SUBJECT PHOTOGRAPHS
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REGIONAL LOCATION MAP
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NEIGHBORHOOD LOCATION MAP
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ZONING MAP
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RENTAL LOCATION MAP
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COMPARABLE SALES LOCATION MAP
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COMPARABLE SALES LOCATION MAP Santa Cruz
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COMPARABLE SALES LOCATION MAP San Jose
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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
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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>
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SKETCH ADDENDUM
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SKETCH ADDENDUM
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SKETCH ADDENDUM
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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
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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.
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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.
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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%.
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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
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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]
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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:
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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
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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:
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- --------------------------------------------------------------------------------
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.
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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.
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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.
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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.
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<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
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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
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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
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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.
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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
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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
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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.
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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
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Photographs of Copley Place
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Diagram of Copley Place
[GRAPHIC OMITTED]
View of office component sky lobby
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Photographs of Copley Place
[GRAPHIC OMITTED]
View of upper level of mall.
[GRAPHIC OMITTED]
View of entrance to Sony Theaters.
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Photographs of Copley Place
[GRAPHIC OMITTED]
View of mall restaurant area.
[GRAPHIC OMITTED]
View of center mall atrium from second level.
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Photographs of Copley Place
[GRAPHIC OMITTED]
View of new stairway at Neiman Marcus end of mall.
[GRAPHIC OMITTED]
View of vacant retail unit.
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Photographs of Copley Place
[GRAPHIC OMITTED]
View of typical office tenant floor.
[GRAPHIC OMITTED]
View of service corridor behind retail tenant spaces.
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Photographs of Copley Place
[GRAPHIC OMITTED]
View of freight elevator.
[GRAPHIC OMITTED]
View of Dartmouth Street garage entry.
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[GRAPHIC OMITTED]
View of central garage deck repair.
[GRAPHIC OMITTED]
View of central plant mechanical area.
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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
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[GRAPHIC OMITTED]
LOWER RETAIL LOBBY
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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.
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[GRAPHIC OMITTED]
SKYLOBBY
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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.
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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
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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.
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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:
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- --------------------------------------------------------------------------------
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.
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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."
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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
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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.
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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-
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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.
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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;
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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.
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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.
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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
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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.
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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
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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.
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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
--------------------------------
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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.
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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
- --------------------------------------------------------------------------------
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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%
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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
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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.
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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
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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.
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- --------------------------------------------------------------------------------
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%
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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,
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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
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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.
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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.
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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
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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.
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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
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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.
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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
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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%.
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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
- --------------------------------------------------------------------------------
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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
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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.
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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.
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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.
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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>
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REAL ESTATE COUNSELORS
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LEGAL DESCRIPTION
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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
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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
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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
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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
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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
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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.
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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
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<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.
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(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.
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<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
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<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.
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PROFESSIONAL QUALIFICATIONS
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LANDAUER
REAL ESTATE COUNSELORS
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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
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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
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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.
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LANDAUER
REAL ESTATE COUNSELORS
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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[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
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<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
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Stabilized NOI Est.: $1,165,752
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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
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Value Indicators: Price/Unit: $63,000 Price/Room: $16,406
GIM: 6.5 Price/RSF: $78.04
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Stabilized NOI Est.: $543,984
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OAR: 8.6%
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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
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Stabilized NOI Est.: $850,850
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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
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Value Indicators: Price/Unit: $50,685 Price/Room: $16,818
GIM: 6.78 Price/RSF: $77.81
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Stabilized NOI Est.: $710,400
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095 20
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The Westlake Apartments, Salinas, CA
- --------------------------------------------------------------------------------
1995 370,996 122,390
- --------------------------------------------------------------------------------
1990 355,657 108,777
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1980 289,861 80,479
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1970 247,450 58,896
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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[PHOTO OMITTED]
Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095
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PHOTOGRAPHS OF SUBJECT PROPERTY
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Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095
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NEIGHBORHOOD LOCATION MAP
[NEIGHBORHOOD MAP OMITTED]
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ZONING MAP
[ZONING MAP OMITTED]
<PAGE>
PLAT MAP
[PLAT MAP OMITTED]
<PAGE>
RENTAL LOCATION MAP
[RENTAL LOCATION MAP OMITTED]
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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
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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
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The Elms Apartments, Salinas, CA
SUMMARY OF SALIENT FACTS
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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
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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
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MARKET VALUE "AS IS": $8,000,000
September 28, 1996 (4 month exposure period)
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The Elms Apartments, Salinas, CA
PURPOSE OF THE APPRAISAL
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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
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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
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The date of valuation is September 28, 1996. This is the date of the last
property inspection.
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The Elms Apartments, Salinas, CA
PROPERTY RIGHTS APPRAISED and DEFINED
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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
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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
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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
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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
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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
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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.
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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
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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
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The Elms Apartments, Salinas, CA
REGIONAL ANALYSIS
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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
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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)
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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%
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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
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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)
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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
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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.
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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
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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.
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- -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.
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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
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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.
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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
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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.
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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.
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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.
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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
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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%
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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.
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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
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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.
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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.
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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.
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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
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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)
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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]
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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]
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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]
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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]
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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]
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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.
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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.
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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
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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
- --------------------------------------------------------------------------------
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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+/-.
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- --------------------------------------------------------------------------------
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
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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.
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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
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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
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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)
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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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
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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.
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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
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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
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<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
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<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
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<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
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<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
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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
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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]
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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
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Value Indicators: Price/Unit: $73,387 Price/Room: $17,773
GIM: 7.04 Price/RSF: $85.17
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Stabilized NOI Est.: $1,165,752
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OAR: 8.54%
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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
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Value Indicators: Price/Unit: $55,655 Price/Room: $15,688
GIM: 6.8 Price/RSF: $66.31
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Stabilized NOI Est.: $850,850
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OAR: 9.1%
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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
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Value Indicators: Price/Unit: $50,634 Price/Room: $16,878
GIM: 6.01 Price/RSF: $66.22
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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
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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
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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.
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Borrower/Client J.H. Real Estate Partners
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Property Address 424 Noice Drive
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City Salinas County Monterey State CA Zip Code 93906
------------------------- --------------- -------- --------------
Lender NationsBank of Texas
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Remarks Improvement Plat
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[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
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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
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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%)
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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
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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.
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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
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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.
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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.
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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.
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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
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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
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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.
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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.
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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
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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.
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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.
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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
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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
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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.
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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.
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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
------------------------------------------
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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
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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]
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<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.
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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.
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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.
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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,
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Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095
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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.
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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
- --------------------------------------------------------------------------------
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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.
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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
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Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095
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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.
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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
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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
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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
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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.
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Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095
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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
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Robert Saia & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095
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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)
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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.
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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
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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.
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<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.
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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.
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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.
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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
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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
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NEIGHBORHOOD LOCATION MAP
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PLAT MAP
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RENTAL LOCATION MAP
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COMPARABLE SALES LOCATION MAP
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COMPARABLE SALES LOCATION MAP
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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.
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<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.
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<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.
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<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.
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<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.
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<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.
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<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.
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<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.
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<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
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<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.
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<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
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<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.
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<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.
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<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.
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<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:
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<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.
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<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.
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<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.
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<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.
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Income Capitalization Approach
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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.
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Income Capitalization Approach
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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.
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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.
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Income Capitalization Approach
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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.
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Income Capitalization Approach
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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
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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
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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.
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<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
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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.
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<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
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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.
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<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.
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<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
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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
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<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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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.
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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
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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.
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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]
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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]
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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]
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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]
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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]
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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]
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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
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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.
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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.
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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
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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
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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
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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
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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
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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)
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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-
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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.
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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
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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.
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<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
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<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)
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095
<PAGE>
Heather Plaza Apartments, Salinas CA
PHOTOGRAPHS OF SUBJECT PROPERTY
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[PHOTO OMITTED]
Robert Saia, MAI & Associates, 313 Avalon Avenue, Santa Cruz, CA (408) 458-9095
<PAGE>
REGIONAL LOCATION MAP
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NEIGHBORHOOD LOCATION MAP
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ZONING MAP
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PLAT MAP
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RENTAL LOCATION MAP
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COMPARABLE SALES LOCATION MAP
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COMPARABLE SALES LOCATION MAP SAN JOSE
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COMPARABLE SALES LOCATION MAP SANTA CRUZ
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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]
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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]
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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
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Value Indicators: Price/Unit: $55,655 Price/Room: $15,688
GIM: 6.8 Price/RSF: $66.31
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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]
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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]
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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]
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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]
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[PHOTO OMITTED]
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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]
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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
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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
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<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>
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<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.
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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.
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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
================================================
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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
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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.
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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.
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================================================================================
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.
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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.
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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.
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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.
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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.
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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.
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AREA AND NEIGHBORHOOD REVIEW
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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.
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<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.
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<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.
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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.
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Introduction
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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.
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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.
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[GRAPHIC OMITTED]
CUSHMAN &
WAKEFIELD
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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
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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.
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New York Regional Analysis
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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,
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New York Regional Analysis
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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.
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New York Regional Analysis
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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
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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.
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New York Regional Analysis
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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
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New York Regional Analysis
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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.
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MIDTOWN MANHATTAN OFFICE MARKET ANALYSIS
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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.
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Midtown Manhattan Office Market Statistics - 2Q1997
<TABLE>
<CAPTION>
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Class A Class B Class C Overall
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<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
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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
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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
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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
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Total Vacancy Rate 9.1% 15.3% 13.3% 10.50%
Total Avg. Asking Rental Rate $36.91 $23.55 $12.25 $31.56
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</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.
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Midtown Manhattan Office Market Analysis
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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.
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Midtown Manhattan Office Market Analysis
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Midtown Office Building Projects - Proposed and Under Construction
<TABLE>
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Rentable
No. Property Status Office SF Constructed For
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<S> <C> <C> <C> <C>
1 German Embassy Under Construction 114,000 Owner/User
871 United Nations Plaza
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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
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3 Park Avenue Place Proposed 1,100,000 Bear Stearns & Co. world
383 Madison Avenue headquarters
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4 One Rockefeller Plaza West Proposed 1,460,000 Anchor tenants will likely be
745 Seventh Avenue secured prior to construction
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5 Heron Tower II Foundation in place 125,000 Office/HotelSpeculative
60 East 55th Street
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6 Columbus Center Developer to be 1,340,000 Mixed Use -- Office,Retail and
Columbus Circle & 59th Street announced Residential
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</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.
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Midtown Manhattan Ofice Market Analysis
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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.
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Midtown Manhattan Office Market Analysis
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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.
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Midtown Manhattan Office Market Analysis
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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.
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Midtown Manhattan Office Analysis
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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.
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Midtown Manhattan Office Market Analysis
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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
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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
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Midtown Manhattan Office Market Analysis
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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
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Midtown Manhattan Office Market Analysis
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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.
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ABSORPTION BY YEAR
[GRAPHIC OMITTED]
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Midtown Manhattan Office Market Analysis
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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.
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Midtown Manhattan Office Market Analysis
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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.
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<CAPTION>
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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
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<TABLE>
<CAPTION>
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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
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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
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Midtown Manhattan Office Market Analysis
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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.
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THE PLAZA OFFICE DISTRICT
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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.
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The Plaza Office District
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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.
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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)
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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)
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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)
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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)
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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)
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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)
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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)
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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)
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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)
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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)
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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)
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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)
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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)
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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)
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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)
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25,874
16 1585 Broadway 1,220,732 1990 41 61,671 0 100.00% N/A N/A
(W.Blockfront bit 47th/48th)
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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)
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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
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19 575 Fifth Avenue 481,300 1983 40 23,125 0 100.00% N/A N/A
(S/E Corner 47th)
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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)
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TOTAL 18,982,308 19,124 1,294,037
AVERAGE 949,115 1982 42 37,303 64,702 93.18% $39.40 $48.10
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</TABLE>
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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
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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.
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The Plaza Office District
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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.
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PROPERTY DESCRITION
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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.
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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.
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Property Description
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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.
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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.
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REAL PROPERTY TAXES AND ASSESSMENTS
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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.
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Real Property Taxes and Asesments
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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
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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
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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.
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MAP
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ZONING
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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.
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Highest And Best Use
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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.
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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.
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VALUATION PROCESS
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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.
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Valuation Process
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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.
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SALES COMPARISON APPROACH
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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.
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<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
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Sales Comparison Approach
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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.
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Sales Comparison Approach
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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
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Sales Comparison Approach
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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
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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.
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Sales Comparison Approach
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======================================================================
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
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13.58 $274.02 $595.46
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3 $ 29.51
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26.67 $290.95 $321.93
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4 $ 29.51
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22.23 $210.74 $279.75
-----------------------------------------------------------------------
5 $ 29.51
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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
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INCOME CAPITALIZATION APPROACH
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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
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Income Capitalization Approach
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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.
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Lease Expiration Schedule
================================================================================
Year Annual/SF % of NRA Cumulative/SF % of NRA
================================================================================
1999 31,209 7.20% 31,209 7.20%
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2000 6,431 1.48% 37,640 8.69%
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2001 75,429 17.41% 113,069 26.09%
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2002 20,960 4.84% 134,029 30.93%
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2003 26,221 6.05% 160,250 36.98%
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2004 48,163 11.11% 208,413 48.09%
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2005 93,541 21.59% 301,954 69.68%
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2006 55,981 12.92% 357,935 82.60%
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2007 61,103 14.10% 419,038 96.70%
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2008 9,935 2.29% 428,973 98.99%
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2009 0 0.00% 428,973 98.99%
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2010 4,383 1.01% 433,356 100.00%
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COMPARABLE OFFICE RENTS AND ADJUSTMENTS
<TABLE>
<CAPTION>
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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>
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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
- ---------------------------------------------------------------------------------------------------------
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Income Capitalization Approach
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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
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Income Capitalization Approach
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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
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Income Capitalization Approach
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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:
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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.
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COMPARABLE RETAIL RENTS AND ADJUSTMENTS
<TABLE>
<CAPTION>
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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>
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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
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Income Capitalization Approach
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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.
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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
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COMPARABLE GARAGE RENTS AND ADJUSTMENTS
<TABLE>
<CAPTION>
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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
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Income Capitalization Approach
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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
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Income Capitalization Approach
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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:
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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
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<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.
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<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.
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<PAGE>
Income Capitalization Approach
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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
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VALUATION ADVISORY SERVICES
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<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
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<PAGE>
Income Capitalization Approach
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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
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VALUATION ADVISORY SERVICES
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<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.
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<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
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VALUATION ADVISORY SERVICES
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<PAGE>
Income Capitalization Approach
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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.
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Income Capitalization Approach
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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.
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Income Capitalization Approach
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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.
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Income Capitalization Approach
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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.
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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
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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.
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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.
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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.
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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.
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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
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<PAGE>
ADDENDA
- --------------------------------------------------------------------------------
COMPARABLE OFFICE BUILDING SALES
APPRAISERS' QUALIFICATIONS
- --------------------------------------------------------------------------------
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<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
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Final Estimate of "As Is"
Market Value $90,500,000
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Value of Depreciated FF&E $5,208,000
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Exposure Period 12 months or less
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(1) Net operating income after reserves and incentive management fees.
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Merrill Lynch Mortgage Capital, Inc.
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Section 1 -- Executive Summary and Introduction I-4
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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
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Section 1 -- Executive Summary and Introduction I-5
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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
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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.
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Section 1 -- Executive Summary and Introduction I-7
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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
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Section 1 -- Executive Summary and Introduction I-8
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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.
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Merrill Lynch Mortgage Capital, Inc.
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Section II
AREA REVIEW AND NEIGHBORHOOD ANALYSIS
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Merrill Lynch Mortgage Capital, Inc.
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[GRAPHIC OMITTED]
REGIONAL MAP
PKF CONSULTING
<PAGE>
Section II -- Area Review and Neighborhod Analysis II-2
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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,
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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).
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Section II -- Area Review and Neighborhod Analysis II-4
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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
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Compound
1992 1993 1994 1995 1996 Annual Change
1992-1996
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<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
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</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
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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
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Section II -- Area Review and Neighborhod Analysis II-5
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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.
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<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>
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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%
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Source: California Department of Labor
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Section II -- Area Review and Neighborhod Analysis II-7
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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
- --------------------------------------------------------------------------------
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Four Seasons Biltmore Hotel
Merrill Lynch Mortgage Capital, Inc.
<PAGE>
Section II -- Area Review and Neighborhod Analysis II-8
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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.
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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
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Merrill Lynch Mortgage Capital, Inc.
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Section II -- Area Review and Neighborhod Analysis II-11
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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
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Section II -- Area Review and Neighborhod Analysis II-12
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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.
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Merrill Lynch Mortgage Capital, Inc.
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Section II -- Area Review and Neighborhod Analysis II-13
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> 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.
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Section II -- Area Review and Neighborhod Analysis II-14
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=======================================
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
------------------------------------------------------------------
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Four Seasons Biltmore Hotel
Merrill Lynch Mortgage Capital, Inc.
<PAGE>
Section II -- Area Review and Neighborhod Analysis II-15
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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.
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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.
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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
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Section III -- Property Description III-4
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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.
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Merrill Lynch Mortgage Capital, Inc.
<PAGE>
Section III -- Property Description III-5
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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.
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Merrill Lynch Mortgage Capital, Inc.
<PAGE>
Section III -- Property Description III-6
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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.
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Merrill Lynch Mortgage Capital, Inc.
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Section III -- Property Description III-7
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Four Seasons Biltmore Hotel
Santa Barbara, California
Facilities Summary
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Guest Rooms Number of Rooms Square Footage
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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
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Total 217
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Food and Beverage Square Footage Seating
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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
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Total 11,100 601
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Meeting and Banquets Square Footage Seating
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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
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Total 15,280 396-1,750
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Coral Casino Club
Recreational Facilities Square Footage
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Showers 875
Locker/Changing Areas 4,300
Sauna 240
Steam 200
Exercise Room 400
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Total 6,015
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Source: Four Seasons Biltmore Hotel
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Merrill Lynch Mortgage Capital, Inc.
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Section III -- Property Description III-8
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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.
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Merrill Lynch Mortgage Capital, Inc.
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MAIN-BUILDING SUITE
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Guest Room Inventory
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Room Category Number Size (sq. ft.)
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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.)
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COTTAGE
Floor Plans - Rooms and Amenities
FOUR SEASONS RESORT- SANTA BARBARA
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Merrill Lynch Mortgage Capital, Inc.
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Section III -- Property Description III-10
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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
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Merrill Lynch Mortgage Capital, Inc.
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Section III -- Property Description III-11
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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.
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Four Seasons Biltmore Hotel
Merrill Lynch Mortgage Capital, Inc.
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Floor Plans - Conference Facilities
FOUR SEASONS RESORT - SANTA BARBARA
<PAGE>
QUICK REFERENCE GUIDE o Four Seasons Resort Santa Barbara Conference Facilities
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<TABLE>
<CAPTION>
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CAPACITIES
--------------------------------------------------------------------------------
Room Dimensions Ceiling Sq. Ft. Round Rectangle Reception Dinner/ Conferencee Theater U Shape Classroom
Height Dance
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<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 -- -- -- -- --
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</TABLE>
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Section III -- Property Description III-14
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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
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Section III -- Property Description III-15
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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.
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Merrill Lynch Mortgage Capital, Inc.
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Section III -- Property Description III-16
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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
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Historical Capital Improvements
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Year Capital Additions
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1993 $ 1,038,795
1994 394,101
1995 581,721
1996 1,253,180
1997 2,037,195(1)
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(1) The 1997 figures represent actual
dollars spent through August and the budget
for the remaining months.
Source: Four Seasons Biltmore Hotel
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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.
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Merrill Lynch Mortgage Capital, Inc.
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Section III -- Property Description III-17
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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.
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Merrill Lynch Mortgage Capital, Inc.
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Section III -- Property Description III-18
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Coral Casino Beach and Cabana Club
Membership Options
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Quarterly Food and
Membership Type Initiation Fee Monthly Dues Beverage Minimum
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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
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(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
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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.
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Merrill Lynch Mortgage Capital, Inc.
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Four Seasons Biltmore Hotel
[GRAPHIC OMITTED]
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Section III -- Property Description III-20
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[GRAPHIC OMITTED]
GUEST COTTAGE SUITE
[GRAPHIC OMITTED]
GUEST COTTAGE BATHROOM
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Merrill Lynch Mortgage Capital, Inc.
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Section III -- Property Description III-21
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[GRAPHIC OMITTED]
CORAL CASINO AND SWIMMING POOL
[GRAPHIC OMITTED]
EL MAR MEETING ROOM
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Merrill Lynch Mortgage Capital, Inc.
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Section IV
MARKET ANALYSIS, MARKET POSITION, AND
HIGHEST AND BEST USE
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Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-1
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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.
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Four Seasons Biltmore Hotel
Merrill Lynch Mortgage Capital, Inc.
<PAGE>
Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-13
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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.
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Four Seasons Biltmore Hotel
Merrill Lynch Mortgage Capital, Inc.
<PAGE>
Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-14
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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
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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.
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Four Seasons Biltmore Hotel
Merrill Lynch Mortgage Capital, Inc.
<PAGE>
Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-16
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================================================================================
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
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Four Seasons Biltmore Hotel
Merrill Lynch Mortgage Capital, Inc.
<PAGE>
Section IV -- Market Analysis, Market Position, and Highest and Best Use IV-18
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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.
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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.
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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.
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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>
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Four Seasons Biltmore Hotel
Merrill Lynch Mortgage Capital, Inc.
<PAGE>
Section V-Valuation V-5
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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.
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Four Seasons Biltmore Hotel
Merrill Lynch Mortgage Capital, Inc.
<PAGE>
Section V-Valuation V-6
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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)
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<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
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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
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Summary of Salient Facts and Conclusions
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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.
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PHOTOGRAPHS OF SUBJECT PROPERTY
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Subject Property
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Subject Property
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PHOTOGRAPHS OF SUBJECT PROPERTY
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Subject Property
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Former Bradlees Space
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PHOTOGRAPHS OF SUBJECT PROPERTY
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[GRAPHIC OMITTED]
Former Bradlees Space
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[GRAPHIC OMITTED]
Mellon Out Parcel
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<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>
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<PAGE>
INTRODUCTION
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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:
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Introduction
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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.
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Introduction
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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.
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Introduction
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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.
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REGIONAL ANALYSIS
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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.
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Population Statistics
Philadelphia Metropolitan Area
(In Thousands)
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% %
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%
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Total Metropolitan Area 4,774.8 4,922.3 + 3.1% 4,958.3 + .7%
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Source: U.S. Census Bureau
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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.
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Regional Analysis
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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
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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%
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Source: Pennsylvania Department of Labor and Industry
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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.
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Regional Analysis
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Philadelphia Metropolitan Area
January Employment Statistics
(In Thousands)
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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%
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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%
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Source: Pennsylvania Department of Labor and Industry
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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.
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Largest Non-Public Employers
Philadelphia County
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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
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Source: Philadelphia Business Journal
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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.
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Income Statistics
Philadelphia Metropolitan Area
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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
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Total 1,818,100 $88,079,286 $39,470
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Source: Sales & Marketing Management
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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.
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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.
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NEIGHBORHOOD ANALYSIS
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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.
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<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.
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WAKEFIELD(R)
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<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.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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.
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<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.
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<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.
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VALUATION ADVISORY SERVICES
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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)
- --------------------------------------------------------------------------------
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<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.
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================================================================================
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.
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PetsMart 1996 26,376 S.F. $13.50, increased by 10%
15 Yrs. every 5 years.
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Sears Optical 1996 1,469 S.F. $16.00
5 Yrs.
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GNC 1996 1,200 S.F. $16.00
5 Yrs
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<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.
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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.
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<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.
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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.
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<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.
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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.
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Market Analysis
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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.
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Market Analysis
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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.
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[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.
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Property Description
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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.
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Property Description
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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.
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Property Description
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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.
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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.
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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.
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HIGHEST AND BEST USE
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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.
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Highest and Best Use
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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.
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VALUATION PROCESS
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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
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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.
================================================================================
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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.
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CUSHMAN &
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<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.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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.
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<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%
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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
================================================================================
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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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.
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VALUATION ADVISORY SERVICES
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<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.
============================================================
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<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.
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<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%
================================================================================
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VALUATION ADVISORY SERVICES
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<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.
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VALUATION ADVISORY SERVICES
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<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:
================================================================================
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<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:
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VALUATION ADVISORY SERVICES
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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%
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VALUATION ADVISORY SERVICES
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<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
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<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.
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<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.
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<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.
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<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."
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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."
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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."
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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."
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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."
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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
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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.
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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."
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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.
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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.
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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.
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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
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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.
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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,
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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.
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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,
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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.
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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.
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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.
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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%
================================================================================
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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.
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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.
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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.
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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
==============================================
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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.
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<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.
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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.
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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.
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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.
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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>
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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
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<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.
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<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
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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
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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.
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<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
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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
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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.
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<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.
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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.
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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
================================================================================
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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
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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.
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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
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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.
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<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
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SUBJECT PHOTOGRAPHS TAKEN ON July 29, 1997
[PHOTO OMITTED]
View of common areas and typical units
[PHOTO OMITTED]
View of covered parking area
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SUBJECT PHOTOGRAPHS TAKEN ON July 29, 1997
[PHOTO OMITTED]
Exterior view of leasing office/clubhouse
[PHOTO OMITTED]
Interior view of aerobics room (clubhouse)
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<PAGE>
SUBJECT PHOTOGRAPHS TAKEN ON July 29, 1997
[PHOTO OMITTED]
Typical interior view of subject units
[PHOTO OMITTED]
Typical interior view of subject units
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<PAGE>
SUBJECT PHOTOGRAPHS TAKEN ON July 29, 1997
[PHOTO OMITTED]
View looking east on Westheimer Road
[PHOTO OMITTED]
View looking west on Woodway
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SUBJECT PHOTOGRAPHS TAKEN ON July 29, 1997
[PHOTO OMITTED]
View looking south on Lazy Hollow
[PHOTO OMITTED]
View looking north on Lazy Hollow
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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.
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<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
==================================================
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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
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=================================================
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%
=================================================
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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
=================================================
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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
======================================================================
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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
=================================================
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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
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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,
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<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
======================================================
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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
=================================================
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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%
=================================================
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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
=================================================
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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.
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<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.
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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)
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<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.
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<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
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<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.
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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.
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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.
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<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.
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================================================================================
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%
================================================================================
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================================================================================
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.
================================================================================
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<PAGE>
PHOTOGRAPH OF IMPROVED SALE NUMBER TWO
[PHOTO OMITTED]
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================================================================================
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%
================================================================================
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================================================================================
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.
================================================================================
================================================================================
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<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%
================================================================================
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================================================================================
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]
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================================================================================
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%
================================================================================
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================================================================================
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]
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<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
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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.
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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.
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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
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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
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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
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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.
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================================================================================
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
================================================================================
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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
==================================================================
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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.
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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.
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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.
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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.
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================================================================================
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
================================================================================
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================================================================================
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
================================================================================
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PHOTOGRAPH OF RENT COMPARABLE ONE
[PHOTO OMITTED]
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================================================================================
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
================================================================================
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================================================================================
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
================================================================================
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PHOTOGRAPH OF RENT COMPARABLE TWO
[PHOTO OMITTED]
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================================================================================
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.
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Introduction
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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.
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Introduction
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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.
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REGIONAL ANALYSIS
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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.
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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%
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Camden 472.8 502.8 + 6.4% 506.6 + .8%
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Gloucester 202.1 230.1 + 13.9% 243.1 + 5.7%
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Salem 65.0 65.3 + 0.5% 64.6 - 1.1%
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Total Metropolitan Area 4,774.8 4,922.3 + 3.1% 4,958.3 + .7%
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Source: U.S. Census Bureau
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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.
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Regional Analysis
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<TABLE>
<CAPTION>
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Philadelphia Metropolitan Area
January Employment Statistics
(In Thousands)
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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
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Government 308.4 14.1 303.3 14.1 - 5.1 - 1.7
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Total Wage & Salary Employment 2,196.1 100.0 2,148.9 100.0 - 47.2 - 2.2
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Total Civilian Labor Force 2,409.0 2,397.6 - 11.4 - 0.5
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Unemployment 114.1 143.5 + 29.4 + 25.8
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Unemployment Rate 4.7% 6.0%
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Source: Pennsylvania Department of Labor and Industry
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</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.
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Regional Analysis
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<TABLE>
<CAPTION>
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Philadelphia Metropolitan Area
January Employment Statistics
(In Thousands)
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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%
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Transportation, Communication & Utilities 98.9 102.2 +3.3% 101.6 -0.6%
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Wholesale & Retail Trades 475.9 464.8 -2.3% 482.7 +4.0%
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Finance, Insurance & Real Estate 156.6 154.6 -1.3% 152.1 -1.6%
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Services 668.8 697.6 +4.3% 719.8 +3.2%
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Government 300.3 302.1 +0.6% 299.7 -0.8%
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Total Wage & Salary Employment 2,085.8 2,102.5 +0.8% 2,125.4 +1.1%
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Total Civilian Labor Force 2,426.0 2,403.2 -0.9% 2,378.1 -1.0%
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Unemployment 168.0 142.6 137.3
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Unemployment Rate 6.9% 5.9% 5.8%
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Source: Pennsylvania Department of Labor and Industry
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</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>
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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
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Allegheny Health 5,100 Education; Health Care
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Aramark, Inc. 4,600 Food Services
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Einstein Healthcare 4,200 Education; Health Care
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Cigna Corporation 4,100 Insurance, Financial Services
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ConRail, Inc. 3,800 Rail Freight Transportation
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PECO Energy Company 3,400 Public Utility
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Source: Philadelphia Business Journal
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</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.
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Regional Analysis
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Income Statistics
Philadelphia Metropolitan Area
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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
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Delaware 202,900 10,359,964 42,366
- --------------------------------------------------------------------------------
Montgomery 269,700 16,369,926 47,723
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Philadelphia 571,500 20,080,366 27,542
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Burlington 140,600 7,341,632 44,967
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Camden 178,900 8,049,714 37,788
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Gloucester 83,900 3,700,926 39,978
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Salem 23,500 1,019,275 38,123
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Total 1,818,100 $88,079,286 $ 39,470
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Source: Sales & Marketing Management
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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.
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Regional Analysis
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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.
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NEIGHBORHOOD ANALYSIS
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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.
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Neighborhood Analysis
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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.
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Neighborhood Analysis
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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.
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MILLS CORPORATION PROFILE
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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.
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Mills Corporation Profile
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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:
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Mills Corporation Profile
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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.
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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
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Mills Corporation Profile
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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.
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Mills Corporation Profile
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================================================================================
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
================================================================================
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Mills Corporation Profile
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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>
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Mills Corporation Profile
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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.
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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.
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Manufacturer's Outlet Market Analysis
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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.
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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.
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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.
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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.
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<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.
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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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.
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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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.
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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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>
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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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.
================================================================================
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<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.
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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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.
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VALUATION ADVISORY SERVICES
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<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.
================================================================================
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<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.
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VALUATION ADVISORY SERVICES
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<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.
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Market Analysis
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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.
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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.
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Market Analysis
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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
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40 Mile $59,848
- --------------------------------------------------------------------------------
60 Mile $60,792
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Market Analysis
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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.
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Market Analysis
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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.
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Market Analysis
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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.
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[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.
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[GRAPHIC OMITTED]
<PAGE>
Property Description
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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.
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Property Description
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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.
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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.
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<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.
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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.
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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.
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<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.
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WAKEFIELD(R)
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<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
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WAKEFIELD(R)
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<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.
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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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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:
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WAKEFIELD(R)
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Sales Comparison Approach
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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.
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WAKEFIELD(R)
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Sales Comparison Approach
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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.
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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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Sales Comparison Approach
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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.
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Sales Comparison Approach
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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.
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<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
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95- 2 Natick Mall Dec-95 1994 $265,000,000 1,160,733 646,733 436,733 37.6% 99.0%
Natick, MA (redevel.)
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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
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95- 4 Southland Mall Dec-95 1970/ $ 82,500,000 902,000 318,606 318,606 35.3% 93.0%
Taylor, MI 88/92
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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
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95- 6 Capltola Mall Dec-95 1977/ $ 52,500,000 577,396 577,396 197,396 34.2% 92.0%
(1) Capitola, CA 88
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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
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95- 8 Centre at Salisbury Aug-95 1990 $ 78,000,000 884,825 744,825 278,915 31.5% 89.0%
Salisbury, MD
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95- 9 Colonial Park Mall Jul-95 1960/ $ 46,500,000 736,177 380,944 242,766 33.0% 96.0%
Harrisburg, PA 90
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95-10 Piedmont Mall Jul-95 1983/ $ 39,000,000 534,135 409,135 188,049 35.2% --
Darwille, VA 84
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95-11 River Oaks Center Jul-95 1978/ $ 26,200,000 574,657 493,791 219,099 38.1% --
Decatur, AL 89
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95-12 Columbia Mall Jul-95 1988 $ 27,650,000 351,364 351,364 128,024 36.4% 96.0%
Bloomsberg, PA
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95-13 Hot Springs Mall Jun-95 1982 $ 22,775,000 389,914 318,033 156,000 40.0% 83.0%
Hot Springs. AR
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95-14 Westgate Mall May-95 1960/ $ 43,000,000 649,185 448,268 253,993 39.1% 77.9%
San Jose, CA 89
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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
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95-16 Westgate Mall Apr-95 1975 $ 25,300,000 768,000 449,974 272,630 35.5% 85.0%
Spartanburg, SC
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95-17 Hanover Mall Jan-95 1971/ $ 38,000,000 649,130 649,130 298,531 46.0% 90.0%
Hanover, MA 93
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95-18 Greanbrier Mall Jan-95 1981 $ 84,700,000 774,201 594,201 318,595 41.2% 96.0%
Chesapeake, VA
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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%
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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
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95- 2 Natick Mall $416 $21,311.000 $32.95 8.04% 8.00% 10.75% $410 $607 1.46
Natick, MA
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95- 3 Ridgedale Center $339 $ 8,938,100 $26.68 7.80% -- 11.00% $342 $342 1.01
Minnetonka, MN
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95- 4 Southland Mall $261 $ 7,143.200 $22.42 8.66% -- 11.75% $259 $259 0.99
Taylor, MI
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95- 5 Smith Haven Mall $425 $17,127.500 $21.05 7.75% 8.25% 11.10% $272 $437 1.03
Lake Grove, NY
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95- 6 Capltola Mall $262 $ 4,987.500 $ 8.64 9.50% -- -- $ 91 $266 1.02
(1) Capitola, CA
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95- 7 Eastview Mall $290 $ 9,200.000 $17.21 7.25% -- 12.00% $237 $237 0.82
(2) Victor, NY
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95- 8 Centre at Salisbury $257 $ 7,020,000 $ 9.43 9.00% -- -- $105 $280 1.09
Salisbury, MD
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95- 9 Colonial Park Mall $275 $ 4,417.500 $11.60 9.50% -- -- $122 $192 0.70
Harrisburg, PA
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95-10 Piedmont Mall $250 $ 3,600.000 $ 8.80 9.23% -- -- $ 95 $207 0.83
Darwille, VA
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95-11 River Oaks Center $200 $ 2,908.200 $ 5.89 11.10% -- -- $ 53 $120 0.60
Decatur, AL
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95-12 Columbia Mall $165 $ 2,958.500 $ 8.42 10.70% -- -- $ 79 $216 1.31
Bloomsberg, PA
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95-13 Hot Springs Mall $240 $ 2,277.500 $ 7.16 10.00% -- -- $ 72 $146 0.61
Hot Springs. AR
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95-14 Westgate Mall $191 $ 4,096,457 $ 9.14 9.53% -- -- $ 96 $169 0.89
San Jose, CA
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95-15 Silver City Galleria $290 $13,219.000 $17.63 8.31% 8.00% 11.00% $212 $456 1.57
East Taunton, MA
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95-16 Westgate Mall $240 $ 2,403.500 $ 5.34 9.50% -- -- $ 56 $ 93 0.39
Spartanburg, SC
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95-17 Hanover Mall $204 $ 3,811,400 $ 5.87 10.03% -- -- $ 59 $127 0.62
Hanover, MA
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95-18 Greanbrier Mall $250 $ 6,600.000 $11.11 7.79% 8.00% 11.50% $143 $266 1.06
Chesapeake, VA
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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
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Survey Mean: $289 $ 7,479,177 $16.74 9.13% 8.05% 11.20% $193 $284 0.96
====================================================================================================================================
</TABLE>
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(1) Cash equivelent price
(2) Includes 62,770 square foot strip center
(3) Net of allocation for excess land. Sale includes cinema
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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.
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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
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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
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96- 4 Rimrock Mall Dec-96 1975 Trizec Hahn Centers/ $ 43,900,000 583,112 406,140
Billings, MT The Macerich Company
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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
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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)
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VALUATION ADVISORY SERVICES
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<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)
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VALUATION ADVISORY SERVICES
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<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)
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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)
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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)
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VALUATION ADVISORY SERVICES
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<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.
================================================================================
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CUSHMAN &
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VALUATION ADVISORY SERVICES
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<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.
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<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.
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<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.
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<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.
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<PAGE>
Income Capitalization Approach
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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.
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<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.
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<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%
================================================================================
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<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.
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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.
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WAKEFIELD(R)
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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.
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WAKEFIELD(R)
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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)
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VALUATION ADVISORY SERVICES
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<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)
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VALUATION ADVISORY SERVICES
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<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)
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VALUATION ADVISORY SERVICES
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<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.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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)
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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)
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VALUATION ADVISORY SERVICES
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<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.
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-100-
CUSHMAN &
WAKEFIELD(R)
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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.
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CUSHMAN &
WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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)
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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.
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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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:
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VALUATION ADVISORY SERVICES
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<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.
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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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.
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VALUATION ADVISORY SERVICES
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<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.
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VALUATION ADVISORY SERVICES
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<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.
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VALUATION ADVISORY SERVICES
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<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.
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WAKEFIELD(R)
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VALUATION ADVISORY SERVICES
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<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
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WAKEFIELD(R)
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<PAGE>
ADDENDA
================================================================================
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WAKEFIELD(R)
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<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> 
